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The Economic System in Contemporary Islamic Thought: Interpretation and Assessment

Published online by Cambridge University Press:  29 January 2009

Timur Kuran
Timur Kuran
Affiliation:
Departmet of Economics University of Southern California
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Extract

Since the late 1940s, and especially since the mid-1960s, a wealth of pamphlets, articles, and books have appeared that constitute the corpus of what is now known as “Islamic economics.” This literature, whose exponents call themselves “Islamic economists,” purports to provide the blueprint of an economic system consonant with the original sources of Islam. The central feature of the proposed system is that individuals are guided in their economic decisions by a set of behavior norms, ostensibly derived from the Qur'an and the Sunna. Two other features stand out: zakāt, a tax considered the basis of Islamic fiscal policy, and the prohibition of interest, viewed as the centerpiece of Islamic monetary policy. Virtually all Islamic economists consider this trio—the norms, zakāt, and zero interest—the pillars of the Islamic system.’

Type
Articles
Information
International Journal of Middle East Studies , Volume 18 , Issue 2 , May 1986 , pp. 135 - 164
Copyright
Copyright © Cambridge University Press 1986

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References

NOTES

Author's note: The earliest version of this paper was presented at the Fourth Conference on Major International Economic Issues, held in honor of Professor John Elliott at the University of Southern California on January 5–6, 1984. I am grateful to Nikki Keddie and Jeffrey Nugent for having given me the benefit fo their thoughts on that version, and to the anonymous reader of IJMES and its editor for their suggestions that led to further improvements. An abbreviated version was presented at the Middle East Studies Association Conference held in San Francisco on November 28–December 1, 1984.

1 For explicit statements to this effect, see Faridi, F. R., “Zakāt and Fiscal Policy,” in Ahmad, Khurshid, ed., Studies in Islamic Economics (Leicester: The Islamic Foundation, 1980), pp. 119–20;Google Scholar and Ahmed, Ziauddin, Iqbal, Munawar and Khan, M. Fahim, eds., Fiscal Policy and Resource Allocation in Islam (Islamabad: Institute of Policy Studies, 1983), pp. 2–5.Google Scholar

2 Afzal-ur-Rahman, , Economic Doctrines of Islam, vol. I (Lahore: Islamic Publications, 1980), p. 56.Google Scholar For a similar contention, see Abdul-Rauf, Muhammad, “The Islamic Doctrine of Economics and Contemporary Economic Thought,” in Novak, M., ed., Capitalism and Socialism: A Theological Inquiry (Washington, D. C.: American Enterprise Institute, 1979), p. 129.Google Scholar

3 The first half of the present section constitutes a brief summary of a paper, “Behavioral Norms in the Islamic Doctrine of Economics: A Critique,” Journal of Economic Behavior and Organization, 4, 4 (12 1983), 353–379, in which I outlined in detail and critiqued these norms. The rest of this study concentrates on issues not covered in that earlier paper.CrossRefGoogle Scholar

4 See, for example, Abdul-Rauf, “The Islamic Doctrine,” pp. 134–40; Kahf, Monzer, The Islamic Economy: Analytical Study of the Functioning of the Islamic Economic System (Plainfield, Indiana: Muslim Students' Association, 1978), ch. 4;Google Scholar and Nazeer, Mian M., The Islamic Economic System: A Few Highlights (Islamabad: Pakistan Institute of Development Economics, 1981), p. 18.Google Scholar

5 Such criteria are found in virtually all of the Islamic writings. For some examples, see Siddiqi, Muhammad Nejatullah, The Economic Enterprise in Islam (Lahore: Islamic Publications, 1972), pp. 100–114;Google ScholarAzam, Ikram, Pakistan and Islamic Economics (Lahore: Amir Publications, 1978), pp. 38–49;Google ScholarKhan, Muhammad Akram, “Inflation and the Islamic Economy: A Closed Economy Model,” in Ariff, M., ed., Monetary and Fiscal Economics of Islam (Jeddah: International Center for Research in Islamic Economics, 1982), pp. 245–248;Google Scholar and Naqvi, Syed N. H., Ethics and Economics: An Islamic Synthesis (Leicester: The Islamic Foundation, 1981).Google Scholar

