ISLAM AND THE FREE MARKET
By
Peter J. Ferrara and Khaled Saffuri
Advocates
of socialism have long sought to claim that the world’s great religions
support their cause. Upon examination,
however, these claims turn those religions upside down.
For
example, misinterpretations of the Bible have been used to advance the
claim that Christianity is inconsistent with capitalism and supports
socialism. Christianity is based on the principle that
Jesus is the Lord in each individual’s life, not the state, or any mere
mortal or collection of mortals. The
relations between humans are to be based on respect for each other’s
equal rights and freedom of choice, which demands classical liberal,
democratic, capitalism. As [ii]George Weigel Writes
in Soul of the World,
Human
freedom and human flourishing are only possible when politics is kept in
its place, which is a limited place.
So
when Christians confess ”Jesus Is Lord” they’re gelatinizing all their other
loyalties, including their political loyalties. That’s why commentators from Pliny the Younger to Rousseau to the
New York Times Editorial Board have considered Christians dangerous. The irony, of course, is that the Christian
refusal to treat Caesar – or James Madison—as God is what clears the social
space for pluralism, democracy, and the politics of consent.1
In
recent Years, these truths have been fully developed and articulated by
Pope John Paul II, particularly in his encyclical Centesimus Annus. The Acton Institute in the U.S. has also been
particularly active and articulate in advancing true Christian views on
these issues.
The
idea that Judaism embraces socialism and rejects capitalism has been even
more widely accepted. But as Rabbi
Daniel Lapin, founder and President of Toward Tradition states,
All
the classical writings of Judaism take a free market system of ethical capitalism
for granted, The eighth and tenth commandments which prohibit stealing,
or even desiring, the property of another, presume the existence of private
property. The charity laws neither
admonish the King nor the government but only individuals to take some or
their own property, not the property of others, to give to those
who have less. Judaism reveres its
founding father Abraham’s insistence on purchasing, at full market value,
a burial site for his late wife Sarah.
The
many Jews who have embraced socialism during this century have done so,
not as an expression of their Jewish heritage, but rather after rejecting
that heritage. This is obvious to
anyone who notices that Jewish socialists and left wing liberals are notoriously
indifferent to Jewish law and custom. This
is in stark contrast to their more orthodox brethren virtually all of whom
are economic conservatives. Being
faithful to Jewish tradition means not only restricting one’s diet to Kosher
food, it also means recognizing that the best way of reconciling the limitlessness
of human desire with finite resources, is the free market. It may be an imperfect system, but that makes
it an ideal match for man’s nature.
Similarly,
those in the Islamic world who seek justification for granting themselves
greater power over others through the state claim that Islam supports socialism
and rejects capitalism. This paper
will show that this claim is the direct opposite of the history and principles
of Islam.
The
Free Market Roots of Islam
Islam
arose in the 7th century A.D. out of the Arabian town of Makkah,
or, as it is known today, Mecca. Makkah
was home to the Quraysh tribe, which had already been a major Middle Eastern
commercial power for over a century. The
Quraysh became quite prosperous during that time, in their desert environment,
primarily as brokers of trade between the Eastern and Western worlds.
Makkah
had a strategic commercial location for the times. It was located on the main commercial trading artery from Yemen
in Southern Arabia, where goods from the East arrived, northward to the
Mediterranean, where eager European traders waited with their own goods
or cash. Crisscrossing Makkah as
well was a trading lane eastward to the Persian Gulf, another arrival point
for Eastern goods, and westward to the Red Sea Port of Jiddah, where goods
from Egypt and other points in Africa entered the trading routes.
Makkah
enjoyed another key feature—the sanctuary of Kabah, which housed shrines
to the ancient gods. The Quraysh
themselves seemed rather ecumenical, as they housed shrines to a number
of gods that could attract a following.
This first brought pilgrims to worship the gods, and with them even
more traders. Secondly, this shrine established Makkah as
a sort of demilitarized zone, immune from intertribal violence.
The
guaranteed peace and security enabled trade to flourish there even more
vibrantly.
Makkah
took off commercially at the end of the 5th century A.D., under
the rule of Muhammad’s great grandfather, Hashim.
Hashim and his brothers successfully negotiated pacts with neighboring
tribal extending the violence-free sanctuary of Makkah from the pilgrimage
season to year round. These pacts
also extended this sanctuary to the trading routes through these neighboring
tribal lands, across Arabia. The
neighboring tribes were, in fact, enlisted to provide protection to Quraysh
trading caravans through their territories.
