A Critical Examination of the Ethics and Methodology

of Syed Nawab Haider Naqvi's Islamic Economics

Shahina H. Mapara

A thesis submitted to the Facuity of Graduate Studies and Research in partial hifilment

of the requirements for the degree of Master of Arts

M t u t e of Islamic Studies McGili University, Montreai

November. 1999

Q Shahina H. Mapara 1999

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Abstract

While much attention has been given to the abolition of interest in Islamic

economics, there has been little attention given to the ethical framework on

which it is based. Syed Nawab Haider Naqvi in Islam. Economics and Societv

(1 994). presents an axiomatic approach to generating an Islamic economic theory

from the ground up. Chapter one considers Naqvi's argument for a distinct

Islamic economic system. Chapter two examines Naqvi's theoretical frarnework

and the Islamic economic system which he derives from it. The chapter

compares Naqvi's approach with that of M. Umer Chapra. who also adopts an

ethical frarnework for the foundation of an IsIamic economic theory. Chapter

three examines the debate surrounding the definition of ribà and the importance

of ribain Islamic economics. This study concludes with a recommendation for a

more systematic approach in interpreting the Qur'ân. which is the source of

Naqvi's economic axioms.

Résumé

Alors que l'étude de l'économie islamique s'est récemment intéressée

principalement à l'abolition de l'intérêt. les bases éthiques de cette démarche

n'ont été que rarement discuties. Dans Islam, Economics and Societv (1994).

Syed Nawab Haider Naqvi suggère la création en partant de La base d'une théorie

économique islamique distincte. fondée sur une approche êuiomatique. Le

premier chapitre porte sur ta pertinence d'un système économique islamique

indépendant. Dans le deuxième chapitre. Naqvi expose les fondements

théoriques du système économique qu'il propose. Ce chapitre compare

l'approche de Naqvi avec ceHe de M. Umer Chapra. qui Lui aussi propose une

approche éthiques comme base d'une théorie économique islamique. Dans le

troisième chapitre, i i est question du débat entourant la définition du r ib ie t de

son rôle dans l'économie islamique. En conclusion. l'étude postule une

interprétation systématique du Qur'in. constituant te point de départ pour

l'élaboration d'axiomes économiques.

1 wouId like to thank my thesis supervisor. Professor Üner Turgay, for his

encouragement. suggestions and patience. 1 would also tike to thank the Institute

of islamic Studies for feltowships 1 received during my residence.

1 would like to recognize the stafî of the Cslamic Studies Library. in

particular Sakwa Ferahian and Wayne St. Thomas. for their professional

assistance and friendship. 1 am also gratefbl to the staff and faculty at the

lnstitute of Islamic Studies. in particular Anne Ystvtey and Dawn Richards for

their guidance and support. 1 am ais0 gratefiii to Robert Victor for his friendship

and encouragement. I wish to thank above al1 my parents and my brother for

their patience and encouragement throughout my studies.

Table of Contents

ACKNOWLEDGEMENTS ............ ..., ........,,, ..... .-.-....- 111 .................

................. TABLE OF CONTENTS , - -".....,. ......... -...,,,,-,-,. ........ IV

INTRODUCTION .. .. .----- ..........., . ..-..........,,-..-, ............ ......-. 1

CHAPTER ONE: THE NEED FOR AN ISLAMIC ECONOMtC SYSTEM ...,.......,-.. ............. 7

I . THE SELF-INTEREST MODEL .......................................................................................................... ...a

11 . THE NEED FOR AN ISLAMC ECONO~IIC SYSTEM .........-................................................................. 1 1

III . RE~N-~ERPRETING THE SELF-INTEREST P~UWD~G~I ................................................................ 1 4

IV . FROM BELIEF TT) BEHAVIOUR ...................................................................................................... 20

............................................. CHAPTER TWO: THE ETHICAL BASIS OF NAQVI'S THEORY 26

1 . NAQ~I's FOUR kuiob~s .................................................................................................................. 76

II . COMPARISON WITH CHAPRA .......................................................................................................... 31

............................................................... ............................. . III UQL~IREMENTS OF NAQVI'S SET .. 39

........................................................................................................ .-i . -4depate and Legirimate ..JI

B . Mnïmal& Independent Set ...................................................................................................... JI

.............................................................................................................................. C. Conrisrenc y. 43

. . D . Pred~ctme Power .................................................................................................................. . 4 5

IV . A ROLE FOR ASSUMPTIONS: THE DEBATE ..., ....... , ........ - ........ ,,...,,, ............................

V . N ~ ~ v r ' s H Y P ~ ~ E S E S & RULES OF ECONOMIC BEHAVIOUR , ..,,..,,.,-...-.. .... .....,..... 5 8

R . Rationaf Behaviour and the Ethicai Environment .................................................................... 59

B . Distriburive Justice .....................-.....+...................................................................................... 62

........................ C . The Role of the Srare .. ..............-................................................................. . 63

CHAPTER THREE: INTEREST AND EXPLOITATION . . . . . -.. .............. ..--67

. I DEFINKION OF R I B ~ .. ................................................................................................................ 67

. 4. Ribi us al1 forms of interest ........................... ...... ........................................................... 71

B . Riba meam a l l f o r m of erploiration ..................... ... ....................................................... -8

...................................................... . I I A MODERNIST CRITIQUE OF EQUATMG h ~ i w r r ~ [MEREST 82

. ................................ .........................****................................. 111 THE APPROACH TO THE QUR'AN .. 86

CONCLUSIONS ... ........- ....... ....-w,uu,.---uu. .......... ......................... 90

Over the Iast few decades. the discipline of IsIamic economics has

emerged as a strong force. The attention given to it by both Muslim and non-

Muslirn scholars indicates that Islamic economics. rather than being a product of

a passing intellectual style. is here to stay.

Much of the literatwe of Islarnic economics is concemed with the

abolition of riba and the collection of zakd, however. esrablishing these two

elements presupposes the need for a separate economic system. In order to

determine the efficacy of these instruments. one must first establish the

foudationai elements of the theory. The theory must address not only the nature

of eiements such as ribiand zakah. but also the rationde for the prohibition or

state administered collection. For this reason. this paper addresses the ethics and

methodology of Islamic economics first. and the issue of n'bisecond.'

Syed Nawab Haider Naqvi. in his book Islam. Economics and ~ocietv,'

has tendered a theory of Islamic economics in which he addresses the dificult

questions that challenge its rationale and methodology. Naqvi addressees the

need for an Islamic economic system and how it would be generated from the

ethical statements found in the Qur'in. As Naqvi is one of the few scholars who

address the foundritional issue of theory building, this study is devoted primarily

' Zakab. a fonn of tax levied on Muslirns for the relief of poverty . etc.. wiIl not be examined as it is not a crucial element in Naqvi's theory. Although zakah is an important issue, it has not received as much xholarly attention as riba ' Syed Nawab Haider Naqvi, tslam, (Londonr Kegan Paul, 1994).

to an examination of his theory. M. Umer Chapra is another scholar who adopts

a similar approach. and a comparison between the two is presented in Chapter

two. The further rational for the focus on Naqvi is that his distinguished career

as an economist makes possible the actuaiization of his theory. Naqvi has been

the director of the Pakistan Institute of Development Economics, and he has a

Ph-D. in economics from Princeton University. My examination of Naqvi's

theocy will include a critical exposition of his theory. A contrast will be made

with the relevant principles of western economics and where possible, a

comparison will be made with other islrimic economists.

In chapter one. Naqvi's argument for the need of an Islamic econornic

system will be examined. it will be demonstrated that Naqvi critiques the model

of western economics because it equates rational behavior with self-interest

maximization. Before engaging Naqvi's critique of self-interest maximization.

an outline of the roots of this concept wiIl be offered through the works of

Francis Edgeworth and Frank Knight. It will be demonstrated that Naqvi's

critique of western economics is that the Ianer is based on self-interest

mauimization. a notion that is contrary to Islamic ethics. Naqvi argues that the

decision making of Muslims includes notions of ethicai beliefs. and therefore. the

separation of ethics and economics which serves as the mode1 of economic

decision making cannot be applied to Muslims.

In this chapter. it will be argued that while Naqvi challenges the defmition

of rationality as self-interest. he does not adequately address other western

economists that reinterpret the existing model in a manner more favorable to

Islamic ethics. Daniel Hausman and Michael McPherson argue that ethics could

play into our ordering of preferences and tastes. as rational choice theory does

noc ~ e l l us how to order our preferences. Jon Elster also maintains that rational

choice theory requires value judgements at every step. and that value judgements

are required in ranking options. While these views represent a departure from the

paradigrn. it will be argued that Naqvi does not provide an adequate challenge to

these theories representing the behavior of Muslims.

Naqvi. in his earlier work. Ethics and Economics: An lslamic ~vnthesis.'

presented the ethical axioms chat will be addressed in chapter two. The crucial

difference between the two works is Naqvi's introduction of two concepts in the

latter: 1) the belief in the divine presence. and 2) the Muslim society. Naqvi

argues that these two concepts will bridge the gap between the Muslim belief in

God and the economic behavior of Muslims. The importance of this question lies

in the fact that it is clear that many. if not dl. Muslims will hold many specific

beliefs about economic decision making in common. What Islamic economists

must prove is that the actual behavior of Muslims is significantly different from

non-Mustims to warrant a complete restructuring of the current economic system

in various Musiim States. it will be argued that Naqvi does not meet this

challenge. It will be argued that Naqvi's verifications reasoning will be easily

falsified. Further. it will be argued that Naqvi has not closed the gap between the

befiefs of Muslims and their actions.

' Syed Nawab Haider Naqvi. Ethics and Economics: An Islamic Svnthesis (Leicester: The Islamic Foundrition, 198 1).

In chapter two, Naqvi's four axioms. namely uni-. equilibriurn. free will.

and responsibility will be presented. Naqvi argues that from these four avioms,

ail statements regarding tslamic economics can be generated. Naqvi explains that

the concept of unity is derived from the belief in one God. Equilibrium is the

concept that represents social ideals and justice, Free will is individual tfeedom.

and responsibility is the obligations each individual has towards himself or

herself. society and God.

These concepts are rneant to be the Iowest cornmon denominator of ethical

concepts. Hence. a comparison of the ethical axioms of Islamic economist M.

Umer Chapra is offered. It will be argued that whiIe the presentation and terms

used varies. the content of the principles are basicdly identical. Chapra begins

his discussion with the maq-id al- ShanT*&. which are the materiai. social. and

spiritual goals of Islam. Chapra's ethical system is based on three principles:

tawbid which is unity. khrïafab. which is vicegerency. and 'adâIah. which is

justice. However. the latter two principles originate from tawbid.

In the next section of this chapter. the requirements of Naqvi's set of

ethical avioms will be analysed. Naqvi outlines seven properties that his set must

satisfy. The set m u t be an adequate and legitimate representation of Islamic

ethics. It must be a minimal set capabie of producing dl economic statements. It

must be independent with none of the axioms deducible fiom the others. It must

be consistent and have predicative power. It must be necessary and sufficient to

produce statements about Islamic economics and it must explain IsIamic

economics. Naqvi claims that his system satisfies these requirements and in

doing so. it lends a greater scientific character to his theory-building enterprise,

as it supports the validity of his initiai ix~ioms.

