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Vol. 4 Issue 10 01-15 October 2009
Ibn Khaldun: Revisiting the Ideas of a Fiscal EconomistDr Sayed Afzal Peerzade and Dr Rahatunissa
Ibn Khaldun (1332-1406 C.E.) is widely known as a brilliant historian, philosopher, sociologist and anthropologist. His contribution to the subject of economics is also equally significant. Unfortunately, however, his views on economic matters have not received adequate attention. Some of the seminal ideas on economic issues enunciated by Ibn Khaldun more than six centuries ago were later taken up and elaborated by the Mercantilists and the classical economists such as Sir William Petty (1623-1687), Adam Smith (1723-1790), David Ricardo (1772-1823), Thomas R. Malthus (1766-1834), Karl Marx (1818-1883) and John Maynard Keynes (1883-1946), as well as by many contemporary economic theorists.The principal objective of this paper is to identify and expatiate on Ibn Khaldun's contribution to one of the most important branches of economics, that is, public finance. Public finance deals with state finances in general and with taxation, public expenditure and public borrowing in particular. Continued
Has America reached the turning point in Afghanistan?By Rupert Cornwell
Barack Obama has committed America to the long haul in Afghanistan – but heavy losses and mounting dissent are forcing him to consider turning the strategy on its head.Six months after proclaiming a new commitment to the war in Afghanistan, President Barack Obama is under growing pressure to make what would amount to a U-turn in US policy and scale back America's commitment to a conflict that many experts – and a majority of the public – now fear may be unwinnable. Continued
Lessons of history: Spirit of defiance lives on in a land no outsider has tamedBy Ben Macintyre
In 1992, in the presidential palace in Kabul, I interviewed Mohammed Najibullah, the brutal former secret police chief who with Soviet backing had been installed as President of Afghanistan six years earlier. A huge man, nicknamed “the Ox of Kabul”, Najibullah was politely menacing and supremely confident. Resistance by the US-backed Mujahidin was petering out, he insisted. Afghanistan would soon be a land at peace. Continued
Crescentscape: Mosques in EuropeMinaret Research Network
Reflections: Happiness and Lowered ExpectationsBy Eric Weiner
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Friday, October 2, 2009
Wednesday, April 22, 2009
CONTRIBUTION OF EARLY MUSLIM SCHOLARS TO ECONOMICS
The Contribution of Early Muslim Scholars toEconomicsDr Sayed Afzal Peerzade and Mrs Rahatun nisa(afzalpir@rediffmail.com)
This paper seeks to address two major concerns. First, it aims to refute the notions of 'history's black hole', 'discontinuity' and the 'great gap' in the history of ideas. Second, it seeks to highlight the seminal and highly significant contributions of Muslim scholars to economics in general and to public finance in particular.
I
Generally, Western historians of ideas trace the beginnings of intellectual history from the Greco-Roman period, which ended around 300 BC, and then focus on the Renaissance (13th-16th century AD). The history of scientific, social and cultural thought during the period 300 BC-12th century AD is either glossed over or ignored altogether. Morotowitz describes this presumed gap in the history of ideas as "History's Black Hole", while Schumpeter characterizes it as the "Great Gap". Meyer argues that the "the Arabic, Turkish and Persian-speaking East has no continuity of economic ideas such as those which come from the Judeo-Christian West". These writers maintain that the Renaissance somehow arose like "a phoenix" from the "ashes" which had been smoldering for a millennium since the end of the classical Greco-Roman period.A cursory look at the seminal contributions made by early Muslim thinkers and scholars makes it abundantly clear that no such gap ever existed. In fact one notices a remarkable continuity in the history of ideas between the classical period, the Islamic era and the Renaissance. During the Middle Ages, when Islamic civilization was at the zenith of its intellectual and cultural development, Muslim scholars not only carried forward the legacy of the ancients but also made highly original contributions to various areas of learning and scholarship, including philosophy, medicine, astronomy, history, mathematics, chemistry, logic, and the social sciences. Bernard Lewis, a virulent critic of Islam, recognizes that Islamic civilization during the medieval period had attained the highest level of excellence and accomplishment in the sciences and arts while medieval Europe was surrounded by ignorance, superstition and cultural backwardness [Lewis 2002].
II
Prophet Muhammad was born at Makkah in the year 571 AD. His entire life was meticulously recorded by his Companions and passed on to subsequent generations. He received the first Quranic revelation at the age of forty. The holy Quran, which was revealed to the Prophet over a period of twenty-three years (610-632 AD), is believed by Muslims to be an eternal source of guidance and inspiration for all times. It covers all aspects of human life, including social, religious, economic, political, cultural and psychological dimensions.The importance of knowledge in Islam can be gauged from the fact that the first Quranic revelation to the Prophet emphasized the importance of knowledge. The verse says: "Read: In the name of thy Lord who createth; createth man from a clot. Read: And thy Lord is most Bounteous, who teacheth by the pen, teacheth man that which he knew not" [96:1-5]. The Quran describes three important functions of prophecy: to recite before the people the verses revealed to him, to improve upon people's level of knowledge and wisdom, and to purify them of their sins [Quran 2:129; 3:164; 62:2].The Quran frequently and repeatedly stresses the need to acquire knowledge. In about 200 verses, the faithful are reminded to offer prayers while they are urged to ponder over the signs of God Almighty, to reflect upon His creations and to use their reason. The verses in the latter category are three times more numerous than those commanding the faithful to prayers.The Prophet led an exceptionally simple life which reflected a perfect balance between his teachings and actions. In addition to the Quran, the teachings and precepts of the Prophet (Sunnah) constitute the most important and valuable source of guidance and inspiration for Muslims.There are six most authentic collections of Traditions of the Prophet. These include Al-Jami al- Sahih by Imam al-Bukhari, Al-Jami al-Sahih by Imam Muslim, the Sunan of Abu Dawud, the Sunan of Ibn Majah, the Sunan of Nasai, and the Sunan of al-Tirmidhi. In addition to these, there are other reliable collections of Hadith, such as Imam Malik"s Muwatta, the Musnad of Imam Ahmad ibn Hanbal, and the Musannaf of Ibn Abi Shaybah, among others.Both the Quran and the Traditions of the Prophet are an invaluable source of knowledge and guidance relating to all aspects of human life. It is significant to note that Islam does not admit of any gender-based distinction in respect of the acquisition of knowledge.The following Traditions of the Prophet emphasize the central significance of knowledge in the life of a Muslim.
I have been sent as a teacher.
Knowledge is life of Islam and a pillar of faith.
Seek knowledge from the cradle to the grave.
A seeker of knowledge is like the one who strives in the path of God.
The ink of the scholar is holier than the blood of a martyr.
To attend to learning for one hour is more meritorious than attending the funerals of a thousand martyrs and more meritorious than standing up in prayer over a thousand nights.
Knowledge is the friend of a true believer and reason is his guide.
Wisdom is the lost property of a believer; wherever he finds it he caches hold of it.
The angels, all the creatures living in the skies and on earth and even the ants in their holes pray for the person who spreads knowledge of what is good.
There are no better alms than giving knowledge to others.
There is a Tradition of the Prophet to the effect that on the Day of Judgment every Muslim will be asked five questions. Of these, one question relates to the acquisition and propagation of knowledge.After the passing away of the Prophet, the tradition of acquisition and propagation of knowledge was kept alive by the first four caliphs [632-661 AD]. The Umayyad and Abbasid rulers too patronized learning and scholarship. As a result of the unequivocal importance attached to the acquisition and dissemination of knowledge and learning in Islam, the earlier generations of Muslims emerged as torchbearers of science, at a time when Europe was still in the Dark Ages and scientists were being burned at the stake by the medieval Christian Church [Sikand 2005].
III
The Prophet not only brought about radical changes in people's faith and rituals but also in their economic practices and institutions. Control over usurious lending, reform of corrupt market practices and a systematic transfer of funds in favour of the poor and the destitute were emphasized by the Prophet.Islam recognizes those natural urges and proclivities which underpin man's economic behaviour. It recognizes that man should have the freedom to earn his livelihood, that he should be entitled to the fruit of his labour, that disparities may exist among people due to their varying abilities and circumstances. At the same time, Islam introduces certain qualifications to these principles as well as a system of moral checks and balances in order to ensure that freedom may not be misused and that the disadvantaged sections of society may not be subjected to discrimination and exploitation. For this purpose, it adopts a two-fold strategy. First, people are made aware, through education and persuasion, of what constitutes right and wrong. Second, the coercive power of the state is used in exceptional cases and a small loss of private interest is preferred over larger public gain.Islamic economic thought, which dates backs to 7th century of the Islamic era, refers to the economic ideas enunciated in the Quran and in the Traditions of the Prophet and as interpreted and elaborated by the early Muslim scholars. These scholars drew upon four basic sources, namely: (i) The Holy Quran (ii)the Traditions of the Prophet (iii)Ijma [consensus among jurists and legal experts) (iv) Ijtehad [analogical deduction and creative reinterpretation in respect of legal issues].The roots of ijma and Ijtihad are embedded in the Quran and in the Sunnah of the Prophet. The conceptual difference between the Sunnah and ijma lies in the fact that while Sunnah refers to the teachings and precepts of the Prophet, ijma emerges as a result of exercising reasons and logic in the face of a rapidly expanding society. Ijma is intended not only for discovering the appropriate legal ruling in the present and in the future but also in the context of the past [Wazir 1992]. At a given period, it has great validity and power. If the consensus among jurists and legal experts is final, it is so only in a relative sense, because ijma can be subjected to revision, modification and rejection according to the requirements of changing circumstances.Ijtihad refers to the efforts in determining the degree of probability in solving a legal or jurisprudential question in the light of Islamic Shariah. The scope of ijtihad after the Prophet's demise encompasses eight distinctive heads. Seven of these consist in the interpretation of the revealed text, by some method such as analogy, while the eighth is aimed at the derivation of a meaning from sources other than the revealed text, especially by reasoning.With the march of human civilization, economic issues become more and more complicated and new problems arise from time to time, requiring solutions which might not be known in earlier times. Ijtehad serves as an effective legal tool for finding solutions to complex legal questions in the context of changing times.In recent times, attempts have been made to cull from the Traditions of the Prophet those teachings and precepts which pertain to economic issues. These have been classified under several heads [Khan 1992]. Similarly, the welfare-oriented role and functions of the Islamic state has also been well documented [Hasan uz Zaman 1981].Early Muslim scholars wrote on various economic issues in accordance with Islamic laws. Two concerns dominated their writings. First, they dealt with the economic responsibilities of the state. They were guided, in this connection, by a Tradition of the Prophet which says: "Allah and His Messenger are the caretakers of the one who has none". Secondly, they discussed in detail resource mobilization in the context of Islamic legal prescriptions. The Quran and the traditions of the Prophet have in fact institutionalized the whole process of revenue collection and disbursement [Peerzade 2004]. (1) Pertaining to these two, there are explicit instructions in the Quran and in Hadith literature.Almost all Muslim scholars have adopted a common methodology. On a particular issue, they would first quote the relevant verses from Quran. Secondly, the relevant Traditions of the Prophet are cited to further elucidate the Quranic verses. Thirdly, they profusely quote from the conduct of the four rightly guided caliphs. Fourthly, in the light of above they form their own opinions in support or rejection of other legal opinions.Towards the end of the first century of the Islamic era, when Muslim rule extended over large parts of the world, they came across certain customs and traditions and were faced with new problems regarding social relationships, business contracts, and trade and commerce. They analyzed and interpreted the basic principles of Islamic Shariah and inferred from these principles legal rulings applicable to the new situations.Many Muslim scholars made outstanding contributions to the social sciences, especially to economics (Siddiqui 1984, Islahi 1996].(2) These included Qadi Abu Yusuf (d. 798 AD), Yahya bin Adam al Qarashi (d.818 AD), Abu Ubayd al Qasim bin Sallam (d. 858 AD), Ibn abi al-Rabi (d.885 AD), Qudamah bin Jafar (d.932 AD), Abu Jafar Ahmad b. Nasr al Dawudi (d.1052 AD), Al-Mawardi (1058 AD) Ibn Hazm (d.1063 AD),Abu Ya'la (d.1065 AD), Abu Hamid al Ghazali (d. 1111 AD), Nasiruddin Tusi (d.1274 AD), Ibn Taimiyah (d.1328 AD), Ibn Khaldun (d.1406 AD) and Shah Waliullah Dehlawi (d. 1762 AD). (3) The following chart, with the help of the time-scale, explains the contributions made by Muslim scholars.
