Lecture # 3

The Islamic Thoughts

Ms Salma Shaheen

Definition of Islamic Economics

• Islamic economics is “a social science which studies the economic problems of a people imbued (inspired) with the values of Islam” (Mannan)

• Islamic economics is a science that studies the allocations of resources to create and distribute wealth for mankind and universe for the purpose of returning (worshipping) to Allah (j.j).

Basic principles of Islamic Economics

• Individual liberty• Right to property• Economic inequality with natural limits• Social equality• Social security• Prohibition of accumulation of wealth to certain

group Prohibition of anti-social institutions• Social and individual welfare

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Two Concepts of life

1 Materialistic concept of life

2 Moral concept of life

1 Materialistic concept of life• The materialistic concept of life views Man as an animal

whose sole subject is to satisfy physical needs. • This concept of life naturally and logically leads to an

individuals approach to life.• The feudal system of the middle ages in Europe,

Modern Capitalism and Communism are all products of materialistic approach.

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2 Moral concept of life

• According to this view the universe has been created by Almighty Allah.

• Man is not an animal rather he is a vicegerent (خليفه ) of the Lord of the universe.

• Man should subordinate all his actions in every phase of life to Almighty Allah

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• He should fully utilize all resources of universe.

• Goal of life is to obtain welfare in this life and eternal .life in the hereafter ( ابدي)

• He is answerable for all his deeds to his Lord.

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• Man-God relationship is defined by Tawhid

• Man is accountable to Allah ,as life on the earth is a test

• Tawhid is a coin with two faces: one imply that Allah is the creator and The other that men are equal partners.

• Private ownership is temporary and real owner of everything is God.

• Under Islam wealth is a trust from God, and its proper use is a test from God.

The Objectives of Islamic Economics

• Economics stability for individual, society and country• Optimum Resource Usage

• Fair distribution of wealth

• Uphold individual freedom

• Equal rights and opportunities

• Justice and cooperation

Difference between Islamic Economic and Western Economics

1 Difference in Basic Assumptionsa) View of the Universe

b) Concept of Man

c) The supposition of the Economic Man

2 Difference in operation of Moral values

3 Difference in aims

4 Difference in Scope

5 Difference in the Mode of research

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Sources of Islamic Economics1 The book of Allah (Holy Quran)

2 The Sunnah of Prophet Muhammad (sws)

3 Ijma

4 Ijtehad

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1 The Holy Quran

• The first and the most authentic source of knowledge about Allah`s commands is Allah`s Book i.e. the Holy Quran.

• It covers the general guidelines of all aspects of human life.

• The basic guiding principles for ordering economic life of man are preserved in this book in the light of which detailed policies and program may be designed to resolve economics issues arising in the every age.

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2 The Sunnah

• Next to the Holy Quran, the Sunnah i.e. the example set by the Allah`s Messenger (sws) is an authentic source of knowledge.

• It is in fact the interpretation and explanation of Allah`s revealed message.– “ Take whatever the Messenger gives you and avoid doing

from whatever he forbids you” [Al-Hasher]

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• The record of Sunnah contains theoretical and practical guideline of almost all aspects of economics life.

• It’s a very important source to which Islamic economist must turn for research and analysis.

3 IJMA

• The third source of Islamic law is consensus of experts of religion.

• ideally to the consensus of the scholars of Islam.

• Ijma emerged as a result of exercising reasons and logic in a rapidly expanding society, such as in the times of early Islam.

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4 IJTEHAD

• Literal meaning of Ijtehad is “ to strive to the utmost”.

• In the Shariah it denotes the greatest effort which is made to discover the law from the implications of Allah`s Book or Sunnah of Prophet Muhammad (sws).

• The need for Ijtehad arises in those matters in which direct guidance is not available in the Quran and Sunnah.

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• Consumption and Savings:• There should be moderation is personal

consumption.• Savings for one’s future personal needs and

security are encouraged.Wealth is the form of accumulated savings may be used to meet religious levy resulting in a transfer of recourses from the rich to poor.

• Zakat prevents concentration of wealth and Income in a few hands.

1. Role of the state:The state plays a positive role in the economic life of people. It helps the market to work smooth. It modifies the allocation of resources and distribution of income effected by market system.

2. Money and saving: The state has role to issue money and control its supply on without interest.

3. The Islamic development Bank: he Islamic development bank has been established to foster economic development

• and social progress of member countries , in accordance with the principle of Shariah.