6 While some writers are opposed to all forms of modern insurance, others find nothing wrong with insurance per se; they object only to profits derived from it. For an outline of the controversy, see Siddiqi, Muhammad Nejatullah, Muslim Economic Thinking: A Survey of Contemporary Literature (Leicester: The Islamic Foundation, 1981), pp. 26–28;Google Scholar and Azam, Pakistan, ch. 6. Also prohibited, in the view of some scholars, are transactions in which the quantity is not numerically specified but the price is. Accordingly, an agreement to buy or sell a day's catch of fish at a price fixed in advance is in violation of Islam's normative system. See Qureshi, Anwar Iqbal, Islam and the Theory of Interest (Lahore: Sh. Muhammad Ashraf, 1967), pp. 88–92.Google Scholar

7 Chapra, M. Umar, “The Economic System of Islam,” 4 parts, The Islamic Quarterly, 14 (1970), p. 152.Google Scholar See also Siddiqi, The Economic Enterprise, pp. 15–22; and Kahf, The Islamic Economy, ch. 2.

8 See Abdul-Rauf, “The Islamic Doctrine,” p. 146; and Khan, “Inflation,” pp. 242–245.

9 Chapra, “The Economic System,” p. 153.

10 Nazeer, The Islamic Economic System, p. 16.

11 See Brenner, Reuven, History—The Human Gamble (Chicago: University of Chicago Press, 1983), ch. 2;Google Scholar and Collard, David, Altruism and Economy: A Study in Non-Sefish Economics (New York: Oxford University Press 1978).Google Scholar

12 For a detailed argument along these lines, see Williamson, Oliver E., Markets and Hierarchies (New York: Free Press, 1975).Google Scholar

13 Husaini, S. Waqar Ahmed, Islamic Environmental Systems Engineering (London: Macmillan, 1980), pp. 113–114.CrossRefGoogle Scholar

14 See Olson, Mancur, The Logic of Collective Action (Cambridge: Harvard University Press, 1965);Google Scholar and Hardin, Russell, Collective Action (Baltimore: Johns Hopkins University Press, 1982).Google Scholar

15 Haq, Inamul, Principles and Philosophy of Democratic Socialism in Islam (Karachi: By the author, 1966), p. 2.Google Scholar See also Muslehuddin, Muhammad, Economics and Islam (Lahore: Islamic Publications, 1974), pp. 88–90;Google ScholarNaqvi, Syed N. H., Individual Freedom, Social Welfare and Islamic Economic Order (Islamabad: Pakistan Institute of Development Economics, 1981), pp. 9 and 25;Google Scholar and Afzal-ur-Rahman, Economic Doctrines, vol. I, p. 42.

16 As quoted by Enayat, Hamid, Modern Islamic Political Thoght (Austin: University of Texas Press, 1982), p. 64.CrossRefGoogle Scholar

17 See, for instance, Abdul-Rauf, “The Islamic Doctrine,” pp. 136–137; and Siddiqi, Muslim Economic Thinking, p. 13.

18 In Economic Doctrines, for instance, Afzal-ur-Rahman ascribes many major duties to the state although elsewhere in the same trilogy he opposes an interventionist state.

19 Husaini, Islamic Environmental Systems, p. 93. On this point and the other three, see also Siddiqi, Muhammad Nejatullah, Some Aspects of the Islamic Economy (Lahore: Islamic Publications, 1978), esp. pp. 61–73;Google Scholar Chapra, “The Economic System,” pp. 238–239; Muslehuddin, Economics and Islam, ch. 3; and Husaini, Islamic Environmental Systems, ch. 5.

