Economic Principles of Islam

(The following piece is an adapted and translated version of Mufti Abdul Khaliq Azad’s lecture delivered at FAST University, Islamabad on April 24, 2010. The detailed transcript of the lecture was published in Shaoor-o-Agahi, (Volume no 04 Issue no 2) a quarterly research journal, published by Rahimia Institute of Quranic Sciences, Lahore.)

Every independent nation develops a society on the basis of its own school of thought. The political, economic and social systems have to be synchronized with this core philosophy.

Systems of social formation:

The two prominent ideologies pertaining to a human society are capitalism and socialism. Adam Smith is attributed to have founded Capitalism. This system proposes certain economic principles which provide the basis for the establishment of a society. This system places the ‘capital’ at the centre. Accordingly, an education system is devised to instill capitalist thoughts in the people of the society and to spread them to the later generations. Their youngsters spend their energies on implementing systems which operate under the larger system. They establish institutions, develop a way of life, and form political and social systems on the basis of capitalism. Not only this, they formulate a system of justice, social and cultural norms to protect capital. In short, the whole society is centered on capital.

The same conditions apply to Socialism which came into being as a reaction to Capitalism. So the countries which brought about revolutions against Capitalism, built their economic and political systems on the foundations laid by Marxism. They envision their social formation on ‘proletarian dictatorship’. They educate and groom their youngsters on Marxism or any other of its shades. They develop their political, economic and social institutions on the principles of their ideology.

It is pretty evident that an ideology plays a critical role in the formation of society. This thought helps in developing a political system which addresses problems of the people residing in its geographical territory. In the next stage, this thought helps in forming an economic system which fulfills the needs of society by devising principles of production of wealth, distribution, consumption and exchange.

Responsibility of Muslim societies:

It is a matter of grave consideration that the above-mentioned systems base their political and economic systems on their own school of thought. The Muslim societies neither consider Adam Smith’s “Wealth of nations” nor Karl Marx’s “Daas Capital” as their fundamental book. They have complete faith in the holy book. The Quran serves as a basis for the formation of a human society and Prophet Muhammad (SAW) proposed a system, not only for a particular race or group, but a universal system for the collective betterment of humanity.

It is vital to understand our responsibilities if we claim to have faith in this holy book. The countries where Muslims are in majority and promise to build their societies on Islamic principles must understand what these actually are. As the other nations of the world are building their Education systems on their schools of thought and then forming systems accordingly, so too must Muslims base their educational, political, economic and social systems on Quranic teachings. After enlightening ourselves about these systems, we must also initiate a practical struggle to form such systems also.

Call of the times:

Another important thing to take into consideration is that Islam possesses an enviable history of one thousand years of its system’s dominance. Generally the representatives of religion discuss its progress and prosperity to some extent but they are unable to take any initiative to develop a political, economic and social version of Islamic system as per the contemporary demands and needs of time.

The call of time is to understand the challenges posed to a human society by the industrial revolution or by the new relationships emerging in the digital and computer age. In this regard how can we arrive at the answers in the light of the Quran’s and Islam’s political and economic guidance? It should be considered our prime responsibility as a Muslim to understand our political and economic woes in the light of the Quran.

Economic and social requirements:

Today when we talk about economics we only debate about capitalist and socialist principles. The guidance offered by the fundamental teachings of Islam mostly is not discussed. There is a dire need, however, to understand the Islamic principles before we plan to implement its practical system. Leaving aside Philosophy of it all, let us focus only on Economics and explore the fundamental principles of Islamic economic system.

Reality of Economics:

Economics deals with two basic realities

1) Needs of humans

2) Resources available

Economics discusses strategies to utilize resources to fulfill human needs. The availability and productivity of resources, their distribution, exchange and consumption falls in the realm of economics. Every system prevailing in the world offers some notions about the fundamental principles which drive production and distribution of resources.

Capitalist perspective:

Capitalism defines principles for production by focusing on capital and believes in utilizing human potential to benefit capital. Similarly it defines principles of exchange, distribution and consumption of wealth in such a way that all this leads to the protection of capital. Capitalism promotes only those concepts of formation of society which are beneficial to the growth of capital. This is because of the fact that ‘Capital’ is given prime importance. All humans and means of production play their part to protect Capital. Capitalism promotes only those political institutions and factions which offer unconditional submission to protection of capital. The exploitative role of capital selects certain factions to the highest echelons of leadership in the sacred name of democracy. In this way capital develops its hegemony over the society.

Socialist perspective:

In comparison to Capitalism, Socialism proposed an opposite perspective for fulfilling human needs. It presented a concept of Proletarian dictatorship rather than Capital’s dictatorship. It promoted proletarians and their social organization to set up their dictatorship to fix economic woes. So the production of wealth must grant them basic importance in society. The distribution, consumption and exchange of wealth should follow the same suite. They established political, social and cultural system on this principle. But even this system cannot address the economic woes due to injustice and tyranny.

Islamic perspective:

Islam offers a complete economic system to satisfy human needs and demands. These teachings define the reality of economics and propose a comprehensive practical system of economics.

The capitalist school of thought assigns fundamental importance to wealth and capital while defining economics. So the “knowledge of circulation of wealth” becomes economics to them. In this manner wealth attains prime importance and humans surrender to it. On the other hand, Islam assigns prime importance to humanity when it comes to economics. The scholars of Islam have defined economics from this perspective in an extensive manner.

