Islam and the Free Market

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Despite the
failure of the Soviet Union, the pro-market reforms in China, and
collapse of communism in Eastern Europe, the intellectuals and policy
makers of the world continue to have an unhealthy attraction to
socialism and socialist political philosophies. Perhaps nowhere
in the world is it more imperative for the spread of these anti-human
economic systems and the repressive states that go hand in hand
with them to be stopped than in the Islamic world. Countries with
Muslim supermajorities make up an important portion of the world's
oil producing nations and this oil is vitally important for maintaining
the industrial economy of the West and the large population made
possible by that economy. Should the large oil producers become
more statist, then the resulting high price and shortages in oil
would result in famine and economic depression throughout the West,
with the effects eventually revisiting the states that caused those
conditions. This paper attempts to examine three interrelated issues:
1) the compatibility between conservative Islamic theology and the
free market; 2) the reasons socialism and other statist ideologies
have gained such a following in the Islamic world; and 3) if any
"third way" Islamic economics combining the compatible
elements of Islam, the free market, and socialism could be a feasible
temporary solution to statism in Muslim countries.

proceeding to the main body of the paper, it may prove profitable
to define the free market, statism, and socialism. In this paper
a free market is an economic system based on the absolute right
to self-ownership and private property. A free market should have
no institutions which initiate coercion and force involved in its
operation; no state exists to enforce a powerful person's conception
of morality or order. Statism is the broad set of political and
economic ideologies requiring the existence of a coercive state
to provide basic goods and services all the way up to total economic
control; statism includes laissez-faire, Western capitalism (where
enterprises are often subsidized by government), corporatism, fascism,
Nazism, and Soviet-socialism/communism. Socialism consists of a
wide variety of political and economic organizations, chiefly following
the principles of Marx, Bakunin, and their followers and usually
following from the idea of workers owning the means of production,
the abolition of private property, and a denial of free will. Some
forms of socialism require a state, others do not.

in the 20th century did not get along well with capitalism.
Capitalism was condemned as making people greedy, neglecting the
poor and disadvantaged, and generally being immoral. The situation
with Islam, however, was different. Because of their poverty and
lack of education, when oil was discovered in the Persian Gulf area,
the Muslim nations could not take advantage of them. The people
lacked the infrastructure and the education to create petroleum
companies. In addition, many of the territories were controlled
by, or lay in the sphere of influence of, the United Kingdom. British
and American oil companies were then able to take advantage of the
oil finds and lease the areas for extensive periods of time. Over
the next several decades, some countries either outright nationalized
the oil fields or bought parts of them back. The result is a prevailing
statist system throughout the Muslim oil-producing world. The statism
feeds back on itself as they often wish to imitate the consumer
economies of the West (while keeping true to Islam) and so many
enterprises are subsidized. With such prevalent conditions and general
ignorance of the Islamic world before the conflicts resulting from
the establishment of Israel, it is easy to see why a Western observer
might be fooled into believing that Islam and the free market are
incompatible, but this assumption is far from accurate.

The Prophet
Muhammad and the first few Caliphs were merchants and Islam spread
to Indonesia through trade. The Qur'an is adamant about defending
the right of private property. Heck quotes Surat al-Nisa, Ayah
5: "Do not give the foolish your wealth, which Allah has
made as a means of support for you" and Surat al-Fatir,
Ayah 39: "It is He who made you inheritors of the Earth"
(Heck, 82). Even more than that, a hadith (tradition of something
Muhammad said or did) declares that a merchant's seeking lawful
gain to be an act of jihad and another described honest and truthful
merchants as standing with the martyrs on Judgment Day! But it raises
the question of what constitutes lawful gain. A lawful gain is a
profit not made off of usury/interest (Riba), the sale of forbidden
items like alcohol and pork products, and gain from "chance."
To elaborate on the last part; the chance refers to a contract where
the buyer and seller do not know the final price, as in an auction
or if someone were to employ a worker to grind grain and promise
half the bran and it is impossible to know precisely how much of
the final product would be produced.