20 Siddiqi, Some Aspects of the Islamic Economy, p. 72.

21 The free-rider problem, on the other hand, is less pronounced for a state official than for the average citizen, because the former can perceptibly influence the welfare of society through his actions.

22 See Downs, Anthony, An Economic Theory of Democracy (New York: Harper, 1957), chs. 11–14.Google Scholar

23 Azam, Pakistan, p. 97. The author attributes this passage to a book published in 1952 by S. A. Siddiqi.

24 See, for instance, Husaini, Islamic Environmental Systems, chs. 2 and 5. Strictly speaking, this entire period is an object of affection and reverence for the Sunnis but not the Shi'is. The latter, who regard the first three caliphs as impostors, believe that apart from Prophet Muhammad's lifetime, the Islamic social order has existed only during the short caliphate of 'Alī.

25 Rodinson, Maxime, Islam and Capitalism (New York: Pantheon, 1973), ch. 3,Google Scholar provides a wealth of evidence on economic practices in early Islam. On communal disunity and the role of the state in enforcing the norms, see Hodgson, Marshall G. S., The Venture of Islam, vol. I (Chicago: University of Chicago Press, 1974), ch. 3;CrossRefGoogle ScholarShaban, M. A., Islamic History A.D. 600–750 (A.H. 132) (Cambridge University Press, 1971);Google Scholar and Watt, Montgomery W., Islam and the Integration of Society (Evanston: Northwestern University Press, 1961).CrossRefGoogle Scholar

26 Hodgson, The Venture of Islam, vol. I, pp. 167–172.

27 Tuğ, Sali, Islam Vergi Hukukunun Ortaya Çikişi (Ankara: Ankara Üniversitesi Ilahiyat Fakültesi Yayinlari, 1963), p. 29.Google Scholar

28 For evidence of these and other coercive practices, see Watt, Montgomery W., Muhammad at Medina (Oxford: Oxford University Press, 1956), chs. 5–9;Google ScholarRodinson, Maxime, Muhammad (New York: Pantheon, 1980);Google Scholar and Hodgson, , The Venture of Islam, vol. 1, pp. 146–230.Google Scholar

29 See, for instance, Lerner, Daniel, The Passing of Traditional Society: Modernizing the Middle East (New York: Free Press, 1958);Google Scholar and Eisenstadt, S. N., “Convergence and Divergence of Modern and Modernizing Societies: Indications from the Analysis of the Structuring of Social Hierarchies in Middle Eastern Societies,” International Journal of Middle East Studies, 8, 1 (01 1977), 1–27.CrossRefGoogle Scholar

30 See Khurshid Ahmad, ed., Studies, p. 353.

31 Detailed commentaries on zakāt are given by Afzal-ur-Rahman, , Economic Doctrines of Islam, vol. 3 (Lahore: Islamic Publications, 1976), chs. 14–18;Google ScholarAhmad, Shaikh Mahmud, Economics of Islam, 2nd. ed. (Lahore: Sh. Muhammad Ashraf, 1952), ch. 4;Google Scholar and Mannan, Mohammad Abdul, Islamic Economics: Theory and Practice (Lahore: Sh. Muhammad Ashraf, 1970), pp. 284–302.Google Scholar For brief survey, see Siddiqi, Muslim Economic Thinking, pp. 22–25. Recent expositions include Z. Ahmed et al., eds., Fiscal Policy, chs. 1–4; and Faridi, “Zakāt.”

