Market economy and free trade are keys to create wealth, peaceful sharing of resources and minimize political disputes between nations. Thecollapse of the socialist system combined withthe globalization has triggereda change and transformation process all over the world. The Arab world has also joined this process recently pushing towards more freedom and openness under “Arab Spring.” The Muslim world in general, Arab world in particular is at the crossroads with regard to political and economic reformation and reorganization. At this point, the choice between free market and command system is extremely important for the Muslim world. This paper argues that Islam is not inherently in contradiction with free market economy. None of the 5 pillars of free market economy (private property, freedom of choice and entrepreneurship, competition, free trade and limited government) is rejected or outlawed by the basic teachings of Islam. On the contrary, Islam promotes and supports free market institutions. Besides, social justice provided by the government is not prioritized in Islam; state is the very last competent authority with regards to social justice.

Introduction

It is a well-known fact that human beings are not self-sufficient, nor are nations. We are all dependent on one another both at individual and national level.In economic terms, resources are scarce. How to deal with the scarcity of resources is the main subject matter of economics. In other words, we have to find ways to share our limited resources. In this regard, human beings have discovered so far basically 2 ways to share limited resources: war or trade. Either we use force to obtain and control the resources we need, or we get them by trade or voluntary exchange. From this perspective, one can argue that trade and investment is the only way to share our scarce resources in a peaceful way.

In this context, free market economy and free trade are keys to create wealth, peaceful sharing of resources and minimize political disputes between nations. Collapse of the socialist system combined with globalization has triggered a dramatic change and transformation process all over the world in recent decades. The Arab world has also joined this process recently pushing towards more freedom and openness as reflected under “the Arab Spring.” The Muslim world in general, Arab world in particular is at the crossroads with regard to political and economic reformation and reorganization. At this point, the choice between free market and command system is extremely important for the Muslim world.

In light of the above, this paper argues that Islam is not inherently in contradiction with free market economy. None of the 5 pillars of free market economy (private property, freedom of choice and entrepreneurship, competition, free trade and limited government) is rejected or outlawed by the basic teachings of Islam. On the contrary, Islam promotes free market institutions.Theoretically Islam and free market are compatible. Practically it is possible to see market economy flourish in a Muslim society. Turkey has been emerging as a good example of harmonizing Islam, democracy and market economy in recent years (Acar, 2009).The rest of the paper is organized as follows.

The following section discusses the main pillars of a free market economy. Section three deals with basic teachings of Islam and whether Islam is an alternative to capitalism or free market economy. Section four elaborates on the harmony of Islam and market economy and discovers the perspective of Islamic teachings with regard to the major institutions of free market economic system. Final section includes summary and conclusion.

2.       The Main Pillars of a Free Market Economy

Even though “market” as an institution –where the buyers and sellers meet, negotiate and exchange commodities- goes back to the earliest days of life on earth, “free market” as an alternative economic system has been developed basically by Classical Liberal thinkers and economists among whom are Adam Smith, David Hume, John Locke, David Ricardo, and J. Stuart Mill.[1] The main pillars of a free market economy can be stated as follows: private property, freedom of choice and entrepreneurship, competition, limited government, and free trade. This section describes briefly these pillars (Acar, 2010; 2011).

2.1. Private property

One of the most important pillars of a free market economy is, no doubt, private property. It is the right of individuals to own, use, sell or dispose in another way as they wish. Without private property rights, there will be little motivation for the individuals to work, produce, or invest. There cannot be a “free market” when individuals do not have a property to sell or exchange. Therefore, private property is a “sine-qua-non” (must) for a free market economy.[2]

2.2. Freedom of choice and entrepreneurship

Another important feature of a free market economy is the existence of freedom of choice and entrepreneurship. This feature has a two-fold meaning; one is related with the consumer while the other is related with the entrepreneur. On one side, consumers have the right to use their money freely on those goods and services they need.Nobody can force them to spend money on anything they do not wish to do so. On the other side, entrepreneurs have the right to invest their resources, financial or otherwise, in those sectors they would like to invest. Nobody can force them to produce a commodity they do not wish, or invest in an industry in which they do not plan to do so. In other words, there cannot be a “free market” when consumers do not have the right to choose in spending their money, or entrepreneurs do not have the right to invest as they wish. Therefore, freedom of choice and entrepreneurship is another “sine-qua-non” for a free market economy.

