IAW 2009 - USYD

Islamic Economics - 101

(Further Reading)
 Overview

Overview

1. General Economic Principles

2. Points for Consideration

3. Summary
 1. General Economic Principles

1. General Economic Principles

1.1 Man’s vicegerency on earth

1.2 Abundance of natural resources

1.3 Basic economic problem

1.4 Economic Science v Economic System

1. General Economic Principles – Man’s
Vicegerency on Earth

ِ ْ‫ﻖ ﻟَ ُﻜﻢ ﱠﻣﺎ ﻓِﻲ ﺍﻷَﺭ‬

ً ‫ﺽ َﺟ ِﻤﻴﻌﺎ‬ َ َ‫ﻫُ َﻮ ﺍﻟﱠ ِﺬﻱ َﺧﻠ‬

“It is He Who has created for you all things that are on earth ...” [Al-
Baqarah 2:29]

‫ﻚ ِﻣ َﻦ ﺍﻟ ﱡﺪ ْﻧﻴَﺎ‬ َ َ‫ﺍﺭ ْﺍﻵ ِﺧ َﺮﺓَ َﻭ َﻻ ﺗ‬

ِ َ‫ﻨﺲ ﻧ‬
َ َ ‫ﺼﻴﺒ‬ ‫ﻙ ﱠ‬
َ ‫ﷲُ ﺍﻟ ﱠﺪ‬ َ ‫َﻭﺍ ْﺑﺘَ ِﻎ ﻓِﻴ َﻤﺎ ﺁﺗَﺎ‬

“But seek the abode of the Hereafter in that which Allah has given you
and neglect not your portion of the worldly life ...” [Al-Qasas 28:77]
 1. General Economic Principles –
Abundance of Natural Resources

ّ ‫ﺖ‬
‫ﷲِ ﻻَ ﺗُﺤْ ﺼُﻮﻫَﺎ‬ ْ ‫َﻭﺇِﻥ ﺗَ ُﻌ ﱡﺪ‬
َ ‫ﻭﺍ ﻧِ ْﻌ َﻤ‬

“If you count Allah’s blessing, you will never number it ...” [Ibrahim
14:34]

ِ َ‫ﺎﻥ ِﺑ ِﻌﺒَﺎ ِﺩ ِﻩ َﺧﺒِﻴﺮًﺍ ﺑ‬

‫ﺼﻴﺮًﺍ‬ َ ‫ﺇِ ﱠﻥ َﺭﺑ َﱠﻚ ﻳَ ْﺒ ُﺴﻂُ ﺍﻟ ﱢﺮ ْﺯ‬
َ ‫ﻕ ﻟِ َﻤﻦ ﻳَ َﺸﺎء َﻭﻳَ ْﻘ ِﺪ ُﺭ ﺇِﻧﱠﻪُ َﻛ‬

“Verily, your Sustainer grants abundant sustenance, or gives it in scant

measure, unto whomever He wills: verily, fully aware is He of [the
needs of His creatures, and sees them all.” [Al-Isra 17:30]
1. General Economic Principles – Basic economic
problem is distribution, NOT production

1.3 Basic economic problem is distribution, NOT

production
 1. General Economic Principles –
Economic Science v Economic System

Islam is concerned with the Economic System, not the Economic

Science

i) Economic Science = Production of Wealth

ii) Economic System = Acquisition and Distribution of Wealth

 1. General Economic Principles –
Economic Science v Economic System

ْ
ِ ‫ﻧﺰ ْﻟﻨَﺎ ْﺍﻟ َﺤ ِﺪﻳ َﺪ ﻓِﻴ ِﻪ ﺑَﺄﺱٌ َﺷ ِﺪﻳ ٌﺪ َﻭ َﻣﻨَﺎﻓِ ُﻊ ﻟِﻠﻨﱠ‬
‫ﺎﺱ‬ َ َ‫َﻭﺃ‬

“And We sent down iron, in which is great might, as well as many

benefits for mankind ...” [Al-Hadid 57:25]

