PART I

GENERAL METHODOLOGY OF ISLAMIC ECONOMICS

The general methodology of Islamic economics is in some way different from that of strictly secular approach to the study of economic analysis and theory. The essence of Islamic philosophy behind the acquisition of knowledge and learning, must be kept in mind. This is the philosophy as summarized in the Qur'an.¹ These verses point out that Muslims are not meant to be recluses. They are enjoined to worship God in the midst of all worldly pursuits, and to unravel the ultimate nature of things with the full consciousness that 'nothing has been created in vain.' In short, the essence of Islamic philosophy behind all intellec­tual inquiries that Islam enjoins upon its followers is to conquer self by the remembrance of God and to conquer nature by pursuit of knowledge.

In view of the freedom and injunctions given above, the development of Islamic economic doctrines cannot be categorized as a strictly relativist or as a strictly absolutist approach to the subject. By relativist view is meant an appreciation of particular economic doctrines with respect to their, times and environments.   By an absolutist view is meant a strictly intellectual or in our case religious   development of the subject of economics.

The degree of absolutism in Islamic economic thought is not a man made ceiling on human acquisitions in the sciences and humanities. It is bounded only by the limits of permissibility granted by the Qur'an, to keep man-in harmony with God, self, and the natural order of the universe. For this reason we find; even in the most orthodox Islamic Movements, the explicit form of a revolution of ideas implementing teachings of the Qur'an so as to cater to the changing needs of lime, but without in the least breaking away from the integrity of Qur'anic principles. This can be exemplified in the spirit of this Islamic revivalism of the reformer, Ibn Taimiyya, which stood for the concept of 'tajdeed' i.e. against the uncritical acceptance of authority. The spirit of relativism was also manifested in Caliph Umar's decision to disallow the portion of ‘zakat’ i.e. taxation on unused and surplus capital assets of individuals (Muslims), to those 'whose hearts were to be reconciled to truth,' and which was till then allowed to such people by Prophet Muhammad(P). Umar thereby acted as a relativist in comprehending that this portion and objective of the Zakat fund was not valid at that particular time, when the Islamic empire had grown wealthy and powerful.

Similarly, when the famous North African historian and social scientist, Ibn Khaldun used the concept of 'Asabiyya' i.e., petty sense of kinship, to explain his political and socio-economic theory of 'Umran' i.e. .nation, he was obviously using a pre-Islamic idea and terminology which was discarded by Islam. But in fact Ibn Khaldun sheared off this con­cept from its pre-Islamic character, and gave it a meaning of solidarity which was in conformity with the ideals of the Qur'an.

Long before the classical economists, we find Ibn Khaldun pinpoint­ing the great importance of the division of labor in productive process: "...human labor is necessary for every profit and capital accumula­tion... Without (human labor) no gain will be obtained, and there will be no useful (result) ... It should be further known that the capital a person earns and acquires, if resulting from a craft, is the value realized from his labor .... If the profit results from something other than a craft, the value of the resulting profit and acquired (capital) must (also) include the value of the labor by which it was obtained."² In his Muqaddima: An Introduction to the Study of Hisiory, Ibn Khaldun was critical of the 'speculative theologians' and upheld a breadth of secular views, showing thereby that there is no abhorring distinction between the secular and the Islamic, provided the former lay within the Qur'anic principles which we shall shortly put down.

The combination of the absolutist and relativist thought is further to be found in the idea of 'Riba' i.e. interest on capital, from the point of view of the great Muslim jurist, Abu Hanifa, He holds that while Riba is clearly forbidden 'in the Qur'an, it is so between Muslims and between Muslims and Non-Muslims in a Muslim country, but that under certain circumstances it can be allowed in Dar-al-Harb i.e. Non-Muslim territory, between a Muslim and a Non-Muslim. This point we shall discuss in more detail later.

These thinkers were all acting as relativists in their attempts to discover the allowable flexibility in Islamic economic and social prin­ciples, while at the same time they upheld a degree of absolutism by not breaking away from the Qur'anic principles. The other point to be, observed here is that the growth of Islamic economic thought need not be observed here is that the growth of Islamic economic thought need not be subservient to any value judgments of individuals or to any cultural, political and extra-Islamic philosophical shades of opinions, other than the principles of the Qur'an.

Every revolutionary economic doctrine has had an implicit inter­relationship with the history of political and moral philosophy prevalent during or over a period of time. Thus we find that Adam Smith was influenced in his writings, specially in his work, 'The Theory of Moral Sentiments', and later on in his classic, 'The Wealth of Nations,' by an inherent "character of a natural order of society."³ Human behaviour was motivated by three pairs of qualities: self-love and sympathy, the desire for freedom and proprietorship, the habit of labor and the propen­sity to exchange. These societal phenomena gave further expression when Adam Smith expounded his theory of the division of labor, and which with its other developments in economic theory purported to explain the laws of motion of capitalism.

The influence of a universal order and interaction between the natural laws of history and society are particularly to be noticed in Marx's writing on economic analysis. Marxian assumptions on the nature of history and society gave his economic theory a unique footing. His analytical system was meant to go beyond economic phenomena, in that it purported to show a comprehensive view of the inter-relationship between societal and historical events.

