ISLAMIC ECONOMICS, what Went Wrong?

Monzer Kahf

Historical background

Before discussing the subject of this presentation I like to make a quick review of my perception of the history of contemporary Islamic economics.

Although the word “Islamic Economics” was used for the first time by Islamic writers of the Sub-Continent in the 1940s, writing on Islamic economics date back to the thirties with the beginning of the contemporary Islamic political movement both in the Sub-Continent and the Arab world. Anwar Quraishi (1948) was perhaps the first economist who attempted to discover an Islamic Theory based on the prohibition of Riba. Since then we started having publications and research on Islamic economics by three breeds of people: socio-political activists, Shari’ah scholars with little exposure to some kind of economics and Western trained economists with little or not so little exposure to Shari’ah scholarship. Sorting these writings and publications is very important to understand the development of Islamic Economics in the second half of the past century.

The first category of writings is normally general, political oriented and condensed in the form of social and political slogans. The second category is loaded with Fiqh in both methodology and focus; with extremely few exceptions it is more of Fiqh al Mu’amalat than any economics. Lastly a considerable chunk of the writings in the third category is based on a precept of self-proclaimed distinctiveness. It is essentially the third category writings that should be the focus of our study and evaluation. Of course, there are other economic and political writings, In Arabic and Other languages of the Muslim countries, that did not claim being Islamic or associated with the Islamic ideology/economics. These are completely outside our consideration although some writers likes to group them within Islamic economics for objectives in their own hearts.

Islamic Economics: Paradigm, discipline and independence

Is Islamic economics independent from economics? Does it make a paradigm of its own? Does it depend of a set of assumptions and analytical tools that is different from economics? Does it make a discipline of its own?

Many Islamic economists have an undoubted affirmative answer. They argue that it is independent and they take upon themselves the task of attempting to invent an “appropriate set” of tools to understand the behavior of Muslim consumer, firm, macro numbers. The fervor of this attitude was very apparent when the world of economics had two-part Apartheid: communism and capitalism. In fact, communist writers also

attempted to identify theirs as an independent paradigm while the capitalist have hidden their agenda under the plain name of “economics” for a long time.

To the Islamic religion and ideology, capitalist and communist thinking stem from a common utilitarian ideology that looks only at the human as a “homo-economicus.” It is therefore natural that many Muslim economists would view a multi-dimensional motive in the behavior of women and men and would rise against the purely utility motivated man as a basic assumption of economics. This would certainly call for a paradigm that is completely different from the paradigm of economics! But although the majority of capitalistic economists hide their real assumptions behind a thin layer of “a purely rationalist science of economics,” economics itself grew out of their shell to develop studies on altruism, philanthropy and other non-utilitarian motives.

Ibn Khaldun, the real founder of Economics as a branch of social studies, established his newly invented science on an absolute human basis and aimed to understand the individual and collective behavior of human beings “as they are” without imposing on them any pre-structured ideological, religious or societal assumptions. He did not have a “stigma” of distinctiveness that would have required him to “alienate himself from the rest of the human race, infidels or fidels alike. He even did not need to add a prefix “Islamic” in every sentence and before every variable and tool of analysis, although he recognizes the Divine Revelation as the Major source of knowledge. He also did not have an urge to “Islamize” the heritage of knowledge as it is handed over from one nation to another throughout history.

If we were to extend Ibn Khaldun to the subject of our debate today, we would find him discussing “economics” without being afraid to loose his identity; he would accept or reject theories and assumptions on their own merits and according to their reflection of the behavior of women and men, in their individual endeavors (micro) as well as in their association together (macro) on the basis of the “totality” of human beings without departmentalization or segmentation; he would also be able to criticize the established or accumulated ‘economics’ on the basis of its deficiency of its basic utilitarian assumption that ignores other intrinsic human motives.

From the point of view of the Khaldunian social science, Economics is itself Islamic Economics without having to use the “prefix” and without shying from criticizing the established capitalist wisdom (and/or the communist quasi-wisdom) as being partial and inadequate.

The Discipline

On the other hand, the looseness of our economic jargon gives room for terms like ‘capitalist economics,’ ‘socialist economics,’ ‘communist,’ ‘welfare’ and what-not economics. These are in fact studies of branches of economics that make a subset of the whole but they have their own assumptions and peculiarities. They include the study of an economic system within certain ideological and legal framework and the study of the individual and collective behavior of the units within the system.

Islamic economics is also looked at as the study of the individual behavior of units and of the macro variables within the legal and ideological framework created/envisioned by Islam.

Some people may like to question whether Islam has a legal and ideological framework of a society. I take this issue as outside the scope of this meeting and put it in the following form: Islamic economists, along with a great number of Muslims believe that Islam set forth a socio-political-cum-legal framework of a society in addition to is ideological foundation based on the belief in the Oneness of God and the imperative nature of His Revelation.

Accordingly, Islamic economics is a branch of economics that studies the units and variables within the Islamic legal and ideological framework, actual or assumed.

Over Statements

It is natural in any new endeavor to see some professionals carried out to different kinds/levels of exaggeration. In Islamic economics, we have our full share of overstatements. You find such things in writings that deal with the factors of production where terms such as ‘Islamic capital’ ‘Islamic labor’ Islamic land and ‘Islamic production function’ are used. You also find writings that deny renting of land and physical capital because as an extension of the prohibition of interest, being pre-determined fixed return on capital. You will also find overstatement of the uniqueness of the Islamic market on the ground that it is a market that is pure of cheating, fraud and monopoly, not realizing that any reasonably competitive market is also void of such practices. These kinds of exaggeration are usually short-lived as they cannot stand critical evaluation.