The issue of the tmth of the initia1 axioms gives rise to an interesting

debate. MiIton Friedman. in his essay. "The Methodology (if Econornics" argued

that science focuses on the predicative capabilities of the theory rather than the

tmth of the initial assumption. This debate will be outlined. and it will be argued

that Naqvi is right to estabiish various criceria to test the strength of his

assumptions. The second chapter will conclude with an examination of Naqvi's

hypotheses and rules of economic behavior.

In the third chapter. Naqvi's views surrounding the prohibition of /ibiwilI

be considered in the context of other Islamic economists. The analysis of the

various views of ribZ will be offered in the context of categories outlined by

Fazlur Rahman and Saeed AbduIlah. Abdullah maintains that the views of

lslamic scholars surrounding the prohibition of nbàcan be generally divided into

two goups. the neo-revivalists and the modernists. [t wilI be argued that Naqvi

falls into the former group, which can be distinguished through their approach to

the interpretation of the Qrrr'in.

It will aiso be argued that although Naqvi does not engage the discussion

about the definition of n'bZ his approach. which eiiminates the use of bank

interest. indicates that he adopts the view that ribiis equivalent to baak interest.

In the next section, other definitions of dbâwiIL be outIined, and where possible.

Saeed's categories based on Qur'inic interpretation will bc appiied.

Returning to Naqvi's adoption of #&a' as bank interest. the critiques by

Saeed Abdullah and Fazlur Rahman will be outlined. It will be demonstrated that

Saeed Abdullah's argument is based on the definition of the Qur'inic term. "m

'Csu amwiL'." which has been translated as principal. Abdullah argues that the

types of things that were considered commodities in seventh century Arabia were

much narrower than the types of principal possible today. As a result. ribi

should not be defined as interest on the principal amount of a loan. Both Rahman

and Abdullah argue that the r ib iof the Qur'in constitutes a very specific type of

transaction in which the principal of a loan was doubled and quadrupled, this

being distinct from bank interest. Both scholars conclude that the ribiof seventh

century Arabia is not to be understood as bank interest.

As the debate surrounding the definition of ribilargely turns on how one

interprets the Qur'an. Rahman's double movement methodology will be

introduced as a possible approach. [t wilI be argued that Fazlur Rahman

maintains that the Qur'in should be seen as a response to the situation of the

seventh century Musfim community; therefore. an appropriate methodology is

required to determine what the Quranic principles were and apply them to the

modern context. It will also be suggested that the consistent method in

interpreting the Qur'in may give some meaning to terms used by Naqvi and other

Isfamic economists in explaining what an Islamic economy would look like.

Chapter One: TEE NEED FOR AN ISLAMC ECONOMIC SYSTEM

Most arguments in favor of the deveiopment of an Islamic economic

system maintain thar the neoclassical approach is not adequate because it

divorces ethics from economics. That rationai behavior is often defined as self-

interest mêuimization is problematic for many economists who feel that it is not

an accurate profile of the economic decision maker. There are several hurdles to

overcome in order to demonstrate the need for Isiamic economics. Clearly. if the

economic behavior of Muslims is no different from the behavior of other agents.

then there is no need for an lsIamic economic system. One must prove that either

Muslims religious beliefs result in unique economic behavior which cannot be

described by any paradigm. positive or otherwise. or one must experientially

demonstrate that Muslirn econornic behavior is significantly different.

In this chapter. 1 will show that Naqvi adopts this argument for the

development of an Islamic economic system and that he is not alone. for many

other Islamic economists hold the same position regarding rationality and self-

interest. First. I wiIl argue that the cunent definition of rationdity being defined

as self-interest has corne under serious question. h m economists within the

mainstrearn school. and there have been S ~ ~ O U S attempts to recognize the ethicai

considerations of economic decision making. In order for Naqvi to make his

case. he musc demonstrate not only that the current system does not adequately

describe the economic behavior of Muslirn societies. but aiso that some of the

other attempts to h s e ethics and economics are inadequate. Although he

recognizes this as a concept which he must address. Naqvi's argument is not

convincing, and he does not engage other attempts to incorporate ethics and

economics. As his approach begins with the beliefs of a representative Muslim.

Naqvi tries to move from beliefs to action. yet he does not convincingly bridge

the gap. As a result. he does not demonstrate the need for Islarnic economics.

1. The Self-Interest Model

Before engaging Naqvi's discussion of rationality and self-interest. let us

outline the opposing view.'l The profile of the economic decision maker came

about in the attempts to formulate a theory of perfect competition. It was thought

that individual agents must consume. produce. and exchange with regards to their

awn self-interests. Any consideration of others in society. their needs or wants is

irrelevant for the individual's economic purposes. In Risk. Uncenaintv and

Profit. Frank Knight. in outlining the conditions of perfect competition. includes

a brief discussion O C the egoism in his imaginary society:

The people are formally free to act as their motives prompt in the production. exchange. and consurnption of goods. They -own themselves": there is no exercise of constraint over any individual by another individual or by "society": each controls his own activities 6 t h a view to resuIts which accrue to him individuaiiy. Every person is the final and absolute judge of his own welfare and interests.'

4 A critique of Naqvi's theory based on Islamic epistemoiogy has been developed by Masudul Alam Choudhury. review o f islam. Economics and Societv, by Syed Nawab Haider Naqvi. in Hamdard Islamicus 19 (1998): 99-122. ' Frank Knight. REsk, Uncertaintv and Profit (New York: Houghton Mifflin. 1921). 77.

Here it is important to note that Iuiight not only argues that in petfect

cornpetition individuals act on their own motives, but also asserts that individuals

can only be driven by the satisfaction of their persona1 individual wants.

In Mathematicai Phvsics. Francis Edgeworth writes. "The first principle

of Economics is that every agent is actuated only by self-interesLb Arnaryta K.

Sen notes that although Edgeworth adopts this as a principle for his inquiry.

Edgeworth himself describes economic man as. "an impure egoist, a mixcd

- utilitarian."' However. Edgeworth also argues that the characterization of man as

self-interested is appropriate for the areas of war and trade.'

The second component of the profile is the rationat maximizer. This is an

individual who has perfect knowledge. the awareness of al1 of the possible

actions and the ability to know the consequences of his actions. Of course what

he mavimizes is his self-interest. Knight explains:

We assume that the members of the society act with complete "rationality". . . we assume ordinary hurnan motives (with the rese~ations noted in the following paragraphs); but they are supposed to "know what they what" and seek it "intelligently" ... al1 their acts take place in response to real conscious. and stable and consistent motives. dispositions, or desires; nothing is capricious or experimental. everything deliberate. They are supposed to know absolutely the consequences of their acts when they are performed. and to perform them in Iights of the consequences. 9

6 Francis Edgeworth. Mathematical Phvsics (London: Kegan Paul, 1881), 16. 7 Arnaryta K. Sen. "Rational Fools: A Critique o f the Behavioural Foundations o f Economic Theory. " Philosophv and Public Affairs 6 (1977): 104 * Edgeworth. 52.

Knight 77.

When we apply Knight's rationality conditions to the satisfaction of individual wants

we get what Elster calls a -thinn rationality. in which rationality is defined by picking

the Oighest ranked alternative.

Daniel Hausman (1 992) explains these requirements of a 'rhinly" rational

choice:

An agent A's choice s are rational if and only if:

A's preferences are rational.

A prefers no option to the one A choo~es.'~

In order for Alia's preferences to be rationai. they must be complete (if for al1

options x and y. either she prefers x. y, or she is indifferent between x and y). and

transitive (if for a11 options x. y. and z. if Alia prefers x to y and y to z. then she

must aiso prefer x to z: if AIia is indifferent between x and y and y and z. then she

must also be indifferent between x and r). Thus. the only concem in the

rationality of Alia's preferences is that she choose what she desires the most and

then ranks [hem consistently. If Alia chooses an option other then the one she

preferred. then she is acting irrationally. It is clear that these requirements

preclude the influence of ethics both in the content of preferences and their

ordering. It is this rhin" rationality about which the Islamic economists

disagree.

'O Daniel Hausman. Essavs on Philoso~hv and Economic Methodotow N e w York: Cambridge University Press. 1992). 25.

II. The Need for an Islamic Economic System

In his preface of Islam. Economics and Societ-v. Naqvi explains that his

position is that the separation of ethics and economics does not properly explain

or describe the behavior in an Islamic society. He maintains both that economics

as it now stands is inadequate, and that he is adopting a position which ailocates

a unique role for ethics:

We aiso do not accept the view that there is no need for Islamic economics because the science of economics is adequate to analyse economic probtems in al1 societies at al1 times. In particular. we reject the positivistic view that economics should remain untouched by ethics. Instead we subscribe to an essentiaily broader view of economics which freely employs value judgements as scientitic statements claiming objective validity; and take the additiona1 step of recognizing religion as a source of ethics."

Departing from the neoclassical school. Naqvi indicates that the goal of the

present work is to deduce economic principIes from an axiomatic system based

on pronouncements of the Qur'in. In further chapters we will consider both his

methodologicai approach. as well as evaiuate his economic principles: however.

for the moment. we will consider onIy the rationale for a separate discipline of

Islamic economics.

Naqvi explains that in neoclassicai theocies, rationality is delïned as self-interested

behavior. and al1 behavior which is not dnven by self-interest is considered imtional:

The concept of rationaiity in economics. also equated with seIf-interest msi~imization behaviour. is meant to simulate the actual behaviour of economic agents.

" Naqvi. Societv, xxii.

This simplification, central to neoclassicai economics, ensures the positivity of economics by keeping ethics out in the cold. It is for this reason that al1 ethical behaviour, which is not necessarily keeping with self-interest maximization, is termed irrational. "

Naqvi is not aione in his insistence that neoclassicd economics is hadequate due to its

separation of ethics and economics. Muhammad Akram Khan ( 1989) bases his

argument on the sarne line of reasoning maintaining that there is a consensus among

economists about at least three things:

1, The basic assumption is ihat man is selfish by nature and he

behaves rationally.

3. Material progress is a supreme goal.

3. Every person has an inherent tendency to maximize his material

welfare and he also has the knowledge and ability for

deciding what is good for him (50).15

In the above formulation. even if we accept the last two propositions. and

certainly M.A. Khan does not. the first assumption. that man necessarily behaves

in a self-interested manner contradicts any formulation of ethics in any major

religion. including Islam, Naqvi further maintains that the question of self-

interest and rationality has a different formulation in IsIamic Economics. In

Islam, rationaiity is defined with considerations of teleological ethics in mind:

'' Naqvi. Societv, 55. '' Muhammad Akram Khan. "Methodoloev of islamic Economics," in Readings in the Conce~t and Methodologv of Islarnic ~conomics,-éd. Aidit G h d i and Syed Omar bin.Syed Agi1 (Selangor D m 1 Ehsan: Pelanduk Publications. 1989). 50.

