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The Idea of Islamic EconomicsAuthor(s): Thomas PhilippSource: Die Welt des Islams, New Series, Bd. 30, Nr. 1/4 (1990), pp. 117-139Published by: BRILLStable URL: http://www.jstor.org/stable/1571048 .Accessed: 19/01/2011 15:55

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Die Welt des Islams XXX (1990)

THE IDEA OF ISLAMIC ECONOMICS*

BY

THOMAS PHILIPP

Erlangen

Since the late fifties a flood of publications about Islamic

economy has been rising steadily. Publications occurred mainly inthree languages: Urdu, English, and Arabic. Comprehensivebibliographies concerning this literature do not exist. A fairlyextensive bibliography leads up to 1975.1 Of the 680 titles cited

roughly 30% were in Arabic, 33% in English, and 27% in Urdu.

This, however, does not reflect necessarily the origin of these

works. About two thirds of all works in English were authored byPakistanis or Indians. Also a significant number of publications inArabic originated from Pakistan. Altogether, probably more than70% of the titles on this list come from Pakistan. Yet, we have toadd that the trend in the last decade has been towards more andmore publications initiated in the Arab world. Between 1959 to1966 the number of Arabic publications has increased sharply on

subjects such as socialism and Islam, or the workers and Islam, etc.Since the 1970's it is especially with conferences organized by theSaudis, that the Arab titles increase; here such institutions as the

King (Abd al-CAzlz University in Jidda and organizations like theAssociation of Muslim Social Scientists in America have played an

important role.

* I am indebted to Prof.Bahadir, Erlangen,

and Prof.Holtfrerich, Berlin,

for

discussing aspects of economic theory with me, commenting on the draft and

making very helpful suggestions.1 Siddiqi, N., "Muslim Economic Thinking - A Survey of Contemporary

Literature" in: Ahmad, Khurshid, Studies in Islamic Economics. Leicester 1980.There exist two more bibliographies: Muhammad Akram Khan, Islamic Economics.Leicester 1983, with 650 entries of mainly Pakistani origin, and Nienhaus, V.,Literature of Islamic Economics, Koln 1982.

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The discussion about Islamic economics has remained almost

exclusively a discussion among Muslims. It is the occasional work

by Udovitch or Rodinson2 which is mentioned in thebibliographies, but usually not discussed in works on Islamiceconomics.

Not all economic topics find the equal attention of the Muslimwriters. Siddiqi, for example, has a section in his bibliographicalessay called Islamic Critique of Contemporary Economic Theoriesand Systems in which topics occur with the following frequency of

publication:

Subject no. of publications

capitalism 2interest 32commercial interest 20ribd al-fadl 2speculation 7socialism/communism 34lottery 3Marxist theory 3socialism/capitalism 11

Total 114

Even though the list is not necessarily precise as a sample, whatstands out is the

preoccupationwith interest and with socialism and

communism. A point to which we shall return later.Most participants in the discussion on Islamic economics would

have us believe that an Islamic economic system existed in the pastin practice or, at least, in theory. Yet in fact, the idea that there is,or in any case should be, a specific Islamic economic system is ofrather recent origin.

The Egyptian banker and entrepreneur Talcat Harb was one of

the first to perceive the importance of economy in the Egyptianstruggle for independence from Britain after World War One.

2 Udovitch, A. L., Partnership and Profit in Medieval Islam, Princeton 1970.Rodinson, M., Islam et capitalisme, Paris 1966.

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THE IDEA OF ISLAMIC ECONOMICS

Culturally, Tal'at Harb was very much a traditional Muslim,3 buthe never as much as hinted that his far reaching economic activities

and plans were aimed at establishing, not to speak of reestablishing,an Islamic economic order. His thoughts and actions were guidedby strictly nationalist intentions, attempting to make Egypt alsoeconomically an independent country. Pursuing this aim he hadmainly a capitalist economic order in mind for Egypt.

The Muslim Brothers who rose in the 1930's and whose wholecritique of the social and political order of Egypt was that it wasvoid of Islamic law and spirit, never laid claim to a specificallyIslamic economic order. Hasan al-Banna', the leader of the MuslimBrothers, had much praise for Talcat Harb whom, he felt, God hadinspired.4 When the Muslim Brothers finally proposed steps toimprove the economy of Egypt, the proposals sounded very muchlike those of Young Egypt, the Fascist-leaning party in the 1930's,and like the policies Nasser implemented eventually: 1) nationaliza-tion of all utility and monopoly companies, 2) limitations on the

size of landholdings, creation of small landholdings to absorb thelandless peasantry, 3) taxation of non-agricultural capital, 4) con-fiscation of all foreign-owned property, 5) linking workers' salariesto company profits, 6) progressive taxes on inheritance.5 It wouldbe difficult to argue that this program contained a specificallyIslamic approach to economy.

To find the origins of the trend that asserts the existence or atleast the possibility of a whole, specifically Islamic, economic orderwe have to turn, I believe, mainly to two developments: a) theestablishment of the state of Pakistan and, in a more generalfashion, the legitimization of political power by an assumed Islamicorder; b) the search for an own identity in face of the overwhelmingpresence of the capitalist West as well as the communist East.

Pakistan is a country and society whose creation was justified bythe assumption of the existence of an Islamic identity which

3 For his traditional Muslim position in the discussion of the emancipation ofwomen see Philipp, T., "Feminism and Nationalist Politics in Egypt" in: Beck,L. & Keddie, N. (eds.), Women in the Muslim World, Cambridge MA 1978.

4 Al-Bannad, Hasan, Majmucat rasaPil al-imdm al-shahfd, Beirut 1965, p. 401-2.Al-Ghazzali, Muhammad, Al-Isldm wa)l-audic al-iqtisddiyya, Beirut 1952 (2nd ed.),p. 162.

