At the heart of the contemporary Islamic doctrine of economics lies a set of behavioral norms derived from the first Islamic society in seventh century Arabia. This paper demonstrates that these norms cannot be expected to serve as the spearhead of a drive for modern economic development. For one thing, the proposed norms are unlikely to enjoy widespread adherence in large societies where it is difficult to achieve a common perception of reality, elicit generalized altruism and overcome the free rider problem. Secondly, many Islamic norms are ambiguous, and some interfere with institutions designed to improve the workings of markets.

1. Introduction

 A conviction gaining currency among contemporary social thinkers in the Muslim world is that healthy economic development entails subordination of all production, exchange, and consumption decisions to the behavioral norms of Islam. The economic woes of Muslim countries, many scholars contend, are due in large measure to departures from Islamic codes of conduct: if only the individual Muslim had not abandoned the norms prescribed by his religion and succumbed to his greed for material gain, Muslim society would be free of the backwardness, poverty and inequality which characterize it today. The doctrine of economics put forth by these scholars, which is at once a reflection of public opinion and a powerful force shaping it, has considerable influence on economic behavior throughout the Muslim world. An analysis of the assumptions and arguments that underlie the Islamic doctrine can therefore enhance our understanding of the economic problems facing Muslim countries.

 In this paper I critique the contemporary interpretation of Islamic norms as it relates to modern conditions. My focus on norms reflects their pivotal role in the literature on Islamic economics. Indeed, many scholars, including M.N. Siddiqi (1981, p. 5), a widely-quoted proponent of the Islamic system consider most of the differences between Islamic economics and Western economics (neoclassical and Marxist) to be rooted in behavioral norms. My concern with the contemporary literature, as opposed to the body of thought that emerged in seventh century Arabia reflects the belief that Islam's influence on current economic choicest-stems from its modern interpretation While in formal terms the modern doctrine bears strong resemblance to the original Islamic sources, its actual message, as convincingly argued by Asaf A.A. Fyzee (1963), Fazlur Rahman (1982) and many others, is significantly different.

Norms are standards of conduct which individuals follow in their activities. Like formal laws and rules, they serve to guide and restrict the individual's choice of actions. Where they differ is in the mechanism of enforcement. Laws and rules are enforced by an outside authority — the former by the state and the latter by an organization or group of individuals — while norms are enforced by the individual's own conscience.¹ In the Islamic doctrine the role of guiding the individual's economic actions is given to norms; as an inferior alternative to norms, laws and rules are imposed only as a last resort when norms fail to elicit the desired behavior.

Why, one might wonder, is there any need to guide and restrict the individual's economic behavior? The Islamic answer to this question hinges on the assumption that man's innate selfishness motivates him to take actions conflicting with the general good of society. This assumption implies, according to the Islamic scholars, that there can be no peace or harmony in a community of self-seeking individuals, and therefore, that each individual is doomed to insecurity and unhappiness unless everybody's selfishness is somehow tempered. The role of restraining man's selfish impulses belongs in the Islamic system to norms based on the Koran and the Sunnah, the latter comprised of recollections of what Prophet Muhammad did and said during his lifetime. The normative system of Islam, writes Syed N.H. Naqvi (1981b, p. 13), 'enjoins the "best" configuration of the production structure and a just balance between rival claims on the consumption, production and distribution activities'.²

 Compare this view with the proposition, which has dominated Western economic thought at least since Adam Smith, that individuals who pursue their own gain are led by an 'invisible hand' to promote the broader interest of society. In contrast to the Islamic doctrine, the doctrine of the invisible hand ascribes no explicit role to behavioral norms.³

 The argument that the Islamic norms are well-suited to improve the functioning of an economic system is bolstered by evidence from the earliest days of Islam. 'About 1400 years ago', states Waqar Ahmed Husaini (1980, pp.  12-13), Islam created a new 'human spirit [that] changed the ideas, beliefs, politico-economic conditions, and other cultural phenomena in the Arabian  peninsula, the Sasanian and Byzantine Empires, North   Africa, Southern Europe, East Asia, India, and other regions.' And on the same note Muhammad Abdul-Rauf (1979, p. 130) writes, 'As the Islamic state expanded and incorporated most of the territories then known, Muslim leadership was confronted with innumerable problems, which they resolved with an amazing degree of efficiency.'

 Consensus has the golden age of Islam spanning the Prophet's lifetime and the tenure between A.D. 632 and 661 of the four 'rightly-guided' caliphs⁴. Thereafter, it is believed, the fabric of Muslim society began to disintegrate as 'the spirit of sacrifice and   generosity' inspired by Islamic values and injunctions was 'progressively conquered by the powerful corruptive forces of possessiveness and love for wealth' [Abdul-Rauf (1979, p. 141)]. Contemporary writers are united in the belief that the ideal order could again 'be achieved today by arousing the potential of true human nature to establish Islamic social justice' [Husaini (1980, p. 13)]. The norms that worked wonders in seventh century Arabia, they argue, could do the same in any of today's societies.

 The fact that norms play a role in the Islamic doctrine is not at all surprising in and of itself, since all economic systems, including the advanced economies of the West, make use of behavioral norms to resolve free rider and coordination problems. Free rider problems arise when each of the individuals with a common interest in performance of a collective task chooses to make others bear the cost; the task then fails, even though the collective benefit from its completion exceeds the collective cost. Such problems are overcome in actual economic systems through laws, rules and norms that cause individuals to forsake personal gains for the larger benefit of society. Pollution controls and the military draft are examples of the laws individuals collectively devise to   eliminate the free rider problem by constraining their own behavior; the by-laws of organizations are among the rules imposed for the same purpose. As for coordination problems, they arise in situations where there are several mutually beneficial states of the world toward which individuals can aim their actions, but where agreement on which particular state to target is unlikely to be reached in the absence of some form of guidance. Regulations that force people to drive on the right and rules that require members of an organization to abide by specific work hours (say, nine to five) are solutions to coordination problems.⁵

 Norms tend to be used to resolve free rider and coordination problems in some types of situations where surveillance and enforcement costs are so high that laws or rules are infeasible. The task of keeping the countryside clean is, for instance, accomplished in many societies through norms, because anti-litter laws are prohibitively expensive to enforce.⁶ Similarly, societies use norms to enforce codes of etiquette. Among the other collective tasks where norms play an important role are blood donation campaigns, fire control activities, and voting in national elections. Societies inculcate a diverse array of norms into their members through the family, religion, schools, peer groups, traditional literature, the media, state propaganda and various forms of folk wisdom.

 Thus, the Islamic doctrine captures an element of reality when it ascribes an important role to behavioral norms in the economic system it envisages. This is commendable, particularly since mainstream neoclassical economic theory, which constitutes the backbone of policy discussions in much of the world, pays almost no attention to norms. Indeed, there is little in the neoclassical literature to indicate that behavioral norms — in the form of moral codes, religious injunctions and ideologies — are used to reduce the costs of enforcing constraints on economic behavior in actual economies.

 But the principal strength of the Islamic doctrine is also its most glaring weakness. For the normative system of Islam is expected to provide perfectly well-defined and clear constraints on individual economic decisions and to be applicable with equal force to all societies in all stages of development. These factors, as we shall see, open the Islamic doctrine to criticism on at least two grounds.

 The first basis is that the doctrine takes no account of the finding of modern social science that as society expands norms become less effective as a means of achieving social cooperation and coordination. The loss in effectiveness, which results from an increasing frequency of violations, causes society to discard some norms and supplement or replace others with written laws and rules. For instance, norms requiring individuals to engage in charitable activities are supplemented as society grows by mandatory taxes designed to guarantee the transfer of some resources to the poor.