This was established through a simple and direct device_ a contractual
promise of a share for each of these tribes of the trading profits from
the caravans. The Hashimi brothers
later developed similar pacts with the Byzantines to the north, the Persians
to the east, the Himyarites of Yemen to the south, and the Ethiopians to
the west.
Adding
to Quraysh success at the time was extended warfare to the north of Arabia
between the Byzantines, Persians and others, this drove Middle Eastern trade
to the south, through Makkah.
Islamic
historian M.A. Shaban explains,
It
is impossible to think of Makkah in terms other than trade; its only raison
d’ etre was trade. It is impossible
to think of Makkah in terms other than trade; its only raison d’etre was
trade. It was first established
as a local trading center around a religious shrine. As a sanctuary, the visitors there were assured the safety of their
lives and were required to suspend their feuds as long as they remained.
To guarantee their safety en route, an elaborate system of sacred
months, pilgrimage, and religious rites was established with the concurrence
of the surrounding tribesmen. The success of this system resulted in the
expansion of trade, and this in turn led to the establishment of new marketplaces.2
Historian
Gene W. Heck also writes,
As
intermediaries of commerce across the Arabian Peninsula, the presiding tribe
of Makkah, the Quraysh, had for decades earned its livelihood through buying,
transporting, and selling commodities at a profit, with the express goal
of augmentation of its capital stock. Ibn
al-Kalbi(d.203/819) calls this tribe “the merchants of the Arabs.”3
Into
this thriving free market-trading environment, Prophet Muhammad, founder
of Islam, was born in about 570 A.D. By that time, his family no longer
ruled the Quraysh, but continued to be highly respected.
The young Muhammad made his living as a caravan trader, and soon
he was hired as business manager by the young widow of a wealthy merchant,
Khadijah, to help continue her late husband’s flourishing business.
The
business prospered further, as did Muhammad’s personal relationship with
Khadijah, and they were subsequently married.
M.A.
Shaban writes,
From
an historian’s point of view, his [Muhammad’s] revolution and his statesmanship
should be explained and understood on the light of their environment. In Makkah, this meant trade. To attempt a study of Muhammad’s environment.
In Makkah, this meant trade. To
attempt a study of Muhammad’s activities I Makkah and Arabia without taking
trade into consideration is equivalent to studying contemporary Kuwait or
Saudi Arabia without Paying attention to oil.4
Islamic
Principles of Economics
Muhammad
began to preach his religion in about 610 A.D., inspired, he writes, by
a series of visits from the Angel Gabriel.
The main theological point of his teaching is that there is only
one God, and the multiple ancient Gods were false, but his teaching discussed
key economic principles as well.
Free Trade and Profit
The
Qur’an explicitly requires a free market of open trade based on consensual,
voluntary transactions. It states:
“OK
ye who believe!
Eat
not up your property
Amongst
yourselves in vanities.
But
let there be amongst you
Traffic
and trade
By
mutual consent.5
The
Qur’an similarly states,
Better
and more enduring is God’s reward to those who believe and put their trust
in him, … and conduct their affairs by mutual consent.6
One
of the caliphs to succeed Muhammad (d.632 A.D.), Umar b. Abdal al-Aziz (d.
712 A.D.). Also stated,
As
for the sea, we hold that it is the way of dry land. God has said;
God
it is who subdued to you the sea that vessels may sail thereon by his command
and that ye may seek of his bounty. Therefore
he has given permission that he who so wills may trade thereon; and I hold
that no obstacle shall be placed between it and any of the people.
For the dry land and sea alike belong to God.
He has subdued them took his servants to seek of his bounty in both
of them. How then should we intervene between God’s servants and their means
of livelihood?7
Therefore,
on both sea and land, no obstacles shall be imposed to prevent people from
engaging in free trade.
