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Islamic Economic Principles
By Shaykh al-Islam Muhammad Taqi Usmani
Takmilah Fath al-Mulhim v.1 pp. 295-305; 1404 AH / 1983 CE
Translated by Mufti Zameelur Rahman - 16 January 2013

[In this] short study in which we explain some of the economic principles based on which the Shari‘ah operates, and which have become the foundations of Islamic economics, because ignorance of them often leads to terrible ideological errors, especially in this time of ours which has made livelihood and economics its greatest concern and the limit of its knowledge and the peak of its ambition, such that the topics of economics have become a stimulus for inquiries and a battleground between the modern theories of capitalism and communism.

Preamble 1: Wealth is a mean, not an end

Before discussing the forms of livelihood and economics, a point distinguishing Islamic economics from other economic theories must be kept in mind, and that is that although Islam opposes monasticism in terms of its abstention from worldly amenities and its abhorrence of indulging in the acquisition of sustenance, and it [i.e. Islam] deems human activity in the field of economics permissible, rather it often regards it as favourable or obligatory; nonetheless, despite all of this, Islam does not regard economics as a fundamental concern for humanity, just as it does not deem economic advancement as the objective of human life.

And by this, the great and fundamental divide between Islamic economics and materialistic economics becomes evident, which is that materialistic economics regards livelihood as a foundation for humanity, and it opines that wealth and pleasure are the desired objective and the foundational goal for all of what a human being does in this worldly life, and he has no other goal besides bringing pleasure to himself or pleasure to other children of Adam.

As for Islamic economics, it recognises on the one hand, that seeking a livelihood and acquiring sustenance is from that which humanity cannot do without; but on the other hand, it does not allow him to make seeking a livelihood his greatest concern or the limit of his knowledge or the peak of his ambition. This is why we see that the Qur’an, on the one hand, condemns monasticism and enjoins seeking the bounty of Allah, and refers to trade as “seeking the bounty of Allah” and wealth as “goodness” and nutrition as “the pure things of sustenance” and dress as “the adornment of Allah” and shelter as “tranquillity,” but on the other hand we see that it refers to the worldly life as “the tool of deception” and it condemns the material world in many of its verses.

This is not a contradiction or inconsistency at all. Rather, the secret behind this is that the Qur’an regards all means of livelihood as stages through which humanity passes in his path towards the objective which he aims towards, which is the virtuous traits which pave the way towards the pleasure of Allah and eternal happiness in the afterlife. There is no doubt that the real concern for humanity and his desired objective boils down to the acquisition of this happiness; and since it is not possible without passing through the thorny paths of the material world, it is necessary to acquire everything that we are in need of from the worldly life.

Thus, as long as the means of livelihood occupy the place of a bridge in a person’s life which he adopts as a crossing-point to his true destination, they represent the properties of “the bounty of Allah” and “goodness” and “adornment of Allah” and “tranquillity.” But, when a human being loses his way and the glitter of this life attracts him and he falls prey to dreams and fantasies, and he adopts the means as an end and he forgets his fundamental objective, these [very] means transform into a “tool of deception” and “temptation” and “enemy” just as the Noble Qur’an states.

Allah (Glorified is He) expressed this meaning in His (Great and Exalted is He) statement: “And seek with what Allah has given you the Latter Abode, and do not forget your share of the material world.” (Qur’an 28:77)

Preamble 2: All wealth is given by Allah

The second fundamental issue which carries great importance in the topic of Islamic economics is that whatever form wealth takes, it is but the creation of Allah and His property, and that which human beings own is an endowment from Allah to him. Allah (Glorified is He) says: “And give to them from the wealth of Allah which He has given you.” (24:33)