[Wlhen considerations like the thought of the Hereafier play a significant role in man's daily life. his calculus of the -profitable' course of action will accord due weight to nonmonetary benefits (costs) as well. Thus, what may appear as an irrational action to a -non-believer' becomes the hallmark of rationality to the 'believer' (16).14

In islamic Economics. altruism is at the very core of rationality. Other islamic

economists that refer to this concept in economics include Muhammad Umer

Chapra "These beliefs supply a powerful motivating force for socially-orientated

action by giving self-interest an infinitely longer perspective. They imply that an

individual's seIf-interest is not scrved only by improving his condition in this

world but also in the ~ e r ~ a f t e r . " ' ~

These islamic economists argue that altruism as a factor in human

behavior can be witnessed in al1 societies. There is a genuine interest in people.

animals, and increasingly. the environment. and this can be seen by individuais

devoting time. effort and money to various events and charitable efforts.

Certainly in a Musiim society. in which the unity of the community and a sense

of solidarity prevails. one would expect the spirit of aitruism to be central in any

decisions making, especiaily economic decision making. Naqvi is nght to be

suspicious of an economics that subscribes to a -.thin" version of rationality. and

he rnay also be right in discarding it for another position: however. there are

other alternatives that may suit his purposes.

" Naqvi, Societv, 16. " Chapra. 119.

III. Reinterpreting the Self-lnterest Paradigm

We can now consider some views from within the existing paradigm that

address the problem of the exclusion of moral values and noms in economic

theory. Daniel Hausman and Michael McPherson outline a theory of rationality

which they argue does not imply self-interest, They argue that their statement.

"Agents are rational if and only if their preferences may be represented by

ordinal utility function. and their choices maximize utility-, does not imply self-

interest:

Someone whose choices are determined by a complete and transitive prrference-ordering that ranks the weil being of others very highly is no less a utility maximizer han is the individual who is indifferent to the welfare of othrrs."

What they are saying is that since rational choice theory does not tell agents what

kind of preferences to choose. there is really nothing stopping us from including

moral values in our preferences. It is important to notice here that Hausman and

McPherson have redefined the paradigm of the economic decision maker and left

the two century history of "necessariiy self-interested" out. They indicate that

agents can rank their concern for the weil-king of others, but they do not explain

how this fits into a given preference ordering. Robert Goldfarb and William

Griffith maintain that treating moral values as preferences for commodities Ieads

Ib Daniel Hausman and Michael S. McPheimon. Economic Analysis and Moral Philoso~hy (Cambridge: CUP. 1996). 29.

us to funher conceptual dificulties:" however. Hausman and McPherson do not

provide much detaiI.

In addressing the problern of how to conceptuaiize the inclusion of moral

judgements in our preference orderings. Sen develops layers of orderings of our

initial preferences, thus creating a meta-preference ordering. The advantage of

this approach. he maintains, is that it provides "a contrast between moral

orderings and actual orderings." in which one outcome is morally preferred to

another.'' Further Sen's addition allows for gradations of morality. where others

allowed only for binary ordering.

Jon Elster. in contrast with Francis Knight. Frank Edgewood. Lionel

Robbins. and Milton Friedman. maintains that Rational Choice as we have

defined it requires value judgements at every step: the theory of Rational Choice

is a normative theory. Although in the standard formulation. it does not tell us

what our goals and desires should be. it does prescribe what we should do in

order to achieve our aims. The rationai choice is the highest ranked eIement in

the feasible set. Elster argues that this is a subjective process. The agents

understanding of the causal structure. as well as her value system. whether it

consists of maximizing utility or some other system of valuation. including

religious ethics. helps her to rank her options.I9

I f William B. Griffith and Robert S. Goldfarb, "Amending the Economist's 'Rational Egoist' Model to lnclude Moral Values and Norrns: Parts 1 & 3," in Social Noms and Economic Institutions. eds. Kenneth J. Kogfod and Ieffery B. Miller (Ann Arbor: The University of Michigan Press, 199 t ). 66. 1s Amaryta Sen. Choice, Welfare and Measurement (Cambridge: MIT Press. 1982). 80. l9 Jon Elster. ed. Rational Choice wew York: NYU Press, 1986).

16

An important consideration in the sometimes rival conceptions of

rationality and moraiity is the Prisoner's Dilemma (PD). PD is two person game

which clearly shows, that in some cases. actions based on individual self-interest

can result in the worst possible outcome. Consider a situation where two

prisoners have been captured for a joint crime. These are the outcomes:

Confess K e e ~ Silent

Confess Each get IO years 1 go free.

Keep Silent I get 12 years. Each gets 2 years

In this situation. we can set that it is better for each if he confesses.

regardless of what the other person does: however. if both confess. it will be

worse than if both had kept silent. The major problem of concem to us is known

as the isolation problem. which occurs when the outcome of individually rational

decisions is worse for everyone. tf both prisoners confess. each is acting in a

manner that is individually optimal. Le.. each is acting on his own self-interest.

The mode1 of the self-interest rnaximizer is not supposed to be concemed about

the wants or actions of others: however. the prisoner's dilemma demonstrates not

only that a person does worse for himsetf if he adopts a strategy of self-interest.

than if he follows some other course, but every person does worse. Kurt Baier

concludes that universal independent rationality is individually and sociaily non-

optimal."

(

Kurt Baier, "Rationaliry and Morality," Erkenntis t 1 ( 1977): 198.

Another argument for the acknowledgement of mord values and noms in

economic theory cornes tiom Goldfarb and Griffith. They maintain that

producers' concern for buyers, and employers' concern for employees may

explain what they cal1 a "stickiness" of prices. when demand exceeds the supply

of products: and wages. when demand exceeds the supply of jobs." It would

seem that even Milton Friedman. who maintained that the realism of assumptions

is i r r e l e ~ a n t . ~ would be concerned about moraIity if it sullies predictive results.

The CO-authors also notice that the general adoption of ethicd n o m s decreases

deception and coercion in real markets. Moral values supplement Legal rules and

even give them force. -There are too many subtle opportunities to cheat, and too

few police officers. to make it plausible that the only effective motives

supporting moral behavior are the prospects of financial or criminal penalties for

i r n r n ~ r a l i t ~ . " ~ If moral niles do make a difference to o w results. either by

providing some explanation for why resdts are not as expected. in the

'*stickiness" of pricts and wages: or are as expected. by taking into account why

deception and coercion c m be ignoreci: presumably, ehey have some explanatory

value for economics.

While the separation of ethics and economics remains. it is not always

taken for granted. There remains a considerabIe focus on an ethical economics.

Although Naqvi refen to rome of this literature." he does so p i - h d y so show

Griffith and GoIdfarb. 47. f7 - MiIton Friedman. The Methodology of Positive Economics." in Essavs in Positive Economics (Chicago: University o f Chicago Press. 1953). " GoldFarb & Griffith, 77. '' Naqvi S o c i e ~ 68-9. footnote 5-

the resistance of the '-positivev paradip . He does not engage the possibility of

this area of economics providing a reasonable representation of Muslirn

behavior.15 For Naqvi. having discarded positive economics. the only remaining

a!temative is Islamic economics.

Naqvi explains that in his earlier book. Ethics and Economics. he

anempted to outline the economic principles in an ideal Muslirn society:'

however. he recognizes that in order to be scientifically robust, IsIarnic

econornics must describe the economic behavior of "representative" Muslims in a

real Muslim society:

... Islamic economics is about enunciating a significant number of falsifiabte statements about the economic behaviour of representative' Muslims in a typical real-life ltiuslim society with reference to the ideals that impan it a distinct *persona1ity'."

Naqvi's goal. then. is to establish theory of Islamic economics that is capable of

analysing. and being analysed. scientifically. He is not developing a system of

synthetic a priori truthsi8 that caonot be tested due to their Divine origins:"

rather. in using Karl Popper's fdsifiable terminology. he expects his theory to be

3 Choudhury maintains that Naqvi's -exogenous- introduction of ethics into his theory is in fact pan of the neoclassical tradition he critiques. Choudhury. Review, 1 1 1.

Naqvi. Ethics, 2 1. foomote 2. -? Naqvi. Societv, xix-xx- 3 Here Naqvi is borrowing a distinction first made by ImmanueI Kant and then adopted by the logicai positivists. in which statements are divided into analytic. synthetic. apriori and a posteriori. Analytic statements are me by definition, such as "a bachelor is an unmarried man". These statements can be determined as m e without experiential observation. or a priori. The truth of synthetic statements. however. such as *e book is on the table-, can oniy be verified through observation (aposteriori). See Immanuel Kant's -Preamble in Prolegomena to anv Future Metaohvsics (Indianapolis: Hackea Publishing. 1977). -4 Naqvi. Societv, ~ x i .

experientially validated. As the issue of falsification arises throughout Naqvi's

work. we should pause to consider some relevant issues in deductive logic.

It was the view in the nineteenth century that science differs from non-

science through the use of induction. Le.. from experience. observations and

expenments to general laws. However. Hume's problem of induction indicates

that induction cannot offer conclusive e~idence. '~ For exarnple. with regard to

the statement. "Al1 swans are white". no amount of observation of white swans

would venfy the statement: however. the observation of a single black Swan is

enough to refute it. This asymmetry between verïfiabiIity and falsifiability is

based in first order deductive Iogic: It is logically correct to affirm the

antecedent (modus ponens) or deny the consequent (modus roliens): however.

affirming the consequent is fallacious:

Verifkation (affirms consequent) Falsitication (denies consequent)

hypothesis is true - > facts are me hypothesis is true --- > facts are true

facts are true facts are false

therefore. hypothesis is true therefore, hypothesis is false

For Popper. "science is that body of synthetic propositions about the real world

that can. at least in principle. be falsified by ernpirical observations because. in

effect. they mle out certain events From occ~mng."~'

50 David Hume. "An Enquiry Conceming Human Understanding." in Hume's Enauiries, ed. P.H. Nidditch (New York: Oxford UP. 1990). '' Mark Blauz. The Methodolow of Economics (Cambridge: CUP. 1992). 12.

IV. From BeIief to Behaviour

Having defined Islamic economics in these terms, Naqvi is attempting to

formulate a system that will stand the test of scientific validation. His next

move. to demonstrate economic behavior in a Muslim society is different enough

to deserve a separate consideration and that the cause of the difference is the

result of Islamic ethical system is not so successful:

[Tlhe next conceptual hurdle to cross is to show that a representative Muslim's observable economic behaviour is different enough from that of the economic agents in other culturai-religious traditions to warrant a separate treatment: and that such differences in the behaviour pattern can be explained in terms of the pervasive acceptance of the Islamic ethic as an ideal form of behaviour in typical Muslim societies.'*

Naqvi uses the terminology of a "representative" Muslim. who rnay not be an

ideal Muslim, to demonstrate that his theory does not describe economic behavior

in a utopian society. He explains that his definition of Islamic economics

visualizes a "counterfactual". where the Islamic ethical principles. and the

resulting economic postulates "interact with the reality of an Islamic society.

