What is Islamic Economics by Mohammad Umar Chapra

Top 20 FREQUENT WORDS

islamic 242 economics 239 economic 131 social 82 goals 71 resources 54 muslim 48 normative 45 conventional 43 realization 43 individual 38 research 37 paradigm 35 distribution 32 behaviour 31 islam 30 development 29 moral 28 role 28 theory 28

DOCUMENT KEY POINTS

• ctions nctions of the institute are organize and coordinate basic and applied research with a view to eveloping models and methods for the application of shari ah in the elds of economics finance and banking provide for the training and development of professional personnel in lamic economics to meet the needs of research and shari ah observing gencies train personnel engages in development activities in the bank ember countries establish an information center to collect systematize and disseminate formation in fields related to its activities and undertake any other activities which may advance it purpose
• the te headed by a director responsible for its overall management and is ed by the ii president in consultation with the board of executive ors

• page foreword preface introduction part i conventional economics conflict between goals and worldview the three basic concepts pareto efficiency versus normative goals the background conditions the inconsistency between microeconomics and macroeconomics part ii islamic economics the paradigm two levels of filtering the problem of motivation socio economic restructuring the role of the state redefining efficiency and equity socially acceptable market equilibrium islamic economics defined methodology
• a word of caution science unseen objects and value judgements realistic assumptions

• the prize was awarded to him in recognition of his valuable contributions characterized by analytical rigor and deep command of islamic economic concepts and in appreciation of his active role for the promotion of islamic economics through international conferences seminars workshops and lectures
• in order to achieve its objectives and to discharge the necessary obligations at an operational level pertaining to research training and dissemination of information idb established islamic research and training institute irti in h g which became operational in h g

• in view of these unique abilities of doctor chapra he was requested to deliver the idb prize laureates lecture on the topic what is islamic economics irti is now pleased to
• specialists and no specialists alike

• being well versed in conventional economics and at the same time being a pioneer of islamic economics there could be nobody better than doctor chapra to explain the paradigm of islamic economics which has attracted the interest of muslim as well as non muslim scholars in the last two decades
• it is hoped that the publication of this valuable lecture will enhance the understanding of this nascent science and will help in its development on scientific lines

• preface this paper is the revised and expanded version of a lecture delivered by me on october at the premises of the islamic development bank in jiddah after receiving the bank s award kindly awarded to me as a recognition of my humble contribution to islamic economics

• hence economics has also been directly or indirectly involved in a discussion of human well being to be realized through an improvement in the allocation and distribution of resources in conformity with the social vision
• since conventional western economics dominates modern economic thinking it may be easier for us to understand islamic economics if we look at it against the backdrop of conventional economics

• the other is what may be called normative and is expressed in terms of the universally desired socio economic goals of need fulfillment full employment optimum rate of economic growth equitable distribution of income and wealth economic stability and ecological balance all of which are generally considered indispensable for actualizing human wellbeing

• the normative goals are the by product of belief in human brotherhood which is in turn the by product of a religious worldview that emphasizes the role of belief in god accountability of human beings before him and moral values in the allocation and distribution of resources
• within this perspective anything that prevents the kind of filtering motivation and restructuring that goal realization requires is a distortion and any use of resources that does not directly or indirectly contribute to or is in conflict with goal realization is unproductive inessential or wasteful

• the general equilibrium theory is as rosenberg has put it the formalized approach to the systematic study of this claim about how the unintended consequences of uncoordinated selfishness result in the most efficient exploitation of scarce resources in the satisfaction of wants

• this doctrine of wertfreiheit freedom from value judgments has become an indispensable and non controversial part of the economics paradigm and is generally accepted unquestionably by the rank and file of the profession
• since i do not wish o get into his controversy in this brief paper i have mentioned all three in he text there is another goal persuasion which has also become emphasized mccloskey

• pareto efficiency and normative goals such a paradigm had the effect of making the market the only determinant of efficiency and equity in the allocation and distribution of resources and of virtually eliminating the role of all other factors including social values and institutions
• even though the great depression and the resultant keynesian revolution tended to undermine this faith in the efficacy of market forces the recent disenchantment with large government role in the economy has restored it once again and there is a call for liberalism or return as nearly as possible to the classical model with minimum government intervention

• since economic policies do not in general make some people better off without making anyone worse off what pareto optimum did achieve in reality was a near paralysis of policymaking by leading in the words of solo to inaction to nonchoice to drifting
• friedman very clearly states however we might wish it otherwise i simply is not possible to use prices to transmit information and provide an incentive to act on that information without using prices also to affect even if not completely determine the distribution of income

• this led to the implicit assumption that every market equilibrium was a pareto optimum and would lead to the realization of normative goals at least in the long run as a necessary concomitant of efficiency and equity brought about by the competitive equilibrium
• some of the most indispensable of these conditions are a harmony between individual preferences and social interest b equal distribution of income and wealth c reflection of the urgency of wants by prices and d perfect competition

• this may be better appreciated if one were to examine the need for reducing domestic absorption aggregate consumption and investment by both the public and the private sectors to remove the macroeconomic imbalances that a number of countries are now encountering