The
Qur’an also explicitly sanctions earning profit through such trade. This is seen in the last passage above, which
states that God has subdued both the land and the sea for his servants so
that they may seek of his bounty through free trade. This point is further supported by passages in the Qur’an, which
state:
Your
Lord is He who makes the ship go smoothly for you through the sea, in order
that you may seek of his bounty. For
He is unto you most merciful.8
You
see the ships thereon, that ply the waves that you may seek of the bounty
of God and be grateful.9
Ask
God of his bounty, for God hath full knowledge at all things.10
Ibn
Khaldun, the great 14th century Islamic historian and philosopher,
also sanctions profit in the most capitalistic terms. He states:
It
should be known that commerce means the attempt to make a profit by increasing
capital, through buying goods at a low price and selling them at a higher
price, whether these goods consist of slaves, grain, animals, weapons, or
clothing material. The accrued amount
is called “profit.” The attempt to make such a profit may be undertaken
by storing goods and holding them until the market has fluctuated from low
prices to high prices. This will
bring a large profit. Or the merchant may transport his goods to another
country where they are more in demand than in his own, where he bought them. This will bring a large profit. Therefore, a veteran merchant said to a person
who wanted to find out the truth about commerce: ‘I shall give it you in two words: Buy cheap and sell dear. That is commerce for you.’11
Indeed,
Islam commands its followers to go out into the market and earn their livelihood
and profit, to support their families and enjoy prosperity. The Qur’an states,
When
the prayer is finished, then disperse you through the land and seek the
bounty of God.12
Similarly,
Muhammad is cited as saying,13
The
earning of a lawful livelihood is a duty second only in impotence to the
duty of prayer.
And,
After
you have performed the Morning Prayer, do not rest until you have earned
your livelihood.
Muhammad
also stated,14
To
seek lawful gain is the duty of every Muslim:
To
seek lawful gain is Jihad (exerting your utmost effort);
The
best of works is lawful gain;
Well-being
is 10 parts; nine of them are in seeking a livelihood.
The
8th century Islamic jurist Muhammad b.Hassn al-Shaybani also
opened his masterpiece, A Book on Earnings, by saying
Seeking
a livelihood is a duty imposed on every Muslim.15
Islam
even goes so far as to hold that profit is God’s reward for his faithful
followers. It states,
For the covenant
of Quraysh;
Securing
them in the caravans of summer and winter;
Let them
serve the Lord of this House;
Who feeds them against
hunger, and makes them safe against fear.16
In
other words, the successful trading and prosperity of the Quraysh was the
bounty of the Lord, for which they must serve him in return.
Similarly,
the Qur’an states,
Those
who release the Book of God, establish regular prayer, and spend out of
what we have provided; For them secretly and openly, hope for a commerce
that will never fail; For he will pay them their due; He will give them
even more out of his bounty.17
Moreover,
Islam accords great respect and an exalted position for the profession of
merchant, which involves commercial trading for profit as described above
by Ibn-Khaldun. Muhammad is quoted
as saying,18
In
the Day of Judgment, the honest, truthful Muslim merchant will take rank
with the martyrs of the faith;
The
trustworthy merchant will sit in the shadow of the throne of God on Judgment
Day.
Merchants
are the couriers of the world and God’s trustees on earth;
Merchants
are the messengers of this world and the trusted servants of God on earth.
The
best of gain is from honorable trade, and from a man’s work with his own
hand.
Indeed,
Heck 19 cites the great 9th century
Islamic scholar al-jihad as stating “that God’s selection of a merchant,
Muhammad, from a tribe of traders, the Quraysh, was indicative of his esteem
for that lofty profession.” Similarly, the 10th century Islamic
scholar Abal-Fadl al-Dimashqi states,
Were
you to single out commerce from all the ways of making a living, you would
find it the most preferable and joyous of all.20
The
first caliph after Muhammad, serving as his successor, continued to double
as a cloth merchant throughout his reign.
He is cited as saying, “If there were trade in Paradise, I would
choose to be a cloth merchant.21
The
second caliph is quoted as saying,
I
would prefer dying in the saddle of my camel conducting commerce, than dying
in the pursuit of Jihad,22
There
is no place where I would more gladly be overtaken by death than in the
marketplace, buying and selling for my family.23
The
third caliph was a merchant as well.
More
generally, Islam holds that God favors private-sector employment, where
earnings are obtained voluntarily through the free market, to public-sector
employment, where funds are obtained through politics rather than economics.
Heck states that,
Al-Shaybani
emphatically emphasizes the point that private-sector earnings—the pursuit
of commerce and crafts—are more pleasing in the sight of God than are public-sector
earnings; whereas activities of government, such as waging war, are divisive,
and incompatible with personal development.24
Similarly,
al-Jahiz wrote,
The
elite, however, the more exalted ranks of men of judgment and discernment…recognizes
the superiority of tradesman and envies their situation.