Then within the context of the same counterfactual. the concept of a real-life

Muslim society transforms essentially refutable economic and ethical assertions

into falsifiabte statements.. . . -33

Naqvi attempts to make this logicai leap from the belief in God and an

Islamic ethic to a series of falsifiable statements through the introduction of two

Naqvi. Societv, xx.

key concepts: The Belief in the Divine Presence and the Muslim Society. Naqvi

argues that the representative Muslim has a belief in God and generally acts in

accordance with this belief. Naqvi quotes the Qur'Zn (9:105), -Act. God will

see your c o n d ~ c t . " ~ ~ He maintains that a typical Muslim- even one who is not

particularly pious believes in God. and acts in accordance with his belief:

Knowing this. he seeks God's help in every significant rnove he contemplates ... - And in a substantial number of actions- e.g.. feeding the poor. giving alms. helping an orphan. generally nof charging interest on Ioans among friends and relatives ... seeking God's pleasure is the mainspring of economic action. It is under the influence of a firm belief in the Divine Presence that certain potent ideas- e.g.. those about the equaiity of al1 men before God. about the poor having a right in the rich man's wealth because al1 wealth belongs to Allah ... etc. - are routinely believed by the Muslims: and to some extent. also practiced. though not always c o n s c i o u s ~ ~ . ~ ~

Thus. Naqvi explains that it is the belief in God that causes the typical

Muslim to believe in and act according to the noms dictated by [slarnic ethics.

Naqvi claims that there are several points to consider in the analytic importance

of the Belief in the Divine Presence. First the association of ethics and

economics occurs at the level of "prïmary motivation". so there is no reasoning

involved. Second this integration of ethics and economics is an empirically

falsifiabIe fact in a typicai Muslim's daily life. Third. the consideration of the

Hereafter plays a significant role in the typicai Muslim's daily Iife since his

Naqvi. Sociehr. 14. Naqvi, Societv, 15.

'' Naqvi. Societv, 1 5.

calculus of the "profitable" course of action will also consider nonmonetary

benefits. Fourth, once this fact of the integration of rthics and economics is

established, we cannot ignore it.36 While it seems that Naqvi has painted a

picture of an idea1 lslamic society. he maintains that full adhetence to these

ethical principles is not requi red of the representative Muslirn:

[Rlepresentative Muslim is not required to actually and faithhlly. practise everything that he believes in or taIks about ... Thus, the departure €rom the ideal noms may be frequent, even systematic: but that does not detract from the importance of a n o m being used as a refercnce point. and as a guide to action."

Having described the Belief in the Divine Presence. Naqvi etaborates his

second concept. which is a distinction between the Islarnic society and the

MusIim Society. The Islamic society is an ideal society. but a Muslim society is

one in one in which the concept of the Divine Presence is a universally heid

belief. This. he argues. gives the concept a quantitative significance. as the

society becomes a real-Li fe counterpart of islamic economics

statements of Isiamic economics to be empirically tested."

Naqvi is basing his theory of Islamic economics on a real-

allowing the

ife counterpart

society which is defined as a Mush society in which all members of the society

believe in God. believe in an Islamic ethic. and sometimes act according to their

ethicd beliefs. Although the real-life counterpart society creates a testing ground

for his lslamic economic theory, Naqvi does not argue that a representative

36 Naqvi. Sociew 16. n Naqvi. Societv, i 6, " Naqvi. Societv, 16-1 7.

Muslim's economic behavior is significantly different tiom agents of other

religious or cultural beliefs. What Naqvi shows is that the ideals of economic

behavior that Muslims believe in are signifrcantly different from the profile of

the self-interest maximizer. He demonstrates neither that the economic ideals of

a representative Muslim are different from the economic ideals of other agents.

nor does he show that the actuai behavior of the representative Muslim is

significantly different from the actual behavior of other agents.

Naqvi does not establish a causal Link between belief and action. We can

see that his approach to these two processes is unclear in his treatment of the

analytical importance of the Belief in the Divine Presence:

First the integration of ethical imperatives with economic considerations takes place at the level of primary motivation of the representative Muslim in a more or less routine fashion. so that he hardly ever reasons about it: he simply does it 39

In this first sentence, the integration of ethical imperatives with economic

considerations is a process of Naqvi's Islamic economic belief making. This is

what the representative Muslim just does. without having to reason about it. He

continues:

Second. such an amalgamation of ethics and economics is an empiricdy verifiable- or. at least. falsifiable- 'fact'. the importance of which is apparent not only at the Ievel of philosophical discourse but also in the representative Muslim's day-to-day life. Thus. it is possible to ascertain this -fact' by generating the relevant information in

j9 Naqvi. Sotie% 1 5.

various ways about how an ordinary MusIim typically behaves:'

In this sentence, Naqvi is talking about how a representative Muslim's belieji

about the integration of ethics and economics is falsifiable. WhiIe this can be

possible through the use of surveys or questionnaires which address questions as

to the nature and motivation of the agents beliefs. what Naqvi is talking about is

using information about an agent's behavior to falsifj information about his

beliefs. as in the following conditional:

It is true that the typical agent has beliefs about ethics and economics - >

A cortesponding behaviour will occur.

The behaviour does not occur

Therefore. it is not true that the typical agent has the stated beliefs.

The first problem is that we know frorn our discussion about verification

and falsification that the information we cari gain from investigating the behavior

of the representative Muslim agent in this regard is in denying the consequent

and determinine that the stated beliefs about ethics and economics are inaccurate.

Given that Naqvi has noted that the behavior of the represenrative Muslim is not

ideai. and in fact may deviate from the IsIarnic normative ethic considerably. it is

not clear why he would maintain that information about how the representative

Muslim behaves would estabiish the integration of ethics and economics as a

"fact". when it only takes a singIe act deviating from the ideai to faisifi the

hypothesis. The second probtem is that Naqvi sees this fact about the beliefs of

Muslims as having a quantitative economic significance. Even if the hypothesis

" Naqvi, Societv, I5- 16.

is not falsified. the only Tactw that we have is about the beliefs of Muslirns.

Naqvi does not provide any facts about the behuvior of Muslims or their decision

making.

Given the difficulty in defining the contents of ethical systerns. a lucid

presentation of the principles of Islamic ethics as the basis of Islamic economics

has eluded most researchers in the field. In this chapter. S. N. H. Naqvi's ethical

system will be outlined. Having established the preliminary elements of the

belief in the divine presence and the Muslim society. Naqvi clairns that his

ethical axiorns: unity. equilibrium. free will and responsibility. together satisfy

al1 of the logical and methodological requirements of an economic theory. He

asserts that in order to maintain the sound scientific basis of his theory. his four

axioms must sa&@ certain criteria. His next step is to outline sorne hypotheses.

The Iast step combines the hypotheses with the a ioms to generate niles of

Islamic economic behavior. Naqvi's principles will also be compared and

contrasted with those of M. Urner Chapra,

1. Naqvi's Four Axioms

Naqvi explains that the sources of al1 tsIarnic ethicai notions cornes from

the belief in the unity of God (tawbrCi). He explains that this element in Ishnic

ethics establishes a connection between the Infinite and Perfect Being and the

finite and imperfect world. The unity of God not only reiterates His qualities. but

it also reflects man's submissive relation to God. By uniting man's social.

political and economic aspects. his life becomes consistent and it contributes to a

universal brotherhood. The omnipotence of God also results in a social role of

unity; Gad is All-Powerful and All-Knowing: -He has certainly power over

everything" (35: 1)": "Allah is Knower of Al1 things" (5: 177). Furthemore, al1

things belong to Allah. "To God belong the heavens and the earth ..."( 3:lsO).

However. Naqvi explains that although God is the Owner. humans still have

freedom and it is up to us to decide how to exercise it!' Thus. the concem for

ethical fulfillment results in the individual raising his or her leveI of

consciousness to a higher

Naqvi maintains that the concept of social equilibrium (a/-'ad1 wa al-

ihsin) corresponds to unity. Equilibrium represents a social ideal of the virtues

of legal. political and economic institutions. "Verily God has enjoined justice and

kindness8-(l6:90). In the economic sphere. the concept demands that the

configuration of production, consumption and distribution activities be based on

social equilibrium; in particular:

with the clear understanding that the needs of al1 the Ieast-pnvileged members in MusIim society constitute the first charge on the real resources of the s o ~ i e t ~ . ~

With this statement. Naqvi has clearly defined social equilibrium as being

concemed with both improving the economic lives of the Ieast-priviieged

members of the comrnunity and them being worthy of al1 of the resources of the

society. In order to further explain this concept. he examines the meaning of the

'' Naqvi uses both Abdullah Yusuf Ali. The Holv Our'an: Text. Translation. and Commentarv (Lahore: Sheikh Muhammad Ashraf. 1938). and Ahrned Ali. Al-Qur'an: A Contem~arap Translation (Karachi: Akrash Publishing, I984). " Naqvi. Society. 16.27. r; Although 1 do no question that the Unity of God is a central aspect both in lslamic theology and ethics, Naqvi's explanation o f how and why uniry fîts into his ethical scheme is not clear. This problem will be discussed in more detail in chapter two.

antonym of 'adf. that is. zulum. "2uIum denotes a social disequilibrium in the

sense that the resources of the society flow ftom the poor to the rich.'*" Naqvi

asserts that this is not permitted in Islam because of the verse. "So that it (Le.

wealth) does not concentrate in the hands of those who are rich among you"

[59:7]. Naqvi maintains that this verse combined with the one above demands

that in a state of disequilibrium. it is a societal responsibility to ensure that an

equilibrium is reached and maintained. and wealth and income are distributed

fairly. Thus. the concept of equilibrium includes both the goal of equilibrium.

and the process. the reordering of production, consurnption and distribution of

wealth and income so that the basic requirements of the least-privileged are met.

Naqvi also argues that the discussion of equilibrium must be taken in a dynamic

context:

a state of disequilibnurn today c m be justified if it leads to Equilibrium tomorrow; and contrady. an insistence on Equilibrium at each instant of time may be held unjustifiable if it leads to disequilibrium in a dynamic c~ntext . '~

He concludes that although moral discussions often take an air of absolutism. the

proper application of equilibrium requires an awareness of the actual

circumstances.

Free will (ikûtiyat) is an element that each individual has. and it provides

him or her with the ability to make choices in situations where there may be

opposing issues involved. Naqvi maintains that the individual's freedom is

u Naqvi, Soc ie~ , 27.28.

"unrestricted and voluntaryn: therefore. it is possible to make the wrong choice,

even though it is an individud's best interest to make the right choice:

"Say: O mankind! Now hath the Tmth from your Lord corne unto you. So whosoever is guided is guided for the good of his soul. and whosoever eneth erreth only against it" [10:108].

and

'Verily God does not change the state of a people till they change their inner selves ..." [(13: 1 11.

Furthemore, an individual's blessings are conditional upon making the right

choice. Naqvi claims that the b a i s of our freedom is our ability to make the

right choice. He further explains that very much related to our abiiity to make

the right choice is our "theornorphic rolen as God's vicegerent (kbdfah) on

earth, This vicegerency is more of a virtuality than an actuality: however. it is

our goal to act in a manner such that this situation obtains.