 Thus even if it were true that the Islamic norms were fully effective in the Arabian economy of the seventh century, this in no way guarantees their effectiveness in a modern economy. But in any case the claim that the norms were fully effective in the golden age is belied by the historical record, which indicates that violations of the Islamic norms increased rapidly as the Islamic community grew in size. Some of the evidence on this point will be presented in the course of my argument, even though this paper is not intended to be historical.

 The second basis for criticism is that the Islamic norms are ambiguous in many of the situations to which they are expected to apply. In these situations, they constitute a rather poor substitute for the detailed laws and rules that have evolved in the course of economic development in societies we observe today.

Before proceeding with an outline and critical evaluation of Islam's normative system, as interpreted by contemporary Islamic economists,⁷ it is important to note that the Islamic doctrine has a huge number of proponents. A bibliography compiled in 1978 lists 700 recent sources on Islamic economics and the number is increasing rapidly.⁸ Not surprisingly, the proponents of the doctrine have varying views about what the Islamic norms are and about which norms, if any, need to be supplemented by formal legislation.⁹

 At one end of the spectrum are the fundamentalists who seek literally to return to the perceived simplicity of the Arabian economy during Islam's early years. The fundamentalists' efforts are directed solely at discovering the model of that ideal economy. Fully convinced that nothing needs to be added to the model, they are strongly resistant to the scientific spirit and to cross-cultural exchange of ideas and institutions. At the other end are the reformers, who seek- to create a new economic system which, while being consistent with the spirit of the Koran and the Sunnah, is not unchangeable. Recognizing that there are some areas where the Koran does not legislate they believe that there should always be scope for reinterpretation. Muslims of every generation must, according to them, exercise independent judgment (ijtihad) to revise economic institutions. The reformers condone assimilation and imitation of non-Muslim institutions that do not violate fundamental Islamic principles. In between the extremes are those writers, by far the majority, who cannot be adequately classified because they appear as ardent reformers in one passage and as relentless fundamentalists in the next.

Given this diversity, there is an inevitable injustice in any attempt to treat the Islamic literature as a uniform body of thought. Nevertheless, because all proponents of the Islamic doctrine are united in the belief that behavioral norms are at the center of the Islamic system, it is appropriate to speak of a single doctrine—provided one keeps in mind that the doctrine has as many variants as proponents.

2. The Islamic norms

The behavioral norms of Islam are intended to turn selfish man into a dedicated social being. This more refined individual has been given the special name of homo islamicus.¹⁰ Unlike his cousin homo economicus, whose acquisitive pragmatism graces the neoclassical literature, homo islamicus exhibits altruism and humanism. At once socially conscious and self-sacrificing, he bases his decisions not on his personal interest but on that of society at large. Thus, as Syed N.H. Naqvi (1981a, p. 64) points out, Islamic man's utility function incorporates others' utility functions, so that he effectively behaves as a collective entity.

What, then, are the norms of economic activity followed by Islamic man? They're conveniently grouped in two broad categories: production norms, which also include norms dealing with exchange activities, and consumption norms.

Regarding production, Islamic man is free to produce and trade for his own gain. In exercising this freedom, however, he is bound by two sets of norms. The first set consists of norms aimed at maximizing society's level of production. One of these requires the individual to work hard to fulfill his potential. Another forbids the individual to thwart the productive efforts of others, and a third calls on him to avoid malevolence to his brothers in seeking to benefit himself.¹¹ The purpose of the last two norms, which in practice are often inseparable from one another, is to suppress the destructive side effects of competition.

The second set of production norms aims at ensuring that Islamic man benefits from the economic process according to his effort rather than his output.¹² Underlying these norms is the belief that unearned gain (anfal) would impair the legitimacy of the economic system. Injunctions against charging interest, speculation, and hoarding are prominent among the justice norms. So, too, is the obligation to avoid 'suspicious sources of income', generally defined to include middleman activities. Most writers favor prohibitions against the monopolization of industry, and a few are against all forms of economic protectionism.¹³ Many find insurance unacceptable on the grounds that this involves 'gambling and uncertainty'.¹⁴ Forward contracts involving uncertainty are illegal, too, according to most writers. Naqvi (1981a, p. 68) favors forbidding the sale of 'the expected fruits of a tree which has not yet borne fruit', on the grounds that the buyer is 'made to suffer if the fruits don't grow or are destroyed by a natural calamity.'

Not surprisingly, individuals are required to be honest in business dealings. Honesty, says Mian M. Nazeer (1981, p. 19), involves 'keeping one's trust' and charging a fair price in return for a 'full measure and full weight'. In the same vein, Siddiqi (1972, p. 31) writes: 'A truly Muslim entrepreneur who can serve ... society by offering better goods at cheaper rates will never manipulate prices to increase his own profits.' Some scholars would guarantee honesty in transactions by making it mandatory to specify in advance all conditions of trade, including price, presumably ruling out contingent contracts.¹⁵ The Islamic entrepreneur is also required, according to Azam (1978, pp. 47-48), to pay 'just and fair wages' to his employees.¹⁶

As for the consumption norms, they ban spending on socially wasteful or harmful activities, and more important, obligate the rich to assist the needy. The justification for the prohibitions is that 'real ownership of wealth, consumable or productive, belongs to God'.¹⁷ Being merely a 'trustee' of a portion of God's wealth for a limited term, the individual is compelled to refrain from spending on activities viewed as undesirable by God, even if all his wealth was acquired in a righteous manner. Accordingly, he is prohibited from spending his resources on drinking, gambling and adultery, and from 'displaying pomp and grandeur' [Chapra (1970, p. 152)]. The last prohibition, which aims at moderating the individual's consumption, is illustrated by Siddiqi (1972, p. 16): 'After a certain limit, consumption of cloth may turn into extravagance. As extravagance is prohibited, the individual must stop at this point.' Given that resources were created for the benefit of mankind, the individual member of Islamic society is also obliged to make sure that his wealth is not abused, destroyed, kept unutilized or 'squandered- on idle pursuits'.¹⁸ Most authors are careful to point out however, that the Islamic economic system does not require the individual to be an ascetic. It encourages him to enjoy the bounties of civilization provided he stays within certain limits.

The remaining consumption norms are all intended to attenuate gross inequalities of income and wealth, which may emerge as a result of variations in ability or opportunity. Private property is permissible and a modest degree of inequality is viewed by the Islamic scholars as the inevitable consequence of a healthy incentive system.¹⁹ Yet, whatever the level of inequality, some income redistribution is considered necessary to guarantee a minimum standard of living to the less fortunate members of society, including widows, orphans, the aged, the handicapped, and the unemployed. Able-bodied beggars are not entitled to assistance.²⁰

Organized redistribution takes place through zakat, an annual wealth tax, and the inheritance tax, a complicated scheme designed to prevent the 'intergenerational snowballing of wealth'.²¹ But there is no consensus among Islamic scholars as to the rates of these taxes or their scope. Regarding zakat, some scholars advocate the exact system developed in the early days of Islam, which involved rates varying between 2.5 percent and 20 percent on existing forms of wealth, while others favor both modifying the traditional rates and taxing new forms of wealth, including machinery and stocks.²² This lack of consensus notwithstanding, numerous scholars regard zakat as a cure-all. For example, Azam (1978, p. 123) writes: 'Zakat transforms the whole mentality and outlook of the people — and therefore, the social system itself. People become welfare-minded by nature and temperament... The whole pattern of consumption, production and distribution is transmuted... Zakat [fights] hoarding, waste and poverty in one go.'

