Islamic Economics is a topic of great interest nowadays. Sometime ago an article appeared in the LA times, asking the question “Will capitalism fall victim to its own success?“

From the article:

Karl Marx is turning in his grave. Or perhaps not, because some of his writings eerily foreshadowed our era of globalized capitalism. His prescription failed, but his description was prescient.

I assume that he is pointing to this quote from the Communist Manifesto:

The development of Modern Industry, therefore, cuts from under its feet the very foundation on which the bourgeoisie produces and appropriates products. What the bourgeoisie therefore produces, above all, are its own grave-diggers. Its fall and the victory of the proletariat are equally inevitable

But with all the criticism that can be heaped on capitalism, what are the alternatives? Social Democracy is named, as is Chavez and his “21st Century Socialism”.

Then there is “Islamic Economics”…

From the article:

What, after all, are the big ideological alternatives? …
Islamism — billed as democratic capitalism’s great competitor in a new ideological struggle — offers no alternative economic system (aside from the peculiarities of Islamic finance) and does not appeal beyond the Muslim umma. Most anti-globalists are better at pointing out the failings of global capitalism than they are at suggesting systemic alternatives. “Capitalism should be replaced by something nicer,” read a placard at a May Day demonstration…

Islamism, according to the author ( and I assume meaning the practice of Islam on more than a personal level) is insufficient in developing an alternative economic system. There are more than enough writings on “Islamic Economics” but with economics largely an empirical science, can the ideology of Islam to develop an “Islamic theory of economics” i.e. one that guides the normative values of economics in a manner conducive to Islamic belief and practice?

Much of what has been written in this field is extremely vague. Concepts of “Justice” and “equality” abound, re-iterated with the same examples of prohibiting “Riba” and usurpation of property. In fact, there seems to be a trend in many of these writings. When socialism was big in the Muslim world, many such writings reflect that influence, stressing wealth distribution and state regulation. Nowadays, with the socialist influence waning, more capitalist leaning thought has entered the fray. All in all, there is still alot of research that needs to be done. Economists such as Timur Kuran present the same picture of “Islamic Economics” that the author of the above quoted article does. Others have been equally critical, yet without avail. There seems to be a stagnancy in admitting the need for progression in the area of economics, Islamic economics that is. So while many Muslims believe that they are simply being sticklers for orthodoxy, in fact they may be merely following trends, something alluded to in several hadeeth.

This method of innovation-trailing in areas of economics and finance has lead to no substantial alternative to be developed for the benefit of mankind, much less the benefit of Muslims. While some characterize critique of Islamic Economics as a form of self-hate, hypocrisy, or support for non-Islamic systems, they should recall the statement of Umar ibn AbdulAziz “May God bless the person who presents to me my faults.”

Also from the article:

Does the lack of any clear ideological alternative mean that capitalism’s triumph is secure? Far from it. For a start, the history of capitalism hardly supports the view that it is an automatically self-correcting system. As George Soros (who should know) points out, global markets are now more than ever constantly out of equilibrium — and teetering on the edge of a larger disequilibrium. Again and again, capitalism has needed the visible hands of political, fiscal and legal correction to complement the invisible hand of the market.

So if Islamic Economics is an alternative system, what sort of corrective mechanisms are sanctioned to offset disequilibrium? Most research, as alluded to in the article, has centered on issues of Islamic finance. Issues that for the most part are micro-economic in nature, and do not present an “Islamic” concept of a general regulatory framework or a theory of political economy.

In “The Worldly Philosophers” Robert L. Heilbroner lists three ways in which societies have dealt with such precariousness of human nature: tradition, authoritarianism, and market systems. In the past, it seems that much of the research and application of Islamic law as applies to economics, business and finance seemed to concentrate of the tradition of the Madhahib (juristic schools) and their analysis of the “permissibility of contracts“. As alluded previously, authoritarian attitudes to these subjects took hold in the attempt to develop a viable Islamic counter-culture to what was thought to be the invasion of the “Un-Islamic” ideas of Capitalism and Democracy. Now the only thing left is the development of market system reflecting the objectives of Islamic Law.

What sort of political correctionary methods are sanctioned by Islamic Law? If the Islamic economy is not authoritarian, then is it laissez-faire? What sort of fiscal policy does Islamic economics advocate? Classically this was spoken of in the books of politic or “al-Siyasah al-Shar’iyyah”. However, there is great emphasis in those works on revenue from natural resources and appropriation of war-spoils, with  Zakat and land taxation another large part of that discourse. With modern market economies and the spread of fiat currency, what is the Islamic view of Seignorage? What of taxation? (the latter being a particularly touchy topic in some medieval legal discourse). Many more modern topics would not even be mentioned.

As for legal corrections, this area has been particularly problematic for me. We find that one of the staunchest prohibitions in the Quran to be that of the prohibition of “Riba”. However, all of the punishments and admonishments attached to this form of transaction are of a moral type attached to other-worldly punishment. The question then remains: How can something that is viewed as so severe in its practice, be allotted a punishment that does not even equal that of the least of punishments for misappropriation of personal property (theft, etc.)

Admittedly, I am not an economist, I am a student of Law. If the assertions or assumptions that I have made here are wrong, please let me know. I would love to learn from you.

In closing, the article mentions:

Marx thought capitalism would have a problem finding consumers for the goods that improving techniques of production enabled it to churn out. Instead, it has become expert in a new branch of manufacturing: the manufacture of desires. It’s that core logic of ever-expanding desires that is unsustainable on a global scale. But are we prepared to abandon it?

A good question as many Muslim countries head down the path of Prophecy, importing some of the most detrimental aspects of capitalism without a 1/2 of the social and economic regulations needed to allow for longevity.