and Money to provide some answers. A number of economists further developed the Keynesian approach in what came to be known as neo-Keynesian macroeconomics. Although the Keynesian theory of demand management has become the most widely accepted macroeconomic framework, the Chicago school of economics later criticized it, largely on libertarian grounds and because it could not explain a number of observed economic developments in the 1970s and 1980s. These economists argued against discretionary macroeconomic policies in favor of the market's invisible hand and passive fiscal and monetary policies. In 2014, economists are even more divided about the effectiveness of Keynesian macroeconomic policies and the broader role of government intervention in economic management. There is no “pure” market economy in the world of 2014. There is a role for governments in any economic system to limit economic cycles and financial crises, to enhance growth, to develop a social safety net, and to safeguard the interests of future generations, interests that include preservation of the environment and provision of the social and legal infrastructure for efficient operation of a market system.
The Islamic economic system is a market-based system, where markets are seen as the best and most efficient mechanism for resource allocation. But valuing markets for their efficiency is not the same as upholding markets as an ideology and a philosophy. The foundations of the Islamic economic system were laid down in the Quran and practiced by the Prophet Muhammad (sawa) in Medina. These rules that were established by the Almighty are the basis for the Islamic system and provide the effective institutions for the ideal Islamic system.
Key Terms
Economic systems
Demand management
Markets
Institutions
Traditional economies
Market economies
Mixed market economies
Mixed socialist economies
Command economies
Questions
1. What is an economic system, and what are its component parts?
2. What is the function of an economic system?
3. What is the role of government in different economic systems?
4. What would happen to economies if governments did not exist?
5. What are the key features of the Islamic economic system?
6. Would you rather have the Islamic or the market capitalist system in your country? Explain your answer.
7. How does the role of markets vary in different economic systems?
Chapter 2
Foundation of the Islamic Economic Paradigm
1. How Islam differs from other religions.
2. The difference between individual and societal goals in Islam.
3. The importance of rules (i.e., institutions) and rule compliance in Islam.
4. Why justice is so important in Islam.
5. The role of Shariah in Islamic economics and finance.
6. The meaning of maqasid-al-Shariah (objectives of Shariah).
7. The foundational elements of Islamic teachings.
8. The importance of agent-trustee in Islam and in preserving the rights of all generations.
Four fundamental concepts support the rules-based religion that is Islam. First is walayahh, the unconditional, dynamic, active, ever-present love of the Supreme Creator for His creation, which is manifested through the act of creation and the provision of sustenance for all humans. This involves providing sufficient resources to sustain life and divine rules to sustain and flourish on this earth. Humans reciprocate His love by extending their love to other humans and to the rest of creation. Second is the concept of karamah, human dignity. The Quran considers humans to be the crowning achievement of His creation for whose personal and collective development everything else has been created. Indeed, humans are the purpose of creation. The third concept is the meethaq, the covenant in which all humans were called before their Supreme Creator and asked to testify that they recognize in Him the One and Only Creator and Sustainer of the entire creation and all other implications flowing from this testimony.24
The concept of meethaq, in turn, unfolds into three basic principles:
1. Tawheed, the One-and-Onlyness of the Creator, which unfolds into the one-and-onlyness of the created and its unity, including above all the unity of humankind
2. Nubbowah, the continuous chain of humans (prophets) appointed by the Creator to remind, warn, cleanse, teach, and induce humans to bring about and uphold justice within the created order through their position of agency-trustee assigned and empowered by the Supreme Creator
3. Maád, the return of creation to its origin and the accountability of humanity (individually and collectively) for acts of commission and omission – success and failure in achieving, establishing, and upholding justice toward their selves, toward others of their kind, and toward the rest of creation
The fourth concept is that of khilafa, agent-trustee relationship. Khilafah is the empowerment of humans by their Creator as agent-trustee to extend His love and compassion to one another, materially through the resources provided to them by the Creator and nonmaterially through the manifestation of unconditional love for their own kind as well as for the rest of creation.
A number of verses of the Quran affirm and confirm the unity of humankind. These verses, plus those recounting the provision of physical-material as well as nonphysical faculties and facilities created for all humans that empower them economically and spiritually, form the cornerstone of the legislative framework of rules (institutions) for the socioeconomic-political behavior of humans. Resources are created for all humans of all generations, who compose one humanity. Their diversity does not and should not mean their disunity. By the primordial covenant, not only do all humans recognize their own unity, they also have full cognition of their responsibility to maintain the unity and integrity of the rest of creation through their service to humanity and to the rest of creation.
Unity operates at two levels, societal and individual. On the social plane, unity expresses itself in the integration of human society. Islam refuses to accept as the ultimate unit of body politic anything less than the totality of Islamic community, or the ummah. It is a responsibility of this collectivity to ensure that all obstacles are removed from the individual's path to Allah (swt). Whether the individual will choose this path for this ultimate happiness is then his or her own personal choice. There is only one Muslim people, no matter how scattered and far removed its members may be. Only the complete ummah comprises that circle which is Islam, and no segment of the Muslim community has a right to be the ummah any more than a segment of a circle could claim circularity. On the personal level, unity is manifested in one's actions. It is the appropriation to one's self as well as the proclamation in implementation and living a life that has integrity. The concept of Islamic community cannot be overemphasized.
Meta-Framework
They were collectively asked to testify to the Oneness and Uniqueness of the Creator as the