They
admit that their spiritual life is wholesome and their company agreeable,
and know that they are always the most scrupulous, the happiest and the
most secure men; for in their courtyards, they are like kings on their thrones,
with beggars calling on them and customers coming to see them. This means of livelihood subjects them to no
humiliation, nor does weakness make them the slaves of their own transactions.
It
is quite otherwise with men close to the government and in its service. They wear the mantle of servility and the badge
of flattery, and they are in awe of their superiors; fear dwells in them,
servility never leaves them, and dread of poverty is their constant companion…What
a difference there is between a man who is beholden to no one and another
who is reduced to servility by favours received, enslaved by ambition, haunted
by the weight of the weight of his obligations, held by the neck in a yoke
of gratitude and a body and soul mortgaged to the burden of his thankfulness.25
Finally,
under Islam the old pilgrimage to the shrines to the ancient gods in the
Kabah in Makkah was replaced by a new pilgrimage to the Islamic Holy Places
in Makkah and the mosque of Prophet Muhammad in Madinah.
Indeed, this pilgrimage became one of the five pillars of the faith
mandated upon all believers. The
stream of pilgrims to Makkah consequently continued and even increased. This in turn perpetuated, and even expanded,
the commercial trading opportunities associated with this pilgrimage, as
discussed further later in this paper.
The Qur’an also explicitly sanctions the profit earned by such commercial
trade as well, saying,
It
is no crime if, during the pilgrimage, you seek the bounty of the Lord.26
Property
Rights
Islam
specifically provides for private property rights. Modern Islamic scholar Imad Ahmad writes,27
In
contrast to socialism, Islam enshrines private property in a sacred
Trust. Everything belongs to God, and it is Man that
God has created as His Khalifah, or His agent on earth (Qur’an 2:30). Each person is individually responsible directly
to Almighty for the faithful execution of this awesome trust (Qur’an 36:54).
Therefore that concept of private property well established among
the Semitic peoples is taken as a given by the Qur’an.
Rather than modify the concept of property, the Qur’an specifies
the terms for its wholesome and just enjoyment and employment.
Similarly,
Heck writes,28
Essentially,
the Islamic creed stipulates that while true ownership belongs to God, man
holds property in trust for Him in accordance with rules clearly delineated
by Islamic law, the Shari’ah, as enforced by the Islamic state.
Numerous
provisions of the Qur’an explicitly recognize private property rights.
For
example, the Qur’an states,
To
God belongs the land. He maketh
whomsoever of his servants that he willet to inherit it.29
And,
Made
beautiful for man is the love of joy from women and offspring; and stored
up heaps of gold and silver and branded horses and cattle and land, these
are the possessions of this world.30
The
Qur’an also speaks of, “Your wealth which God has made a means of support
for you.”31 Muhammad
stated as well,” Nothing shall be legitimate to a Muslim which belongs to
fellow Muslims unless it was given freely and willingly.”32
Indeed,
Muhammad recognized recognized the same theory of original acquisition of
property rights that was made famous by the English philosopher John Locke
a thousand years later. Muhammad
is cited as saying,
Who
so cultivates land, which is not the property of anyone, has the better
title to it.33
In
other words, as Locke later argued, mixing labor with unowned property creates
a right of ownership in that property for the user.
The
Qur’an also explicitly commands respect for the property rights of others. It states,
Do
not devour one another’s property by unjust means, nor bribe with it the
judges in order that you may wrongfully and knowingly usurp the possessions
of other men.34
O
ye who believe! Enter not houses
other than your own; until you have asked permission and greeted those in
them. … If you find no one in the house, enter not
until permission is given.35
Whoever
takes any part of the land, without having a right to it, shall as punishment
on Resurrection Day be sunk to a depth of seven earths.
[A]nyone
that steals shall on the Day of Resurrection bring with him that which he
has stolen. Then shall every soul
be paid what it has earned:
none
shall be wronged.36
The
Qur’an mandates as well that respect for property rights be extended to
all human beings regardless of religious faith.
In
addition, the Qur’an commands severe punishment for theft, showing great
respect for property rights. It
states,
As
for the man or woman who is guilty of theft, cut off their hands to punish
them for their crimes. That is the
punishment enjoined by God. God
is mighty and wise.37
The
Qumran also explicitly condemns fraud to deprive people of their property
rights. It states,
Do
not give short weight or measure. Prosperous
though you are, beware the torment of a fateful day!