5 Al-Ghazzall, 1952, p. 138.

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demanded an exclusive Islamic way of life. Though Jinnah and theother founders of the Pakistani state had never intended a state that

would satisfy the demands of the 'ulamd' or the fundamentalists, itis easy to understand, why it is Pakistan where a more systematicdiscussion over an Islamic order occurred earliest.

More widespread and general in the Arabic and Persian speakingworld is the need for asserting an own identity. This search for

identity often determines the form and content of works on Islamiceconomics. Typically, such works start with a declaration thatIslam is neither capitalism nor communism. Usually quite a largepart of each work is dedicated to denouncing these systems as

morally dangerous and incompatible with Islam. What is remark-able here is the imbalance of the attacks. Baqir Sadr's Iqtisadund6may serve us an illustration. Of a total of 700 pages about 30 dealwith capitalism and 270 pages constitute an attack on communism.The rest deals with Islamic economy proper. Baqir Sadr was clearlypreoccuppied with the appeal communism had for the young in

Iraq in general at that time (the early 1960's) and the tulldb in theholy cities in particular.

When Mustafa as-Sibaci, one of the founding members of theMuslim Brothers in Syria, published a book on Islamic socialism,he wanted to show that Islam was compatible with, indeed con-tained the essence of "true" socialism. Having established this linkhe turned to attack communism and denounce it as un-Islamic. Byclaiming all the "true" and "good" aspects of socialism as typicalfor true Islam he attempted to empty communism of all its originalmeaning. He cited Russia as proof for the total failure of com-munism and denounced Arab communists as unpatriotic. Else-where he compared communism and capitalism with Islamicsocialism. He dismissed on one page capitalism, because it had

nothing in common with Islamic socialism. But he took eleven

pages to discuss and condemn communism.7

6 Sadr, Muhammad Baqir, Iqtisddund, Baghdad 1961, transl. by Rieck, A.,Unsere Wirtschaft, Berlin 1984.

7 As-Sibail, Mustafa, Ishtirdkiyyat al-Isldm, Damascus/Cairo 1960, 2nd ed., pp.11-20, 285-296, 401-403. For him and Muslim Brothers in Syria see Reissner,

Johannes, Ideologie und Politik der Muslimbrider Syriens, Freiburg 1980, especially p.148 ff. and 357-8.

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The same imbalance we encounter already in an earlier book byMuhammad al-Ghazzali. It reflects a sense of competition with the

communists, trying to demonstrate that the Muslim Brothers hada great concern for the workers which was more genuine than thatof the communists.8 Throughout the book one can sense an admira-tion for the West and capitalism, which only-regretfully-doesnot have God at the center of its existence. But the attacks on com-munism are lengthy, detailed and uncompromising.9 A book fromthe same period by al-Khuli distinguishes between capitalism and

oppressive capitalism, al-ra smaliyya al-bdghiya, implying that theformer is quite acceptable.10

Worries about communism are expressed by al-Ghazzali quiteclearly in the mid-50's. If people still turn to communism, he

claims, even though Islam has everything for the poor and the

working people, it is mainly because people have the wrong ideasabout Islam. The situation demands, in al-Ghazzali's opinion, amassive effort in word and writing to enlighten people about

Islam." Sayyid Qutb, later leader of the Muslim Brothers inEgypt, also perceived of communism as the overwhelming danger.He felt capitalism was not the issue, because it would be buried bycommunism in any case.12 Ayatollah Taleghanil, the Iranian

religious leader, explained in his lengthy discussion of communism,that the true challenge of communism lies in its claim of being an

unchangeable truth and thereby directly competing with Islam.'3The appeal communism exerted on the youth was especially worry-some. Already in the fifties a publication of the Muslim Brothersstated that communism was not really to be feared, because thelaws of society and nature contradicted it, but "we fear for thebelief of our youth".14

8 Al-Ghazzali, 1952, p. 1-58.9

Ibid., pp. 92-99.10 Al-Khull, al-Bahi, Al-Islam ld shuyuciyya wa-la ra'smaliyya, Cairo 1951, p. 8.11 Al-Ghazzall, Muhammad, Al-Isldm wa'l-manahj al-ishtirdkiyya, Cairo 1951, p.

135.12 Qutb, Sayyid, Al-Cadala al-ijtimaiyya fi 'l-Islam, Cairo 1954, p. 276.13

Taleghani, Ayatollah Sayyid Mahmud, Islam and Ownership, Lexington,1983, p. 38.

14 Taleghani, p. X; al-Khuli, p. 7.

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After formal independence was gained for almost all countries inthe Middle East there arose an awareness in the fifties and sixties

that the presence of the colonizer was still very real and thatespecially economic independence had not yet been won. At thesame time secular ideologies remained greatly appealing.Capitalism, it is true, had been squarely identified with

imperialism. Furthermore its ideological expression seemed not so

clearly formulated and not very comprehensive. Both aspects gaveit little appeal. But it was socialism and communism, appearing tobe anticolonial,

progressive,and

offeringa complete

interpretationof life, which exerted great attraction especially on the mind of the

young. This forced religion-minded Arab and Iranian thinkers todeal with the issue. It was certainly important to denounce these

ideologies. But more essentially was it to show the way to an Islamicalternative for a social and economic order.

Since the 1970's the concern with an economic order has foundan additional stimulus in the deliberate policy of Saudi Arabia,

which financed the first Islamic Bank, hosted a variety of con-ferences,'5 established in its universities departments for Islamic

economy, financed a large number of publications, and invitedMuslim social scientists for remunerative sabbaticals. This

systematic promotion of an Islamic economic order coincides, of

course, with Saudi Arabia's strong anti-communist stand and addsIslamic legitimacy to its regime.

Since the whole concept of a specifically Islamic economy is ofsuch recent origin and originated from the rejection of other

systems, it was much easier to first work out what Islamiceconomics was not, rather than to find a positive content for it. Itsdistinction from communism has remained a fairly easy theoreticalmatter because of Islam's insistence on private property and itstranscendental orientation which, of course, is absent in Marxism.

