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In the name of Allah(J.J)

Chapter # 1 Introduction to Islamic Economics

Prepared by:

Kokab Manzoor

Areas of Discussion Emergence of Islamic Economics Some Renowned Muslim Economist Definition of Islamic Economics  Its objectives, Principles and Features

Islamic versus Conventional Economics Sources of Islamic Economics Moral Values & Economic System of Islam

EMERGENCE OF ISLAMIC ECONOMICS Economics is not a very old science. Islamic Economics is even younger. Attention to Islamic economic system was diverted from Islamic banking and financial system. The contributions of Muslim thinkers and philosophers have usually been neglected in the history of Economics.

Cont`d…. Western scholars regard Adam Smith as Father of Economics and his famous book Wealth of Nations (1776 A.D) as the first book of economics BUT Five centuries before Adam Smith we find elaborated discussion on economics under the topic “Tadbir-i- Manzil ( planning of house), “Siyasat-i-madan (politics of city) and “ AL Muash (Livelihood) in the works of Muslim scholars especially Muhammad bin Hassan Tusi (1274 AD) and Ibn e Khaldun (1332-1406 AD) 5

Some Renowned Muslim Economist  Many scholars trace the history of economic thought through the Muslim world, which was in a Golden age from the 8th to 13th century  Abu Yusuf (731-798) wrote the Book of Taxation (Kitab al-Kharaj).  This book outlined Abu Yusuf's ideas on taxation, public finance, and agricultural production.

 Tahir ibn al Hsssain (755 – 822)  Al-Ghazali (1058–1111)  Al-mawardi (1075–1158),  Nasir al-Din al-Tusi (1201–1274)  Ibn Taimiyah (1263–1328),

Contribution of other Muslim Economists  The discussions included division of labor within households, societies, factories, and among nations.  Ibn e Tammiya illustrates the concept of Demand and supply.  The concept of benefits of division of Labor was also dicsussed by Al Farabi (873–950), Ibn e Sina (980–1037), Nasir Al Din al Tusi (1201– 1274), Ibn Khaldun (1332–1406).

The most well known Islamic scholar who wrote about economics was Ibn Khaldun of Tunis, who is considered a forerunner of modern economics. Lets have a bird eye view on his remarkable work.

Ibn Khaldun (1332-1406 AD) Father of Economics  Abdal-Rahman Ibn Mohammad Ibn Khaldun was born in Tunis.  He worked as Judge & Head of Al-Azhar University Cairo, Egypt (world’s oldest university founded 971 AD)

His major areas of work…. Labor Theory of Value,  Labor Economics ; Labor as the Source of Growth and Capital Accumulation.

Demand, Supply, Prices & Profits  Modern price theory states that cost is the backbone of supply theory, it was IBNKHALDUN who first examined analytically the role of cost of production on supply and prices.

Cont`d…  And it was Ibn khaldun NOT Frank Knight, who originally advanced the theory of profit.

 He also concluded that both excessively low prices and excessively high prices are disruptive to markets.  In fact he discovered what is now known as cost push and demand pull inflation.

Cont`d… Macro Economics, Growth, taxes, role of government, and Money  “Expenditure of one citizen are income to others” this equality was first introduced by Ibn-e-Khaldun.  He was the pioneer in introducing the “ theory of Growth” based on capital accumulation  Ibn-e-Khaldun was the first major contributor to “theory of Taxation” in the history.

Cont`d… Foreign Trade  He also contributed a lot in the field of International Economics.  Ibe khaldun was of the view the people`s satisfaction, merchant`s profit and countries wealth, all these will increase through foreign trade.  He also introduced the concept of “opportunity cost”

Conclusion His analysis on theory of capital accumulation, value and its relationship to labor, dynamics of demand, supply, prices & profits; his treatment of the subjects of money and role of government; his remarkable theory of taxation, and other economics subjects; his all this unprecedented contribution to the overall field of economics make IBN KHALDUN , THE FATHER OF ECONOMICS

Definition of Islamic Economics Islamic economics is “a social science which studies the economic problems of a people imbued (inspired) with the values of Islam” (Mannan) Islamic economics is a science that studies the allocations of resources to create and distribute wealth for mankind and universe for the purpose of returning (worshipping) to Allah (j.j).

The Objectives of Islamic Economics Economics stability for individual, society and country Optimum Resource Usage Fair distribution of wealth Uphold individual freedom Equal rights and opportunities Justice and cooperation

Basic principles of Islamic Economics Individual liberty Right to property Economic inequality with natural limits Social equality Social security Prohibition of accumulation of wealth to certain group Prohibition of anti-social institutions Social and individual welfare

Two Concepts of life 1 Materialistic concept of life

2 Moral concept of life

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1

Materialistic concept of life The materialistic concept of life views Man as an animal whose sole subject is to satisfy physical needs. This concept of life naturally and logically leads to an individuals approach to life. The feudal system of the middle ages in Europe, Modern Capitalism and Communism are all products of materialistic approach. 19

2

Moral concept of life According to this view the universe has been created by Almighty Allah. Man is not an animal rather he is a vicegerent (‫ ) خليفه‬of the Lord of the universe. Man should subordinate all his actions in every phase of life to Almighty Allah 20

Cont`d… He should fully utilize all resources of universe. Goal of life is to obtain welfare in this life and eternal (‫ ) ابدي‬life in the hereafter. He is answerable for all his deeds to his Lord.

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Difference between Islamic Economic and Western Economics 1 Difference in Basic Assumptions a) View of the Universe b) Concept of Man c) The supposition of the Economic Man

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Difference in operation of Moral values Difference in aims Difference in Scope Difference in the Mode of research 22

Sources of Islamic Economics 1 The book of Allah (Holy Quran) 2 The Sunnah of Prophet Muhammad (sws)

3 Ijma 4 Ijtehad

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The Holy Quran The first and the most authentic source of knowledge about Allah`s commands is Allah`s Book i.e. THE HOLY QURAN. It covers the general guidelines of all aspects of human life. The basic guiding principles for ordering economic life of man are preserved in this book in the light of which detailed policies and program may be designed to resolve economics issues arising in the every age. 24

2

The Sunnah Next to the Holy Quran, the Sunnah i.e. the example set by the Allah`s Messenger (sws) is an authentic source of knowledge.

It is in fact the interpretation and explanation of Allah`s revealed message.  “ Take whatever the Messenger gives you and refrain from whatever he forbids you” [AlHasher]

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Cont`d… The record of Sunnah contains theoretical and practical guideline of almost all aspects of economics life. It’s a very important source to which Islamic economist must turn for research and analysis.

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IJMA The third source of Islamic law is consensus of experts of religion. Ijma emerged as a result of exercising reasons and logic in a rapidly expanding society, such as in the times of early Islam.

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IJTEHAD Literal meaning of Ijtehad is “ to strive to the utmost”. In the Shariah it denotes the greatest effort which is made to discover the law from the implications of Allah`s Book or Sunnah of Prophet Muhammad (sws). The need for Ijtehad arises in those matters in which direct guidance is not available in the Quran and Sunnah. 28

Cont`d… Is everyone competent to exercise Ijtehad ????

NO…!!!! Only the one who has advance expertise in the knowledge of Quran and Sunnah with high degree of honesty and piety and flawless morality and character.

Moral Values & Economic System of Islam 1 2 3 4 5 6

Piety ( ‫) پرهيز گاري‬ Equality Brotherhood ( ‫) اخوت‬ Justice Benevolence ( ‫) خير خواهي‬ Cooperation

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