Building islamic economics from theological roots by Muhammed Akram KHAN

BUILDING ISLAMIC ECONOMICS FROM THEOLOGICAL ROOTS By Muhammad Akram Khan1

Working Paper (Last updated: 13 December 2016) Abstract Most of the literature published under the nomenclature of ‘Islamic economics’ deals with Islamic guidelines that address Muslims only. However, there is a vast area of economic subjects dealt in the Qur’an and (also hadith2 of the Prophet) that addresses the entire humanity in the form of positive statements. The paper suggests a methodology for building Islamic economics as a social science from these statements. For sake of illustration, the paper first presents a selection of positive statements derived from the Qur’an having an obvious or direct relevance for human happiness and misery both at macro and micro levels. The Invisible Hand of God, that responds to human behavior expressed through such variables as faith in the Unity of God, ethical values, gratitude for God’s graciousness, God-consciousness, contentment and patience and spending on others, acts as an over-arching factor and influences human decision-making and outcome of the decisions. The paper argues that by understanding the operation of the Invisible Hand of God, the humanity would enhance its understanding about the prevalent prosperity and misery across nations and among individuals. For benefitting from the Islamic economic statements the paper suggests a methodology which could help transform these statements into economic theory.

JEL Codes: A13, B49, D03, D31, Z12

1. Introduction Islam is the youngest of revealed religions and is continuation of Judaism and Christianity. The Qur’an is a compendium of the latest divine injunctions and has been preserved verbatim since the time of Prophet Muhammad (pbuh)3 [the Prophet]. Besides the Qur’an, a vast collection of reports relating to the Prophet’s explanation, interpretation, practical demonstration and silent approvals have been reliably preserved in the hadith literature.

makram1000@gmail.com Hadith refers to the written record of the sayings, actions, and silent approvals of Prophet Muhammad (pbuh). 3 Refers to “Peace be upon him!” It is customary for Muslims to add this phrase whenever they mention the name of any prophet. 2

The Qur’an provides guidance for economic life as well. Some of it addresses Muslims only. However, an extensive part deals with universal issues such as prosperity and misery, rise and fall of nations, social justice, distribution of income and wealth, public finance, environment, governance, corruption and commercial ethics. The Qur’anic guidance has universal application and followers of all faiths can benefit from it while adhering to their faiths. The present paper summarizes, as an illustration, two sets of economic statements derived from the Qur’an, one each at macro and micro level on economic prosperity and misery. The paper will then illustrate how these statements can be made basis for developing Islamic economics as a social science. Similar effort can be made on other economic issues. Moreover, a deep and extensive reading of the hadith literature can also open up paths of guidance on various economic subjects. The paper would highlight need and direction of further thinking and research for benefitting from such statements and for going beyond mere ‘belief’. Focus of the Qur’anic guidance is on voluntary change in human behavior. It points to the impact of human behavior on prosperity and misery as end-results. However, it does not tell the process through which this end-result takes place. The relationship of human actions to prosperity and misery is not obvious and is not directly visible. In other words, the Qur’anic statements do not explain the cause-effect process. This task has been left to human thinking and reflection. At present we do not find any research work that tries to explain these statements in the cause-effect framework. Muslims accept them as a matter of faith. People of other faiths may not be simply aware of them. That does not mean that attempting to understand these statements in the cause-effect framework is not a worthwhile task. We need to ‘discover’ the underlying operational mechanism of the Qur’anic economic statements as, for example, Newton discovered the law of gravitation. Such an effort would supplement our current understanding of the economic problems. Understanding of the cause-effect process behind these statements would open new vistas of knowledge.

2. Positive Economic Statements of the Qur’an In this section we shall present a selection of positive statements of the Qur’an relating to economic aspect of human life. These statements have a direct mention of some economic phenomenon or principle. A deeper study of the Qur’an may suggest more verses which have an implicit or oblique reference to some economic principle. Although these statements have normative implications yet they can provide basic material for developing Islamic economics as a social science. In section four of the paper we shall present some initial thoughts on methodology for developing Islamic economics from these statements. A similar exercise can be done for presenting positive economic statements from the hadith literature.

PROSPERITY AND MISERY AT MACROECONOMIC LEVEL The ultimate objective of economic development is to create an enabling environment for a prosperous and fulfilling life and to minimize human deprivation and misery. We are using ‘prosperity’ here as a broad and comprehensive concept that transcends the boundaries of material wealth and encompasses economic, social and political freedom4 and spiritually peaceful living. By the same token by ‘misery’ we mean, besides material deprivation, a state of fear, insecurity and socio--political dependence5. The issue of prosperity and misery is so basic to human life that the Qur’an has used it as an argument for persuading people toward faith in God and the Day of Judgement. Throughout history, human beings have been concerned about finding the most appropriate means for leading a happy and prosperous life and avoiding the pain of deprivation and misery. The Qur’an addresses this issue and draws attention, over and above material variables, to certain moral positives that lead to a prosperous life and also certain moral negatives that add to human misery. The Qur’an discusses prosperity and misery in general terms. It refers to deeper, imperceptible and long-term currents of events taking place in the cosmos as a result of human actions and under the will of God. These currents affect the process of wealth creation in ways that cannot be explained easily in a simple cause–effect framework. The factors of production combine to create wealth. Over and above the visible input-output relationship of factors of production cosmic moral laws also influence the end-result. These laws operate in response to human character and behaviour and influence the state of prosperity and misery. Change in human behaviour can transform misery into prosperity and vice versa. The precise mechanism through which these laws operate is as yet unknown because the meanings and interpretations of the Qur’anic texts on the subject require further thinking and deeper understanding. The Qur’an visits the subject of human prosperity and misery at various places for drawing attention toward God’s almightiness and invites human beings to the righteous path. These statements address communities and societies as well as individuals. In the following discussion we shall present a selection of these two sets of statements separately, although in some cases there are overlaps. However, given the style of the Qur’an and the context in which each verse was revealed, a neat and exclusive macro-micro classification is not easy. a. Economic deprivation and prosperity are states of trial from God. Prosperity and misery are temporary phases of life by which God judges human conduct in this world. 4

