This is the Book; in it is guidance sure, without doubt, to those who fear Allah.Who believe
in the Unseen, are steadfast in prayer, and spend out of what We have provided for them;
RE-DEFINING ISLAMIC ECONOMICS:
by: Dr. Asad Zaman1
ABSTRACT:
There is a huge number of definitions of Islamic Economics available in the literature. The
vast majority take existing definitions from the western literature and modify them to incorporate
an Islamic angle. This leads to the widespread belief that Islamic Economics is a variant or a
branch of conventional economics. We argue that something can be called “Islamic” only if it is
based on the Quran and Sunnah. In this paper we propose a new definition based purely and
directly on Islamic ideas and sources. We show that this definition differs radically from any
available in the West, as well as the vast majority of definitions proposed by Islamic Economists.
It creates entirely new ways of looking at and organizing the subject matter of Economics. This
paper discusses ten dimensions of contrast, where our new definition suggests that the
methodology of Islamic Economics is directly opposed to western methodology.
Zaman (2012, Crisis In Islamic Economics) describes the current crisis in Islamic
Economics, widely acknowledged by leaders in the field. Conventional views are that Islamic
Economics must be a compromise between Islamic ideals embodied in homo islamicus, and
realistic views embodied in homo economicus. However, there is substantial disagreement on the
nature and extent of the compromise required. Consensus on defining “Islamic Economics”
appears to be a pre-requisite for progress. I believe that a definition which can be justified purely
and directly from Islamic sources will be able to command consensus that compromises cannot.
Furthermore, this definition opens the way to radically new approaches, which can fulfill the
promise initially held out by Islamic Economics. This (now largely forgotten) promise was that
Islamic Economics will provide justice, and eliminate oppression and inequities associated with
capitalist, communist and socialist economic systems.
JEL Codes:B49, B59
Keywords: Islamic Economics, Normative Economics, Positive Economics
This paper was presented at the workshop on “Basic Concepts and Thoughts in Islamic Economics” held in
Istanbul during 1-3 March 2013. The papers presented at the workshop will be published in a volume of proceedings
of the workshop eventually.
1
1
PRELIMINARY STORY:
from the Masnavi of Mawlana Jalaluddin Rumi: "The Elephant in the Dark"
Some Hindus bring an elephant to be exhibited in a dark room. A number of men touch and
feel the elephant in the dark and, depending upon where they touch it, they believe the elephant
to be like a water spout (trunk), a fan (ear), a pillar (leg) and a throne (back).
The sensual eye is just like the palm of the hand.
The palm has not the means of covering the whole of the beast.
The eye of the Sea is one thing and the foam another.
Let the foam go, and gaze with the eye of the Sea.
Day and night foam-flecks are flung from the sea:
oh amazing! You behold the foam but not the Sea.
We are like boats dashing together;
our eyes are darkened, yet we are in clear water.
Different ways of perceiving reality can lead to contradictions in appearances. Learning to
resolve these contradictions, and learning to put together apparently conflicting descriptions into
a coherent picture of reality is one of the essential aspects of the teachings of Islam.
Introduction
More than ten different definitions of Islamic Economics, some of which conflict with others,
are available in the literature; see, for example, Siddiqui (2011). The object of this paper is to
offer a new definition of what Islamic Economics is, and to explain its implications. This
definition is broader than the others, and offers room to fit all of the others into its folds, just as
the different aspects of the elephant all fit into one big picture. The most important aspect of this
2
definition is that it is directly based on Islamic concepts, and does not mix Islamic and Western
ideas, unlike all other definitions that I am aware of.
DEFINITION: Islamic Economics is the EFFORT/STRUGGLE to implement the orders of
Allah pertaining to economic affairs in our individual lives (Micro), in our communities (Meso),
and at the level of Ummah (Macro).
This definition needs to be “unpacked” in order to be understood. There are many
components of this definition which are directly opposed to methodological assumptions built
into the foundations of social sciences in general and economics in particular.
It is most important to understand that Islamic Economics is about the struggle to
establish the Deen in the domain of economic affairs, as ordained by Allah S.W.T.
Struggle or Effort to establish the Deen is worship, as all acts of a Muslim should be,
since we were created only for worship. This is an action-based definition, which is very
strongly opposed to Western conceptions of what social science should be.
