👨🏾🏫 Islamic Economics: Basics
Ever thought why the world is so trash right now. Our current economic system doesn't care about us, and we need to change it.
First and foremost, I would not have been able to write this piece if it wasn't for all the contributors in the Islamic Economics: Principles and Analysis. The book has exposed me to Islamic economics, and I hope this is the start of many pieces.
Current Economic landscape
The current economic system is failing us as a society. It is praying on the weak and emboldening the wealthy. It is used to chokehold developing countries in unimaginable debt. It has caused financial crisis after financial crisis, and no substantial change has happened.
If we continue to look at things through the lens of neoliberal capitalism, everything we touch will erode and be used to strengthen the wealth of one person at the expense of impoverishing another.
For that very reason, I've always sought to understand whether another economic system can replace the one we currently live in and actually be a means to lead to a more equitable society.
Or, at the very least, it can be a system which is taken upon by the Global South to encourage development amongst themselves and part ways with a system which has, from the onset, been used to exploit, demolish, and ruin those nations.
💬 In this blog, I hope to break down;
- Origins of economics
- The role of religion in economics
- Islamic worldview
- Islamic Economic system
- My thoughts
🧠 Economic Origin
The studies economics is flawed. Whether at the Secondary or University level. We are not taught the origins of economics nor the great philosophers and pioneers of economics outside of Adam Smith. We are not taught alternative economic systems outside capitalism and socialism. The problem with that society continues to be in a vicious cycle of exploitation. In addition, individuals are narrowed into thinking that there is only one way of doing things. That in and of itself is troublesome since we'll just continue to repeat the same mistakes continuously.
So let me begin by breaking down the origins of economics and its divergence.
Sen (2004) states that economics has two different origins: 'ethics' and 'engineering,' Ethics can be defined simply as the moral principles that govern a person's behaviour in conducting activities or transactions.
The forefathers of economics emphasised two fundamental ethical matters: motivation and the objective of economic activity.
As Sen highlights, Ibn Khaldun [1332-1406], whose studies in sustenance [rizq], acquisition, and distribution were centred on the question of what is 'better for man'. Other forefathers, such as Adam Smith [1723-1790] as well as many early Western economic philosophers of the eighteenth and early nineteenth centuries were also motivated by the same ethical concern of 'how one should live.
However, this began to change when the economic discipline started to grow in the hands of engineers, and physics scientists such as Jean-Baptiste Say [1767-1831], Léon Walras [1834-1910] and later Alfred Marshall [1842-1924]. They focused on the logistics of economic activities, pulling the centre of economics away from discussing the ends and motivations of economic behaviour into attempting to understand the mechanics of its processes and the efficiency of its steps.
This mechanical approach to economics continued to grow in the twentieth century through the rise of mathematical economics and the growth of quantitative economic modelling. The growth in the processing approach in economics resulted in Lionel Robbins [1898-1984] declaring a separation between ethics and economics, removing the prefix 'political' from economics and defining economics as a science, which we see today.
You may be wondering what's the issue with the engineering approach to economics. The problem with the approach lies with the complete abandonment of the moral implication of the processes that are designed with that approach.
One example is Pareto optimality, which defines a course of optimal action as improving at least one economic unit, provided no other economic unit declines.
For example, a society may be suffering from extreme wealth inequality. It would make sense to introduce a wealth tax or some form of redistribution method that reduces luxury consumption from wealthy people to improve the livelihood of those in poverty.
However, under Pareto optimality, such a method is inefficient since you're improving an economic unit at the expense of declining another. Thus, a state can be Pareto optimal, with some people in extreme misery and others rolling in luxury.
That sounds like right now!
For that reason, solely relying on the engineering approach is disastrous since it totally ignores the level of misery and deprivation that social segments may be suffering in.
Hence, for that very reason Iba Khaldūn, and later Jean-Jacques Rousseau [1712-1778], emphasised a fundamental objective of economics as understanding 'man as he is', meaning looking at the behavioural, ethical, social, psychological and humanistic aspects of man, and not solely focused on the materialistic part of man which instrumentalist economics do, those who have an engineering approach to economics. This sole materialistic aspect came to be known as the economic man.
