Islam and Market Economy; Friends or Foes

Hakan Şahin
Istanbul Network for Liberty
Istanbul Medipol University


Islam is a monotheist religion founded in the
7th century Mecca, Arabia.
The foundation of Islam lies in the revelations
received by Muhammad.
The teachings and the life story of Muhammad
and his companions underlie the main reference
that most muslims refer to in understanding and
interpreting their religion.
Islam


A market economy is the economic system in
which the economic decisions and the pricing
of goods and services are guided solely by
the aggregate interactions of individuals and
private businesses.
There is little or no government intervention
and central planning involved.
Market Economy


What was the state of affairs in early Islam
in terms of economic issues?
What is muslims’ general view towards
economics and the market economy?
What are their references?
Are they correct in their arguments?
The Discussion


The early experience of Islam starts after the
migration to Medina, in which muslims found
opportunity to establish a market and realize
economic activity in the supervision of the
Messenger of God.
Years between 622-632 compose the main
reference of a genuine Islamic economy
along with related verses from the Quran.
The Early Experience


There were 4 markets in Medina:
Zubala (Jewish)
Kaynuqa’ (Jewish)
Muzahim (Khazraj)
As-Safasif (Jewish)
Most of the economic activity in these
markets were under the rule and supervision
of the Jewish elite.
Markets of Medina
(Traditional Markets)


The traditional markets of Medina imposed
duty (tax) on the sellers.
Some of the sellers have certain positions
allocated for their stalls.
Markets were privately owned and therefore
the owners could implement price controls
and decide on who should be accepted or
banished from the market, etc.
Markets of Medina
(Traditional Markets)


The Messenger of God attempted to
establish a new and free market in a
neighborhood called Baqi al-Zubayr.
His attempt was sabotaged by a one of the
elite called Ka’b ibn Ashraf.
In his second attempt, he managed to
establish the market in a neighborhood called
Banu Sa’ida which was close to city center.
Markets of Medina
(The New Market)


The new market had some different (lack of)
rules:
It was a free market.
 No permission was needed in order to trade.
There was no entrance fee (tax) for sellers.
Place allocation was illegal.
 Someone could set up his shop in the place
you set up your own shop yesterday.
There was no price control.
Markets of Medina
(The New Market)


It is reported that the Messenger of God:
 “This is your market. Do not set up sections in it
and do not impose taxes for it.”
 “Let it not be narrowed and let no tax be taken on
it.”
Markets of Medina
(The New Market)


Foreign trade was encouraged in this market:
By the lack of a customs duty,
By announcing that the locals may not trade
with foreign merchants on their way to the
market and let them reach it first,
By praising competition and attributing value
to those who go for great distances in order to
make a living.
Foreign Trade in Medina


He encouraged competition and free trade:
 “The importer is the gainer, the black marketeer is the
condemned.”
 “Whoever hoards a food staple for 40 days and does
not sell it, shall become distant from God and God
makes him distant from himself.”
 “Do not meet the merchants on their road to the
market, do not be a broker for the bedouin, do not tout
and do not heat the bargains if you won’t buy.”
 “Leave people be. God grants them yield by the hands
of one another.”
Famous Quotes from the
Messenger of God


 During a time of famine in Medina, Muhammad
famously responded to his applicants for a price cap
in staple food products by saying:
 “God is the only price fixer, the only one who shrinks or
expands (the economy) and provides subsistence. I hope
to join him with no claim against me for an injustice
related with blood or property.”
 Though it seems very inconsistent in terms of what is
common practice then and in terms of Muhammad being
the compassionate guardian of the indigent, He was
decisive on this non-interventionism.
Messenger of God


“The hand that gives is superior than the hand that takes.”
“The honest and reliable merchant will be together with the
prophets, the virtuous and the wise in the afterlife.”
“I see no harm for a responsible muslim in being rich.”
“I pray to God to protect me from the evils of poverty and
disbelief.” A man asked: “Do you consider poverty and
disbelief as equally evil?” He said: “Yes.”
“How nice a friend like wealth to a muslim as long as he
shares it with the poor and the homeless.”
“Nobody has earned a better income than what he earned
from his own labor.”
Messenger of God


