Islamic Economics

The science of economics, or economic analysis, studies the actual economic behavior, the functioning of the real life economy. As actual economic behavior is always oriented to some ends, pure economics, which is neutral on value-orientation, is a myth, an illusion. Modern economic analysis studies the capitalist economies of different shades, and the economics of socialism described the working of the centrally planned economies. Islam's science of economics or the economic analysis relevant to an Islamic society will come into being when we have a people whose behavior is Islamic, an economy which is truly Islamic. Modern economics and the economics of socialism both are helpful, meanwhile, in understanding the real-life situation that is sought to be transformed according to the normative system of Islam.

While modern economic analysis is within the purview of economics of Islam as it seeks to understand the existing economic reality, the applied branches of economics stand on a different footing. The economics of growth and development, public finance, international trade, monetary policy, banking, theory of finance and labor economics, are presently studied in the context of the accepted norms of a capitalistic society. Once the Islamic worldview and the economic philosophy that follows succeeds in producing a new behavior pattern, this whole corpus will be replaced by studies relevant to the new situation.

Till such a situation becomes an existential reality, the task of Islamic economics lies in building bridges between the is and the ought, that which exists and that which is desired. Such a task presupposes a clear understanding of both. It involves analysis of what is, and to that extent coincides with the science of economics, as we know it at present. It proceeds, however, in the light of the vision of what is desirable obtained from the economic philosophy of Islam, as tempered by lessons from the economic history of Islam, to define what is desirable in place of what exists. And lastly it prescribes the manner in which a transition from what is to what should be can be effected.

This could be illustrated with the help of one or two examples. That every man and woman must be provided with food, clothing, shelter, medical care and education, is an objective of the Islamic economy. It is an objective broadly shared by all modern societies. The methods of realizing this aim, however, differ, and so does the degree of its realization. Learning from all these experiments, and in consonance with the unique Islamic method which fully utilizes voluntary action that is ethically oriented, but ensures sufficient state initiative to secure its objectives, Islamic economics will lay down the policies suitable for being adopted in an Islamic society.

Another example is that relating to the institution of banking in particular and the financial system in general. Having analyzed the working of the present institutions, Islamic economics will proceed to underline the disvalue that inheres this interest based system, with the consequent ill effects for the society. It will then formulate the Islamic alternative based on profit sharing, interest free loans and cooperation. It will also address itself to the problem of effecting a transition from the present system to its Islamic alternative.

In the context of the behavioral studies, Islamic economics will seek to unfold the operational implications of the Islamic norms, in a given real-life situation. In a sense this task may be characterized as construction of ideal behavior patterns relevant to a give situation.

Source: Dr. Muhammad Nejatullah Siddiqi, Economics An Islamic Approach. Republished with permission.