Unorganized redistribution, more interesting from our standpoint, is induced by a norm requiring the individual to make additional charitable donations, presumably to people of his choice. One writer, S.M. Yusuf (1971, p. 61), lays down the following guideline: 'capacity for contribution to social welfare... is to be measured by the amount one is able to spare after enjoying the standard of living which is commonly enjoyed by men of one's rank and station in life.' The norm implied by the following statement of Abdul-Rauf (1979, p. 135) requires even stronger action: 'A Muslim is not to let his neighbor smell his cooking without letting him share it, nor should he let his children play outside with new toys unless he has presented his neighbor's children with similar toys.'

But what guarantees that all these norms will in practice be followed scrupulously? What, for instance, ensures that the individual member of Islamic society will be totally honest and make the charitable donations required by the Islamic doctrine? The answer of the Islamic writers hinges on the transformation of unrefined homo economicus into homo islamicus. They offer two distinct avenues for this transformation. The first involves modification of preferences. Islam, they claim, alters man's state of mind so that he perceives himself not as an isolated individual but as one component of the larger community. This change curbs his personal wants while making him genuinely interested in the welfare of society.²³ With his selfish desires regulated by a spirit of brotherhood, man turns into a social being who derives pleasure from helping others.

The second avenue involves internal restraints on man's actions. Recognizing that religion cannot always succeed in transforming man's socially undesirable preferences, the Islamic scholars also stress the role of Islam in preventing man from acting upon these preferences.²⁴ The regulation of man's actions — as opposed to his preferences — is achieved by instilling in him a concern for the afterlife. Islam, like most religions, conveys the message that man's actions are being judged and that he will be rewarded after death for good deeds and punished for bad deeds. A belief in the truth of this message motivates man to choose to serve society even when this service precludes satisfying some of his personal wants.²⁵

Man's self-interest in altruistic behavior is also conveyed through the teaching that altruism constitutes a social insurance mechanism: in a society of sharing individuals everyone is freed from the possibility of helplessness in case of grave economic loss [Husaini (1980, pp. 131-134)]. As with any social insurance mechanism, the Islamic one must, of course, face up to the free rider problem. The difficulty is easily overcome, according to the logic of Islamic scholarship, through the individual's concern for the afterlife. A final reason why the individual member of Islamic society has an incentive to suppress his selfish tendencies is that his status in society is determined, at least in part, by his benevolent actions [Siddiqi (1972, p. 105)].

All this is not to say that Islamic scholars really believe that an economic system can be based on behavioral norms alone. Even though they give such an impression through a large portion of their writings, they also provide evidence that they believe otherwise: they ascribe to a central authority, the state, the responsibility for preventing violations of the norms. The state', one writer says, 'will have to coerce the "free-riders" ... into paying for the [public] services they use' [Naqvi (1981b, p. 31)]. Another argues that the state must supervise the market 'to protect [society] against malpractices such as hoarding of food, inflated prices, and deceit.'²⁶ Therefore the Islamic writers must not really believe that all persons would consider themselves bound by the Islamic norms in the absence of government coercion. Indeed, giving the state the role of preventing the very type of behavior prohibited by the Islamic norms is tantamount to accepting that society cannot be adequately transformed by the norms alone. And it is equivalent to declaring that these norms will in practice be treated as laws.

Still, the state would play only a peripheral role in the Islamic system, because, it is claimed, the production and consumption norms would by and large be followed. In an Islamic society, according to Afzal-ur Rahman (1980a, p. 42), 'main reliance is placed on the moral training of the people and [a] small measure of external force is used very sparingly when found absolutely necessary for the preservation of the social system.' On the same note Siddiqi (1981, p. 13) writes: 'Morally oriented individual action is expected to ensure the achievement of socially desired results to a large extent. Law and social control are to guide, regulate and supplement individual actions and compensate the deficiencies that still remain.'

Most authors recognize, of course, that conflicts among individuals could arise even in an Islamic society. They maintain, however, that the incidence of social conflict would be minimal: there would exist a basic 'harmony of interests between individual, society and state' [Siddiqi (1972, p. 98)]. In those rare occasions when conflicts did arise, 'the spirit of cooperation and collaboration, the eagerness to avoid all injurious effects, ... the common interest of furthering the general good, ... and the altruistic tendency to help and sacrifice one's own interests' [Siddiqi (1972, p. 72)] would generally ensure a quick resolution. The state would play only a small role in resolving social conflicts, because individuals would usually succeed in reaching a compromise on their own [Naqvi (1981a, p. 53)].

What, one might ask, guarantees that the state — which must be given considerable power if it is to prevent violations of the norms — will not be put in the service of a select few? After all, no known state in history, Islamic or non-Islamic, has been immune to abases of power. The Islamic scholars' answer to this question is that only the most pious and knowledgeable member (or members) of the community would be selected by consensus to run the government. These individuals would follow the community's wishes, which, it is argued, necessarily conforms to the norms of Islam. The possibility of electing an unworthy individual to office is considered minimal, on account of a saying attributed to the Prophet: 'My community shall not agree on error.'²⁷

Thus, according to the Islamic scholars, a system based on behavioral norms could, with only modest state intervention, ensure that economic resources are utilized in a manner that achieves the 'best' balance between consumption and production claims.²⁸ The Islamic economy would, it is argued, grow rapidly without exhibiting intolerable gaps between the incomes of different individuals. Society would be united and free of jealousy, dishonesty, exploitation, destructive competition and class struggle.29 Moreover, the cost of running this economy would be far below that in today's economies where 'egoism puts a price tag on every inch of "territory" ceded to altruism' [Naqvi (1981b, p. 21)]. As each individual observed the successes of the system, he would gain increasing awareness of its superiority over rival systems, becoming more and more motivated to abide by the Islamic norms. There would thus be a dialectical relationship between the behavioral norms and the legitimacy of the system: the latter, itself a product of the Islamic norms, would reinforce the individual's will to follow the norms.³⁰

Note that many of the foregoing assumptions and arguments by contemporary Islamic scholars are also found in other systems of thought, albeit couched in different terminology. Christian thinkers, including Thomas Aquinas as well as some contemporary Christian economists, and Gandhian economists follow analogous modes of reasoning and advocate similar behavioral norms. And the Islamic scholars' optimism regarding the possibility of transforming selfish economic man into altruistic Islamic man is paralleled by some Marxist writers' conviction that when society has progressed to a stage where private property has disappeared and the state has withered away, the individual will work according to his ability and receive according to his needs. A comparison of the Islamic arguments with those of Christian, Gandhian and Marxist writers lies, however, beyond the scope of this stud. The remainder of the paper critically evaluates the Islamic arguments just" presented, without any references to parallel arguments found in other systems of thought.

3. The large-number problem

In their writings the proponents of the Islamic doctrine do not take account of the size of society. They apparently believe that the Islamic norms are capable of achieving the same results in any society, regardless of size. In small and large societies alike, everyone would behave altruistically and many problems would be overcome through voluntary cooperation.

Research by economists and sociologists shows, however, that the size of society is a crucial factor in the extent to which norms are capable of inducing social cooperation. For one thing, in homogeneous societies so small that each of the members has direct interactions with all the others, cooperation on a grand scale is more easily achieved than in large, heterogeneous societies where each individual interacts with only a fraction of the other individuals. In a large society, many studies indicate, the individual tends to feel more concern for his family, friends, peer groups and local community than he does for geographically distant groups with which he is personally unacquainted.³¹ Studies also show that the individual displays altruism more readily toward people with similar tastes, occupations and customs than to those with very different characteristics. Evidently it is more difficult to induce the individual to make voluntary sacrifices for some segments of a large, heterogeneous society than for others.