‫ﻚ ﻓِﻴ ِﻪ ﺑِﺄ َ ْﻣ ِﺮ ِﻩ َﻭﻟِﺘَ ْﺒﺘَ ُﻐﻮﺍ ِﻣﻦ ﻓَﻀْ ﻠِ ِﻪ‬

ُ ‫ﻱ ْﺍﻟﻔُ ْﻠ‬
َ ‫ﷲُ ﺍﻟﱠ ِﺬﻱ ﺳ ﱠﺨ َﺮ ﻟَ ُﻜ ُﻢ ْﺍﻟﺒَﺤْ َﺮ ﻟِﺘَﺠْ ِﺮ‬
‫ﱠ‬

“Allah is He Who put at your disposal the sea so that the ships may sail
by His command, and so you may seek His bounty ..." [Al-Jathiyah
45:12]
 1. General Economic Principles –
Economic Science v Economic System

a. Allah (swt) informs us of:

1. Attributes of things
2. Benefit to mankind of these attributes

b. Allah (swt) does not inform us of:

1. How to extract these benefits

2. How to maximise these benefits

... in essence, the empirical sciences related to their utilisation

 1. General Economic Principles –
Economic Science v Economic System

c. So Islam does not interfere in the production of commodities.

Rather, Islamic explicitly informs us that empiricism is the domain

of man, e.g.:

i) Prophet (saw) in regards to manual pollination of date trees: “You

are more aware of the issues of your daily life (amr dunyakum)”

ii) Prophet (saw) sent two Sahabah to Jurash of Yemen to learn

weapons manufacturing
 2. Points for Consideration –
Basis of Islamic Economic System

2.1 Basis of Islamic Economic System

a. Ownership

b. Disposal of Ownership

c. Distribution of wealth amongst the people

 2. Points for Consideration –
Ownership of Wealth (Acquiring Wealth)

2.2 Ownership of wealth (Acquiring Wealth)

a. Ownership is through the permission of Allah (swt) alone

b. Types of ownership - Private, Public & State

 2. Points for Consideration –
Means of Ownership (Private) - Work

c. Means of Ownership – Private

i) Work (Body)

1) Cultivation of barren land

2) Extracting that which exists inside the earth
3) Hunting
4) Brokerage (Samsara) / Commission Agency (Dalala)
5) Partnership of Body & Capital (Mudharaba)
6) Sharecropping (Musaqat)
7) Working for others for a wage
 2. Points for Consideration –
Means of Ownership (Private) - Work

ii) Inheritance

1) Myriad rules relating to myriad circumstances

iii) Obtaining of property for sake of life (Obligatory)

1) Obligation of the State to look after its citizens

2) Obligation of the rich to give to the poor
 2. Points for Consideration –
Means of Ownership (Private) - Work

iv) State grants (Non-Obligatory)

1) Land grants (e.g. to Abu Bakr & Umar in Madinah)

2) Payment of debt
3) War booties
4) Reconcile hearts
 2. Points for Consideration –
Means of Ownership (Private) - Work

v) Properties received without exchange or effort

1) Gifts
2) Blood money or wound money
3) Dowry and other marriage gifts
4) Lost property
 2. Points for Consideration –
Disposal of Wealth - Investing / Spending

a. Difference between increasing property (science) and increasing

ownership of property (system)

b. Means of increasing wealth:

i) Agriculture (Land)
ii) Trading (exchange of things)
iii) Industry (transforming things from one form to another)
 2. Points for Consideration –
Disposal of Wealth - Agriculture

i) Difference between the neck of a land and its benefit

 2. Points for Consideration –
Disposal of Wealth - Agriculture

ii) Classification of lands

Ushri land – Land opened peacefully or whose inhabitants

embraced Islam

- e.g. Arabian peninsula (exception to the rule), Indonesia

Neck and benefit remain in the hands of its inhabitants

Ushr = 10% of actual production if naturally irrigated, or

5% of actual production if artificially irrigated
 2. Points for Consideration –
Disposal of Wealth - Agriculture

ii) Classification of lands

Kharaji land – Land opened through war

Neck belongs to Muslims, benefit to its inhabitants

Kharaj on land is similar to Jizya on the person.