As the
political authority of Islam expanded, so too did the commerce Muslims
engaged in. Since they were forbidden to lend money at interest
some banking functions fell upon the Jews as in medieval Europe,
but many jurists started to figure out ways to get around prohibitions.
The Hanafi legal School began producing "Books of Ruses and
Circumventions" where they found legal ways to do essentially
illegal things. For example, based on a hadith that asserted "Sell
gold for gold . . . at an equal rate according to weight, for an
inequality in point of weight is usury" the economists argued
that one could charge interest not by lending four cows and getting
six cows back, but by lending four cows and getting the value of
six cows back, but in some other good (Heck, 94). Many Islamic economists
even argued that trade was the only way to make a profit and counseled
that the proper way to make a profit from trade was by using supply
and demand – buy low, sell high. However, acting to manipulate
supply and demand (like trying to corner a market), was prohibited
(Heck, 90, 92).

But the
deciding feature of the free market in this case would be that the
prohibitions were not enforced coercively. However, Islam and Islamic
states have usually been united. As a result the moral precepts
of the Qur'an were enforced and the market was not as free as it
could have been. That said, it is still clear that the Muslims made
a significant contribution to economics and commerce and that economists
like Ibn Khaldun laid a lot of the groundwork for the School of
Salamanca and Adam Smith.

was not a socialist (Rodinson, 23). Yet several Islamic nations
have become socialist or were ruled by socialist governments, such
as Libya, Algeria, and Yemen. The Baath Party which ruled Iraq for
decades and still rules Syria is a socialist party. However, there
is one overriding historical reason for this: the Cold War. The
United States was capitalist and supported Israel, the Soviet Union
was communist, so it supported Israel's enemies: the Arabs. Soviet
and American arms clashed throughout the Cold War in the Middle
East and it was only natural that the Soviets would insist on accepting
a little ideology in exchange for weapons. Leftist intellectuals
even dug up the semi-mythical figure of Abu Dharr, a Companion of
the Prophet, who was exiled for advocating the abolition of private
property, to "prove" that communism was fundamental to
Islam (Rodinson, 25). Once the Arab states failed to destroy Israel,
however, Soviet influence began to decline. The strong statist streak
remains for historical reasons related to oil and colonialism and
the tendency of rulers to increase their power.

Islamic economics is an attempt to derive an economic system that
follows the rules of Islam without the drawbacks of capitalism or
socialism. It originally began development in the 1960's after the
failure of the first post-colonial governments. Unlike secular economics,
which only evaluates people socially, Islamic economics evaluates
people in the context of both society and religion (Mannan, 19).
Furthermore choice is guided by Islamic values and the result is
"integrated exchange and one-way transfer" (Mannan, 19).
In addition, and providing the truly distinguishing factor between
Islam and secular economics, is that Islamic economics makes value-judgments
(Mannan, 20). Secular economics does not distinguish between ends;
a secular economic theory does not say goal X or Y is good or bad,
it leaves such determination to individual choice; whereas Islamic
economics, by its nature of being guided by the tenets of Islam,
will say that manufacturing and selling alcohol in a Muslim country
is bad (Mannan, 20). In this manner, it can be seen that Islamic
economics is essentially secular economics, but tempered by religious
ethics. Similarly GK Chesterton and Hillaire Belloc developed a
third-way economic theory called Distributism by analyzing laissez-faire
economics with an emphasis on Catholic social teaching. Again, the
success of Islamic economics in defending freedom is limited in
so far as it demands coercion to enforce its laws.

To close
out this paper, I believe it is worthwhile to sum up the essential
points. Firstly, the free market is compatible with Islamic theology;
and secondly, socialism has very little real attraction to the majority
of Muslims. However, it is clear that the power of the state must
be restrained in Muslim nations if they are to develop sound economies.
One of the consequences of state/foreign-ownership of oil fields
and refineries is that most of the labor is foreign and so the rulers
and the foreigners are making money while the citizens continue
in poverty. A freer market would mean greater opportunity for entrepreneurship
and therefore of wealth creation. History has shown that Muslims,
like anyone else, are more than capable of building commercial enterprises
and creating wealth. All they need is to be let free.


14, 2008

M. Robare [send him mail]
is a freshman at the University of Massachusetts-Amherst where he
majors in physics and writes for the Daily Collegian.

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