The distinction from capitalism is much less apparent. Only

interest taking is a clear and often belabored point of difference. Infact, in order to create sufficient distance between capitalist

15 Nienhaus, Volker, Islam und Moderne Wirtschaft, Graz 1982, p. 56, sees theFirst International Conference on Islamic Economics in Mecca in 1976 as thedecisive step in this direction.

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societies and the Islamic one it becomes necessary, firstly, todenounce capitalism as crudely materialistic.'6 It is interesting to

note in this context that none of the authors, who came to my atten-tion, deals with Weber's argument concerning protestant ethics asthe origin of capitalism, and be it only in order to reject it. Noneof the authors mentions the moral underpinnings of Adam Smith'seconomic arguments, namely the increase of the common weal, andthe moral virtues of man which he considers essential for material

prosperity.'7 This probably reflects an unease to deal with anyargument that implies a great deal of ethic and moral force in

capitalism.18Secondly, the gap between capitalism and Islamic economy is

artificially widened by describing a ruthless, unfettered, freewheel-

ing, primitive form of exploitative 19th century capitalism, which

today is the rare exception-at least in the industrial countries. In

16

This argument is not restricted to economics but is one of the earliest andmost popular criticism against the Western world in general, see Wielandt, R.,Das Bild der Europder in der modernen arabischen Erzdhl- und Theaterliteratur, Beirut1980, especially p. 375 ff.

17 See Adam Smith's Theory of Moral Sentiment, New York 1976, especially pp.262 ff., discussing the virtues of prudence, justice, and beneficence, which springfrom man's obedience to God and are essential for prosperity; or on p. 187: "Theprudent, the equitable, the active, resolute, and sober character promises prosper-ity and satisfaction, both to the person himself and to every one connected withhim"; or, again, on p. 189, the question of "self command" i.e. the ability to

delay gratification: "Hence arises the eminent esteem with which all mennaturally regard a steady perseverance in the practice of frugality, industry, andapplication though directed to no other purposes than the acquisition of fortune."

18 Abl SuCud, Mahmud, Khutu.t raisiyyafi 'l-iqtisdd al-Isldmi, Beirut 1965, p. 9.

Al-Naggar, "Islamic Banks, Achievements and Problems" in: Muazzam, Ali(ed.), Papers on Islamic Banking, London 1984, p. 69, claims that "The present non-Islamic banks are extensions and a development of the banking system that wasfirst started in Europe by a group of people whose primary concern was to destroythe power of the church and rebel against its values ..." and also: "... on anethical basis, the Islamic banks are governed by the restraints of the Divine

system, while the traditional banks are governed by none, other than struggle andcompetitive methods." In this context see also Ghaussy, A. Ghani, Das Wirtschafts-denken im Islam, Stuttgart 1986, p. 259, footnote 48, "Es ist erstaunlich wie wenigbislang in der islamischen Wirtschaftsliteratur die sozialen Komponenten der"sozialen Marktwirtschaft" beachtet worden sind. In der Kritik der "westlichenOrdnungen" gehen die Wissenschaftler moslemischen Glaubens ... mit der Ord-nung der sozialen Marktwirtschaft sehr leichtfertig um, wenn sie sie als"kapitalistisch" und "nicht sozial" bezeichnen."

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other words, a capitalist strawman has to be set up, in order toknock him down.

It has been observed that generally Muslim apologetics have atendency to compare the grim reality of the Western World with thelofty ideals of Islam. It seems that in comparing the capitalisteconomic order with the Islamic one the capitalist reality is not grimenough and a worse image has to be conjured in order to contrastthe Islamic ideal favorable against it.

The general picture envisioned of an Islamic order with its con-cern with social justice, prevention of exploitation, governmentinterference on behalf of the public interest, and the insistence onthe right to private property differs, of course, drastically from thedenounced forms of capitalism but, in fact, is extremely close to thesort of capitalist economy aimed at by social democratic legislatives,such as we find today in various Western European countries.Abdul Rauf, longtime leader of the Muslim congegration in

Washington DC, comes close to admitting this, when he states that

Islamic economics are really compatible with "democraticcapitalism", i.e. the "nicer", "the more human" version of

capitalism which Rauf sees spreading today in the USA.19The negative definition of what Islamic economics is not serves

a very concrete purpose, namely, the attack on and the denounce-ment of secular, especially socialist and communist, forms of socialand economic order. It is the first step toward asserting an ownidentity and toward developing a positive content for a

specificallyIslamic economic order.A positive definition of this content is, indeed, the ultimate pur-

pose of the literature surveyed here. It would go far beyond thescope of this presentation to try to develop a complete picture of thisdiscussion over the content of an Islamic economic order. I shall tryonly to illuminate some of the main characteristics which seem tobe common to most of the literature and to indicate perhaps some

of the major trends in the discussion.Almost all those authors who deal with the historical dimension

of the subject assert that an Islamic economic order existed in the

19 Rauf, Abdul, A Muslim's Reflections on Democratic Capitalism, Washington DC1984, p. 21 (publ. by the American Enterprise Institute).