It is interesting to note that the majority of scholars have titled their works as Kitab al Amwal (Book of Wealth), Kitab al Kharaj (Book of Land Tax) and Al-ahkam al-sultaniyah (Book of Governance). There are at least six well-known books with the title Kitab al-kharaj. Similarly, there are twenty-three books with the title Kitab al-amwal, and two works with the title Al-ahkam al sultaniyah. The books entitled Kitab al-kharaj mainly focus on fiscal issues related to land taxation, leaving out other sources of revenue. On the other hand, works entitled Kitab al-amwal cover all forms of revenue and hence are more comprehensive in their coverage and scope. (4)Abu Yusuf (d.798 AD) was the chief justice of Baghdad during the reign of Caliph Al-Mahdi and continued in that office till the end of Caliph Harun Al-Rashid' s reign. He authored a major work on land taxation, entitled Kitab al Kharaj. It was written in response to the caliph's queries on religious precepts related to taxation problems, revenue administration and public expenditure.Abu Yusuf tried to analyze fiscal issues. His contribution lies in demonstrating the superiority of proportional taxation over the system of fixed levy on land. Much before Adam Smith, who is generally regarded as the father of modern economics, Abu Yusuf enunciated the principles of taxation, such as ability to pay, convenience and certainty. He also dwelt on tax administration and stressed the need for strict supervision of tax collectors in order to prevent corrupt and oppressive practices. Abu Yusuf outlined the economic responsibilities of the state. He emphasized the establishment and maintenance of public amenities such as irrigation facilities and highways. He also urged upon the state to ensure the development of agriculture.Yahya bin Adam al Qarashi (d.818 AD) was a contemporary of Abu Yusuf. His work is also known as Kitab al Kharaj. The importance of this work lies in the fact that he culled more than six hundred Traditions of the Prophet pertaining to matters of revenue administration.Abu Ubayd (d.858 AD) authored a book entitled Kitab al Amwal. It can be regarded as the most systematic and comprehensive work on public finance. He gathered more than two thousand Traditions of the Prophet which pertain to finance and fiscal affairs.Ibn abi al-Rabi (d.885 AD) wrote a brief treatise entitled Suluk al Mamalik fi Tadbir al-Mamalik (Conduct of the Ruler in the Management of Kingdoms). In the context of the responsibilities of the ruler, he writes that the state should arrange for water supply for personal requirements as well as for irrigation. The ruler should take appropriate action to ease the hardships of farmers in order to stop them from abandoning their farms in favour of other professions. He should collect taxes in accordance with the norms of justice and the principles of Shariah in order to avoid the possibility of any injustice and tyranny. Al-Rabi emphasized that the supply of necessary goods and services should be maintained and that people should feel protected.Al-Mawardi's (d.1058 AD) work Al-Ahkam al-Sultaniyah [Rules of Governance] is an outstanding work. Al-Mawardi enumerated the responsibilities of the ruling class and emphasized that the ruler should arrange for the collection of kharaj (land tax) and zakat in accordance with the laws of shariah and in the light of the interpretations of jurists without indulging in coercion or extortion. Likewise, the ruler should make available the allowances and stipends from the state treasury to those who are entitled to them. The purpose of these functions is to ensure the requirements of social security.Another work with the same title is by Abu Ya'la al- Farra (d.1065). The author discusses in detail about imposing additional taxes and the acceptability of public borrowing. The works of Al-Mawardi and al-Farra fundamentally deal with the art of governance. Yet where necessary, the two deal with taxation and public expenditure as well.The welfare-oriented role of the Islamic state is more explicit in the writings of al-Ghazzali (d.1112 AD). In his works, particularly in Ihya ulum al-Din (The Revival of the Sciences of Religion), al-Ghazzali dwelt at length on the provision of protection by the state, long before classical economists had discussed the issue. In the opinion of al-Ghazzali, the state should protect people's faith, life, intellect, wealth and property. Thus, whatever ensures the protection of these needs serves the public interest and every thing that violates public interest needs to be curbed. Al-Ghazzali is of the view that economic activities are mandated by the Shariah because they are linked to the very survival of human beings.Nasiruddin Tusi (d.1274 AD), popularly known as Nizam ul Mulk, authored one of the most valuable and interesting works in Persian, entitled Siyast Nama (The Book of Politics). He discussed revenue and expenditure of household budgets and those of the states. He emphasized saving and warned against extravagance in expenditure. He opposed expenditure on assets such as jewelry and uncultivable land. He accorded prime importance to agriculture and secondary importance to trade and vocations. He disapproves certain taxes that have no sanction in Islam.Ibn Taimiyah (d.1328 AD) has written extensively on different aspects of Islamic Shariah. His major works include al-Siyasah al-Shariah (The Policy of Shariah), Risalah al-Halal wal-Haram (Treatise on the Legitimate and the Illegitimate), and al-Hisbash fil Islam (Inspection of Public Morality in Islam). In his fatawa (legal edicts) he dealt with several economic issues, including price control, market regulation, fair market practices, state intervention and provision of basic needs, and private ownership and its control under certain circumstances.Ibn Khaldun (d. 1406 AD) has rightly been hailed as one of the greatest philosophers, historians, sociologists and economist of all times. His celebrated work on world history is spread over twelve volumes, of which the first volume, the Muqaddimah, forms by itself an invaluable treatise. Ibn Khaldun discussed a wide range of economic issues, including division of labour, price system, the law of supply and demand, consumption, money, capital formation, population growth, public finance, and trade cycles. He discussed the various stages through which societies pass in respect of economic development.Ibn Khaldun is of the view that there are three types of states, namely, monarchic, democratic and Islamic. The monarchic state functions according to a set of values that centre round the will of the monarch. A democratic state, on the other, functions on the basis of human reasoning without being guided by divine revelation. In contrast to the above, the Islamic state functions on the basis of human reasoning and at the same time draws inspiration from divine revelations in respect of values as well as methodology.Ibn Khaldun warns that extravagant expenditure on the part of the state leads to the disintegration of mighty empires. In his writings one comes across the basic idea embodied in the backward bending supply curve of labour. According to Ibn Khaldun, taxes have a point of diminishing returns and pump priming is important to keep the business running smoothly. He also warned against state intervention and believed that a free market ensured proper distribution. Boulakia has rightly observed: "Ibn Khaldun discovered a great number of fundamental economic notions a few centuries before their official birth. He discovered the virtue and necessity of division of labour before Smith and principle of labour value before Ricardo. He elaborated a theory of population before Malthus and insisted on the role of the state in the economy before Keynes…….His name should figure among the fathers of economic science" [Boulkia 1971].It is not surprising to note that Ibn Khaldun has been hailed as "supply-sider". Arthur Laffer, the distinguished American economist who served as an advisor to the US President Ronald Reagan in the early 1980s, was inspired in the drawing of his famous "Laffer Curve" by Ibn Khaldun. He shot to fame on account of his famous Laffer curve. The idea is rather simple: At both extremes of taxation-zero percent and one-hundred percent, the government collects no revenue. At one extreme, a 0% tax rate means the government's revenue is, of course, zero. At the other, where there is a 100% tax rate, the government collects zero revenue because (in a "Rational" economic model) taxpayers have no incentive to work or they avoid taxes, and the government collects 100% of nothing. Somewhere between 0% and 100%, therefore, lies a tax rate that will maximize revenue. This is illustrated with the help of a curve popularly known as the Laffer curve:
T* represents the optimum tax rate where the maximum amount of tax revenue can be collected. Laffer and other right-wing economists used the curve to argue that taxes were currently too high and should therefore be reduced to encourage incentives and harder work (a supply-side policy. Others argue that we are already well to the left of T*. It justifies tax cuts and intends to show that government can maximize revenue by setting a tax rate at the peak of this curve.Laffer reportedly sketched the curve on a napkin to illustrate the concept, which immediately caught the imagination of people. Laffer himself professes no recollection of this napkin, but writes, "I used the so-called Laffer Curve all the time in my classes and with anyone else who would listen to me" [www.bized.ac.uk]. It is significant to note that Laffer did not claim to have invented the concept but attributed it to Ibn Khaldun.
IV
Unfortunately, there is no mention of the contributions of any of the afore-mentioned thinkers and scholars in any standard work on the history of economic thought. The highly important and seminal contributions of these scholars need to be acknowledged and recognized. The observation of Joseph Schumpeter and others of his kind who have spoken about a "great gap" and "discontinuity" in the history of economic thought was born out of sheer ignorance and is short-sighted, to say the least.Muslim thinkers and scholars articulated and developed their economic theories long before the birth of the science of economics. As Professor M. N. Siddiqui has rightly pointed out, "From Abu Yusuf in the second century to Tusi and Waliullah we get a continuity of serious discussions on taxation, government expenditure, home economics, money and exchange, division of labour, monopoly, price control, etc Unfortunately, no serious attention has been paid to this heritage by centers of academic research in Economics" [Siddiqui 1984].