2.3. Competition (free entry and exit)

In its simplest meaning, competition can be defined as the “race for better quality and cheaper price.” At the market level, this implies the right to enter and exit. In other words, every firm, company or entrepreneur should have the right to enter into a market, sector or industry they wish to enter, or exit from a market whenever they wish, for any reason. This is an extremely important institution to promote better product quality, higher product variety, lower costs and hence cheaper prices.Once again, we cannot talk about a “free market” without the right of free entry and exit.

2.4. Free trade

Free trade is another important pillar of free market economy. In a free market economy, individuals, producers, merchants or sellers have the right to buy and sell goods and services freely. The price of a commodity is not pre-set or fixed; but it is determined through bargaining or negotiation. Trade (as well as production and investment) is done for profit in a market economy. In other words, doing business for profit or making money is perfectly normal, legitimate, and acceptable. Pursuance of profit is quite legitimate; it is not bad, not illegitimate, or not “socially unacceptable.” In fact, market price, which is determined by the interaction and negotiation of the buyer and the seller is the “just,” and fair price.

2.5. Limited government

Limited government is another crucial feature of a free market economy. This implies that we need a government, a central authority; but it should not be “too big” or unlimited. Market cannot be protected or sustained without a central authority to set the rules, regulations; impose contracts and distribute justice in case of violations. But as the government gets bigger, more powerful, even unlimited or uncontrolled, the possibility of irregularities, corruption, and oppression goes up. As Lord Acton rightly states, “power tends to corrupt, absolute power absolutely corrupts.” Therefore, for a healthy, sustainable, strong free market economy we do not call for “no government,” we do not call for “absolute government” or “Leviathan,” but we call for a “limited government.” Limited government in this sense is the central political authority based on the rule of law, which is bound by the constitution and the laws; a transparent and accountable central body.

3.       Islam and Economic Systems

It is often subject to a hot debate whether Islam dictates a particular economic or political system. Some, mostly of Salafi tradition, talk about concepts like “Islamic state,” “Islamic economics” or “Islamic political system.” But we do not agree with this perspective. In our opinion, Islam does not dictate a particular, fixed, unchanging, eternal economic as well as political system independent of time and space. A few points are worth noting in this respect.

3.1. Islam is a religion

Islam is a religion; it is not a socio-economic system per se, so to speak. But do not get us wrong: Yes, Islam has economic, social and political aspects. In other words, Islam says something on the organization of social, political and economic life on earth. But these do not amount to a strictly structured, unchangeable system. It is true that Islam is a collection of teachings, has certain “does” and “don’ts,” commands and bans. But these are related with the meaning of life on earth and the Hereafter, existence and oneness of God, that human beings are created for a certain purpose; that the life on earth is temporary and short; that everyone is accountable for his/her deeds.There are permissible or lawful (Halal) actions and impermissible or unlawful (Haram) actions for those who wants to be good and pass the exam. Islam presents or introduces certain principles or guides to do good and abstain from the evil,hence obtain the pleasure of God. The rest are up to human beings. It is men and women on earth to think, search, discover and develop certain ways, models and institutions to find their ways to salvation, pleasure of God and deserve the bounties of God in the Hereafter.

3.2. Islam is not alternative to capitalism or market economy

It is a mistake to mix Islam with a certain economic system and consider Islam an alternative to capitalism or socialism. Capitalism and socialism are not religion; they are not alternative to Islam.Neither of them says anything on the meaning and the purpose of life, where do human beings come from and where are they going, how to please God, what is right and what is wrong, what is good what is bad, etc. Capitalism, in particular, is an economic system based on individual decision making dealing with how to organize production, distribution, allocation of resources, and how to create wealth. Compared to socialism,which is based on command system and central planning, capitalism has been proven to be much more successful in creation of wealth, efficient allocation of resources and higher welfare. Looking from this perspective, Islam and capitalism[3] are not alternatives to one another, nor are they mutually exclusive. They can live together, go hand-in-hand and be in harmony.

