Islamic Economics: The Total Revolution
by Dr. Robert D. Crane
I. The Economics of Tawhid
In a revolutionary age, half-assed revolutions accomplish nothing and merely bring on more injustice by failing to solve the real problems.
For decades, Muslim economists have focused on the micro-problems of usury, but failed to address the larger problem of the wealth gap. The charging of interest on loans is indeed a contributing factor, but a minor one. So-called Islamic banks have been established and expanded their assets into the many billions of dollars by conning individual Muslims into “investing” their money in them as a requirement of their din. In fact, these banks, and especially the Islamic banking arms of the big multi-nationals, are fraudulent as means to promote economic justice because they have deliberately and assiduously joined the global banking system, with all of its institutional defects, in order to fit in.
In Islam, everything is interconnected in accordance with the overarching paradigm of tawhid. This coherence of unity in diversity, which reflects the Oneness of the Creator, is manifested in the form of what the great jurisprudents of Islam have called the universal principles of justice. These are known as the maqasid al shari’ah.
The most controversial of these in both modern Muslim ideology and secular Western thought is haqq al mal. The core meaning and principle of this universal principle of economic justice is respect for the sacredness of private property in the means of production and for the univeral right of every person to capital ownership. This is disputed because in secular thought nothing is sacred. All the parts of creation are disposable because there is no concept of tawhid to give meaning.
II. The Two Principles of Economic Justice
The principles of economic justice are discussed in Chapter Seven, entitled “Human Rights in Islam from the Economic Perspective,” in the early draft of Volume One on the Islamic Perspective published for feedback in June, 2007, in http://www.theamericanmuslim.org as part of a nine-part series under the title, The Natural Law of Compassionate Justice: Source of Convergence Between Science and Religion.
The Islamic concept of economic justice is based on two principles. The first is the ultimate sovereignty of Allah over all of creation. This means that private property ownership of the means of production is sacred, but only because it implies the responsibility of stewardship by the individual owner. Whoever earns from the use of capital, including land and infrastructure, has a right to enjoy the profits, but he must earn them honestly and spend them to support the needs not only of his own family but of the marginalized in society who no fault of their own either are poor wage-slaves or incapacitated.
This social element in private ownership is based on the fundamental Islamic virtue known as infaq, which is the inclination to give rather than take in life. This is universal in every person but must be cultivated culturally because otherwise the selfish nature of every person, known as nafs al ammara or “the commanding and demanding self,” will claim absolute sovereignty over what belongs to Allah. This is why one of the “five pillars” or actions to maintain one’s submission to God is charity.
Charity consists both of sadaqa, which is voluntary giving to others based only on their need, and zakat, which is mandatory and is based on the capital intensivity of the means of production with rates decreasing in proportion to the increase in human input either through labor or capital. Earnings from labor are taxed at 2% of one’s wealth (not on income), but earnings from cultivated land are taxed at ten percent, because the land but not the water is produced by God. Profits from uncultivated land as well as from mining ores, which come primarily from the bounties of God, are taxed at 20%. This provides incentives to invent and apply technology and pursue science in order to improve it.
The second basic principle of Islamic economics is that economic power and political power are dependent on each other. Economic justice is not merely one aspect of political justice but provides its foundation. Neither is possible without the other. This is part of the Islamic concept of tawhid, which teaches the interdependence of everything in the universe. The pulverization of knowledge into unrelated parts is the principle cause of chaos. The principle cure is the reestablishment of cosmos.
The most important derivative of this second principle for Islamic economic thought and the most important aspect of haqq al mal or respect for private property ownership in the means of production is recognition that such ownership is a universal human right. It may not be usurped by government as in socialism, whereby the “ownership” by the proletariat is pure fiction. Furthermore, Islamic principles of universal ownership are incompatible with the welfare economics of capitalist economies, which have constructed barriers to universal access to ownership and justified this politically by redistributing profits from the rich to the poor. The result is the concentration of ownership and a constantly growing wealth gap both within and among countries.