My
people, give just and weight and measure in all fairness. Do not defraud your fellow men of their possessions,
nor you shall corrupt the land with evil.38
Similarly,
it reiterates,
Give
just weight and measure and do not defraud others of their possessions.39
Woe
to the unjust who, when others measure for them exact in full, but when
they measure or weigh for others, defraud them.40
The
Qumran is especially strong in commanding protection of property rights
of the most vulnerable. It states,
Give
orphans the property, which belongs to them.
Do not exchange their valuables for worthless things or cheat them
of their possessions; for this would surely be a great sin.41
Put
orphans to the test until they reach a manageable age. If you find them capable of sound judgment,
hand over to them their property, and do not deprive them of it by squandering
it before they come of age.42
Those
that devour the property of orphans unjustly, swallow fire into their bellies,
they shall burn in a mighty conflagration.43
Do
not tamper with the property of orphans, but strive to improve their lot
until they reach maturity.44
Do
not give the feeble-minded the property with which God has entrusted you
for their support; but maintain and clothe them with its proceeds, and give
them good advice.45
The
Qur’an also recognizes the property rights of women, saying,
Give
women their dowry as a free gift; but if they choose to make over to you
a part of it., you may regard it as lawfully yours.46
Men
shall have a share in what their parents and Kinsmen leave; and women shall
have a share in what their parents and Kinsmen leave:
Whether
it is little or much, they shall be legally entitled to their share.47
The
Qur’an also recognizes property rights by specifying some aspects of property
law, particularly in regard to inheritances.
The Qur’an states,
It
is decreed that when death approaches, those of you that leave property
shall bequeath it equitably to parents and Kindred.
This is a duty incumbent upon the righteous.48
The
Qur’an then goes on to specify how a believer should divide his bequest
among his family—children, wives, parents, brothers, sisters, etc. 49 It also specifies the proper procedures
for valid wills and testaments:
Believers,
when death approaches you, let two just men from among you act as witnesses
when you make your testaments, or two men from another tribe if the calamity
of death overtakes you while you are traveling the land. Detain them after prayers, and if you doubt their honesty let them
swear by God: “We will not sell our testimony for any price even to a kinsman.
We will not hide the testimony of God; for we should then be evil-doers.”
If both prove dishonest, replace them by another pair from among
those immediately concerned, and let them both swear by God, saying: “Our
testimony is truer than theirs. We have told no lies, for we should then
be wrongdoers.’ Thus will they be
more likely to bear true witness or to fear that the oaths of others may
contradict theirs. Have fear of
God and be obedient. God does not
guide evildoers.50
The
Qur’an also specifies that tampering with wills is a crime, further protcting
property rights:
He
that alters a will after hearing it shall be accountable for his crime. God hears all and knows all.51
The
Qur’an also recognizes and protects property held in trust. It states,
God
commands you to hand back your trusts to their rightful owners…52
Contract
Rights
Islam
recognizes contract rights as well and the Qur’an commands followers to
fulfill their contractual promises. It
states,
Keep
faith with God when you make a pledge.
You shall not break your oaths after you have sworn to them: for
by swearing in his name you make God your surety.
God has knowledge of all your actions.
Do
not, like the woman who unravels the thread she has firmly spun, take oaths
with mutual deceit and break them on finding yourselves superior in numbers.
In this, God puts you to the proof.
On the day of resurrection, he will resolve for you your differences.53
As
for those with whom you have entered into agreements, let them too, have
their due. God bears witness to
all things.54
You
shall not take oaths to deceive each other, lest your foot should slip after
being rightly guided, and lest evil should befall you for debarring others
from the path of God; for then indeed you should incur a grievous punishment.55
O
ye who Believe! Fulfill all obligations
when you deal with each other.56
[Those
who] faithfully uphold their trusts and covenants…will inherit paradise.57
Keep
your promises; you are accountable for all that you promise.58
If
you wish to replace a wife with another, do not take from her the dowry
you have given her even if it be a talent of gold.
That would be improper and grossly unjust; for how can you take it
back when you have lain with each other and entered into a firm contract?59
The
Qur’an even explicitly commands believers to fulfill their contracts with
non-believers. It states,
Proclaim
a woeful punishment to the unbelievers, except to those idolaters who have
honored their treaties with you in every detail and aided none against you.