In this section on free will. Naqvi makes a general distinction between

Islamic ethics and libertarian ethics. the latter pervading much of contemporary

ethical Iiterature. Naqvi daims that Eslamic ethics is concemed with the

consequences of actions. just as much if not more than the actions themselves.

Thus, it is a teleoIogica1 ethic that deems socially acceptable the acts

corresponding to outcomes that improve the welfare of the least-privileged in

society. Deontological ethics. however, is not concemed with the outcomes of

" Naqvi, Society. 28. * Naqvi, Societv, 28.

actions. In libertarian ethics. an act is sociaily acceptable if it is a direct result of

exercising individual rights.

The counter-part of free will is responsibility (fd). Naqvi states that

although the two corne together as a pair. they are neither analytically nor

practicaHy inseparable concepts: each of the pair balances the other. Naqvi

maintains that the concept of Responsibility has two eiements. the first is the

individual's trustee status on earth. and the second is the voluntaristic aspect!'

The individual should strive to reaiize the position of being God's fiafifa15 on

earth. This clearly involves performing actions that improve the welfare of the

least-privileged in society. '*Yeu will never corne to piety unless you spend of

things you love" (3:92). Naqvi maintains that the individuat safeguards his

freedom from greed by exercising his responsibility: furthemore, not exercising

his responsibility results in a denial of faith:

Have you seen him who denies the Day of Judgement? It is he who pushes the orphan away. And does not induce others to feed the ncedy [I07:I- 31.

By exercising one's responsibility to him or herself. society and God. the

individual is securing his or her freedom and exercising faith. The second aspect

of responsibility that Naqvi outlines is that it is voluntaristic. AIthough a

decision to limit one's free will is a sacrifice. as peopIe become more concerned

47 Naqvi. Societv. 32.

with the non-moneta. rewards of certain actions, they will consider the benefits

of irnproving their character as central?'

The first two axioms in Naqvi's ethical systern are mirrored on the

qualities of God Himself. Le.. al-W&Td and al-'Ad and each individual and

his/her society must harmonize and re-arrange aspects of life and institutions.

respectively in order to parallel the Islamic world-view. In contrast. free bill and

responsibility are characteristics that each individual is bom with. and it is Our

responsibihy to protect our freedom and the freedom of others in our society.

II. Cornparison with Chapra

Having outlined Naqvi's ethicd auioms. it would be interesting to see how

they compare with those of M. Umer Chapra another Islamic economist who in

Islam and the Economic Challenge. presents an ethical basis for Islamic

Economics. It will be shown that while the presentation of the principIes is

different. the content is basically identical.

Before presenting the Islamic economic system. Chapra engages a lengthy

discussion of the shortfalls of the other major economic systems. A major

problem for capitalism, socidism, welfare and development economics is that a11

of these systems require a secular environment. Chapra's central critique of

capitalism is the idea that serving the self-interest of individuals will result in the

collective good. On a practical Ievei. capitatism has faiIed to address inequdities

in income and wealth despite the access to resources. The major concerns about

Naqvi. Societv. 33.34.

sociaiism was the abolishment of private property and the assumption that

individuals would care about what is good for society in the absence of a

This of course implies that Chapra's position is that there cannot be

ethics without religion, which is an important question for Islamic economists to

address. but it is outside the scope of this stüdy. The challenge to both welfare

and development economics is that there were no socially accepted values. In the

case of welfare economics. Chapra argues that increased regulation not founded

on universally accepted values left al1 the power in the hands of the rich. This

maintained the status

Chapra begins his discussion. as did Naqvi. arguing that Islam foresees an

economic system different korn other existing systems. Chapra explains that the

rnaqâsid ai-Shar i'ah. the goals of Islam. are material as well as social and

spiritual." The maqigid are based on fal., hurnan well-being and baya

fayyibah. good life. both of which stress brotherhood and socio-economic justice.

as well as a b a h c e between the material and spiritual requirements of al1 human

beings. Chapra quotes al-~hazaii:' as he maintains that the maqi~id includes

everything that is necessaty to "preserve and enrich faith. life intellect. postenty

and weait

Furthemore. he agees with al-Ghazali for placing faith at the top of the

Iist of the maqàgid for in Islam. faith is crucial for hurnan well-being. Faith in

49 Chapca, 74. Chapra, 1 15. 167.

'' Chapra. 6. " AI-Ghazali (d. 1 1 1 1) was ri Muslim theologian.

God provides a proper basis for relations with others. allowing human beings to

act in a respectful and carhg manner. Faith in God aIso provides a mord filter.

necessary for the allocation and distribution of resources based on brotherhood

and socio-economic justice. Lastly. tàith is the motivation for equitable need-

fulfillment and wealth distribution.

Chapra presents the tslamic alternative. He begins with an explanation of

the Islamic worldview. which is based on three principles. tawbid (unity).

korlafab (vicegerency) and 'adifah (justice). He argues that these principles are

the origin of the maqi~id and the strategy for achieving it. Chapra explains that

the principal of tawhrii is the basis of the worldview. maqisl'd and strategy. and

al1 other principles of ethics and theology originate from this principle. Although

Naqvi indicates the teleologicai aspects of tawhl'd "By uniting man's social.

politicai and economic aspects. his life becomes consistent and it contributes to a

universal brotherhood."'" Chapra is clearet about this concept as it relates to his

other principles. "Everything created by Him has a purpose. It is this purpose

which gives meaning and significance to the existence of the Universe. of which

man is a part."'5 This will becorne a crucial point because if the entire system of

Islamic Economics should rest on tawbld as a fundamental principle. then we

need to see how the belief in one God implies the principles that follow from it.

Chapra maintains that the principal of fiilifah (vicegerency) follows

directly from tawbr'd in that it describes man's purpose and behavior. In this

Chapra. 7. U Chapra, 26.

section, Chapra like Naqvi stresses that the resources are a -trustw. and man

should utilize them equitabiy, in the spirit of the mq&Td. Chapra stresses that

unlike other theories of human nature that deny the existence of an immortai sou1

and as a result leave the human being either unaccountable for his actions or

without p ~ r ~ o s e . ~ ~ the notion of khiiifah introduces meaning and mission to

mankind:

The meaning is provided by the conviction that they have not been created in vain (Qur'in, 3:192 and 23: 1 15). but rather to FulFii a mission. Their mission is to act in accordance with Divine tenets in spite of being free. This is what is impiied by 'ibidab or worship (Qur'in, 5156) in the Islamic sense. an invariable imperative of which is Fulfilling one's obligations towards other human beings ( h uqüq ai- ' i b i i . to promote their wdI-being and to actualise the rna4isr'd."

Here we can see that Chapra. in his concept of fiilifab, has introduced some of

the notions that Naqvi described in his twin concepts of free will and

responsibility. As the concept of khiiifd touches on many important issues.

Chapra argues that it has same important implications. including universai

brotherhood. resources are a trust. humble Iifestyle and human freedom.

Universal brotherhood is a direct result of the fact that everyone is a khalTf&

(vicegerent). In Chapra's system. social equaiity is a key element. The mode1 of

interaction is that of "mutual sacrifice and CO-operation to futfi1 the basic needs

55 Chapra. 702. % Chapra. 204. n Chapra, 205.

of all, to develop the entire human potential. and to enrich human life."" This

concept of universa1 brotherhood is similar to Naqvi's concept of equilibriurn.

A second corollary of fiififah is that man is the tmstee (am0 ) of God's

resources. Chapra explains that this trusteeship does not entai1 the --negation of

private property;"'9 however. it does alter the relations that individuals have with

each other and with property. Chapra outlines the following implications:

1 Resources should be utilised equitably. as they are for

everyone's benefit. not just the benefit of a few individuals

who have more -rights" about the property. 7 . Resources must be acquired honestly. in the manner

indicated by the Qur 'h and Sunnah.

3. Resources m u t be allocated equitably.

4. Resources m u t not be de~ t ro~ed .~ '

Chapra's third coroHary is the humble lifestyle. One's lifestyle should

"not reflect arrogance. pomp and grandeur. or morai Iaxity." because it

unnecessarily drains resources and promotes inequality.6 1

Chapra's fourth implication of khiIifab is human freedom: however. this

freedom is qualified by the rules of the shad'ali: "They are thus free only within

the bounds of social responsibility as specified by the har ria..^ Therefore. any

economic system that either subjugates human beings to a situation of serfdom or

sa Chapra 106.107. j9 Chapra. 207. 60 Chapra. 207. '' Chapra, 108. '' Chapra, 208.

slavery, or aIIows excessive Rghts that contradict the Iimits imposed by the

shari'ah, cannot contribute to the goals of the rnaqi~fd-

Aithough both Chapra and Naqvi maintain that al1 hurnans are kbilàfab, one

of the main differences between the two systems is that in Chapra's system.

khilifab is a direct implication of unity. Khilifab results in human freedom and

the tmteeship status of man. These latter two concepts mirror Naqvi's concepts

of free wil! and responsibility. the former which includes the concept of koilifh.

The question anses. does humiin freedom result from man's roie as k6iiifh. or

does fiilifab result from human freedom. Or to ask the question in another way.

why is the concept of kbdifah wider in Chapra's system than in Naqvi's system?

This question will be addressed when the independence of Naqvi's set is

examined.

The third concept that Chapra holds as essential to his system is 'adiIah.

He maintains that this is a crucial element of the rnaqi$d, because one cannot

conceive of a Musiirn society where justice does not prevail.6j Furthemore. it is

justice that gives the notion of brotherhood its meaning, Also, the Qur'in

addresses the role of justice and the elimination of a11 foms of injustice as the

"primary mission of al1 God's Messengers" [57:25]. Four elements of the

maqasr'd are relevant for this discussion: 1) need fulfillment. 2) respectable

source of earning. 3) equitable distribution of income and weaIth. and 4) growth

and stability.

Chapra 209.

Chapra holds that from the importance of brotherhood and the trustee

nature of ownership. it follows that resources must be utilized for the needs of al1

members of society. and provide a standard of living that is humane and

respectabte. The Islamic notion of need fülfillment is not based on a western

economic concepts. Rather. it has a place in the fiqh literatureM and as jurists

maintained that it was a collective duty (fmd kifayah) for the Muslim society to

provide the minimum needs of the poor. and it has been accepted unanimously by

modem Muslim scholars.

Furthemore. there is a personal obligation (fa@ 'aya) for each individual

to provide for himself and his family. without this he cannot fulfil his devotional

duties. Therefore. there is a collective obligation of a Muslim society to provide

"an equal opportunity to earn an honest living in keeping with his ability and

effort:d5 If individuais cannot support themselves due to --handicap or inability".

there is a collective obligation to fulfil their needs. First the responsibitity goes

to family and friends or altruistic organizations. The state comes in at a last

resort. so this will not impose a burden on the Islamic state.