Shah Waliullah’s Comprehensive understanding of Economics:

Two hundred and fifty years ago, Shah Waliullah presented a comprehensive, moral framework for the economics of a society:

Economically, he suggests, human needs must be fulfilled taking into account the following three aspects:

1) Social values and positive ethics of the society

2) Empirical knowledge based on scientific and technical discoveries

3) Public interest and collective welfare

Three fundamental aspects should be considered, according to his understanding, in providing resources and devising principles for distribution and exchange to fulfill human needs.

Firstly he emphasizes that human values and collective morality of the ongoing age should be taken into consideration to fulfill human needs.

Secondly Shah Waliullah has mentioned that the scope of human needs change with the advancements in science and technology. Human needs must be identified keeping this in view. The system for fulfilling those needs should also be developed subsequently.

The third aspect stressed by Shah Waliullah is to keep in view the collective betterment of society. Thus Islam proposes principles of production, consumption, distribution and exchange of wealth on the basis of collective interests.

Islamic Economic system assigns prime importance to human beings and permits 'capital' to operate for their benefit only. If humans are given secondary importance and capital or some other power is given prime importance then such a society cannot be termed as a just and Islamic society. Its economic system will be based on wrong footing.

Basic elements of economic system:

Every economic system of the world debates about four stages of economic management and highlights basic principles required to fix problems related to these stages. These four stages are

1- Production of wealth

2- Distribution of produced wealth

3- Principles of exchange and trade of wealth

4- Principles of consumption of wealth

Every economic system of the world will discuss these four matters. The school of thought which provides comprehensive guidance regarding all these four matters can be considered to constitute a permanent system.

Quranic economic principles:

In comparison with Capitalism and Socialism, Islam offers complete philosophical and practical guidance regarding these four aspects. If we delve deeper into Quranic teachings we will observe following basic principles of economics

1- Equality in economic rights

2- Natural variance in economics levels

3- Prohibition of concentration and hoarding

4- Right Balance between Capital and effort

The First Principle: equality in economic rights

All human beings possess legal right to access economic resources. This means that there should not be any discrimination of class, race or religion to reap benefits from economic resources. As Quran clearly states that all resources in the world are for all human beings (29:2).

So the resources belong to everyone. Hence any system that is discriminatory cannot be tolerated.

The Second Principle: natural variance in economic levels

The second basic principle of Quran teachings states that human beings differ in their mental, intellectual and practical capabilities. The access to resources should be available to all but when human beings actually reap benefits from these resources, then due to the difference in their capabilities and hard work, there will be a natural variance in economic levels. So the difference of intellectual and practical capabilities can create a meager difference of economic levels.

Here we need to understand an important difference that a system allows a particular class to develop its hegemony over resources and hence deprives the rest is condemned in the eyes of Islam. Islam encourages the political system to regulate economy and preempt formation of formidable class difference in society and only allow variance due to natural difference in human capabilities.

The Third Principle: prohibition of concentration and hoarding

The third basic principle of Quran e Hakeem and teachings of Prophet (SAW) prohibits concentration and hoarding. Hoarding means accumulating commodities at a certain place. This act benefits a certain class and deprives the rest. This horrendous act is strongly criticized by Prophet Muhammad (SAW). Similarly accumulating capital or wealth at one place is called concentration. From an economic perspective the commodities and wealth are important to serve the needs of human society and thus acts of trying to concentrate them in a certain class can never guarantee collective betterment of society.

The Fourth Principle: right balance between capital and labour

The fourth principle of Islamic economics encourages striking a right balance between capital and effort. The progress of human society demands cooperation between capital and labour. Capital should play a cooperative role rather than an exploitative one and labour should ensure collective prosperity and cooperation.

These four basic principles serve as prerequisite for the formation of an Islamic economic system. The teachings of Islam propose a complete economic system in the light of these principles. The details cannot be described in this short span of time.

We need to contemplate why these four principles are not addressed in our education system. As a result we are unaware and negligent of these basic teachings of Deen. On the contrary we are living in a capitalist system from last two hundred and fifty years. It is based on the principle of protection of capital. Feudalism and Capitalism have permeated deeply in our whole society. But our youngster is unaware of the teachings of Quran. He seems incapable of forming a practical system on these bases. As a result we are not able to form a political and economic system based on the teachings of Islam.

The need of the hour for a youngster is to become aware of the Quranic teachings on which he intends to form his society. The relations based on the production of wealth tend to change with time. The industrial, agricultural and commercial age introduces new relations. A system is formed on these production relations. The reality begs answers. Now it is up to the Muslim youth to present answers from the Quranic perspective.

We also need to keep in mind that dividing human beings in certain circles and creating classes on the bases of religion, language or some other identity are not right by any means. The interpretation of religion in this corrupt system is never presented on humanitarian lines; in fact it is presented in a manner which benefits a certain group. This leads to creation of classes. We need to come out of these sectarian circles and understand the political, economic and social problems of the society. We should struggle to fix the problem. Particularly, we need to understand the dynamics of Capitalism which have engendered hunger, poverty, classes and political unrest in our society. We need to step ahead in the light of humanitarian Islamic teachings to get rid of Capitalism and solve our problems.

Undoubtedly this subcontinent has witnessed a visionary party which has carried its struggle in this perspective. It contains formidable personalities from Shah Wali Ullah to Imam-e-Inqilaab Maulana Ubaidullah Sindhi who have interpreted the economic teachings of Islam. They have enlightened us about Islamic perspectives on politics, economics and society. These philosophies hold the golden key to the formation of just societies.

Today we need to consider those philosophers who possess the right character to form a society in the light of Islamic guidance. We need to compare these scholars with those European and Western ones who present solution to human economic needs in a limited sphere. We need to explore the great historical character of Islam in fixing political, economic and social problems of society. May Allah guide us in understanding the problems of our society and resolving them in the light of Islam. Ameen!