With these keep faith, until their treaties have run their term.
God loves the righteous.60
God
and His apostle repose no trust in idolaters, save those with whom you have
made treaties at the Sacred Mosque. So
long as they keep faith with you, keep faith with them. God loves the righteous.61
Among
the People of the Book there are some who, if you trust them with a heap
of gold, will return it to you instead, and there are others who, if you
trust them with one dinar, will not hand it back unless you demand it with
importunity. For they say: “We are
not bound to keep faith with Gentiled.”
Thus they deliberately say of god what is untrue.62
The
Qur’an even goes on to specify some of the procedures for a binding contract.
It
states,63
Believers,
when you contract a debt for a fixed period, put it in writing. Let a scribe write it down for you with fairness;
no scribe should refuse to write as God has taught him. Therefore, let him write; and let the debtor
dictate, fearing God his Lord and not diminishing the sum be owes. If the debtor were an ignorant or feeble-minded
person, or one who cannot dictate, let his guardian dictate for him in fairness.
Call in two male witnesses from among you, but if two men cannot
be found, then one man and two women whom you judge fit to acts witnesses;
so that if either of them commits an error, the other will remember.
Witnesses must not refuse to give evidence if called upon to do so. So do not fail to put your debts in writing,
be they small or big, together with the date of payment. This is more just in the sight of God: it ensures accuracy in testifying and is the
way to remove all doubt. But if
the transaction in hand were a bargain concluded on the spot, it is no offense
for you if you do not commit it writing.
….
If you are traveling the road and a scribe cannot be found, then let pledges
be taken. If any one of you can
entrust another with a pledge, let the trustee restore the pledge to its
owner, and let him fear God, his Lord.
Freedom
of Prices
Muhammad’s
teachings also provided that prices should be determined by supply-and-demand
in the open marketplace and not set arbitrarily by intervening officials. This reflected the long-established merchant
background of his tribe, as well as his own merchant trading activities.
Thus, Heck writes64
A body of Islamic
traditions held that in the free market, pricing should not be fixed, but
left exclusively to Divine guidance. To
wit:
The dearness and
cheapness of your prices are in the hands of the God.
It is God who fixes
prices
Dearness and cheapness
are two of God’s soldiers.
Similarly, modern
Islamic scholar Abd-Allah al-Aghanim writes,65
Islam, at the hand
of the lawgiver [Muhammad] guaranteed economic freedom in its fullest sense,
and established many religious precepts to ensure that this freedom does
not deteriorate as has happened in the contemporary capitalistic system. Therefore, economic freedom, activities of the price-setting mechanism,
and supply-and-demand activities were fixed both in precept and in the core
of creed.
Similarly, Ahmed
writes,66
There are numerous
traditions that demonstrate that the Prophet Muhammad turned to the marketplace
to determine the just price of commodities.
Respect
for Differences in Wealth
Islam
recognizes that in a free and prosperous economy there will be differences
in wealth among people. Exactly
contrary to socialism, the Qur’an admonishes followers against envy of the
greater wealth of others, and to respect that wealth.
It states,
In
no way covet those things in which God has bestowed His gifts more freely
on some of you than on others; to men is allotted what they earn, and to
women what they earn. But ask God
of His bounty, for God has full knowledge of all things.67
It
also states,
He
has given you the earth for your heritage and exalted some of you in rank
above others, so that He might prove you with His gifts.68
The
Qur’an further explains,
To
some God has than He has to others. Those who are so favored will not allow their slaves an equal share
in what they have would they deny God’s goodness?69
This
passage is a rebuke to those who might doubt God’s goodness or fairness
in giving more to some than others. The
passage suggests that people commonly expect to hold on to their own resources
when they have bore than others..
The
Qur’an also repeatedly states,
God
gives abundantly to whom He will and sparingly to whom He pleases.70
See
also The Qur’an 30:37; 34;: 36, 39; 39: 52; 42: 12
Usury
As in other religious,
Islam emphatically prohibits usury, meaning nothing more than interest on
a loan. Strictly enforced, this would be inconsistent with a free market
economic system, and devastating to economic development and growth. For
interest merely compensates the lender for the time value of money, or loss
of the use of the capital during the period of the loan, and for the risk
that the loan will not be repaid in full. It is, in fact, just another form
of profit.