Which is inherently flawed!
🧐 Religion and Economics
You may have been thinking, how can religion have a role in economics? Since our current economic system, well society at large, completely detaches itself from any religion.
Here lies the fundamental difference between the current economic system and the Islamic economic system, the definition of man.
As previously mentioned, currently, the fundamental objective of economics is solely focused on looking at the materialist aspect of man, meaning the base assumption is that a rational man [people like you and me] are neither spiritual or social but purely motivated by self-interest, only in pursuit of material acquisition and wealth accumulation.
Which makes no sense, right!
The problem is that it's not a realistic conception of a human being. Human beings are not constructed as simplistic, one-dimensional beings; we are multidimensional in who we are. Evident by our multitude of other passions that make us human, such as cooperation, compassion, brotherhood and altruism, people strive for the well-being of others even when it hurts their immediate self-interest. So you tell me how the 'conventional man' makes any sense.
As previously mentioned, this oversimplification of human nature has dire implications on economic outcomes, evidently by public policy completely ignoring its moral implications.
That's where the relationship between religion as an institution and economics are inseparable.
I think it's important to highlight that despite my focus on religion, this could also translate into someone's spirituality, not necessarily to a God or specific religion, their values and principles. The central premise is that one's purpose plays a fundamental role in everyday decision-making.
As spiritual and material beings, our religious and economic life interact to shape our behaviour and everyday interactions and activities. At a micro level, the degree of our religiosity is one of the determinants of demand and supply of a particular market, i.e. Haram goods and services have no demand from Muslim consumers. Products that abuse animals in the production process have no demand from ethical consumers.
At a macro level, religion will guide public choice and government policy in matters of material welfare in society even though it could boost the material welfare of specific economic agents, i.e. a Muslim country may ban the establishment of gambling institutions, public policy drive to a more investment into green energy.
Therefore it is clear that religion inadvertently influences one's dealings in the material aspect of life. The reverse is also true, where the material aspects of life may affect one's spirituality quality. Hence, religion and economics share an interrelationship facilitated by interconnectivity at various levels.
Islamic World View
So what is Islam's relationship with economics?
It all begins with defining Islam 'world view'.
The term 'world view' comes from a literal translation of the German word 'weltanschauung.' The Oxford English Dictionary defines Weltanschauung as 'a particular philosophy or the world view of an individual or group'. An important keyword in the definition is 'Philosophy', an attitude, perception and conception of a specific entity.
Wilhelm Dilthey (1833-1911) - Referred to world view as a philosophy in which a picture of reality is combined with a sense of its meaning and value and principles of action.
Sigmund Freud (1856-1939) - Defines worldview to be an intellectual construction which solves all the problems of our existence uniformly based on one hypothesis.
Fahd Ndanghwa (1996 - Present) - In the most straightforward way possible, I would define it as the lens through which you look at the world. Essentially a person or group's general perception of reality.
As Muslims, our worldview is dictated by what was revealed in the Quran and Sunnah. These same sources of knowledge are used to understand the Islamic world view.
Syed Muhammad Naquib al-Attas, in his book, best describes the Islamic world view as the 'the Islamic vision of existence, reality and truth' he also extends by saying that the world view is not limited to the mind's view of the physical world, and of mans historical social, political, and cultural involvement. But it encompasses both this world and the hereafter, in which the worldly aspect must be related profoundly and inseparably to life and in the hereafter. Hence, the hereafter has ultimate and final significance. Therefore the world view of Islam covers the physical and the metaphysical realms of existence.
Every worldview has its core elements; the core elements can be seen as the foundational principles that allow us to distinguish one world view from another. Hence, once the fundamental values of Islam are attached to the economic system, these values become integral parts of the economic vision. In short, these distinguishing features become the aims of all the relevant systems within society - it becomes the value system of that society.