32 Ahmad, M., Economics of Islam, p. 91.Google Scholar See also Afzal-ur-Rahman, , Economic Doctrines, vol. 3, pp. 218–224.Google Scholar

33 Ibid., p. 206.

34 Ahmad, M., Economics of Islam, p. 90;Google Scholar and Afzal-ur-Rahman, , Economic Doctrines, vol. 3, pp. 206–207.Google Scholar

35 Ibid., p. 205; and Azam, Pakistan, p. 100.

36 Afzal-ur-Rahman, Economic Doctrines, vol. 3, p. 217.

37 Ahmad, S. M., Economics of Islam, p. 89;Google Scholar and Afzal-ur-Rahman, Economic Doctrines, vol. 3, pp. 225–226.

38 See Salama, Abdin Ahmed, “Fiscal Analysis of Zakāh with Special Reference to Saudi Arabia's Experience in Zakāh,” in Ariff, , ed., Monetary and Fiscal Economics, p. 344.Google Scholar

39 See Afzal-ur-Rahman, Economic Doctrines, vol. 3, ch. 16.

40 Ibid., p. 243.

41 See Mannan, Islamic Economics, pp. 298–301; Afzal-ur-Rahman, Economic Doctrines, vol. 3, pp. 198–203 and 250–252; and Muslehuddin, Economics and Islam, p. 80.

42 Afzal-ur-Rahman, Economic Doctrines, vol. 3, pp. 248–250; and Metwally, M. M., “Fiscal Policy in an Islamic Economy,” in Z. Ahmed et al., eds., Fiscal Policy, p. 64.Google Scholar

43 Afzal-ur-Rahman, Economic Doctrines, vol. 3, p. 246.

44 Ahmad, S. M., Economics of Islam, p. 78.Google Scholar

45 Mannan, Islamic Economics, p. 296.

46 Abdool Aziz Shaik, one of the few Islamic economists who is at once an ardent advocate of zakāt and a critic of using the traditional exemption limits today, notes that the nisāb for cows is 5 imes higher than that for goats. Shaik's calculations, which are based on current South African prices, also show that the nisāb for goats is, in turn, 12 times higher than that for silver. See his “Concept of Zakah: A Survey of Qur'anic Texts and their Explanations in Shariah and Contemporary Economics,” in Zaman, M. Raqibuz, ed., Some Aspects of the Economics of Zakah (Gary, Indiana: Association of Muslim Social Scientists, 1981), p. 28.Google Scholar

47 Salleh, Ismail Muhd and Ngah, Rogayah, “Distribution of the Zakāt Burden on Padi Producers in Malaysia,” in Zaman, , ed., Some Aspects, pp. 80–153.Google Scholar

48 Salama, “Fiscal Analysis,” sect. 3.

49 Ibid., Tables 1 and 6.

50 Ibid., p. 354.

51 Ibid., pp. 361–362.

52 See Shaik, “Concept of Zakah,” p. 26; and Tuğ, Islam Vergi Hukuku, p. 56.

53 See Aghnides, Nicholas P., Mohammedan Theories of Finance (Lahore: Premier Book House, 1961), pp. 236–239.Google Scholar

54 On these differences, see ibid., esp. pp. 181–273.

55 Mannan, Islamic Economics, p. 293.

56 Husaini, Islamic Environmental Systems, pp. 134–139.

57 Salama, “Fiscal Analysis,” pp. 364 and 342.

58 See Faridi, F. R., “A Theory of Fiscal Policy in an Islamic State,” in Ahmed, Z. et al. , eds., Fiscal Policy, pp. 27–45.Google Scholar

