islamic economics novel perspectives

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Islamic Economics: Novel PerspectivesAuthor(s): Seyyed Vali Reza NasrReviewed work(s):Source: Middle Eastern Studies, Vol. 25, No. 4 (Oct., 1989), pp. 516-530Published by: Taylor & Francis, Ltd.Stable URL: http://www.jstor.org/stable/4283335 .Accessed: 29/11/2011 05:04

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Islamic Economics: Novel Perspectives

Seyyed Vali Reza Nasr

The greater salience of religious values and motifs in social organization,political livelihood and economic change in the Muslim world in recentyears has ushered n a new epoch in the history of Muslim people.1 Changeswrought by this cataclysmic and axial shift in the dynamics of continuityand change in modern Islamic societies have, moreover, subjected manytime-honored heories of the social sciences pertaining o societal changeand progression of history to the ruthless arbitration f present realities.

The political manifestation of the trend towards 'Islamization' hascreated serious doubts concerning the validity of assumptions regardingthe 'greater ecularization f societies under change', 'privatization f faithin post-traditional ettings', and the 'convergence of patterns of societalchange in late-industrializing ountries with one experienced by Europesince Renaissance'.2

The havoc which events such as the Iranian Revolution of 1978-79, theIslamization f Pakistan, he assassination f

EgyptianPresident Sadat, or

the ascendency of the Shi'is in Lebanon have wreaked in policy-makingand academic circles clearly accentuates he doubts expressed above. Theimpact of Islamic revivalism n Muslim ocieties, and ultimately n Westernsocial sciences s, however, not entirely political n nature.

The less vociferous and yet equally mportant hanges n Muslim attitudestowards he economic and social ivelihood of man are likely to have lastingeffects on Muslim societies, and pose serious challenge o Western notionsof social organization and economic interactions.

This essay is a critical survey of the fundamental premises of the corpusof ideas which are commonly and collectively referred to as 'Islamiceconomics'. The philosophical bases, intellectual oundations and doctrinaloutlook of Islamic economics have been amply discussed, time and again,by exponents of Islamic economics,3 as well as by scholars and students ofeconomic hought,4 slamic studies or the Middle East.5 The objective hereis not to reiterate or once again outline the doctrines of Islamic economics,but rather, to determine the promises and perils of the process throughwhich Islamic economic thought has been cultivated at the intellectual evel

and subsequently mplemented nto active social institutions.Most expositions of Islamic economic begin with the elaboration andconglomorization f disparate Islamic teachings pertaining o economics,drawn rom the injunctions of the Quran, hadith or shariah. These studiesthen compare and contrast this corpus of religious norms and economic


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ISLAMIC ECONOMICS

teachings with the fundamental enets of capitalism nd socialism o discernan independent existence for Islamic economics, separate from the two

overriding philosophies of social and economic organization.6While most elaborations f Islamic economics are based on an apologeticdelineation of a theory of social organization and financial transac-tions, they nevertheless succeed in outlining a general understandingof economics in the context of Islam. In fact, Islamic economics haslittle difficulty with confirming its existence. Where this novel corpusof ideas encounters greatest impediment to its intellectual viability is intransforming he assorted egal injunctions f the shariah nto a comprehen-sive scientific system of economic thought, and moreover, in presentingclear operational guidelines for translating heoretical foundations intoinstitutional and organizational procedures. Therefore, while there islittle debate concerning the fact that Islam does legislate for economicactivities, there is virtually no consensus or knowledge as to the logic,intellectual mpetus or operational bases of an all-encompassing slamicbody of economic thought. What is thus far explicit from exercises inexposition of Islamic economics s that formulations f both the philosophyand praxis of Islamic economics, for the most part, reflect the manner nwhich religious norms and beliefs concerning personal

pietyare

developedinto a comprehensive ystem of social thought.In examining the provenance and development of Islamic economics,

the purpose of this essay is not to test the scientific viability of Islamiceconomics per se, nor to render udgement regarding ts moral oundations,but to sketch the structure nd dynamics of the thought processes which ieat the foundation of Islamic economics. In this regard, four major themescan be discerned as the preponderant remises of Islamic economics, whichnot only serve as the beacon light for the development of the neologism

and discipline under study here, but also best elucidate the social andintellectual mplications of the problems confronting Islamic economics,which were alluded to earlier. The four are: elaboration and subsequentapplication of the Islamic conception of change, critical examination ofthe role of man in society, the issue of management of an interest-freeeconomy, and the optimal level of government intervention in marketoperations.

