Difference Between Islamic Economics and Conventional Economics Essay

In Islam there is no conflict between matter and soul, as there is no separation between economy and religion. Although Islamic economics is young in comparison with conventional economics, its characteristics, value and essence are appreciated by Muslims and the non-Muslims. The over-arching values of Islamic economics lie in the principle that it is an economic strategy that can achieve unity and harmony between the material and the spiritual life of the people.

To ensure the true well-being of all individuals, irrespective of their sex, age, race, religion and wealth, Islamic economics does not seek to abolish private property, a practice done by communism, nor does it prevent individuals from serving their self-interest.

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It recognizes the role of the market forces in the efficient allocation of resources. It seeks to promote brotherhood, socio-economic justice and well-being of all through an integrated role of moral values, market mechanism and good governance.

The differences between conventional and Islamic economics are as listed below.

1. The Role of Moral Values While conventional economics generally considers the behavior, tastes and preferences of individuals as given, Islamic economics does not do so. It places great emphasis on individual and social reforms through moral uplift. This is purportedly to be the purpose for which God’s messengers have come to this world. Moral uplift aims at changing the behavior, tastes and preferences of the individuals, and thereby, it complements the price mechanism in promoting general well-being.

Before even entering into the market place and being exposed to the price filter, consumers are expected to pass their claims on resources through the moral filter first, where conspicuous consumption and wasteful and unnecessary claims will be filtered out. The price mechanism can then takes over and reduce the claims on resources even further to lead to market equilibrium. The two filters enable the optimal use of resources, which is necessary to satisfy the material as well as the spiritual needs of all human beings.

They also reduce the concentration of wealth in the hands of a few, and raise savings which are needed to promote greater investment and employment. Figure 1. 1 highlights economic distribution in any system. What makes the Islamic economic system different is that there is a greater support for the economically-inactive sector, which becomes the main focus of the government sector. 2. The Importance of the Hereafter The Hereafter is a concept which is completely ignored by conventional economics, but it is one which is greatly emphasized by Islam and other major religions.

Because of their innate goodness, human beings do not always try to serve their self interest. They are altruistic, and willing to sacrifice for the wellbeing of others. This behavior is rewarded in the Hereafter. Whilst conventional economics also seeks optimal allocation of resources, the fact that it is unable to offer rewards for benevolent acts means that the humane side of the economy is neglected. 3. Rational Economic Man While there is hardly anyone who is opposed to the need for rationality in human behavior, there are differences in opinion when defining rationality (Sen. 1987). However, once rationality is defined in terms of the overall individual as well as social wellbeing, then rational behavior can help us to realize this particular goal. Conventional economics, however, does not define rationality in this way. It equates rationality with the serving of self-interest through wealth maximization. The drive for self-interest is considered to be the “moral equivalent of the force of gravity in nature” (Myers, 1983, p. 4). Within this framework, society is conceptualized as a mere collection of individuals united through ties of self-interest.

Conceptualized as a mere collection of individuals united through ties of self-interest. However, the concept of the ‘rational economic man’ in social- Darwinist, and the utilitarian sense of self-interest cannot find foothold in Islamic economics. ‘Rationality’ in Islamic economics is not confined to the serving of one’s self-interest in this world alone; it also gets extended to the Hereafter through the faithful compliance with moral values that help rein self-interest so as to promote social interest. Al-Mawardi (d. 058) considered it necessary, like other Muslim scholars, to rein individual tastes and preferences through moral values. Ibn Khaldun (d. 1406) argued that moral orientation would help remove mutual rivalry and envy, strengthens social solidarity, and create an inclination towards righteousness. 4. Positivism Positivism in the conventional economics sense of being “entirely neutral between ends” (Robbins) or “independent of any particular ethical position or normative judgment” (Friedman) cannot find a place in Muslim intellectual thinking.

Since all resources at the disposal of human beings are a trust from God, and human beings are accountable before Him, there is no other option but to use them in keeping with the terms of trust. These terms are defined by beliefs and moral values. Human brotherhood, one of the central objectives of Islam, would be a meaningless jargon if it is not reinforced by justice in the allocation and distribution of resources. It is this positive stand, adopted by conventional economics, which keeps it away from characteristics such as benevolence and equality; these two being ideals greatly encouraged in Islamic economics. . Pareto Optimum Without justice, it would be difficult to realize even development. Muslim scholars have emphasized this throughout history. Development Economics has also started to emphasize this need, more so in the last few decades. Abu Yusuf (d. 798) argued that, “Rendering justice to those wronged and eradicating injustice, raises tax revenue, accelerates development of the country, and brings blessings in addition to reward in the Hereafter”. Ibn Taymiyyah (d. 1328) emphasized that “justice towards everything and everyone is imperative for all, and injustice is prohibited to everything and everyone.

Injustice is absolutely not permissible irrespective of whether it is to a Muslim or a non- Muslim or even to an unjust person. ” Justice and the well-being of all may be difficult to realize without sacrifice on the part of the well-to-do. The concept of Pareto optimum does not, therefore, fit into the paradigm of Islamic economics. This is because Pareto optimality does not recognize any solution as optimum, if it requires a sacrifice on the part of a few (rich) to raise the well-being of the many (poor). Such a position is in clear conflict with Islamic moral values, he raison d’etre of which is the well-being of all. In fact, Islam makes it a religious obligation for Muslims to sacrifice for the poor and the needy – by paying zakat. This is in addition to the taxes that they pay to the government. The above-mentioned points should not lead one to harbor an impression that the two disciplines (conventional economics and Islamic economics) are entirely different, as the subject matter of both disciplines is the same i. e. , the allocation and distribution of scarce resources. It must be noted that conventional economists too have never been value-neutral.

They have made value judgments in conformity with their own beliefs. As indicated earlier, even the paradigm of conventional economics is changing for example, the role of good governance has now become well recognized, and the injection of moral dimension has been emphasized by a number of prominent economists. On the other hand, Islamic economics has benefited a great deal from the tools of analysis developed by neoclassical, Keynesian, socio humanistic, institutional economics as well as other social sciences. This symbiotic relationship will, no doubt, continue into the future.

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