• be entered into private costs in this case then why shouldn t the social costs resulting from lack of need fulfillment unemployment inequitable distribution and economic instability also be taken into account may one stop here to also ask why conventional economics does not hesitate to make some value judgments but abstains from making others satisfaction of condition b equal distribution of income and wealth would give all consumers an equal weight in influencing the decisionmaking process of the market
• however although the urgency for milk may be the same for all children irrespective of whether they were poor or rich the number of dollar votes that a poor family is able to cast for milk is not the same as those that a rich family is able to cast for status symbols

• this is because of using kuhn s terminology the scientific revolution brought about by the shift from a religious to a secularist paradigm the secularist paradigm has led to an excessive commitment to neutrality between ends abstinence from value judgments and choice primarily through the market
• hence while prices may not by themselves be capable of bringing about a socially desired allocation and distribution of resources they may tend to be more so if they do not even reflect real costs and benefits

• one of the primary functions of values which the religious worldview provides and obligates its followers to abide by is to facilitate the use of scarce resources in conformity with the needs of goal realization
• what conventional microeconomics should have done is to take the macroeconomic goals derived from the religious worldview as its starting point and to indicate the individual and firm behavior that would be consistent with these goals

• however instead of trying to resolve this conflict between its paradigm and its normative goals and reforming its assumptions and logical structure accordingly to enable it to play a more effective role in policy formulation and goal realization conventional economics has moved more and more in the direction of greater mathematical elegance
• the accepted wisdom of neoclassical economics is therefore being increasingly questioned and as blaug has rightly stated there are growing numbers who suspect that all is not well in the house that economics has built

• working hard for the material well being of one s own self family and society is as spiritual as the offering of prayers provided that the material effort is guided by moral values and does not take the individual away from the fulfillment of his social and spiritual obligations
• it is presumed within this paradigm that morally oriented individual behavior in an appropriate socio economic and political environment would help realize socio economic justice and overall human well being just as it is presumed within the market system s paradigm that selfinterested behavior in a competitive market would ensure social interest

• the first moral filter attacks the problem of unlimited claims on resources at the very source the inner consciousness of individuals by changing their preference scale in keeping with the demands of normative goals
• however since ideal behavior is considered to be more conducive to goal realization islam tries to bring individual behavior as close to the ideal as possible

• how does islam induce individuals to pursue their self interest within the bounds of social interest in situations where there is a conflict between self interest and social interest islam tries to accomplish this task by giving self interest a longerterm perspective stretching it beyond the span of this world to the hereafter

• the role of the state such a c o m prehensive socio economic restructuring designed to help in the actualization of desired goals and minimizing the existing imbalances may not be
• this is because even in a morally charged environment it may be possible for individuals to be simply unaware of for a greater discussion of the needed socio economic and financial restructuring and its policy implications see chapters of chapra

• the role of the state in an islamic economy is not however in the nature of an intervention which is an unsavory term and smacks of an underlying commitment to laissez faire capitalism

• moreover the greater the accountability of the political leadership before the people and the greater the freedom of expression and the success of the news media and the courts in exposing and penalizing inequities and corruption the more effective the islamic state may be in fulfilling its obligations
• an economy may be said to have attained optimum efficiency if it has been able to employ the total potential of its scarce human and material resources in such a way that the maximum feasible quantity of need satisfying goods and services has been produced with a reasonable degree of economic stability and a sustainable rate of future growth

• if advertising is considered acceptable even though it tends to influence individual choice in the interest of private profit then there seems to be no reason to oppose the education of the individual to mould his preferences and behavior in conformity with moral values willingly accepted by him in the interest of social well being

• islamic economics defined in keeping with a prayer of the prophet may the peace and the blessings of god be on him seeking the refuge of god from knowledge that is of no benefit the primary function of islamic economics like that of any other body of knowledge should be the realization of human wellbeing through the actualization of the maqasid
• hasanuz zaman islamic economics is the knowledge and application of injunctions and rules of the shariad that prevent injustice in the acquisition and disposal of material resources in order to provide satisfaction to human beings and enable them to perform their obligations to allah and the society

• it may accordingly have to study all those factors that affect the realization of these goals through their impact on the allocation and distribution of resources they may have to become along with the values and institutions social economic and political that influence their behaviour a part of the economic model and receive due attention
• hence while the classics looked at the economic system primarily from the production angle and the catallactists marginalists looked at it primarily from the side of exchange islamic economics may have to look at it from the point of view of goal realization

• in the process what methodology accomplishes is to provide criteria for the acceptance and rejection of research programmes the prophet peace and blessings of god be on him said seek knowledge even though it may be in china because he seeking of knowledge is the duty of a muslim

• since the end sought has been different explanation o prediction or persuasion there has been no clearcut answer to the question of methodology in economics in spite of a heated controversy on the subject
• feyerabend has stated in an outspoken manner that the idea that science can and should be run according to some fixed rules and that its rationality consists in agreement with such rules is unrealistic and vicious