This means that generalized altruism, the intent of the Islamic norms, would be harder to achieve in a modern nation than in the tribal societies of times past. It also means that members of government are more likely in a modern society to want to enforce the norms differently among their constituents. To overcome the problem of favoritism one can, of course, constrain the actions of government members through various checks and balances. Most modern societies follow this route, some more successfully than others. The Islamic economists do not appear, however, to appreciate the importance of instituting a set of formal disincentives against favoritism on the part of government officials. They seem to believe that the behavioral norms of Islam are sufficient to ensure governmental impartiality.

A second reason why the effectiveness of norms depends on the size of society is the free rider problem mentioned earlier. Although norms are used successfully in some contexts where the free rider problem is present (for instance, in preventing individuals from littering the countryside) they are not powerful enough to overcome this problem in many other contexts. Thus, in a large society an individual may be unwilling to follow a norm that calls for voluntary contributions to a public project, because his contribution — or lack of contribution — would be imperceptible. In contrast to the individual member of a small society, that of a large society cannot significantly affect the _ success of a public project. Nor can he, as an atomistic individual, influence the probability that other members of society will choose to contribute. The knowledge that he is effectively without influence provides him with a justification for refraining from paying his share. Faced with a choice between using his resources on a public project, which will or will not be undertaken regardless of his own contribution, and using them for his family and friends (or just himself), the individual is likely to take the latter option. This might be true even if the individual is a Muslim essentially convinced of the wisdom embodied in the behavioral norms of his religion. He could, for example, perceive his contribution, in fact insignificant, as wasteful and therefore contrary to the Islamic norms. For similar reasons one would expect the Islamic norm requiring firms to charge a 'fair price' to be largely ignored in most instances, even if all entrepreneurs knew precisely what 'fair price' meant.

The foregoing argument should not be taken to mean that the Islamic norms would be totally ineffective in a large society. This, as I have emphasized earlier, is not an issue here. Indeed, one would expect an individual raised according to Islamic precepts to display some form of Islamic altruism toward at least some members of the community, probably his family, friends and other groups with which he can identify. And as Margolis (1982, p. 37) has noted in a more general context, a social emergency, caused, say, by war or an earthquake, might so alter the individual's perception of the social utility of altruism that he chooses to abide by most of the Islamic norms until the emergency is over.³² What my argument does suggest is that the belief in Islam must be very powerful to secure cooperation on a continuous basis among people who have no personal interactions with each other. Only then might the individual's propensity to put the wants of his family and friends ahead of society's interests give way to generalized altruism.

What would make belief in Islam powerful enough for the creation of a true 'Islamic brotherhood' where everybody abides by the norms? An obvious possibility is to instill in individuals the fear of God. The examples of Egypt and Pakistan, two of the most devout societies that have nonetheless displayed a lamentable inability to cooperate on social and economic matters, suggest, however, that this fear is unlikely to constitute a sufficiently strong incentive for acceptance of the Islamic norms. Another possibility is to wage an educational campaign to drive into individuals the belief that following all of the Islamic norms is absolutely essential to the viability of society. This is no mean task, for reasons I shall discuss shortly. A third possibility is to empower a government, which will compel everyone, to abide by the norms. The Islamic scholars are aware of this possibility, which, in essence, involves replacement of norms by laws. But as I have noted earlier, the government's coercive role is marginal in the economy they envisage, because most people follow the norms of their own volition.

To strengthen the criticisms made so far, it is useful to consider the historical record on attempts to rebuild society on a generalized belief in charity and good will. Most Utopian communities have fallen apart in a short time. Robert Owen's famous New Harmony society broke up because of dissension soon after it was established in 1814. For all his charisma, Mahatma Gandhi failed in his attempt to rebuild Indian society on the principle of brotherly cooperation, even though his earlier application of this principle in two small South African communities had met with success. More recently, the communes established during China's Great Leap Forward were beset by severe motivation problems. Successful communities, almost without exception, have been rather small; in the histories of North America and Europe it is difficult to find a successful commune whose population exceeds 300.³³

We need not, however, go beyond the Islamic world for historical evidence of the large-number problem. Records from the golden age of Islamic society, properly interpreted, provide the most appropriate evidence of how norms that are highly effective in a small community begin to lose their effectiveness as the community expands.

Muhammad's Islamic community came into being in a Bedouin society, whose basic unit was the tribe. This extended network of blood relatives was premised on the principle of equality among members. Since the individual enjoyed no personal recognition within the larger society, he was fully dependent on his tribe for status, respect and security. The tribe was therefore able to claim his unconditional loyalty, most importantly in fierce wars with other tribes over scarce wells, pastures and camels. If the harsh economic conditions of the desert made the dangers of inter-tribal war ever present, they also made inter-tribal cooperation very rewarding. Therefore, tribes often joined forces for special projects; they banded together, for instance, to construct dams and to guard trade routes.³⁴

At the time Muhammad arrived on the scene, however, this tribal organization was in serious trouble. As trade within Arabia and with the outside world expanded, a rich merchant class with relatively weak tribal loyalties began to develop. This class enjoyed a special status within the tribe, which undermined the principle of intra-tribal equality. Compounding this strife within the tribes was the fact that some tribes, notably the Quraysh of Mecca, were benefiting more than others from the new trade relationships.³⁵ Rising intra- and inter-tribal inequalities led to dissension and disunity. So advanced was the disintegration of Bedouin society that when the Ma'rib dam broke in 570, a year before the assumed date of Muhammad's birth, no agreement could be reached to repair it [Von Grunebaum (1970, p. 19)].

The Prophet attempted to rectify the situation by creating a community of believers, the umma. Based on cooperation, the umma was to exhibit none of the tribal divisions and class distinctions that had long pitted man against man and produced inequalities. While Muhammad's notion of harmonious cooperation was not novel in the Arabian context, the replacement of tribal loyalty with allegiance to a religious commonwealth constituted a genuine innovation. Muhammad thus hoped to re-establish on a grand scale the cooperation that had once existed in Arabia at the tribal level.

Among the first to join the umma were the non-Jewish inhabitants of Medina who had not benefited from Arabia's lucrative trade network. They welcomed Muhammad and his small band of Meccan converts with enthusiasm; it appears that they were expecting to gain from the Meccans' commercial expertise [Shaban (1971, p. 11)]. As the umma grew in numbers, the material benefits of cooperative unity became increasingly apparent. United and organized, the umma was able to stand up militarily to the much larger but divided Quraysh and the feuding Jewish tribes. It also proved capable of achieving economic prosperity as it acquired control over a growing share of Arabia's trade and used its military power to organize successful raids on Meccan caravans.³⁶ To take advantage of the umma's growing power — and to escape its might — Arabians began joining it en masse, further increasing its economic and military strength.

This expansion of the umma was accompanied, however, by signs of internal dissension, although no major break occurred during the Prophet's lifetime. Muhammad complained on numerous occasions that the loyalty of many Muslims was merely formal, and two years before his death he had to use force against a secessionist group. No longer a small, persecuted community, the umma was evidently being haunted by the free rider problem, and the generalized altruism that characterized the early years was fast evaporating as old tribal loyalties resurfaced.³⁷

Suspecting that many Arabians had adopted the Muslim faith merely out of self-interest and that tribal loyalties would not disappear overnight, the Prophet decided that continuous external expansion was essential to the unity of the Muslim community. Channeling the energies of Muslims into military campaigns in Syria and Iraq would, he hoped, forestall a complete regrouping of Arabian society along tribal lines [Von Grunebaum (1970, p 42)]. But the very success of these campaigns merely exacerbated the problem, for each campaign added to the numbers in the umma. Widespread dissension broke out as soon as the Prophet died. There were separatist uprisings in Yemen and loud complaints were heard in many circles about the distribution of booty.³⁸ Coercion thus began to play an increasingly important role in maintaining unity.³⁹ Less than four decades after the beginning of the Muslim era the umma was torn apart by a civil war, whose divisive effects are still being felt.