3.3. Islam does not dictate a particular political and economic system

As mentioned above, Islam does not dictate or ordain a particular political and economic system. Rather, Islam introduces certain principles, such as justice, piety, righteousness, integrity, generosity, dignity, equality, trust, and consultancy etc. It is up to the Muslims to develop political and economic systems or models based on these principles. In fact history of the Muslim civilization witnessed different political and economic systems changing from time to time, varying with respect to geography and culture. There are no eternal and unchangeable systems in any field. Just like human beings themselves, everything produced by human beings is subject to change, aging, getting outdated, and dying at a certain point. Therefore it is not a good idea to talk about “the Islamic state” or “the Islamic economic system.” But one can always talk about an economic system based on basic Islamic principles, or in harmony with basic teachings of Islam. The following section has more on this issue.

4.       Harmony of Islam and Free Market Economy

Based on the arguments elaborated above, we argue that Islam is perfectly in harmony with Islam, and there is not an inherent contradiction between Islam and free market economy. It would be nice to remember the three features of the Medinah market, which was supervised by the Prophet Muhammad (sav)[4] (Ozel, 2009).

4.1. Three features of Medinah market:

Flatness (transparency): Medinah market was flat; it was set up on a flat, open area so that everyone was able to see each other as well as the commodities available for sale. In today’s terms, this corresponds to transparency and to some extent “symmetric information.” Under these circumstances, the possibility to fool a buyer or seller was minimized.

No permanent allocation of spots (no monopoly): The second important feature of the Medinah market was that there was no fixed and permanent allocation of any corner or spot to a particular person. The spots were not permanent; every time a seller or producer comes to the market he/she found a new spot. In other words, there was no monopoly of anyone on any corner at the marketplace.

In this context, some points can be emphasized, most of the early jurists encourages –sometimes enforces- importation in case of black market and scarcity. Competition among merchants is an essential principle and importation is the key medium to maintain competition among merchants and also is a cure for monopoly in most cases (Abu Zahra, 1969:116).

No price fixing: The third important feature of the Medinah market was that prices were not fixed or controlled. They were determined via the bargaining of the buyer and the seller. It was reported that from time to time somebody came to the Prophet (sav) and asked Him to fix the prices because they were “too high.” But the Prophet rejected this suggestion and said “Verily,God determines the prices” (Çizakça and Akyol, 2012: 15).

Narrated Anas: “Prices became excessive during the time of the Messenger of Allah (pbuh)[5], so they said: ‘O Messenger of Allah! Set pricesfor us!’ So he said: ‘Indeed Allah is Al-Musa’ir, Al-Qabid, Al-Basir, Ar-Razzaq. And I am hopeful that I meet my Lord and none of you are seeking (recompense from) me for an injustice involving blood or wealth.’”[6]

Moreover, it is reported that the Prophet did not allow sellers to buy the products from the producers on halfway before the products reach to the market. This is an effort to ensure that the prices are determined at the market and minimize the possible price speculations.

Even though some Muslim jurists allege that price fixing is in favor of people in general and must be implemented in case of high prices, both the practice of Prophet (pbuh) and some jurists –including Imam Abu Hanifah and most of his followers- assert that price fixing is useless in most cases and it causes scarcity of fixed priced goods and services, hence the prices of hidden goods will rise and only rich people can buy them, which is an unintended result by the price fixing authority (Abu Zahra, 1969:117-118).

Another important issue is the circulation of goods freely in the market (revac). This is a basic principle which arises from Islamic teachings. As is stated in a well-known verse, contracts are required to be in written agreements (Qur’an, al-Bakarah, 2/282);

O you who believe! When you contract a debt for a fixed term, record it in writing. Let a scribe record it in writing between you in (terms of) equity. No scribe should refuse to write as Allah hath taught him, so let him write, and let him who incurred the debt dictate, and let him observe his duty to Allah his Lord, and diminish naught thereof. But if he who owed the debt is of low understanding, or weak, or unable himself to dictate, then let the guardian of his interests dictate in (terms of) equity. And call to witness, from among your men, two witnesses. And if two men be not (at hand) then a man and two women, of such as you approve as witnesses, so that if one of the two erreth (through forgetfulness) one of them will remind. And the witnesses must not refuse when they are summoned. Be not averse to writing down (the contract) whether it be small or great, with (record of) the term thereof. That is more equitable in the sight of Allah and more sure for testimony, and the best way of avoiding doubt between you; save only in the case when it is actual merchandise which you transfer among yourselves from hand to hand. In that case it is no sin for you if you write it not. And have witnesses when you sell one to another, and let no harm be done to scribe or witness. If you do (harm to them) lo! it is a sin in you. Observe your duty to Allah. Allah is teaching you. And Allah is knower of all things. 