• It will participate in equity capital of productive projects and enterprises in member countries. It make loans to private and public sector project. It also establish funds to support Muslim in non-Muslim countries. It provide technical assistance , in promotion of foreign aid.

4.Labour and industrial relations:

• Islam emphasize as the dignity of labour. Honest work and wages to maintain a decent standard of living.

5. Population Policy:Population control through family planning has been controversial. Majority of writers oppose the family planning.

6. Economic Development: Increase in production, distributive justice, environmental balance and improvement in quantity of life may be considered as the four dimensions of development in Islamic economics.

7. Exchange price and profit:Money is confined to its basic role of mediating between production and consumption. Monopoly, hoarding and speculation are all considered as un-Islamic practice. All prices ,whether of factors of productions or of products will be then just or fair.

• There is disagreement among writers in Islamic economics on the nature of profit. Some writer do not consider profits as reward for risk taking. Profits are shared between the supplier or capital and the entrepreneur.

EMERGENCE OF ISLAMIC ECONOMICS

• The contributions of Muslim thinkers and philosophers have usually been neglected in the history of Economics.

• Western scholars regard Adam Smith as Father of Economics and his famous book Wealth of Nations (1776 A.D) as the first book of economics

• BUT Five centuries before Adam Smith we find elaborated discussion on economics under the topic “Tadbir-i- Manzil ( planning of house),

• “Siyasat-i-madan (politics of city) and• “ AL Muash (Livelihood) in the works of Muslim

scholars e• specially Muhammad bin Hassan Tusi (1274 AD) and

Ibn e Khaldun (1332-1406 AD)

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Some Renowned Muslim Economist

• Many scholars trace the history of economic thought through the Muslim world, which was in a Golden age from the 8th to 13th century

• Abu Yusuf (731-798) wrote the Book of Taxation (Kitab al-Kharaj).

• This book outlined Abu Yusuf's ideas on taxation, public finance, and agricultural production.

• Tahir ibn al Hsssain (755 – 822)• Al-Ghazali (1058–1111)• Al-mawardi (1075–1158),• Nasir al-Din al-Tusi (1201–1274)• Ibn Taimiyah (1263–1328),• The discussions included division of labor

within households, societies, factories, and among nations.

Contribution of other Muslim Economists

• Ibn e Tammiya illustrates the concept of Demand and supply.

• The concept of benefits of division of Labor was also dicsussed by Al Farabi (873–950), Ibn e Sina (980–1037), Nasir Al Din al Tusi (1201–1274), Ibn Khaldun (1332–1406).

• The most well known Islamic scholar who wrote about economics was Ibn Khaldun of Tunis, who is considered a forerunner of modern economics.

• Lets have a bird eye view on his remarkable work.

Ibn Khaldun (1332-1406 AD)Father of Economics

• Abdal-Rahman Ibn Mohammad Ibn Khaldun was born in Tunis.

• He worked as Judge & Head of Al-Azhar University Cairo, Egypt (world’s oldest university - founded 971 AD)

His major areas of work

• Labor Theory of Value,– Labor Economics ; Labor as the Source of Growth

and Capital Accumulation.

• Demand, Supply, Prices & Profits–Modern price theory states that cost is the backbone

of supply theory, it was IBN-KHALDUN who first examined analytically the role of cost of production on supply and prices.

– And it was Ibn khaldun NOT Frank Knight, who originally advanced the theory of profit.

– He also concluded that both excessively low prices and excessively high prices are disruptive to markets.

– In fact he discovered what is now known as cost push and demand pull inflation.

• Macro Economics, Growth, taxes, role of government, and Money

– “Expenditure of one citizen are income to others” this equality was first introduced by Ibn-e-Khaldun.

– He was the pioneer in introducing the “ theory of Growth” based on capital accumulation

– Ibn-e-Khaldun was the first major contributor to “theory of Taxation” in the history.

• Foreign Trade– He also contributed a lot in the field of International

Economics.

– Ibe khaldun was of the view the people`s satisfaction, merchant`s profit and countries wealth, all these will increase through foreign trade.

– He also introduced the concept of “opportunity cost”

• His analysis on theory of capital accumulation, value and its relationship to labor, dynamics of demand, supply, prices & profits; his treatment of the subjects of money and role of government; his remarkable theory of taxation, and other economics subjects; his all this unprecedented contribution to the overall field of economics make

IBN KHALDUN , THE FATHER OF ECONOMICS