Supplementary NotesBy Professor A. R. Momin(1) A distinctive feature of the contribution of Muslim scholars to economic thought is that they discussed economic institutions, processes and issues not in isolation or in themselves but in relation to cultural values, the wider society, political institutions and psychological propensities. Similarly, they looked at economic issues and problems in a dynamic framework, as subject to processes of change and transformation.Karl Polanyi has pointed out that one major pitfall of classical and neoclassical economic theory is that it regards the economy as an autonomous, self-regulating domain. In actual practice, however, economic processes are always regulated by moral values and social relations. Islam takes due cognizance of this reality and subjects economic activities to a system of moral checks and balances. In Islamic perspective, ethics and economics are indissociable. It is note-worthy that the bearing of ethical norms on economic activities and economic behaviour is now increasingly recognized by eminent economists such as the Nobel Laureate Amartya Sen.(2) The earliest comprehensive treatise dealing with economic processes and issues within an Islamic framework is Kitab al-Kasb (The Book of Livelihood) by the distinguished scholar and jurist Imam Muhammad ibn Hasan al-Shaybani (d. 189 AH). The book discusses a wide range of economic issues, including variations in means of livelihood, the distinction between legitimate and illicit means of livelihood, trade and commerce, ownership of property, renting out property, industry, purchase and sale, gifts, and agriculture. He examines these issues in the light of Quranic injunctions, the Traditions of the Prophet, and the opinions and precepts of the Companions and Followers.The eminent jurist Shams al-Aimma al-Sarakhsi (d. 483 AH) wrote a commentary on Kitab al-Kasb. The book, together with al-Sarakhsi's commentary, was edited and published by the late Shaykh Abul Fattah Abu Ghuddah in 1997.(3) A discussion of economic processes and issues in the wider context of Islamic polity can be found in Al-Siyar al-Kabir by Imam al-Shaybani, I'lam al-Muwaqqi'in, by Ibn al-Qayyim, Ara ahl al-madinah al-fadilah, by al-Farabi, Al-I'tisam and Al-Muafiqat by al-Shatibi, Al-Imamah was-Siyasah by Ibn Qutaybah, and Al-Mabsut by al-Sarakhsi.(4) A detailed list of these works, along with an indication of their present status (whether published, or in manuscript, or extinct) can be found in Carl Brockelmann's Geschichte der Arabischen Litteratur (Leiden, 1943-49) and in Geschichte des Arabisches Schrifttum by Fuat Sezgin. The latter work is also available in Arabic translation, Tarikh Turath al-Arabi.BibliographyAhmed, Khursheed (ed.) First International Conference on Islamic Economics: Selected Papers, Amar Prakashan, Delhi, 1984.Azmi, Sabahuddin., Islamic Economics, Goodword Books, New Delhi, 2002.Boulakia Jean David C., "Ibn Khuldun: A Fourteenth Century Economist", Journal of Political Economy, September-October, 1971.Ghazanfar S.M., "History of Economic Thought: The Schumpeterian Great Gap, the Lost Arab Islamic Legacy and t he Literature Gap", Journal of Islamic Studies, Oxford, Vol. 6, No.2, 1995.Hasan uz Zaman S.M., The Economic Functions of the Early Islamic State, International Islamic Publishers, Karachi, 1981.Islahi, Abdul Azeem., History of Islamic Thought in Islam, Indian Association of Islamic Economics, Aligarh, 1996.Khan, Muhammad Akram., Economic Teachings of Prophet Muhammad: A Select Anthology of Hadith Literature on Economics, Orient Publications, Delhi, 1992.Lewis, Bernard., What Went Wrong? The Clash Between Islam and Modernity in the Middle East, Weidenfeld and Nicolson, 2002.Pathan, Rafeeq Ahmad., A Study of Economic Ideas of the Prophet of Islam, unpublished Ph.D. dissertation, Karnataka University, Dharwad, 2003.Peerzade Sayed Afzal., Islamic Public Finance and Policy, Idarah-i Adbiyat-i Delli, Delhi, 2004, Siddiqui, Muhammad Nejatullh., "Muslims Economic Thinking: A Survey of Contemporary Literature" in Khursheed Ahmed (ed.) First International Conference on Islamic Economics: Selected Papers, Amar Prakashan, Delhi, 1984.------------------------, Islamic Public Economics, Idarah-i Adbiyat-i Delli, Delhi, 2001.Sikand, Yoginder., Bastions of the Believers: Madrasas and Islamic Education in India, Penguin Books India, New Delhi,2005, especially 1st Chapter, pp.1-31.Wazir, Akhtar., Economics in Islamic Law., Kitab Bhavan , New Delhi 1992.p.18 www.bized.ac.uk/economy/virtuallibrary
This paper seeks to address two major concerns. First, it aims to refute the notions of 'history's black hole', 'discontinuity' and the 'great gap' in the history of ideas. Second, it seeks to highlight the seminal and highly significant contributions of Muslim scholars to economics in general and to public finance in particular.
I
Generally, Western historians of ideas trace the beginnings of intellectual history from the Greco-Roman period, which ended around 300 BC, and then focus on the Renaissance (13th-16th century AD). The history of scientific, social and cultural thought during the period 300 BC-12th century AD is either glossed over or ignored altogether. Morotowitz describes this presumed gap in the history of ideas as "History's Black Hole", while Schumpeter characterizes it as the "Great Gap". Meyer argues that the "the Arabic, Turkish and Persian-speaking East has no continuity of economic ideas such as those which come from the Judeo-Christian West". These writers maintain that the Renaissance somehow arose like "a phoenix" from the "ashes" which had been smoldering for a millennium since the end of the classical Greco-Roman period.A cursory look at the seminal contributions made by early Muslim thinkers and scholars makes it abundantly clear that no such gap ever existed. In fact one notices a remarkable continuity in the history of ideas between the classical period, the Islamic era and the Renaissance. During the Middle Ages, when Islamic civilization was at the zenith of its intellectual and cultural development, Muslim scholars not only carried forward the legacy of the ancients but also made highly original contributions to various areas of learning and scholarship, including philosophy, medicine, astronomy, history, mathematics, chemistry, logic, and the social sciences. Bernard Lewis, a virulent critic of Islam, recognizes that Islamic civilization during the medieval period had attained the highest level of excellence and accomplishment in the sciences and arts while medieval Europe was surrounded by ignorance, superstition and cultural backwardness [Lewis 2002].
II
Prophet Muhammad was born at Makkah in the year 571 AD. His entire life was meticulously recorded by his Companions and passed on to subsequent generations. He received the first Quranic revelation at the age of forty. The holy Quran, which was revealed to the Prophet over a period of twenty-three years (610-632 AD), is believed by Muslims to be an eternal source of guidance and inspiration for all times. It covers all aspects of human life, including social, religious, economic, political, cultural and psychological dimensions.The importance of knowledge in Islam can be gauged from the fact that the first Quranic revelation to the Prophet emphasized the importance of knowledge. The verse says: "Read: In the name of thy Lord who createth; createth man from a clot. Read: And thy Lord is most Bounteous, who teacheth by the pen, teacheth man that which he knew not" [96:1-5]. The Quran describes three important functions of prophecy: to recite before the people the verses revealed to him, to improve upon people's level of knowledge and wisdom, and to purify them of their sins [Quran 2:129; 3:164; 62:2].The Quran frequently and repeatedly stresses the need to acquire knowledge. In about 200 verses, the faithful are reminded to offer prayers while they are urged to ponder over the signs of God Almighty, to reflect upon His creations and to use their reason. The verses in the latter category are three times more numerous than those commanding the faithful to prayers.The Prophet led an exceptionally simple life which reflected a perfect balance between his teachings and actions. In addition to the Quran, the teachings and precepts of the Prophet (Sunnah) constitute the most important and valuable source of guidance and inspiration for Muslims.There are six most authentic collections of Traditions of the Prophet. These include Al-Jami al- Sahih by Imam al-Bukhari, Al-Jami al-Sahih by Imam Muslim, the Sunan of Abu Dawud, the Sunan of Ibn Majah, the Sunan of Nasai, and the Sunan of al-Tirmidhi. In addition to these, there are other reliable collections of Hadith, such as Imam Malik"s Muwatta, the Musnad of Imam Ahmad ibn Hanbal, and the Musannaf of Ibn Abi Shaybah, among others.Both the Quran and the Traditions of the Prophet are an invaluable source of knowledge and guidance relating to all aspects of human life. It is significant to note that Islam does not admit of any gender-based distinction in respect of the acquisition of knowledge.The following Traditions of the Prophet emphasize the central significance of knowledge in the life of a Muslim.
I have been sent as a teacher.
Knowledge is life of Islam and a pillar of faith.
Seek knowledge from the cradle to the grave.
A seeker of knowledge is like the one who strives in the path of God.
The ink of the scholar is holier than the blood of a martyr.
To attend to learning for one hour is more meritorious than attending the funerals of a thousand martyrs and more meritorious than standing up in prayer over a thousand nights.
Knowledge is the friend of a true believer and reason is his guide.
Wisdom is the lost property of a believer; wherever he finds it he caches hold of it.
The angels, all the creatures living in the skies and on earth and even the ants in their holes pray for the person who spreads knowledge of what is good.
There are no better alms than giving knowledge to others.
There is a Tradition of the Prophet to the effect that on the Day of Judgment every Muslim will be asked five questions. Of these, one question relates to the acquisition and propagation of knowledge.After the passing away of the Prophet, the tradition of acquisition and propagation of knowledge was kept alive by the first four caliphs [632-661 AD]. The Umayyad and Abbasid rulers too patronized learning and scholarship. As a result of the unequivocal importance attached to the acquisition and dissemination of knowledge and learning in Islam, the earlier generations of Muslims emerged as torchbearers of science, at a time when Europe was still in the Dark Ages and scientists were being burned at the stake by the medieval Christian Church [Sikand 2005].