It was with the advent of neo-classicism and more markedly with the beginning of the Keynesian era that greater efforts have been started to make economics an independent discipline. However, one cannot but regard these notions of an independent discipline and "the strictly scientific nature of (scientific) economics"⁴ with a certain degree of reservation. If much of professional economics is merely the evaluation of economic variables, then such economic studies accept per sea these variables without looking into their nature. On the other hand if much of economics were to study the structure, and the social and theoretical consequences of these variables, then too the analysis has to be carried out under the assumptions of particular economic system. This economic system may be the capitalistic system, the Marxian system, the Islamic system and the like. Both these approaches are influenced by the under­lying assumptions which are the consequences of these economic systems.

In Islamic economics the predominant note is that to God alone belongs whatever is in the heavens and whatever is in the earth, and that He has made the good things for the service of man. While Islam gives man the broadest limits of inquiry and rationalism in discovering the ultimate nature of things, it calls upon its votaries to live up to the principle us laid down in the following verses of the Quran:

"This Book there is no doubt in it, is a guide to those who keep their duty, who believe in the Unseen and keep up prayer and spend out of what We have given them, and who believe in that which has been revealed to you and what was revealed before, you and of the Hereafter they are sure."⁵

Explicit in these verses is the fact that Islam does not approve of godless materialism. We therefore find that just after the Islamic institution of prayer, which is religious in nature, comes the injunction of spending, which is material in essence. Thus after speaking of the cardinal principle of faith - a belief in God - the Quran speaks of two great principles of action, to show how to translate faith into action.

It was pre-eminently under the shade of this singular philosophy of life and action that Ibn Khaldun accomplished his immortal work, Muqaddima: An Introduction to the Study of History, and the great Indian Muslim reformer, Shah Waliullah, his Hujjat Allah-it-Baligah: The Final Argument, a study on the structure of society. "If Ibn Khaldun's writings on the inter-relationship between society are separately studied, one cannot avoid the conclusion that he is a religious mystic thinker. Similarly, if his economic reasoning and materialistic arguments are discussed separately, one neither can avoid the conclusion that he is a materialist."⁶ This approach is a novel methodology in a scientific subject like economics. The impact of this methodology has undoubted­ly made Ibn Khaldun an unprecedented thinker of any political creed, who treated in such a way, the inter-relationship of economic and societ­al phenomena. Ibn Khaldun's intellectual venture often made him contradict many prevalent thought among 'speculative theologians'. But in such circumstances he did not give up his faith, nor did he annul the findings of his creative mind.

The unquestionable recognition by Islam of the intellectual efforts made by scientific analysis of economic theory under the definitional and immutable framework given before, opens possibilities for further deve­lopment of economic thought. Such an approach would suggest a possibility of inquiry in a direction which will combine, discover and improve those areas of capitalism and socialism and other contemplated economic theories, under a single system, which can find mutual harmo­nies, between them, and give to the generality of mankind greater social justice.

The 'jus divinum' element of Islamic Economic thought so far hinted at and further to be studied, is different, for example, from the Christian idea of the same in the scientific formulation of economic analysis. There have been medieval Christian writers who coordinated with their belief the results of their scientific research. But so far as the content of their research was concerned, it often proved to be independent of their religious value judgments. On the other hand, the orthodox Church sought to control all human activities, on the postulate of the ephemeral nature of our existence, and of our salvation only after life. This thesis of the independence in scientific work from the individual religious and philosophical value judgments, maintained by Schumpeter can be specially seen in the case of St. Thomas Aquinas' concept of loan interest. While as a clergyman he held strong views against usury, his economic thought on this subject is flexible. His economic thought on usury allows interest to the individual in case he ran a loss in money lending, so that a market determined rate of interest was held permissible.

The Islamic approach to the subject of economic theory differs from other theological approaches to this subject in that it does not recognize priesthood or 'Church' as the controlling authority of the community's Ijtehad' or authoritative research. Whatever researches in the economic doctrine of Islam are available, have been the result of work by Muslim scholars, incumbent on whom was at once the respon­sibility to uphold the message of the Quran, also. One must also note that Islam is not averse to material progress, but only lays stress on the fact that material considerations must not be divorced from spirituality. The essence of spirituality is righteousness.

Viewed in this light, Marx's pungent remark on capitalist economist and theologians cannot hold for Islamic socio-economic analysts. Marx remark, "Economists have a singular method of procedure. There are only two kinds of institutions in them, artificial and natural... In this they resemble the theologians, who likewise establish two kinds of religion. Every religion which is not theirs is an invention of man, while their own is an emulation from God."⁷

To further understand the latitude of the scientific and rational inquiry which forms the crux of the methodology of Islamic and social analysis, we need to examine the concept of 'Ijtehad.' Literally speaking, Ijtehad' means 'striving' or the exercise of effort to extract the rules of law from their sources."⁸ "The use of Ijtehad cannot be superseded by any authoritative text, nor can it be based on an exceptional precedent. It must be in strict conformity with the aim and the spirit of the law or else it would be hazardous to swing right away from the divine moorings"⁹

The investigations of Ijtehad must be acceptable to the Muslim community. This agreement is called “ijma”, If the results of Ijtehad are ratified by 'ijma', they become established divinely, by the doctrine of infallibility of the Muslim Community, and can in turn be extended by analogy.