Contrast 1: Differing theories of knowledge
Allah T’aala promises in the holy Quran that those who struggle (in) Us, We will
show them our pathways. This means that the knowledge that we need will be generated
in the process of the struggle to establish Deen. This is a very dynamic and experiential
view of Knowledge. It stands in direct contrast to Western theories of knowledge derived
from secular perspectives, discussed briefly below.
3
Western theories of knowledge came into being as a result of the attempt by secular
thinkers to discredit Christianity, and make reason the prime basis for knowledge. The
theories of the Enlightenment thinkers prevailed and currently dominate thought. The
currently dominant philosophy of knowledge defines knowledge as True, Justified Belief.
Note Eeman is belief in the unseen. However, the secular conception of knowledge
requires that we must be able to provide a justification based on reason and observable
evidence for our belief. The philosophy of Logical Positivism spells this out more
explicitly. Justification must be based on observable facts and logic; personal experiences
are not permissible. For a more detailed discussion, see my paper “Logical Positivist
Methodology and Islamic Economics” which shows how the logical positivist
methodology is wrong, and how it is in conflict with Islamic principles.
In fact, the vast majority of human knowledge is based on experience, which is
unique and personal. My knowledge of how to drive a car, how to speak a language, is
based on my personal experience. This cannot be reduced to beliefs, and is also not based
on facts and logic. The positivist restriction of human knowledge to that based on facts
and logic is far too narrow. Similarly, knowledge as true justified belief is also too
narrow. Western conceptions of knowledge emerged during a battle of secular forces
against Christianity, and were designed to support secular ideas against religious ones.
This is why they are wrong. In Zaman (2013, “Deification of Science and Its Disastrous
Consequences,”) I have explained this issue in much greater detail.
4
Human knowledge is largely experience based, and is unique because every
individual has unique experiences. The process of struggle against injustice develops
certain spiritual capacities within us which cannot be communicated via textbooks and
theory. This is the knowledge that is of vital importance. This knowledge was created
within the hearts of the companions of the Prophet Mohammad S.A.W. and led to a
revolution in the world. Islamic knowledge consists of all three types of knowledge –
epistemic, technical, and Hikma (practical wisdom) -- and is an inseparable mix of the
three2. Unlike the idea that the normative and positive can be separated and studied in
isolation, we believe that all forms of knowledge support each other and cannot be fully
understood in isolation.
Because our theories of knowledge are entirely different from western theories, our
methods of teaching and learning cannot be the same. Our Prophet Mohammad S.A.W.
was sent as a teacher, and he was the best of teachers. It follows that we must pattern our
educational methods and theories on his methods. A discussion of some of the key
differences and contrasts is provided in Zaman (2012, “Principles of an Islamic
Education”).
Contrast 2: Neutrality and detachment not permitted by Islam
According to Western conceptions, social science should be based on observing
human beings and societies, and discovering laws of motion which govern the economic
2
Aristotle classified knowledge in three different types Episteme (scientific), Techne (Skill and crafts) and
Phronesis (Wisdom).
5
processes in such societies. The goals of science are to observe and describe, and to find
patterns which allow prediction and explanation. The scientist is a neutral and detached
observer, who should not interfere with the process under examination.
This is dramatically opposed to Islamic views. As we can all see clearly, there is a
huge amount of injustice in the economic affairs of human beings all over the planet.
Islam does not allow us to observe injustice as a neutral and detached observer. If we see
something wrong, then we must struggle to change it. If this is not possible, then we must
speak out against it. If even this is not possible then at least we must feel it in our hearts,
and this is the least degree of Eeman. That means that if someone remains neutral and
detached on observing injustice and violations of the orders of Allah, than he does not
possess even the least bit of Eeman. So the methodology of Western Science which
requires neutral and detached observation cannot be used by Muslims.
This supports the idea that Islamic Economics must be defined as a struggle to bring
about economic justice. It cannot be defined as a passive activity involving detached
observation of the world in the western way, because detachment is not permitted to us
Muslims.
Contrast 3: Transformative versus normative/positive
Failure to understand that Islamic Economics is about an active effort to change the
world has also led to a misunderstanding of the normative positive distinction. Islamic
Economists have correctly opposed Homo Economicus and have proposed a Homo
Islamicus instead. When we look at the world in descriptive terms, it seems that human
6
beings are closer to Homo Economicus than Homo Islamicus. It follows that Islamic
Economics is not useful as a description of the world. Similarly, people have argued that
there is no point in describing Islamic Economics as an economic theory which would
apply to Islamic societies, because no such societies are in existence anywhere in the
world.