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past. The Pakistani economist, and one of the most penetratinganalysts, Muhammad Nejatullah Siddiqi, for instance, states flatly:

"Muslim society never legitimized interest throughout the thirteencenturies prior to domination by imperialist powers. It managed its

economy and carried out domestic and international trade withoutthe institution of interest.'20 Another author asserts that theMuslim state practised an interest free economic system in theseventh and eighth century, that there was no accumulation of

wealth, no hoarding, no profiteering, no exploitation of the poor.The bait al-mdl was the central bank of the day.21 As-Sibaci claimsthat Islamic socialism existed at the time of the Prophet and, thoughdeclining later, was never lost completely.22 A few pages later hestates that up to and including the Ottoman Empire the Islamicstate had remained socialist.23 Muhammad Abdul Rauf, after

admitting that the Islamic economic ideal and the reality ofeconomic behavior were often far apart, nevertheless continues that"The gap separating Muslims from the ideal of Islam's economic

doctrine widened considerably when the Muslim world fell underEuropean occupation and when colonial masters replaced tradi-tional Muslim systems with their own legal and economic institu-tions. This unhappy situation lasted for too long and caused deepstagnation and the spreading of ignorance and poverty."24Raguibuz Zaman admits that there is no Islamic economic systemexisting presently: "However, the earlier centuries of Islam werewitnesses to the efficient functioning of the Islamic economic systemand an analysis of the workability of this system in modern timeswill draw upon this experience" 25-a suggestion which he does notfollow in his own writings.

As-Sibaci asserts that Islamic socialism came into existence athousand years earlier than Western socialism,26 while al-Kafrawi

20Siddiqi, M. N., Issues in Islamic Banking, Leicester 1983, p. 9.

21 Irshad, "Economic System for Interest free Islamic Society" in: Some

Economic Aspects of Islam, World Muslim Congress (ed.), Karachi 1964, p. 59.22 As-Sibaci, p. 281.23 Ibid., p. 354.24 Rauf, 1984, p. 21.25 Zaman, Raguibuz, "Policy implications of introducing Zaka into

Bangladesh and Saudi Arabia" in: Zaman, R. (ed.), Some Aspects of the EconomicsofZakah, Plainfield Ind. 1980, p. 21.

26 As-SibaCl, p. 281.

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goes a step further claiming that Islam has provided an advancedwelfare system, which neither the capitalist nor the communist

order have reached yet.27 Sayyid Qutb stays closer to the traditionalinterpretation of Muslim history when he says that with the rise ofthe Umayyad Empire, shortly after the death of the Prophet, theideal Islamic economic order-together with the ideal Islamicstate-came to an end. But in his only reflection to why this hap-pened he comments solely that this occurred "because of an unfor-tunate incident at an awkward time" i.e. the personal failure of the

Caliph CUthman.28In other words, not one of the authors asks a critical or analytical

question from history. The past is what it is asserted to be. This istrue for the general approach to the construction of the theory ofIslamic economics. The point of departure is not the investigationof actual economic behavior in an existing Muslim society or thehistorical evidence for such a behavior in the past.29 Rather, theMuslim economist treats an ideal order projected into the past as

a historical fact and then draws from there legitimization for hisown theoretical endeavors.

Just as the existence of an Islamic economic order in the past is

postulated thus it is ascertained that there existed an Islamiceconomic theory. Usually Ibn Khaldun is mentioned in this con-text.30 Though Ibn Khaldun may indeed have been the "first to

recognize economics as an independent science," 31 his was, in fact,27

Al-Kafrawi, CAuf Mahmud, Al-dthdr al-iqtisddiyya wa)l-ijtimadiyya li'l-infdq al-Cammfi 'l-Isldm, Alexandria 1983, p. 12-13.28

Qutb, p. 224. See also Muazzam, p. 16, 54; al-Kafrawi, p. 12-13; Awan,Akhtar A., Equality, Efficiency and Prosperity Ownership in the Islamic Economic System,Washington DC 1983, p. 30. For an analysis of the evaluation of CUthman's roleby modern Arab historians see Ende, W., Arabische Nation und Islamische Geschichte,pp. 191-199. Ende shows how Sayyid Qutb, by considering CUthman a personalfailure, contradicted the salafiyya movement and the Arab nationalists, who bothwanted to improve the image of the Umayyad dynasty, and with it that ofCUthman.

29In contrast to such selfserving attitudes of the majority of Muslim economistssee for instance Mizyan, Abdul Majid, Al-nazariyydt al-iqtisddiyya Cinda Ibn Khald2un

wa- asasuha min al-fikr al-Isldmi wa-wdqic al-mujtamac, Algiers 1981, pp. 100-103.30 Choudhouri, Masudul Alam: "The Role of az-Zakah in Resource Alloca-

tion" in: Zaman, op. cit., p. 106; al-Kafrawi, CAuf Mahmud, Al-nuqud wa'l-masdrfffi )l-ni.zdm al-Isldmi - n.d., n. p., p. 5; Naqui, Syed Nawab Haider, Ethics andEconomics - an Islamic Synthesis, Leicester 1981, p. 158.

31 Mizyan, p. 399.

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a decidedly non-Islamic approach, trying to find independent anduniversal laws of economics that would "apply to Egypt, Syria,

China, India, and the whole Northern region beyond the Mediter-ranean."32

The actual guidelines for the construction of an Islamic economic

theory are taken by the Muslim economist usually from what he

perceives to be the pertinent rules that the Qor'an and the Hadith

provide for the formulation of an Islamic economic order. This is,often even admittedly so, a highly eclectic process. But there isnever any discussion of the method by which a selection is made,and by which such a selection may have a claim to general validity.

The process of selecting supporting arguments for a specificeconomic pattern from the vast compendium of Islamic literatureremains highly subjective. Fazlur Rahman has called it the"atomistic" approach, which constitutes "a general failure tounderstand the underlying unity of the Qor'an coupled with a prac-tical insistence upon fixing on the words of various verses in

isolation. " 33When the gap between the conception of the ideal model of

Islamic economics and the likelihood to implement it successfully inthe reality of today's Muslim countries becomes too wide, an intel-lectual retreat is engineered to a position that Islamic economicscannot be implemented in piece meal fashion. The whole societal

system has to change. First and foremost the Muslim has to becomea wholesome believer

againwho fully identifies with the values and

rules of Islam. As Maudoodi formulated it: "For establishingeconomic justice Islam does not rely on law alone. Great impor-tance is attached for this purpose to reforming the inner man

through faith, prayers, education, and moral training, to changinghis preference and ways of thinking and inculcating in him a strongmoral sense that keeps him just. If and when these means fail,Muslim society should be strong to exert pressure to make

individuals adhere to the 'limits'. When even this does not deliverthe goods, Islam is for the use of coercive powers of law to establish

32 Ibn Khaldiin, The Muqaddima (transl. F. Rosenthal), Princeton 1980, vol. II,p. 281, where he uses these lands as examples to drive home a point about prices;see also ibid., p. 20-21.