Thus, even as powerful a social force as Islam was unable to overcome the large-number problem. Like countless other communities throughout history founded on the noble ideal of generalized altruism, the Muslim community became disunited under the weight of its own success. To assert, therefore, that the accomplishments of Islam in its first decade point the way to economic success in today's Muslim world of over 750 million people is to display not only an ignorance of the large-number problem, but more importantly, of the golden age itself.

One more issue remains to be discussed in connection with the large-number problem: whether the size of Islamic society in any way influences its ability to convince the individual member of the wisdom embodied in its behavioral norms. Implicit in the writings of Islamic scholars is the view that the norms can be instilled in the individual with the same ease and with the same degree of success in a large society as in a small one. What is primarily required to create an Islamic society is, they contend, the establishment of educational programs capable of instilling Islamic norms in the young.⁴⁰ The development of such programs would come about through integration of 'Islamic values and ideology in the theories of the social sciences and the humanities'.⁴¹ An Islamic order in which everyone follows the Islamic norms would emerge naturally when all individuals have gone through the same educational system designed according to Islamic values and conceptions of reality.

This analysis overlooks the fact that as society grows, specialization and division of labor allow individuals to have different day-to-day experiences and develop different conceptions of reality.⁴² In a small, homogeneous society where there is little division of labor, it is possible to inculcate common values in all members because their experiences — and therefore their perceptions of reality — are similar. In a large society, however, where people work in many different environments, experiencing many different joys and frustrations, individuals differ in their judgments concerning equity and efficiency. Thus, even if they all go through the same educational system, some individuals become more receptive than others to a given set of norms.

Another problem with the agenda for inculcating the Islamic norms is that it ignores the possibility that a Muslim society comprising but one sector of an economically interdependent world will be open to outside influences. How in an economically interdependent world will individuals be kept free of contamination by other modes of behavior, whether in regard to consumption or business? In a small, homogeneous community, geographically isolated from the rest of the world, it may be possible to keep non-Muslim influences at bay. But in this age of easy communication, fast transportation and fierce economic competition among countries, where success in business often hinges on rapid adjustment to changing opportunities, how can one expect all members of society to comply voluntarily with the multitudes of norms proposed by Islamic scholars? Closing themselves off to foreign ideas might, if nothing else, put them at a disadvantage vis-a-vis non-Muslim competitors in international markets.

It is reasonable, therefore, to expect that at least some of the Muslims who come in contact with, say, profitable Western banking methods, would choose to adopt these methods at home, particularly if the methods are regarded as ethical abroad. Surely, strict enforcement of the Islamic norms would require not only education but also some sort of coercion, a possibility discounted by the Islamic scholars. If in the Islamic order individuals are not barred from traveling to non-Muslim countries, from reading foreign books and newspapers, from watching foreign movies, and perhaps most important of all, from receiving an education abroad, it may not be possible, except by coercion, to keep new ideas and new modes of behavior from filtering in. The argument, implicit in most Islamic writings, that the inner strength which Islam instills in its adherents constitutes a sure weapon against corrupting external influences should be seriously questioned. Because throughout the life of Islam, but especially in the last few centuries, many Western values and institutions have gained at least a foothold in even the most devout of Muslim societies.

4. The ambiguity problem

Suppose, however, that the large-number problem is somehow resolved and that all members of society are eager to follow the Islamic behavioral norms. Does this mean that they will be able to distinguish between Islamic and unislamic behavior? Not at all. The Islamic norms put forth by contemporary writers leave much room for interpretation in particular situations. One might, of course, consider this to be a good thing because it allows the Islamic system a built-in flexibility to accommodate the changing needs of society. But this consideration is at best tangential to most Islamic writers' arguments. These writers generally give the impression that in most possible situations the norms provide the individual the guidance he needs. If they at all acknowledge that ambiguous situations may sometimes arise, they also contend that the ambiguities present no major problems: if the individual is unsure about the proper course of action in a particular situation, he simply follows his conscience. M. Umar Chapra (1970, pp. 150-151) is quite explicit in this regard: 'Clear injunctions exist in the Qu'ran and the Sunnah about what constitutes right or wrong. However, there may arise problems in business for which the Shari'ah may not have clear injunctions. In such circumstances, individuals who have a basic understanding of the spirit of the Islamic message can distinguish the right from the wrong by referring to their own conscience... '⁴³ A close look at the norms reveals, however, that the case where the individual would be forced to follow his conscience constitutes the rule rather than the exception.

 Note that I am not concerned here with the fact that the proponents of the Islamic doctrine differ in their interpretation of the norms, although this, in and of itself, can be a source of confusion for the pious Muslim trying to find the 'correct' path.⁴⁴ I am bypassing this source of ambiguity by assuming that the Islamic writers have come to agree on one set of norms, that outlined above. My task, therefore, is to show that these norms will fail to furnish a clear direction to the individual in some of the most common situations.

Consider first the norm requiring the individual to refrain from hurting the common good in trying to further his own interests. In some situations this norm provides perfectly clear guidance. Faced with a decision as to whether to dump toxic wastes into a river, a firm should, for instance, decide in favor of this action if it knows that the gain to society of choosing this method of disposal, as opposed to the next best alternative, exceeds the cost to society of the resulting pollution.

 But clearly, in a large class of situations, the firm cannot be sure of finding the course-of action that maximizes society's welfare, simply because it lacks the necessary information about gains and losses. For in any complex economy where the number of consumers, firms and commodities is very large and production processes are interlocking, no one individual, collection of individuals or organization — not even the government — can fully trace out the consequences of a given productive decision. Determining all the consequences would be possible only if one had a model that captured even the most minute details of the economy. Such a model does not exist for any real economy, because collecting and aggregating the required information is prohibitively costly.⁴⁵ And even if a model with sufficient detail could be constructed, it still would not be possible to obtain completely reliable predictions of the consequences of a given productive decision, because as Herbert Simon (1978) points out, the requisite computational facilities do not exist and will not in the foreseeable future.

 One cannot, therefore, expect that an individual will always be capable of abiding by the norm which requires him to refrain from reducing society's welfare. If his actions could be judged by their consequences, he would often be in violation of this norm. To get around this problem one could judge the individual's actions by their intent; however, this raises the issue of whether an action motivated by benevolence but with a bad outcome should be considered praiseworthy. The issue is important because just as excessive selfishness can lead to disaster, so, too, can unmitigated altruism.⁴⁶ If everyone on a sinking ship insisted on being the last to leave, the result would be catastrophic. This example demonstrates the danger inherent in evaluating actions by intent. A society composed entirely of self-sacrificing, benevolent individuals would not necessarily attain prosperity — in fact, it could find itself in the depths of poverty. There seems to be no escape in a large class of situations from the need to judge actions by their consequences, however difficult these are to predict. In practice, one is forced to judge actions by their expected consequences, while recognizing that since people's expectations will differ, so too will their evaluations.

 The norm requiring the individual to refrain from taking actions that reduce social welfare also begs the question of how one defines social welfare. Informational and computational problems aside, there is the issue of how one weighs different individuals' levels of satisfaction (or, in economic terminology, their utilities) to construct a measure of social welfare. An example will illustrate the point. Suppose that in a community that can support only one tailor a young aspiring tailor has the potential, based "on his superior talent, to force bankruptcy on the town's present tailor, who has fifteen mouths to feed. How, in this example, would the aspiring tailor weigh the gains that would accrue to the town's residents from his superior services against the losses to the present tailor's dependents? Unless he has an explicit index of social welfare he simply cannot determine whether his actions are in-accord with the norm.

