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INTRODUCTION
Philosophically speaking, an individual is a unified person moved to action by impulses that do not distinguish between the mundane and the spiritual. Thus, the somewhat oversharp division of man's activity into this-worldly and the other-worldly seems arbitrary and perhaps no better than a ploy to resolve the conflicting demands of specific religious, political or economic situations; it cannot be justified as a universal rule holding in all situations. According to the Islamic vision, the distinction between the secular and the spiritual is both pointless and counter-productive – pointless, because it is artificial and unreal; counterproductive, because it breeds schizophrenic tensions. It also makes men profess what they do not believe in, something that deprives them of the right value perspective.1
The unitary character of Islamic philosophy destroys the dichotomy between the secular and the spiritual both at the level of the individual and the society. At the level of the individual, man is seen as a theomorphic being. Man is free; but he should also be committed to the betterment of the society. Thus, driven by a strong ethical impulse, he is supposed to discharge his social and economic responsibilities for his own good and that of the society. At the socio-economic level, the act of giving to the poor and the needy is linked directly with the efforts to attain spiritual ascension.2 Creating a ‘unified’ framework of thought and action thus, Islam seeks to create the necessary preconditions for social harmony and economic progress.
The connection between man's desire to promote his own welfare and his longing to satisfy his spiritual urges makes the task of synthesizing ethical imperatives with economic actions not just a matter of intellectual curiosity. Once it is accepted that the influence of religious beliefs on man's day-to-day social and economic behaviour is significant in a typical Muslim society, then it is no longer possible to model the latter without the former.3 In fact, ‘Islamic economy is part of the religion of Islam which covers the various branches of life’ [Sadr (1982)]. Thus, the Muslim economist is faced with a difficult intellectual enterprise. He must show that bringing ethical considerations, which are based on religion, explicitly into the economic calculus in no way fetters the spirit of enquiry, and that by conjoining these factors into a single analytical scheme he can make a net contribution to economic knowledge. He must also re-formulate the basic Islamic propositions, motivated as they are by an essentially ‘rightist’ philosophy, in the form of a set of refutable hypotheses capable of being tested potentially if not actually.4
The world has changed a great deal since the medieval Muslim philosophers wrote about economic matters. Notwithstanding our filial reverence for what they thought about the social reality in their times, their writings are only partially helpful in comprehending the complexities of the modern age because the production relations – and the social reality which they define – have undergone a sea-change. We may not just reconstruct their ideas to suit the requirements of the modern age; that would be conferring an unnatural degree of plasticity and universality on these ideas.5 Instead, while making full use of modern knowledge, we must come up with altogether new ideas within the matrix of modern knowledge, cultural mores, and institutional structures. The fruits of knowledge, irrespective of who created it, must be shared by all mankind to make this world a better place to live in. A blind adherence to irrelevant anachronisms is a sure-fire prescription for deepening the intellectual stagnation that Muslim societies have suffered from for centuries now. As we must uphold the supremacy of reason in the conduct of our affairs, we should seek to harness Islam's power to synthesize diverse strands of thought and weave them into a recognizable pattern which is both familiar and original.6
To make a convincing case for the Islamic economic system, it will have to be shown that the fusion of ethics and economics will give it an edge over other economic systems. This will be a difficult task because the existing economic systems – capitalism, socialism, the welfare state – have succeeded in achieving high rates of economic growth and social (including distributive) justice to an extent that is unprecedented in human history. And now with the dismantling of the socialist (communist) system in the Soviet Union, capitalism is being offered as a panacea for all economic ills, irrespective of the constraints of time and space. To meet the intellectual challenge of proving that there is an alternative to these economic systems for Muslim societies, it will have to be demonstrated that an Islamic economic system is at least as effective in facing the perennial problems of want, poverty, and human degradation. Indeed, it will be highly dangerous not to bother about such a demonstration in a real-word context and merely contend that since the Islamic policy instruments carry the Divine approval, they must work perfectly under all circumstances. Islam does not offer any such guarantees. An Islamic economic system is as much man-made as any other economic system; and its success also will be ensured by the universally accepted tests of survival. One of these tests is the capacity of a real-world system to experiment and innovate to meet new social and economic challenges. Thus, evolving an economic system which satisfies the laws of social dynamics and the dictates of social justice will require a flexible response: to fight for individual liberty when faced with economic or political totalitarianism; but also to assert the principle of social welfare in the midst of market capitalism.
Thus, the research programme of Islamic economics will inevitably be eclectic. On the one hand, the contribution to the evolution of human societies made by reformist (indeed, revolutionary) movements in the West and the great advances made by economic science in modern times must be recognized by Muslim economists. On the other hand, due attention should be paid to the fact that what essentially runs counter to the Islamic ethical values cannot be included without modification in the Islamic framework of thought.7 For instance, the uncompromising positivistic position of both the neoclassical economics and the Marxist economics will not be acceptable. More specifically, the exclusive reliance on the ‘self-interest maximization assumption’, which is taken as synonymous with rational behaviour and is absolutely basic to neoclassical economics, cannot be carried over in its pristine form into Islamic economics. [See Khan (1992)]. The same holds for numerous other propositions, the most important of which is the Pareto-optimality principle. Such postulates will have to be either discarded or suitably modified to take into account the pervasive influence of ethical considerations on man's economic behaviour in a Muslim society.