‘Freedom’ here refers to the ‘set of capabilities’ as defined by Amartya Sen (2000), but much more than that when we supplement it with spiritual peace and optimism for success in the hereafter. 5

It is pertinent to note under a UN initiative, World Happiness Report is being published since 2013. The Report uses a similar concept of happiness and misery as we have defined in this paper. See the latest Report: Helliwell, J., R. Layard, & J. Sachs, 2016. World happiness report 2016. Update (Vol. I). New York: Sustainable Development Solutions Network.

The objective is to monitor righteousness of people in all circumstances. The Qur’an says: Q. 2:1556: And most certainly shall We try you by means of danger, and hunger, and loss of worldly goods, of lives and of fruits. . . . Q. 7:130: And indeed We punished the people of Pharaoh with years of drought and shortness of fruits (crop, etc.) that they might remember (take heed). Q. 7:168: And We dispersed them as [separate] communities all over the earth; some of them were righteous, and some of them less than that: and the latter We tried with blessings as well as with afflictions, so that they might mend their ways.

b. Compliance with the divine guidance brings material prosperity. God invites people to follow His path and gives the incentive of material prosperity as reward in this world besides reward in the Hereafter. It says: Q. 5:66: and if they (followers of the Bible) would but truly observe the Torah and Gospel and all [the revelation] that has been bestowed from on high upon them by their Sustainer, they would indeed partake of all the blessings of heaven and earth. . . . Q. 7:96: Yet if the people of those communities had but attained to faith and been conscious of Us, We would indeed have opened up for them blessings out of heaven and earth: but they gave the lie to the truth – and so We took them to task through what they had been doing. Q. 16:30: Good fortune awaits, in this world, all who persevere in doing good. Q. 24:55: God has promised those of you who have attained to faith and do righteous deeds that, of a certainty, He will cause them to accede to power on earth . . . and that of a certainty, He will cause their erstwhile state of fear to be replaced by a sense of security. . . . Q. 72:16. [Know] then, that if they [who have heard Our call] keep firmly to the [right] path, We shall certainly shower them with blessings abundant…

In these verses the material prosperity is related to (a) observation of the divine guidance as contained in the Gospel and the Qur’an including faith in God; (b) righteous deeds; and (c) consciousness of God (taqwa). Faith in God refers to faith in the Unity of God and resurrection after death when everyone will account for his or her deeds. Righteous deeds refer to universal 6

In this paper citations from the Qur’an are abbreviated as “Q.”; digits before the colon refer to the chapter and digits after the colon refer to the number of the verse(s). The translation used is by Muhammad Asad (1980).

ethical behavior such as truthfulness, keeping of promises, respect for other’s property, fairness in dealings, sacrifice for others and compliance with social obligations. God consciousness (taqwa) refers to faith in God and being aware at all times that God is Omnipotent and Omnipresent and is overseeing us. c. Material prosperity accompanied by unethical behavior is short-lived and ends in misery. The Qur’an mentions change in human societies from misery to prosperity and vice versa but explains that the changes were outcome of unethical behavior of the people. Transformation of economic well-being of a community into economic deprivation and vice versa is a consequence of changes in the ethical behavior of its people. The expression ‘Change in the inner selves’ of the people in verse 8:53 below refers to shift in culture, values and social norms of a community. The verse states that once the spiritual and moral condition of a people changes for the worse and people adopt unethical behavior as norm, God withdraws His grace and turns prosperity into deprivation. Conversely verse 13:11 below says that an improvement in the ethical behavior of the people results in material prosperity and a decline in moral values leads to economic misery. Q. 6:6: Do they not see how many a generation We have destroyed before their time – [people] whom We had given [a bountiful] place on earth, like of which We never gave unto you, and upon whom We showered heavenly blessings abundant, and at whose feet We made running waters flow? And yet We destroyed them for their sins, and gave rise to other people in their stead. Q. 6:42–44: And, indeed, We sent Our messages unto people before thy time, [O Prophet,] and visited them with misfortune and hardship so that they might humble themselves: yet when the misfortune decreed by Us befell them, they did not humble themselves, but rather their hearts grew hard, for Satan had made all their doings seem goodly to them. Then, when they had forgotten all that they had been told to take to heart, We threw open to them the gates of all [good] things, until – even as they were rejoicing in what they had been granted – We suddenly took them to task: lo! They were broken in spirit. Q. 8:5: … because God never changes the blessings with which He has graced a people unless they change their inner selves: and [know] that God is all-hearing, all-seeing. Q. 11:116: But, alas, among those generations [whom We destroyed] before your time there were no people endowed with any virtue – [people] who would speak out against the spread of corruption on earth – except the few of them whom We saved [because of their righteousness], whereas those who were bent 5