According to Logical Positivist philosophy, normative statements are meaningless. If
we take this seriously, than most of Quran is meaningless, since Islam consists largely of
normative statements. Actually, as I have argued elsewhere – see, for example, section
3.4 of Zaman (2009, “Islamic Economics: A Survey of the Literature”) – Islam is
transformative. It consists of a struggle to change the world into an ideal form. There are
two elements to such a struggle:

First we describe the ideal form; It is necessary to describe an ideal form because
it creates the goal towards which we must strive. It is not necessary that the goal
should be achievable.

Second, we work to achieve it. An important and central component of Islamic
Economics is the answer to “How should we work to bring about the necessary
changes?”
For example, the Prophet Mohammad S.A.W. is the ideal example for us. His
character serves as a model and a goal for our efforts. We know in advance that we can
never be like him, but this does not make the model invalid. Exactly like this, even if the
Homo Islamicus is perfect, and no one can be like him, this does not make him useless.
7
Descriptive accuracy is NOT desired in setting up ideals. Rather, it is important for us to
set a direction for our struggles. Just like the following the North Star allows us to steer in
the right direction, even though we can never reach the star.
Mistake 4: Conventional economics is also transformative
Conventional neoclassical economics claims to be a POSITIVE science. That means
that it is accurate descriptively. This idea has been widely accepted by Muslim
economists. Some of them are embarrassed about the lack of descriptive accuracy of
Islamic economics as well as the non-scientific status of normative theories of Islam.
Others have tried to argue that Islam is also descriptively accurate by showing that the
Quran also describes man as selfish and greedy and with desires for consuming luxuries,
etc. So Quranic theories are similar to neoclassical. This is a severe misunderstanding of
BOTH neoclassical economics and also of the Quran.
The claim that economic theory is positive is wrong. Neoclassical economic theory is
NOT descriptively accurate. See Karacuka and Zaman (Empirical Evidence Against
Utility, 2012) for a long list of cases where utility maximization fails. Similarly, failure of
profit maximization by firms has been documented in many papers; see section 5.2 of
Zaman (Islamic Critique of Neoclassical Economics, 2012) for a list of references.
Similarly, Saglam and Zaman (2012, The Conflict Between General Equilibrium and the
Marshallian Cross) and also section 5.3 of Zaman ( Islamic Critique of Neoclassical
Economics, 2012) show that demand and supply curves are not well-defined, influence
each other, and cannot be used to determine equilibrium prices, contrary to claims of
8
economic theory. In fact, neoclassical theory posits a normative ideal: a world of
“perfect” competition. Everyone acknowledges that this world does not exist; it is an
idealization. The theory is based on zero transaction costs, full information for
everybody, no externalities, and a long list of assumptions none of which hold in the real
world. It is asserted that such a world is perfect, and generates maximum wealth in the
most efficient manner. Then economics consists of strategies on how to remove market
imperfections, distorting tariffs and taxes, monopolies, externalities etc. Thus the goals of
economic theories are also transformative although they are not stated to be such.
In fact most of social science consists of this type of theory: Descriptions of an ideal
state and prescriptions of how to change things to bring about this ideal state. However,
since physical science is not like this, and social science was molded to be on the pattern
of physical science, it adopted the wrong methodology.
Mistake 5: Misunderstanding the Quran
There has been some debate among Muslim authors about whether or not Islamic
teachings are compatible with the neoclassical economic theory of selfish and
maximizing behavior by consumers, as well as greedy profit maximization by producers.
Some have argued that Islamic teachings also describe human beings as utility
maximizers, using Quranic verses like:
3:14 Fair in the eyes of men is the love of things they covet: Women and sons; Heaped-up hoards
of gold and silver; horses branded (for blood and excellence); and (wealth of) cattle and well-tilled
9
land. Such are the possessions of this world's life; but in nearness to Allah is the best of the goals (To
return to).
In fact, this verse is not meant as a description. Rather, it is describing a weakness, a
tendency within man to like the luxuries of the world. At the same time, the Quran is
warning us to not give in to these temptations. This is a normative position. However, our
understanding of the normative is not like the western understanding of the normative.
The normative is a method for self-transformation. The Quran is telling us that if we
resist these temptations out of the obedience to Allah, then we will earn the nearness of
Allah, and that this is the best of goals.
90:10 (We have) shown him the two highways [of good and evil]?
The verse shows that man is free to choose between good and evil – he is not
compelled to obey his bad tendencies. When the companions of the hellfire will complain
about how Shaitan led them astray, he will say that he only made suggestions, and they
were free to choose.