33 Rahman, Fazlur, Islam and Modernity, Chicago 1982, p. 2.

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justice by law."34 In other words, the realization of an Islamicorder is dependent on a new human being. Economic laws are not

as important for the building of such an order as the moral renewalof the participants. By preconditioning the implementation of theIslamic economic order on a change in man's heart, on his becom-

ing a true believer, on his becoming the "new human being" thewhole approach acquires a somewhat utopian character.

The Shicite variant of removing the implementation of an Islamiceconomic order into a non-historical time, into utopia, can befound in Sadr's argument that the Islamic economic order leaves

many free areas which have to be regulated by the walTy al-amr, theholder of authority. The Prophet succeeded in doing this in an idealfashion, and only through a waliy al-amr as qualified as the Prophetcan the precepts of Islamic economics be fully applied again. This

argument suggests, of course, the concept of the Expected Imam.35The alternative way offered to bridge the gap between the lofty

ideal of Islamic economics and its application is an increase in the

role of the government or some centrally controlled administrationwhich will allocate all resources according to need and profitabilityas defined by Islam. In fact, most writers have in common the

assumption of an enormously powerful state, or its agencies, whichwill play a decisive role in financial supervision, loan allocations,employment and has a free hand in imposing taxes. The govern-ment becomes an illiberal deus ex machina, when the smooth func-

tioning of the envisioned economic order seems to be in danger.The implicit assumption, typical of traditional Islamic politicalthought, appears to be that the government, or the ruler, will byown volition work for the best of the Muslim umma.36

As much as the denouncement of capitalism and the intenseattacks on communism are de rigeur for the Muslim writer on

34 Maudoodi, Sayyid Abul Acla, Macdshiyyat-e Isldm, Lahore 1969, quoted in

Siddiqi, 1981, p.13.

35 Sadr (transl.), p. 352.36 Al-Ghazzall, 1952, p. 114; Abu Sucud, 1965, p. 20 claims, for instance, that

the government is responsible to find work for everybody; Naqui, p. 103, says:"The state will have to play a very important role in an Islamic economy. Anexcessive trust in the efficiency of the "invisible hand" is not part of the Islamicperspective, nor is the absolute sovereignty of the consumer the guiding principleof Islamic economics"; see also pp. 109-120, 130, 164.

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economics so is the assertion that in Islam economics are an integralpart of religion, state, and society and that they cannot be

separated. Here a curious development in the opposite directiontakes place: Laws that pertain to the economic behaviour of the

Muslims, e.g. laws on inheritance, interest, and alms giving are,of course, as old as the sharica law. They are indeed integral partof the religion and social order. But as in pre-modern Europe thereis no awareness that the economic life might have its own laws and

causality. This traditional approach, that certain economic issuesare fiqh problems without, however, implying that there exists a

specifically Islamic economic system, was until recently widelyaccepted. As late as 1952 Muhammad al-Ghazzall asserted: "Islamneither supports nor rejects any economic order in itself. Islamcombats or accepts any part of the order according to what

originates and sprouts from it and what benefits or hurts people." 37In the last two decades, however, many authors have begun to

put forward openly or implicity the claim that there exists a whole,

coherent Islamic system of economy, with its own laws andmechanisms. In the effort to develop such a complete system thereoccurs actually a split in the holistic Islamic world view: Islamic

economy becomes-after some specific inputs of Muslim law, suchas the prohibition of interest and the obligation of alms giving,zakdt-a system which functions independently according to its ownlaws and causal relationships.

Such tendencies can be observed in some of the more traditionalwriters as for instance Baqir Sadr, when he talks about "the naturaldesire for property based on labor,"

38 which according to him can-not be changed. But he is nevertheless careful to differentiate aneconomic ideology, as a set of basic rules for economic life relatedto the idea of social justice-which is what Islam offers-from ascience of economy which according to him is a theoretical inter-

pretation of an economic reality without relating it to the higher

ideals of social justice.39The inclination to shape Islamic economics into a self-contained

37 Al-Ghazzali, 1952, p. 162.38 Sadr (transl.), p. 352.39 Ibid., p. 391.

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science is much more typical of the contemporary Muslim socialscientist, who usually had a training at some Western university in

sociology, economics, finance, political sciences, or businessmanagement. He often works in various private financial andeconomic institutions or in government planning agencies, or heteaches at some Middle Eastern or American university.40

While Sayyid Qutb, for instance, still dealt with zakdt in strictlymoral Islamic terms as enobling the giver and leading him toParadise, we find a generation later a Muslim economist develop-ing a whole "Keynesian zakdt model" which

arguesas follows:

1. The rich like to save (hoard).2. The poor need to consume but do not have the means to do so.3. Zakdt transfers funds from 1 to 2.4. The transfer leads to higher spending by the poor which in turn

leads to higher production, more jobs, and work for the poor,who now can make a living.41

In a recent collection of papers on the economy of zakdt one

author argued in a similar vein but in a much more scientific-scholarly jargon: "... the idea of perfect and imperfect competitionin resource allocation is recognized by Islamic economics. Zakah asa powerful tool of resource allocation and an Islamic economicsystem must take account of these two systems. Zakah inducedresource allocation can be considered as one of such efficient modesof resource allocation." 42

Neither of the two authors just quoted points out that the sumsthat can be legally collected through zakdt are so small that theywould have only marginal impact on the economy. However,important to us here is not so much the possible validity of this oranother model as the fact that it works in an economic chain ofcausality, which is not necessarily related to Islam anymore.

