Sentiments - Charles Fedor

The Theory of Model Sentiments The Mecca of Ethics

By chaRles FeDoR

What if I told you that economics owes a significant amount of intellectual theory to religion? What if I told you that ethical economics was invented in the 9th Century and predates capitalism? As an economist you are probably going into apoplexy screaming, “economics is a science based on rational thought!” and “religion has no place in a science!”

I love playing this parlour game to watch economists come to two very uncomfortable conclusions. One: economics is not a science, but simply an expression of societal concepts of ownership and wealth. Two: that a centuries-old religion has created an economic system that is rational and ethical. I am of course talking about Islamic economics, a beautiful and fascinating by-product of the intersection of the Qur’an and the intellectual renaissance that was the Islamic Golden Age. As I am not a theologian, I will only be discussing economic concepts that form the bedrock of Islamic economics and how these can be repurposed for a secular society.

So, let’s begin. Islamic economics - much like most economic schools - struggles to reach consensus on definition. That being said, the most popular definition is “that branch of knowledge which helps to realise human well-being through an allocation and distribution of scarce resources that is in conformity with Islamic teachings without unduly curbing individual freedom, or creating continued macroeconomic and ecological imbalances”. Okay, wow, that is scarily close to how high schools define economics: “how society allocates scarce resources”. But hold up, it also promises to preserve individual freedom and correct “economic and ecological imbalances”. That definition instantly sounds like an economics I can get behind: promising to balance freedom and ensuring equality. Let’s have a brief dive into the basic features of Islamic economics.

Regulation

Islamic Economics sets out a really strong case that the government has an active role in the management of the economy. Basically, it establishes firstly that people have the right to free enterprise with the following exceptions:

• Activities banned by the Qur’an such as the sale of alcohol (Goodbye Ave, it was only a matter of time) or charging interest. • If the market operations are creating disequilibrium or injustice (British Petroleum would be on the chopping block here). • If a monopoly or sufficient market concentration creates excessive profit

or harms consumer welfare (the same justification for the Australian Consumer and Competition Commission) • If a business or individual begins to hoard rare resources and create artificial scarcity (toilet paper during a pandemic or diamonds in South Africa).

In that case, it would be the responsibility of the government to step in to ensure economic stability and ethical operation. The government would further be subject to judicial review via Sharia courts to ensure the government interference is fair and balanced. These principles look like Keynesianism with a moral component and robust enforcement mechanisms. This was all laid out in the 9th Century!

Ownership

Islamic Economics does show its age here by asserting that all ownership is derived from God. In this area I would note it tracks quite well with proto-capitalist ideas that asserted land and nature were gifted to man by God, too. Economics has moved generally to a more nebulous understanding of man being endowed with the right to exploit the natural environment. Islamic economics further introduces three distinct types of ownership, those being private, communal and state. This is not unlike other schools of economics. The key difference is that Islamic economics makes it very clear that private ownership is not inalienable and that the state can expropriate any property to produce social justice or protect the community. It is made very clear that the private citizen will be provided due compensation and that is subject to judicial review. This sounds exactly like Section 51 of the Australian Constitution which reads, “the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws”.

Concept of Money

Islamic Economics concurs with Aristotle and every hippy by stating that money has no intrinsic value. In this capacity, it is strictly prohibited for people to lend to people and expect a benefit. This in effect outlaws interest (riba). The argument is that money must be used productively and that wealth can only be generated through legitimate trade and investment in assets. In practice, this means that profit and risk are shared between the investor and the investee. By extension, equity-based structures are illegitimate, as investment based on debt is considered a breach of trust (there is no promise the debt can be paid back). Money is also further morally ‘purified’ with the government encouraging charitable donations to those in poverty through a moral tax (zakat). Prohibited methods of earning money include:

• Gambling • Speculation (I relish the day when the stock market is not a topic of conversation) • Fraud • Exploitation (Marx was not the only one to care about workers) • Extortion