• instead of shying away from them under the cloak of wertfreiheits economists may be able to make a valuable contribution by evaluating their hypotheses against the logical structure of the shari all this would lead to the second important step of the methodology to evaluate the hypotheses through logical reasoning in the light of the rationale behind the teachings of the shari ah
• however since everything has not been spelt out in the qur an and the sunnah there is a great room for logical reasoning and human judgment or ijtihad without coming into conflict with the qur an and the sunnah

• just as the effort to explain actual phenomena results in hypotheses the relationship between the maqasid and the different ways of individual and group behaviour as well as filtering motivation restructuring and government role indicated in the qur an and the sunnah could also yield worthwhile hypotheses

• even the hypothesis that the qur an is the word of god is falsifiable because the qur an has itself opened it to falsification by challenging mankind to produce something equivalent in terms of its linguistic beauty force of logic and quality of teachings
• he was probably the first to state that social phenomena seem to obey laws which while not as absolute as those governing natural phenomena are sufficiently constant to cause social events to follow regular well defined patterns and sequences

• not whether the subject matter of these concepts is itself observable or not but whether its impact on human behaviour is observable and particularly so if it helps realize the kind of equilibrium in the allocation and distribution of resources which is in conformity with humanitarian goals

• thirdly it may also be argued that the theories adapted from the qur an and the sunnah may not always be testable because of the wide gulf that now prevails in the muslim world between the way the muslims ought to behave and the way they actually do
• realistic assumptions assumptions play an important role in the formulation of hypotheses and while it may be possible to make some correct predictions even when the fundamental assumptions are false it may be desirable to start with realistic assumptions to get a better record of reliable predictions

• the muqaddimah analyses the closely inter related role of moral political economic social and demographic factors in the wellbeing or misery of the people which ultimately leads to the rise and fall of governments and civilizations
• the end product of a number of economic as well as moral intellectual social and political factors in such an integrated manner that it was not possible to realize overall human well being without an optimum contribution from all

• consequently while conventional economics became a separate scientific discipline in the west in the s after the publication of alfred marshall s great treatise principles of economics in and continued to develop since then islamic economics remained primarily an integral part of the unified social and moral philosophy of islam until the second world war
• it was the first international conference on islamic economics held at makkah in february which served as a catalyst at an international level and led to an exponential growth of literature on the subject

• economics is so closely related to the worldview and the economic system of a society that without clarity about the worldview and the economic system of islam islamic economics may have perhaps groped in the dark for the direction in which to proceed
• institute irti of the islamic development bank idb the international institute of islamic economics islamabad the college kulliyyah of economics at the international islamic university kuala lumpur and the international association of islamic economics

• confining itself primarily to a discussion of how the different agents actually behave conventional economics or should behave islamic economics so far may not lead it very far in the direction of making a worthwhile contribution to the realization of the maqasid
• it must explain not only why the different agents behave the way they do but also why they do not behave the way they ought to in order to get the desired results

• few muslim countries have adequate data on the distribution of income and wealth and the nature and quality of life particularly of the downtrodden people to enable us to know the degree of equity prevailing in the allocation and distribution of resources which is considered to he the most crucial criterion for judging the islamisation of a muslim economy

• different sectors of the population their saving and investment behaviour employment and unemployment child labour wages and salaries working conditions work habits and productivity along with a convincing scientific explanation for the deviation from islamic nor miss there is very little information available on the socio economic condition of women along with a comparison with the high status that islam assigns to them in its value system
• unless we know the actual position as well as the reasons for it it may not be possible to prepare a well conceived program for social economic and political change and the measures that need to be adopted to actualize this change

• the simplistic though unrealistic assumptions about human behaviour made by conventional economics make the microeconomic models more manageable once these assumptions are removed and we make an effort to base microeconomics and the goals of macroeconomics on a consistent morally charged worldview we get into the difficult task of taking into account not only how economic agents actually behave but also how they should behave

• all aspects of human behaviour including individual tastes and preferences and the socio economic and political institutions that affect the realization of goal oriented efficiency and equity in the allocation and distribution of resources may have to be taken into consideration not just in their existing state but also in their ideal and enabling framework

• ziadeh nicola ai hisabah and aimuhtasib in islam old texts collected and edited with an introduction beirut catholic press
• zarqa mohammad anas methodology of islamic economics in ahmad and awan pp

• it is also charged with the responsibility of assisting in the promotion of foreign trade especially in capital goods among member countries providing technical assistance to member countries extending training facilities for personnel engaged in development activities and undertaking research for enabling the economic financial and banking activities in muslim countries to conform to the shari ah membership the present membership of the bank consists of countries

• he has also taught in the united states at the universities of wisconsin and kentucky and worked in pakistan at the institute of development economics and the islamic research institute
• he has made seminal contributions to islamic economics and finance over more than three decades in the form of books and monographs and more than papers and book reviews

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DOCUMENT WORD ANALYSIS

Main Category

AlHuda Material\islamic economics

KeyWords

islam econometric banker economi research muslim universal rate income public zakah developed invest shariah function countries social resource import consumable

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DOCUMENT REFERENCES

Number of Pages

73

Published Date

2006-12-25 11:24:01

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