In a recent article on monetary theory of Islamic economics, Sid-diqi is preoccupied with finances and banking. The Islamic input

is for him exclusively the demand for the abolition of interest. Hethen proceeds to develop a system based on such economic con-

40 See, for instance, the list of authors in: Zaman, R. op. cit.41 Al-Kafrawi, 1983, p. 37.42 Choudhoury, p. 160.

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siderations as demand and supply, profitability rates, etc.-while

replacing interest taking with the profit sharing arrangement called

mudaraba. He develops a system which is quite logical and coherentin itself, based on generally recognized economic reasoning. Butsomewhere in the discussion the Islamic aspect has been lost. Sid-

diqi himself senses this disconnection when he writes that Muslimeconomists "... made great contributions toward devising a systemfree of interest but they could not attend properly to the larger ques-tion of how effectively to direct the financial system towards theachievement of Islamic goals of eradication of poverty, justice,stability, and growth." 43

The general trend here seems to be to employ textbookeconomics to define and describe a specifically Islamic economic

order, which contrary to the assurances-and probably inten-tions-of the authors becomes, increasingly, autonomous andbecomes disconnected from the Islamic holistic world view. Thoughthe term is never used what we are dealing with here is, ironically,

the secularization of economics, inspite of the fact that the oppositeis the declared intention. As Wielandt has pointed out, seculariza-tion, "rendering autonomous large areas of human life", is a pro-cess which has touched most Muslim thinking of today. Even whereMuslims insist on the validity of religion as a regulator of humanconsciousness and behavior the tendency is to argue less the needfor obedience to God by pointing to the Day of Judgement and

metaphysical rewards and punishment, but "more frequently[argue] a presumably demonstrable, temporal set of laws and

regularities, according to which the observation of Islamic prin-ciples allegedly leads always to happiness and prosperity for theindividual as well as for society, and enhances the political powerof the state."44

If we read such statements as the one quoted earlier about theIslamic goals of eradication of poverty, establishing justice,

stability, and growth, it is difficult to see what is specifically Islamicabout these goals. They seem, rather, to be goals which any

43 Siddiqi, 1983, p. 125 ff., 144.44 Wielandt, R. "Zeitgen6ssische agyptische Stimmen zur Sakularisierungs-

problematik" in: Die Welt des Islams, XXII (1982), p. 188.

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economic system would, at least publicly, profess to strive for.45Also Naqui's assertion that unity, equilibrium, free will, and

responsibility with an emphasis on dynamism are the basic ethicalaxioms of Islam does not seem to provide a strong and specificenough base to differenciate Islamic economic behavior from thatof other systems.46

To answer the question of what, indeed, the specifically Islamiccharacter of the envisioned economic system may consist of, wehave to look then for rather specific Islamic legal inputs into an

existing economic system rather than for a specifically Islamic

interpretation of economic phenomena and their causal relation-

ships. It would go much beyond the intentions of the present paperto deal with all the various Islamic inputs, their history, and innercontradictions. But it might be possible to sketch some of the majorcharacteristics drawn from the traditional Islamic legal literature,which feature in the attempt to construct an Islamic economic

system.

In the contemporary literature there seems to exist a wide-though not complete-consensus on two characteristics an Islamic

economy should possess: Interest must be abolished and zakdtshould play a dominant role in the redistribution of wealth aimedat greater social justice.

The difficulties in abolishing interest, i.e. the denial that there isa cost to money, are enormous and obvious. The profit sharingarrangement, mudaraba, is usually suggested as an alternative. Butthis solution, too, is only a partial one and unsatisfactory. Ofinterest is in this context the peculiar insistence by the authors onthe term Islamic Bank. The central function of any bank is the crea-tion of credit and making it available for a price, i.e. dealing with

money as yet another commodity. All other financial functions are

peripheral to this bank business and may or may not be extended

by a bank.

45 See Ghaussy, 243: "... die schlagwortartige Forderung nach der Verwirk-lichung von Gerechtigkeit und Solidaritit durch Umverteilung der Ressourcen(macht) nicht speziell den Charakter einer bestimmten Wirtschaftsordnung aus,weil im Grunde jede Wirtschaftsordnung die Verwirklichung dieser Zieleaufgrund ihrer ethischen Verpflichtung als wesenstypisch fur sich beansprucht".

46Naqui, pp. 1-6. See also al-Banna', 1965, p. 391.

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But all Islamic economists agree that money has no intrinsic

value, is not a merchandise, and cannot be sold or bought. Further-

more it seems that the attitude to credit creation by the bank is byand large a negative one. Siddiqi is not quite decided whetherbanks should maintain 100% reserves or not. He believes creditcreation to be a major factor in inflation. If at all, only the stateshould create credit in his opinion. But in his model for profit shar-

ing through the service of a bank he leaves no room for creditcreation.47

But once credit creation is not a function of the bank institution

anymore its role is reduced to that of a financial intermediaryinstitution, where the dividends of the depositor vary depending onthe level of profits of the investments.

In other words, we are not dealing with a bank anymore but witha typical investment fund-not a specifically Islamic institution.

Why then, the insistence on calling these institutions IslamicBanks? Is the fact that the existing "Islamic Banks" are major

financial supporters of research in Islamic economics the reason forscholars to hold on to this contradictions in terms: "IslamicBanks"? Or is this a reflection of how far modern institutionalforms have been unconsciously appropriated even by the Islamistsjust as that other contradiction in terms, the Islamic Republic ofIran?