on evil doing only pursued pleasures which corrupted their whole being and so lost themselves in sinning. Q. 13:11: Verily, God does not change men’s condition unless they change their inner selves. Q. 22:45: And how many a township have We destroyed because it had been immersed in evildoing – and now they [all] lie deserted, with their roofs caved in! And how many a well lies abandoned, and how many a castle that [once] stood high! Q. 22:48: And to how many a community that was immersed in evildoing that I have given rein for a while! But then I took it to task: for with Me is all journey’s end! Q. 30:41: [Since they have become oblivious of God] corruption has appeared on land and in sea as an outcome of what men’s hands have wrought: and so He will let them taste [the evil of] some of their doings, so that they might return [to the right path]. Q. 34:15–17: Indeed, in [luxuriant beauty of] their homeland, the people of Sheba had an evidence [of God’s grace] – two [vast expanses of] gardens, to the right and to the left, [calling out to them, as it were:] “Eat of what your Sustainer has provided for you, and render thanks unto Him: a land most goodly, and a Sustainer much-forgiving.” But they turned away [from Us], and so We let loose upon them a flood that overwhelmed the dams, and changed their two [expanses of luxuriant] gardens yielding bitter fruit and tamarisk, and some few [wild] lote-trees: thus We requited them for their having denied the truth. But do We requite [thus] any but the utterly ingrate?’ A similar statement is made in the closing part of verse Q. 7:96 (quoted above).

d. Persistent ingratitude by a community as a whole at macro-level transforms prosperity into poverty and brings insecurity in the long-run. The Qur’an says: Q. 16:112: And God propounds [to you] a parable: [Imagine] a town which was [once] secure and at ease, with its sustenance coming to it abundantly from all quarters, and which thereupon blasphemously refused to show gratitude for God’s blessings: and therefore, God caused it to taste the all-embracing misery of hunger and fear in result of all [the evil] that its people had so persistently wrought.

In this verse the evil behavior refers to unethical behavior and ingratitude implies waste of resources. The unethical behavior would include dishonesty, corruption, fraud, disregard for 6

property of others, failure to meet obligations and commitments on a timely basis, etc. Punishment of God comes as a natural consequence of such practices.

PROSPERITY AND MISERY AT MICROECONOMIC LEVEL Human beings require resources to survive. These could be material such as income and wealth and non-material such as good health, peace of mind, healthy children, beneficial knowledge, useful skills, respect and honor, social harmony, safety and security, etc. The Qur’an terms all these resources as “rizq”. It makes a number of positive statements relating to distribution of rizq among individuals. A number of Qur’anic verses7 say that God Almighty has an absolute sway over the resources and over His creatures and distributes the rizq the way He likes. However, none of God’s actions are random or purposeless. There is always a scheme, planning and wisdom in whatever He does (Q. 13:8). It is not conceivable that He would be squandering the resources like a careless king the way he wants. Some verses of the Qur’an point toward the divine scheme, although the exact manner how it operates is yet not fully known to us. In the following paragraphs we shall summarize those verses of the Qur’an which give some clue to the divine scheme for distribution of the rizq: a. Expression of gratitude for God’s bounties leads to economic prosperity. Gratitude, in Qur’anic terminology, covers such practices as preservation and efficient use of resources, contentment, exploring the best option among potential uses, and caring for the needy and others, etc. The Qur’an says: Q. 14:7: And [remember the time] when your Sustainer made [this promise] known: “If you are grateful [to Me], I shall most certainly give you more and more; but if you are ungrateful, verily, My chastisement will be severe indeed.”

b. Allah deprives the income from riba of all blessings. Riba refers, in a loan transaction, to any excess claimed by a lender from the debtor over the principal sum lent. The Qur’an prohibits lending on riba (Q.: 275-82) and says that Allah deprives income from riba of all blessings. Deprivation from blessings refers to situations of unexpected waste, accidents, premature obsolescence, excessive depreciation, decrease in quality and all sorts of unpleasant happenings in the use of resources, etc. Q. 2:276: God deprives gains from riba of all blessings. c. There is no direct relationship of income and wealth (rizq) of a person with his or her faith. Faith contributes in improving quality of life in spiritual sense, giving greater

For example: Q. 2:212, 3:27, 3:37, 11:6, 13:26, 29:60, 29:62, 30:37, 34:36, 34:39, 39:5, 42:19

satisfaction, joy and peace of mind. But it does not directly contribute to wealth or earnings of the person: Q. 2: 126: And, lo, Abraham prayed: “O my Sustainer! Make this [Makkah] a land secure, and grant its people fruitful sustenance – such of them as believe in God and the Last Day.” [God ] answered: “And whoever shall deny the truth, him will I let enjoy himself for a short while – but in the end I shall drive him to suffering through fire: and how vile a journey’s end!”

Q. 11:15: As for those who care for [ no more than] the life of this world and its bounties – We shall repay them in full all that they did in this [life]; and they shall not be deprived of their just due therein.

Q. 43: 33-35: And were it not that [with the prospect of boundless riches before them] all people would become one [evil] community, We might have provided for those who [now] deny the Most Gracious roofs of silver for their houses, and [silver] stairways whereon to ascend, and (silver) doors for their houses and (silver) couches whereon to recline, and gold (beyond count)… Yet all this would have been nothing but a (brief) enjoyment of life in this world – whereas [happiness in] life to come awaits the God-conscious with thy Sustainer.