ISLAMIC CONCEPTION OF CHANGE AND MODERNDEVELOPMENTAL CONCERNS

The transformation f private ethical dictums and religious norms into acomprehensive ocial theory begins with the elaboration of Islam's generalunderstanding f the concept of change. Expositions of Islamic economicthought, by and large, distinguish hange in the Islamic context from theprevalent views on the idea in the West in terms of the following criteria:

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first, in Islam change is subordinate o the will of God.7 This belief is nottantamount o fatalism, but rather, subjects all social processes to the writof the sacred tenets of the Muslim

community the ummah).8While this premise serves as the objective and intellectual directive forthe growth of Islamic economics, in practical erms t has been interpretedmore literally, facilitating he general and wholescale subjection of socio-economic activities o the writ of religious dogma.9

Second, Islam views the conception of change as cyclical and not linear. 10From this belief it can be extrapolated hat Islam (with the exception ofShi'ism)1' does not view history as a continuous linear movement, butrather views history as having been periodically rejuvenated, throughprophecy until the advent of Islam, and through messianic or reformmovements since the death of Prophet Muhammad.12

In developmental terms this belief finds a new meaning. Islamiceconomics does not envisage 'underdevelopment' s permanent or abso-lute, but instead believes that, given time, Islam's position vis a vis the Westcan eventually change. Therefore, in many ways it is futile for Muslims oconcern hemselves with economic growth and sheer material progress; heywould be better advised to preserve Islamic deals against he tidal wave ofthe modernist challenge posed to it.13

Third, the role which messianism plays in the conception of change,whether implied or directly referred to in the pertinent works, is seenin highly religious terms, and as part and parcel of Islam's overallunderstanding of change. Therefore, messianism in Islamic economicsdoes not strive to attain a terrestial utopia for man, but to reinculcateand reassert deals.14

Moreover, he concept of utopia as the objective and harbinger f changeis both highly spiritualized nd subordinate o the view of change tself, in

that utopia is not reflectedin an

omega pointin the

future,but in

theMedinan community. Therefore, change in Islamic economics alreadypossesses a concrete vision and a clear sense of the values which t seeks toinculcate. This fact, in turn, sets the trend of evolution of Islamic economicthought to be one of Islamization of economics rather than adaptation ofMuslim social institutions o modern practices.15

Finally, change does not possess merely terrestial connotations, but isa constituent element in man's whole spiritual mission and religious self-realization. Therefore, change is not to be gauged by or defined in purelymundane erms, but should be evaluated n the light of its contribution ohuman spirituality.'6 This means that, on the one hand, Islamic economicsis vested with the millenarian expectation of the salvation of man; whileon the other, its shortcomings can be explained away in terms of thegreater salience of intangible spiritual concerns and achievements of theummah.

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ISLAMIC ECONOMICS

MAN, SOCIETY, AND THE QUESTION OF ECONOMIC EQUILIBRIUM

In many regards, the very notion of Islamic economics begins withthe nature and attributes of 'homo Islamicus', and the limitations andresponsibilities which characterize his terrestial activities.17 n Islam, manpossesses a theomorphic quality - he is kalifat-Allah, God's vice-regenton earth.18 The implication of this dictum is that man acts as the nexusbetween the spiritual and the mundane; hat he is of this earth, upon whichhis happiness and livelihood depends, and yet he strives owards a spiritualrealization which s cosmic and other-worldly.19

In economic terms, the theomorphic quality of 'homo Islamicus' mpliesthat the concept of equilibrium which can be seen as the harbinger f socialharmony and material happiness on earth s inevitably ntertwined with theIslamic doctrines of tawhid unity) and 'adl (equity or justice) which guideman's spiritual yearning. Hence economic activity, n an Islamic context, isencouraged n tandem with the spiritual progress of the society of Muslimsand its constituent ndividuals.

Moreover, the objectives of economics s no longer to facilitate humanmaterial happiness n absolute erms, but to create the kind of social settingwhich would be conducive o the realization f tawhid and 'adl. In the worksof Sayyid Haider Naqvi and Umar Chapra the relation between earthlyequilibrium and the cosmic ascent of man has concrete connotations.Efficiency as a criterion of judgement of economic performance becomespredicated not only upon the interaction of supply and demand, but to anever greater extent on the existence of social conditions which would fostergreater spiritual realization or the society and the individual.20

In a classic expression of this view Naqvi writes hat n Islam he consump-

tion and production relations are not bound by resource or possibilityconstraint, but rather by ethical restraint. Economic ransactions hereforedo not hinge on what is possible, but on what is allowable. Optimality s nolonger the maximization f utility and individual nterest, but is rather hatmix of consumption and production which facilitates man's spiritual ascentand harmonizes ociety to that end.21

From this it follows that homo economicus s not a rational actor as theterm is understood n the West, but rather n the fact that he is cognizantof his spiritual needs, and in that he subordinates his material existence tothe primacy of that need.While Islamic economics is clear about the fact that its perceived idealequilibrium s where human earthly happiness converges with humanspiritual self-realization, and when the former facilitates the latter, it isnot clear how this is to be accomplished r how such an abstract definitionof equilibrium s to be gauged.

Islamic economics has, by and large, addressed his problem by merely

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focusing on the terrestial omponent of equilibrium, nd presenting riteriaby which a society can be judged as to whether t is conducive o spiritual

realization or not. It is safe to conclude that this approach containswithin it the assumption that, once a society adheres to certain ethicalcriteria, then ipso facto that society and the individuals who reside in itcan proceed towards the higher equilibrium.22 he criteria presented byIslamic economics as the conditio sine qua non for the presence of earthlysocial equilibrium are: existence of social harmony, individual free willand collective responsibility n the community. While different espousalsof Islamic economic thought rely on these criteria o varying extents, thethree are sufficiently present n works across he board that it is safe to seethem as fundamental principles.