But,
as will be discussed further in the next section, Islamic leaders quickly
accepted innovative transactions that effectively evaded this ban on usury.
These were in fact published in the blatantly titled Book
of Escapes and Ruses,
which explained officially means of avoiding the ban on usury and other
harmful stricture. Because these innovations were officially accepted
by Islamic law, Islam became consistent with the free market on this key
question as well.
Indeed, this flexibility on the usury
issue was a key factor in allowing the Islamic world to prosper as the dominant
economic world power for several hundred years after Muhammad’s death.
Early
Administration of Islamic Institute
These practices began with the administration
of Muhammad himself. In his rule
of the city of al-Madinah, modern Medina, Muhammad explicitly chose not
to impose any taxes on trade, making the city an effective free-trade zone.
71 In fact, trade in al-Madinah remained
tax-free for nearly 70 years thereafter until a customs levy was enacted
during the reign of Caliph Mu’awiyah b. Abi Sufiyan.
But this levy was abolished 40 years later in the reign of Caliph
Umar b. Abdelaziz, expressly to promote commerce and economic growth.72
Muhammad also banned price controls
in Medina, and free market prices reigned for 100years and beyond, as this
policy was continued by his successors. 73 One of Muhammad’s first
acts as ruler was to build a massive new market place in al-Medina, with
no rent charged for use of the stalls by merchants. Muhammad and his successors personally administered the market’s
operations.74 Such markets were further expanded by later
Islamic rulers, who also built extensive networks of roads, wells, canals
and other infrastructure to promote free trade and expanding commerce. Special security forces were also created to
protect trading caravan from bandits.
Muhammad and his successors also
promoted the recognition and recording of private property.
They consistently followed policies of transferring public-sector
lands to private ownership. When
new lands were conquered, at least 80% of the territory was immediately
transferred to private ownership under an established Islamic rule.
Islamic authorities also established homesteading policies, providing
that whoever brought into use or built improvements on unused lands became
the official owners. Caliph Omar
b.Al-Khattob explained this policy by saying, “ He who restores dead land
owns it.”75 Islamic
rulers even effectively privatized infrastructure by allowing private investors
to own the improvement and surrounding lands if they financed it and built
it, These included in particular irrigation canals and land reclamation
projects.
The centrality of commerce and profit
in early Islam is seen in the fact that the pilgrimage to Makkah and Medina
became even bigger and more elaborate commercial trading vents after the
rise of Islam. The pilgrimage brought many more people, as
Islam spread east and west. This
in turn brought far more traders and bigger caravans. As a result, a series of marketing festivals were established along
the major pilgrimage routes. Hreck writes,76
It
appears that Prophet Muhammad also often frequented these markets throughout
the decade of his prophecy, greeting and ministering to incoming pilgrims,. Indicative of their religious significance,
al-Bukhari devotes an entire chapter in his compilation of traditions to
“The Markets that Existed in the Pre-Islamic Era Where the Masses Now Transact
Commerce in Islam.” Indeed, a Quranic verse explicitly sanctioned such seasonal
trade. To wit: It is no crime if
you seek of the bounty of your Lord(during the pilgrimage).”…. Taking this
seriously, Muslim pilgrims-building on al long-standing pre-Islamic tradition—soon
turned the rituals of “hajj” into a revolving market cycle that featured
several market convocations in succession.
All
of this economic activity was greatly aided by official acceptance of widespread
financial arrangements that allowed lenders to receive effective interest,
despite the ban on usury. The long-distance trading caravans of the Muslim
people required heavy capital investment. Someone had to come up with the funds to buy the goods to be traded,
the camels to transport them, and food, water and other necessities for
both the camels and the workers in the caravan, as well as to pay wages
to the workers and any other travel expenses.
So an attractive return on such capital was essential for the whole
economic system to operate.
One
financing mechanism was a straightforward partnership.
One or more partners would contribute the capital for the venture,
one or more would arrange for the labor, and maybe others would provide
security along the caravan route. They
would then split the profits in accordance with some pre-determined formula. The lenders would consequently receive their
return. As these partnerships became
more extended, they effectively became caravan corporations, with the different
parties holding their respective shares of the enterprise. Both Muhammad and his wife engaged such financial
arrangements, as did Muhammad’s early successors.
More sophisticated evasions were delineated in The Book of Escapes and Ruses, which allowed t