Economic justice in traditionalist Islamic thought may be compared to the design of modern input-output theory, whereby every person has a right to participate through either labor or capital in the production of wealth, and an equal right to the distribution of this wealth based on one’s own input. The sole role of government is to maintain the principle of limitation through what I developed some twenty years ago as the principle of harmonic justice, which is to assure that contributive and distributive justice remain in balance. Both economic socialism and either monopoly or oligarchical capitalism violate all three principles.
The father of modern Islamic economics is Shaykh al Islam Muhammad al Tahir ibn Ashur. He taught at Zaituna University in Tunis, which traditionally ranked right after Al Azhar in Cairo as the leading Muslim university in the world, and rose to become the Grand Mufti of Tunisia. His major contribution to Islamic thought was to revive the normative study of Islamic jurisprudence in the first half of the twentieth century, which had been moribund in the Sunni world for six hundred years ever since the death of the last great Islamic jurisprudent, Al Shatibi. Ibn Ashur was inspired by the publication in printed form of Al Shatibi’s manuscript, Al Muwafaqat, when Ibn Ashur was a boy and by his association as a student at the age of 24 in 1903 with Shaykh Muhhamad Abdu.
Ibn Ashur died at the age of 94 in 1973, but he led the way toward a renaissance of higher purposes in Islamic thought by developing an open- ended framework of respect for new responsibilities that became the foundation for an Islamic science of human rights. He published his magnum opus, Maqasid al Shari’ah al Islamiya, in 1946, when Marxism had captured the minds of almost the entire body of the world-wide Muslim intelligentsia, both liberals and conservatives. His position was that Marxism is un-Islamic in theory and would be catastrophic in practice.
His most radical proposal was that wealth in a capital intensive economy is created primarily by capital rather than by labor. He thereby stood Karl Marx on his head, who had asserted, contrary to all the evidence, that labor is the only factor in wealth creation and that capital is merely a “congealed form” of it. This so-called labor theory of value justified the expropriation of all private ownership of capital by the state on behalf of the workers, who otherwise would be doomed forever to the status of wage-slaves. This Marxist theory is still dominant in much of the Muslim world, but only because it is still almost universally accepted in the best American universities.
Grand Mufti Ibn Ashur developed the principle of equality of opportunity and associated it with access to and preservation of private wealth. He considered that respect for private property in the means of production and its preservation and safe-guarding (hifz) form the core principle of haqq al mal. He posed as a basic principle of subsidiarity that, “the preservation of private wealth leads eventually to the preservation of the community’s wealth, because the preservation of the whole is achieved by preserving its constituent parts” (p. 121). This principle applies to self-determination in both economics and politics.
Ibn Ashur was almost a century ahead of his time by inventing not merely binary economics but trinary or three-factor economics, which is critical to such tools of expanded capital ownership as community investment corporations. He wrote, “There are two ways for the community and its members to create wealth: owning (tamalluk) and earning (takassub). Owning is the basis of wealth formation by humans” (p. 280). Tamalluk means owning property (p. 282), in other words ownership of all non-human means of production, which one may define as “capital.” Takassub is equivalent to labor or human work in employing capital. Ibn Ashur writes, “Earning (takassub) depends on three primary factors (usul): 1) land (ard), 2) labor (amal), and capital (ra’s al mal)” (p. 282).
Land includes natural resources, such as oil, which is created by “God” rather than by either labor or capital.
Labor as a means of production includes ingenuity in management within a corporation to determine the efficiency of the corporation in bringing together the three factors of production, land, labor, and capital.
Capital may be construed to include the results of human effort after completion, such as a highway system as part of the economic infrastructure, technological processes, robots, and patents. Ibn Ashur defines capital as follows: “Obviously, means of work, such as engines, steam-driven machines, electrical equipment, and even animals used for packing and plowing, would constitute part of capital” (p. 284).
These three factors of production can all be privately owned. As a general principle in Islamic economics, according to Ibn Ashur’s outline of economic justice, everything that can be so owned should be. The corollary is that the process of broadening ownership of future wealth must not deprive existing owners of their accumulated ownership rights from the past, because any confiscation of such rights would violate the sacred value of ownership as such. The only exception would be eminent domain, whereby, for example, the community through its government can appropriate land for urban renewal after paying market value to the existing owners, so that the present and future residents can form a land-based community investment corporation. Funds for such acquisition, as well as for the establishment of new industries on the land through a community investment corporation, can and should come from the cost-free creation of money by the central bank for productive enterprises individually owned by every member of the community.
A fourth branch of the economy, in addition to the factors of production, is the invisible infrastructure of government, including the legal system and the laws that govern banking, taxes, and corporations. This publicly “owned” infrastructure of society functions either to further concentrate private ownership or to de-monopolize ownership of the rapidly growing wealth of society as part of a public policy to narrow or close the wealth gap. Since government is a necessary evil as the only legitimate monopoly of power in society, it should minimize its own power by maximizing the power of civil society and of every person. This can be accomplished best by promoting economic democracy as the surest means to pursue the vision of political democracy.
Following the universally accepted principle of Islamic economics, Ibn Ashur did not consider money itself or even credit and shares of stock as a means of production or “capital.” Money, credit, and stock link people to the instruments of production, known as capital, by enabling them to direct the employment of these instruments. These symbols of value are media of exchange, which quantify economic value and permit the implementation of promises as a social value.
Ibn Ashur was not equipped to devise specific institutional means to create money and credit based on future profits rather than on past savings, which can and should be the principal Islamic contribution to the 21st century economics of compassionate justice. His framework, however, leads inevitably to the concept that it is a universal human right for every person to participate in owning productive wealth. This leads to the concept that it is a universal responsibility of individuals in moral community through government to facilitate this through the perfection of financial institutions so that they will broaden rather than concentrate capital ownership and reduce rather than increase the wealth gap, which otherwise would be inevitable in a modern capital intensive society. Western economic theoreticians have developed parts of Islamic economics but few have had the vision to see these parts as constituents of a single holistic framework, much less as part of a higher paradigm of transdisciplinary thought.
Once one accepts the system of ownership economics based on the above trinary factors of production, as envisaged by Shaykh al Islam Ibn Ashur in his revolutionary introduction to Islamic normative justice, the ways to implement it are universally applicable. They are limited only by human imagination and ingenuity and by the courage needed to perfect the existing system of money and credit so that it will effectively democratize economic opportunity and thereby facilitate real representative government.
III. The Issue of Illegitmate Ownership
Those with the socialist perspective based on the labor theory of value, argue that property acquired by oppression is not legitimate, much less sacred. Therefore justice requires that it be redistributed by government fiat on behalf of those who own no property. The owners, whom Karl Marx designated by the opproprious term “capitalists,” have no right to their property, because property in itself has no value. Only people do.
There is a simple answer to this contention, though it may involve some epistemological and ontological sophistication. One should distinguish property as such from the people who own it. The right to property ownership is part of natural law. It is recognized by every religion as a universal right for every human being essential to one’s human dignity. Humans can and have designed institutions that either impede this right or promote it. Extremists in the support of either monopoly capitalism or monopoly socialism have created institutions that deny this right. They are the problem, not property itself or those who own it.
Such extremists are an important cause of global terrorism, particularly those who are ideologically motivated to cure terrorism by resorting to terroristic counter-terrorism without addressing the causes in our defective institutions that limit access to property ownership in the means of production.
The problem may be partly the chicken and egg dilemma. How can one replace defective institutions when human beings themselves are defective? Why not merely replace the human beings who exploit the existing institutions? They have no right, one says, to their ill-gotten gains. Mount a revolution to remove the bastards. But, we know what happens in revolutions to switch photos on the wall.
Who is really at fault, the wealthy one-percent who benefit from the existing system or those who created it? If the institutions are at fault, then why redistribute the property from the rich. This would be blaming property itself not those who have raised barriers against broader access to it. Why not a revolution to replace or rather perfect the offending institutions? But, now we are back to the original chicken and egg dilemma. If the guys who invented the institutions control the wealth, and the wealthy control politics, how does one change institutions?