And indeed the Noble Qur’an has alluded to the reason for this in another place, and that is that humanity is not able to obtain anything more than expending his efforts in eliminating obstructions. As for his efforts bearing fruits and bringing about results, it is not possible but with the command of Allah, since it is not in the capacity of humanity but to sow the seeds in the earth and to remove from it stones and other hurdles. As for making the seeds sprout and transforming them into a plant and then a tree, it is not possible but with the power of Allah (Glorious is He). Allah (Glorified and Exalted is He) says: “Have you seen what you sow? Is it you that causes it to grow or are the Ones Who cause it to grow?” (56:63-4) And He says: “Do they not see that We have created for them, of what Our hands have created, cattle, and then they becomes their owners?” (36:71)

These verses shed brilliant light on the fundamental axiom regarding the reality of wealth and its ownership, which is that whatever form wealth takes, it is owned exclusively by Allah (Glorified and Exalted is He) and it is His provision to humanity, and since wealth is the property of Allah, humanity do not have autonomy in this ownership but through the specific path He has instituted in the Islamic Shari ‘ah, and since Allah (Glorified is He) is the One Who bestows humanity the right of disposition therein, humanity must submit in his dealings to the laws of Allah. This is why humanity owns things and disposes therein, but he does not have complete freedom in his disposition of it and his usage thereof, but it is necessary for him to submit to the law of Allah and His command and stop at His boundaries and follow His laws. Thus, he may not spend this wealth but in accordance with what Allah has commanded, and he must withhold from what He has forbidden. Allah (Glorified is He) has clarified this in His statement: “And seek with what Allah has given you the Latter Abode, and do not forget your share of the material world. And do good as Allah did good to you, and do not seek corruption in the earth.” (Qur’an 28:77).

This verse explains the philosophy of ownership in Islam. The following principles can be derived from it:

  1. All that humanity possesses of wealth is purely Allah’s bestowal to him.
  2. Man must not forget his destination, which is the afterlife, when dealing with it.
  3. And since wealth is from that which Allah has given him, he must dispose of it in accordance with the commands of Allah, and that is in two ways:
    1. firstly, that Allah has commanded him to give his wealth to others, and this is a command which must be obeyed, because Allah (Glorified is He) has done good to him in His bestowal of ownership over His wealth, thus it is His prerogative to order him to do good to others;
    2. and secondly, that He forbids him from any dealings with this wealth, and that is because He does not permit him to spend the wealth in a matter which leads to societal corruptions or corruption in the earth.

This is the manifest particularity of ownership in Islam, which distinguishes it from capitalism and communism in terms of ownership. It is known that the foundation of capitalism is based on materialism, in reality and in practice, and it believes that humanity has monopoly over his wealth and his fortune without another power sharing with him in its disposition and usage, and he has every right to do with it whatever he pleases. The Noble Qur’an has condemned this idea where it points to what the people of Shu‘ayb would say to him: “Does your prayer command you that we should leave what our forefathers worshipped, or that we should cease doing what we like with our property?” (11:87)

Since they believed that wealth is their property in actuality without there being one who provided it to them, they unqualifiedly used the word “our property,” and they asserted therein their disposition and ownership in their statement “doing what we like with our property” and this is a necessary consequence of this ideology.

This ideology announced by the people of our master, Shu‘ayb (upon him be peace), is the basic spirit of capitalism, and indeed the Qur’an demolished this ideology of capitalism by changing the thinking which ascribes wealth to man to an understanding which announces that wealth is the property of Allah.

And that is followed by His statement: “which He has given you” (24:33) to strike at the foundations of communism which rejects individual ownership and does not concede it in any situation.

It will now be possible for us to distinguish between Islam and capitalism and communism and to designate each of these three by that which distinguishes it from the other; thus we say:

Capitalism creates individual ownership which is free from all restrictions and limitations.

Communism rejects individual ownership (at least in the means of production) and it does not concede it in any situation.

Islam recognises individual ownership but it does not free it of all restrictions and limitations, and it does not loosen its rein such that it causes corruption on the earth.