The two criteria of freedom of action and collective responsibility, whilereferred to again and again in the works on Islamic economics, continueto be merely abstract deal concepts. There is little consensus as to whatthey actually entail, and how a society can accommodate he two idealssimultaneously.

The criterion of social harmony, however, is more widely discussedand seems to constitute the primary basis of the social ideal of Islamiceconomics. Social

harmonys

generallydefined as the

presenceof

justicen

society. Justice s in turn defined as the absence of unjustifiable nequalitiesin social and economic interactions and the absence of alteatory transac-tions in the market.23 Yet, despite theoretical lucidity, such notions asequilibrium, harmony or justice tend to find convoluted and problematicpractical manifestations.

The most marked problem which emanates from the manner n whichthese notions have been defined is born of literal explication. The etherealand esoteric quest for spiritual realization, rather than serving as the

causal linkage between the Islamic world-view and modern social praxisis often interpreted n immediate and even superficial erms, and directlytranslated nto socio-economic norms and criteria. The notion of spiritualityas embedded in a cosmic equilibrium, when elaborated, gives place to apreoccupation with the more immediate gratification which an investormay experience at the fact that his deposits receive no interest.24 Thismundane interpretation of the original doctrine not only obfuscates theideals of Islamic economic doctrine but, by confusing philosophy and ethicswith efficiency of practice, also creates a situation wherein all problemswrought by Islamic economics can be justified in terms of the intangible'spiritual ain' which this novel perspective on economics entails.

ABOLITION OF INTEREST-RATES AND MANAGEMENT OF AN INTEREST-FREEECONOMY

Islam's disdain for unjustifiable nequalities n market relations, in toto,

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translates nto doctrinal ormulations nd institutional arrangements whichwould eradicate mechanisms hat perpetuate those inequalities. In this

regardhe foremost concern of Islamic economics s the abolition of

riba,or usury.While, as yet, there exists little agreement regarding he various aspects

of usury, there are certain arguments which appear in the gamut ofopinions on the subject, which serve as the outlines of the doctrine ofriba (or better put, abolition of) in Islamic economics. First, advocates ofIslamic economics generally equate the notion of usury with the conceptand mechanism of interest rates as understood in modern economics.Therefore, all spiritual or juridical ayings pertaining o usury are deemed

to ipso facto apply to interest rates.Second, interest rates and usurious ransactions were rendered unlawful

in the Quran and hence are abhorred by Muslims not only because theypermit accumulation f wealth without commensurate ffort or use of skills,but also because they create and perpetuate structural nequalities n theeconomy. Therefore, abolition of interest rates and hence usury s not onlya matter for the moral rectitude of society, but also one pertaining o thebetterment of its socio-economic ivelihood.

Third, Islamic economics, while denouncing he usurious characteristicsof interest rates, recognizes he important unctions of interest rates as amechanism essential to the management of an economy, hence acknowl-edging the antinomial proclivities of the idea of an interest-free economyand the dilemma of its management. Consequently, while compelled toextricate nterest rates from economic activities, based on the logic of theafore-mentioned rguments, slamic economics has nevertheless ought tosustain he various non-usurious nd essential functions of interest rates inthe economy.25

Despite the convergence of opinions on the task at hand in this regard,advocates of Islamic economics are not of one opinion as how to discern heinvidious and the beneficial aspects of interest rates, abrogating he one andpromoting he other, nor do they espouse a clear guideline or managing aninterest-free conomy. In grappling with the idea of separating he variousfunctions of interest rates, or managing without them altogether, advo-cates of Islamic economics have presented an array of economic theoriesand operational guidelines for management of financial ransactions. Theleitmotif of these ideas is the fact that Islam suggests neither that moneyis 'barren' nor that capital has a shadow price of zero. In fact, advocatesof Islamic economics recognize four primary unctions of positive interestrates as necessary mechanisms or economic management, which should beemulated n an 'Islamic economy'.

The first of these is offsetting the effects of a positive social rate of timepreference on savings and investments. Positive nterest rates are the mostimportant policy tools as well as indicators of performance of savings and

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investments n the economy, and their allocation nter-temporally. econd,in a capitalist environment, as the stock of savings grows the propensity of

the population to accumulate t declines. In such circumstances nterestrates act as regulators of savings, investments and consumption. Third,interest rates in free markets provide for measuring he physical deprecia-tion of the capital stock of the economy, and the turnover ate required orsteady growth.

Last but not least, interest rates have implications or inflation in theeconomy. They allow for the effects of changing expectations on the realvalue of saving and investment mechanisms o function n spite of inflation.In the absence of interest rates inflation could cause a Klondike situation:a run on the money, greater consumption and short-run nvestments, andfinally an inflationary cycle. Interest rates compensate some of the lossin value of stationary money due to inflation. They absorb the shock ofinflation, reducing its blow to the economy, and at times even set inmotion mechanisms which halt inflation and thwart hyper-inflation. Higherinterest rates discourage consumption n favor of savings, and hence, tosome extent, deflate the economy.