 The problem is quite common: it arises, for instance, in firing" an unproductive employee, in expropriating land to build a highway, and in conducting scientific experiments which may harm human subjects. As long as an action is expected to benefit some at the expense of others, an index of social welfare is needed to determine the 'correct' course of action. But the Islamic scholars have yet to propose an appropriate index. This failure is critical, for as we shall see later, it opens up the possibility that well-meaning members of society will be suspected of opportunism.

Another source of ambiguity is that the norms do not provide clear guidance to the individual in situations where the social benefits of alternative actions vary over time. I shall consider this source of ambiguity in the context of a different norm, the one that prohibits the individual from thwarting the productive efforts of others. Situations often arise where a given action is expected to yield an outcome that is desirable in the short run but undesirable in the long run, or vice versa. As an illustration of the point, consider the problem facing two individuals, Ahmad and Omar, who are competing for the same job. Suppose first that Ahmad comes to believe that Omar is better qualified for the job and that therefore society would be better off if the job were given to Omar. In this situation the Islamic norms clearly require Ahmad to withdraw from the competition. But scenarios are seldom this simple. So suppose now that Ahmad, while recognizing that Omar is better qualified at present, nonetheless believes that he would be able to perform better than Omar after a few months of training on the job. In this case, should he withdraw from the competition because Omar is better qualified at present, or should he stay in because he believes that with some training he could outperform Omar? The Islamic scholars have not laid down any rules for resolving this sort of dilemma.

 The ambiguous nature of some norms, including the consumption norms that call for moderation and sharing with the less fortunate, is explicitly recognized by a few of the Islamic writers. Chapra (1970, p. 152) notes, for instance, that the level of personal expenditure sanctioned by Islam varies according to the general wealth and standard of living of society.⁴⁷ But the recognition that 'moderation in consumption' is a meaningless concept in isolation, does not, by itself, resolve the dilemma of the individual Muslim eager to abide by this norm, for it provides little help in his struggle to determine the limits of moderation.

 The same is true for the sharing requirement. Consider, for example, the Muslim's obligation to refrain from giving his children new toys without first making sure that his neighbor's children have some too. In most contexts, this obligation would raise the question of who qualifies as a neighbor. If 'neighbor' is to be interpreted literally as the person who lives next door, the obligation can be fulfilled easily, since people's neighbors are usually in the same income category as themselves — and in any case, as I have already argued, people tend to derive utility from helping people with whom they associate regularly. If, on the other hand, it is to be interpreted as fellow members of the Islamic community, the obligation can constitute an intolerable burden. It can mean, for example, that a wealthy resident of Tabriz cannot buy his child a new toy unless he first makes sure that children living in the shantytowns of Cairo all have new toys too. This example shows that in failing to provide a precise definition of the term neighbor, the Islamic scholars are evading an issue of fundamental practical importance.

 The production norms against hoarding and speculation present two sorts of ambiguities. The first problem is definitional. It is unclear whether the Islamic scholars draw any distinction between 'hoarding' and the routine practice of carrying inventories in preparation for an upsurge in demand. Hoarding, it is said, violates Islamic principles because it yields 'unearned' profits. But the same can be said about carrying inventories: if the market price of the good in question is rising over time, then any inventory, however small, will result in holding gains. Do the Islamic writers, therefore, favor a prohibition against inventories? If so, they wish to place firms in the absurd situation of having to sell all their output in the period in which it is produced.

 The second source of ambiguity is that hoarding and speculation, even if undertaken in the expectation of a windfall gain, may benefit society. In the process of buying cheap today when supplies are plentiful to sell dear in tomorrow’s shortage, the spectacular ensures in at least some common situation that supplies are less volatile over time and that tomorrow’s market price is lower than it would have been in the absence of his activities. So the spectacular can in these situations justifiably believe that he is rendering a service to society. Should he therefore pass up opportunities to serve society (and himself) to satisfy the Islamic injunction against speculation, or should he violate this injunction in order to fulfill his potential, as required by another norm? It’s evident that by failing to distinguish between socially harmful and beneficial speculation, Islamic writers are implicitly requiring the individual to violate one norm or the other.

 Many of these ambiguous stem from the fact that the norms suggested today by the proponents of Islamic economics originated fourteen centuries ago- if not before. Thus, numerous prohibitions continue to enjoy wide support, because in the eyes of many of its proponents, the Islamic system s static. While Islamic writers may pay lip service to the inevitability of social change and the desirability of institutional evolution, they still tend to treat the norms as unchangeable even though they themselves cannot agree on which norms as unchangeable even though they themselves cannot agree on which norms constitute the kernel of the Islamic economy.⁴⁸

 Depending on his particular vision of the ideal order, each scholar defines a set of norms and proceeds to declare these norms as unalterable. So if, for instance, he views the prohibition of hoarding as essential to the Islamic order, he takes this prohibition to be as applicable to today’s (and tomorrow’s) Indonesian society as it was to the Arabian society of a time long past. What is more, he implicitly assumes that the meaning of a given behavioral norm will remain constant. But a requirement to avaoid ‘suspicious sources of income’ or an injunction against thwarting the efforts of others need not have the same meaning in all societies and at all times, irrespective of culture patterns and the degree of economic development. Yet it does not seem possible to most proponents of the Islamic economy that the beneficial norms of early Islam may be harmful to modern society or that a norm with clear implications in a primitive society may be devoid of operational significance in a post-industrial society. This tendency among Islamic scholars to treat behavioral norms as unmalleable has led one critic, Fyzee (1963, p. 105), to declare: ‘Islam, in its orthodox interpretation, has lost the resilience needed for adaptation to modern thought and modern life’.

 Perhaps the most important reason why the ambiguities discussed here constitute a weakness of the Islamic system is that they open up the possibility of opportunism. When a norm is ambiguous, individuals are free to interpret it as they see fit, and therefore, to pursue their personal objectives while giving the appearance of acting in accordance with the spirit of Islamic cooperation. This means that they can suspect each other of opportunism, regardless of whether such suspicious are grounded in fact. Their mutual suspicious would potentially lead them to a reassessment of the legitimacy of the Islamic order. This is so because as each individual comes to suspect that others are behaving opportunistically, he would tend to become more opportunistic himself, thereby reinforcing the common belief that opportunism is rampant. Eventually the Islamic society would find itself in the throes of internal dissension.

 Note that ambiguities of the kind discussed here would not threaten the legitimacy of an economic system, like capitalism, where selfish behavior is considered perfectly acceptable in many contexts. In the Islamic system, opportunism is bound to pose a critical problem, because whether an individual abides by the norms depends in large measure on the absence of opportunistic behavior.

 Of the economic norms I have considered, one of the few with clear, unambiguous implications is the injunction against insurance. This injunction stems from a desire to stamp out the opportunity for ‘unearned’ gain – an opportunity resulting from the fact that insurance constitutes  a gamble. Ironically, however, the effect of this prohibition is to increase rather than decrease the degree of uncertainty facing individuals and firms and therefore, to raise the possibility of achieving ‘unearned’ gains.

 Consider the case of business insurance, which emerged in response to entrepreneur’s very real need for reducing the uncertainties inherent in business activity. Insurance enables investors too small to assemble a mixed portfolio of investments to engage in risky projects. In effect, an insurance company pools together the risky investments of small firms, and makes a profit by offsetting bad outcomes with good ones. Whether the price of insurance is too high in modern economies is, of course, a matter over which intelligent people can disagree. What is clear, though, is that society as a whole benefits from the practice, because it simulates investments that would not otherwise take place.