III
The Prophet not only brought about radical changes in people's faith and rituals but also in their economic practices and institutions. Control over usurious lending, reform of corrupt market practices and a systematic transfer of funds in favour of the poor and the destitute were emphasized by the Prophet.Islam recognizes those natural urges and proclivities which underpin man's economic behaviour. It recognizes that man should have the freedom to earn his livelihood, that he should be entitled to the fruit of his labour, that disparities may exist among people due to their varying abilities and circumstances. At the same time, Islam introduces certain qualifications to these principles as well as a system of moral checks and balances in order to ensure that freedom may not be misused and that the disadvantaged sections of society may not be subjected to discrimination and exploitation. For this purpose, it adopts a two-fold strategy. First, people are made aware, through education and persuasion, of what constitutes right and wrong. Second, the coercive power of the state is used in exceptional cases and a small loss of private interest is preferred over larger public gain.Islamic economic thought, which dates backs to 7th century of the Islamic era, refers to the economic ideas enunciated in the Quran and in the Traditions of the Prophet and as interpreted and elaborated by the early Muslim scholars. These scholars drew upon four basic sources, namely: (i) The Holy Quran (ii)the Traditions of the Prophet (iii)Ijma [consensus among jurists and legal experts) (iv) Ijtehad [analogical deduction and creative reinterpretation in respect of legal issues].The roots of ijma and Ijtihad are embedded in the Quran and in the Sunnah of the Prophet. The conceptual difference between the Sunnah and ijma lies in the fact that while Sunnah refers to the teachings and precepts of the Prophet, ijma emerges as a result of exercising reasons and logic in the face of a rapidly expanding society. Ijma is intended not only for discovering the appropriate legal ruling in the present and in the future but also in the context of the past [Wazir 1992]. At a given period, it has great validity and power. If the consensus among jurists and legal experts is final, it is so only in a relative sense, because ijma can be subjected to revision, modification and rejection according to the requirements of changing circumstances.Ijtihad refers to the efforts in determining the degree of probability in solving a legal or jurisprudential question in the light of Islamic Shariah. The scope of ijtihad after the Prophet's demise encompasses eight distinctive heads. Seven of these consist in the interpretation of the revealed text, by some method such as analogy, while the eighth is aimed at the derivation of a meaning from sources other than the revealed text, especially by reasoning.With the march of human civilization, economic issues become more and more complicated and new problems arise from time to time, requiring solutions which might not be known in earlier times. Ijtehad serves as an effective legal tool for finding solutions to complex legal questions in the context of changing times.In recent times, attempts have been made to cull from the Traditions of the Prophet those teachings and precepts which pertain to economic issues. These have been classified under several heads [Khan 1992]. Similarly, the welfare-oriented role and functions of the Islamic state has also been well documented [Hasan uz Zaman 1981].Early Muslim scholars wrote on various economic issues in accordance with Islamic laws. Two concerns dominated their writings. First, they dealt with the economic responsibilities of the state. They were guided, in this connection, by a Tradition of the Prophet which says: "Allah and His Messenger are the caretakers of the one who has none". Secondly, they discussed in detail resource mobilization in the context of Islamic legal prescriptions. The Quran and the traditions of the Prophet have in fact institutionalized the whole process of revenue collection and disbursement [Peerzade 2004]. (1) Pertaining to these two, there are explicit instructions in the Quran and in Hadith literature.Almost all Muslim scholars have adopted a common methodology. On a particular issue, they would first quote the relevant verses from Quran. Secondly, the relevant Traditions of the Prophet are cited to further elucidate the Quranic verses. Thirdly, they profusely quote from the conduct of the four rightly guided caliphs. Fourthly, in the light of above they form their own opinions in support or rejection of other legal opinions.Towards the end of the first century of the Islamic era, when Muslim rule extended over large parts of the world, they came across certain customs and traditions and were faced with new problems regarding social relationships, business contracts, and trade and commerce. They analyzed and interpreted the basic principles of Islamic Shariah and inferred from these principles legal rulings applicable to the new situations.Many Muslim scholars made outstanding contributions to the social sciences, especially to economics (Siddiqui 1984, Islahi 1996].(2) These included Qadi Abu Yusuf (d. 798 AD), Yahya bin Adam al Qarashi (d.818 AD), Abu Ubayd al Qasim bin Sallam (d. 858 AD), Ibn abi al-Rabi (d.885 AD), Qudamah bin Jafar (d.932 AD), Abu Jafar Ahmad b. Nasr al Dawudi (d.1052 AD), Al-Mawardi (1058 AD) Ibn Hazm (d.1063 AD),Abu Ya'la (d.1065 AD), Abu Hamid al Ghazali (d. 1111 AD), Nasiruddin Tusi (d.1274 AD), Ibn Taimiyah (d.1328 AD), Ibn Khaldun (d.1406 AD) and Shah Waliullah Dehlawi (d. 1762 AD). (3) The following chart, with the help of the time-scale, explains the contributions made by Muslim scholars.
It is interesting to note that the majority of scholars have titled their works as Kitab al Amwal (Book of Wealth), Kitab al Kharaj (Book of Land Tax) and Al-ahkam al-sultaniyah (Book of Governance). There are at least six well-known books with the title Kitab al-kharaj. Similarly, there are twenty-three books with the title Kitab al-amwal, and two works with the title Al-ahkam al sultaniyah. The books entitled Kitab al-kharaj mainly focus on fiscal issues related to land taxation, leaving out other sources of revenue. On the other hand, works entitled Kitab al-amwal cover all forms of revenue and hence are more comprehensive in their coverage and scope. (4)Abu Yusuf (d.798 AD) was the chief justice of Baghdad during the reign of Caliph Al-Mahdi and continued in that office till the end of Caliph Harun Al-Rashid' s reign. He authored a major work on land taxation, entitled Kitab al Kharaj. It was written in response to the caliph's queries on religious precepts related to taxation problems, revenue administration and public expenditure.Abu Yusuf tried to analyze fiscal issues. His contribution lies in demonstrating the superiority of proportional taxation over the system of fixed levy on land. Much before Adam Smith, who is generally regarded as the father of modern economics, Abu Yusuf enunciated the principles of taxation, such as ability to pay, convenience and certainty. He also dwelt on tax administration and stressed the need for strict supervision of tax collectors in order to prevent corrupt and oppressive practices. Abu Yusuf outlined the economic responsibilities of the state. He emphasized the establishment and maintenance of public amenities such as irrigation facilities and highways. He also urged upon the state to ensure the development of agriculture.Yahya bin Adam al Qarashi (d.818 AD) was a contemporary of Abu Yusuf. His work is also known as Kitab al Kharaj. The importance of this work lies in the fact that he culled more than six hundred Traditions of the Prophet pertaining to matters of revenue administration.Abu Ubayd (d.858 AD) authored a book entitled Kitab al Amwal. It can be regarded as the most systematic and comprehensive work on public finance. He gathered more than two thousand Traditions of the Prophet which pertain to finance and fiscal affairs.Ibn abi al-Rabi (d.885 AD) wrote a brief treatise entitled Suluk al Mamalik fi Tadbir al-Mamalik (Conduct of the Ruler in the Management of Kingdoms). In the context of the responsibilities of the ruler, he writes that the state should arrange for water supply for personal requirements as well as for irrigation. The ruler should take appropriate action to ease the hardships of farmers in order to stop them from abandoning their farms in favour of other professions. He should collect taxes in accordance with the norms of justice and the principles of Shariah in order to avoid the possibility of any injustice and tyranny. Al-Rabi emphasized that the supply of necessary goods and services should be maintained and that people should feel protected.Al-Mawardi's (d.1058 AD) work Al-Ahkam al-Sultaniyah [Rules of Governance] is an outstanding work. Al-Mawardi enumerated the responsibilities of the ruling class and emphasized that the ruler should arrange for the collection of kharaj (land tax) and zakat in accordance with the laws of shariah and in the light of the interpretations of jurists without indulging in coercion or extortion. Likewise, the ruler should make available the allowances and stipends from the state treasury to those who are entitled to them. The purpose of these functions is to ensure the requirements of social security.Another work with the same title is by Abu Ya'la al- Farra (d.1065). The author discusses in detail about imposing additional taxes and the acceptability of public borrowing. The works of Al-Mawardi and al-Farra fundamentally deal with the art of governance. Yet where necessary, the two deal with taxation and public expenditure as well.The welfare-oriented role of the Islamic state is more explicit in the writings of al-Ghazzali (d.1112 AD). In his works, particularly in Ihya ulum al-Din (The Revival of the Sciences of Religion), al-Ghazzali dwelt at length on the provision of protection by the state, long before classical economists had discussed the issue. In the opinion of al-Ghazzali, the state should protect people's faith, life, intellect, wealth and property. Thus, whatever ensures the protection of these needs serves the public interest and every thing that violates public interest needs to be curbed. Al-Ghazzali is of the view that economic activities are mandated by the Shariah because they are linked to the very survival of human beings.Nasiruddin Tusi (d.1274 AD), popularly known as Nizam ul Mulk, authored one of the most valuable and interesting works in Persian, entitled Siyast Nama (The Book of Politics). He discussed revenue and expenditure of household budgets and those of the states. He emphasized saving and warned against extravagance in expenditure. He opposed expenditure on assets such as jewelry and uncultivable land. He accorded prime importance to agriculture and secondary importance to trade and vocations. He disapproves certain taxes that have no sanction in Islam.Ibn Taimiyah (d.1328 AD) has written extensively on different aspects of Islamic Shariah. His major works include al-Siyasah al-Shariah (The Policy of Shariah), Risalah al-Halal wal-Haram (Treatise on the Legitimate and the Illegitimate), and al-Hisbash fil Islam (Inspection of Public Morality in Islam). In his fatawa (legal edicts) he dealt with several economic issues, including price control, market regulation, fair market practices, state intervention and provision of basic needs, and private ownership and its control under certain circumstances.Ibn Khaldun (d. 1406 AD) has rightly been hailed as one of the greatest philosophers, historians, sociologists and economist of all times. His celebrated work on world history is spread over twelve volumes, of which the first volume, the Muqaddimah, forms by itself an invaluable treatise. Ibn Khaldun discussed a wide range of economic issues, including division of labour, price system, the law of supply and demand, consumption, money, capital formation, population growth, public finance, and trade cycles. He discussed the various stages through which societies pass in respect of economic development.Ibn Khaldun is of the view that there are three types of states, namely, monarchic, democratic and Islamic. The monarchic state functions according to a set of values that centre round the will of the monarch. A democratic state, on the other, functions on the basis of human reasoning without being guided by divine revelation. In contrast to the above, the Islamic state functions on the basis of human reasoning and at the same time draws inspiration from divine revelations in respect of values as well as methodology.Ibn Khaldun warns that extravagant expenditure on the part of the state leads to the disintegration of mighty empires. In his writings one comes across the basic idea embodied in the backward bending supply curve of labour. According to Ibn Khaldun, taxes have a point of diminishing returns and pump priming is important to keep the business running smoothly. He also warned against state intervention and believed that a free market ensured proper distribution. Boulakia has rightly observed: "Ibn Khaldun discovered a great number of fundamental economic notions a few centuries before their official birth. He discovered the virtue and necessity of division of labour before Smith and principle of labour value before Ricardo. He elaborated a theory of population before Malthus and insisted on the role of the state in the economy before Keynes…….His name should figure among the fathers of economic science" [Boulkia 1971].It is not surprising to note that Ibn Khaldun has been hailed as "supply-sider". Arthur Laffer, the distinguished American economist who served as an advisor to the US President Ronald Reagan in the early 1980s, was inspired in the drawing of his famous "Laffer Curve" by Ibn Khaldun. He shot to fame on account of his famous Laffer curve. The idea is rather simple: At both extremes of taxation-zero percent and one-hundred percent, the government collects no revenue. At one extreme, a 0% tax rate means the government's revenue is, of course, zero. At the other, where there is a 100% tax rate, the government collects zero revenue because (in a "Rational" economic model) taxpayers have no incentive to work or they avoid taxes, and the government collects 100% of nothing. Somewhere between 0% and 100%, therefore, lies a tax rate that will maximize revenue. This is illustrated with the help of a curve popularly known as the Laffer curve:
T* represents the optimum tax rate where the maximum amount of tax revenue can be collected. Laffer and other right-wing economists used the curve to argue that taxes were currently too high and should therefore be reduced to encourage incentives and harder work (a supply-side policy. Others argue that we are already well to the left of T*. It justifies tax cuts and intends to show that government can maximize revenue by setting a tax rate at the peak of this curve.Laffer reportedly sketched the curve on a napkin to illustrate the concept, which immediately caught the imagination of people. Laffer himself professes no recollection of this napkin, but writes, "I used the so-called Laffer Curve all the time in my classes and with anyone else who would listen to me" [www.bized.ac.uk]. It is significant to note that Laffer did not claim to have invented the concept but attributed it to Ibn Khaldun.