Formulating heoretical constructs and creating operational procedureswhich would

duplicatethe aforementioned unctions of interest rates has

occupied much of the attention of the advocates of Islamic economics.There now exists an array of suggestions as how to substitute the anti-inflationary unction of interest rates with a system of imperfect indexing',and create a separate capital market where depreciation f the capital stockcould be determined.26 Moreover, he function of interest rates as regulatorof savings and investments s usually delegated to the novel institution ofmudarabah 7(profit-sharing) hereby banks act as investment agents onbehalf of depositors, and as partners with the borrowers. The profit rate

in this institution replaces the interest rate. Mudarabah ies at the heart ofinterest-free banking n the Muslim world today.In regulating and operationalizing mudarabah here has emerged a

number of separate approaches to and interpretations of this institu-tion. Thinkers such as Shaykh Mahmud Ahmad, Mawlana Mawdudi orMuhammad Uzair have placed greater emphasis on partnership nvest-ments between banks and depositors, what is tantamount to shirakah(partnership).28 bdul-Hadi Ghanameh's hesis develops mudarabah longdifferent ines, relying more on common-stock rrangements or long-termfinancing and mutual funds for short-term inancing. He defines a mutualfund as an investment company that buys the common stock of otherindustrial or commercial ompanies on behalf of the depositors.29

These thinkers begin their arguments from the premise that Islamicfinancial nstitutions hould be economically viable. Others see the objec-tive of Islamic economics as merely to fulfill Islamic dicta. The questionof efficiency here is of secondary importance. In fact, this group of

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thinkers believe that the objective of Islamic economics as a whole is notefficiency but ethical viability. Abu Saud, Muslehuddin, Tawfiq Shawi, or

Abdul-Rahman Wahid belong to this school of thought.30 These thinkersrely heavily on legalism to assert their view. Legalism at times even boilsdown to outright neglect or dismissal of the question of efficiency. AbuSaud, following this line of argument, writes that in fact mudarabahcannot replace interest rates. Reorganization of the economy aroundmudarabah, n his view only leads to the emergence of a 'black market'in which interest rates will reappear. Therefore, it is best to abandonthe preoccupation with mudarabah and economic efficiency and simplyto enforce the anti-usury aws already present in Islamic aw. Whatever s

born of subjecting he economy to Islamic aws, whether efficient or not, isnone other than Islamic economics, the acceptance of which is incumbenton the society.31

Legalism in the context of Islamic economics has not, however, inall instances challenged and superseded mudarabah or the concern forefficiency. Often, Islamic law has been used and even manipulated oenhance he feasibility of mudarabah-based inancial perations. The worksof al-Araby, Siddiqi, Sayyid Muhammad Baqir Sadr, Najjar, Gharib al-Gammal and al-Hamshari have made extensive use of law to bolstertheoretical arguments favoring mudarabah as well as to facilitate theirimplementation n the economy.32

Najjar, for instance, suggests an array of shariah-based aws to regulatethe operation of mudarabah-run inancial nstitutions, create cushions toabsorb shocks to the system, and to encourage popular participation nthose institutions.

Sayyid Muhammad Baqir Sadr, on the other hand, used law in a differentlight, devising mudarabah chemes, which were often more legally viable

than economically acceptable. Moreover, with a view to operationalizingmudarabah, e has used juridical atechism n order to argue hat Islam canimplicitly anction he depositing of funds belonging o interest-free nstitu-tions in 'outside' interest-bearing accounts. By accepting interest-basedfinancing n order to make interest-free transactions viable, he was notonly compelled o accept certain unlawful' ctivities with a view to makingIslamic economics operationally fficient, but also distinguished betweenthe economy of the ummah, and that of the world at large, making ethicalconsiderations ncumbent only on the former. Sadr's approach has been thede facto modus operandi and the support or solvency of many mudarabahoperations.

The most comprehensive remedy for the dilemma of managing aninterest-free economy is, however, found in the works of those thinkerswho argue for greater state control of the economy, whereby governmentpolicy-making eplaces the allocative and regulatory unctions of interestrates. The debate over the extent of government intervention in the

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economy, however, goes beyond the question of viability of interest-freeinstitutions and encompasses he very nature of Islamic economics.33

Etatisme versus Open Market OperationsIn recent years the theory and practice of Islamic economics has beeninformed with a greater extent of realism. Operational mpediments, aswell as the discipline's nability o find appropriate ubstitutes or interestrate-related economic mechanisms, have induced some Islamic economicthinkers o abandon heir ideal of erecting a viable open market economicsystem with the pragmatic reliance upon the state to bolster the Islamic

economy whenever the theoretical bases of this novel perspective eem tofalter.34Consequently, thinkers, to an increasing extent, call upon the state to

openly or through intermediary hannels reduce the economy's relianceupon private savings, and to place greater emphasis upon public savings,allocated hrough he aegis of the state. While etatisme would ascribe o thegovernment he management of savings, nvestments and the allocation ofscarce resources, it does not imply a total break with market operations.Naqvi, for instance, suggests that governments, once in control of theeconomy, could nevertheless use markets mechanisms o auction capitalor investment unds.35

In order to oversee the Islamization f the economy as well as its efficientfunctioning, the state is compelled to utilize a number of economic andfinancial policy tools. In an open economy, the central bank has recourseto an array of monetary and fiscal policies which are regulated based uponthe prevalent rate of interest. An 'Islamic economy', on the other hand,cannot make use of the same sundry of policies. Without nterest rates to

govern policy-making, entral banks would be deprived of much of theirmanagement unctions, and would become merely coffers for state fundsBayt al-Mal. It is for this reason that many advocates of Islamic economicshave favored the complete nationalization of the banking system, withthe hope of augmenting the state's leverage over banks and financialinstitutions.36

While etatisme seems to assuage much of the practical mpediments ofIslamic economics, remedying all questions of economic efficiency byresorting to government control, it seriously threatens the intellectual

appeal of Islamic economics within he Muslim world as well as in the West.At a time when there exists widespread disillusionment with centralizedeconomic management, and when countries as diverse as China, membersof the CMEA and Third World countries are all experimenting with openmarket operations, an economic system with centralizing predilections snot likely to find many adherents.