Chapra explains that inequaiities are permitted as long as they are the

resutt of differences in skill, initiative. effort and r i s k . ~ However. this can be

criticized. For instance. consider the following situation: At tirne. r =O. an

IsIamic Economy has been successfully generated. and the only inequalities that

Fiqh is the corpus of Islamic jurisprudence. '5 Chapra. 2 1 1. LM Naqvi does not teIl us whether inequalities resulting h m differences in skill and initiative wil1 be perrnitted in his system,

exist are due to differences in skilI, initiative. etc. What happens after several

generations at time, t=150? Clearty in most societies today. if one's parents

suffered economic inequaIity due to one or more of the above Cifferences. then it

is often passed on to the children through deficiencies in accommodation.

nourishment or education. In Chapra's economy. this cannot be allowed for two

reasons: First. the inequalities experienced by the chitdren are not due to the lack

of certain qualities. they would be due to the hardships of the parents. Second.

the basic needs of the poor rnust always be provided. In order to combat this.

Chapra's systrm requires a continuous process of redistribution in order to avoid

the problem of inequalities being passed frorn one generation to the next. Thus.

although econornic inequalities resulting from ski11 and initiative may eiiist,

Chapra's system would still bring al1 individuais to a minimum standard of

living.

Chapra explains that g r o s inequalities in wealth will lead to the

destruction of brotherhood. "It is the general opinion of MusIim scholars that if

the social behavicr pattern and the economy are restructured in accordance with

Islamic teachings. there cannot be extreme inequalities of income and wealth in a

Muslim society."" It is crucial to notice that what Chapra is talking about is a

restructuring of the economy and b e h a ~ i o r . ~ ~

In order to achieve the objectives of the IsIamic Economy. Chapra

maintains that we need a hi& Ievel of effrciency, and a high rate of growth.

67 Chapra, 3 12.

Economic stability would reduce the inequaiities of distribution that is nonnally

brought about by recessions and inflation. -The realization of an optimum rate of

economic growth and minimization of economic instability would be necessary to

fulfil the implications of kblïafd and 'adaIdi.

It is clear that although Naqvi and Chapra present two different

approaches to Islam's ethical system. their content of the principles is aImost

identical. In both systems the Belief in God is central. In Naqvi's system. the

role of the individual man in society is elaborated by the twin concepts of free

wilI and responsibility. [n Chapra's system. this same idea is included in

khififd. Another important element to notice is that both systems offer a point

of amval for the process of Islamic economics. For Naqvi it is equilibrium and

for Chapra, it is 'adàM, M a t both systems fail to do in t e n s of specifying the

content if Islamic ethics. however. is to indicate what the meaning or content is

of the concept of equilibrium and *adil&. respectively. To speak of Islamic

justice or directing resources to the Ieast privileged in society does not indicate

where boundaries will be drawn among cornpeting principles of justice.

Certainly these concepts need to be defined more narrowly so that we know when

we have arrived at equilibrium.

In. Requirements of N~qvi's Set

Having outlined the basic eiements of Islamic ethics relevant to a discussion

of economics, Naqvi's next step is to argue that his four axiorns can serve as a

On a side note. a sceptic couid question the need for an Isiamic economic system if intense

basis for funher econornic deductions. He outiines seven properties that his set

must satisfy:

1. Adequate and Legitimate. The set must accurately represent

Islam's ethical position as outlined in the Qur'in and the

Sunnah.

2, Minimal Set. The set must fom the basis: it cannot be reduced

any further without being large enough to generate al1 other

statements.

3. Independent. The individuaL elements in the set must be

independent of each other. Le. no element of the set is deducible

from any other.

4. Consistent. The truth of one axiom musc not entail the falsity of

another.

5. Predicative Power. The set is capable of generating a series of

statements related to Islamic Economics that are empirically

veribable.

6. Necessary and ~uff ic ient .~~ The set should sufficient to deduce

al1 of the basic statements regarding Islamic Economics: and it

should be necessary to exclude superfluous assumptions.

7. ~ x ~ l a n a t o r ~ . ~ ~ The set should provide some understanding

about Islamic Economics (43)."

Naqvi claims that his system satisfies al1 of the above conditions. and in

doing so it lends a greater scientific character to the theory-building enterprise.

social education is required to have people follow Islamic teaching- t4 Naqvi amibutes this properry to Karl Popper. The L O P ~ C of Scientific Discovew, rev. ed. (London: Hutchison, I W O ) .

Naqvi amibutes this property to Max Weber, The Methodolom of the Social Sciences (London: MacmilIan. 1949). '' Naqvi, Societv. 43.

Naqvi fiirther holds that aspects of neociassical economics. that is, the theory of

value, are based on assumptions that are non-verifiable. He argues that the

axioms on which tslamic Economics is based cari first satisQ a set of scientific

criteria, and second. be proven experientially. In doing this. Naqvi is

strengthening the scientific basis on which the theory is formed.

A. Adeuuate and Legitimate

Naqvi explains that bis set must be an accurate representation of Islam's

ethical views. He explains that his first requirement will ensure that of the

infinite number of possible axioms that describe Islam's ethical views, only those

that derive From the Qur'in and the Sunnah are included." This assertion could

lead to a large âuiom set. so Naqvi relies on the other requirernents to trim down

the possibilities to make the axiom set of a manageable nurnber.

B. Minimal & Indeuendent Set

Naqvi claims that his set forms the basis of a minimal set. He argues that

one may claim that unity and equitibrium provide the same information because

both are attributes of God, or further that free will implies responsibility; so,

either unity and free will, or equilibrium and responsibility are required. Another

challenge to Naqvi's set is that al1 of Islarnic ethics can be derived from unity.

Naqvi daims that this argument is erroneous because it is based on the attributes

" Naqvi, Societv. 43.

of God; however, God has many quatities. which are analytically independent of

each other, therefore, equilibrium h not implied by unity."

It is ironic that Naqvi attempts to refute the claim that al1 economically

relevant statements couid be generated out of the unity axiom. for his own

discussion of unity lacks clarity. Naqvi begins with the Unity of God. proceeds

to the subrnission of mankind. and the unification of man's social. political and

economic life. This. Naqvi tells us, contributes to a universa1 brotherhood. At

this point in Naqvi's discussion, the principle of unity is merging into the

principle of equilibrium, If from the submission of mankind to God al1 human

beings are equaI. then it seems chat justice and social harmony. which are the

contents equilibrium principle. can be deduced frorn unity.

To continue with Naqvi's explanation of unity. frorn the Knowledge and

Omnipotence of God. and the Ownership of God. we get to the freedom and

"trusteeship" of man. Here again. we see free will and responsibility blending

with unity. This confusion is also demonstrated in Naqvi's explanation of

responsibility. He explains that the concept of responsibility has two aspects.

The first aspect is the individual's tnistee status on earth. and the second is the

voluntaristic aspect. If the trustee status on earth can be derived from unity. and

the voluntaristic aspect cm be derived from free will. then it is not clear why

Naqvi needs a separate concept of responsibility.

Naqvi, Society, 45.

Granted that it is dificult to compartmentalize any ethical system into a

senes of discrete concepts, Naqvi is unsuccessful in satisQing his own

requirement of an independent and minimal set, It is not clear why the ethical

concepts he proposes cannot al1 bc derived from unity. and his own exposition of

the concepts indicate that they are not andytically distinct." Furthemore. we

saw in Chapra's formulation, ttiat khiiifah and 'adalab, the general equivalent of

Naqvi's equilibrium. free will and responsibility al1 derive from rawbid, the

belief in the Unity of God. Although Chapca was not trying to satisfy any

particulac criteria. his presentation of Islamic ethics is clearer than Naqvi's.

C. Consistency

Naqvi maintains that his set is consistent in that the truth of one aviom

does not imply the falsity of another. Naqvi's main conceni here is to

demonstrate that in the case of lslamic ethics. free will and responsibility do not

negate each other. He explains that in IsIamic ethics. the goal is to maxirnize

individual welfare as weIl as the welfare of others in society. Free will. alone.

will only maximize the individual's welfare; and responsibility will only

maximize the society's welfare; thus. the two are needed to ensure the welfare of

the individual and his or her society.

One could argue that what Naqvi is doing here is that he is using the twin

concepts of free wiIl and responsibility to chdlenge the notion the self-interested

maximizer. in his system. the individual is granted free will. but this must be

7.1 Choudhury has developed a paraltel critique based on the centrality of rawhidin Islamic

tempered with responsibility. as fiee will alone will maximize the individual's

welfare, and our ethical system will not be so ethical. So we need the concept of

responsibility to balance self-interested behavior. In order for these two concepts

to work. each concept. taken to its extreme must be inconsistent with the other; in

fact, that is how the balancing works. One could support Naqvi's design by

arguing that his system hoids true onty for cases in which both free will and

responsibility are consistent. There are two problems with this approach. The

first problem is that each a~ ion i must be true independent of the other three

axioms. Free will. or responsibility. even taken to the extreme must be true in

order for it to be a valid axiom of Isiamic ethics.

The second and related problem is that if the ethical notions that Naqvi

tries to explain are only found at the intersection or overlap of two opposing

concepts, then it could be argued that there is a problem with the concepts

themselves, either in their clarity or content. The question to ask is how will the

representative Muslim balance his or her own interests with the interests of

society. Naqvi tells us that the interests of society have been internalized to such

an extent that they have become the interesis of the individual. Furthemore.

Naqvi explains that rational behavior for the representative Muslim must include

a consideration of the hereafier. If this is the case. then the interests of the

individual embodied in the concept of free will must include spiritual gains.

Then it seems that the principle of responsibility, as Naqvi describes as

maximizing the weIfare of society is not needed as a concept to balance fiee will.

- - -- - - - - -- -

epinemology. See Choudhury, Review, 11 1-1 14.

D. Predictive Power

Naqvi asserts that the predicative power of the set will follow from its

being the necessary and suficient condition to generate statements about Islamic

economics;7' so essentially. five follows fiom six! ï h e necessary condition will

follow from the independence of the axioms in the set. The sufficiency condition

follows from the -demonstration [.,.] that al1 the basic principles of an Isiamic

economy can be derived from the set of âuioms plus a few additionai

hypotheses."76 But six does not add any information about being empirically

verifiable: so the necessary and sufficient criterion is supposed to generate

empirically verifiable statements.

There are a few points to notice about Naqvi's approach to the criteria

here. What we are talking about is the predictive power of the statements

generated by the set of four ethical axioms. The necessary condition is satisfied

by the independence of the axioms. which has already been questioned. The

sufficiency condition is satisfied by the independence of the axioms. which has

already been chailenged. The sufficiency condition will be satisfied by the

generation of the rules of an Islamic economy, which must be verifiable. not non-

falsifiable.

Before determining the rules of behavior for an Islamic Economy. Naqvi

reiterates the importance of the Muslim society. He explains that a representative

MusIim woufd regard these ethical âuioms as synthetic a priori statements; they

ï5 Naqvi, Sociew 46.

are informative statements whose truth has been established without recourse to

empirical evidence. However, any hard-core ernpiricist would doubt the

existence of synthetic a priori statements; thus, Naqvi encourages the testing of

these statements, for even '-the fleeting shadows of these in the real world - is an

advantage; however tentative may be the nature and scope of such a

~onftrmation.'"~ Here Naqvi is talking about the predicative power of the four

auioms-not the statements that they generate. This testing is not included in the

predicative criterion of his theory.