IV
Unfortunately, there is no mention of the contributions of any of the afore-mentioned thinkers and scholars in any standard work on the history of economic thought. The highly important and seminal contributions of these scholars need to be acknowledged and recognized. The observation of Joseph Schumpeter and others of his kind who have spoken about a "great gap" and "discontinuity" in the history of economic thought was born out of sheer ignorance and is short-sighted, to say the least.Muslim thinkers and scholars articulated and developed their economic theories long before the birth of the science of economics. As Professor M. N. Siddiqui has rightly pointed out, "From Abu Yusuf in the second century to Tusi and Waliullah we get a continuity of serious discussions on taxation, government expenditure, home economics, money and exchange, division of labour, monopoly, price control, etc Unfortunately, no serious attention has been paid to this heritage by centers of academic research in Economics" [Siddiqui 1984].
Supplementary NotesBy Professor A. R. Momin(1) A distinctive feature of the contribution of Muslim scholars to economic thought is that they discussed economic institutions, processes and issues not in isolation or in themselves but in relation to cultural values, the wider society, political institutions and psychological propensities. Similarly, they looked at economic issues and problems in a dynamic framework, as subject to processes of change and transformation.Karl Polanyi has pointed out that one major pitfall of classical and neoclassical economic theory is that it regards the economy as an autonomous, self-regulating domain. In actual practice, however, economic processes are always regulated by moral values and social relations. Islam takes due cognizance of this reality and subjects economic activities to a system of moral checks and balances. In Islamic perspective, ethics and economics are indissociable. It is note-worthy that the bearing of ethical norms on economic activities and economic behaviour is now increasingly recognized by eminent economists such as the Nobel Laureate Amartya Sen.(2) The earliest comprehensive treatise dealing with economic processes and issues within an Islamic framework is Kitab al-Kasb (The Book of Livelihood) by the distinguished scholar and jurist Imam Muhammad ibn Hasan al-Shaybani (d. 189 AH). The book discusses a wide range of economic issues, including variations in means of livelihood, the distinction between legitimate and illicit means of livelihood, trade and commerce, ownership of property, renting out property, industry, purchase and sale, gifts, and agriculture. He examines these issues in the light of Quranic injunctions, the Traditions of the Prophet, and the opinions and precepts of the Companions and Followers.The eminent jurist Shams al-Aimma al-Sarakhsi (d. 483 AH) wrote a commentary on Kitab al-Kasb. The book, together with al-Sarakhsi's commentary, was edited and published by the late Shaykh Abul Fattah Abu Ghuddah in 1997.(3) A discussion of economic processes and issues in the wider context of Islamic polity can be found in Al-Siyar al-Kabir by Imam al-Shaybani, I'lam al-Muwaqqi'in, by Ibn al-Qayyim, Ara ahl al-madinah al-fadilah, by al-Farabi, Al-I'tisam and Al-Muafiqat by al-Shatibi, Al-Imamah was-Siyasah by Ibn Qutaybah, and Al-Mabsut by al-Sarakhsi.(4) A detailed list of these works, along with an indication of their present status (whether published, or in manuscript, or extinct) can be found in Carl Brockelmann's Geschichte der Arabischen Litteratur (Leiden, 1943-49) and in Geschichte des Arabisches Schrifttum by Fuat Sezgin. The latter work is also available in Arabic translation, Tarikh Turath al-Arabi.BibliographyAhmed, Khursheed (ed.) First International Conference on Islamic Economics: Selected Papers, Amar Prakashan, Delhi, 1984.Azmi, Sabahuddin., Islamic Economics, Goodword Books, New Delhi, 2002.Boulakia Jean David C., "Ibn Khuldun: A Fourteenth Century Economist", Journal of Political Economy, September-October, 1971.Ghazanfar S.M., "History of Economic Thought: The Schumpeterian Great Gap, the Lost Arab Islamic Legacy and t he Literature Gap", Journal of Islamic Studies, Oxford, Vol. 6, No.2, 1995.Hasan uz Zaman S.M., The Economic Functions of the Early Islamic State, International Islamic Publishers, Karachi, 1981.Islahi, Abdul Azeem., History of Islamic Thought in Islam, Indian Association of Islamic Economics, Aligarh, 1996.Khan, Muhammad Akram., Economic Teachings of Prophet Muhammad: A Select Anthology of Hadith Literature on Economics, Orient Publications, Delhi, 1992.Lewis, Bernard., What Went Wrong? The Clash Between Islam and Modernity in the Middle East, Weidenfeld and Nicolson, 2002.Pathan, Rafeeq Ahmad., A Study of Economic Ideas of the Prophet of Islam, unpublished Ph.D. dissertation, Karnataka University, Dharwad, 2003.Peerzade Sayed Afzal., Islamic Public Finance and Policy, Idarah-i Adbiyat-i Delli, Delhi, 2004, Siddiqui, Muhammad Nejatullh., "Muslims Economic Thinking: A Survey of Contemporary Literature" in Khursheed Ahmed (ed.) First International Conference on Islamic Economics: Selected Papers, Amar Prakashan, Delhi, 1984.------------------------, Islamic Public Economics, Idarah-i Adbiyat-i Delli, Delhi, 2001.Sikand, Yoginder., Bastions of the Believers: Madrasas and Islamic Education in India, Penguin Books India, New Delhi,2005, especially 1st Chapter, pp.1-31.Wazir, Akhtar., Economics in Islamic Law., Kitab Bhavan , New Delhi 1992.p.18 www.bized.ac.uk/economy/virtuallibrary
INFAQ AND NOTION OF THE MERIT SECTOR
Thursday, April 23, 2009
Infaq and the notion of merit sectorSayed Afzal Peerzadeafzalpir@rediffmail.com
I. IntroductionAn attempt is made in this paper to understand the Islamic perspective of infaq and to explore its significance and relevance in the framework of the “merit sector”. Infaq signifies faith-motivated private spending. In an Islamic economy, the total expenditure at a given point of time can be grouped under the following heads.
Personal expenditure (private consumption and investment expenditure)
Expenditure made by all types of firms, companies, etc
State-sponsored or public expenditure, obligatory and mandated (relating to development, infrastructure, social overheads, etc.)
Zakah-based expenditure (as enumerated in the Quran)
Infaq, which connotes faith-based private spending in the way of Allah, in addition to zakah.
From the economic viewpoint, spending involves the exercise of economic power. This power is exercised only when it either accrues or accumulates. In this context, it is necessary to understand the sources contributing to economic power. Broadly speaking, capital is the key source that contributes to the accrual and accumulation of economic power. Here, capital is understood in a very broad sense as that which encompasses almost all productive sources, including land and human capital. The Islamic approach towards the acquisition and accumulation of capital is very distinctive and yet definitive. It acknowledges that:
The Almighty Allah is the Absolute Owner of all resources.
Man, being the deputy of Allah, is required to act as a trustee. He should efficiently use the material resources to be able to perform his duties towards the Almighty and fellow human beings.
Only legitimate, rightful means should be employed to acquire resources.
The acquired resources should be used for rightful purposes.
There must not be any wilful destruction of one's own or others' resources.
Since none save Allah is the Absolute Owner of all resources, Islam assigns a rightful share for society in general and for the poor in particular in the resources owned by the rich. This share takes the form of zakah and altruistic spending or infaq.II: Importance of Infaq
Infaq is a frequently used word that recurs in the Quran in nearly sixty places, as compared to zakah and sadqat that are mentioned in about thirty and fifteen places respectively. It is mentioned in the opening verses of Surat al-Baqara: "...Without doubt to those who fear God, believe in the unseen, are steadfast in prayer, and spend out of what We have provided for them..." (2:1). Thus, it is pointed out that God-fearing men are those who spend out of what Allah has provided for them. In several commentaries on the Holy Quran it is stated that the words "what we have provided for them" signify the possession of property and other related resources. The owners of property are, therefore, urged to spend in the Way of Allah. Since it is inseparably linked with belief in the unseen and prayers, altruistic, chatitable spending becomes an integral part of Islamic faith.There are several verses in the Quran which highlight the importance and need for faith-based voluntary spending. "And Spend of your substance in the cause of God and make not your own hands contribute to (your) destruction, but do good, for God loveth those who do good"(2:195).Further: "O! Ye believe! Spend out of (the bounties) We have provided for you, before the Day comes when no bargaining (will avail) nor friendship nor intercession. Those who reject faith, they are the wrong doers" (2:254 and also 14:31, 35:29). Those who do not spend are equated with persons rejecting the true faith (107:)The Prophet explicated the use of infaq in three distinctive ways:
He nominated an individial or group of persons to bear the physical or monetary cost of an assigned task.
He made a general appeal for volunteering by some persons to do a certain job.
He made a general appeal for compulsory and maximum physical and monetary contribution by all.