Consequently, the preoccupation with finding viable substitutes for

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interest rates, within the framework of open market economics, despiteits continued theoretical and functional difficulties, continues to act as an

importantoncern of Muslim hinkers. Efforts n this

regardrevolve around

the concept of mudarabah. While the concept itself is clearly understoodas profit-sharing, he manner n which t should be operationalized, ubsti-tuted for interest rates or managed, remains open to debate. Therefore,mudarabah has found an array of different meanings in various Muslimeconomies. Experimentation with mudarabah has placed a great deal ofimportance on interest-free or, as it is more commonly known, Islamicbanking, at times causing confusion between this institutional rrangementand Islamic economics tself.37

The theoretical and operational predicaments of Islamic economicsare not, however, the only challenges which this new discipline has tosurmount. Interaction between political priorities and the formulation ofnew social institutions in most Islamic settings has had a pronouncedimpact on the development of Islamic economics in particular, and theprocess of social change in general. While some of the ramifications ofthis development will be positive, there are those areas of politics andsocio-economic activity which are bound to be adversely affected.

Islamic Economics and the Politics of Muslim Nation-States

Islamization of economics has, in most Muslim societies, served as themechanism hrough which the intellectual-religious deas of Islamic eco-nomics, mostly pertaining to individual piety and relevant to micro-economic considerations, have been transformed into state-sponsoredmacro-level policies. Insofar as Islamic economics has as yet developedno overall conception of an economy, only an overall conception of

economic ethics, this novel discipline has become more easily subject tooverriding political considerations. The particular political consequencesof this process are, no doubt, directly correlated with the way in which thenew economic policies are implemented, and the extent to which the stateutilizes them in policy-making nd social control.

The immediate result of the application of Islam to economics is boundto be an abatement of socio-economic nequalities and injustices.38 slamiceconomics enjoins social justice and economic equity. Even a lip-service oIslamic economics s ipsofacto a move away rom excessive growth-orienteddisequilibria, owards socially-conscious conomic change. Such improve-ments in the indices of equality are likely to influence the politics of themasses and the stability of the ruling regimes. By improving he lot of thepoor, checking he rate of capital accumulation y the rich, and moderatingthe rate of change, Islamic economics provides the regimes in power withlegitimacy and popularity, both of which could be used to mobilize themasses n support of the government. By the same token, however, Islamic

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economics creates scapegoats or the shortcomings f government policiesas well as new means by which the state could control and manipulate he

economy.To begin with, implementation f the prescriptions f Islamic economicstends to relieve governments rom responsibility or the performance ofthe economy. Economic and financial crises can be explained away asthe necessary pains that precede the process of Islamization, he cure forwhich no doubt lies in further Islamization of the economy, or as the costto be burdened f the society is to adhere to the ethics of Islam. In otherwords, Islam rather than the government becomes responsible for theperformance of the economy. Moreover, once the government commitsitself to Islamic economics, the popular olerance of economic disequilibriaand the resultant crises also increases. To sum up, Islamization n generaland Islamic economics n particular erve as a way of gaining egitimacy orthe governments as well as justifying he existence of economic and socialproblems. At a time of great economic catharsis n many Muslim societies,the value of this facet of Islamic economics s, no doubt, not lost upon theruling regimes.39

Similarly, slamic economics ends to encourage tate intervention n themarket

place.Often, concepts such as Islamic

banking,nsurance or stock

markets have served in practice as the pretext for extensive regulation orlarge-scale nationalization f these institutions. Such nationalization meas-ures in Iran, Pakistan and the Sudan until the fall of President Numeyri,would have faced greater popular resistance had they not been carried outin the name of Islam and Islamization.

Islamized institutions, and, especially interest-free banks, moreoverextend government nfluence into the private sector through mudarabah.Since oaning activities nvolve direct nvestments by interest-free banks and

purchase of borrower's tocks, the banks and hence the governments whichdirect or influence them become major controllers of private enterprises.Government tax policies have also been strengthened as an array of

'Islamic taxes' have been added to the already existing channels for thecollection of revenues. While the collection of zakat or kharaj helps mobi-lize greater savings and channels them into government coffers, directlyor otherwise, it does not create any additional burdens or tax collectionmechanism. Muslim religious taxes are to be paid voluntarily, and to besupervised by the ulama or the community as a whole. While taxes suchas zakat are not meant for government use, their collection, in a state-runeconomy, inevitably urthers he position of the government.40 he entireprocess s meanwhile upervised by the eager ulama or vigilante merchantsor community eaders, with requirement f only minimal effort on the partof the government.