Comparison of Modern Economic Systems

After laying down these two introductory principles, we wish to explain the foundational difference between Islam and modern economic theories, and comment on the foundations of these systems and the extent of their error in the viewpoint of Islam.

General principles of Economics

Know that the primary questions of economics for every economic system are four, which every system must solve. In the convention of the economists, they are:

  • the question of selecting [what to produce]
  • the question of [which] resources to use
  • the question of distributing the wealth
  • the question of growth

As for the question of selection, they mean thereby organising the desired products according to the needs of the society and the extent of their requirements, because every country owns lands for cultivating which are suitable for a variety of different types of yields and a range of natural resources which are capable of being used for a variety of products. Thus, every country must select some products over others in accordance with their needs and the requirement of those products, so that it uses its land for the required yields and its factories for the required products. One country, for example, can produce wheat and rice and it can also produce coffee and tobacco, thus it must prioritise these things and give preference to some of them over others in accordance with their needs, which will be more beneficial for the society.

As for the question of [which] resources to use, they mean the distribution of resources to produce the required things to a suitable extent, as it is necessary for every country – when it desires success in economics – to employ these resources according to what it has decided in the [process of] selection, and to divide its resources according to the various products in a manner that will be most beneficial and produce the most profit for the society, so it must specify how much land should be occupied in producing wheat? And how much should be used in cultivating rice? And how much in cultivating sugarcane? And how many factories should be erected to manufacture clothes? And how many to manufacture sugar and how many to produce pharmaceuticals? And other such [questions]. And that must be in accordance with the requirements of the society and in accordance with the priorities which it specified in the first question, so that it does not waste resources in producing something that is not required.

As for the question of [how to] distribute the wealth, they intend thereby, how should we distribute the range of material wealth that we acquire after employing the natural recourses to the citizens [of the country]? And what is the measure of distribution amongst them?

As for the question of growth, they intend thereby the need of every society to not stop at a limit in the work of production; instead, it must increase in this work such that it becomes possible for it to invent new things and devise beneficial techniques in every aspect of material crafts; thus, there should be a system which intrinsically encourages growth and stimulates novelty in the country.

These are the four elements of every economic system, and the contemporary theories differ in the method of solving these questions, and we will refer to these four questions as “economic organisation” in our following discussion.

The Theory of Capitalism

As for capitalism, it states that there is no route to economic organisation unless we give each individual from the individuals of society complete autonomy in acquiring a livelihood, in order that he struggles to acquire the most that he can in terms of profit and wealth, and when we do that these four problems will naturally be resolved, and economic organisation will be achieved automatically.

The explanation of this, according to what the capitalists describe, is that there are two natural forces on which economic organisation rests, and they are supply and demand. As for supply, it is the trader taking his goods to the market to sell them, and demand is the buyer coming to the market to purchase them. And from the well-known laws of economics is that every time supply is more than demand, prices decrease, and every time supply is less than demand, prices increase. Hence, when there are a thousand garments of one type in the market, for example, and there are only seven hundred who wish to buy it, the price of the garment will certainly decrease because the supply is high and the demand is low. But when the buyers are more than a thousand, the price of the garment will naturally increase because the demand is more than the supply.

Therefore, whenever man has complete autonomy in acquiring his livelihood, he will not bring to the market except what has high demand, so that he can acquire as much profit [as possible], because if he brings to the market goods that have little need, he will not be able to sell it for a high price and his profit will be low. This is why every man in society is forced to produce what the society needs and refrain from what the society does not need, and that is by the very nature of the forces of supply and demand.

Thus, the capitalists say that these two forces arrange all the economic activities, and the questions of selection, and the questions of employing resources, are solved thereby; for whenever the question of selection arises, for example, the man who enjoys complete autonomy in acquiring as much as possible in terms of profit will not select for production except what has highest demand and the most need, and when the question of employing resources arises, the man will not employ his resources except in the production of what has most profit, and something will not have more profit unless its demand is high and its demand will not be high unless the society is in need of it.