The last situation where the entire population was urged by the Prophet to contribute without any exemption or excuse arose in the post-migration period. In Muslim countries, it may still develop in the context of ever-increasing public expenditure. It requires the universalisation of infaq in such a way that everyone contributes something, failing which sufficient revenue may not be generated to meet social and economic obligations of the Islamic state. Further, in the context of its repeated mention in the Quran and in the Traditions of the Prophet, the practice of infaq could be viewed as one of the three means of strengthening social bonds and reinforcing social solidarity, the other two being zakah and the state's welfare-oriented public expenditure.III: Salient Features of InfaqAfter noting the fact that there is sufficient scope for faith-based additional private spending, we proceed to identify certain salient features of infaq, which are derived from the Quranic verses and the Traditions of the Prophet. First, a quantitative and propor¬tionate relation between the size of means owned and the amount of spending is not established. What is more important is the fact that there must be some spending, or in other words, there must be a transfer of funds favouring the poor. There is a Quranic verse to this effect: "Those who spend whether in prosperity or in adversity, who restrain anger and pardon (all) men; and God loves those who do well" (3:134). In this verse spending is visualised both in the periods of prosperity and adversity. There is no direction to stop spending simply because one is experiencing a difficult period. The following verse from Quran makes it further clear: "Let the man of means spend according to his means and the man whose resources are restricted, let him spend according to what God has given him. God puts no burden on any person beyond what He has given him. After a difficulty God would soon grant relief"(65:7). At the same time, the Quran has taken a note of those who are infirm or ill or who find no resources to spend. It is sufficient if they are sincere in their duty to the Almighty Allah and His Apostle.In the case of zakah, as it is clear from the Quranic verses and the Traditions of the Prophet, the relation between zakah payment and the ownership of different assets is proportional. It is 2.5 percent in case of articles of gold, silver, merchandise and several other productive assets. On agricultural produce it is 5 percent or 10 percent depending upon the type of irrigation facilities. For infaq, however, no such quantitatively proportional relationship is visible between "means", "sustenance", "and goodly favours" as provided by the Almighty and the size of commanded spending. The scale tilts heavily in favour of a progressive transfer of funds when we note this Quranic verse:"( And when) they ask thee how much they are to spend; Say: "What is beyond your needs" (2:219). Since neither the Quran nor the Prophet has spoken about any quantitative relationship between the means and spending, it is, therefore, maintained here that the scale of progressive transfer of funds or spending cannot be expressed in percentage terms.Second, infaq does not establish any quid pro quo relation between the transferor of funds and the transferee. This also holds well in the case of zakah. The purpose of transfer of funds is defeated if the transferor in return expects some material gain or service. Such a spending, then, is devoid any religious merit. Furthermore, it does not serve the purpose of social solidarity. The much desired and extolled humane rela¬tionship now turns into that of a servant and paymaster getting itself measured in terms of units of service rendered and amount of money paid. Islam does not approve any spending where an element of explicit or implicit expectation is involved. Even a reminder nullifies the religious merit in its totality. It is commanded in the Quran: "O ye who believe! Cancel not your charity by reminders of your generosity or by injury... like those who spend their substance to be seen of men, but believe neither in God nor in the Last Day. They are in parable like a hard barren rock on which is a little soil; on it falls heavy rain, which leaves it (just) a bare stone. They will be able to do nothing with aught they have earned. And God guides not those who reject faith" (2:264). On the contrary there is a good tiding to those who are altruist and do not hurt feelings of recipients. "Those who spend their substances in the cause of God and follow not up their gifts with reminders of their generosity or with injury---for them there is reward with God; on them shall be no fear, nor they shall grieve" (2:262).Third, the practice of infaq never goes without a reward. Undoubtedly, there is a reward both in this world and in the hereafter. This reward is in no way in proportion to what is actually spent. There is no measure; it could be twice, thrice or even more. The Quran speaks: “Those who spend their goods by night and day, and in secret and in public, have their reward with their Lord. On them shall be no fear, nor they shall grieve" (2:274). Further "twice they will be given their reward, for what they have preserved, that they avert evil with good and that they spend out of what we have given them" (28:54).Fourth, ostentatious spending is not approved. This assumes a special significance in the context of the fact that Islam is not opposed to the right of private property. This right should not be exercised in an unrestricted way; extravagance is strongly deplored. In Quran, the condemnation of extravagance runs along these lines: "Oh ye who believe! Eat not up your property among yourself in vani¬ties"(4:29). "..... squander not (your wealth) in the manner of a spendthrift. Verily spendthrifts are brothers of evil ones; and the evil one is to his Lord (himself) ungrateful"(17:26-27). Islam favours moderation even in consumption. The righteous are those who (among other things) "when they spend, are not extravagant and not niggardly, but hold a just (balance) between those (extremes) (25:67).The Prophet led an exceptionally simple life. His faithful Compan¬ions too modelled their lives on the path shown by him. It is reported in Sahih al-Bukhari that the Prophet remarked "Eat and drink (only lawful things), give charity, these should be devoid of any element of waste and vanity". The reason as to why a restraint was favoured by the Prophet and his noble companions was that the lifestyles of men of affairs do affect lifestyles of commoners. There is very interesting discussion on this issue in the writings of Ibn Khuldun and Shah Waliullah Dehlvi who were eyewitnesses to the ups and downs of mighty Muslim empires.Fifth, the practice of infaq under the Islamic economic set-up leads to the emergence of what could be appropriately termed as the "merit sector" Of course, spending is purely faith-based, nonetheless it has significant economic implications for a society, particularly for its vulnerable and deprived sections. Each dose of spending pumps in resources, real as well as monetary, having favourable backward and forward linkages.IV: The Idea of Merit SectorEconomists usually speak of three sectors, namely public, private and voluntary (non-government) sectors. Public sector is owned and man¬aged by the state. It is normally engaged in the provision of ‘public’ and ‘merit’ goods in which the private sector is least interested but these are very important from the viewpoint of economic equity and social security. The justification for private sector runs on the line that it manages scarce resources, both monetary and physical, more efficiently than the public sector. Voluntary sector will be distinct from public sector in as much as it will be totally free from any element of compulsion and from private sector where economic agents crave for material gains in relation to their spending.In a number of countries across the world, the voluntary sector, in most of the cases, supplements efforts of both the government and private sectors. In several countries, because of its flexibility and adaptability, the voluntary sector has carved out a niche for itself. This sector is characterised by the presence of non-governmental organisations [NGOs] of different types. In Western countries, a few NGOs are so big that their annual budgets are larger than the budgets of several poor countries combined together.In the context of infaq, an eminent Islamic economist, Fazulr Rahman Faridi, has explored the possibility of “voluntary sector”. He argues that an Islamic economy may be characterized as a three-sector economy comprising of public, private and voluntary sectors. He argues that this concept is derived from the value premise of an Islamic society that a suitable part of total resources is spent on such activities that are considered conductive to the welfare of al-akhira (life hereafter) but will have significant economic implications for the society Even though Faridi has very perceptively analysed and emphasised the voluntary sector, it is argued here that, at least in the Islamic context, the term is rather misleading. The Oxford Dictionary (1942) explains the term voluntary as: “having free will”, “depending upon the exercise of will”, “not subject to or done or brought about by compulsion”. As against this, the Quranic verses and traditions of the Prophet demand that the faithful must necessarily practice infaq. These two speak of an entirely different nature of infaq. For example, it appears in Quran: “By no means shall ye attain righteousness unless ye spend (freely) of that which ye love; and whatever ye give, a truth God knoweth it well”, (3:92). Thus, when righteousness is conditioned to infaq, every Muslim senses the implicit command of the Almighty. He realizes that the practice of infaq is not left to the exercise of his personal will. The words “by no means” kill the voluntary character of infaq. Furthermore, one cannot avoid spending, be it in prosperity or adversity. The Quran says: “Those who spend (freely) whether in prosperity or in adversity... (3:134). After prayers (salat), maximum importance is, thus, attached to infaq. It occupies first place in the Quran in respect of injunctions concerning the material life of a man. Absence of any restriction on the size of spending has its own distinct socio-economic advantages. It encourages an individual to spend and thereby earn merit and step into the “merit sector”.The above discussion helps us to develop an argument that in the Islamic schema of sectors the notion of voluntary sector should be replaced by the merit sector. It comprises of public, private and merit sectors. Infaq is not just desired but it is commanded and amply rewarded too. Every bit of spending in the merit sector has ethereal and economic implications. While it is not possible to quantify ethereal implications, the economic implications can be quantified and explained with the help of "multiplier and accelerator principles". A sustained level of infaq helps to maintain a desired level of output, income and employment at times when expenditure in public and private sectors is insufficient.The merit sector and the ultimate goal of human endeavour, at least in the Islamic context, are interrelated. Every activity in the merit sector ensures a heavenly reward. The Holy Quran speaks of a “divine multiplier” “…those who spend their goods by night and by day and in secret and in public have their reward with their Lord. On them there shall be no fear, nor shall they grieve” (2:274) At some other place it is mentioned: “Twice they shall be given their reward for what they have preserved, that they avert evil with good and that spend out of what We have given them”, (28:54).The current stream of thought, in the context of worldwide economic slowdown, is favouring a huge increase in public spending. In case of private spending, it can be maintained here that it responds well only to the favourable market prospects. It falls short of a desired level when market indicators are weak, making an economy still more susceptible to disasters. It is here that the practice of infaq, without regard to circumstances (be it "the period of adversity or prosperity") and expectations ("more or less return as the ultimate reward is with the Almighty Allah") come to the help of an economy in moving forward.V: The Regime of Faith-based SpendingThe above discussion helps us to enter into a regime of faith-based spending which may be classified into two broad categories namely zakah based spending and infaq based spending [Chart No. 1].
The zakah based spending follows the Quranic classification [9:60]. From the economic viewpoint, it is reclassified as under.
"On socio-economic and income redistributive purposes". Here the beneficiaries are poor and needy.
"On political purposes". Here expenditure is on freeing slaves and reconciliation of hearts.
"On administrative purposes". This includes expenditure on zakah collecting machinery.
"On monetary and financial reasons". Here debtors are covered.
"On general welfare". This covers expenditure in the "cause of Allah" and wayfarers.
It is, thus, abundantly clear that Quranic classification and identification are natural enough to emphasise and cover those heads of expenditure which are today the prime favourites of policy makers. It is indeed remarkable that these were stressed at a time when such a classification was totally unheard of. The revenue raised from other levies was utilised by the early Islamic state, among other things, for financing government's own administrative expenditure, social overheads and development expenditure. These are the heads which are not covered under zakah based spending.The infaq-based spending may be utilised for internal status transformation, promotion of cultural and social capital. Activities undertaken here are not intended for any personal economic gain or material benefit. In this context the following questions can be raised: Is infaq better than private secular spending? If so, what are the major reasons?Normally, the faith-based spending programmes are more compassionate and effective. At the same time these are altruistic programmes. If the intention is not to subordinate someone (or a group of people), but to help them achieve self-determination, then the important issue revolves around the bias in the act of spending. Certain forms of private secular spending contain an inherent element of bias. These may be enumerated as under:
Means-tested aid given to the “needy” stigmatizes the receiver;
Conditional aid given to the “deserving” aligns the recipient with donor;
Universal aid given to needy respects the autonomy of both the donor and recipient, but permits free-riding and exploitation and may weaken social bonds;
Hired help —the most common form of aid- may reduce the donor to the status of dependency;
Aid given in exchange for services, equally common, promotes autonomy, self-respect and self-esteem, but does not help those who have little to give in exchange.