So this ayah may be considered as a part of Islamic Microeconomics. It teaches us
that within our Nafs there are temptations, and it teaches us how to fight these
temptations, by turning towards a higher goal. By acting on this advice, we can
implement the orders of Allah, and achieve inner transformation, which is one of the
goals of Islam.
10
In general, the Quran is a tool for transformation of our selves, our communities and
the world. The main instrument for this transformation is the process of Amr-bil-Maaroof
and Nahi-Anil-Munkar which is the distinguishing feature of this Ummah of Muslims.
The Quran contains complete and perfect guidance on how to carry out this struggle for
transformation. Some aspects of these guidance will be discussed below.
Contrast 6: Islamic microeconomics: consumer theory
Whereas western microeconomic theory holds that human welfare comes about by
fulfilling all wants and desires, Islam holds that the opposite is true. Islam encourages the
fulfillment of legitimate needs, and the suppression of idle desires. This teaching is
perfectly summarized in the Quranic verse, which encourages us to fulfill our needs, but
to avoid waste.
7:31 O Children of Adam! wear your beautiful apparel at every time and place of prayer: eat and
drink: But waste not by excess, for Allah loveth not the wasters.
It is said that economic theory is descriptive not prescriptive. In fact, many studies
show that microeconomic theory affects behavior. That is, when people are taught that
rational people maximize their selfish consumption, and that this selfish maximization
and greed leads to the best outcomes for the society via the invisible hand, then they start
to behave in this way; see Kirchgässner (2005). Thus the
supposedly objective
description becomes a normative ideal of rationality which people try to achieve. Many
cases can be cited of people who are inclined to be sympathetic and kind, but restrain
11
their impulses toward charity and goodness because they learn that this is not rational
behavior.
Islamic Microeconomics consists of describing ideal behavior for consumers and then
struggling to achieve this ideal personally for our self, and promoting such behavior in
the society as a whole. There are a very large number of behaviors which consumers are
supposed to display. As noted earlier, the most fundamental is that of fulfilling needs but
avoiding excessive and wasteful spending. Simple lifestyles are strongly encouraged.
Note the contrast with widespread promotion of spending on luxury required by a
capitalist economy. A second point of contrast is that Islam encourages generosity:
spending on others for the sake of Allah is recommended in more than one hundred ayat
of the Quran. This is again in stark contrast to capitalism, which promotes savings,
investment, and the accumulation of private wealth, as opposed to circulation of wealth
and distribution of wealth to others.
Islam also provides us with the tools to achieve these transformations and changes
required. For example, the Quran states that:
3:92 [But as for you, O believers,] never shall you attain to true piety unless you spend on others
out of what you cherish yourselves; and whatever you spend - verily, God has full knowledge thereof.
This is one of the tools to achieve piety: if we spend of that which we love, this will
increase our piety. This is a method to reduce our love of material goods, and also to
make us prefer generosity to greed. Note the stark contrast with the principles of western
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economic theory. Instead of consuming what you love (which would clearly maximize
utility), you are encouraged to give it away to others. This is an illustration of a
transformative statement: it show how to achieve a desired goal. This statement is not
positive – it is not descriptively accurate; most people do not behave in this way. It is also
not normative, in the sense of describing an ideal. Rather it is action oriented: it tells you
what to do, in order to develop certain desirable characteristics.
In this brief essay, it would not be possible to develop the full Islamic consumer
theory, which would require a book or several books. Rather the goal is to provide an
initial sketch, to delineate the sharp and dramatic contrasts between Islamic consumer
theory and western microeconomics. Somewhat more detail is available in Zaman (2013,
Islamic Approaches to Fundamental Economic Problems, Section 6.4).
Contrast 7: Islamic microeconomics: producer theory
Conventional economic theory hypothesizes that businesses are concerned solely with
the bottom line. Maximizing profits, and accumulating money is the goal. This is actually
not true, empirically. Many studies show that business owners have different types of
goals. Many are service oriented, while others get satisfaction from technical proficiency.
In other words, as the Quran [92:4] states: Verily, (the ends) ye strive for are diverse.