Q. 2:126 clearly states that the worldly means of sustenance have no direct relationship with one’s faith. God did not agree with Prophet Abraham’s suggestion that peaceful living and means of livelihood should be given in abundance only to those who believe in God and the Last Day. Q. 11:15 says that those who are struggling for bounties of the present life would get all that is due to them. They would not be deprived because of their faith. Q. 43:33-35 state that despite the fact that accumulation of silver and gold and other means of wealth are very dear to man yet to God they are a trifling. God could have granted the worldly means of wealth in boundless quantities to His enemies had this not been a source of denial of His existence for everyone. It means their faith would not have been a factor to deny them the rizq. The distribution of rizq by God follows a divine scheme which is independent of one’s faith. d. Spending on others (infaq) is a loan upon God who promises to repay it with manifold

increase. Infaq is a vehicle for an increase in wealth at the individual and social levels. Like all religions Islam places a great emphasis on helping others meet their needs. It is termed as ‘infaq’ and covers spending willingly and voluntarily on needs of family members, friends, relatives and community and to promote common good or social welfare. Spending on others is equal to spending in the cause of God. It must be with the intention of getting a reward in the Hereafter and not expecting anything in return from the beneficiary (Q. 8

92:18–19). The infaq should be from what a person can spare from his or her resources (Q. 2:219) and should be at a moderate level so that there are no regrets later on (Q. 17:26–27, 25:67, 47:36–37). A society that withholds infaq treads the path of destruction (Q. 2:195). Q. 2:245: Who is it that will offer up unto God a goodly loan, which He will amply repay with manifold increase? [Also 2: 270, 8:60, 34:39, 57:11, 57:18, 64:17]

Q. 2:261: The parable of those who spend their possessions for the sake of God is that of a grain out of which grow seven ears, in every ear a hundred grains: for God grants manifold increase unto him He wills; and God is infinite, all-knowing.

Q. 2: 265: And the parable of those who spend their possessions out of a longing to please God, and out of their own inner certainty is that of a garden on high, fertile ground: a rainstorm smites it, and thereupon it brings forth its fruit twofold; and if no rainstorm smites it, soft rain [falls upon it]. And God sees all that you do. .... e. Infaq accompanied by God consciousness and ethical values leads to a life of ease

while miserliness, arrogance and unethical behavior lead to a life of hardship. Q. 92:5-10: Thus, as for him who gives [to others] and is conscious of God, and believes in the truth of the ultimate good, for him shall We make easy the path towards ultimate ease. But as for him who is niggardly, and thinks that he is self-sufficient, and calls the ultimate good a lie – for him shall We make easy the path towards hardship.

Compliance with divine injunctions while being God-conscious opens up doors of ease and reposing trust in God at times of hardship brings unexpected financial help from God. Q. 65:2-3: And unto everyone who is conscious of God, He [always] grants a way out, and provides for him in a manner beyond all expectations; for everyone who places his trust in God, He is enough.

g. Humility and repentance on past errors, (tauba) opens doors for material prosperity. Repentance on past mistakes refers to an attitude of self-analysis, willingness to make amends, courage to try new ideas, and harmonious inter-personal relations for making good the harm done to others. Q. 11:3: Ask your Sustainer to forgive your sins, and then turn towards Him in repentance – [whereupon] He will grant you a goodly enjoyment of life [in this world] until a term set [by Him is fulfilled]; and [in the life to come] He will bestow upon everyone possessed of merit [a reward for] his merit. But if you 9

turn away, then, verily, I dread for you the suffering [which is bound to befall you] on that awesome Day. Q. 11:52: Ask your Sustainer to forgive your sins, and then turn towards Him in repentance – [whereupon] He will shower upon you heavenly blessings abundant, and will add strength to your strength: only do not turn away [from Me] as lost in sin. . . . Q. 71:10-12: [Prophet Noah’s prayer]: …I said: “Ask your Sustainer to forgive

your sins – for, verily, He is all-forgiving! He will shower upon you heavenly blessings abundant and will aid you with worldly goods and children, and will bestow upon you gardens, and bestow upon you running waters.” h. Patience in adversity is a foreboding of prosperity. Q. 2:155: And most certainly shall We try you by means of danger, and hunger, and loss of worldly goods, of lives and of [labor’s] fruits. But give glad tidings unto those who are patient in adversity. Q. 94:5: And, behold, with every hardship comes ease: verily, with every hardship comes ease!

These verses address situations of change: from economic well-being to setbacks through losses, accidents, market conditions, legal environment, international developments, etc. The verses give hope to those who show patience, which is a source of spiritual growth and try to bear it through honest hard work and ethical behavior. i. God determines the rizq according to individual’s needs and requirements of social balance. Q. 42:27: For, if God were to grant [in this world] abundant sustenance to [all of] His servants, they would behave on earth with wanton insolence: but as it is, He bestows [His grace] from on high in due measure, as He wills: for, verily, He is fully aware of [the needs of] His creatures, and sees them all.

Q. 42:27 says that God restrains individual tendency for corruption arising from excessive economic power by putting a higher limit upon total wealth that a person can acquire. What is that higher limit and when is it applied are facts yet unknown to us? We need to discover those limits. We do come across examples of individual wealth which to our mind is excessive. However, in the eyes of God, they are not excessive as yet. j. Ethical behavior in economic dealings leads to prosperity. Although there is no direct relationship of faith with outcome of economic activities, yet human behavior does 10

influence the outcome. Those who behave ethically in their dealings prosper in the longrun. Q. 72:16: [Know] Then, that if they [who have heard Our call] keep firmly to the [right] path. We shall certainly shower them with blessings abundant…

k. Some forms of unethical behavior lead to financial hardship. The Qur’an mentions, by way of example, behavior of a person who neglects care of orphans under his charge, ignores needs of the hungry around him, usurps property of others and develops excessive greed for material possessions. Such a person suffers from economic hardships but often fails to understand the underlying moral reasons. Q. 89:15-20: But as for man, whenever his Sustainer tries him by His generosity and by letting him enjoy a life of ease, he say, “ My Sustainer has been [justly] generous towards me”; whereas, whenever He tries him by straitening his means of livelihood, he says, “My Sustainer has disgraced me.” Nay, nay, [O men, consider all that you do and fail to do;] you are not generous towards the orphan and you do not urge one another to feed the needy and you devour the inheritance [of others] with devouring greed, and you love wealth with boundless love!

