Islamic Economics

Theory and Practice

Abul Hassan, M.A. Choudhury

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429777929
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book is a comprehensive study, which provides informed knowledge within the field of Islamic economics. The authors lay down the principal philosophical foundation of a unique and universal theory of Islamic economics by contrasting it with the perspectives of mainstream economics. The methodological part of the theory of Islamic economics arises from the ethical foundations of the Qur'an and the Sunnah (tradition of the Prophet) along with learned exegeses in an epistemological derivation of the postulates and formalism of Islamic economics. This foundational methodology will be contrasted with the contemporary approaches of the random use of mainstream economic theory in Islamic economics.

The book establishes the methodological foundation as the primal and most fundamental premise of the study leading to scientific formalism and the prospect of its application. By way of its Islamic epistemological explanation (philosophical premise) in the form of logical formalism and the use of simple real-world examples, the authors show the reader that the scientific nature of economics in general and Islamic economics in particular rests on the conception of the scientific worldview.

With its uniquely comparative approach to mainstream economics, this book facilitates a greater understanding of Islamic economic concepts. Senior undergraduate and graduate students will gain exposure to Islamic perspectives of micro- and macroeconomics, money, public finance, and development economics. Additionally, this book will be useful to practitioners seeking a greater comprehension of the nature of Islamic economics. It will also enable policymakers to better understand the mechanism of converting institutions, such as public and social policy perspectives.

1

HOW TO STUDY ISLAMIC ECONOMICS AS SCIENCE IN REFERENCE TO THE QUR’AN AND THE SUNNAH

Learning objectives

This chapter aims to:

•highlight the concept of high morality and ethics in the light of the Qur’an in the development of the foundation of theory of Islamic economics

•pinpoint fundamental values necessary for economics behaviour and the sole axiom of Islamic economics studies

•emphasize the formalization of the Islamic methodological worldview in the rise of the corresponding economic and socio-scientific reasoning with a brief critique of conventional economic theory and practice

•rationalize the need for an alternative economic paradigm.

Islamic economics as a field of study began in the 1950s with the works of some Indian scholars in the field. The King Abdulaziz University’s Islamic Economics Research Institute, in Jeddah, Saudi Arabia records the origin of the contemporary approach to the study of Islamic economics to be about forty years after that. The works of the great Islamic scholars, the mujtahids, such as Imam Ghazali, Ibn Taimiyya, Imam Shatibi, Ibn Qayyim, and Ibn Khaldun recorded the study of Islamic economic and social problems either in reference to the Qur’an and prophetic teaching, the Sunnah; or independently of those as ideas were based on economic thought in the light of ijtihad (Islamic scholarships). The latter examples are of Ibn Khaldun (Rozenthal 1958), and the Muslim philosopher, Al-Farabi (Waltzer 1985). The use of the terminology ‘Islamic economics’ reflects the classification of educational disciplines given to us by the Western world.

While classification of the disciplines carried with it the specialization and independence of the areas of learning as separable activities, Islamic economics, by its contemporary term, became one of the emergent ways of such thinking. It is fact that a lot of work has been done by Islamic economists regarding the conceptual understanding of the reasons why conventional theory is not relevant to Islamic analysis of economic behaviour. Even some non-Muslim economists have roundly criticized conventional economics and have called for the development of an Islamic ethical approach in order to understand economic behaviour in general. However, most of the scholars writing on Islamic economics have confined their research within the framework of neo-classical economics – a framework that is being increasingly recognised, even by mainstream conventional economists, to be inadequate to explain the economic behaviour of man. This marks the point of departure of the Islamic methodological worldview and its potentiality to contribute to and sustain Islamic originality, erudition, epistemology, and consequential analytics in the wider academic world. Islamic economics entered the scene of the classified disciplines in a tragic state, depicted critically by Mahomedy (2013). Nonetheless, great potential remains for Islamic economics as a discipline of meta-science that should be grounded on truly Islamic epistemological foundations.