Since these two major features of an Islamic economy, zakdt andabolition of interest, have been discussed in all their theoretical andtechnical difficulties and contradictions in some recent articles48there is no need to repeat this discussion here. Some of the inherentdifficulties of zakdt as a means of redistributing wealth in societyhave been mentioned earlier in this paper. Only one general obser-vation shall be made here: The answers Muslim economists give tosuch internal contradictions and difficulties-in so far as the issues

47

Siddiqi 83, p. 44 ff. and p. 101 ff., especially p. 105. See also N.N. "Prin-cipals of Islamic Banking (MFI)" in: Journal Islamic Banking & Finance III (1986),p. 19-50.

48 See for instance, Kuran, T., "The Economic System in ContemporaryIslamic Thought: Interpretation and assessment" in: IJMES XVIII (1986), p.135-164; Weiss, D. "Aspekte der Reislamisierung der Wirtschaft im Arabisch-Islamischen Orient" Tibinger Entwicklungsgesprdch, May 1985 and "Toward anIslamic Economy", Economics XXXIII (1986), pp. 21-37.

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are not simply ignored-tend to go into the directions we have

pointed out earlier: Some authors find the answer in the change of

man's heart and mind which has to precede the implementation ofan Islamic economic order.49 Other authors, mainly those with a

background in the social sciences, tend to find solutions in an ever

increasing role of the government or some other centrally controlled

agency.Some other inputs-apart from zakdt and the abolition of

interest-into the envisioned economic system that are derivedfrom traditional

legalIslamic literature seem to be, to

saythe least,

completely outdated and irrelevant to contemporary economy andmodern technology. Thus, for instance, booty is regularily enu-merated as one of the legitime ways of acquiring property. BaqirSadr's statement that each person may only mine as much of thenatural resources as he can personally consume seems even for an

Ayatollah strangely out of touch with the reality of Iran and Iraq,where he lived.50 Hunting, raiding forjihad, irrigating wastelands,

assignment of an unowned piece of land are considered some of themajor ways of acquiring property apart from labor.51

A great deal of attention is paid to the issue of hoarding money.52Hoarding is denounced because it leads to the accumulation ofwealth in the hands of the few and withholds from the economy theinvestment funds. Abu Su'ud makes sweeping historical observa-tions and comes to the following curious conclusion: During theGothic

period,which he dates from 1150-1450,

peoplein

Europeenjoyed incomparable material comfort even though the politicalorder and the church were underdeveloped. The reason for this

wellbeing was, he claims, that the rulers had withdrawn all gold andsilver and had introduced paper currency. People did not trustpaper money, therefore they tried to buy goods in order to rid

49 See al-Kafrawi, n.d., p. 134; Siddiqi, "Muslim Economic Thinking", p. 67,

writes: "A change of the entire system involving a change in the basic attitude ofeconomic agents, especially in the 'acquisition mentality' is a precondition to thesolution of the problem".

50 Sadr (transl.), p. 496.51 Qutb, p. 106.52 Sadr (transl.), pp. 370-371; Al-Banna), 1965, p. 404; al-Kafrawi, n.d., p.

131, 136. The latter acknowledges the right to be wealthy, but insists that wealthshould be actively working in the economy - rather than be hoarded.

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themselves of the currency in their possession. Thus currency wasnever hoarded but always remained in rapid circulation and-so

Abu Sufid's conclusion-stimulated production.53 Zakdt is praisedin this context as a means to prevent such hoarding because it

penalizes the owner and eventually reduces the hoard.

Though this concept of hiding money in the matress may seema trifle antiquated, it may not be as anachronistic as it appears. Theattacks on hoarding combined with the establishment of Islamicbanks may be the one point where an Islamic economic system mayhave an immediate impact. It has been argued that 90% of thepopulation of Islamic countries have no sort of bank account, andthat all surplus money is indeed kept at home and is not invested.The hope and intention of Islamic banking is to make these fundsavailable for investment.54 But, of course, it is also these 90 % of the

population which probably have no or only marginal fundsavailable in any case. Recent occurrences in Iran and Saudi Arabiaalso show that those who do have saving accounts in banks are

keenly interested in obtaining interest payments and are willing atthe same time to manipulate the Islamic law to avoid interest

payments on loans from banks.55

Together with the preoccupation with somewhat anachronisticissues goes a hankering for a romanticized preindustrial worldwhich is as stunning as it is revealing. Ayatollah Taleghani, forinstance, has this to tell us about the "good old times": "Each

[craftsman] performed his small job in houses and in theopen

airwhile his wife and children helped him ... under the rays of the sunamidst fresh air and family warmth and kindness he lived a quietand happy life. Desires were few; spirits satisfied, bodies healthy,and faith and ethics alive".56 In the same vein al-Kafrawi mentions

53 Abiu SuCiid, p. 40.54 Wohlers-Scharf, T. & Nienhaus, V., "Arab and Islamic Banks, Petrocapital

and Development" in Orient XXIII (1982), p. 261.55 When the Iranian government tried a few years ago to abolish interest andto collect at the same time zakat payments from bank accounts a rush ofwithdrawals from bank accounts forced the abolition of the measure; see also forthe manipulations concerning interest and its payment in a shrinking economyKilborne, P., "No longer a Banker's Dream: The Saudi System stagnates",NYT, March 2, 1987, D8.

56Taleghani, p. 26.