59 Afzal-ur-Rahman, Economic Doctrines, vol. 3, pp. 197 and 223.

60 See Tuğ, Islam Vergi Hukuku, pp. 16–82.

61 See Muslehuddin, Economics and Islam, pp. 76–77.

62 For a general survey of the Islamic position on interest, see Siddiqi, Muhammad Nejatullah, “Islamic Approaches to Money, Banking and Monetary Policy: A Review,” in Ariff, , ed., Monetary and Fiscal Economics, pp. 25–39.Google Scholar Detailed expositions are contained in the proceedings of the recent seminars on the Monetary and Fiscal Economics of Islam: Ahmed, Ziauddin, Iqbal, Munawar and Khan, M. Fahim, eds., Money and Banking in Islam (Jeddah: International Center for Research in Islamic Economics, 1983);Google Scholar and Ariff, ed., Monetary and Fiscal Economics. Other contributions include Qureshi, Islam and Interest; Afzal-ur-Rahman, iEconomic Doctrines, vol. 3, chs. 1–13; Mannan, Islamic Economics, pp. 157–176 and ch. 9; Yusuf, S. M., Economic Justice in Islam (Lahore: Sh. Muhammad Ashraf, 1971), ch. 6;Google Scholar and Samiullah, Muhammad, “Prohibition of Riba (Interest) & Insurance in the Light of Islam,” Islamic Studies, 21, 2 (Summer 1982), 53–76.Google Scholar For critical reviews of this literature, see Karsten, Ingo, “Islam and Financial Intermediation,” International Monetary Fund Staff Papers, 29, I (03 1982), 108–142;CrossRefGoogle Scholar and Noorzoy, Siddieq M., “Islamic Laws on Ribā (Interest) and their Economic Implications,” International Journal of Middle East Studies, 14, 1 (02 1982), 3–17.CrossRefGoogle Scholar

63 Rahman, Fazlur, “Ribā and Interest,” Islamic Studies, 3, 1 (03 1964), 1–43.Google Scholar

64 Yusuf, Economic Justice, p. 86. See also Afzal-ur-Rahman, Economic Doctrines, vol. 3, pp. 59–60.

65 See Siddiqi, Some Aspects, pp. 91–92; and Ahmad, S. M., Economics of Islam, p. 41.Google Scholar

66 Siddiqi, Muslim Economic Thinking, p. 63. See also Afzal-ur-Rahman, Economic Doctrines, vol. 3, pp. 57–61.

67 Ibid., p. 55.

68 Samiullah, “Prohibition of Riba,” p. 54. See also S. M. Ahmad, Economics of Islam, p. 41.

69 See Siddiqi, Muslim Economic Thinking, p. 63; and Qureshi Islam and Interest, p. 47.

70 Ahmad, S. M., Economics of Islam, p. 28. See also Azam, Pakistan, p. 76;Google Scholar and Afzal-ur-Rahman, Economic Doctrines, vol. 3, pp. 57–58.

71 Naqvi, Syed N. H., “Interest Rate and Intertemporal Allocative Efficiency in an Islamic Economy,” in Ariff, , ed., Monetary and Fiscal Economics, pp. 75–95.Google Scholar

72 See, in particular, Muhammad Anas Zarqa's comments in Ariff, ed., Monetary and Fiscal Economics, pp. 98–106.

73 For detailed accounts of profit sharing in the Islamic system, see Siddiqi, Muhammad Nejatullah, Banking Without Interest (Lahore: Islamic Publications, 1980);Google Scholar Mannan, Islamic Economics, pp. 221–231; and Saud, Mahmud Abu, “Money, Interest and Qirād,” in Ahmad, K., ed., Studies, pp. 59–84.Google Scholar

74 See Council of Islamic Ideology, “Elimination of Interest from the Economy,” in Ahmed, Z. et al. , eds., Money and Banking, esp. p. 122.Google Scholar Another defense of state regulation is put forth by Siddiqi, Muhammad Nejatullah, “Economics of Profit-Sharing,” in Ahmed, Z. et al. , eds., Fiscal Policy, pp. 163–185.Google Scholar

75 See Council of Islamic Ideology, “Elimination,” pp. 125–126.

76 See, for instance, Chapra, M. Umar, “Monetary Policy in an Islamic Economy,” in Ahmed, Z. et al. , eds., Money and Banking, p. 42.Google Scholar

77 Siddiqi, Banking Without Interest, ch. 4.

78 See Council of Islamic Ideology, “Elimination,” p. 112; and Mannan, Islamic Economics, pp. 224–225.

79 Khan, M. Fahim, “Islamic Banking as Practised Now in the World,” in Z. Ahmed et al., Money and Banking, p. 267.Google Scholar

