Self-Determination:  The Fundamental Moral Principle of Islamic Economics

Dr. Robert D. Crane

Posted Jul 2, 2006      •Permalink      • Printer-Friendly Version
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Self-Determination:  The Fundamental Moral Principle of Islamic Economics

by Dr. Robert Dickson Crane  

The issue in all normative economic theory, whether Islamic or Christian or natural law, is whether human equality or human freedom is the essence of justice and therefore the ultimate goal.

  Justice is taught in the Qur’an only through general moral guidelines, because what is just and what is not depends partly on circumstances of time and place.  There are only three exceptions to this generality, namely, grave personal crimes, inheritance, and taxation on wealth.  Specifics for these three areas are given because without them there would never be any consensus on what is just. 

  For example, adultery deserves a hundred lashes (this punishment was in lieu of the popular practice of stoning, which was forbidden in classical Islamic law but is still practiced in some African countries).  Inheritance laws were exceptionally strict in order to avoid the concentration of wealth, a fondness for which seems to be common in all animals but can produce grave economic and social injustices among humans.  Justice in the case of a number of moral issues could be restored only if the perpetrator freed a slave (a politically wise stipulation designed incrementally to eliminate ownership of human beings). 

  The most strict of all the Islamic laws deal with taxation, about which there has never been any dispute.  The only area for debate concerns whether additional taxes than those required are moral.  In a society of widespread ownership of the means of production, no further taxation would be required to provide a distributive social safety net.  Unfortunately, such a society was never more than a dream throughout most of human history, which is why utopian schemes of economic “socialism” became attractive once capital rather than labor became the major source of wealth production.

  The entire basis of the Islamic system of taxation is the distinction between capital and labor.  To begin with, taxation is based not on income but on the accumulation of wealth.  Taxes are paid on the net worth of every person and enterprise at the end of the tax year, not on the income received during that year (the new discipline of Islamic accounting has been developed to make this practical in the modern world). Those whose income comes from wages are taxed at a flat rate of 2 and a half percent.  Those whose income results from the application of capital in irrigated farming are taxed at 5 percent.  Those whose income results from dry farming in reliance on the rain provided by nature must pay ten percent.  Those who generate wealth in reliance on the natural resources provided by the Creator in the ground must pay a tax of 20 percent on their total wealth. 

  The rationale for the high tax rate on natural resources is based on the concept that God, not human labor and ingenuity, created these resources.  Land and what is beneath it belongs to God, though presumably manmade land would belong to those who create it.  The logical deductions have not been made for modern economics, but the principle would dictate that taxation on the processing of natural resources would depend on the capital invested in the processing, so that wealth acquired through the sale of diesel would be taxed at 20 percent, gasoline at perhaps 18 percent, petrochemicals at 15, and plastic consumer products at 12, all in proportion to the capital expended in their production, including the invisible tool of production known as ingenuity.

  This system of taxation is designed to help people appreciate the role of nature (God) in their well-being, so that they would be thankful for the infinite bounties available to them.  A rock-bottom principle of the concept of justice, which comes next after belief in God, is that an all-merciful God has provided in unlimited quantities everything that humans would ever need for their own prosperity, so that the only limits to growth would be man’s own failure to use his ingenuity in multiplying what is freely available.

  The elaborate code of human responsibilities and rights developed over the centuries in Islamic jurisprudence, and never matched in any other legal system even today, provides that all the human rights are interdependent, just as order, justice, and liberty are meaningless except as they are pursued as essential to each other.

  The most fundamental concept that underlies all the universal principles of Islamic law is self-determination.  This is the root of the duty to respect life, family and community, dignity (which includes gender equity and religious freedom), and the search for knowledge, known, respectively, as haqq al haya, nasl, karama, and ‘ilm.  Self-determination is also at the root of the two other basic, universal rights, namely, private property and political freedom, known as haqq al mal and haqq al hurriya.  Of course, most of these duties and rights have been observed over the centuries more in the breech than in the fact.

  The greatest evil in human society is known as the pharonic impulse, exemplified by the Egyptian Pharoah who claimed that he was god and acted accordingly.  He owned everything (as in practice do the royal families in Arabia today) and controlled the lives of all his subjects.  This is why the dirtiest name given to America is not “the great Satan” but “the Pharoah,” because most of people in the world perceive that it acts as if it owns them.

  The two most basic universals in the Islamic code of jurisprudence designed to counter the Pharoanic impulse, namely, the duty to respect private property and political self-determination, can be reduced to the simple slogan coined by Norman Kurland: “own, or be owned”,

  If an economic oligopoly and a government installed and managed by it controls the system of money and banking, this pharaonic cabal will assure that in practice they will own everyone else, because this system controls access to credit.  In the modern world of capital intensivity, such access is the key to economic production and power, both economic and political.  Therefore, ownership can be broadened only through removing the barriers to broadened and indeed universal access to credit. 

  This is the only approach that relies on and protects the sanctity of private property ownership as a universal human right, which is what haqq al mal is all about.  Unfortunately, most modern Muslim economists violate their own religion by advocating various kinds of socialism, whereby the government, not the human person, is ultimately responsible for one’s own well-being and for justice in society.  This is why the utopians known generally as Islamists, whether led by Syed Qutb in Sunni Islam or Ali Shari’ati among the Shi’a, call for revolution and the destruction of governments in order to bring in the historically “inevitable” age of justice, inevitable only if they first carry out their divine mission to destroy the pharoahs of the world.

  The specific issue now under discussion in Georgist versus Kelsonian theories of economic justice is ownership of land and natural resources, not ownership of capital.  The classical Islamic position is that the principles are the same.  Ownership is permitted and encouraged in both, but only subject to widened access to it.  Homesteading, whether in Lincoln’s sense of land ownership, or in the Kelsonian paradigm further developed in the Just Third Way for capital ownership, respects the right of every person to the riches of the earth.  It calls also for the corresponding duty of persons in community to assure that neither those already wealthy nor the governments that made them so have exclusivist power over these riches. 

  The Georgist theory of economic justice addressed the specific evil of land barons who bought land cheap and then waxed wealthy not primarily from their use of it but from the general growth of the surrounding economy which raised land values.  George advocated that the solution was to abolish private ownership of land and instead charge rent for the use of land based on the going market value of this usage.  The rents would be collected by the government for distribution equally to every citizen.  His opponents argued that the practical effect of this proposal would be government ownership of all land, which would vest extraordinary power in the only legitimate monopoly of coercion, namely, the state. 

  The objective of the Georgists was to recognize the value of the God-given input of land to wealth, so that individuals would not claim what is not legitimately theirs.  Their solution was to democratize private property rights by vesting ownership in the state, even though the Georgists were essentially libertarians in their fear of government control.  The Kelsonian theories seek the same end of justice but propose, among many other things, to avoid government control by the creation of Community Investment Corporations owned by the citizens of the community through equal lifetime, non-tranferable shares of stock.  This means to broaden ownership of all inputs to productive wealth, whether land or capital, could be supported by government loans through normal commercial banks without interest merely by instituting a two tier discount rate in the creation of money by the central bank so that consumer credit would carry a high interest rate but credit for productive enterprises would be issued free.  In theory, this means of democratizing private property ownership in both land and capital could be accelerated by a Global Natural Resources Bank. 

  The aim of the Georgists is the justice of equality, but the abolition of private property, even if only in land, in actual fact might result in the opposite by further empowering the government (the state), the defective institutions of society, and their self-serving economic and political supporters. 

  Iraq is a perfect case study.  There one faction advocates the nationalization of the oil in order to give ownership to the people, but this in fact would concentrate ownership in a political elite itself perhaps owned by foreign oil companies.  Others, bitterly opposed by the U.S. government, want to privatize all Iraq oil in equal voting shares of stock, inalienable for life, to every legal resident of Iraq so that every Shi’a, Sunni, and Kurd would have an equal stake in supporting the government that made this possible.  They would hold the purse-strings which is the ultimate power over every government. 

  The theory of either de jure or de facto government ownership in order to give control to the people is beguiling, but so was the destructive potential in the theories of Karl Marx, Syed Qutb, and Ali Shari’ati.  The early Islamists in Egypt fully recognized the deadly danger of relying on government to promote justice, which is why they developed many highly successful companies owned by the employees.  These were so successful in fact that in his drive for “justice” Gamal Abdul Nasser nationalized their industries and either executed the management or drove them into exile.  The Shah’s government in Iran also recognized the challenge that the true democratization of economic ownership would pose to his own political tyranny and he correctly saw the mortal danger that Ali Shari’ati posed to his imperial rule. 

  Even Karl Marx in three letters written shortly before he died recognized with horror that to abolish private property ownership and vest power in the state would inevitably result in the worst form of tyranny, namely, a totalitarian dictatorship clothed in the mantle of democracy and freedom. 

  The classical development of human economic responsibilities and rights embodied in the universal principle of haqq al mal emphasized private property ownership as a universal human right and as the key to justice through self-determination.  By reliance on the power of government the modernists who seek to promote simple equality as the essence of justice may deny in practice the human economic and political rights to self-determination. True self-determination through economic and political democracy will come only from revolutionary reform of existing institutions not from overthrowing governments by those who would merely replace them with statist policies of their own.