Muhammad was a merchant.
 He knew the importance of trade
 He knew how the price mechanism works
Muhammad lived in a stateless society
 He knew about spontaneous order
 He knew the possibility of order without a ruler
Muhammad was a Messenger of God
 He was commanded to deliver a message,
not a political ideology.
Reasons behind the case


The duty of the Messenger of God was:
To announce that there is no authority over
man, other than the one and only God,
To convey the message of God to people,
To let them be free on their choices, but know
that everyone shall answer before God from
the things he/she did on this earth.


18/110: “He sent among the uneducated a
messenger from themselves; reading His
verses to them, improving them, and
teaching them the book and the wisdom;
although they were in obvious error before
that.”
5/67: “Messenger! Convey what was revealed
to you from your Lord. If you do not, then you
would not have delivered His message.”


18/110: “Say: I am only a human being like you,
but being inspired that your God is One God.
Whoever hopes to meet his Lord, let him
work righteousness, and never associate
anyone with the service to his Lord.”
(See also: 41/6, 46/9)


The duty of the Messenger of God was not:
To establish an Islamic State,
To personally make people muslims,
To forbid (make illegal) anything that goes
against the Islamic Law.
5/99: “The Messenger’s sole duty is to convey.”
76/3: “Thus we have shown the man the right
way, so be he grateful or be he ungrateful.”


2/272: “Their guidance is not your responsibility.
God guides whoever wishes to be guided.”
88/21-22: “So remind. You are only a reminder.
You have no control over them.”
28/56: “You cannot guide whomever you like,
but God guides whomever He wills and He
knows best those who are guided.”


2/256: “There is no compulsion in this religion.”
10/99-100: “Had your Lord willed, everyone on
earth would have believed. So will you now
compel people to become believers? No soul
can be a true believer except by God’s leave;
and He lays disgrace upon those who refuse
to understand.”


The early experience of muslims in the
supervision of the Messenger of God shows
a great deal of freedom in terms of property
rights and commercial cooperation.
The economic activity in the muslim world
and the ideas regarding economic issues
until the late periods of Ottoman empire
reflect this experience lucidly.
Conclusion


“I neither deny that the individuals of the society
in the age of prophethood carried on pursuing
free activity and possessed economic freedom to
a considerable extent. Nor do I deny that it
reflected a capitalist face of Islamic economy. It
is true that the individual who lived in the age of
prophethood seems to us to be enjoying a great
deal of freedom, which the pursuer of the ijtihad
may at times be not able to distinguish from the
freedoms of the capitalism.” (Muhammad Baqi
as-Sadr)
Conclusion


Period between 8th – 16th century
 Muslims are among the prominent contributors of
the world economy. (Golden Age: 8th – 14th)
Period between 16th – 19th century
 Muslims gradually lose their share of the world
economy to Euro-Mediterranean kingdoms like
Italy, Spain and Portugal.
Period after 19th century (Reactionary period)
 By the fall of Ottoman Empire, muslims lose
everything they can offer to the world economy.
Islam & World Economy


Muslim views on the market economy goes
parallel with the economic power of muslim
societies in general.
It is difficult to find a negative view of the
market economy until the 19th century.
The fall of Ottoman Empire creates a big
shock in the muslim world causing a
reactionary culture against Western societies
for the first time.
Views on the Market Economy


Ishaq ibn Hunayn (d.910) translated the
Greek word oikonomia as “household
management” in his translation of
Nicomechean Ethics by Aristotle.
Ibn Miskawayh (d.1030) used the same word
in referring “Oikonomikus”, the work of
ancient Greek philosopher Bryson.
Nasiruddin Tusi (d.1274) wrote about it too as
the art of managing the resources of the
household in Nasirean Ethics.
Economy in Islamic texts


Ibn Miskawayh (d.1030) wrote:
“The creditor desires the well-being of the debtor, not
because of his love for him, but in order to get his
money back.” (The Refinement of Character)
Kaikavus (d.1087) wrote:
“Never in anything you do, lose sight of your own interest.
(...) Poverty is the man’s worst evil.” (A Mirror for Princes)
Nasiruddin Tusi (d.1274) wrote:
“The intelligent man should not neglect to store up
provisions and property.” (Nasirean Ethics)
Views on the Economic Issues


According to Nasiruddin Tusi (d.1274):
“The science of city life (hekmat al-madani) is the study
of universal laws governing the public interest in so far
as they are directed through cooperation towards the
optimal (outcome).” (Nasirean Ethics)
Ibn Taymiyyah (d.1328) wrote:
“If the desire for goods increases while its availability
decreases, its price rises. On the other hand, if
availability of the goods increases and the desire for it
decreases, the price comes down.”
Views on the Economic Issues


According to Al-Farabi (d.950):
“Each society is imperfect because they all lack the
necessary resources. A perfect society can only be
achieved when domestic, regional and international
trade take place altogether.” (The Virtuous City)
Kaikavus (d.1087) wrote:
“To benefit the inhabitants of the west they import the
wealth of the east and for those of the east the wealth
of the west, and by doing so become the instruments of
the world’s civilization.” (A Mirror for Princes)
Views on the Division of Labor


Al-Ghazali (d.1110) wrote:
“You should know that plants and animals cannot be
eaten and digested as they are. Each needs some
transformation, cleaning, mixing and cooking before
consumption. For a bread for example, just imagine
how many tasks are involved; and we mention only
some. Imagine the number of people performing these
various tasks.” (Revival of the Religious Sciences)
According to Nasiruddin Tusi (d.1274):
“Exchange and division of labor are the necessary
consequences of the faculties of reason and speech.”
Views on the Division of Labor


According to Abu Yusuf (d.798):
There are four canons of taxation,
- Equity (taxes being neutral and impartial)
- Certainty (taxes being certain and predictable)
- Convenience (tax collection in the most convenient
time and space)
- Economy (taxpayer’s economy i.e. ability-to-pay)
“No part of the expense should be borne by taxpayers
unless the project benefits the entire community.”
(The Book of Taxation)
Views on Taxation


According to Ibn Khaldun (d.1406):
“It should be known that at the beginning of the dynasty,
taxation yields a large revenue from small
assessments. At the end of the dynasty, taxation yields
a small revenue from large assessments.”
(An Introduction to History)
* This phenomenon was popularized by Arthur Laffer in
1974 and later became known as the “Laffer curve”.
* Laffer stated in his works that the phenomenon was
originally introduced by Ibn Khaldun.
Views on Taxation


Ibn Khaldun (d.1406) wrote:
“It should be known that attacks on people’s property
remove the incentive to acquire and gain property.
People then become of the opinion that the purpose
and ultimate destiny of acquiring property is to have it
taken away from them. When the incentive to acquire
and obtain property is gone, people no longer make
efforts to acquire any. The extent and degree to which
property rights are infringed upon, determines the
extent and degree to which the efforts of the subjects to
acquire property slacken.” (ibid)
Views on Taxation


 Muslims in the time of Muhammad were using
financial instruments like letters of credit (hawala),
bills of exchange (suftaja) and negotiable bonds
(sak/sukuk) as private paper money.
 The terms they used were directly translated into
Latin languages after the crusades:
 Giro (endorsement): Jiro - Arabic
 Encash (withdraw money): Kashida - Persian
 Check (negotiable paper): Sak - Arabic
 Carat (unit of measure): Qirat - Arabic
 Credit (loan): Qard - Arabic
Views on Financial Issues


After the 16th century, European societies has
taken the lead in the world economy by the
discovery of new lands through the sea.
By the age of enlightenment and industrial
revolution, European societies became more
prosperous than the muslim world.
After the fall of Ottoman Empire, muslims
adopted a quite reactionary culture against the
western world, which led to repudiate everything
associated with western philosophy and lifestyle.
Modern views