This example demonstrates, once again, the danger in evaluating economic behavior by intent rather than expected consequence. The Islamic scholars are against insurance on the grounds that insurance sellers are in the business to make a living by the roll of dice. Insurance companies do indeed rely on chance to prevent the contingencies for which insurance was purchased. What the Islamic writers do not consider is that in the process of seeking these ‘unearned’ profits, the insurance sellers provide a valuable service: they make the business environment less risky for investors.

The argument in this section, that the Islamic norms are ambiguous, may seem paradoxical in light of my earlier statement that norms are sometimes used successful to solve coordination problems by focusing people’s choices on particular states of the world. The explanation is that the Islamic norms are not designed for these sorts of situations. Almost without expectation, they are designed to overcome perceived free rider problems. But as I have tried to show, these norms do not provide the Muslims genuinely interested in obeying the dictates of his religion with a course of action that necessarily contributes towards the desired solution.

5. Concluding remarks

The problems just discussed show that the behavioral norms advocated by contemporary Islamic scholars are not well suited to the tasks for which they are intended. In today’s world these norms by themselves cannot be expected to serve as the spearhead of a drive for economic growth with equity. This negative conclusion stems from two considerations. First, in a society composed of millions of persons and not just hundreds or thousands, it is difficult to elicit generalized altruism, to overcome the free rider problem and to achieve a common perception of reality. These factors combine to make it unlikely that the norms will enjoy widespread adherence. Secondly, the norms are riddled with ambiguity, and some of them would eliminate vital institutions that cope, more or less successfully, with problems that arise in markets everywhere. So even if all members of society are eager to abide by the norms, the economy may perform inadequately in terms of growth and equity.

The economic successes of the earliest Islamic society in seventh century Arabia cannot be accepted as evidence that the Islamic norms would lead to success today. Modern societies are much larger and considerably more open to outside influences than the first Islamic community. Also, many norms that may have had a well-defined meaning fourteen centuries ago are devoid of operational significance in today’s technologically and institutionally complex setting.

The fundamental flaw in the Islamic writings is the contention that one set of behavioral norms can play the same all-encompassing role in the organization of an economy, regardless of its level of development. Judging from the world’s historical record, stimulation of economic performance usually requires modification of the methods for channeling individual conduct. In a small, homogenous, technologically primitive society, a norm that obligates its members to advance the social good generally elicits the needed help for putting out fires or rendering help to the sick. But at a more mature stage in the same society’s development, where a relatively complex technology entails division of labor, this norm becomes too general to have operational meaning. At this stage, society institutionalizes the norm in the form of working rules for firemen, health personnel, and other public servants⁴⁹. The original norm, which once enjoyed voluntary compliance in many different contexts thus metamorphoses in the process of economic development into a multitude of formal rules, enforced primarily by material incentives and the coercive power of the state. This does not mean the norm ‘help thy neighbor’ loses its function as society advances. It means simply that this norm’s scope gets narrower,  in the sense that in many realms it is supplanted by a rule or a law.

But not all norms are transformed into laws and rules as society advances. Those that become inconsistent with the changing goals of society are abandoned. For instance, injunctions against hoarding, insurance, interest and middleman activities are discard by societies that make rapid economic growth a central goal.⁵⁰

In defense of Islamic scholars it might be said that they do recognize that behavioral norms need to be supplemented by state regulations and the incentives of the marketplace. Indeed, almost all proponents of the Islamic order favor state interference in some areas of economic activity and they seem to encourage market competition. But it does not follow that the Islamic scholars  have appreciated the fundamental nature of economic progress. For one thing, in their conception the scope of state interference does not vary according to the changing needs to society. Like the norms, the functions of the state is essentially static; one searches the Islamic writings in vain to find a discussion of the criteria according to which the state’s role will evolve over time.⁵¹

Secondly, the Islamic scholars have barely outlined how the market will work in the modern Islamic society – let alone analyzed the market’s role in economic development. This omission is serious because many vital elements of healthy markets are expressly prohibited by various Islamic norms. Judging by contemporary writings, the Islamic market is in serious need of market institutions. The one institution that has received detailed consideration is the Islamic bank, which has been heralded as a “medicine to cure innumerable diseases” [Al-Saud (1982, p.134)] but voluminous as it is, the literature on this institution tends to be in precise and inconsistent.

One is also tempted to defend the Islamic writings on the grounds that laws, the alternative to norms, can be ambiguous as well. Indeed, many of the laws of modern nations frequently lead to ambiguities, as evidenced by the large number of court cases that lie unresolved for years. None the less, these laws are far more precise than the norms advocated by the Islamic scholars. And more importantly, they need to be revised over time, partly to the response to the discovery of ambiguities. The Islamic norms, in contrast, are by and large regarded as unchangeable and the ambiguities inherit in them received little attention.

It is fair to say, therefore, that at this stage the Islamic economic doctrine is to simplistic and lacking into many essential respects to be considered a serious alternative to neo classical (or even Marxist) economic theory. The only real contribution of the Islamic literature to our understanding of economic development is the insight it provides into the role played by behavioral norms in ensuring social cooperation. But these insights are not easy to extract, for their buried among a host of grandiose claims regarding the scope of the Islamic literature. So the naive reader can easily be mislead into believing that Islamic scholarship offers a workable economic theory.

There was a time when Islam served as an agent of progress. For many centuries beginning with Muhammed, Islam gave major support to the advancement of science and economic development, while the Arabs, Turks, Persians and other Muslims stood at the vanguard of progressive change. But contrary to what contemporary to Islamic scholars would have us believe, this support did not manifest itself as vigorous adherence to seventh century Islamic norms. Rather, it was based on judicious development of new laws and rules in response to evolving socio-economic conditions.

Today, however, Islam cannot be reviewed as an agent of progress, for the doctrine of economics identified with it is incompatible modern nationhood. Constricted by norms devised to cope with the problems of the small society 14 centuries ago, the contemporary Islamic doctrine fails to address to problems and aspirations of contemporary societies. To become again an agent of economic progress Islam must be reinterpreted- atleast in so far as economics is concerned- with the understanding that one must study how modern society works before attempting to remodel it.

*I am indebted to Anjum Mir for valuable suggestions on an early draft, and to Nake Kamrany, Nadim Munla, John Niedercorn, the editors and an anonymous referee of this journal, and members of the USC workshop in Economic Development for helpful criticisms at a later stage. These individuals are in no way responsible, however, for the interpretations and opinions expressed in the paper.

1 This definition of norms is consistent with that of Homans (1961, p. 40). But many authors, including Scott (1971, p. 72) and. Ullmann-Margalit (1977, p. 12), define norms to include standards of behavior supported by external sanctions, reserving the term 'internalized norms' to describe those that are followed in the absence of externally administered sanctions.

2 See also Nazeer (1981, p. 16), Chapra (1970, p. 96), Abdul-Rauf (1979, pp. 4-9) and Husaini (1980, p. 67).

3 The doctrine of the invisible hand presupposes, however, the existence of certain social norms (and/or rules and laws) that delimit the means-end calculations individuals can make in pursuit of personal gain. See Field (1984) for a detailed presentation of this view.

4 Strictly speaking this consensus exists only within the orthodox, Sunni sect of Islam. Scholars belonging to the minority Shia sect generally consider the first three caliphs to have violated Koranic guidelines and Prophetic practices. For a detailed analysis of the doctrinal differences between Sunnis and Shias, see Enayat (1982, esp. ch. 1).

5 Using a game-theoretic framework, Uilmann-Margalit (1977, chs. 2 and 3) analyzes numerous types of free rider and coordination problems and provides many instructive illustrations.

6 A discussion of the role of norms in overcoming the free rider problem is provided by North (1981, ch. 5). See also Arrow (1974, esp. ch. 1).

