The thrust of my paper on the behavioral norms of Islamic economics (Kuran, 1983) was that many Islamic economists hold highly unrealistic expectations concerning the potential effectiveness of norms in a complex economy. They exaggerate the possibility of achieving order and cooperation from internalized norms alone. They overrate the social virtues of altruism and underrate those of selfishness. Ordinarily it is impossible, I argued, for a numerically large community to keep its streets lit, its air clean, its merchants honest, and its workers gainfully employed merely by promoting generosity, fellowship, and charity. Further, I observed that Islamic economics presents no empirical support for its far-reaching theoretical claims. In, particular, it provides no example of a large society, Muslim or non-Muslim, whose economic successes have depended solely on internalized norms, to the exclusion of laws and regulations backed by force.

To my knowledge, n Islamic economist has written anything that discredits these observations and arguments. Nor have practical attempts to institute Islamic economic reforms - in Iran, Pakistan, the Sudan, and elsewhere - shown that individual economic behavior is systematically different in an Islamic' or 'semi Islamic' economy than in an un-Islamic' one.

Nevertheless, the comment of Professors Shahid Ebrahim and Akram Safadi made me ask whether I would have developed or supported my critique any differently were I composing it today - in 1993, rather than in 1983. I continue to reject the idea that internalized norms, Islamic or non-Islamic, can order, coordinate, and propel a complex economy without the help of coercive institutions. Yet I would try to make it clearer that norms are essential to the healthy functioning of socio-economic systems. Urban America has turned into an economic wasteland partly, if not primarily, because millions of inner-city residents lack the habits and self-discipline to become valuable and dependable employees. For a more pertinent illustration, Muslim efforts at development suffer from the common practice of double bookkeeping. Significantly, the Islamic banks that have gone into operation in dozens of countries consider it imprudent to engage in genuine profit-and-loss sharing. They fear, often justifiably, that their borrowers will conceal the true profitability of their projects. As the executives of these banks understand quite well, a genuinely and fully interest-free banking system could never come into existence under the prevailing standards of honesty and trustworthiness.

In view of these two illustrations, to which many more could be added, I would now give Islamic economics greater credit for its insistence on the importance of socially efficient behavioral norms.
I do not mean to endorse the specific norms on which many Islamic economists have pinned great hope. As I argued a decade ago and on several subsequent occasions, many such norms, like those against risk taking, speculation, and price cutting, are unsuited to a large, modern economy - though some might have been useful in the relatively tiny and, by modern standards, primitive economy of seventh-century Arabia. If observed faithfully, a ban on all economic speculation, which many texts in Islamic economics promote vigorously, would do great damage to any contemporary economy, developed or underdeveloped.
Of course, some restrictions on speculation may serve useful functions, for example, rules that make firms whose shares are publicly traded disclose their balance sheets. Norms have an important role to play in the enforcement of such rules.

A decade after my 1983 critique, I find it troublesome that Islamic economics has made no perceptible progress in developing a set of behavioral norms suited to modern economic conditions. The key insight that norms are critical, advanced by such figures as Chapra (1970), Siddiqi (1970), and Naqvi (1981), might have been used as the starting point for a literature aimed at updating, revising, and supplementing the normative specifications found in celebrated Medieval texts. But the youngest Islamic economists, many of them trained in orthodox neoclassical economics, are tending to travel a different path. Throwing out the baby of earlier writings with some of the bath they are turning away from the normative concerns of their older colleagues. As if to prove Islam capable of outdoing neoclassical economics in technical elegance and mechanistic parsimony, they are effectively transforming Islamic economics into an application of general equilibrium theory. The readers of certain recent texts [e.g. khan and Mirakhor (1987)] may easily get the impression that Islamic economics is nothing but general equilibrium theory of the sort fashionable in the 1960s - subject to a constraint on interest.

This drastic narrowing of Islamic economics is occurring at a time when neoclassical economics is broadening and the philosophical foundations of general equilibrium theory are under serious challenge. Even more perplexing, it is taking place at a time when secular thinkers of various backgrounds and persuasions are discovering the social significance of values [Etzioni (1988), Frank (1988), Wilson (1993)].

Oddly, Professors Ebrahim and Safadi take little notice of the main points of
 my 1983 argument. They stick almost exclusively to peripheral issues. Let me respond briefly to their specific criticisms.

Nothing in my 1983 paper, nor in anything else I have written on Islamic economics, stands or falls on the authenticity of hadiths (recollections of the words and deeds of Prophet Muhammad and his companions). I referred to one of the many sayings attributed to the prophet, 'My community shall not agree on error,' to illustrate a severe methodological flaw of Islamic economics. My purpose was not, as Ebrahim and Safadi erroneously report, to support an argument of my own.