Both sets of statements, at macro and micro levels, regarding economic prosperity and misery are general indicators of the way wealth and income is distributed among communities and individuals. In general, God regulates distribution of income and wealth with reference to ethical behavior of people. The verses quoted above point to the impact of the ethical and unethical behavior on resource endowments. But the mechanism through which this impact takes place is not quite obvious. We need to discover that process and we think it is the most significant challenge before us. In the next section we shall present some tentative ideas about the divine mechanism for distribution of resources in the hope that it will help us in discovering the divine scheme of income and wealth distribution.

3. The Invisible Hand of God THE INVISIBLE HAND OF GOD OPERATES IN AN-OVER-ARCHING MANNER. Adam Smith, supposedly the father of modern economics, mentioned the operation of invisible hand. It is generally understood that by this Smith meant the operation of the market. However, Smith himself was quite explicit that it was the hand of God. In his Theory of Moral Sentiments he says that the invisible hand was actually the hand of the Providence. Graeber (2011, 44) reports:

Smith's famous invisible hand was, as he says in his Theory of Moral Sentiments, the agent of Divine Providence. It was literally the hand of God8.

Once economics was established as a social science and in the wake of general revolt against religion, the mention of Providence also became redundant. Now conventional economics discusses operation of the invisible hand that operates through efficient markets. In early 1950s, two noble laureates, Kenneth Arrow (1951) and Gerard Debreu (1951), presented mathematical proofs of the invisible hand showing that under certain assumptions the efficiency of market economy is not just conjecture or possibility; it follows logically from the premises. The mathematical formulation of efficient market model makes explicit the conditions under which the invisible hand does its job. However, the positive economic statements of the Qur’an point to the Invisible Hand of God (the Hand) that operates in an over-arching manner through markets and economies and influences prosperity and misery of nations and individuals. The Hand controls and regulates availability of resources. Beyond a certain limit, it overshadows the physical laws of creation and distribution of wealth. It operates through myriad factors. It is not possible in the present state of our learning to comprehend all of these factors and thus arrive at a mathematically precise model of distribution of income and wealth. EXAMPLES OF THE OPERATIONS OF THE INVISIBLE HAND OF GOD A cursory look at the universe around us can give us clue to a large number situations where we see working of the Hand. Some examples of the phenomena through which it operates are as follows. These examples are only for sake of illustration. A deeper reflection on God’s operations in this universe can provide many more similar examples: 

individual differences in physical, mental and psychological abilities at the time of birth;



differences in endowment of physical resources such as landscape, mineral wealth, water resources, etc. in geographical entities;

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climate of each location consisting of patterns of rainfall, snowfall, and drought, causing differences in economic wealth and time-bound variations in food and other resources;



creation of opportunities through innovation, technological developments and creativity of human beings at appropriate times in human history according to a grand divine plan which coordinates discoveries and

[As in original]: Smith first uses the phrase "invisible hand" in his Astronomy (111.2), but in Theory of Moral Sentiments [IV.r.10], he is explicit that the invisible hand of the market is that of "Providence." On Smith's theology in general see Nicholls, David. (2003:35-43). God and Government in an "Age of Reason." New York: Routledge.

innovations in a remarkably timely manner9; 

long-term demographic trends in birth and death rates, leading to extensive implications for consumption, investment, enterprise, development, industry, markets, resources and so on;



changes in leadership through electoral process, conspiracies, violence, wars or natural deaths at specific moments of history, with wide-ranging implications for economies;

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emergence and general acceptance of certain ideas, precepts, ideologies and philosophies, leading to vast implications for resource distribution among individuals and nations;

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variations in global peace as a result of changes in human interaction, global practices, prejudices, tolerance, mutual respect and so on;

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trends and fashions in consumer behaviour, having vast implications for production, distribution, raw material, labour, technology and so on;

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discovery of physical laws or remedies for diseases, with enormous implications for human behaviour, consumption, production and industrial growth;

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good fortune or misfortune - the former refers to be at the right place at the right time and the latter to miss an opportunity just by not being at the right place at the right time. There is no conclusive explanation for ‘good or bad luck’. The Hand determines these states for individuals and societies.

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fluctuations in property or share certificates prices - although we can explain these movements through rational analysis but at the time a person is making investment decision, the future is uncertain. The Hand manipulates the markets in certain ways that translate into unexpected gains or losses to certain individual.

In sum, innumerable factors that influence individual and collective lives and lead to differences in the distribution of resources keep on happening at each moment of time around the world. This is also hinted at by the Qur’an (Q. 55:29). Most of these factors are beyond human control. It is not humanly possible at this stage of our learning to comprehend all that is happening through the operation of the Invisible Hand of God. Different branches of knowledge may explain only some of the visible phenomenon, but the divine plans remain hidden from human observation. 9

For example, it was not a mere coincidence of history that the invention of the steam engine, discovery of vast coal reserves, discovery of rubber technology, telecommunication and electricity were discovered in the same span of human history. It seems it was part of a grand plan of the Creator to coordinate all these happenings in a specific period of human development leading to Industrial Revolution.

