File Name: introduction to islamic economics theory and application .zip
Islamic economics has been having a revival over the last few decades. However, it is still in a preliminary stage of development. In contrast with this, conventional economics has become a well-developed and sophisticated discipline after going through a long and rigorous process of development over more than a century. Is a new discipline in economics needed?
If so, what is Islamic economics, how does it differ from conventional economics, and what contributions has it made over the centuries? This article tries to briefly answer these questions. It is universally recognized that resources are scarce compared with the claims on them. However, it is also simultaneously recognized by practically all civilizations that the well-being of all human beings needs to be ensured.
Given the scarcity of resources, the well-being of all may remain an unrealized dream if the scarce resources are not utilized efficiently and equitably. For this purpose, every society needs to develop an effective strategy, which is consciously or unconsciously conditioned by its worldview.
If the worldview is flawed, the strategy may not be able to help the society actualize the well-being of all. Prevailing worldviews may be classified for the sake of ease into two board theoretical constructs 1 secular and materialist, and 2 spiritual and humanitarian. Secular and materialist worldviews attach maximum importance to the material aspect of human well-being and tend generally to ignore the importance of the spiritual aspect.
They often argue that maximum material well-being can be best realized if individuals are given unhindered freedom to pursue their self-interest and to maximize their want satisfaction in keeping with their own tastes and preferences. In such a worldview there is little role for values or government intervention in the efficient and equitable allocation and distribution of resources. In contrast with this, religious worldviews give attention to both the material as well as the spiritual aspects of human well-being.
They do not necessarily reject the role of reason in human development. They, however, recognize the limitations of reason and wish to complement it by revelation. Even though none of the major worldviews prevailing around the world is totally materialist and hedonist, there are, nevertheless, significant differences among them in terms of the emphasis they place on material or spiritual goals and the role of moral values and government intervention in ordering human affairs.
While material goals concentrate primarily on goods and services that contribute to physical comfort and well-being, spiritual goals include nearness to God, peace of mind, inner happiness, honesty, justice, mutual care and cooperation, family and social harmony, and the absence of crime and anomie. These may not be quantifiable, but are, nevertheless, crucial for realizing human well-being. Resources being limited, excessive emphasis on the material ingredients of well-being may lead to a neglect of spiritual ingredients.
The greater the difference in emphasis, the greater may be the difference in the economic disciplines of these societies. There is a great deal that is common between the worldviews of most major religions, particularly those of Judaism, Christianity and Islam. This is because, according to Islam, there is a continuity and similarity in the value systems of all Revealed religions to the extent to which the Message has not been lost or distorted over the ages.
If conventional economics had continued to develop in the image of the Judeo-Christian worldview, as it did before the Enlightenment Movement of the seventeenth and eighteenth centuries, there may not have been any significant difference between conventional and Islamic economics.
However, after the Enlightenment Movement, all intellectual disciplines in Europe became influenced by its secular, value-neutral, materialist and social-Darwinist worldview, even though this did not succeed fully. All economists did not necessarily become materialist or social-Darwinist in their individual lives and many of them continued to be attached to their religious worldviews.
The pre-Enlightenment tradition never disappeared completely see Baeck, , p. There is no doubt that, in spite of its secular and materialist worldview, the market system led to a long period of prosperity in the Western market-oriented economies.
Inequalities of income and wealth have also continued to persist and there has also been a substantial degree of economic instability and unemployment which have added to the miseries of the poor. This indicates that both efficiency and equity have remained elusive in spite of rapid development and phenomenal rise in wealth. They ridiculed the dominant doctrine of laissez-faire with its emphasis on self-interest.
In addition to failing to fulfill the basic needs of a large number of people and increasing inequalities of income and wealth, modern economic development has been associated with the disintegration of the family and a failure to bring peace of mind and inner happiness Easterlin , and ; Oswald, ; Blanchflower and Oswald, ; Diener and Oshi, ; and Kenny, Due to these problems and others the laissez-faire approach lost ground, particularly after the Great Depression of the s as a result of the Keynesian revolution and the socialist onslaught.