It is also true that there was a very strong campaign in the west to make this true. That
is, MBA programs all over the world trained business leader to look only towards making
profits. Friedman argued that since businesses worked with other peoples (stockholders
and investors) money, it was actually immoral for them to concern themselves with
13
anything other than profits. Providing social service and caring about other human beings
was actively discouraged. People were taught to be cold and callous and sacrifice human
lives in the pursuit of profits. Inhumane actions of large corporations have been
documented by many researchers; see for instance, documentary movies of Michael
Moore (Roger & Me, Capitalism: A Love Story). Perhaps the most powerful testimony is
given by Harvard MBA professor Zuboff (2009):
“I spent a quarter-century as a professor at the Harvard Business School, including 15
years teaching in the MBA program. I have come to believe that much of what my
colleagues and I taught has caused real suffering, suppressed wealth creation,
destabilized the world economy, and accelerated the demise of the 20th century capitalism
in which the U.S. played the leading role.
Weber has state the the spirit of capitalism is the pursuit of wealth for its own sake, to
the point of being irrational. Islam offers a dramatically different perspective on motives
for production. Firstly, making money for its own sake is not permitted:
9:34 But as for all who lay up treasures of gold and silver and do not spend them for the sake of
Gods - give them the tiding of grievous suffering [in the life to come]:
Thus accumulation of wealth is ONLY permitted when it is meant to be spent for the
sake of Allah. Secondly, the primary motive for production is service, not the making of
profits. Making money in order to provide a service is permissible and pleasing to Allah:
The provider is blessed, and the withholder is accursed – IbneMajah 2238
14
This Hadeeth means that those who trade with the intention of serving people by providing
for their needs are blessed by Allah, while those who withhold essential goods with the intention
of profiting by providing them at a high price are accursed. The Islamic spirit is to make money
in order to serve the community. This is exactly the opposite of the idea that we should provide
service in order to make profits. In fact, Adam Smith’s idea of the invisible hand promotes this
misconception – that we strive for personal profits, and the society will benefit automatically
because to make profits we will be forced to provide a service. Because the effects of actions
depend on the intentions with which they are done, this is not an acceptable idea, from the
Islamic point of view.Zaman (Death of a Metaphor: The Invisible Hand, 2012) shows that Adam
Smith’s theory of the Invisible Hand fails to hold in practice.
When we earn money in order to spend it for the sake of Allah, we earn the blessing of Allah
and barakah in our Rizq.The honest traders will be in the company of the pious on the day of
judgment,while the pure profit seekers are accursed. It would take a full length volume to
provide full details and documentations of our claims regarding the ethics of production in Islam.
We pause to clarify one issue which sometimes creates confusion among Muslim readers. Some
readers think that the goal of providing service to the community means that one cannot earn
money for oneself, and that this is neither correct Islamically nor humanly feasible. In fact, as
we will detail shortly, the Muslim community is knit together as a brotherhood. My first
responsibility is to provide for myself and all my dependents. Earning money for this purpose,
and spending it on my primary responsibilities of feeding, clothing, housing, health and
education of my family and anyone who is dependent on me is counted as spending for the sake
15
of Allah, and as worship. In fact, this is also service to the community, because the community
has the responsibility of taking care of all its members. If I do not earn for myself, I will be a
burden on the community, so providing for my own needs is also a service to the community.
Simultaneously, after having provided for my own needs, the excess should be spent on others
who are needy within the community, and not saved or accumulated, as in capitalist societies.
Contrast 8: Islamic meso-economics: cooperation.
The spirit of capitalism encourages cut-throat competition. It is supposed that the law
of the jungle will promote the survival of the fittest, and that this is the key to improved
efficiency of production. There is substantial empirical evidence that these ideas are false.
Today, big businesses routinely use dirty tactics to drive small competitors out of
business and argue that this is justified because cut-throat competition benefits society by
creating efficient business via survival of the fittest. Similarly they exploit laborers and
pay them sub-minimal wages and argue that this leads to generation of wealth which
benefits society. However, as the Zuboff (2009) quote cited above shows, these claims
are not borne out by practice. The consequences of these jungle tactics have created
massive inequalities. The powerful grow ever more richer and more powerful, and wealth
has become concentrated in the hands of a very few at the top. Stiglitz in The Price of
Inequality has documented how the inequality has been increasing and also the massive
social problems it has caused. Just one illustration is the massive amount of crime that is
a direct consequence of inequality and injustice. A fabulous amount of money is spent in
safeguarding huge amounts of money from the have-nots, and the ratio of prisoners to
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citizens is the highest in history in the USA. More money is spent per prisoner than is
spent on the education of children.