The main incentive in this manner is to secure trust among parties and it is interesting that in case of buying cash, it is not required to write down the contract. This practice is said to ease the trade process. Advice and encourage men for using cash instead of various goods in trade is another promoting factor for circulation in the market (Bin Ashur, 1996: 257)

4.2. Islam does not ban/reject any of the main pillars of free market

It is noteworthy that Islam does not ban or reject any of the 5 pillars of free market economy discussed in the second section. There is no Qur’anic verse or sound hadith (prophetic tradition) which explicitly ban or outlaw private property, freedom of choice, entrepreneurship, competition, limited government and free trade. On the contrary, one can refer to many verses and hadith that allow, legitimize, and even promote these pillars. Following section elaborates more on this issue.

4.3. Islam promotes all institutions of free market 

Islam recognizes and protects private property. The existence of “law of inheritance” by itself is a proof that Islam recognizes private property. In many verses Qur’an talks about “their property, sons, animals,..” and warn the believers not to get, obtain, or eat them in illegal and unjust ways. “Do not eat your property among yourself unlawfully; do not give them to judges (as bribe)to knowingly committing sin and eat some of the property of people” (Qur’an, al-Bakarah, 2/188).

In Islam private property has immunity; no one is allowed to capture the property of others without the permission of the owner. It is a duty on everyone to protect their property. As such, in a “sahih” (sound) hadith, narrated by Abdullah bin Amr, the Prophet (pbuh) is reported to have said: “Whoever is killed over his wealth, then he is martyr.”[7] This is quite similar to the fact that in certain states of the US a person is excusable if he/she kills the intruder.

Islam encourages people to work hard and obtain wealth and leave the inheritors wealthy than begging others as emphasized in a hadith narrated by Sa`d bin Abu Waqqas: “The Prophet (pbuh) came visiting me while I was (sick) in Mecca, (‘Amir the sub-narrator said, and he disliked to die in the land, whence he had already migrated). He (i.e. the Prophet) said, “May Allah bestow His Mercy on Ibn Afra (Sa`d bin Khaula).” I said, “O Allah’s Messenger (pbuh)! May I will all my property (in charity)?” He said, “No.” I said, “Then may I will half of it?” He said, “No”. I said, “One third?” He said: “Yes, one third, yet even one third is too much. It is better for you to leave your inheritors wealthy than to leave them poor begging others, and whatever you spend for Allah’s sake will be considered as a charitable deed even the handful of food you put in your wife’s mouth. Allah may lengthen your age so that some people may benefit by you, and some others be harmed by you.” ” At that time Sa`d had only one daughter.[8]

Many arguments can be put forward on how Islam promotes free trade, as partially mentioned above. It is important to remember that the Islam’s Prophet (pbuh) himself was a trader. He travelled to Damascus (Syria) a few times with the trading caravans. Trade has been considered to be the main source of making a living, hence free trade is encouraged in many ways. For instance, the Prophet (pbuh) did not permit merchants to hide the goods to sell later at a higher price. This means no hoarding is allowed. He did not allow purchasing the goods on the halfway at a cheaper price and sell them in the market place at a higher price, i.e. no price speculation. Similarly, the Prophet rejected to fix the prices or set up a price ceiling.[9]

As regards to the limited government, Islam asks people to obey the rulers from among themselves. At the same time, Islam asks the political authorities to be just, observe the rights of the subjects. Oppression and torture are outlawed. The second Caliph Omar bin al-Hattab showed the ideal example of being just and making government a servant to the people.

In short, in Islam, private property is recognized and promoted; people are asked to work and obtain wealth; price-fixing is rejected; the marketplace is open to everyone, no monopoly and asymmetric information; political authority is asked to treat the subjects justly… We conclude that free market economy and Islam are not foes, but friends. There are not inherent contradictions between Islam and market economy. How about the “social justice” which is quite frequently used to call for state intervention by the socialists and statists? We will touch briefly on this issue in the following section.