Aid given in the form of infaq does not suffer from bias, as the ultimate reason behind it is to earn merit in the world hereafter. This particular perception of the donor strengthens social solidarity by creating a new social-bond. It is not biased and does not centre around the considerations of colour, caste, creed, religion and region.VI. IMPACTThe zakah-based spending is purely earmarked and its scope can not be extended to cover beneficiaries other than those enumerated in the Quran [9:60]. Spending programmes financed out of revenue raised from other levies happen to be too broad and general in their scope. The revenue is used to finance development include human resource and infrastructure development. Mainly the rich, who are highly knowledgeable people, succeed in getting benefits because they know the art of extracting benefits. In this context, the faith based private spending makes a huge difference. It empowers beneficiaries in terms of internal status transformation, cultural capital and social capital.Internal Status TransformationIn case of infaq the donor has a sense of satisfaction internally while donee is benefited in economic terms. Despite the early prejudiced theories against religion, there is a growing evidence that religious people typically have higher self-esteem than non-religious people. Internal status transformation generated by religious spending makes an appeal to a transcendent being who powerfully cares for other individuals. In religious schema, this helps the poor. It is not known if secular appeals and status transformation have a deep or a long lasting an effect.Religious Cultural CapitalInfaq contributes to the formation of religious cultural capital. It may the used to strengthen religious values by infusing the importance of religious culture on one hand and discipline on the other. This culture helps people to love those who are difficult situation. They may be, for one reason or the other, under a great socio-economic stress. A timely help without strings attached to it may help them to come out of a trying situation.Secular spending does not generate religious cultural capital that include knowledge of the Quran and traditions, how to pray and supplicate and how the develop the feeling of oneness and belonging. Whereas, faith based spending programmes provide beneficiaries an opportunity to better “fit in” to religious schema where they gain additional resources such as material goods and services, in addition to monetary benefits. Religious capital may not be essential for someone to get a good job; however, it is quite important in keeping it going in the right direction for life—including in the workplace.Religious Social CapitalThere are three aspects of social capital that can be potentially affected by religion. First, the richness of religious traditions in creating and maintaining rituals and values that promotes social ties; second, the development of a sense of unity and oneness and thirdly, inter and intra group cooperation within the community. Overall, supportive relations are developed. The informal, multifaceted relationships that develop greatly create a sense of belonging and speak of real tensions and joys. The faith-based programs also add to the group solidarity and sense of mutual support.The self-motivated and dynamic role of merit sector, thus, needs to be vigorously highlighted. Where necessary, in Muslim countries, it should be promoted on one hand and strengthened on the other. It should be made to help and support public and private sectors. The merit sector spending ensures steady flow of resources into the market. It helps in improving the current level of output and employment and checking economic slide, if any. These are the advantages in addition to internal status transformation, promotion of religious cultural and social capital.
BIBLIOGRAPHY
Faridi F.R., "A Theory of Fiscal Policy in A Islamic State", in Ziauddin Ahmed and others(eds.),Fiscal Policy and Resource Allocation in Islam, Institute of Policy Studies, Islamabad, 1983.Hasanuz Zaman S.M., "Islamic Criteria of Distribution of Tax Burden: The Mix of Direct and Indirect Taxes and offsetting Function of Zakah", Journal of Islamic Economics, Vol.3, No.1, 1993.Peerzade, Sayed Afzal., "The Idea of Merit Effect: Islam's Contribution to Economics", Journal of Objective Studies, Vol. 3, No.1, 1991. -------------- Islamic Public Finance and Policy, Idarah-i Adbiyat-i Dilli, Delhi, 2004.Sadeq, Abulhasan M., (ed.) Financing Economic Development: Islamic and Mainstream Approaches, Longman Malaysia, 1992.
Infaq and the notion of merit sectorSayed Afzal Peerzadeafzalpir@rediffmail.com
I. IntroductionAn attempt is made in this paper to understand the Islamic perspective of infaq and to explore its significance and relevance in the framework of the “merit sector”. Infaq signifies faith-motivated private spending. In an Islamic economy, the total expenditure at a given point of time can be grouped under the following heads.
Personal expenditure (private consumption and investment expenditure)
Expenditure made by all types of firms, companies, etc
State-sponsored or public expenditure, obligatory and mandated (relating to development, infrastructure, social overheads, etc.)
Zakah-based expenditure (as enumerated in the Quran)
Infaq, which connotes faith-based private spending in the way of Allah, in addition to zakah.
From the economic viewpoint, spending involves the exercise of economic power. This power is exercised only when it either accrues or accumulates. In this context, it is necessary to understand the sources contributing to economic power. Broadly speaking, capital is the key source that contributes to the accrual and accumulation of economic power. Here, capital is understood in a very broad sense as that which encompasses almost all productive sources, including land and human capital. The Islamic approach towards the acquisition and accumulation of capital is very distinctive and yet definitive. It acknowledges that:
The Almighty Allah is the Absolute Owner of all resources.
Man, being the deputy of Allah, is required to act as a trustee. He should efficiently use the material resources to be able to perform his duties towards the Almighty and fellow human beings.
Only legitimate, rightful means should be employed to acquire resources.
The acquired resources should be used for rightful purposes.
There must not be any wilful destruction of one's own or others' resources.
Since none save Allah is the Absolute Owner of all resources, Islam assigns a rightful share for society in general and for the poor in particular in the resources owned by the rich. This share takes the form of zakah and altruistic spending or infaq.II: Importance of Infaq
Infaq is a frequently used word that recurs in the Quran in nearly sixty places, as compared to zakah and sadqat that are mentioned in about thirty and fifteen places respectively. It is mentioned in the opening verses of Surat al-Baqara: "...Without doubt to those who fear God, believe in the unseen, are steadfast in prayer, and spend out of what We have provided for them..." (2:1). Thus, it is pointed out that God-fearing men are those who spend out of what Allah has provided for them. In several commentaries on the Holy Quran it is stated that the words "what we have provided for them" signify the possession of property and other related resources. The owners of property are, therefore, urged to spend in the Way of Allah. Since it is inseparably linked with belief in the unseen and prayers, altruistic, chatitable spending becomes an integral part of Islamic faith.There are several verses in the Quran which highlight the importance and need for faith-based voluntary spending. "And Spend of your substance in the cause of God and make not your own hands contribute to (your) destruction, but do good, for God loveth those who do good"(2:195).Further: "O! Ye believe! Spend out of (the bounties) We have provided for you, before the Day comes when no bargaining (will avail) nor friendship nor intercession. Those who reject faith, they are the wrong doers" (2:254 and also 14:31, 35:29). Those who do not spend are equated with persons rejecting the true faith (107:)The Prophet explicated the use of infaq in three distinctive ways:
He nominated an individial or group of persons to bear the physical or monetary cost of an assigned task.
He made a general appeal for volunteering by some persons to do a certain job.
He made a general appeal for compulsory and maximum physical and monetary contribution by all.
The last situation where the entire population was urged by the Prophet to contribute without any exemption or excuse arose in the post-migration period. In Muslim countries, it may still develop in the context of ever-increasing public expenditure. It requires the universalisation of infaq in such a way that everyone contributes something, failing which sufficient revenue may not be generated to meet social and economic obligations of the Islamic state. Further, in the context of its repeated mention in the Quran and in the Traditions of the Prophet, the practice of infaq could be viewed as one of the three means of strengthening social bonds and reinforcing social solidarity, the other two being zakah and the state's welfare-oriented public expenditure.III: Salient Features of InfaqAfter noting the fact that there is sufficient scope for faith-based additional private spending, we proceed to identify certain salient features of infaq, which are derived from the Quranic verses and the Traditions of the Prophet. First, a quantitative and propor¬tionate relation between the size of means owned and the amount of spending is not established. What is more important is the fact that there must be some spending, or in other words, there must be a transfer of funds favouring the poor. There is a Quranic verse to this effect: "Those who spend whether in prosperity or in adversity, who restrain anger and pardon (all) men; and God loves those who do well" (3:134). In this verse spending is visualised both in the periods of prosperity and adversity. There is no direction to stop spending simply because one is experiencing a difficult period. The following verse from Quran makes it further clear: "Let the man of means spend according to his means and the man whose resources are restricted, let him spend according to what God has given him. God puts no burden on any person beyond what He has given him. After a difficulty God would soon grant relief"(65:7). At the same time, the Quran has taken a note of those who are infirm or ill or who find no resources to spend. It is sufficient if they are sincere in their duty to the Almighty Allah and His Apostle.In the case of zakah, as it is clear from the Quranic verses and the Traditions of the Prophet, the relation between zakah payment and the ownership of different assets is proportional. It is 2.5 percent in case of articles of gold, silver, merchandise and several other productive assets. On agricultural produce it is 5 percent or 10 percent depending upon the type of irrigation facilities. For infaq, however, no such quantitatively proportional relationship is visible between "means", "sustenance", "and goodly favours" as provided by the Almighty and the size of commanded spending. The scale tilts heavily in favour of a progressive transfer of funds when we note this Quranic verse:"( And when) they ask thee how much they are to spend; Say: "What is beyond your needs" (2:219). Since neither the Quran nor the Prophet has spoken about any quantitative relationship between the means and spending, it is, therefore, maintained here that the scale of progressive transfer of funds or spending cannot be expressed in percentage terms.Second, infaq does not establish any quid pro quo relation between the transferor of funds and the transferee. This also holds well in the case of zakah. The purpose of transfer of funds is defeated if the transferor in return expects some material gain or service. Such a spending, then, is devoid any religious merit. Furthermore, it does not serve the purpose of social solidarity. The much desired and extolled humane rela¬tionship now turns into that of a servant and paymaster getting itself measured in terms of units of service rendered and amount of money paid. Islam does not approve any spending where an element of explicit or implicit expectation is involved. Even a reminder nullifies the religious merit in its totality. It is commanded in the Quran: "O ye who believe! Cancel not your charity by reminders of your generosity or by injury... like those who spend their substance to be seen of men, but believe neither in God nor in the Last Day. They are in parable like a hard barren rock on which is a little soil; on it falls heavy rain, which leaves it (just) a bare stone. They will be able to do nothing with aught they have earned. And God guides not those who reject faith" (2:264). On the contrary there is a good tiding to those who are altruist and do not hurt feelings of recipients. "Those who spend their substances in the cause of God and follow not up their gifts with reminders of their generosity or with injury---for them there is reward with God; on them shall be no fear, nor they shall grieve" (2:262).Third, the practice of infaq never goes without a reward. Undoubtedly, there is a reward both in this world and in the hereafter. This reward is in no way in proportion to what is actually spent. There is no measure; it could be twice, thrice or even more. The Quran speaks: “Those who spend their goods by night and day, and in secret and in public, have their reward with their Lord. On them shall be no fear, nor they shall grieve" (2:274). Further "twice they will be given their reward, for what they have preserved, that they avert evil with good and that they spend out of what we have given them" (28:54).Fourth, ostentatious spending is not approved. This assumes a special significance in the context of the fact that Islam is not opposed to the right of private property. This right should not be exercised in an unrestricted way; extravagance is strongly