The most important mplication of Islamic economics for the politics ofthe Muslim world, however, pertains to the issue of political stability.

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Emphasis placed on Islamic economics invariably diverts popular atten-tion from the explosive and destabilizing ssue of the Islamization of

politics. Adherence to Islamic economics in Pakistan, the United ArabEmirates, Bahrein, Kuwait, Qatar, Saudi Arabia, Jordan and the Sudan(until recently) has appeased to a good extent the opposition to theruling regimes among moderate Islamic group, co-opting them into theIslamized economic system. Revolutionary and extremist Islamic move-ments in view of these measures have found their support dwindling asthe government has gained greater religious egitimacy. nterestingly, whileIslamic economics has on the whole strengthened he state in the Muslimworld, specific policies used for instituting slamic economics have provedproblematic. n Pakistan, or instance, Islamic economics has by and largefurthered he position of both the state, and the government of the latePresident Zia. Yet, the government's ttempt o collect zakat led to majoropposition, and even riots, especially among the Shiite community of thatcountry.41

Overall therefore, Islamic economics has strengthened he position ofthe state, and the governments reigning in them. Through the aegis ofIslamic economics the state has gained a greater control of the economy;and

conceivably mayextend this control to levels

exceedingthose

possibleunder the populist Pan-Arab regimes. By the same token the policiesof the states enjoy greater legitimacy, and their encroachment nto theprivate aspects of the economic and social life of the populace are blindlywelcomed by the masses. The ruling governments, oo, have used Islamiceconomics to stabilize heir bases, at a time of great challenge to their ruleby politicized religious movements.

NOTES

I would ike to express my gratitude o Nazli Choucri, Leila Fawaz and Myron Weiner or theirassistance n preparation f this study.

1. For works on the issue of resurgence f Islam see John L. Esposito, Islam and Politics(Syracuse: yracuse University Press, 1985); dem. (ed.), Voices of Resurgent slam NewYork: Oxford University Press, 1983); James Piscatori ed.), Islam n the Political Process(New York: Cambridge University Press, 1983); and Said Amir Arjomand ed.), FromNationalism o Revolutionary slam (Albany: SUNY Press, 1984).

2. Clifford Geertz, Islam Observed; Religious Development n Morocco and Indonesia

(Chicago: Universityof

Chicago Press, 1968), beganthe discussion of the

lingeringinfluence of Islam on modernization; more recently, Fred von der Mehden, Religion andModernization n Southeast Asia (Syracuse: Syracuse University Press, 1986), discussesmore directly he resurgence f religion n politics n the context of its implications orsocial science theories.

3. For a comprehensive reatment of the argument of the various advocates of Islamiceconomics ee, Muhammad ejatollah Siddiqi, Muslim conomic Thinking Jeddah: TheInternational Center for Research n Islamic Economics, King Abdul Aziz University,1981).

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4. See for instance, Ingo Karsten, Islam and Financial ntermediation', MF Staff Papers(March 1987), pp.108-37.

5. See for instance, Rodney Wilson, 'Islam and Economic Development'; David McEoin

and Ahmad al-Shahi eds.), Islam n the Modern World New York: St. Martin's Press,1983), pp.121-3; John T. Cummings, Hossein Askari and Mustafa Ahmad, 'Islam andModem Economic Change'. John L. Esposito (ed.), Islam and Development; Religionand Sociopolitical Change Syracuse: Syracuse University Press, 1980), pp.25-49; andTimur Kuran, The Economic System n Contemporary slamic Thought: nterpretationand Assessment'. nternational ournal f Middle Eastern tudies, Vol.XVIII May 1986),pp.135-64.

6. In this regard see, Muhammad Abdul-Rauf, A Muslim's Reflections on DemocraticCapitalism Washington, DC: American Enterprise Institute, 1984); Umar Chapra,Objectives of Islamic Economic Order (Leicester: The Islamic Foundation, 1979);M.

Mannan,slamic Economics:

Theorynd Practice; A

Comparative pproach LahoreA. Ashraf, 1970); Sayyid Nawab Haider Naqvi, Ethics and Economics: An IslamicSynthesis Leicester: The Islamic Foundation, 1981); and Seyyed Mahmood Taleqani,Islam and Ownership, rans. by Ahmad Jabbari and Farhang Rajaee (Lexington, KY:Mazda Publishers, 1983).

7. See for instance, Sayyid Abul A'la Mawdudi, The Economic Problem of Man and itsIslamic Solution Lahore: slamic Publications, 978).

8. Emphasizing he distinction between fatalism and adherence o the will of God hasbeen labored n many books including: Maxime Rodinson, Islam and Capitalism, rans.by Brian Pierce (Austin, TX: University of Texas Press, 1978), p.111, and IbrahimA. Ragab, Islam and Development', World Development VIII (1980), pp.513-21.