Some cntics of Naqvi's approach may argue that none of the criteria that

Naqvi describes above is relevant. What matters is Milton Friedman's notion of

the predicative capability of the theory. These critics would maintain that

regardless of what the axioms are. and regardless of whether or not Musiims

betieve in them, if the axioms or assumptions generate statements that adequately

predict the economic behavior of Muslims. then the theory is valid. Before

continuing with Naqvi's theory, it may be useful to outline the debate

surroundhg the roie of assumptions in scientific theories through an investigation

of the views of Milton Friedman.

IV. A Role for Assumptions: The Debate

Milton Friedman's essay, T h e Methodology of Economics." outlines a

methodology of economics. which offers a controversiaI yet pragmatic view of

science and focuses on the predicative capabilities of theories. Friedman's

Naqvi, Societv3 47.

argument will be outlined and the critique of Mark Blaug will be considered.

This will be followed by Friedman's argument for the irrelevance of assumptions

and refutations offered by Eugene Rotwein and Tjalling Koopmans.

While this section may appear to be a departure from the issue at hand.

most Islamic economists including Naqvi frequently refer to Friedman. First.

they address Friedman's assertion that economics should not deal with ethics or

values.78 The second attack addresses Friedman's statement that individuals act

as rhough they are mauimizing their self-interest. a controversial statement for

economists who are striving to reconcile ethics and ec~nomics .~ Last. Islamic

economists address Friedman's argument about the irrelevance of assumptions.

that is. it doesn't need to be true in reality that individuals maximize their self-

interest. what matters is that they act os rhough they are maximizing their self-

interest.

Naqvi. in fact. explains that Islamic economics encourages a higher

standard of scientific confirmation since both the ethical postulates. which

correspond to Friedman's assumptions as well as the predictions are subject to

experiential verification. Naturally this conflicts with Friedman who

explicitly excludes the basic postulates fiom the test of empiricat verification and lays down that the validity of specific economic theories is established

l7 Naqvi, Society, 54. 7?i Naqvi, Societv, 15. Chapra, 65, Muhammad Akram Khan, "Methodoiogy o f hlamic Economicsn in Readings in the Conce~t and Methodolow of Islamic Economics, eds. Aidit GhazaIi and Syed Omar bin Syed Agil (Selangor Daru1 Ehsan: Pelanduk Publications. 1989). 58. n Chapra. 28.

not by demonstrating the -realismT of its basic postulates but by the accuracy of its predictions?O

Given the important challenges that Milton Friedman has posed to Islamic

economists. and Naqvi in particular. an examination of his views is appropriate.

Friedman argues that the only goal of scientific theorizing is prediction;

this is the only way to determine the validity of a theory:

Only factual evidence can show whether [the theory] is '-right" or 'wrongy or. better. tentatively "acceptedn as valid or -rejected"... the relevant test of the validity of a hypothesis is cornparison of its prediction with experience ... Factual evidence c m never '-prove" a hypothesis; it can only fail to disprove it. which is what we generally mean when we say. somewhat inaccurately. that the hypothesis has been -.confirmed by experience.R1

The view that Friedman outlines above has corne to be known as

instrumentalism. Holders of this theory maintain chat the validity of a theory is

to be found exclusively in its predicative capabiiities. We can also note that in

the above passage. Friedman adopts a sort of falsificationism by assertine that

evidence can only fail to disprove a theov (althoueh he does not use the term).

There are two major criticisms against Friedman's instrumentalism and

instnunentalism in general. The first is that if instrumentalism guides science

then a large part of scientific enquiry is not included. i.e, the requirement that

science m u t also explain events. BIaug explains this problem with

instrumentalism:

w Naqvi. Socier~, 96. See also Chapra. 138. " Friedman. 8-9.

The only relevant test of the validity of a hypothesis,* Friedman tells us, "is comparison of its prediction with experience." But such a comparison may show that a particular theory predicts exvemely accurately although the theory as such provides no explmation. in the sense of a causal mechanism, to account for the prediction."

This aspect of the problem has further implications. If the only criteria for the

acceptance of a theory is that it predicts accurately. then Friedman's

methodology does not tell us how competing theories that predict equally well

should be judged. Furthemore. if a theory does not have any explanatory

elements. when the theory fails to predict accurately. one must reject the theory

in its entirety. There is no information that would indicate what the problem

might be, so further science must start from '-scratch".

Closely related to Friedman's instrumentalism is his view that the

assumptionsa3 of a theory are irrelevant. Since he has already argued that the

only test for the validity of a theory is its predicative capabilities. he refutes the

view that the testing of the assumptions can serve as a further test. Friedman

explains that assumptions need not be m e or even realistic:

[Tjo suppose that hypotheses have not only "implications" but also "assumptions" and that the conformity of these "assumptionsu to "reality- is a test of the vaiidity of the hypothesis differentji-om or additional ro the test by implications ... is

" Blaug, 98. " Friedman includes a discussion of The Use of 'Assumptions' as an Indirect Test of a Theory" (26-30). and Eugene Ronvein notes that that the indirect test of a theory using its assumptions requires a consideration of their realism, "On 'The Methodology of Positive Economics'." Ouarterlv Journal of Economics 73: 567.

fundamentdly wrong and productive of much mischiefWsJ

Friedman goes on to explain that not only can the realism of the assumptions not

contribute to the vaIidity of a hypothesis. but also that the importance of a theory

has little relation with the realism of its assumptions,

The first cnticism against Friedman's irrelevance of assumption view is

that he does not acknowledge the range of variation included in the term

"assumption". Friedman groups his assumptions as though we can discuss their

realism without distinguishing among the various types. Btaug refers to G.C.

~rch iba ld~ ' as he indicates that assumptions "may include statements of

motivation such as utility or profit maximization. statements of overt behavior of

economic agents. statements of the existence and stability of certain functional

relationships. restrictions on the range of variables to be taken into account. and

boundary conditions under which the theory is held to appIyt'. in al1 of these

cases the udrealism may be different?6

Blaug outlines a further ambiguity surrounding the term -realism". Blaug

maintains that Friedman could have meant any of three things by the "udrealism

of assumptions". First. he could have meant that assumptions are sometimes

abstract, and in that way they are unredistic becausr they fail to include a11 of the

reIevant variables. Second. he could have meant that in t ems of ascribing

Friedman. 14. * G.C. Archibald, The State of Economic Science; in How Econornisn Exdain: A Readet in Methodoloev, eds. W.L, Marr and B. Ray (Lanham. MD: University Press of America 1983), 185-1 98. "" BIaug, 94.

impossible motives to economic actors. assumptions are sometimes unredistic.

For example, when Friedman says that bi11iard players act as if they calculate

angles and momentum every time they sink a bal1. They do not actudly calculate

anything, so in this way. assumptions can be said to be unrealistic. The last

interpretation that BIaug offers is the most common among Friedman's critics.

which is that the assumptions are "believed to be false or highly improbable in

light of directly perceived evidence about economic behavior.""

Having outlined the general concems, we can now move to more

substantive issues. Friedman's argument for the irrelevance of assumptions rests

on a series of analogies. in particuiar the law of Falling bodies:

It is an accepted hypothesis that the acceleration of a body dropped in a vacuum is a constant- g, or approximately 32 feet per second per second on the earth-- and is independent of the shape of the body. the manner of dropping it. etc. This implies that the distance traveied by a falling body in any specified time is given by the formula s = 112 g'- where s is the distance traveled in feet and t is time in seconds.88

Friedman argues that the application of this formula to a compact ball dropped

from a rooftop is equivaient to saying that a ball so dropped behaved as if it were

in a vacuum. If we were to test this hypothesis by its assumption. which is the

view that he is criricizing, we would measure the air pressure and decide whether

it was close enough to zero. Friedman argues that we cannot determine a single

number that will provide accurate results for al1 cases: for example. the air

" Blaug. 93.

pressure at sea IeveI May be close enough to zero for a compact bdl dropped

from a rooftop, but not for a feather.

Friedman asserts that we cannot cal1 these numbers small or large without

refemng to a standard of comparison. -and the only relevant standard of

comparison is the air pressure for which the formula does or does not work under

a given set of circurn~tances."~~ Friedman concludes that neither can we test a

theory by its assumptions. nor is the concept of the assumptions of a theory

unambiguous. He maintains that -the formula..- is valid and it can be derived by

analysing the behavior of such b o d i e ~ . " ~ What we c m Say is that -under a wide

range of circumstances. bodies that fa11 in the actual atmosphere behave as if they

were failing in a ~ a c u u r n . ~ ' Although this would be quickly interpreted to mean

that the formula assumes a vacuum. it does not:

What it does say is that in many cases the existence of air pressure. the shape of the body, the name of the person dropping the body. the kind of mechanism used to drop the body. and a host of other attendant circumstances have no appreciable effect on the distance the body falls in a specified time?

So the hypothesis can be accurately reworded to exclude any reference to a

vacuum:

Under a wide range of circumstances, the distance a body faIIs in a specified time is given by the formula

" Friedman. 16. F, Friedman. 17- 90 Friedman, 18- Ronvein notes that the derivation Friedman refers to is based on extrapolation. and it represents the lirniting case of an ernpiricat senes, Le.. a pedea vacuum was not produced to generate the formula Rotwein. 556. En. 8. 91 Friedman. 17.

Friedman. 18.

s = 112 gt?... for al1 1 know there may be other sets of assumptions that would yield the same formula.93

Friedman concludes that the formula is accepted because it gives accurate

predictions, not because we live in an approximate vacuum. Friedman then

explains that one must make a distinction between using the assumptions to

specijSt and to determine the circurnstances for which a theory will hold. The

former is valid: however, the latter is not. (The latter is a source for the view that

theories can be tested by their assumptions.)

After having conducted various tests on our falling body and discovered a

range of circumstances under which the theory holds in the second point in time.

Friedman would say that we must specify the circumstances under which the

formula holds. Rotwein maintains that this is an abandonment of his position:

The onIy reason we would here be interested in specifying these (reai) circumstances is because we wish to use them to tell us when. in the future. we may expect satisfactory confonnity with the f o r m u ~ a , ~

He maintains that we would not use the vacuum theory to predict what would

happen under these circumstances, but the reai circumstances themselves because

they "are far more -alid'' for the purposes of prediction".

Rotwein ties this in with the general argument against inst~mentaiism:

the confomity of the predictions with the theory does not vaiidate the theory

93 Friedman. 7. 94 Rotwein, 56 1

because their consistency does explain the phenornenon? To avoid any

confusion about whether Friedman thought theones are supposed explain events.

Rotwein refers to the following passages in Friedman:

1. Viewed as a body of substantive hypotheses. theory is to be

judged by its predicative power for the class of phenomena

which it is intended to -explainu (8).

