Question

State the differences between Market Mechanisms in Conventional Economics and Islamic Economics. 

Answer 1

What is Islamic economics?

Islamic Economics is a modern response to the west or conventional economics. Islamic economics is an ideology of economics based on the teachings of Islam that takes a middle ground between the systems of Marxism and capitalism. It is mostly similar to labour theory of value, which is labour-based exchange and exchange-based labour.

To ensure the true well-being of all individuals, irrespective of their sex, age, race, religion or wealth, Islamic economics does not seek to abolish private property, as was done by communism, nor does it prevent individuals from serving their self-interest.

It tries to promote human brotherhood, socio-economic justice and the well-being of all through an integrated role of moral values, market mechanism, families, society, and good governance. This is because of the great emphasis in Islam on human brotherhood and socio-economic justice.

Following are some key differences between Conventional economics and Islamic economics:

Developmental stage:

• Conventional economics has become a well-developed and sophisticated discipline after going through a long and rigorous process of development over more than a century. On the other hand, Islamic economics has been having a revival over the last few decades. However, it is still in a preliminary stage of development.
• While conventional economics is now in the process of returning to its enlightenment stage, Islamic economics never got included in a secular and materialist worldview. It is based on a religious worldview which strikes at the roots of secularism and value neutrality.
• Islamic economics can only be understood as a response to, and a rejection of certain foundational claims of western economics or conventional economics.

Moral value role:

• While conventional economics generally considers the behaviour and preferences of individuals as given, Islamic economics does not do so. It places great emphasis on individual and social reform through moral uplift. Moral uplift aims at the change in human behaviour, tastes and preferences and it complements the price mechanism in promoting general well-being.  This can make it possible to have optimum economy in the use of resources, which is necessary to satisfy the material as well as spiritual needs of all human beings and saving increase.
• Islamic economics argues that the market may not by itself be able to fulfil even the material needs of all human beings.
• There are similarities and differences between the two disciplines. While both focuses on the allocation and distribution of resources and both emphasize on the fulfilment of material needs, there is an equal emphasis in Islamic economics on the fulfilment of spiritual needs.

Hereafter importance:

• This is the concepts which conventional economics ignores but on which Islam and other major religions place a great deal of emphasis. Hereafter does not confine self-interest to just this world. It rather extends it beyond this world to life after death.
• The serving of self-interest receives a long-run perspective in Islam and other religions by taking into account both this world and the next. This serves to provide a motivating mechanism for sacrifice for the well-being of others that conventional economics fails to provide.

Emphasis on materialism and self-interest:

• The reason why conventional economics is by itself unable to meet the challenges is that its secularist approach gives it a number of inherent drawbacks. One of these drawbacks is its excessive emphasis on materialism, value neutrality, and the freedom of individuals to serve their self-interest and maximize their wealth and want satisfaction. It is, therefore, necessary to have some other mechanism to complement the role of competition in serving social interest.
• Islam, like other major religions, tries to motivate individuals to keep their self-interest within the bounds of social interest. This naturally requires sacrifice of some nature on the part of all individuals operating in the marketplace.

Concentration on economic variable:

• Another drawback of conventional economics is that it concentrates only on economic variables. It neglects the role that moral, psychological, social, political, and historical factors can play in influencing human behaviour. The argument given for neglecting the role of these factors is that they are not quantifiable and require value judgments, which are anathema to economics.
• Islamic economics overcame this drawback. It consider the factors such as moral, psychological, social, political, and historical factors in making investment decision and taking investment actions.

Other contribution:

• Islamic economists have benefited a great deal from the tools of analysis developed by neoclassical, Keynesian, social, humanistic and institutional economics as well as other social sciences, and will continue to do so in the future. Even the paradigm of conventional economics has been changing the role of good governance has now become well recognized and the injection of a moral dimension has also become emphasized by a number of prominent economists.
• One of the most important contributions of Islamic economics was the adoption of a multidisciplinary dynamic approach, which is not the focus of conventional economics. Muslim scholars did not focus their attention primarily on economic variables. They considered overall human well-being to be the end product of interaction over a long period of time between a number of economic, moral, social, political, demographic and historical factors in such a way that none of them is able to make an optimum contribution without the support of the others.