So, for example, when he manufactures more shoes with respect to the demand, their prices will decrease, and they may drop below the cost of production, and when the situation is such, some of the producers may stop production, and because of that the supply will drop and the prices will begin to rise; and when a large number of producers stop producing, the prices may increase to high levels such that it drives some producers outside the industry to enter into the industry again, and this process will continue until it reaches an equilibrium, where the supply of shoes in the market will be at the same level as its demand; and this is the objective.

As for the question of the distribution of wealth, the forces of supply and demand also organise distribution in the view of the capitalists. That is because only the elements of production – which are land, money, work and investment – are entitled to wealth. Thus, the land is entitled to hire, and money is entitled to interest, and work is entitled to wages and investment is entitled to profit. The quantity of hire or interest or wages or profit is not determined except by the forces of supply and demand, since when the demand of land is more than its supply it will be leased more, and when its demand is less it will be leased less; similarly, if the demand of wealth is more than its supply, the value of interest will increase and when it is the reverse, its value will decrease, and work is similar to this also, so if the demand of work – meaning, the demand of wages – is more than the number of available workers, wages will increase, and if its demand is less, it will decrease.

In similar fashion, the forces of supply and demand organise the distribution of wealth.

As for the question of growth, it is resolved in a similar way, and that is because since every person is free to acquire the most that is possible in terms of profit and fortune, he will strive to innovate new things, and invent novel instruments, in order that interest in them increases and their prices rise. Hence, the objective, which is growth, is acquired.

This is the basic philosophy of capitalism, and if you wish to summarise the principles of this philosophy, it is clear that it stands on the following foundations:

  1. Autonomy of ownership, whereby the individuals own all commodities, whether produced or consumed, with a full and complete autonomy, without responsibilities and obligations.
  2. Economic autonomy: Individuals have the right to establish their own projects and invest their own wealth without intervention of the state. Hence, the market is the operator, organiser and controller, and competition between the force of production and its elements on the one hand, and competition between the consumers in the path of acquiring commodities which they desire on the other hand, is manifestly what distinguishes a free economy, and it is at the same time what guarantees the organisation of the market and realisation of the interests of all.
  3. The autonomy of profit: Profit in capitalism is recompense for a person of work and for an organiser, with respect to their work and their planning. Thus, it is not possible for the state to restrict this autonomy, because capitalism considers the instrument of prices and the forces of supply and demand as though they were operators that control [the market] which direct economic activity automatically, so there is no need for government intervention.

The Theory of Communism

As for communism, it opposed capitalism and says, we should not entrust the matter of economic organisation to the forces of supply and demand which have no mind and no understanding, as they are blind forces, and we will not achieve by means of them an equilibrium but after economic crises and great harm; while these two forces do not have in their hand an electronic switch by which the work of production will stop by switching it off or will restart by switching it on. Rather, altering the conditions of production is an effect that takes a long time, and during this long period of time resources will be lost in needless [ventures]. So when we wish for economic organisation according to the needs of society, we must not allow anyone to own the means of production with a personal ownership. Rather, the means of production should all be in the ownership of the state, and the state will put economic planning into action and it will decide the needs of the society and the extents of that need, and then it will organise the means of production to employ them in fulfilling those needs. Hence, every stage in the stages of production will be in accordance with this plan. Thus, the state is what determines the priorities, and it is what organises the resources, and it is what specifies the wages of the workers, because once all the resources are in the hands of the government, nothing remains for the people besides work. In lieu of it, they will be given wages in accordance with their work, so there is no need for profit, or interest, or leasing. Rather, wealth will be distributed between the populace in the form of wages, and profit, interest and leasing are all prohibited in the philosophy of communism because the price of goods according to them is only the price of work. As for what the seller or the leaser demands in a capitalist market above the value of the work in the form of profit, interest or rent, it is called “surplus value” according to them which is absolute injustice in their view.