All Islamic economists claim that their views are fully consistent with the original sources of Islam. Yet their interpretations invariably reflect the biases of their cultures, backgrounds, and circumstances. In the 1970s, when socialism was still fashionable, many Islamic thinkers were promoting the notion of 'Islamic socialism.' In the 1990s, some of the same thinkers insist that Islam is incompatible with central planning and government control of the economy. The record shows very clearly that knowledgeable and well-intentioned people can differ greatly on the nature of Islam's economic prescriptions. Towering Muslim thinkers, including the medieval luminaries mentioned by Ebrahim and Safadi, have held diverse opinions on economic liberties and on the economic role of government. Part of the reason is that they considered themselves free to let their minds wander. Another part is that very few Quranic verses deal with economic matters,  and those that do are not specific enough to provide unambiguous guidance. If five people were to seek an Islamic method to reduce industrial pollution, they might well produce five different approaches, none clearly inconsistent with the Quran.

In regard to the free-rider problem, the issue is not whether it got recognition from Medieval Muslim scholarship. Rather, it is that Islamic economics has shown, from its founding by Maududi in the 1940s, little awareness of the ubiquitous conflict between people's personal and collective interests. Can there be a more telling indication of how much Islamic thought has regressed over the past millennium? Many Medieval Muslim thinkers were at the forefront of learning and philosophical speculation because they sought ideas everywhere, even in non-Muslim civilizations; were willing to look at the world with an open, inquisitive mind; and refused to get bogged down in metaphysics. Sadly, much of what passes as Islamic economics is motivated principally by a desire to cultivate a distinctly Islamic economic outlook - a desire that has had a tendency to hinder intellectual openness, creativity, and realism.

Islamic banking has indeed made a positive contribution to many economies. It has stimulated national and international trade, and brought some dormant deposits into economic circulation. But scholars who have studied the practices of Islamic banks generally recognize that they are anything but interest-free. The banks give and receive interest as a matter of course, though usually in concealed form. There is nothing inherently Islamic about their operations.

Whatever the exact practice of Islamic banking, from the fact that Islamic banks compete more or less successfully against conventional banks one may infer that they are meeting an apparent social need. The critical issue is not, then, whether Islamic banking should be tolerated. It is whether the proponents of Islamic economics, who constitute a small minority of all Muslims, should be allowed to force all banking into a mold they consider properly Islamic. One may agree that horticulturists perform a useful social function without endorsing a proposal to force everyone to take up horticulture. Many economists, Muslim and non-Muslim, have drawn attention to the uses of equity-based banking. Yet, with the exception of the subset of Muslim economists who characterize their positions as 'Islamic,' none endorses the idea of making all economic transactions interest- free by decree.

All the controversies raised by Professors Ebrahim and Safadi, including the ones over the theory and practice of Islamic banking, have received close attention in numerous critiques published since 1983. Readers interested in fuller perspectives than the ones offered here may wish to consult, among other sources, Behdad (1989), Kuran (1986, 1993), and Philipp (1990).

References

Behdad, Sohrab, 1989, Property rights in contemporary Islamic economic thought: A critical perspective, 47, 185-211.
Chapra, M. Umar, 1970, The economic system of Islam: A discussion of its goals and nature, 4 parts, Islamic Quarterly, 14, 3-18, 91-96, 143-156, 237-253.
Etzioni, Amitai, 1988, The moral dimension: Toward a new economics (Free Press, New York).
Frank, Robert H., 1988, Passions within reason: The strategic role of emotions (W.W. Norton, New York).
Khan, Mohsin S. anti Abbas Mirakhor, eds., 1987, Theoretical studies in Islamic banking anti finance (Institute for Research and Islamic Studies, Houston).
Kuran, Timur, 1983, Behavioral norms in the Islamic doctrine of economics: A critique, Journal of Economic Behavior and Organization 4, 353-379.
Kuran, Timur, 1986, The economic system in contemporary Islamic thought: Interpretation and assessment, International Journal of Middle East Studies 18, 135-164.
Kuran, Timur, 1993, The economic impact of Islamic fundamentalism, in: Martin Marty and R. Scott Applebee, eds., Fundamentalism's and the state: Remaking polities, economics, and militance (University of Chicago Press, Chicago), 302-341.
Naqvi, Syed Nawab Haider, 1981, Ethics and economics: An Islamic synthesis (The Islamic Foundation, Leicester).
Philipp, Thomas, 1990, The idea of Islamic economics, Die Welt Des Islam's 30, 117-139.
Siddiqi, Muhammad Nejatullah, 1970, Some aspects of the Islamic economy (Islamic Publications, Lahore).
Wilson, James Q., 1993, The moral sense (Free Press, New York).