However, most observers have concluded that government intervention alone cannot by itself remove all socio-economic ills. It is also necessary to motivate individuals to do what is right and abstain from doing what is wrong. This is where the moral uplift of society can be helpful. Without it, more and more difficult and costly regulations are needed. While conventional economics is now in the process of returning to its pre-Enlightenment roots, Islamic economics never got entangled in a secular and materialist worldview.
It is based on a religious worldview which strikes at the roots of secularism and value neutrality. To ensure the true well-being of all individuals, irrespective of their sex, age, race, religion or wealth, Islamic economics does not seek to abolish private property, as was done by communism, nor does it prevent individuals from serving their self-interest. It recognizes the role of the market in the efficient allocation of resources, but does not find competition to be sufficient to safeguard social interest.
The market is not the only institution where people interact in human society. They also interact in the family, the society and the government and their interaction in all these institutions is closely interrelated. There is no doubt that the serving of self-interest does help raise efficiency in the market place. However, if self-interest is overemphasized and there are no moral restraints on individual behavior, other institutions may not work effectively — families may disintegrate, the society may be uncaring, and the government may be corrupt, partisan, and self-centered.
Mutual sacrifice is necessary for keeping the families glued together. Since the human being is the most important input of not only the market, but also of the family, the society and the government, and the family is the source of this input, nothing may work if families disintegrate and are unable to provide loving care to children.
This is likely to happen if both the husband and wife try to serve just their own self-interest and are not attuned to the making of sacrifices that the proper care and upbringing of children demands. Lack of willingness to make such sacrifice can lead to a decline in the quality of the human input to all other institutions, including the market, the society and the government.
It may also lead to a fall in fertility rates below the replacement level, making it difficult for society not only to sustain its development but also its social security system.
While conventional economics generally considers the behavior and tastes and preferences of individuals as given, Islamic economics does not do so. It places great emphasis on individual and social reform through moral uplift. Moral uplift aims at the change in human behavior, tastes and preferences and, thereby, it complements the price mechanism in promoting general well-being.
Before even entering the market place and being exposed to the price filter, consumers are expected to pass their claims through the moral filter. This will help filter out conspicuous consumption and all wasteful and unnecessary claims on resources. The price mechanism can then take over and reduce the claims on resources even further to lead to the market equilibrium. The two filters can together make it possible to have optimum economy in the use of resources, which is necessary to satisfy the material as well as spiritual needs of all human beings, to reduce the concentration of wealth in a few hands, and to raise savings, which are needed to promote greater investment and employment.
Without complementing the market system with morally-based value judgments, we may end up perpetuating inequities in spite of our good intentions through what Solo calls inaction, non-choice and drifting Solo, , p.
From the above discussion, one may easily notice the similarities and differences between the two disciplines. While the subject matter of both is the allocation and distribution of resources and both emphasize the fulfillment of material needs, there is an equal emphasis in Islamic economics on the fulfillment of spiritual needs.
While both recognize the important role of market mechanism in the allocation and distribution of resources, Islamic economics argues that the market may not by itself be able to fulfill even the material needs of all human beings. This is because it can promote excessive use of scarce resources by the rich at the expense of the poor if there is undue emphasis on the serving of self-interest.
Sacrifice is involved in fulfilling our obligations towards others and excessive emphasis on the serving of self-interest does not have the potential of motivating people to make the needed sacrifice. This, however, raises the crucial question of why a rational person would sacrifice his self-interest for the sake of others?
This is where the concepts of the innate goodness of human beings and of the Hereafter come in — concepts which conventional economics ignores but on which Islam and other major religions place a great deal of emphasis.
Because of their innate goodness, human beings do not necessarily always try to serve their self-interest. They are also altruistic and are willing to make sacrifices for the well-being of others. In addition, the concept of the Hereafter does not confine self-interest to just this world. It rather extends it beyond this world to life after death. We may be able to serve our self-interest in this world by being selfish, dishonest, uncaring, and negligent of our obligations towards our families, other human beings, animals, and the environment.