Critique of Communism

As for communism, it has erred in the first step of its thought, and that is because such societal issues are not resolved by a plan from the government, and indeed entrusting them to a government plan is against human nature, as man’s volition in the economic sphere is something related to his natural aptness and his innate affinity, and if it was made to be compelled by governments, it would become something forced, against his nature and his disposition.

And this is, just as we see in every country, marriage occurs between a number of young men and women according to their personal suitability and the affinity of some of them to others, and often we see that this sporadic system of marriage leads to disagreements between them. However, a sane person will never think of blocking these disagreements by means of a government plan, so the government specifies that so-and-so boy will only marry so-and-so girl, and that so-and-so girl will not marry but so-and-so boy, and if the government were to do that, it would be something opposed to human nature; and this system only operates on the basis of suitability and affinity in which the government has no say, and there is no plan from the outside.

Similarly, economic organisation should operate in this way, and must not follow an external plan, because in that are the following corrupt consequences:

Firstly, it requires that all means of production are in the hands of the government, and the government is not made up of angels nor of infallible human beings, but is comprised of a small group of people who have the same emotions, desires and ambitions we find in the hearts of other people, so if this group wanted to employ these many resources to follow their desires and they pay no attention to the welfare of the populace, great corruption will appear on earth.

Secondly, this plan – however precise are its methods and innovative are its styles – can never guarantee the real needs of the society, as the needs change from day to day, and a plan is only made once or twice in a year, so how can this plan guarantee to fulfill the needs which arise during the year? And indeed knowledge of these changing needs and acting according to them requires a long time also, so the same objection which communism produced against capitalism falls back on them.

Thirdly, this planned system will not operate and cannot operate ultimately except by force from the government, for often it entails burdening the individual with what he does not approve, and forcing him into a service that he does not agree with; so as a result, conflict will arise between the interests of the individual and the interests of the plan.

Critique of Capitalism

As for capitalism, although it is correct in its foundational principle, nonetheless, it has erred in the application of this principle. As for its foundational principle, it is that economic stability is not achieved by planning, but is achieved only by the two natural forces of supply and demand. This is a natural law which we do not deny. However, it applies this principle by granting the individual complete autonomy in acquiring the most that is possible in terms of profit or fortune, and it does not place limits on this autonomy with any stipulation or restriction, and it is ignorant that this complete autonomy will lead to restricting the forces of supply and demand and will corrupt thereby the natural order which is determined by its foundational principle.

The explanation of this is that whenever an individual is completely free in acquiring the most that is possible in terms of profit and fortune, interest, gambling, hoarding (ihtikar), speculative transactions, and every path leading to acquiring more profit is open to him, so it is possible for the rich to take control of the market and control the prices therein, so there is no price in the market except what these affluent people approve, and there is no wages for the workers except what they stipulate, because they are the owners of the market and control it, due to their fortune, and they cause the forces of supply and demand to become paralysed, because these two forces only operate in the free market where the traders compete therein with full autonomy, and the buyer has a choice therein between buying an item from this [seller] and that [seller]. But when a single individual or a single company has monopoly over the market, there is no path for the buyer to this [freedom], as it determines the price, such that it makes the forces of supply and demand redundant in determining the prices.

This only arises due to complete autonomy, the flag of which capitalism raises with full pride, because man in this freedom acquires riches by whatever means he wishes, of interest, gambling, hoarding, or speculation, and by these riches, he establishes great industries and huge factories by which he takes control of the market, and he does not allow any of the small businessmen to reach his position, and even if another besides him reaches this level he will make a trade agreement with him so that the traders of a single commodity have consensus, and the buyers and consumers will no longer have a choice in using the force of their demand in determining the prices. So where is the free market in the capitalist system? And where is supply and demand? And where is the force of competition? These words in capitalism have only become ideas placed in the insides of pages, no trace of them is seen in practical life and no report of them is heard.