Kharaj = not defined, but levied upon estimated production,

and levied whether or not land is actually utilised
 2. Points for Consideration –
Disposal of Wealth – Trading & Industry

i) Trading is a life necessity:

 not all commodities are available in every location

 cannot take something by force or through corruption

 2. Points for Consideration –
Disposal of Wealth – Trading & Industry

ii) Trading systemises the means by which peoples / commodities

interact through mutual benefit

‫ﺍﺽ ﱢﻣﻨ ُﻜ ْﻢ‬

ٍ ‫ﺎﺭﺓً َﻋﻦ ﺗَ َﺮ‬ َ ‫ﺎﻁ ِﻞ ﺇِﻻﱠ ﺃَﻥ ﺗَ ُﻜ‬
َ ‫ﻮﻥ ﺗِ َﺠ‬ ْ ُ‫ﻮﺍ ﻻَ ﺗَﺄْ ُﻛﻠ‬
ِ َ‫ﻮﺍ ﺃَ ْﻣ َﻮﺍﻟَ ُﻜ ْﻢ ﺑَ ْﻴﻨَ ُﻜ ْﻢ ﺑِ ْﺎﻟﺒ‬ ْ ُ‫ﻳﻦ ﺁ َﻣﻨ‬
َ ‫ﻳَﺎ ﺃَﻳﱡﻬَﺎ ﺍﻟﱠ ِﺬ‬

“O you who believe! Squander not your wealth among yourselves in

vanity, except it may be a trade by mutual consent ...” [An-Nisa
4:29]
 2. Points for Consideration –
Disposal of Wealth – Trading & Industry

Tirmidhi reported that Abu Sa’id narrated that the Messenger of Allah
(saw) said:

“The honest trustworthy merchant will be resurrected with the

prophets, righteous and the martyrs.”
 2. Points for Consideration –
Disposal of Wealth – Trading & Industry

iii) Countless rules relating to countless facets of trade

... too many to list!

 2. Points for Consideration –
Disposal of Wealth – Prohibited Means of Increasing Wealth

i) Gambling

ِ َ‫ﺼﺎﺏُ َﻭﺍﻷَ ْﺯﻻَ ُﻡ ِﺭﺟْ ﺲٌ ﱢﻣ ْﻦ َﻋ َﻤ ِﻞ ﺍﻟ ﱠﺸ ْﻴﻄ‬

‫ﺎﻥ‬ َ ‫ﻮﺍ ﺇِﻧﱠ َﻤﺎ ْﺍﻟ َﺨ ْﻤ ُﺮ َﻭ ْﺍﻟ َﻤﻴ ِْﺴ ُﺮ َﻭﺍﻷَﻧ‬
ْ ُ‫ﻳﻦ ﺁ َﻣﻨ‬
َ ‫ﻳَﺎ ﺃَ ﱡﻳﻬَﺎ ﺍﻟﱠ ِﺬ‬
َ ‫ﻓَﺎﺟْ ﺘَﻨِﺒُﻮﻩُ ﻟَ َﻌﻠﱠ ُﻜ ْﻢ ﺗُ ْﻔﻠِﺤ‬
‫ُﻮﻥ‬

“O you who believe! Verily intoxicants and gambling and idols and
divining arrows are an abomination of Satan's handwork. Eschew
such abomination in order that you may prosper” [Al-Ma’idah 5:90]
 2. Points for Consideration –
Disposal of Wealth – Prohibited Means of Increasing Wealth