All this is completely opposed to Islamic teachings. Islam shows us the pathways out
of the jungle, and shows us how to live as humans. Islam teaches us how to transform
base and evil characteristics of human beings into good ones. It teaches us to learn how to
cooperate instead of competing with each other. It teaches greedy and selfish people how
to be kind and generous. It teaches enemies how to be friends.
3:103 And hold fast, all together, by the rope which Allah (stretches out for you), and be not
divided among yourselves; and remember with gratitude Allah's favour on you; for ye were enemies
and He joined your hearts in love, so that by His Grace, ye became brethren; and ye were on the brink
of the pit of Fire, and He saved you from it. Thus doth Allah make His Signs clear to you: That ye may
be guided.
This ayat shows the transforming effect of the teachings of Islam. It shows that if we
work in the appropriate ways than we can change the basis of society from a competitive
one to a cooperative one. The great benefits of doing so are obvious; some of them have
been spelled out in my essay Zaman(2013,“Islamic Approaches to Fundamental
Economic Problems”).
The core message of this paper is that Islam is transformative: The Prophet Mohammad
S.A.W. came and his teachings changed the world for ever. Historian Hart (1992) ranked him as
the single most influential man in all of human history. What we need to learn is HOW? What is
17
the method by which the hearts of enemies and rivals can change and become united in love?
Again, it is impossible to cover the full range of teachings of Islam on this issue. We just sketch
one important ingredient which is among the core teachings of Islam, and which is completely
absent from conventional economics.
8.1 Building communities
Conventional economic theory subscribes to the principle of methodological
individualism. This means that to study the behavior of society, it is sufficient to study
individual behavior. Since society is an aggregate of individuals, aggregating the
behavior of individuals will allow us to understand social behavior. That is why there is
no concept of community within conventional economic theory, which deals with
individual behavior only. Grouping occurs at the level of the nation, which can impose
laws, control money supply and do other actions which concern the entire collection of
individuals within the nation. There is no intermediate level grouping such a
neighborhood or a community.
Methodological individualism is wrong. There are many ways to show that group
behavior cannot be reduced to or predicted from individual behavior. In chemistry, the
behavior of compounds cannot be understood from the properties of the atoms which
make them up. One of the main insights of the institutional school of economics is that
institutions – which are collections or groups of individuals – matter, over and above the
individuals. That is identical individuals will have different economics under different
institutional structures.
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One of the key messages of Islam is that we must learn to cooperate, and act as brothers to
each other. The Ummah is like one body; if any part is hurt, the whole feels the pain. Building up
this Ummah requires building communities. One of the most fundamental communities is the
neighborhood. In particular, the neighborhood is a natural community which is emphasized in
Islamic teachings. In a Sahih Hadeeth from Bukhari and Muslim, the Prophet S.A.W. is reported
to have said that Jibraeel A.S. kept emphasizing the rights of the neighbors until I thought that
the neighbors would also be given a right of inheritance. The mosque serves as a central meeting
point, where neighbors can get together five times. It would be natural to expect a community
feeling to develop from this meeting place. However, today the form remains but the spirit is
gone – as stated by the poet Iqbal:
The sounds of the call to prayer (azan) ring, but the spirit of Bilal RA is gone.
Vital neighborhood communities are the building block of the unity of Ummah, just as the
cell is the building block of the human body. How communities can go a long way toward
resolving the economic problems of scarcity is discussed in my paper on the “Normative
Foundations of Scarcity.” Briefly, economics deals with scarcity at the individual level.
However, if a community is aware of its responsibilities towards each other, then as long as the
community has enough resources in the aggregate, all individuals will be cared for. The Islamic
teachings state that our prayers are not acceptable if we have more than enough to eat while our
neighbor is hungry. Studies of Islamic society show that communities played a vital role in
providing all sorts of social services. Health, Education, Food and many other needs were
19
provided for the whole Ummah at the level of the community, without any government
interventions.
Thus it would be an important function of Islamic Economics to attempt to protect
communities, and strengthen and rebuild communities where they have been weakened or
destroyed by the forces of modernity.
8.2 Cooperation versus competition: guilds
Whereas western economist idealize cut-throat competition among firms as a means
to efficiency, Islam teaches the spirit of co-operation. Islamic traders were able to spread
Islam far beyond the boundaries of the Islamic empire by their adherence to the Islamic
spirit. Their honesty, cooperation, and spirit of service was a great contrast from the
commonly prevailing trading ethics represented by the motto “Let the buyer beware.”