So it is clear that capitalism has applied it foundational principle with an application which ultimately puts an end to this very principle, and makes the forces of supply and demand redundant and weak, inoperative except in a very short area, as a result of which many corruptions arise:

Firstly, a small number of people begin to dominate the circulating wealth, and these small numbers of people do not remain restricted in their place. Rather, they transform and become a global force, and they begin to contribute to the external banks and the international companies, and by means of these companies and what they posses of the force of wealth, these small numbers begin to intervene in international politics, just as this small number begins to control the various media, until its financial transgression is employed in the path of influencing ideological currents and in directing them towards the interests of capitalism.

Secondly, individual autonomy in this system is a right only for the owners of wealth, and as far as the poor are concerned, they have nothing in this system but to submit to the laws of the owners of wealth.

Thirdly, production in this system is not directed towards what is for the good of society, and it is only directed towards what is best for most profit, so if there is more profit in erecting theatres and places of dance it will have most priority in terms of employing the resources for them, even if at the same time some necessary needs are neglected.

Islamic Economic System

As for Islam, it follows a balanced methodology in economics that is free from this excess and that neglect; and since the expressions of “economic organisation” and the “forces of supply and demand” and “the role of the market” are modern expressions, we do not find any of these phrases in the Noble Qur’an or the Prophetic Sunnah. However, that which is derived from a study of the Qur’an, Sunnah and jurisprudence is that Islam is far removed from planning in economic organisation, and it posits that economic organisation has been entrusted by Allah (Glorified is He) to some natural forces. Thus, Allah (Glorified is He) says: “We have allocated among them their livelihood in the worldly life, and have raised some of them over others in ranks, so that some of them may put some others to work.” (43:32) Thus, Allah (Glorified is He) ascribed differences in livelihood to Himself (Great and Exalted is He). And this is something that proves that economic organisation is in the hand of Allah (Glorified is He), and there are some natural forces which organise the livelihoods of people, and we may refer to these natural forces as the forces of supply and demand, as Allah (Glorified is He) is the One Who connects the needs of some people with the needs of others. Thus, the seller is in need of the buyer and the buyer is in need of the seller, and each of them cannot do without the other. And Allah (Glorified is He) alluded to this by His statement: “so that some of them may put some others to work”

Likewise, we find in the hadiths of the Messenger of Allah (Allah bless him and grant him peace) what strengthens this, as Anas (Allah be pleased with him) narrated, he said: “The people said: ‘O Messenger of Allah! The price is high so fix the price for us.’ The Messenger of Allah (Allah bless him and grant him peace) said: ‘Verily, Allah is the One Who constricts, the One Who expands, the One Who provides. Verily I hope that I meet Allah while none of you will demand from me [the recompense of] an oppression [I committed] in [his] blood or wealth.’” Abu Dawud, al-Tirmidhi, Ibn Majah and al-Darimi transmitted it, all of them in Buyu‘, and al-Tirimidhi declared it sahih. Ahmad also transmitted it in his Musnad (3:156, 286), and al-Hafiz said in al-Takhlis (no 1158, 14:3): “Its chain is on the condition of Muslim.”

In a narration of Abu Hurayrah according to Abu Dawud in Bab al-Tas‘ir – and the wording is his – and Ahmad in his Musnad (2:337, 373), a man came and he said: “O Messenger of Allah! Fix the prices.” He said: “Rather, I will supplicate,” and then another man came and he said: “O Messenger of Allah! Fix the prices.” He said: “Rather, Allah lowers and raises [the prices], and verily I hope that I meet Allah while no oppression issued from me.” Its chain is hasan as mentioned in al-Talkhis of al-Hafiz (3:14).