80 Council of Islamic Ideology, “Elimination,” p. 145.

81 Ibid., p. 106.

82 Mannan, Islamic Economics, p. 166.

83 See, for instance, Munawar Iqbal's comments in Ahmed, Z. et al. , eds., Money and Banking, pp. 52–57.Google Scholar

84 See Council of Islamic Ideology, “Elimination,” pp. 115–116.

85 See Udovitch, Abraham L., Partnership and Profit in Medieval Islam (Princeton: Princeton University Press, 1970), p. 8.CrossRefGoogle Scholar For some evidence from Bahrain, see Datta, Samar K. and Nugent, Jeffrey B., “Bahrain's Pearling Industry: How It Was, Why It Was That Way, and Its Implications,” in Nugent, and Thomas, Theodore H., eds., Bahrain and the Gulf: Past Perspectives and Alternative Futures (New York: Macmillan, 1985), pp. 25–41.Google Scholar

86 A side issue here is that this would keep her funds idle, a practice the Islamic economists condemn in other contexts as “hoarding”. They seem to overlook the fact that some of the Prophet's closest companions, among them 'A'isha and 'Umar invested money left in their safekeeping in profit-sharing ventures. On this last point, see Udovitch, Partnership, p. 173.

87 Mannan, Islamic Economics, p. 229. The same argument is made by Siddiqi, Banking Without Interest, ch. 2.

88 Ali, Syed Aftab, “Risk-Bearing and Profit-Sharing in an Islamic Framework: Some Allocational Considerations,” in Ahmed, Z. et al. , eds., Fiscal Policy, p. 265.Google Scholar

89 Faridi, “Zakāt and Fiscal Policy,” p. 120.

90 An illuminating discussion concerning the prohibition interest in primitive societies is presented by Posner, Richard A., “A Theory of Primitive Society with Special Reference to Law,” Journal of Law and Economics, 23 (04 1980), 1–53.CrossRefGoogle Scholar

91 For a detailed exposition of the ban's appearance and decline in Judaism and Christianity, see Brenner, History, ch. 3. See also Nelson, Benjamin, The Idea of Usury: From Tribal Brotherhood to Universal Otherhood, enlarged 2nd ed. (Chicago: University of Chicago Press, 1969; first ed. 1949).Google Scholar

92 This is not to say that these activities involved no risks. Long-distance trading could be very hazardous. What made profit sharing possible even in this instance was that it was relatively difficult to conceal the resulting income. See Kister, M. J., “Mecca and Tamīm (Aspects of their Relations),” Journal of the Economic and Social History of the Orient, 8 (11 1965), 113–163.Google Scholar

93 See Rodinson, Islam and Capitalism, esp. ch. 3.

94 See Brenner, History, ch. 3.

95 See Karsten, “Islam and Financial Intermediation.”

96 These comments are in Z. Ahmed, et al., eds., Money and Banking, pp. 277–284.

97 Khan, “Islamic Banking,” p. 267.

98 Ibid., p. 264.

99 See Ahmed, Z. et al., eds., Money and Banking, p. 283Google Scholar

100 Council of Islamic Ideology, “Elimination,” p. 118.

101 Ibid., pp. 119–120.

102 Ibid., pp. 120–121.

103 Modern scholars have shown that most of the words and deeds attributed to the Prophet in authorized compilations of the Sunna, which date back to the tenth century, are inauthentic. Apparently, the Prophet was assumed to have said or done countless things on the basis of a long list of oral transmissions of this form: A attests that he heard it from B who was told by C that D was present when E, the Prophet's companion, mentioned that… Many of these transmissions were undoubtedly fabricated by individuals seeking religious sanction for policies they favored. See Goldziher, Ignaz, Muslim Studies, vol. 2, ed. Stern, S. M., trans. Barber, C. R. and Stern, S. M. (London: George Allen and Unwin, 1971, first German ed. 1889);Google Scholar and Schacht, Joseph, The Origins of Muhammadan Jurisprudence, 3rd ed. (London: Oxford University Press, 1959).Google Scholar