In an atmosphere where the firms are out to exploit the consumers, competition is a good
thing. If the firms collaborate to exploit the consumers, they will have much greater power and
can do much greater damage. However, the situation is quite different in a society where the
producers are motivated by the spirit of service, and are obedient to the requirements of the
Shariah. In such situations it is natural to have communities of producers band together to help
each other in providing service. In Islamic history, guilds of producers have played a very
important role throughout Islamic history.The guilds were responsible for providing service to
the society, and could be called to account for failure to provide it to all. They were responsible
for quality control, internal policing, maintaining standards of service and other aspects of
20
professional conduct. The guilds of Al-Andalus were famous for the quality of their products,
innovations, and efficiency in production; see Vadillo (n.d).
Contrast 9: Islamic macroeconomics: ummah versus nation
Western macroeconomics is based on taking the nation-state for granted as the
fundamental economic unit. However, Islamic teachings are strongly against the idea of
dividing mankind by creating allegiances and hatreds on the basis of national groupings.
The Quran states clearly that:
49:13 O mankind! We created you from a single (pair) of a male and a female, and made you into
nations and tribes, that ye may know each other (not that ye may despise (each other). Verily the most
honoured of you in the sight of Allah is (he who is) the most righteous of you. And Allah has full
knowledge and is well acquainted (with all things).
It is very important to understand that the nation-state is a recent invention of the
west, and not a natural grouping of human beings from time immemorial. Has this
invention been a good thing for mankind? There is strong evidence that it has been
extremely harmful. Huge numbers of wars have been caused by the hatred generated by
these groupings of mankind into nations. The idea of allegiance to the nation, and hatred
and contempt for those not belonging to it has unfortunately become widespread, and
21
penetrated deep into human thought. The terrible effects of failure to think of humanity as
a single brotherhood, descendant from a common father, can easily be documented:
1. The combined military budgets of the world amounted to 1.62 trillion dollars in
2010. This amount is enough to meet the needs of food, clothing, housing,
education and basic health for everyone on the entire planet.
2. Twentieth Century has been the bloodiest in human history, with death toll due to
wars far exceeding 100 million.
Much of this can be directly attributed to the European idea of uniting people into
nations, and encouraging patriotism and loyalty to nations. In the aftermath of World
War II, Toynbee (1951) wrote: “The extinction of race consciousness as between
Muslims is one of the outstanding moral achievements of Islam. In the contemporary
world there is, as it happens, a crying need for the propagation of this Islamic virtue … of
tolerance and peace”.
In the past, Muslims were successful in building unity at the level of the Ummah. Travellers
through the Muslim world have often recorded their experience of hospitality and courtesy
mandated by Islamic law; see One Thousand Roads to Mecca: Ten Centuries of Travelers
Writing about the Muslim Pilgrimage by Wolfe (1998). For example, Malcolm X. (1965) found
in his travel experience “a spirit of unity and brotherhood that my experiences in America had
led me to believe never could exist between the white and non-white…”
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It has been documented in “A Peace to End All Peace” that Muslims were divided
into nations as part of the divide and conquer strategy used so successfully against
Muslims by the British. Similarly, when portions of the Ottoman Empire were
assimilated by Russia, the Muslims were divided into nations like Uzbeks, Cossaks,
Azeris, etc. These nations were supplied with a history, a culture, tribal dresses, customs,
and languages. All this was done deliberately and explicitly in order to break up their
unity within their primary identity of Islam. Russians were afraid of Muslim revolt if they
remained united in Islam. Similarly, the Turks were taught to be nationalists and be
Turkish first and Muslims later, against their wishes. The Quran warns us to remain
united, or else we would be defeated:
8:46 And obey Allah and His Messenger. and fall into no disputes, lest ye lose heart and your
power depart; and be patient and persevering: For Allah is with those who patiently persevere:
Islamic Economics is not about passively observing the world but rather about
actively trying to change it for the better. The concept of the nation-state is abhorrent to
Islam, and Islamic teachings offer us the higher ideal of unity within the Ummah as one
body. Presently such unity among Muslims is very weak. How can we work to change
this situation for the better? Islamic Macroeconomics would be concerned with strategies
to improve economic unity among Muslims. There are many steps which could be
contemplated, such as creating a free trade zone among the Muslim countries, and
allowing easy, unrestricted travel between them. In fact Islam provides us with an
institutional basis for creating unity. The mosque, with five times daily congregational
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prayers, is meant to create unity within a neighborhood. The Jum’a prayer is meant to
combine a large number of such communities, on a weekly basis. Eid-ul- Fitr is meant to
create unity on an even larger level. Eid-ul-Adha gathers representatives from the entire
Ummah in one place. We need to creatively and imaginatively utilize these functioning
institutions to create unity among the Muslims, as mandated by Islamic teachings.