2. Full and comprehensive evidence on the phenomena to be

generalised or "explained" by a hypothesis. besides its

obvious value in suggesting new hypotheses. is needed to

assure that a hypothesis explains what it sets out to explain

(12).

3. For this test to be relevant. the deduced fact must be about

the class of phenomena the hypothesis is designed to

expiain ( 13).%

m i l e Friedman does maintain that assumptions should be used to specify the

circumstances under which the theory hotds. we have already noted that this

involves a consideration of the reaiism of the assurnptions. Rotwein notes this

inconsistency :

That Friedman should have abandoned his main thesis at crucial junctures in the andysis is not surprising. For al1 bis major inconsistencies take the form of an attempt to restore inteiiigibiIity to his view of experience by recognising, in one fashion or

95 Lawrence Boland argues that Rotwein is attempting CO twist the meaning of -va1idityw into probabilities. so he can use modus ponms- However. -modus ponens will not work with statements whose truth statu is a matter of probabilities, and thus Friedman is correct in rejecting this approach to empiricism.- -A Critique of Friedman's Criticsl Journal of Economic Literature 17: 517. % Rotwein, 56 1.

anothet. the sigrtificance of "realism" when dealing with observable^".^'

Koopmans also notes that in order for economics to be useful for public policy. it

should incorporate explanatory and predictivc capabilities? He argues that

.'without resorting to the theory. conclusions devan t to the guidance of

ecoaomic policy cannot be drawn":

An observed regularity not traced to underlying behaviour patterns, institutional rules. and laws of production. is therefore an instrument of unknown reIiability. The predictions it yields cannot be qualified with the help even of known trends in behaviour or t e c h n o l ~ ~ ~ . ~

Thus. without the entire theory. including the assumptions, the predictions cannot

be interpreted. That Friedman addresses the importance of the predictions of

positive economics in public policy is clear,

Currently in the Western world, and especially in the United States. differences about economic policy among disinterested citizens derive predominately from different predictions about the econornic consequences of taking action--- differences that in principle can be eliminated by the progress of positive economics-- rather than from fundamental differences about which men cm uItimateIy only fight.iOO

Rotwein also shares this concern about the vdue of economic predictions:

97 Roiwein. 575.575. 98 Koopmans was referring to the study by Burns & Mitchell. "Measuring Business Cycies"; however. the same critique could be directed aginst Friedman. Tjafling Koopmans. 'Measurement without Theoty," Intemationat Librarv of Crirical Writines in Econometrics 4: 161-172. ¶9 Koopmans. 167. Ica Friedman. 5.

This shot-in-the-dark approach to the "prediction" does not represent a "deduction- from the "model". since, to the extent that the model is known to be fdse, it can provide no "explanation" for any phenornena-- either in the Law sense (actud associations) or Theory sense (presumed actual a~sociations).'~'

In discussing the importance of considering the entire theory. Koopmans

addresses methodological differences between natural science (actually physics)

and economics. He asserts that in physics it is possible to separate the causes and

effects. and study each in isolation, whereas in economics this is not possible.

However. economists have a lot of theory to work with that can help them to

interpret events and understand economics vanables:

On the other hand. economists do possess more elaborate and better established theories of economic behaviour than the theories of motion of material bodies known to Kepler, These economic theories are based on evidence of a different kind than the observations embodied in a time series ... briefly. a more or less systematised knowledge of man's behaviour and its motive^.'^'

Robert Pool also referred to these methodological differences when he

quotes physicist Philip Anderson:

The difference in approach arises. Anderson says. from the difference in the amount of data available to the two fields. Because physicists have plenty of data, they c m folIow their noses with back of the envelope calculations or computer simulations. secure in the knowledge that checking against experimental evidence wilI not aIIow them to go to far off course. Economists. on the other hand. have

101 Rotwein. 574. 'OC Koopmans. 166.

very Iittle hard data, so they must spell out their assumptions carefully and depend on rigour more than intuition.'03

Thus, both Koopmans and Anderson maintain that economists must consider the

entire theory when doing economics.

Having outlined Friedman's position and some of the refutations offered.

it is clear that "The Methodology of Positive Economics" is an influential work.

We have seen that most criticisms surround Friedman's instrumentalism. as well

as his irrelevance of assumptions thesis. Other criticisms are based on the

ambiguity of his terms '-realism" and -assumption".

Given the above debate. Naqvi is right to establish certain criteria for his

aviom set. AIthough the predicative capabilities of a theory are important. so are

the assumptions and premises. In the case of Naqvi's set. these assumptions can

be tested by the beliefs of the representative Muslim. if they include the belief in

the Unity of God, the role of man as outlined in the free will and responsibility

auiorns. and equilibrium as the goal. then they are vaIid assumptions. If from the

axioms statements can be generated that predict Muslim economic behavior then

the theory is valid. As a result. Naqvi argues that his formulation of the Islamic

paradigm is no less rigorous in establishing the initial premises. ActuaIly. the

statements of the ethical avioms would have greater support. at least in a Muslim

society than chose of neoclassicai economics.

'" Robert Pool. -Strange Bedfellows" Science 245: 704.

V. Naqvi's Hypotheses & Rules of Economic Behaviour

1. Naqvi then outlines some hypotheses, in order to make the

economic implications clearer. In this cases. he outbines

only four hypotheses: however. he States that any number of

them may be added, depending on the analytic

requiremen ts:

2. Economic Activity is indissolubte linked with man's ethical

environment.

3. Economic Policy should aim at a 'just' balance among the

basic production. consurnption. and distribution relations.

with an ample provision made for those members of the

society who cannot. even if they want to. participate in the

economic life of the community.

4. Income and wealth should be redisuibuted when the

existing pattern of distribution is not 'just' h m the [slamic

point of view.

5. Within the framework of a set of ground d e s . individual

(economic) freedom should be guaranteed: but the state

should be allowed to regulate it in cases where the exercise

of individual freedom becomes inconsistent with social

~ e i f a r e . ' ~

Having set the stage. Naqvi then outiines the general rules of behavior in

an islamic Economy. These rules are the impkications of the ethical auioms in

conjunction with the hypotheses. Naqvi divides the mles into tbree categories.

Rational Behavior and Ethical Environment. Ethics and Distributive Justice.

Ethics and the Role of Government in an IsIamic Economy. In order for Naqvi to

Naqvi, Sociew, 55.

satisfy his criteria, these d e s need to be empirically verifiable. They also need

to be able to predict not onIy beliefs, but behavior as welL!

A. Rational Behaviour and the Ethical Environment

We have already addressed the equation of rationality with self-interest in

neoclassical economics. and it is clear that this definition of rationality is not

acceptable in the Islarnic frarnework. In an Islamic economy rational behavior is

redefined to include moral obligations to other members in society. teteological

considerations of the hereafter. as well as rankings of individual preference.

Other elernents related to rational behavior. which Naqvi outiines are the

"priority" of individual liberty and the relation between ethics and consumer

behavior.

It is clear that individual liberty is a central eIement in the Isiamic

econornic system based on Naqvi's free will axiom, In this section. Naqvi

outlines two polar cases. but he dues not address the crucial distinctions that

would clarify the content of the Islarnic ethicd economic system. He examines

the position in which the individual interests are entirely subservient to the

requirements of the society. and he examines the other extreme in which the

society must protect individuai liberty at dl cost. Naqvi clearly explains that

both these cases contradict the Islamic balance; however. he does not indicate

where the Iine shoutd be drawn between individual liberty and equality. In

essence, Naqvi has touched upon the classic probiern. that is, a tension between

the liberty and equality principles. While it is clear that both extrernes are

untenabIe to the Islamic system, Naqvi fails to give the middle ground any

substantive meaning. Naqvi does not explain how his theory will decide that in

certain cases, it is ethicai to compromise individual liberty for the benefit of

society. The problem will be considered again in the discussion of lslamic

Justice.

Timur Kuran also notes this challenge to Islarnic Econornics. He

maintains that there is a tension between turo principles of justice: fairness and

equality. Although Kuran directs his challenge to al1 Islamic economists. he

asserts that there is a great deat of ambiguity in Islamic economic writings:

On the subject of helping those in need. the Islamic economists have a tendency to write as if it were perfectiy obvious what -need" is. Likewise. when exhorting emptoyers to pay fair wages and seller to charge just prices. they write as though everyone will attach identical meanings to "fair" and '*just". They sirnpiy evade the treacherous task of making these concepts operational,.. it is me, of course, that on some issues agreement wouid be easy. No one trying to fotlow the injunction to help the needy would want to let an unemployed person starve. But there is nu reason IO expect agreement to be automatic on the nature and magnitude of assistance.'0s

Here it is clear that Naqvi is guilty of this charge. as he talks about equality and

need without defining his terms. For example. it is dear that -basic needs"

includes food. but it is unclear whether this impIies bare minimal subsistence or

something more.

Naqvi explains that with the amalgamation of ethics and economics.

consumer behavior wiII aIso be effected- Given that in an IsIamic economy some

commodities will either not be producible or not available. such as alcohol. the

production. distribution and consumption of this good would be zero. Naqvi

maintains that the gap resulting from these constraints as well as ethical

considerations will change the nature of cornpetitive equilibrium and the Islamic

Social Welfare F~nction."~

Naqvi concIudes this discussion on rationality by asserting that Pareto

optimization cannot be tenabIe as a sociaI choice rule. The Pareto rule states that

if everyone has at least as much utility in x as in y and if a single person has more

utility in x than in y. than x is socially better than y. However. what if some

people have a higher utility with x while others have a higher utility with y. How

do we choose between them? Suppose we have the following utility table:

A's ranking is xPy. but Bos ranking is yPx, This is the only information that c m

be compared when we are talking about preferences rankings. The main problem

that islamic economists have with utility theory is the nile that interpersonal

cornparisons of utility are not allowed. So for exampie. if A is wealthy and B is

103 Timur Kumn, "Economic Justice in Conternporary Islamic Thought: lnterpretation and Assesment. International Journal of Middle East Studies 11 (1989): 177.

impoverished, A cannot know that for B. the difference between x and y could be

crucial. The reason for this is that the information about the magnitude of utiIity

does not make it's way into the preference ranking. So, A does not know that a

small decrease in her utility could make a huge increase in utility for B! Naqvi

argues that this principle could promote the status quo even though it may be

unjust.

B. Distributive Justice

One of the central issues in Islarnic economics involves distributive

justice. The principle of redistribution from the rich to the poor. as found in the

equilibrium principle. is central in reducing inequality of income. Naqvi outlines

two subsections in this discussion: reducing income inequality and structural

change. Under the former category. Naqvi offers little explanation about how

this will be achieved. and again, where in Naqvi's Islamic system will the

boundaries be drawn.

in order to achieve distributive justice. Naqvi proposes a complete over

haul over of the tools of economics. Having aiready s h o w the defects of

utilitarianism. Naqvi considers the Rawlsian Justice-as-Faimess ru~e.'*' which

entails changing the existing order if it does not conform with the notion of

justice in a given society. This theory of justice is based on two principles which

Naqvi quotes fiom RawIs:

106 Some scholan have produced excelIent studies about the Islamic microeconomic sysrem.

,- