Islamic Economics: Sad Delusion or a New Paradigm for the Global Future
Posted Sep 15, 2009

Islamic Economics: Sad Delusion or a New Paradigm for the Global Future

by Dr. Robert D. Crane

      For six hundred years most Islamic scholars have been brain-dead, but we are now in the middle of the greatest renaissance of Islamic thought in 1,400 years.  A recent article by Professor Muhammad Omar Farooq is a good example.  His article on Islamic economics is a model of scholarship and should be required reading in any course on Islamic economics, as well as for any course on Islamic law.  This superb article, entitled, “Stipulation of Excess in Understanding and Misunderstanding Riba: The Al-Jassas Link,” was published in The Arab Law Quarterly, 2007, pp. 285-316.

  Dr. Muhammad addresses the issue whether all interest stipulated at the time of contracting is riba.  He demonstrates that before the time of al Jassas in the 4th century hijra, the stipulation of an amount to be paid above the principal (whether in money or goods) was permitted, providing only that the debtor knew at the time of the contract or sale what the amount of interest is, because he then could calculate the risks in contracting the debt.  The only prohibition was in doubling the amount owed when the debtor could not pay upon the due date, which in the so-called era of ignorance (jahaliya) was the common practice.  After Al Jassas, and due to his juristic authority, every form of what we today call interest was prohibited, which was a radical innovation.

  This analysis is sound, but it misses still bigger issues of human economic responsibilities and rights.  The biggest issue is whether the creation of money by a central bank at interest, known in America as the discount rate, is ethically moral.  In my view it is not only unnecessary but forbidden ethically, and in Muslim countries should be also legally, because no service is provided in providing money that costs nothing to create.  Furthermore, selling of debt instruments, especially as in derivatives, is even more unethical because one is selling a product that has negative value, and in the mad rush for exorbitant profits at any cost can and will result in ponzi schemes to debauch an entire economy.

  Unfortunately, Muslim economists generally miss the most important issues in haqq al mal, especially the requirement that money be created only for productive investments.  Buying and selling money is inherently a fraud.  Not only might inflation result from printing money backed only by debt and then multipying it five-fold by investment banks, but such interest bearing debt is the most powerful engine of concentrating wealth. 

  There are only two major requirements for economic justice in the modern world.  The first is to use money only as a measure of value, not as a source of value.  The second is to organize the entire system of banking and credit to expand capital ownership rather than concentrate it.  There are many ways to do this, but Muslim economists totally ignore them because they cannot see the forest for the trees.  See many of these ways see and

  Furthermore, the Muslim financial advisers to Islamic banks are hypocrites because they claim that all interest is haram, but they have devised clever ways to charge interest through the back door.  In this way they can attract money by deception and then make a lot of money by further deception.

  Most interesting for legal scholars in Muhammad Omar’s brilliant paper is his expose of how the current concept of Islamic banking is not based on either the Qur’an or ahadith.  In fact, one of the most quoted sources for the modern concept of riba gave 50,000 hadith without a single isnad or chain of command.  Al-Jassas, who is considered to be the father of modern so-called Islamic banking, did not even attempt to give any hadith support for his highly restrictive theory now adopted almost universally. 

  Of course, until about the third or fourth centuries, the scholars generally did not see the need to use hadith because they were accustomed to refer only to other jurists, particularly in the new schools of law.  This, however, is no excuse for modern scholars to cite Al-Jassas, given that nowadays all juristic opinions are supposed to be rooted in either the Qur’an specifically or in explanatory hadith with a good isnad, or chain of transmission, and a sound matn, or textual conformity and coherence with the Qur’an.

  For thirty years, ever since I wrote a 150-page book for the U.S. State Department in 1982, entitled Islamic Commercial Law, I have contended, to the shock of many, that Islamic economics has barely passed beyond the level of infancy.  Nevertheless, perhaps the revived emphasis on the maqasid al shari’ah will change this, in which case Islamic economics would be truly revolutionary in addressing the wealth gap and promoting the principle of “own or be owned,” which is based on the universal human right to earn both from labor and from profits through individual ownership of productive wealth.  The opposite of such economic democracy is either socialism or plutocracy, both of which deny the duty to respect human dignity (haqq al karama), the right to life (haqq al haya), and political self-determination or political freedom (haqq al hurriya).

  This is explained in Grand Mufti Ibn Ashur’s seminal book, recently published in English for the first time by The International Institute of Islamic Thought.  This book, first published in Arabic in 1946, started the current revival of the maqasid al shari’ah or purposes of the shari’ah (also known as the kulliyat or universals and as the dururiyat or essentials), without which the application of the ahkam or regulations, and especially the hudud, may result in injustice.  Ibn Ashur not only revived the jurisprudence of Al Shatibi after six hundred years of stagnation in Sunni thought, but went beyond it to develop Islamic jurisprudence for modern economies of capital intensivity. 

  Such economic self-determination is the most powerful basis for political freedom, haqq al hurriyah, because whoever owns the means of production owns the government.  Without it, the entire effort to revive the maqasid as a system of human responsibilities and rights would amount to a sad delusion.  Such a revolution in economic thought throughout the world, based on classical Islamic thought and its modern interpretation, would provide a macro-paradigm to address virtually all the currently insoluable problems of both domestic and world affairs.