Al-Attas fundamental elements of an Islamic worldview
- Nature of God
- God's creation
- Humankind and the nature of the human soul
- Nature of freedom
- Value and virtues,
- And happiness.
Before we explore what an Islamic economic system is, best we define what is an economic system and the philosophical foundations of an economic system.
An economic system is a network of relationships among economic agents, including households, firms, governments and non-governmental organisations. An economic system is not static; instead, it is dynamic and continuously evolving; that evolution depends on several factors, including ideology, religion, revolution, technology, war and natural catastrophe.
Philosophical Foundations of Economic system
The philosophical foundations of any economic system provide the basis of the system. It gives the rationale for how the different components of the system work, the meaning of the fundamental concepts, and the system's goals. The philosophical foundations specify the nature and status of a human being as an economic agent, the objectives for human existence, how economic agents are related to other economic agents and how economic pursuits are valued. Basically, it provides the overall connectivity to all the elements in the system.
The Islamic civilisation emerged from the arid Arabian Peninsula without the necessary resources that historically serve as a prerequisite for establishing a civilisation. Islam played a significant role in transforming the position of Arabia in the world at the time; this was primarily done by unifying them under one religion and preparing them for a broad series of world expansions.
During the Islamic Golden Age [eighth-thirteenth century], the Middle Eastern and North African regions were more advanced than Europe. Technology and industry were highly developed. The systems of contracts used by merchants were very effective. Muslim trade networks extended into isolated regions from the West to the Far East. The Arabic currency was circulated throughout the Afro-Eurasian Landmass, as far as Southern Africa and Northern Europe in the north.
However, Muslim countries failed to match the institutional and technological transformation of Western Europe in the last 18th and early 19th centuries. With advancements in scientific and administrative technologies, the West increased its capacity to pool resources and coordinate production activities. Furthermore, steamships and railways revolutionised military and commercial transport. The West's technological superiority in the mid-eighteenth century allowed them to strip the Ottoman empire of its ability to command the terms of trade. This accelerated the empire's decline, and the final nail in the coffin happened with the partition of the Muslim world.
By the 1970s, the Islamic world rejuvenated itself with the first 'International Conference of Islamic Economics.' The conference gathered 180 participants of different backgrounds, including finance ministers, economics, Muslim jurist etc. The conference has been hailed as the most important event in propagating the Islamic economic system.
When assessing the transformative impact of Islam on the Arabian Peninsula, many suggest that for an Islamic economic system to flourish, one must first strive to transform the people so that their behaviours are in accordance with the philosophical foundation of the Islamic economic system.
This makes one wonder whether it's possible to have an Islamic economic system in the Global North.
The philosophical foundation of the Islamic Economic system
The philosophical foundation of the Islamic economic system is derived from the Qur'an and Sunnah; this is where the Islamic moral economy as a conception in dealing with economic and social policies is laid out.
As servants to Allah (SWT), human beings are expected to optimise the use of resources to produce goods and services in order to achieve material and non-material well-being, with the ultimate aim being success or well-being (falāh) in this world and the hereafter.
In aiming for falāh, the Islamic economic system is guided and defined by the ideal philosophical foundations, which include the following key concepts:
Tawhid [Oneness of God]
The essence of tawhid is a total commitment to the will of Allah (SWT) and him being the only sovereign power. This entails a willingness to submit to Allah's (SWT) will, accept his guidance, and have complete and unqualified servitude. Hence, for an Islamic economic system to flourish or even be an Islamic economic system, Muslims must follow life according to Allah's (SWT) will and not imitate or emulate any other system if it differs from the principles of Islam.
As the objective of all Muslim endeavours is to seek the pleasure of Allah (SWT), any activity, whether economic or non-economic and within the boundaries of the Sharī’ah is an act of 'Ibādah. Hence, all aspects of a Muslim's life - moral, social, ethical, economic, political, and other - are based on the guidance and obedience of Allah (SWT).
