The Birth of Islamic Economics

The Birth of Islamic Economics

The question of whether Islam provides an alternative economic system is a complicated one for various reasons. And rather than answer it, this essay may raise even more questions. It is also a question that cannot be comprehended without understanding the contemporary socio-political changes that have occurred in the Middle East. While the economic ideas of classical scholars such as Ibn Taymiyya and al Ghazali are no doubt relevant to whatever Islam has to say about the theory of economics, they matter much less to the political economy of an ‘Islamic’ nation-state than the post-colonial developments in the Muslim world.

While different countries undoubtedly had differing experiences under colonisation, the colonisation of vast swathes of Muslim lands can still be characterised as having forcibly removed many of their political and economic institutions. After these countries achieved independence, various ideological forces competed for the hearts and minds of the populace, and many reformists attempted to develop and articulate a system of economic organisation based on the teachings of Islam.

The Nature of Islam

To understand the fervency with which this task was taken up, one must understand the unique nature of Islam. The idea of relegating Islamic teachings to the private sphere of an individual is simply alien to mainstream Islamic thought. While many Europeans may look back at the role of the Catholic Church in politics with disregard, Muslims tend to view the caliphates of old as representing the golden age of Islamic history. The principles, rulings and prohibitions of Islam have always had a role in the public life of Muslim societies, ever since a small community was formed in Medina by the prophet Muhammad in 622.

Islam, as it has been understood and practised over these centuries by the majority of the ummah, has inspired, to varying degrees, every aspect of human life. It is not difficult, then, to understand the affront with which the inhabitants of the Muslim world greeted the mission civilsatrice and its justification for intervention, namely to bring ‘civilisation’ to the uncivilised, to rid them of their backwards religion and values, and to replace it with modernity and secularism.

The Two Approaches

Those who formulated their ideas during this time were usually divided into two groups (Mahomedy, 2011). Some were taken by such revolutionary zeal that they dismissed all that had been practised before them, arguing that Islam was completely unlike both capitalism and socialism, that it was an ‘other’, a third option. They focused on critiquing both of these, capitalism for its inevitable exploitation borne out of the pursuit of materialistic attainment above all else, and socialism for violating individual liberties through its excessive obsession with economic equality. The problem with this approach, which should be evident by now, is that it brings nothing new to the table, merely regurgitating the age-old arguments capitalists have made of socialists, and vice versa.

Confusingly, the second group of thinkers have attempted to define Islamic economics through the lens of either capitalism or socialism, often straying uncomfortably close to either one. The Muslim capitalist argues that Islam acknowledges the supremacy of the market, the motive of profit-making and the virtue in trade. He point to the life of Prophet Muhammad, a merchant, and he quotes the Quranic verse “Do not consume one another’s wealth unjustly but only in business by mutual consent” (4:29).

Meanwhile the Muslim socialist claims that Islam condemns the exploitation of the poor, places the interest of the community above those of the individual and forbids the privatisation of a nation’s resources and its control by a rich elite. The evidence is also provided for this viewpoint, such as the hadith  “Give the worker his wages before his sweat dries” (ibn Majah) or the Quranic verse that orders the wealth to be distributed to the orphans and travellers “so that it will not be a perpetual distribution among the rich from you” (59:7).

This second group of economists were heavily influenced by their political context and the environment in which they developed their thoughts. Because of the nature of the endeavour Islamic economists are pursuing by attempting to express more clearly what are essentially God’s principles, objectives, rules and prohibitions for the economic sphere of human life, they must be qualified in two areas: Islam and economics. This is unlikely to be the case, and so the alternative is to bring together professional economists and Islamic scholars to facilitate development of thought that is both true to economics and the mainstream established practises of the religion.

However, when there is a large divide between Islamic scholars—those who are qualified exegetes of the Quran and Hadith—and economists, the field can be left with capitalism or socialism garbed in Islamic rhetoric and supported with selective Quranic verses.

A Necessary Alternative

At this stage, one may ask why an Islamic economics is even necessary. Why can the problems raised by capitalism not be resolved from within capitalism and also serve the specific interests of Muslim communities? The problem with this approach from a foundational standing is that the assumptions and values of capitalism will inevitably lead to a result that is antithetical to the one desired by Muslims who espouse belief in God’s sovereignty and ownership of everything, the role of revelation, an afterlife and divine judgement. It is not epistemologically sound to argue that their methodologies and preferred outcomes will coincide. This can be observed in the very narrow and hedonistic definition of ‘human well-being’ that removes any spiritual components from the objectives of economics. A self-interested homo economicus would thus behave differently to someone who believes his actions will have consequences (or rewards) in the afterlife, and thus incorporated this belief into his actions.

This is not to entirely dismiss the postulates of rationality and self-interested individuals, rather to argue that for a community of Muslims, it is in fact entirely rational to take into account non-materialistic considerations that form the objectives of economic organisation. It is true that it’s difficult to effectively incorporate and apply this approach to societies where Islam does not play a significant role in people’s lives, and proponents of conventional economics would argue that they are merely being realistic and describing how humans interact, not how they should be interacting.

This, however, misses the point. Islam explicitly aims to change the way people behave and interact. It is not merely a set of beliefs, but rather a moral guidance for a programme of action (Tripp, 2006). Jared A. Pincin, of The King’s College, argues that “(Conventional) economic analysis helps answer the question of what is the best way for humans to materially flourish” but not “what is moral” (2014). Islamic economics is a normative concept at its core that seeks to infuse Islamic values into economic interactions, what Charles Tripp refers to as the ‘Islamic Calculus’ (2006).


Beyond these conceptual differences and necessities, those working in the field of Islamic economics must extend their normative contributions to include work on how these manifest in the daily lives of people—as individuals and as a collective—living in an ‘Islamic economic system’.

As mentioned above, economists must also work closer together with Islamic scholars in order to develop a methodological approach that is true to both the economics and the Islamic sciences such as the principles of jurisprudence, the objectives of Islamic law, and the exegesis of revelation. Only then can we hope to advance Islamic economic thought.






The Holy Quran

The Limits of Economics, Jared A. Pincin: http://valuesandcapitalism.com/insufficiency-economics/

Islam and the Moral Economy, Charles Tripp

The Benevolence of Self-Interest, The Econommist: http://www.economist.com/node/179495

Islamic Economics: Still in Search of an Identity, Adulkader Mahomedy

The Future of Economics, Umer Chapra

One thought on “The Birth of Islamic Economics

Leave a Reply