However, we cannot serve our self-interest in the Hereafter except by fulfilling all these obligations. Thus, the serving of self-interest receives a long-run perspective in Islam and other religions by taking into account both this world and the next. This serves to provide a motivating mechanism for sacrifice for the well-being of others that conventional economics fails to provide. The innate goodness of human beings along with the long-run perspective given to self-interest has the potential of inducing a person to be not only efficient but also equitable and caring.
Consequently, the three crucial concepts of conventional economics — rational economic man, positivism, and laissez-faire — were not able to gain intellectual blessing in their conventional economics sense from any of the outstanding scholars who represent the mainstream of Islamic thought. While there is hardly anyone opposed to the need for rationality in human behavior, there are differences of opinion in defining rationality Sen, , pp.
However, once rationality has been defined in terms of overall individual as well as social well-being, then rational behavior could only be that which helps us realize this goal. Conventional economics does not define rationality in this way. Within this framework society is conceptualized as a mere collection of individuals united through ties of self-interest. Al-Mawardi d. Ibn Khaldun d.
Since all resources at the disposal of human beings are a trust from God, and human beings are accountable before Him, there is no other option but to use them in keeping with the terms of trust. These terms are defined by beliefs and moral values. Human brotherhood, one of the central objectives of Islam, would be a meaningless jargon if it were not reinforced by justice in the allocation and distribution of resources. Without justice, it would be difficult to realize even development.
Muslim scholars have emphasized this throughout history. Development Economics has also started emphasizing its importance, more so in the last few decades.
Ibn Taymiyyah d. Justice and the well-being of all may be difficult to realize without a sacrifice on the part of the well-to-do. The concept of Pareto optimum does not, therefore, fit into the paradigm of Islamic economics. This is because Pareto optimum does not recognize any solution as optimum if it requires a sacrifice on the part of a few rich for raising the well-being of the many poor. Hence, this concept did not arise in Islamic economics. In fact, Islam makes it a religious obligation of Muslims to make a sacrifice for the poor and the needy, by paying Zakat at the rate of 2.
This is in addition to the taxes that they pay to the governments as in other countries. Moral values may not be effective if they are not observed by all. They need to be enforced. It cannot by itself enforce them.
Islamic commercial jurisprudence entails the rules of transacting finance or other economic activity in a Shari'a compliant manner,  i. Islamic jurisprudence fiqh has traditionally dealt with determining what is required, prohibited, encouraged, discouraged, or just permissible,  according to the revealed word of God Quran and the religious practices established by Muhammad sunnah. This applied to issues like property, money, employment, taxes, loans, along with everything else. The social science of economics ,  on the other hand, works to describe, analyse and understand production , distribution , and consumption of goods and services ,  and studied how to best achieve policy goals, such as full employment, price stability, economic equity and productivity growth. Early forms of mercantilism and capitalism are thought to have been developed in the Islamic Golden Age    from the 9th century and later became dominant in European Muslim territories like Al-Andalus and the Emirate of Sicily.
Request PDF | On Nov 14, , Hossein Askari and others published Introduction to Islamic Economics: Theory and Application | Find, read.
Kutipan per tahun. Kutipan duplikat. Artikel berikut digabungkan di Scholar. Paduan kutipannya hanya dihitung untuk artikel pertamanya saja. Kutipan yang digabung.
Islamic economics has been having a revival over the last few decades. However, it is still in a preliminary stage of development. In contrast with this, conventional economics has become a well-developed and sophisticated discipline after going through a long and rigorous process of development over more than a century. Is a new discipline in economics needed? If so, what is Islamic economics, how does it differ from conventional economics, and what contributions has it made over the centuries?
Faster previews. Personalized experience. Get started with a FREE account. Keep Going. Blockchain, Fintech, and Islamic Finance.
Search this site.Reply