In a narration from Abu Sa‘id al-Khudri (Allah be pleased with him), he said: “The price was high in the time of the Messenger of Allah (Allah bless him and grant him peace), and they said to him: ‘If you were to fix for us our prices.’ He said: ‘Verily, Allah is the One Who fixes the price. Indeed I hope that I part from you while none of you demands from me [the recompense of] oppression [I committed] in [his] wealth or life.” Ahmad transmitted it in his Musnad (3:85) and its chain is hasan, as al-Hafiz stated in al-Talkhis(3:14, no. 1158).

And in the narration of al-Asbagh ibn Nabatah from ‘Ali, he said: “It was said: ‘O Messenger of Allah! Fix the price for us.’ He said: ‘Verily, the highness and lowness of prices are in the hands of Allah. I wish that I meet my Lord while no one demands of me recompense for an injustice I did to him.’” Al-Bazzar transmitted it in his Musnad as in Kashf al-Astar from Zawa’id al-Bazzar (2:85 no. 1263) and al-Asbagh was declared trustworthy by al-‘Ijli although the imams declared him weak as mentioned in Majma‘ al-Zawa’id (4:99), and this hadith of his is strengthened by what has passed of corroborants.

The Messenger of Allah (Allah bless him and grant him peace) attributed pricing in these hadiths to Allah (Glorified is He). So this proves that the organisation of prices does not happen by a government plan, rather it is a matter governed by none besides Allah. And it is apparent that the intent of Allah (Glorified is He) fixing the prices is that He is the One Who created this natural system which specifies the prices automatically. Thus the hadith proves Islam accepts the market which is regulated by the forces of supply and demand, and that intervention in the market is against the natural course of the laws which Allah has put in place in this life, and that every intervention of this category is regarded as injustice by Islam, whether the intervention is from the government or from the traders working in the market.

This is also proven by another hadith, which is what Jabir (Allah be pleased with him) narrated, he said: The Messenger of Allah (Allah bless him and grant him peace) said: “A townsman should not sell on behalf of a villager. Leave people, Allah will sustain some of them by means of others.” Muslim, al-Tirmidhi and others transmitted it. The master of the eloquent ones (Allah bless him and grant him peace) clarified in this hadith that Allah (Exalted is He) sustained some people by others, meaning that He sustains the seller by means of the buyer and He sustains the buyer by means of the seller. Thus it is not permissible for anyone to intervene in this divine system and have monopoly over the prices therein. Thus, the hadith alludes to the system of the market being a natural system which must not be altered.

Hence, the first hadith – the hadith of fixing the price – prevents the intervention of the government in the market and the second hadith – the hadith of Jabir – prevents the intervention of some traders in the market in a way that will alter its natural course. Thus both of them are forbidden.

Thus it is apparent that Islam is the only system which makes it possible for the market to run its natural course, with nothing appearing therein that will block this course.

However, this natural course is not possible by allowing all possessors of wealth to be free to do whatever they wish, because such absolute autonomy will create monopolies that will corrupt the system of the market as we have stated previously. Rather, it will only be possible when their dealings are conditioned by limits and stipulations. Islam has placed these limits and conditions so that the autonomy of individuals does not have preference over the value of the free market and the freedom of the society, as is the reality of capitalism. Rather the individuals are considered secondary to the laws that guarantee the freedom of the market and the freedom of the society.

From these laws is the prohibition of interest, gambling and speculation, because all of these means lead to the accumulation of wealth in the hands of the rich alone. History has proven that the transgression of capitalism only arose out of these causes, because they hoard heaps of wealth by these means, and take control of the market in a way that makes its natural forces paralysed.

And from these laws is the prohibition of hoarding and multiplying middle-men and a townsman being an agent for a villager and all corrupt or invalid sales, because they tend towards an alteration in the condition of the market and a negation of the forces of supply and demand, and a specific group having monopoly over the prices.

Al-Bazzar, Ahmad, Abu Ya‘la and al-Tabrani transmitted from Ibn ‘Umar from the Prophet (Allah bless him and grant him peace), he said: “Whoever hoards food, he has freed himself of Allah and Allah is free from him.” And he said: “If a man from the Muslims becomes hungry amongst the people of a land, the protection of Allah is released from them.” See: Kashf al-Astar ‘an Zawa’id al-Bazzar (2:106, no 1311) and Majma‘ al-Zawa’id(4:100).