ii) Interest / Usury

‫ﻚ ﺑِﺄَﻧﱠﻬُ ْﻢ‬
َ ِ‫ﺎﻥ ِﻣ َﻦ ْﺍﻟ َﻤﺲﱢ َﺫﻟ‬ ُ َ‫ﻮﻥ ﺇِﻻﱠ َﻛ َﻤﺎ ﻳَﻘُﻮ ُﻡ ﺍﻟﱠ ِﺬﻱ ﻳَﺘَ َﺨﺒﱠﻄُﻪُ ﺍﻟ ﱠﺸ ْﻴﻄ‬ َ ‫ﻮﻥ ﺍﻟﺮﱢ ﺑَﺎ ﻻَ ﻳَﻘُﻮ ُﻣ‬ َ ُ‫ﻳﻦ ﻳَﺄْ ُﻛﻠ‬
َ ‫ﺍﻟﱠ ِﺬ‬
‫ﷲُ ْﺍﻟﺒَ ْﻴ َﻊ َﻭ َﺣ ﱠﺮ َﻡ ﺍﻟ ﱢﺮﺑَﺎ‬
ّ ‫ﻮﺍ ﺇِﻧﱠ َﻤﺎ ْﺍﻟﺒَ ْﻴ ُﻊ ِﻣ ْﺜ ُﻞ ﺍﻟ ﱢﺮﺑَﺎ َﻭﺃَ َﺣ ﱠﻞ‬
ْ ُ‫ﻗَﺎﻟ‬

“Those who devour (take) interest (riba) cannot stand except as the
one whom the Satan, by (his) touch, drives him to madness. That is
because they say: Trade is just like riba, whereas Allah permitted
trade and forbade riba.” [Al-Baqarah 2:275]
 2. Points for Consideration –
Disposal of Wealth – Prohibited Means of Increasing Wealth

iii) Fraud / Deception

Narrated by Ibn Majah and Abu Dawud from Abu Hurairah, that The
Prophet (saw) said:

“No one of us is allowed to deceive”

Narrated by Ahmad from Jabir ibn Abdullah, that The Prophet (saw)
said:

“Any (human) flesh that grows from illegal (suht) property will not
enter paradise, then the Hellfire deserves it more”
 2. Points for Consideration –
Disposal of Wealth – Prohibited Means of Increasing Wealth

iv) Monopoly

S’aid ibn Al-Musayyab narrated from Mu’ammar ibn Abdullah Al-

‘Adawi in Bukhari that the Prophet (saw) said:

“No one monopolises except the wrongdoer.”

Al-Athram narrated from Abu Umamah, he said:

“The Messenger of Allah (saw) forbade that a foodstuff be

monopolised”.
 2. Points for Consideration –
Disposal of Wealth – Prohibited Means of Increasing Wealth

v) Price Fixing

Ahmad narrated from Anas who said:

“Prices increased at the time of the Messenger of Allah (saw), so they

said, O Messenger of Allah, we wish would you price (fix the
prices). He (saw) said: “Indeed Allah is the Creator, the holder
(Qabidh), the Open-handed (Basit), the Provider (Raziq), the
Pricer (who fixes prices); and I wish I will meet Allah and nobody
demands (complains) of me for unjust act I did against him,
neither in blood or property.”
 2. Points for Consideration –
Disposal of Wealth – Prohibited Means of Increasing Wealth

vi) Hoarding ... of gold and silver

‫ﺏ ﺃَﻟِ ٍﻴﻢ‬ ّ ‫ﻴﻞ‬

ٍ ‫ﷲِ ﻓَﺒَ ﱢﺸﺮْ ﻫُﻢ ﺑِ َﻌ َﺬﺍ‬ ‫ﺐ َﻭ ْﺍﻟﻔِ ﱠ‬
ِ ِ‫ﻀﺔَ َﻭﻻَ ﻳُﻨﻔِﻘُﻮﻧَﻬَﺎ ﻓِﻲ َﺳﺒ‬ ‫ﻭﻥ ﱠ‬
َ َ‫ﺍﻟﺬﻫ‬ َ ‫َﻭﺍﻟﱠ ِﺬ‬
َ ‫ﻳﻦ ﻳَ ْﻜﻨِ ُﺰ‬

“And let those who hoard gold and silver and do not spend them in the
way of Allah know that a severe and painful punishment is awaiting
them” [At-Tauba 9: 34]
 2. Points for Consideration –
Public Property

Public property are those :

i) which Allah (swt) stated as belonging to the community as a

whole

ii) Allah (swt) prevented the individual from possessing any of them
singularly
 2. Points for Consideration –
Public Property

These are categorised in three types:

1. That which is considered a public utility, so that a town or a

community would disperse in search for it if it were not available
(e.g., town rivers, dams, etc.)