The west created and invented the nation-state, a concept with a lot of power for
violence. This capacity for violence, and the simultaneous weakness, decay and rot
within the Islamic world, permitted the west to conquer the world. Islamic revival taking
place throughout the world needs to show that cooperation, unity and love are stronger
than hate, enmity and warfare. Our ancestors were successful in demonstrating such a
model in the past. Although neglected in European history, and forgotten by us, the
accomplishments of our ancestors in creating a global civilization are slowly getting the
recognition that they deserve – see for example, Goody (2012, Theft of History) and
Morgan (2008, Lost History: The Enduring Legacy of Muslim Scientists, Thinkers and
Artists) . We need to rise up to the challenge facing us currently, and show the world the
way out of the morass it currently is in.
Contrast 10: Focus on process not outcomes
There are many areas where principles of Islamic Economics are dramatically in
conflict with those of western economics. A more extensive (though still incomplete) list
of conflicts is available in Zaman (2012, “An Islamic Critique of Neoclassical
Economics.”) For present purposes, we content ourselves with listing these ten major
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differences. The tenth one is the strong and clear focus of Islam on process rather than
outcomes. It is my experience that many Muslims have difficulty understanding this
issue, even though it has been explained very clearly in Quran and Hadeeth in many
different contexts.
Economic theory is “consequentialist” – to evaluate an economic program or policy,
it looks at the outcomes which result from the policy. It is not concerned with the process
by which the program or policy works. Islam takes the opposite view, and focuses
strongly on the process, and not the outcomes. The motto of “Its how you play the game,
and not whether you win or lose” which characterizes the Islamic view.
We have put forth very high and demanding ideals. Practical people often question
these ideals and argue that these are un-achievable. This is a mistake and a
misunderstanding due to outcome based thinking rather than process based thinking. The
issue is not whether or not these ideals can be achieved. The issue is how we can struggle
to achieve them. The struggle itself is desired, while the outcome is entirely in the hands
of God. If we undertake the struggle to create excellence according to Islamic ideals
within our own selves and our societies, then we have accomplished what was demanded
of us. Achieving the outcomes is not required of us at all. We provide some examples to
illustrate this principle, which is dramatically opposed to the methodology of
conventional Economics. It is not the consumption bundle that concerns us, it is how it
was acquired (by halal or haram methods) that is of concern. We explain the Islamic
focus on process, rather than outcome, by citing some examples.
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Like all prophets, our prophet Mohammed S.A.W. was ordered to spread the
teachings of Islam. However, he was also told that guidance rested entirely with Allah.
Thus the struggle to spread the Deen is required, but achievement of the desired outcome
is not. Some of the prophets will have large numbers of followers, while others will have
few or even none. Yet all will be judged as successful, because they struggled for the
establishment of the Deen. Once this principle is understood, then the objections of
idealism, and impracticality don’t have strength. We strive for ideals while knowing in
advance that the ideal is un-achievable. We strive to model our conduct on the excellent
and ideal model of our prophet, while knowing in advance that we will never be able to
achieve this excellence. It is this struggle that is demanded of us, and not the outcome.
As Islamic Economists, we must strive to create an economic system based on
principles of harmony, brotherhood, cooperation, caring for the weak and oppressed,
providing for justice and equity for all. We do not know whether or not we will succeed.
We recognize that there large numbers of forces arrayed against us. The capitalist system
has succeeded in created massive amount of inequalities, billions of poor hungry and
miserable people together with a few wealthy billionaires. Injustice, oppression, wars to
provide profits to multinationals, environmental damage on a world threatening scale,
and many other disasters caused by capitalist economic theories have been documented
by many books and articles. Our goal in this struggle is to be counted among the people
who were striving for justice, whether or not we succeed. There were many companions
of the Prophet S.A.W. who prayed that they might die in the process of the struggle, and
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indeed the desire for martyrdom is one of the signs of Eeman. Similarly we must struggle
to establish economic justice so that we might fulfill the conditions of the following
Ayah:
6:162 Say: Lo! my worship and, my sacrifice and my living and my dying are for Allah, Lord of
the Worlds.
References
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