9. On Islamization f the economy n Iran see, Shaul Bakhash, The Reign of the Ayatollahs;Iran and the Islamic Revolution New York: Basic Books, 1984), pp.166-94. Also see,Shahrough Akhavi, 'Iran: mplementation f An Islamic State'; John L. Esposito ed.),Islam n Asia: Religion, Politics, and Society New York: Oxford University Press, 1987),pp.43-9; and idem. 'Elite Factionalism n the Islamic Republic of Iran', The Middle EastJournal, Vol.XLI No.2 (Spring 1987), pp.181-201. On Islamic conomics n Pakistan ee,Kemal Faruk, Pakistan: slamic Government nd Society', Esposito ed.) Islam n Asia,pp.53-78; and Shahid Javed Burki, Economic Management Within an Islamic Context',Anita M. Weiss (ed.), Islamic Reassertion n Paskistan (Syracuse: Syracuse UniversityPress, 1986), pp.49-58.

10. Abu Bakr Sirajiddin, The Islamic and Christian Conceptions f March of Time', IslamicQuarterly, Vol.1 (1954), pp.229-35.

11. For a discussion of the Shiite conception of change and its impact on economics see,Homa Katouzian, Shi'ism and Islamic Economics: Sadr and Bani Sadr', Nikki Keddie(ed.), Religion and Politics n Iran: Shi'ism From Quietism o Revolution New Haven:Yale University Press, 1983), pp.145-66.

12. See Sayyid Abul A'la Mawdudi, A Short History of the Revivalist Movement n Islam,trans. by al-Ash'ari Lahore: slamic Publications, 963).

13. See for instance, Sayyid Abul A'la Mawdudi, Let Us Be Muslim, Khurram Murad ed.),(Leicester: The Islamic Foundation, 1985). Also extrapolating rom Mawdudi's, iewsKhurshid Ahmad has seen economic development n Islam as essentially an issue

pertaining o 'human development'. See, Khurshid Ahmad, 'Islam and the Challengeof Economic Development', John L. Esposito and John Donohue (eds.), Islam n Transi-tion; Muslim Perspectives New York: Oxford University Press, 1983), pp.230-37.

14. Mawdudi, The Economic Problem of Man; Isma'il R. Faruqi, Is the Muslim Definablein Terms of His Economic Pursuits?' Khurshid Ahmad and Zafar Ishaq Ansari (eds.),Islamic Perspectives Leicester: The Islamic Foundation, 1979), pp.183-93; SubahuddinZain, 'The Attitude of Muslim Man in Economic Life: Muslim-Man nstead of homo-economicus', slam Tetkikleri Enst., Vol.VII (1978), pp.243-58.

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ISLAMIC ECONOMICS 529

15. This trend is evident in such works as Mannan, slamic Economics; Naqvi, Ethics andEconomics; Umar Chapra, The Economic System of Islam, A Discussion of its Goalsand Nature', slamic Quarterly, Vol.XIV, 1-4 (1970), pp.3-18, 91-6, 143-56, and 237-51;and Muhammad mran, An Outline f the Economic System f Islam (Lahore: A. Ashraf,1978). For a critical discussion f this trend see, Charles ssawi, The Adaptation f Islamto Contemporary conomic Realities' n Yvonne Haddad t al. (eds.), The slamic mpact(Syracuse: Syracuse University Press, 1984), pp.27-45.

16. See, Naqvi, Ethics and Economics.17. See, Faruqi, oc. cit; and Zain, 'The Attitude of Muslim Man', pp.243-58.18. Seyyed Hossein Nasr, Ideals and Realities of Islam (London: George Allen & Unwin,

1981), pp.72-90; and Fritjof Schuon, Understanding slam (London: Unwin Paperbacks,1976). This theme also emerges n works of modern Muslim hinkers, or instance n,Sayyid Abul A'la Mawdudi, Towards Understanding slam, trans. by Khurshid Ahmad

(Indianapolis: slamic Teaching Center, 1977); and Abol-Hasan Bani Sadr, Eqtisad-iTawhidi Unitarian Economics) (Tehran: n.p., n.d.), where the issue of vice-regencyof man becomes the cornerstone f egalitarian conomics.

19. A classic expression f this dictum can be found n Naqvi, Ethics and Economics; SayyidAbul A'la Mawdudi, Principles nd Objectives of Islam's Economic System', Criterion,Vol.IV, No.2 (March-April 1969), pp.44-58; Sayyid Qutb, al-'Adalat al-ijtima iyahfi'l-Islam (Social Justice n Islam) (Cairo: n.p., 1969); and Mahmud Abu Saud, 'TheEconomic Order Within he General Conception of the Islamic Way of Life', IslamicReview, Vol.LV Nos.2-3 (February 967), pp.24-6, (March 1967), pp.11-14.

20. Naqvi, Ethics and Economics; and Chapra, Objectives f the Islamic Economic Order.21. Naqvi, Ethics and Economics, pp.62-4; also see Muhammad Abdul-Rauf, The Islamic

Doctrine of Economics and Contemporary Economic Thought (Washington, DC:American Enterprise nstitute, 1979), p.12.

22. This kind of reasoning s particularly vident n the works of Mawdudi, or instance ee,Let Us Be Muslims.

23. For a comprehensive reatment of this theme see, Taleqani, Islam and Ownership,pp.146-50; and Sayyid Muhammad Baqir Sadr,'Extracts rom Iqtisaduna', rans. byI.K.A. Howard, Alserat, Vol.VII, No.1 (1981), pp.3-11.