2. The uncountable stores of minerals (e.g. oil, coal, etc.)

3. Things which, by their nature, would prevent the individual from

possession (main roads, thoroughfares, etc.)
 2. Points for Consideration –
Public Property

The Prophet (saw) explained them in the Ahadith by their description

rather than by enumerating them
 2. Points for Consideration –
Public Property

Abu Dawud reported that Ibn ‘Abbas narrated that the Prophet (saw)
said:

“Muslims are partners (associates) in three things: in water,

pastures and fire”

Ibn Majah narrated from Abu Hurairah (ra) that the Prophet (saw)
said:

“Three things are not prevented from (the people); the water, the
pastures and the fire”
 2. Points for Consideration –
Public Property

At-Tirmidhi narrated from Abyadh ibn Hammal ...

that he came to the Prophet (saw) and asked him to grant him a salt
laden land, and he granted it to him. And when he left, one person
in attendance with the Prophet (saw) said, “Do you know what you
granted him? You granted him the uncountable water (Al-‘udd)”.
He (saw) then took it away from him.”
 2. Points for Consideration –
State Property

The State property is that property in which:

i) the Muslims masses have a right,

ii) its management is left to the Khalifah

 2. Points for Consideration –
State Property

Examples include:

i) War Booties
ii) Kharaj
iii) Ushr
iv) Jizyah (head tax)
v) Rikaz (a fifth of hidden treasures)
 2. Points for Consideration –
Bait ul-Maal (State Treasury)

a. Revenues of Bait ul-Maal

i) Booties (Fai’) (Surrendered)

ii) Spoils (Ghana’im) (Through Fighting)
iii) Kharaj (Land Tax)
iv) Ushr (Tithe)
v) Jizyah (Head Tax)

Cont ...
 2. Points for Consideration –
Bait ul-Maal (State Treasury)

a. Revenues of Bait ul-Maal

vi) Rikaz (a fifth of hidden treasures)

vii) Public property revenues
viii) State property revenues
ix) Custom duties
x) Non-permanent taxes
xi) Zakat
 2. Points for Consideration –
Bait ul-Maal (State Treasury)

b. Expenditures of Bait ul-Maal

i) Expenditures for which the treasury acts as custodian, i.e. Zakat

- Spent only upon the eight categories specified in the Quran

 2. Points for Consideration –
Bait ul-Maal (State Treasury)

b. Expenditures of Bait ul-Maal

ii) Expenditures due on the treasury by way of “I’aalah”, i.e.

obligatory duties such as financial support (e.g., destitute, traveller)
or Jihad

- Obligation, not subject to availability of funds

- State must raise funds if insufficient amount
 2. Points for Consideration –
Bait ul-Maal (State Treasury)

b. Expenditures of Bait ul-Maal

iii) Expenditures due on the treasury by way of “Badal”, i.e.

recompense or allowance to people who rendered a service to the
State

- E.g. state employees, soldiers, etc.

- Obligation, not subject to availability of funds
- State must raise funds if insufficient amount
 2. Points for Consideration –
Bait ul-Maal (State Treasury)

b. Expenditures of Bait ul-Maal

iv) Expenditures due on the treasury by way of “Maslaha”, i.e.

public utilities

- Can be obligatory depending on need and urgency

 2. Points for Consideration –
Bait ul-Maal (State Treasury)

b. Expenditures of Bait ul-Maal

v) Expenditures due on the treasury by way of emergency, such as

famine or flood
 2. Points for Consideration –
Currency

i) Built upon the metallic standard

ii) Gold and/or silver

iii) Currency should be means of exchange, not tradable commodity

iv) Islam has linked gold and silver to a set of fixed rules

v) When Islam prohibited hoarding, it specifically prohibited the

hoarding of gold and silver (i.e., the money supply)
 2. Points for Consideration –
Summary
Islam & Economics

Man’s Vicegerency Economic Science v Basic Economic

Economic System Question

Ownership Disposal Distribution

Private Public State 1. Agriculture No Bait ul Currency

2. Trading Riba Maal
3. Industry

Sources Expenditures
Prohibited Means
of Disposal
Economic System – Part I

The End