An example of the use and conduct of Ijtehad can be seen in study­ing the Islamic concept of Riba i.e. interest on capital assets in general. Let us, for example, look at the following verse of the Quran,

"God has permitted trade and forbidden Riba."¹⁰ 

The method of Ijtehad would suggest that (1) the verse is manifest (Zahir), (2) is explicit (Nass), in distinguishing trade from Riba, (3) but is not explanatory on the meaning of Riba (mujmal).¹¹ Now the right of Ijtehad will call on the 'mujtahids’ i.e. persons exercising Ijtehad, to carry it out in finding the meaning of Riba in the context of the verse set down above. When appropriately qualified mujtahids are not avail­able, the principle of agreement by the Muslim Community can be applied.

The use of Ijtehad on problems of Islamic Economics is particularly relevant and significant. Given the freedom of Ijtehad, the Islamic economists and doctors of law bring into effect major policy implications in accordance with the findings of Ijtehad. It can therefore be said that events and policies have a definite effect in the growth of Islamic econo­mic thought ahd theory. While the pursuit of Ijtehad may, to some extent, be directed to dual with immediate, local, or theoretical problems, part of the economic theory is definitely evolved due to important policy implications and events, which constitute the findings of the Ijtehad.

Islamic Economic theory admits of perpetual evolution, each deve­lopment being the consequence of Ijtehad, and which may be further extended by analogy. Consider, for example, the problem of capital tax in Islam. Islamic jurists had maintained that all forms of capital are taxable at 2 1/2%. Now if we apply this capital tax today in an Islamic State, it might gravely retard the growth and expansion of industry and trade. But Ijtehad may suggest that just as in Islamic economics, we consider taxation of the produce of the land and not of the land itself, so the same principle when applied to capital tax will suggest that we need to tax the income from trade and industry and not the machineries, factories and merchan­dise. In this regard, Maulana Abul Kalam Azad, a contemporary Indian Muslim thinker, remarks, "The real orders in this respect are the verses of the Quran relating to Zakat. No forms or ratio have been prescribed by them. They only emphasize that the State should spend a portion of its income to meet the needs of the poor. The Prophet (P) prescribed different ratios on different occasions. During the time of the first Caliph, the Companions (of the Holy Prophet) thought over this matter and fixed the present ratio. This ratio is not obligatory but is subject to Ijtehad. It is the duty of those who hold power that they should fix the proper ratio according to the economic conditions and needs of society in every age."¹²

The very meaning of Ijtehad attaches a degree of great importance to its findings. Therefore, if the accumulated findings of Ijtehad over a period of time be considered as a level of advancement of the theory, then mark a relevant remark made by Stigler on the relation of policy and economic theory. He remarks, that it is only the "general" and persistent policy questions which are likely to call forth permanent advances in the theory. The unending train of ephemeral or local policy questions is of no more significance for economic theory."¹³

One can observe that the legal element plays a very important role in Islamic economic thought. This inseparability of the legal element from economics is due to the claim of the divine nature and infallibility of Islamic law. Again, it is the principle of the divine law as given in the Quran that is immutable, not so the details. In Islam it is this divine law which fundamentally imparts the structure of the Sate and society, and to whose immutable principles, the latter must conform.

* This is the first instalment of a Major paper, prepared as a part of a University requirement, by Mr. Chowdhry for his Master's degree at the University of Toronto, Canada. It was originally published in Al - Ittihad, Inadana., U.S.A., and Mr. Chowdhry sent us the next parts for The Criterion. We felt it better to obtain all the four parts, which will be published serially. — ED.

1. In the creation of the heavens and the earth and the alternation of the night and the day, there are surely signs for men of understanding. Those who remember God standing and sitting and lying on their sides, and reflect on the creation of the heavens and the earth: Our Lord Thou has not created this in vain! Glory be to Thee! Save us from the chastisement of the Fire.' (Qur'an 3: 185, 190).

2. Muqaddima, translated by F. Rozenthal,page 313.

3. W. J Barber, A History of Economic Thought, page 5.

4. Mark Blaug  Economic Theory in Retrospect, page 6.

5. Quran, 2:2, -4

6. Muhammad Mahmood Rabi, The Political Theory of Ibn Khaldun, page. 46.

7. W J. Barber. A History of Economic Thought, Page 120.

8. Md. Muslehuddin, Insurance and Islamic Law, page 92

9. Ibid, page 93

10.  Qur'an, 2:275

11. Muslehuddin, insurance and Islamic Law, pane 93.

12. S.M. Ahmad, Economics of Islam, page 103.

13. G.I. Stigler, “The Influence of events and Policies on Economic Theory,''The American Economic Review, May 1960, page 41.