Developing the Theoretical Foundations of Economics in Islam

Abbas Mirakhor

From New Issues in Islamic Economics & Finance

• 2 approaches to the systematic development of Islamic economic theory
o to start with Western approach to consumer theory and the theory of the firm and then proceed with the analysis by imposing a series of Islamic constraints on the solution
o to ignore Western assumptions regarding consumer and firm behaviour and assume behaviour that would be compatible with Islamic doctrines, not accepting man as he is but as he should be
• efforts to formulate a coherent foundation for Islamic economics have been disputed by 2 grps of thinkers:
o the group that expresses dissatisfaction with the pace and direction of progress made thus far in Islamic economics and disagrees with the concept, methodology and objective of the discipline
o the group that expresses a strident New Weberian critique of islam, in general, and Islamic economis, in particular, and views Islamic institutions and thought as contrary to the growth and development of Muslim societies (he refers to Kuran a lot)
• a problem is for all Muslim economists to reach a consensus-
o with respect to vocabulary
• so far the only 2 fundamental propositions agreed on are
• interest is riba
• risk-sharing and profit-sharing is the Islamic alternative
• also agreement on 2 fundamental issues
• “Justice and Equity” as the focus of the prophetic message
• the Quran, hadith and fiqh as the sources of Islamic law
o with respect to naming the emerging discipline
o with how to define it
• “means-end” characterization satisfactory?
• The unacceptability of the notion of “scarcity” in the Quran
o New institutional economics
• To do more research on Islamic economic institutions and their operation at present in Muslim societies.
• To create an incentive structure for the establishment of new institutions compatble with Islamic objectives
• He suggests that along with an Islamic economic vocabulary, 2 other sources are useful in order to develop a common language-
o History of thought-
• That its ok to borrow the results of investigation from others, That ideas developed belong to all humanity
• “…,moral philosophy gave birth to political economy, out of which grew the present discipline of economics. And moral philosophy from the Middle Ages to the time of Adam Smith was influence by the scholarship of Muslims. While the historians of economic thought generally ignore Muslim contributions, they emplhasize the Aristotelian thought fo the Middle Ages. However, the latter arrived in Europe already influenced by Muslim intermediation and was as Aristotelian as present day neoclassical economics is classical.” (p 224)
• on Hicks model of mercantile behaviour (1986) , Adam Smith and Theory of Moral Sentiment
o Economic hermeneutics – which as used by Abbas Mirakhor does not mean tafseer but rather the process of extracting economic meaning from the first order of interpretation done by fuqaha (see Ali Khan and Chapra in The Future of Economics)
o Relating Hermeneutics to the Islamic Economic History – see Hasanuz Zaman in The economic Funcitons of the Early Islamic State (International Islamic Publishers, Karachi 1981)