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tools for artisans, when mentioning how zakdt should be used, buthe never speaks of the need of capital investment in an industrial

plant. Hasan al-Banna' proposed cottage industry as a relief fordepressed families with the extra advantage of keeping women andchildren busy.57

This nostalgia is neither particularly Islamic nor new. One of thefirst to formulate the ideas of a "romantic school of economics"was Adam Muller (d. 1829), who perceived of a "universal

despotism of money" and demanded the return "to the onlynatural condition, where agriculture and the personal and spiritualenergy of man based on it provides a counterbalance to themechanical and mundane operations of money". He condemned

implicitly the industrial mode of production when he praised the

"nobility of the crafts" when they are carried out not only for mate-rial gain.58

We can find some echoes of his thought in the German HistoricalSchool of Economics but the more explicit elaborations can be

found among the right wing conservative thinkers in Germany atthe turn of the 20th century. Thus for instance Lagarde "loathedthe new industrial life, with its impersonal, purely commercial ties,and longed for some rural idyl where a harmonious hierarchy had

prevailed. Capitalism was evil, and all parasitic carriers of it shouldbe extirpated. It was characteristic of this kind of conservative pro-test against capitalism that the main grievance was directed againstthose institutions-stock

jobbingand banking, for example-that

seemed to violate the sacred principle that a man should earn his

daily bread."59These trends of thought lead directly to the economic ideas for-

mulated by the Nationalsocialist theoreticians in Germany who re-

cognized Adam Mfller as one of their precursors.60 It should benoted that the economic programs promulgated by these theoreti-cians were enthusiastically supported by the Nationalsocialist party

until it came to power, at which point these plans were quicklydropped as unrealistic or politically inopportune.

57 Al-Banna', 1965, p. 404.58 Muller, A., Nationalokonomische Schriften, Lorrach 1983, p. 260, 420.59 Stern, F., Politics of Cultural Despair, Los Angeles 1961, p. 60.60 Krause, W., Wirtschaftstheorie unter dem Hakenkreuz, Berlin 1969, p. 28.

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The leading economic ideologist of the Nationalsocialists was

Georg Feder. In an anti-industrial vein typical for him, he pro-

claimed that "100.000 independent free shoemakers areeconomically and politically speaking better than five giant shoemanufactures."61 In point 11 of his Programm Feder demanded theabolition of income "without effort and work" i.e. income basedon "Zinsknechtschaft" or enslavement of others through interestdemands.62 "Zinsknechtschaft" and hoarding were frequenttargets of his attacks.63 He, like others, attributed a decisive role tothe state as economic regulator and resources allocator.64

Otto Strasser elaborated the concept of economic autarky whichwas to lead to a decoupling of the national economy from the worldmarket resulting in a reagrarization and a reduction of the level of

technology.65These ideologists, as Stern puts it so aptly when talking about

Lagarde, "tortured the minds of men by nostalgic dreams ofa past that never was and prophesied a future that could never be,

all the while vilifying, but not explaining the present."66The parallels between the German reactionary economic thought

until World War II and the Islamic economics are obvious: attackson interest and hoarding; a desire to return to "simple" economic

patterns of craftsmen and peasants; condemnation of industrializa-

tion; demanding a major role for the state in economics; and

detaching the own realm from the world economy.67The comparison should not be pushed too far; surely, the intel-

lectual background of both was very different; and, furthermore,one did not influence the other. But both constitute a reaction

against modernity looking for a "past that never was". The con-

61 Feder, G., Das Programm der NSDAP und seine weltanschaulichen Grundgedanken,Munchen 1934, p. 46.

62 Ibid., p. 45.63 See for instance also his Der Deutsche Staat

aufnationaler und sozialer

Grundlage,Miinchen 1933, p. 64 ff.64 Feder, passim; Brautigam, H., Wirtschaftssysteme des Nationalsozialismus, Berlin

1933.65 Krause, p. 45.66 Stern, p. 31.67 The Muslim economists never discuss the possible links between an Islamic

economy and the world market.

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struction of a past in which the world was whole, social relations

clearly defined, and economic life well ordered signifies in both

cases the same reaction to a rapidly changing economic environ-ment over which one seems to be loosing control.

Many issues remain in unresolved dispute among Muslimeconomists. Should zakdt be paid on capital only or also on income?How untouchable is private property? May property surmount theimmediate needs of the individual and may the surplus be rentedout? Is the hire/purchase device, by which Islamic banks can pro-vide a

loan,at what amounts for all

practical purposesto a fixed

interest, permissible? Such questions are usually answered accord-

ing to the different inclinations and ideological tastes of theindividual authors.

Usually the validity of the own position will be asserted by selec-tive quoting from the Qor'an, the Hadlth, and the whole legalliterature without really studying systematically all the positionsformulated in this vast literature with regard to any specific issue.

The literature is generally used to prove what has been assertedalready. More important, nobody provides a method by which toextract the relevant and valid sections of this vast store of variedand often contradictory statements. This is, of course, a criticalweakness from which all modernist and, to use Fazlur Rahman'sterm, "neorevivalist" Islam has suffered, which has been "unableto devise any methodology, any structural strategy, for under-

standingIslam or for

interpretingthe

Qur'an.'68

Paraphrasingour

earlier comment on the use of Islamic history we can say that ineach case the "true" Islamic economic system is what it is assertedto be.

The selective and selfserving reading of Islamic legal literature,the uncritical use of history (real or imagined) as evidence, the gapbetween the recital of traditional legal literature relevant toeconomic behavior and the complex modern theories of economics

make any possibly valid theoretical base for an Islamic economyfrail and disunified. The general inclination to look at what shouldbe rather than what is, as a point of departure, and the assumptionof a "new man", the "true believer" as the homo ceconomicus, gives

68 Rahman, p. 2.

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the contemporary discussion about Islamic economics an utopiancharacter.

The very idea of Islamic economics is, as we have pointed out,of rather recent origin and, though it professes the unity and

integration of the Islamic world view and the Islamic way of life,it, ironically, appears to further the crystallization of an Islamiceconomic theory as an autonomous science with its own laws andstructures.

For the near future at least, it seems unlikely that this discussionof Islamic economics will provide a genuine-and specificallyIslamic at that-alternative to existing economic systems andtheoretical approaches. But even the mere discussion can providea sense of cultural identity and independence and may legitimizeany number of specific economic measures a government mayadopt. This makes it attractive to the Muslim intellectual and

advantageous to any government that draws its legitimacy fromIslam.

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