One answer is to change people. The Communists tried to change human nature. Christian, Jewish, and Islamic evangelicals (those who “bring the good news), want to change persons one by one. Many Muslims, as well as Christians and Jews, are firm supporters of Rabbi Michael Lerner and his Network of Spiritual Progressives, even though perhaps this name may be an oxymoron. His “new bottom line” is designed “to replace a culture of selfishness and materialism with one imbued with love, kindness, generosity, open-heartedness, nonviolence, and radical amazement at the grandeur of the universe.” This is the core message of every world religion, always has been, and, God willing, always will be.
But in the meantime, since this personal transformation might take centuries, we are left with the economic institutions, primarily of money and credit, which determine the creation of future wealth and its ownership. For more than a quarter century, the de facto ecumenical think-tank in Washington, The Center for Economic and Social Justice, has derived its fundamental approach from Louis Kelso’s concept of pure credit based on the collateral of future wealth production. The establishment economists insist that this can not exist at the macro level and therefore can not or even should not exist at any other level, particularly if the creation of pure credit, originating perhaps from the Central Bank, would involve changing existing policies and institutions.
Skeptics about whether and how one can change the very system of creating money and the underlying (and overlying) economic institutions argue that it may take many centuries to effect any change. A couple of centuries ago, the French populists had what they thought was an immediate solution. They launched the French Revolution. This led to the monstrosities of Communism and Nazism and both Secular and Apocalyptic Zionism, but is still praised by sympathetic or simply ignorant people (as shown by the fact that the U.S. Postal Service issued a stamp commemorating it a few years ago).
IV. Social Justice
The American Revolutionary Party, which I co-founded only a year ago when the two establishment parties seemed to have self-destructed into a mutual bankruptcy, has a safer solution and therefore over the long run a better one derived from the paradigm of social justice. This is based on the Reverend William Feree’s publications on social justice, beginning with his dissertation in 1942, Catholic University Press of America, The Act of Social Justice. This seminal thesis was developed into his book, Introduction to Social Justice, Paulist Press, 1948, and further refined in a seminar from April 11 to 13, 1956, which distinguished social justice from social charity. Social charity is not justice but only a stopgap until the movement of social justice can change the institutions that deny economic justice.
The Reverend Feree recalls the classical Christian teachings on personal virtue, which nowadays are practically dead even among Catholics. These are known in Islam as the akhlaq. They are best described in the new book by the Rev. Benedict J. Groeschel, C.F.R. (the Gray Fathers, based on the color of their habit), The Virtue Driven Life, Our Sunday Visitor Publishing Division, Huntington, Indiana, 2006. But, Father Feree goes further to identify social virtues as equally important. These are the virtues of individuals working in community to address the issues of compassionate justice that cannot be addressed by anyone working alone. He also addresses the dilemma of persons caught in the present system who not only can not change it but feel compelled to be part of it.
The strategy of social justice is to build a core group or core groups of persons as facilitators of a social movement to change the environment, both political and otherwise, so that institutional change can become possible without violent revolution. The first requirement of such a movement is that its progenitors share a common vision, common understandings about the problem of concentrated wealth, and a common strategy to overcome the wealth gap. This appears to be possible only if grounded in a consensus among the enlightened in every religion. Although it might seem overbearing to act as a purist in requiring such a consensus, there is no other way to build an effective movement.
Now we are back to the issue of who is at fault for the present rapidly growing wealth gap both within and among countries. Is it the existence of property, or the fault of those who have become rich because of the existing system, or of those whose response is passive envy or even active hostility without any solutions, or of those who may see the institutional problem but cannot imagine any way effectively to address it?
No, the fault lies in the partial revolutionaries, those who either see or address only parts of the problem without any transcendent vision of compassionate justice. What we need is total revolution based on what should be acknowledged as the really first factor of production, the primary one, God.