deplored. In Quran, the condemnation of extravagance runs along these lines: "Oh ye who believe! Eat not up your property among yourself in vani¬ties"(4:29). "..... squander not (your wealth) in the manner of a spendthrift. Verily spendthrifts are brothers of evil ones; and the evil one is to his Lord (himself) ungrateful"(17:26-27). Islam favours moderation even in consumption. The righteous are those who (among other things) "when they spend, are not extravagant and not niggardly, but hold a just (balance) between those (extremes) (25:67).The Prophet led an exceptionally simple life. His faithful Compan¬ions too modelled their lives on the path shown by him. It is reported in Sahih al-Bukhari that the Prophet remarked "Eat and drink (only lawful things), give charity, these should be devoid of any element of waste and vanity". The reason as to why a restraint was favoured by the Prophet and his noble companions was that the lifestyles of men of affairs do affect lifestyles of commoners. There is very interesting discussion on this issue in the writings of Ibn Khuldun and Shah Waliullah Dehlvi who were eyewitnesses to the ups and downs of mighty Muslim empires.Fifth, the practice of infaq under the Islamic economic set-up leads to the emergence of what could be appropriately termed as the "merit sector" Of course, spending is purely faith-based, nonetheless it has significant economic implications for a society, particularly for its vulnerable and deprived sections. Each dose of spending pumps in resources, real as well as monetary, having favourable backward and forward linkages.IV: The Idea of Merit SectorEconomists usually speak of three sectors, namely public, private and voluntary (non-government) sectors. Public sector is owned and man¬aged by the state. It is normally engaged in the provision of ‘public’ and ‘merit’ goods in which the private sector is least interested but these are very important from the viewpoint of economic equity and social security. The justification for private sector runs on the line that it manages scarce resources, both monetary and physical, more efficiently than the public sector. Voluntary sector will be distinct from public sector in as much as it will be totally free from any element of compulsion and from private sector where economic agents crave for material gains in relation to their spending.In a number of countries across the world, the voluntary sector, in most of the cases, supplements efforts of both the government and private sectors. In several countries, because of its flexibility and adaptability, the voluntary sector has carved out a niche for itself. This sector is characterised by the presence of non-governmental organisations [NGOs] of different types. In Western countries, a few NGOs are so big that their annual budgets are larger than the budgets of several poor countries combined together.In the context of infaq, an eminent Islamic economist, Fazulr Rahman Faridi, has explored the possibility of “voluntary sector”. He argues that an Islamic economy may be characterized as a three-sector economy comprising of public, private and voluntary sectors. He argues that this concept is derived from the value premise of an Islamic society that a suitable part of total resources is spent on such activities that are considered conductive to the welfare of al-akhira (life hereafter) but will have significant economic implications for the society Even though Faridi has very perceptively analysed and emphasised the voluntary sector, it is argued here that, at least in the Islamic context, the term is rather misleading. The Oxford Dictionary (1942) explains the term voluntary as: “having free will”, “depending upon the exercise of will”, “not subject to or done or brought about by compulsion”. As against this, the Quranic verses and traditions of the Prophet demand that the faithful must necessarily practice infaq. These two speak of an entirely different nature of infaq. For example, it appears in Quran: “By no means shall ye attain righteousness unless ye spend (freely) of that which ye love; and whatever ye give, a truth God knoweth it well”, (3:92). Thus, when righteousness is conditioned to infaq, every Muslim senses the implicit command of the Almighty. He realizes that the practice of infaq is not left to the exercise of his personal will. The words “by no means” kill the voluntary character of infaq. Furthermore, one cannot avoid spending, be it in prosperity or adversity. The Quran says: “Those who spend (freely) whether in prosperity or in adversity... (3:134). After prayers (salat), maximum importance is, thus, attached to infaq. It occupies first place in the Quran in respect of injunctions concerning the material life of a man. Absence of any restriction on the size of spending has its own distinct socio-economic advantages. It encourages an individual to spend and thereby earn merit and step into the “merit sector”.The above discussion helps us to develop an argument that in the Islamic schema of sectors the notion of voluntary sector should be replaced by the merit sector. It comprises of public, private and merit sectors. Infaq is not just desired but it is commanded and amply rewarded too. Every bit of spending in the merit sector has ethereal and economic implications. While it is not possible to quantify ethereal implications, the economic implications can be quantified and explained with the help of "multiplier and accelerator principles". A sustained level of infaq helps to maintain a desired level of output, income and employment at times when expenditure in public and private sectors is insufficient.The merit sector and the ultimate goal of human endeavour, at least in the Islamic context, are interrelated. Every activity in the merit sector ensures a heavenly reward. The Holy Quran speaks of a “divine multiplier” “…those who spend their goods by night and by day and in secret and in public have their reward with their Lord. On them there shall be no fear, nor shall they grieve” (2:274) At some other place it is mentioned: “Twice they shall be given their reward for what they have preserved, that they avert evil with good and that spend out of what We have given them”, (28:54).The current stream of thought, in the context of worldwide economic slowdown, is favouring a huge increase in public spending. In case of private spending, it can be maintained here that it responds well only to the favourable market prospects. It falls short of a desired level when market indicators are weak, making an economy still more susceptible to disasters. It is here that the practice of infaq, without regard to circumstances (be it "the period of adversity or prosperity") and expectations ("more or less return as the ultimate reward is with the Almighty Allah") come to the help of an economy in moving forward.V: The Regime of Faith-based SpendingThe above discussion helps us to enter into a regime of faith-based spending which may be classified into two broad categories namely zakah based spending and infaq based spending [Chart No. 1].
The zakah based spending follows the Quranic classification [9:60]. From the economic viewpoint, it is reclassified as under.
"On socio-economic and income redistributive purposes". Here the beneficiaries are poor and needy.
"On political purposes". Here expenditure is on freeing slaves and reconciliation of hearts.
"On administrative purposes". This includes expenditure on zakah collecting machinery.
"On monetary and financial reasons". Here debtors are covered.
"On general welfare". This covers expenditure in the "cause of Allah" and wayfarers.
It is, thus, abundantly clear that Quranic classification and identification are natural enough to emphasise and cover those heads of expenditure which are today the prime favourites of policy makers. It is indeed remarkable that these were stressed at a time when such a classification was totally unheard of. The revenue raised from other levies was utilised by the early Islamic state, among other things, for financing government's own administrative expenditure, social overheads and development expenditure. These are the heads which are not covered under zakah based spending.The infaq-based spending may be utilised for internal status transformation, promotion of cultural and social capital. Activities undertaken here are not intended for any personal economic gain or material benefit. In this context the following questions can be raised: Is infaq better than private secular spending? If so, what are the major reasons?Normally, the faith-based spending programmes are more compassionate and effective. At the same time these are altruistic programmes. If the intention is not to subordinate someone (or a group of people), but to help them achieve self-determination, then the important issue revolves around the bias in the act of spending. Certain forms of private secular spending contain an inherent element of bias. These may be enumerated as under:
Means-tested aid given to the “needy” stigmatizes the receiver;
Conditional aid given to the “deserving” aligns the recipient with donor;
Universal aid given to needy respects the autonomy of both the donor and recipient, but permits free-riding and exploitation and may weaken social bonds;
Hired help —the most common form of aid- may reduce the donor to the status of dependency;
Aid given in exchange for services, equally common, promotes autonomy, self-respect and self-esteem, but does not help those who have little to give in exchange.
Aid given in the form of infaq does not suffer from bias, as the ultimate reason behind it is to earn merit in the world hereafter. This particular perception of the donor strengthens social solidarity by creating a new social-bond. It is not biased and does not centre around the considerations of colour, caste, creed, religion and region.VI. IMPACTThe zakah-based spending is purely earmarked and its scope can not be extended to cover beneficiaries other than those enumerated in the Quran [9:60]. Spending programmes financed out of revenue raised from other levies happen to be too broad and general in their scope. The revenue is used to finance development include human resource and infrastructure development. Mainly the rich, who are highly knowledgeable people, succeed in getting benefits because they know the art of extracting benefits. In this context, the faith based private spending makes a huge difference. It empowers beneficiaries in terms of internal status transformation, cultural capital and social capital.Internal Status TransformationIn case of infaq the donor has a sense of satisfaction internally while donee is benefited in economic terms. Despite the early prejudiced theories against religion, there is a growing evidence that religious people typically have higher self-esteem than non-religious people. Internal status transformation generated by religious spending makes an appeal to a transcendent being who powerfully cares for other individuals. In religious schema, this helps the poor. It is not known if secular appeals and status transformation have a deep or a long lasting an effect.Religious Cultural CapitalInfaq contributes to the formation of religious cultural capital. It may the used to strengthen religious values by infusing the importance of religious culture on one hand and discipline on the other. This culture helps people to love those who are difficult situation. They may be, for one reason or the other, under a great socio-economic stress. A timely help without strings attached to it may help them to come out of a trying situation.Secular spending does not generate religious cultural capital that include knowledge of the Quran and traditions, how to pray and supplicate and how the develop the feeling of oneness and belonging. Whereas, faith based spending programmes provide beneficiaries an opportunity to better “fit in” to religious schema where they gain additional resources such as material goods and services, in addition to monetary benefits. Religious capital may not be essential for someone to get a good job; however, it is quite important in keeping it going in the right direction for life—including in the workplace.Religious Social CapitalThere are three aspects of social capital that can be potentially affected by religion. First, the richness of religious traditions in creating and maintaining rituals and values that promotes social ties; second, the development of a sense of unity and oneness and thirdly, inter and intra group cooperation within the community. Overall, supportive relations are developed. The informal, multifaceted relationships that develop greatly create a sense of belonging and speak of real tensions and joys. The faith-based programs also add to the group solidarity and sense of mutual support.The self-motivated and dynamic role of merit sector, thus, needs to be vigorously highlighted. Where necessary, in Muslim countries, it should be promoted on one hand and strengthened on the other. It should be made to help and support public and private sectors. The merit sector spending ensures steady flow of resources into the market. It helps in improving the current level of output and employment and checking economic slide, if any. These are the advantages in addition to internal status transformation, promotion of religious cultural and social capital.
BIBLIOGRAPHY
Faridi F.R., "A Theory of Fiscal Policy in A Islamic State", in Ziauddin Ahmed and others(eds.),Fiscal Policy and Resource Allocation in Islam, Institute of Policy Studies, Islamabad, 1983.Hasanuz Zaman S.M., "Islamic Criteria of Distribution of Tax Burden: The Mix of Direct and Indirect Taxes and offsetting Function of Zakah", Journal of Islamic Economics, Vol.3, No.1, 1993.Peerzade, Sayed Afzal., "The Idea of Merit Effect: Islam's Contribution to Economics", Journal of Objective Studies, Vol. 3, No.1, 1991. -------------- Islamic Public Finance and Policy, Idarah-i Adbiyat-i Dilli, Delhi, 2004.Sadeq, Abulhasan M., (ed.) Financing Economic Development: Islamic and Mainstream Approaches, Longman Malaysia, 1992.
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