24. In this regard ee for instance, Muhammad Mohsin, Feasibility f Commercial BankingWithout Rate of Interest and Its Socio-Economic Significance', Islamic Quarterly,Vol.XXII, No.4 (1978), pp.149-57; and Kheder Mohamed Ali, 'Islamic Banking inDual Economies: The Arab

World',and Mohammad

Akacem,'Islamic Banks and

the World Debt Situation'. Both papers were presented at International Conference ofIslamic Banking and Finance, 25-26 September 1985, Washington, D.C.

25. For a summary f the various opinions on abolition of interest rates see, Siddiqi, MuslimEconomic Thinking.

26. For works in this regard see, Naqvi, Ethics and Economics; dem, On Replacing heInstitution of Interest in a Dynamic Islamic Economy (Islamabad: Pakistan InstituteDevelopment Economics, 1981); Mohsin, 'Feasibility f Commercial Banking WithoutInterest'; A.I. Qureishi, Islam and the Theory of Interest Lahore: A. Ashraf, n.d.);M.A. Sabzevari, Islam and Savings', Islamic Order, Vol.IV, No.3 (1980), pp.120-33;Muhammad ejatollah Siddiqi, Banking Without nterest Leicester: The Islamic Founda-

tion, 1982); and Mohsin Khan and Abbas Mirakhor, The Framework and Practiceof Islamic Banking', Finance and Development, Vol.XXIII, No.3 (September 1986),pp.32-8.

27. For the sundry of opinions on mudarabah ee, Siddiqi, Muslim Economic Thinking.28. See, Mawdudi, The Economic Problem of Man; Muhammad Uzair, An Outline of

Interestless Banking (Karachi: Raihan Publications, 1955); Sheikh Mahmud Ahmad,'Interest and Unemployment', slamic Studies, Vol.VIII, No.1 (March 1969), pp.9-46.

29. Abdul-Hadi Ghanameh, The Interestless Economy', Contemporary spects f Economic


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530 MIDDLE EASTERN STUDIES

and Social Thinking n Islam Gary, IN: Muslim Student Association f U.S. and Canada,1973), pp.85-9.

30. Muhammad bu Saud, Islamic View of Riba', Islamic Review, Vol.ILV, No.2 (February1957), pp.9-16; idem, 'Interest Free Banking', Muhammad Muslehuddin, Interest FreeBanking and the Feasibility of Muzarabah', Muhammad Tawfiq al-Shawi. al-Khasa' sal-mumayyizah i'l bunk al-lslami li-tanmiyah min khilal al-nusus ttifaqiyah a'sisuhuwa malawih al-nizam al-masrafi wa'l iqtisad al-Islami' Distinctive Qualities of IslamicBanks), were all presented as papers at the First International Conference on IslamicEconomics, Mecca, 1976; views of Abdurrahman Wahid are quoted n James Piscatori,Islam in a World of Nation-States New York: Cambridge University Press, 1986),p.120.

31. Abu Saud, 'Interest Free Banking'.32. Abdullah al-Araby, The Islamic Economy and Contemporary conomy (Islamabad:

Third Conference of Academic Islamic Research,1966), pp.207-366;

MuhammadNejatollah Siddiqi, 'A Model of Interest Free Banking', Criterion, Vol.VI, No.4(July-August 1961); Sayyid Muhammad Baqir Sadr, Al-Bank al-la Rabwi fi'l Islam(Interest Free Banks in Islam) (Kuwait: n.p., 1974); Ahmad al-Najjar, Bunik bilafawa'id ka-ishtiratijiyah il-tanmiyah l-iqtisadiyah wa'l ijtimaiyah i'l duwal al-islamiyah(Banks Without nterest as a Strategy or Economic and Social Development of MuslimCountries) Jeddah: n.p., 1972); Gharib l-Ghammal, l-Masarifwa'la'malal-masrafiyahfi'l shari'ah al-islamiyah wa'l-qanun Banks and Banking Transactions n Islamic Lawand in Positive Law) (Cairo: Dar al-Ittihad al-Arabi i'l-Tiba'ah, 1972); Mustafa A.al-Hamshari, l-A'mal al-masrafiyah wa'l-lslam Banking Operations n Islam) (n.p.,n.d.).

33. See, Naqvi, Ethics and Economics.34. Wilson, Islam and Economic Development', pp.121-7.35. Naqvi, Ethics and Economics, p.120.36. In Iran nationalization f the banking system in 1979-80 preceded and was viewed as

the harbinger of the Islamization of the economy. Similarly, n Pakistan wholescalenationalization f the banks accompanied slamization f economics.

37. For a complete treatment of Islamic banking see, Zubair Iqbal and Abbas Mirakhor,Islamic Banking Washington, DC: IMF Occasional Papers 49, March 1987).

38. See for instance, Burki, Economic Management Within an Islamic Context', p.55.39. While in societies such as Malaysia slamic economics has emerged at a time of general

affluence, n countries uch as Egypt t has tended o crystalize round debates concerningeconomic decline and material auperization f growing populations with stagnant cono-mies.

40. See for instance, Ann Elizabeth Mayer, Islamization nd Taxation', Weiss (ed.), IslamicReassertion n Pakistan, pp.171-2.

41. Esposito, Islam and Politics, pp.171-2.

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