5.       Islam and Social Justice

Equality is a critical value open to debate. Equality in what sense? One can think of three types of equality, two of them are good, one is bad: equal opportunity, equality before the law (or the Court), and equality in the results, i.e. economic equality. Equality is good when we talk about a state providing equal opportunity to its citizens in education and health services. Similarly, equality before the Court is the central principle of the Rule of Law. But we cannot say the same thing when it comes to economic equality. On the contrary, as Reed (2001) puts it, “free people are not equal; and equal people are not free.” As such, equalizing people in economic sense is not a goal in Islam. Being different in terms of economic conditions is the state of the nature; it is how God wanted us to be. In a verse (Qur’an, Zukhruf, 32) it is stated that;

 Is it they who apportion thy Lord’s mercy? We have apportioned among them their livelihood in the life of the world, and raised some of them above others in rank so that some of them may take labour from others; and the mercy of thy Lord is better than (the wealth) that they amass. 

This verse possibly does not refer to a caste system in Islam but can be interpreted as people spend life in various levels which can change due to their efforts by nature.

Wealth is not reproved in Islam, on the contrary, wealth is seen favorable in most cases. The goods traded and used in daily life are not evil by nature, it depends on the people using them (Ibn Kayyim, 1994: 310).

So, when it comes to the state of poor and social and economic justice in the Islamic teaching, social justice is not a priority for government despite the general acceptance of the idea among most of the contemporary jurists and academicians in the Muslim world. It is well-known that to help poor people and neighbors is a clear order in Islam; Muslims are asked to do so, but it is not a duty of the government on the first rank. The relatives should help first to the people who cannot work because of their disease, old-age, mental infirmity, who cannot find job because of their social status, women who cannot work etc. Wealthy relatives and neighbors should be invited first to provide the livelihood of the poor and needy and there are strict rules to be enforced by the legal authorities. Government is the very last competent authority with regards to social justice (Abu Zahra, 1969: 137-149).

Today, social welfare state and its institutions is a hot topic in academic world and the debates are going on whether the welfare state is sustainable or not. So, it is not fair to try to match Islam which has a problematic relationship with state control on business and trade with a social justice system available in the Western world. The connection between Islam and some systems in favor of strict government control is a far-fetched relation. Some can find many ways toward systems offering less centrally planned and government control but more individual activity within clear rules and institutions supporting free trade and backing legal agreements among people.

6.       Conclusion

Harmony of Islam and the free market economy is an extremely important issue especially in the aftermath of the collapse of the socialist system and at the outset of the Arab Spring. The policy makers, bureaucrats and the laymen in the Arab world going through a dramatic change and transformation process need urgently a roadmap on “where to go now, or what is next?” This is not only critical for just the Arab world, but also the Muslim world at large as well as for the whole world. In the aftermath of the collapse of the socialist system and 2008-09 global economic crisis, the Western world is also in search of new ways to deal with our global economic, financial, and political problems. Therefore, it is a big responsibility lying on the shoulders of Muslim intellectuals, academics and religious scholars (the “Ulema”) to think, study, discuss and develop roadmaps and models in harmony with the basic teachings of Islam and the free market system.

In light of the above, this paper discusses the issue of the compatibility of Islam and the free market economy and argues that Islam is compatible with the free market; that there is no inherent contradiction between Islam and free market economic system; and that Islam acknowledges and promotes all five main pillars of Islam. It is important to underline a very important point that Islam does not dictate a particular, specific, fixed, unchangeable, or static economic as well as political system. Rather, Islam declares the basic principles on which an economic system can be based. The duty of developing economic or political models, modalities or systems based on these principles lie on the shoulder of the Muslim thinkers and intellectuals. These models should consider the historical experience as well as the contemporary needs, necessities and the surrounding conditions. Given the historical experience and recent political and economic developments in the world today, liberal-democratic interpretation of Islam which is in harmony with freedom and market economy has the highest chance to flourish, challenge the alternatives, and positively transform the Muslim world.

  Istanbul Network for Liberty

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