THE INVISIBLE HAND OF GOD OPERATES THROUGH NORMAL CAUSE-EFFECT MECHANISM BUT BY INFLUENCING HUMAN MINDS. The Hand is not constrained by any conditions but since God is systematic in all His affairs we need to discover the conditions to understand its actual functioning. It operates through normal cause-effect phenomena in an unsuspecting manner. It coordinates millions of individual decisions, preferences, likes and dislikes relating to income, investment, saving, and spending which ultimately influence quantity and quality of income and wealth of individuals and nations. It is possible to explain, through cause-effect analysis income and wealth of each individual and each nation to some extent. However, at certain level of abstraction, it becomes difficult to find out the ultimate cause. The Hand operates in all economic decisions at all levels, influencing human thinking and preferences. The Qur’an points toward God’s infinite power that influences human minds. Verse Q. 8:24 says: “and know that God intervenes between man and (desires of) his heart.” However, we yet do not know precisely the divine laws behind its operation. There are some indicators given in the Qur’an relating to these laws. For example, as stated in the previous section of the paper, human behavior focusing on ethical values, gratitude, patience, humility, and spending on others, to mention some of the Qur’anic statements, invokes the Hand for increase in well-being and prosperity. Similarly certain unethical practices lead to human unhappiness, even though quantitatively individual possessions are at a high level. DECISION REFERENCE FRAMEWORK All human decisions are made within a Decision Reference Framework (DRF). By DRF we mean considerations and factors that influence a decision at the moment of decision-making such as background information, factual data, human preferences, human experience, worldview, economic resources, financial, physical and social capability, climate, geographical considerations, human perceptions, desires, and emotions, legal constraints, religious beliefs, social customs and cultural mores, etc. The Hand influences human decisions through the DRF. While taking a decision some elements of the DRF play a decisive role in preference to others which are ignored or given a lower priority by the decision-maker. Thus a mental process goes into each decision which is influenced by the DRF. The Hand influences the individual decisions through the DRF. The Hand creates the DRF but the decision-maker does not always understand how all elements of the matter under consideration became part of the DRF. The decision once taken can always be explained in a cause-effect manner and would look familiar and natural. But the infinite number of decisions being made by infinite number of actors lead to individual or societal prosperity or misery. Economic analysis tries to explain the outcome of individual decisions with reference to objective facts but ignores the influence of the Hand.

AN EXAMPLE OF DECISION REFERENCE FRAMEWORK Let us illustrate the operation of Hand through DRF by an example. Suppose we want to know how the demand for a certain brand of shoes increased during a certain period as compared to other similar brands. The economic analysis would impute increase in demand to certain factors such as competition, quality or price of the product. However, the fact remains that the increase in demand for a certain brand is an expression of infinite number of individual decisions to buy the brand under discussion. These decisions were taken by large number of individuals in light of certain facts all of which were not their own making. The Hand presented a large number of facts before each individual and those who perceived a greater utility in this brand expressed their preference in terms of demand in the market. These very individuals ignored or gave lower priority to certain other factors in the same DRF which could lead to lower demand for this brand. But the Hand influenced the minds of those individuals who were considering purchase of shoes and ultimately persuaded them to express their priority in the brand in question in preference to other brands. The economic analysis does not enquire how demand for a particular brand was influenced by certain elements of the Decision Reference Framework. Only if it had gone a step further, it would have naturally got into solving the puzzle of decision-making as influenced by the Hand. It would have to dig deeper to find out elements of the Decision Reference Framework for each decision and analyze how the decisions were made by individuals which led to certain outcomes. These outcomes could be at microeconomic or macroeconomic level. UNEXPLAINED COUNTER-INTUITIVE DECISIONS The economists are not trained to analyze the decision-making process which is effectively influenced by the Hand. However, they have frequently wondered why a certain thing happened which intuitively should not have happened according to standard economic theory. For example, Amartya Sen (2009, 176-ff) has discussed this question at length. He refers to Herbert Simon’s (1955) theory of ‘bounded rationality’ to discuss the possibility of people taking decisions which are not rational in all cases. He also cites empirical work of Kahneman, Slovik and Tversky (1982) to substantiate the point that people may act contrary to the rationality in specific cases. Similarly, Rodrik (2015, 44) quotes several examples of where actual economic phenomena were counterintuitive. He mentions the effect of influx of immigrants in Florida in 1980s. The intuitive effect of increase in supply of labor should have been a decrease in the wage rate. But it did not happen like that. Economists are still debating the reasons for the actual happening without arriving at a consensus. Rodrik (2015, 51) says that there are several examples in everyday life where we see consumers do not behave rationally. A consumer ‘may walk half a 15

mile to get to another store where a soccer ball sells for $ 2 less but would not do the same to save $100 for an expensive stereo’. A rational consumer knows that living beyond means will bring her ruin. Yet she goes in on buying spree motivated by aggressive marketing or for keeping ‘up with Joneses’. We know people should save for old age and rainy days but sometime they behave otherwise and render themselves penniless because of irrational behavior. Rodrik concludes that ‘we have moved beyond competitive models to imperfect competition, asymmetric information, and behavioral economics… Typically, the expansion has its roots in empirical observations that seem to contradict existing models. Why, for example, were many firms paying their workers wages that were substantially higher than the going market wage for apparently similar workers? Why would more parents show up late to pick up their kids when the day care center began to charge them a fine for doing so? Each question precipitated new models.’ That takes us, precisely, to the point in our exploration where we should look up to the functioning of the Hand. Economics and its models have limits. Once the limit is reached we cannot explain a phenomenon. At such junctures of our exploration the operation of the Hand can help us understand the phenomenon. That does not mean that we should terminate our research in the usual manner. It only means that we need to look up for a plausible explanation in the response of the Hand to ethical behavior of the economic actors, though it will take us, may be, decades to comprehend the rules for the operation of the Hand. DISTRIBUTION OF RIZQ THROUGH INVISIBLE HAND IS A LAYERED EXPLANATION. We come across several references in the Qur’an to the divine distribution of rizq through invisible laws of God. For example, there are references to the relationship of moral behavior, infaq, repentance, gratitude, and humility with material prosperity. But the relationship is not quite obvious in the cause-effect framework. For example, when the Qur’an mentions God’s promise to increase the income and wealth of person in response to his spending on the welfare of the poor and social needs, the process through which this happens is not yet known to us. Humanity has yet to discover this type of relationship. However, even before we venture to discover the cause-effect relationship between moral behavior and the income and wealth of a person or a community, the social scientists would brush aside even the mere thought of such an effort. To them it is a wild-goose chase or an unnecessary effort since the inequalities of income and wealth can be explained, to some extent, by economic analysis. There has been a lot of thinking and research, they would argue, which explains why a person or a community has more wealth or why it is deprived. In the backdrop of this knowledge trying to find relationship in the operation of the Hand seems an unnecessary digression from rational understanding of human and market behaviors. While arguing in this manner they turn an 16