And from these laws is the prohibition of an economic agreement from the traders, as this agreement also puts the specification of prices in the hands of a few traders and contravenes its natural system, so the jurists have clarified that the traders are not to be left to conspire amongst themselves to control the prices. See Kitab al-Qismah from al-Hidayah. Whenever they take control of the prices it is allowed for the Islamic government to intervene in the market by fixing the price so that it returns to its original condition, as the jurists have determined in their books.

And from these laws are the laws of Zakah, charity, sacrifice, compensation, maintenance and inheritance, because they divert the flow of wealth from the owners of wealth to the poor from society. In this way, the doors of monopolisation are closed in Islam and the doors of spending are opened. And the wisdom behind this is what the Noble Qur’an alludes to where it says: “so that it may not circulate only between the rich among you” (59:7)

In sum, Islam observes the autonomy of the individual to a limit, but prefers the autonomy of society over him, and it wishes to employ the natural forces of supply and demand, and allow the free market to take its natural course and it puts a barrier to monopolies which place the rein of the market in the hands of a specific group and nullifies the actions of supply and demand, and it legislated for this laws prohibiting a variety of types of dealings, and it allowed the Islamic government to intervene in the market whenever it sees monopolies occurring.

We can summarise the school of Islamic economics in this respect, that it does not regard the freedom of acquisition as an absolute freedom in the way we find in capitalism.

Rather, it institutes three types of interventions in these economic activities:

  1. The intervention of religion: thus, it is not permissible for any trader to acquire wealth by a means that is illegal like interest, gambling, speculation and all corrupt or invalid sales and dealings.
  2. Intervention of government: Islam does not allow for the government to intervene in the market when it follows its natural course, as has preceded in the discussion on pricing, but when an individual wishes to take control of the market or have monopoly over it, it is permissible for the government to intervene in that case, as is established in jurisprudence. That is because of what Ma‘qil ibn Yasar narrated from the Prophet (Allah bless him and grant him peace), he said: “Whoever interferes in any of the prices of the Muslims in order to increase its price for them, it is a duty on Allah to throw him into the greater portion of the Fire while his head is at its bottom.” Al-Hakim, al-Bayhaqi, al-Tabrani, Ahmad and others transmitted it as in Kanz al-‘Ummal(4:56) Bab al-Ihtikar. And ‘Umar (Allah be pleased with him) ordered Hatib ibn Abi Balta‘ah to increase his price and he said to him: “Either you increase the price, or you leave our market.” Malik, ‘Abd ibn Humayd and al-Bayhaqi transmitted it as in al-Kanz(4:104, no. hadith 882). This proves the permissibility of government intervention when it sees what will corrupt the system of the market.
  3. Intervention of ethics: furthermore, the ethical rules are not separated in Islam from economics, because acquiring the most that is possible in terms of profit and fortune is not from the foundational goals of man as we have stated earlier. And this is why Islam nurtures in the souls of the Muslims that they interact well with others, and they give them preference over themselves even if they have a need, and they compete in spending and do not compete in acquiring profits and fortunes. Such rules are plenty in the Qur’an and Sunnah, and this is not the place to exhaust them. Thus, whenever Islam is established with all of its rules and its teachings, there will not remain any trace of the evil effects of capitalism, and there will then be no need for a communist or populist system, and economics will begin to take a moderate path free from oppression, cruelty and selfishness. And Allah (Glorified is He) grants accordance.
  • Type: Article

  • Subject: Fiqh

  • Author: Mft. Taqi Usmani

  • Translator: Mft. Zameelur Rahman

  • Collection: Notebook, Curated

  • ID: 161211501

  • Updated: 07-November-2023