7 I am using the term 'contemporary' to denote the post-1965 era. Thus, I shall not consider such late-nineteenth and early- and mid-twentieth century writers as Sayyid Jamal ad-Din Afghani, Muhammad Abduh, Muhammad Rashid Rida, AH Abd ar-Raziq, Hasan al-Banna and Muhammad Ghazzali, each of whom has profoundly influenced contemporary Islamic thinking. To my knowledge, there exists no satisfactory critical study of the economic views of these thinkers. For an analysis of their political views, see Enayat (1982) and the references therein.

8 Pakistani writers are heavily represented in this bibliography by Siddiqi (1981), which is confined to works in Arabic, English and Urdu. They also figure prominently in the present paper which relies primarily on English-language sources. This overrepresentation is unlikely, however, to introduce a serious bias into my interpretation of the Islamic doctrine, because the Pakistani writers are quite popular in diverse Muslim circles, as evidenced by the financial support they receive from governments and private organizations from all over the Muslim world, including Saudi Arabia and Libya. Also, some of the works on which my analysis is based are translations from Arabic.

9 One source of controversy is the Sunni-Shia schism and the divisions within each of these sects. Another, no doubt more important, is the ethnic, political and cultural diversity among the nations that adhere to the religion. A third source of controversy is that the majority of the words and deeds attributed to the Prophet have been shown by modern scholarship to be spurious. On this last point, see Schacht (1959).

10 See, for instance, Nasr (1979).

11 These norms can be found, in one form or another, in almost all Islamic writings. A detailed presentation is provided by Siddiqi (1972) and a particularly clear exposition by Abdul-Raul (1979, pp. 134-140).

12 Nazeer (1981, pp. 18-19) gives a particularly clear explanation of the justice (adl) principle that underlies these norms; see also Husaini (1980, pp. 125-130), Naqvi (1981b, pp. 30-32) and Siddiqi (1972, pp. 52-61).

13 For a defense of the extreme anti-protectionist position see Yusuf (1971).

14 See Siddiqi (1981, pp. 26-28) for a discussion of the Islamic controversy over insurance.

15 See, for instance, Abdul-Rauf (1979, p. 138).

16 See also Muslehuddin (1974, p. 60), Nazeer (1981, p. 19) and Chapra (1970, pp. 11-14).

17 Abdul-Rauf (1979, p. 133); see also Karakoc. (1967, pp. 32-36) and Kahf (1978, pp. 23-25).

18 Chapra (1970, p. 151); see also Mannan (1970, pp. 87-97), Afzal-ur Rahman (1980b, ch. 5), Muslehuddin (1974, ch. 9) and Abdul-Rauf (1979, p. 132). Some authors, for instance Mannan (1970, pp. 82-83), distinguish between three types of consumption goods: 'necessaries', to which everyone is entitled, 'comforts', which increase a person's efficiency but by a lower proportion than they increase expenses, and 'luxuries', which reduce a person's efficiency.

19 See Nazeer (1981, p. 20) and Chapra (1970, p. 16).

20 See Nazeer (1981, pp. 20-23), Chapra (1970, p. 155) and Yusuf (1971, p. 59).

21 Nazeer (1981, p. 23); see also Abdul-Rauf (1979, pp. 137, 139) and Chapra (1970, pp. 153-155).

22 All of the Islamic economists referenced in this paper have something to say about zakat. A particularly detailed account is given by Afzal-ur Rahman (1976, chs. 14-18). For an outline of the controversy, see Siddiqi (1981, pp. 22-26).

23 See Yusuf (1971, p. 16), Afzal-ur Rahman (1980a, pp. 31-32), Karakoc (1967, p. 47) and Husaini (1980, p. 122).

24 See Yusuf (1971, p. 71), Karakoc (1967, pp. 43-44) and Nasr (1979, pp. 124-126).

25 Naqvi (1981b, p. 3) observes: 'If, in line with the Islamic precepts, individual welfare is redefined to include the expectations of a reward in the hereafter, then commitment appears to be an entirely "rational" motivation: the individual is reducing his present welfare only to enhance his expected welfare.' On the same point, also see Chapra (1970, p. 145) and Afzal-ur Rahman (1980a, p. 49).

26 Abdul-Rauf (1979, p. 137). Also see Siddiqi (1981, pp. 18-21), Yusuf (1971, p. 96), Husaini (1980, pp. 125-130), Karakoc (1967, pp. 43-44) and Chapra (1970, pp. 241-246). Some scholars would also have the state participate in industrialization efforts.

27 On the characteristics of the Islamic state, see Muslehuddin (1974, ch. 3), Chapra (1970, pp. 237-239) and Husaini (1980, pp. 92-96).

28 See the references in footnote 2.

29 See Husaini (1980, p. 99) and Karakoc (1967, p. 27-28).

30 This dialectical relationship is implicit in many writings. See, for instance, Chapra (1970, p. 250).

31 A wealth of evidence is outlined in considerable detail by Olson (1965) and Collard (1978).

32 Margolis' model differs from other models involving altruism in that it explicitly assumes (on Darwinian grounds) that individuals derive utility from altruism. Margolis' model is consistent, however, with the argument that the altruism scope gets narrowed as society size increases.

33 For extensive accounts of various Utopian experiments see Collard (1978, ch. 9) and Heilbroner (1972, ch. 5).

34 For a more detailed discussion of tribal organization in pre-Islamic Arabia, see Von Grunebaum (1970, pp. 13-26) and Hitti (1963, ch. 3).

35 On the disintegration of the tribal system, see Shaban (1971, pp. 6-8) and Rodinson (1980, pp. 34-37).

36 On the early years of the Islamic community, see Watt (1956). Brief accounts are given by Saunders (1965, pp. 27-32) and Von Grunebaum (1970, pp. 35-4).

37 See Rodinson (1980, pp. xxxiv and 276-279) and Von Grunebaum (1970, pp. 45-46). For additional evidence on internal dissension, see Rodinson (1980, pp. 222-223) and Watt (1956, pp. 180-191).

38 For the events immediately following the Prophet's death, see Shaban (1971, ch. 2). For the remaining years of the golden age, see Shaban (1971, ch. 2-4) and Von Grunebaum (1970, pp. 49-63).

39 See, in addition to the references in the preceding footnote, Mottahedeh (1980, ch. 1).

40 See, for instance, Chapra (1970, pp. 155-156), Afzal-ur Rahman (1980a, pp. 42-50) and Husaini (1980, pp. 56-71).

41 Husaini (1980, p. 56). For a rather abstract discussion the establishment of Islamic educational programs, see Faruqi (1979).

42 The connection between division of labor and the possibility of achieving social consensus is stressed by North (1981, esp. p. 64).

43 Shari'ah means the revealed law of Islam.

44 This source of confusion has been present within the Islamic community from the very beginning. As Fazlur Rahman (1982, p. 144) notes, even the Prophet's companions interpreted the Koranic verses differently. And there exist sharp differences among the economic programs of the modern states that claim to be guided by Islamic principles — compare Saudi Arabia, Pakistan, Libya and Iran. On the lack of consensus among Islamic thinkers, see Enayat (1982).

45 See Hayek (1973) for a powerful argument along these lines.

46 For some theoretical insights and a few examples, see Collard (1978, pp. 9 and 51-57).

47 See also Yusuf (1971, p. 57).

48 For instance, Nazeer (1981) stresses  the need for flexibility but then proceeds to put forth a set of prohibitions applicable to all societies at all times.

49 The changing institutional context of rendering aid has been explored by Kleinig (1976)

50 For a detailed analysis of the institutional basis of economic development, see Commons (1957) and Lewis (1955, esp. ch. 3)