oblique eye to the fact that the economic analysis is unable to explain all dimension of inequalities in income and wealth. A response to above line of thinking is that the explanation of inequality in income and wealth through moral laws is not contradictory to its economic explanation. The two are only “layered explanations”, as John Haught (2010, 88) has so aptly coined this term while explaining relationship of scientific and religious explanations of the same phenomenon. It can be explained by the following example. If a doctor looks at the food intake of a person, he would relate it to possible links with certain diseases. The same very food intake would be explained for chemical ingredients by a chemist, for nutritional benefits by a nutritionist and for mental health by a psychiatrist. All these explanations could be valid at the same time. None of these explanations nullifies the other. In the same vain we can say the economic analysis explains income and wealth inequalities through an angle that relates them to human effort, capital, environment, climate and various other objective factors. The invisible Hand of God that influences these inequalities through operation of moral laws provides another explanation. Both explanations could be valid. They are layered explanations. Neither nullifies the other. They only supplement each other. The point has been explained ably Haught (2010, 88) as follows: Well, I approach these issues by making a case for what I call “layered explanation.” For example, if a pot of tea is boiling on the stove, and someone asks you why it’s boiling, one answer is to say it is boiling because H2O molecules are moving around excitedly, making a transition from the liquid state to the gaseous state. And that is a very good answer. But you could also say it’s boiling because my wife turned the gas on. Or you could also say it’s boiling because I want tea. Here you have three levels of explanations, which are approaching the phenomena from different points of view. This is how I see the relationship of theology to science. Of course, I think theology is relevant to discussing the question, what is nature? And what is the world? I would talk about it in terms of being a gift from the Creator, and having a promise built into it for the future. Science should not touch upon that level of understanding. But it doesn’t contradict what evolutionary biology and other sciences are telling us about nature. They are just different levels of understanding.

THE NATURE OF EVIDENCE FOR OPERATION OF THE INVISIBLE HAND WOULD BE DIFFERENT. The problem arises when the economists demand a sort of evidence which is quantifiable and measurable. It is because they consider that the only evidence that can be relied upon is one that is objectively available and is measurable. That insistence on measurable evidence emanates from belief of the economists as that of other scientists that anything that is not measurable cannot be true. This has become a dogma with them, like a figment of faith as they 17

do not have any argument to show that anything that is not measurable is necessarily untrue. John Haught (2010, 89) has summed up the position of the scientists as follows: The hidden assumption behind such a statement is often that faith is belief without evidence. Therefore, since there’s no scientific evidence for the divine, we should not believe in God. But that statement itself – that evidence is necessary – holds a further hidden premise that all evidence worth examining has to be scientific evidence. And beneath that assumption, there’s the deeper worldview – it’s kind of dogma – that science is the only reliable way to truth. But that itself is a faith statement. It’s deep commitment, because there’s no way that can set up a series of scientific experiments to prove that science is the only reliable guide to truth. It’s creed.

In sum, the evidence for the operation of the Hand may have to be derived from the study of large samples and in a long-term span relationship of material resources with ethical behavior of individuals and communities. It will not be a straight forward objective evidence to economic indicators to which the economists are accustomed. HUMAN BEHAVIOR IS INFLUENCED BY MULTIPLE PHYSICAL AND NON-PHYSICAL FACTORS. The economists accept that the physical reality of market and economy takes its shape from countless human decisions emanating from human mind which is influenced by physical as well non-physical including spiritual phenomena. In all ages throughout human history such factors as religion, culture and traditions have influenced human behavior. Amartya Sen (2009, 184) says that ‘early authors on economic matters such as Aristotle as well as medieval practitioners (including Aquinas, Ockham, Maimonides and others) took ethics as an important part of understanding human behavior; they gave ethical principles important roles in behavioral relations in society.’ He points out Adam Smith who is often considered to be the proponent of self-interest also upheld the value of altruistic behavior in economic matters. These factors have not been ‘physical’ in the sense the economists would like to focus on and include in their analysis. But they are a reality. The point has been argued more recently by Hoff and Stiglitz (2015) in a persuasive paper. At the risk of oversimplification we would sum up their argument as follows. The standard economics considers individuals as rational beings and assumes that all economic decisions are made in light of prices and rules of the game. However, the behavioral economics recognizes effect of the context and the norm that is in focus at the time of decision-making. The assumption is that though the decision-maker is rational yet is influenced by the context and norm in which the decision is being made, which could lead to less than perfectly rational decision. Such a decision maker, they label as ‘quasi-rational’. However, the authors forcefully argue that the decision-makers are influenced by a large number of other factors as well such 18