Islamism emerged as an anti-western ideology in
the second half of 19th century.
The core principle of Islamism promotes an
appeal to the earliest experience(!) of Islam in
order to regain the political and economic
superiority against the western world.
However…
Islamism


It was not a surprise that the Islamist approach
on economic issues would ultimately be charmed
by marxism and socialism.
“It is almost impossible to be anti-western
without being socialist.”
Islamists claim that they oppose socialism as
much as they oppose capitalism. They propose
the “Islamic way” as a third alternative.
However…
Islamism


The biased position of Islamists against
western(!) values led them to interpret the
Islamic sources by a socialistic approach.
The main feature of a socialist approach is to call
on governmental action (force) in applying what
the author deems necessary.
This approach led the authors to refer to Islamic
Law (not history) in arguing about the duties of
legislative and executive bodies.
Islamism


Modern views on Islamic economics therefore
always reflect a tension between Islamic Law
(texts) and the natural laws of economics, which
they regard as western and therefore anti-
Islamic.
Popular example: “Market Economy”
 While it is a natural phenomenon in the mindset of
muslims until 19th century, it is a planned and evil-
minded phenomenon in the mindset of an Islamist.
Islamic Law against Natural Law


The objective of zakat is wealth equality.
 The institution of zakat commands muslims to support
the poor and needy members of the society via public
authority.
Usury is deemed unlawful.
 The reason is that it causes wealthy creditors to be
wealthier in the expense of poor borrowers being
poorer. So any other economic activity that causes the
same outcome should be deemed unlawful.
Islamist Views on the Economy


Gambling is deemed unlawful.
 Utilizing the savings in the stock exchange is like
gambling. So it should be unlawful as well.
Modern corporations use interest bearing credits
to start and maintain their business.
 Buying/selling the shares of these corporations is
therefore unlawful.
An interest-free economy is needed.
 Modern economies are managed by banks which earn
from interest, so we need an interest-free economy in
order to do business lawfully.
Islamist Views on the Economy


There is an inconsistency and an apparent
tension between Islamism and Islam.
 Islamism disregards the practices of the
Messenger of God.
 Islamism disregards or distorts the early
experience of Islam.
 Islamism disregards the Islamic tradition, the
knowledge of muslim philosophers and
intellectuals before the industrial age.
Conclusion


Islamism promotes in the name of Islam,
Modern muslim jurists that are:
 Conditioned to see everything as a matter of
politics and law.
 Biased against human values like individual
rights, liberty and free markets.
 Interpreting Islam in a statist approach.
 Uninformed of economics and human nature.
 Mostly unrealistic and utopian.
Conclusion


According to Timur Kuran:
“The doctrine of Islamic economics is simplistic,
incoherent, and largely irrelevant to present economic
challenges. Its practical applications have had no
discernible effects on efficiency, growth, or poverty
reduction. In any case, its real purpose has not been
economic improvement but, rather, the cultivation of a
distinct Islamic identity to resist cultural globalization. It
has served the cause of global Islamism by fueling the
illusion that Muslim societies have lived, or can live, by
distinct economic rules.”
Conclusion


Muslims today have to take the Messenger’s
practice into consideration if they want to
reflect their belief in their views about politics
and economics.
Muhammad was not an Islamist, he was a
muslim. He did not establish an Islamic state,
he just led a free society with limited authority
and governance who happened to choose
Islam as their faith.
What can we do today?


Muslims today have to understand that the case
of Islam is not about politics; it is about ethics in
life, as well as in politics.
The most important case in Islam is to reject all
authorities over man other than God.
God’s authority lies in His signs and creation.
His authority lies not only in the scriptures, but
also in the universal values like freedom of
choice, natural rights, and the rule of law.
What can we do today?


Muslims who desire to serve Islam and serve
God should promote these human values
and start removing the barriers in front of a
free society that is built on the protection of
natural rights, and voluntary collaboration.
Conclusion

Islam and Market Economy; Friends or Foes

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