Also, since all blessings are from Allah (SWT), Muslims are advised to demonstrate gratitude (shukr) for Allah (SWT) bounties. Muslims who demonstrate shukr will make efficient use of resources as they understand that the resources are a trust (amānah) from Allah (SWT), and they work to achieve precision of action ('itqān), justice('adl), and proficiency and conscientiousness (ihsān) in any endeavours. Shukr also infuses humility that encourages a caring attitude towards others as economic agents also understand that the outcome of their work is the bounties of Allah (SWT), not the mere result of their hard work and ability.
An attitude of shukr leads to contentment (qanā’ah), in turn, creating a state of inner peace. But beyond that, contentment creates respect for the property of others and limits envy and negative strife. All avenues of injustice and exploitation are closed for an economic agent who is in the state of qanā’ah.
Human beings are created with the role of khilāfah on Earth. The role of khilāfah implies that nature, the universe, Earth, and other creations are entrusted to man for his own utilisation. However, the role of a servant ('abd) of God means that man does not have the ultimate authority or absolute rights other than following God's will. Both these roles have to be lived simultaneously, and any neglect of either one would not enable man to function as his true self.
This role outlines the responsibilities and provides the reasons for the existence of human beings. Ahmed Khurshid best describes it as
…[fulfilling] God's will on Earth, prompting what is good, forbidding what is wrong, establishing justice, and promoting goodwill, resulting in attaining high levels of a good life, both individual and collective.
Allah (SWT) has created man as his vicegerent and has created everything else in the universe for the service of man. Every creation is an amānah from Allah (SWT) to human beings; hence, human beings as economic agents are responsible to society, the environment, and ultimately Allah (SWT). Trust means that human beings are accountable to Allah (SWT) and that they will be questioned and accountable on the Day of Judgment as to how the trusted resources were managed.
It's important to clarify that every Muslim has the free will to do whatever they please to do, whether that be in accordance with God's will or not. But one absolutely clear thing is that their actions will be held accountable to Allah (SWT).
🎯 Goals of the Islamic Economic System
The ultimate goal of Islamic teaching is to be a blessing to the whole world and all mankind (rahmatan li al- 'ālamīn).
At the individual economic agent level, the ultimate aim of an Islamic economic system is falāh, which is a balance between material and spiritual well-being.
At a macro level, the goal of the Islamic economic system is economic development within an Islamic framework which has to be goal-oriented and directed to maximise comprehensive human well-being.
The development is not exclusive to the material development of the individual and society but must include the moral and spiritual dimension to ensure maximum socio-economic well-being and just order.
Therefore, the goal of the Islamic economic system is the maximisation of human well-being within the framework of the Sharī'ah and the moral norms of Islam.
🙋🏾♂️ My thoughts
I think when looking at it conceptually, Islamic Economics' economic system makes perfect sense as an alternative since it is a system which is inherently centred on ensuring that human beings live a meaningful and purposeful life, as well as accepting and acknowledging the shortcomings of human beings and their innate tendencies. Which is a far cry from our current system.
However, the fact that this system first requires the transformation of people according to Islamic principles makes it very difficult to visualise this system in the Global North. That means our attention turns to the Global South and Muslim majority countries, but nearly all Muslim majority countries are drowning in debt or fully embedded within the capitalist system.
These challenges need solutions, but Mountains are there to be climbed, right.
But it goes without saying that we can no longer keep living within an economic system that is not human-centred. I'm exhausted from seeing Global south countries, my own nation, in a vicious cycle of unacceptable debt. I'm heartbroken to know that people are living on $2/$3 a day, having to wake up not knowing whether they are going to eat today, and this is not a reality in a faraway land; it is only a couple of miles away from me in people working in sweatshops in the North of England.
It's unrealistic to believe that we can continue to live like this as humans. It's incumbent upon us to think and create an economic system designed to make our lives better and more enjoyable. If that requires a revolution, so be it.
💞 Enjoy the read?
Forward to a friend and let them know what you found most interesting (plus tell them to subscribe here)
Anything else? Hit me up on my socials to send feedback or say Hello