Growing dissatisfaction with conventional economics requires the derivation of Islamic economics from the teachings of the Qur’an and the Sunnah. It needs to develop as an alternative framework of analysis so that the edifice of Islamic economics is not constructed on wrong foundations (Khan 2013). This alternative framework has to be such that it can accommodate the knowledge of the Qur’an about human nature and behaviour. The Qur’an is the revealed book of guidance for those who seek guidance.¹ It thereby provides guidance for all issues of mind and matter, and thus of science economics in its meta-perspective of morality and ethics embedded in materiality. The methods and models of Islamic economics have to be universal in application and realistic in making assumptions and axioms based on Islamic morals and ethics. It should be noted that the concept of science in the Qur’an and Sunnah is not limited to positive knowledge that is consistent with reality only, but also includes proponent presumptions. For this reason, Muslim jurists are in agreement in calling fiqh a science, although many of its rules are based upon presumptive evidence (Zarka 2003). Therefore, the science of Islamic values must be attached to the notion of Islamic economics.²

The present state of the study of economics

The Royal Economic Society points out that, since 1999, smaller universities in the United Kingdom have abandoned exclusive focus on economics. Yet the larger universities in the UK, by virtue of their advanced ideas in economic reasoning and by integrating related disciplines, have flourished. One such area that has arisen in the larger universities is heterodox economic theory. According to orthodox economic theory, to which neoclassical economics belongs, the principal attribute of rational choice-making in goods and services is ‘marginal rate of substitution’ between competing goods and services for the command over scarce resource allocation between such competing ends. We will also refer to this neoclassical premise as ‘marginalism’. Islamic economics immersed in mainstream orthodox economics could not belong to the holistic sociological economic school.

Since then, Islamic economics is in its heyday in the Muslim world. It by and large has been encouraged by the now stylized caption of Islamic finance. The example is the present failing of Islamic banks. They raise large equity values from investors in the market. Unfortunately, Islamic banking and finance is then clearly directed towards a profit-oriented entity rather than a social-based entity, which has not been given attention when the objectives of Islamic economics have been discussed (Mohammad and Shahwan 2013). The major problem of Islamic economics, like Islamic finance, Islamic banking, and other Islamic socio-scientific ventures, is that it has no articulated epistemological foundation. On the other hand, any science, social or natural in category, ought to be based in solid epistemological foundation. Such an orientation gives shape, form, axioms, assumptions, and methodological formalism to the entire body of theory and application. Einstein (Bohr 1985) said that science without epistemology remains muddle-headed. This being the case, the axioms, assumptions, nature, methodology, and applications at the core of Islamic economic reasoning, namely morality and ethics, must be included in the developing framework of Islamic economics.

The rise of heterodox economics in recent times is of a deeply ontological and epistemological type. Even neoclassical economics is epistemological in nature according to its own axiom of economic rationality. Classical economics is thoroughly epistemological, in reference to the Theory of Moral Sentiments as Adam Smith’s first great epistemological contribution to economic reasoning. The basic paradigm of science as we have inherited it rests on the epistemology of heteronomy. Heteronomy conveys the nature of dualism between a priori and a posteriori domains of reasoning. We will discuss these issues in subsequent chapters, to bring out the distinctive difference between the rationalism of the Western theory of science and the episteme of unity of knowledge of the Islamic methodological worldview.

Contrary to all such epistemological moorings, current Islamic economics, and likewise, all other Islamic socio-scientific fields in recent times have not been able to formalize and contribute to the internal dynamics and functioning of the primal axiom of the entire Islamic methodological worldview upon which a meta-science can be established. This is the ineluctable axiom of Tawhid as the monotheistic law of unity of knowledge. It exists not simply in words. Rather, as Imam Ghazali said (Karim, n.d.), the understanding of Tawhid as a methodological worldview has sixty stages with increasing depth. Islamic economics has casually adopted a surface attitude towards declaring Tawhid (belief) without mentioning its world-system dynamics and axiomatic character in the building of socio-scientific thought, meta-science, and applications (Naqvi 2003).