In going from the first principles of Islamic ethics to economics, it is important to be absolutely clear about the direction that Islamic economics must take in its next cycle of development; the attempt is to be aimed at an interdisciplinary link-up to bring economics, ethics, and religion into a single orbit of thought. Two points should be noted in this context, (a) In deducing basic statements about Islamic economics, which are inevitably a set of value judgements, we are not just insisting on any ethic, but one which is derived from the Islamic religion. (b) The ethical principles that we are looking for are not consequence-insensitive; instead, they pay due attention to the social consequences of the exercise of property rights by individuals, and prescribe corrective action in every situation of social injustice.
Thus, Islamic economics will have to develop simultaneously at two levels. First, it must reflect a clear recognition and understanding of the essence of what Islam's fundamental ethical values are in order to discover the touchstone by reference to which we can establish the Islamic (or un-Islamic) nature of the given economic principles. The next logical step is to turn these ethical values into operative axioms. Once such a logical system has been set up, the essentials of Islamic economics can be deduced. Second, using Muslim society as a real-world counterpart of Islamic economics, a series of hypotheses must be established about representative Muslim behaviour. To establish such hypotheses, which are empirically falsifiable and which also posit the Islamic premise of ethics joined with economics, is among the main objectives of this book.
Although much of this effort runs counter to the insistence by mainstream (positive) economics on a value-free economics, yet the scientific validity of our procedure is not in doubt. If man's ethical perceptions do influence his behaviour in the real world, it is difficult to sustain the proposition that economic behaviour can somehow remain untainted by ethics. One can, of course, derive mathematically neat and amoral economic theorems by accepting the self-interest maximization postulate, but that does not lessen one bit the doubt about the exclusivity of the efficiency-oriented principles to explain and predict the real world where ethical issues also matter. Thus, it is reasonable to assert that to simulate reality in a Muslim society, ethical considerations must be taken into account because the religious beliefs held by the members of such a society further strengthen the hold of ethics on man's mind and action. It is not a question of whether such an attitude is rational or not as judged by some ‘objective’ criterion; the important thing for the economic analyst is to recognize the economic significance of such ethico-religious beliefs.
It is important to bear in mind that when inter-systemic comparisons are made – and reasons are spelled out why an Islamic economic system will be preferred by Muslims to any other system, e.g., capitalism, socialism or the welfare state, such an enterprise is meaningful within the matrix of the Islamic system of beliefs; it is not necessarily a proof of the absolute superiority of an Islamic economic system to all other systems so that even non-Muslims will also prefer it.8 However, this fact does not detract from the ‘universality’ of such a system; it only points to the essential relativity of all human knowledge – Islamic economics being no exception to this rule.9
PLAN OF WORK
The analysis presented in this study, which has been developed from Naqvi (1981), is elaborated in thirteen chapters. The Second chapter is foundational in that it brings out the meaning and significance of the new discipline of Islamic economics. It is clearly recognized that, notwithstanding its axiomatic character, the new discipline must also relate to the analysis of the economic behaviour of a ‘representative’ Muslim in a typical Muslim society. It is only in this way that at least some of its key propositions, deduced formally from ethical axioms, will have a chance, however remote, of being tested in the real world. This chapter also points to some of the methodological issues that arise once the need to verify the key propositions of Islamic economics empirically is recognized.
In chapters Three and Four, I have employed the basic concepts of mathematical logic to express the essentials of Islamic ethics as a set of axioms, which are then used to deduce the basic propositions of Islamic economics. These two chapters are fundamental, because all the logical ‘statements’ made in the rest of the book presume that che axiom system identified here is an adequate representation of Islam's ethical perceptions – in the sense that it is a comprehensive but a (non-trivial) minimum possible set; that it is logically consistent and independent; that it possesses predictive power; and that it adds to our understanding about the world of Islam. Although the fundamental ethical axioms have been set up as a logical system, these too are verifiable statements in the context of a Muslim society. We have set up the Islamic axiom system – consisting of Unity, Equilibrium, Free Will, and Responsibility – on the basis of the assertions and value judgements made in the Quran and the Sunnah, which, notwithstanding fine theological differences between different schools of thought, are universally regarded by Muslims as true and infallible guides to social and economic activities. Thus, while we have used an essentially deductive method to lay the foundations of Islamic economics, at least some of the propositions so arrived at should be testable, if not actually tested, in the real world. However, it should be noted that to demand for each and every postulate of Islamic economics, established through a priori reasoning, to be actually tested and empirically verified is to ask too much of any discipline.10 The importance of a theory, or a discipline, is established by showing that it points out a significant problem, and that it increases understanding of the problem. As it does this, Islamic economics can happily live with any number of unverified, and unverifiable, economic statements.
The Fifth chapter, using the analytical tools forged in the previous chapters, seeks to deduce the basic propositions (statements) of Islamic econo...