as experience, exposure, concepts, social identities, racial prejudices, and worldview. This makes the rational decision-maker as ‘enculturated’ decision-maker. Hoff and Stiglitz (2015) make a compelling case in favor of expanding the frontiers of standard economics and show that influence of culture, social norms, individual experience, and psychological environment affect the decision at the point of decision-making. However, they stop short of asking the next logical question: how does a decision-maker prioritize host of the cultural and environmental factors? This is a question which neither the standard economics nor behavioral economics confronts because of immeasurable complexity of the entangled web of factors in the Decision Reference Framework. It is at this juncture that we argue that the Hand influences the mind of the decision-maker. Once we concede that the human behavior has a non-physical dimension as well, it becomes relatively easy to understand that the Hand influences the human mind and behavior and through that behavior of markets and functioning of economies in an overarching manner. Only by accepting this reality we can explain various counterintuitive results of economic models. The economic models train our intuitions to predict certain outcome under given conditions. But when the results are not what the rational models had predicted we can safely say that the Hand has operated through human behavior that changed the outcome of the model. The real challenge before economists if they want to understand human economic behavior comprehensively is to endeavor to develop reliable theories for making valid predictions by embedding ethical and spiritual factors in human decision-making process. This is a whole new and unexplored field of enquiry. It presents a challenge before economists and social scientists in general and Muslim scholars in particular. Research and thinking in this field will give birth to Islamic economics, if Muslim are really keen to make a contribution toward human well-being.

4. From Islamic Theology to Islamic Economics The positive economic statements of the Qur’an have the potential of being foundation for Islamic economics as a social science. A social science studies behavior of its target group and, based on observation and experimentation and real-life information, make predictions in the form of theories which are verifiable independently. For transforming positive economic statements of the Qur’an and hadith into a social science, Muslims should adopt the same methodology as that of other social sciences. The economic statement of the Qur’an and hadith are divine and immutable. Muslims need to understand relevance of these statements for contemporary societies and formulate hypotheses which are verifiable or falsifiable. The process of hypothesis-making is a human endeavor and 19

would be subject to examination and correction. Formulating hypotheses from human understanding of the economic statements of the Qur’an and hadith is the first step in developing Islamic economics as a social science. For sake of illustration we have presented some examples of the hypotheses based on some statements of the Qur’an elsewhere (Khan, 2014-b; Khan 2016). Just to sum up what we have already presented in detail, the process of developing Islamic economics as a social science would involve following step: 

Study of the texts of the Qur’an and hadith and exegetical literature to grasp the real import of the texts and to develop relevance of these texts for the social reality.



Based on this understanding, hypotheses should be formulated in a language and format which is verifiable or falsifiable.



Through an extended process of data collection, the hypotheses should be tested and those which cannot be falsified or which are validated by facts should be adopted as basic theory of Islamic economics.



The theory so developed should remain under discussion and scrutiny with changing circumstances.



The objective of the whole exercise would be to enhance human understanding of economic problems and to indicate the path of their solution.

This is a momentous task and would pose various problems. First of all the team of researchers should collectively have expertise in Islamic basic texts and contemporary economics. Understanding of the Qur’an and hadith would pose problems in segregating the general from the specific, this-worldly from the other-worldly, facts from metaphors and allegories, temporal from universal, and rules from observations, etc. Because of continuous evolution of the social reality there will be need for re-examination and review of earlier understanding and interpretation of the divine texts. It means examination and re-examination of hypotheses and theories would be a continuous process. Finding a cause-effect relationship may pose problems. For example, there could be multiple causes for a phenomenon, one of which could be the cause stated in the divine statements. Vice versa, there could be multiple effects of a cause, one of which could be the effect mentioned in the Qur’an or hadith. Proper formulation of economic model would also be a real challenge. It would be constrained by the nature and availability of the data. In most cases the hypotheses would require specification of conditions and assumptions under which they will hold. Data collection may pose serious problems depending upon the nature of the hypothesis. Context of a hypothesis would also be important. Different context such as social settings, time periods, countries, and markets require different types of models. 20

5. Concluding Remarks The main argument of the paper is that Islam presents a source of knowledge based on revelation preserved verbatim in the form of the Qur’an and also in a reasonably authentic manner in the form of hadith literature that contains record of the sayings and actions of the Prophet Muhammad (pbuh). This source of knowledge can enhance our understanding of the economic problems in addition to what we already know or can know through conventional economics. The Qur’an and hadith have a vast set of injunctions relating to economic life of the individual and societies. Some of these injunctions address Muslims only. However, another set is general and universal and addresses all humanity. The present paper argues that the latter set of injunctions that is universal and general in nature can add a dimension to the existing knowledge of economics. The present paper presents a selection of universal injunctions derived from the Qur’an in the form of positive economic statements about prosperity and misery at macro and micro economic levels. These statements indicate certain universal ethical values which influence economic condition of communities and individuals. Practice of these values invokes the Invisible Hand of God which organizes the Decision Reference Framework for all decisions being made around the world at all times. The decisions which affect economies, markets and individual economic conditions are influenced by God through cause-effect phenomena and appear to us as normal happenings. However, an over-arching Invisible Hand of God plays a decisive role in the human decision-making by influencing human minds at the time of decisionmaking. We have presented in the paper several examples to show that the economic phenomena happening through normal cause-effect mechanism are influenced by God. Only that we do not yet understand the exact process through which God’s Hand operates. This we need to understand. For proceeding toward this goal we can transform the economic statements available in the divine sources of Islam into a social science by following the standard methodology of conventional economics. It would open up a vast field for research and study and would enhance our understanding of the human economies and individual economic conditions. But it is a complex and challenging task. Muslims have not yet taken even the first step in this direction. However, if the humanity is persuaded that there is light for us in the divine sources of Islam, it can proceed in the manner suggested in this paper.

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