The Islamic methodological worldview is the universal and unique foundation of all Islamic intellection. It is formal in nature if properly utilized for the construction of the cognitive and material world-system and its specifics. Such a formal intellection with its methodology, methods, and application is equally applicable to the building of meta-science as well as economics as discipline in the world of learning. On the indispensability of the Islamic methodological worldview in the mundane world-system, Ibn Arabi wrote in his Futuhat (trans. Chittick 1989):

The first way is by way of unveiling. It is an incontrovertible knowledge which is actualized through unveiling and which man finds in him. He receives no obfuscation along with it and is not able to repel it….The second way is the way of reflection and reasoning (istidlal) through rational demonstration (burhan `aqli). This way is lower than the first way, since he who bases his consideration upon proof can be visited by obfuscations which detract from his proof, and only with difficulty can he remove them.

The surface approach to Islamic economics, which only utters Tawhid at the beginning and at the roots, rather than throughout the concept, is unable to formalize the monotheistic meaning as a methodology, formalism, and application.

As a consequence, in Islamic economics the Kantian problematique of heteronomy between the moral imperative of the a priori domain and the practical reasoning of the a posteriori domain has entered Islamic socio-scientific thought in general and Islamic economics and finance in particular in a most surreptitious way. Heteronomy, like rationalism, causes a dichotomy between the moral law (Tawhid = a priori) and the world-system (a posteriori). Contrarily, the Qur’an presents the moral and cognitive world-systems as being one of a unified and indivisible holism. It has its endogenous dynamics of organic unity of being and becoming concerning mind and matter. The Islamic methodological worldview is thus indispensable, in order to give the universal and uniquely original, revolutionary, essential Islamic foundation to finance, science and society (Choudhury 2015).

As was mentioned above, Islamic socio-scientific intellection in general and Islamic economics and finance in particular have not been able to stop the emergence of a field of heterodox economics. Heterodox economics by itself is a deeply ontological and epistemological inquiry (Lawson 2003). If the ontological and epistemological foundations of the Qur’an and Sunnah are missed out, then the constructive dynamics of the Islamic foundation cannot be understood. This is equivalent to uttering but not knowing how to cognize and apply the methodology of Tawhid in the building of meta-science for rendering to the world of learning. Will it stay this way? Have not the Qur’an and Sunnah given the challenge to raise the world-system to the pinnacle of knowledge for global well-being? This possibility is not to be found in the present state of Islamic economic thought, by missing out the episteme of Tawhid. Yet substantive effort and contributions in this direction abide.

The nature of Islamic economics according to the Islamic episteme

This book elaborates on the epistemological methodology of Tawhid based on the groundwork of a heterodox Islamic economics and finance. The resultant Islamic methodology is rigorously analytical, invoking science, formalism, and analytical depth as well as universal application to particular issues and problems. It is a mistake and a complete denial of scholarly knowledge to say that Tawhid is purely philosophical and that its necessity in Islamic economics is not understood.

The fundamental attributes of Islamic economics in the light of Islamic methodology begin from the exegesis of the principle of ‘pairing’ in the Qur’an.³ Pairing conveys the organic unity between the good things of life as well as the association of the bad things of life, in accordance with the Qur’an. The good things are to be accepted; the bad things shunned. Pairing as organic unity of knowledge conveys the universal meaning of God’s creation and purpose. It is a reflection of the unity of being and becoming along the dynamics of forming complementarities between the good and recommended things of life. The good things of life participate and complement each other in a unified inter-causal relationship. The bad things compete and marginalize each other. There is no scope of unifying for purposive unity, except to marginalize each other by association and differentiation.

This book will explain how the nature of Islamic methodology is intrinsically related, by circular cause and effect, to a deep knowledge of economics. According to the Qur’an, Tawhid is the bedrock of complete and absolute knowledge. God is the fullness of knowledge that is embodied in the monotheistic law as the primal ontology, meaning theory of being and existence. The world-system (a’lameen) is descr...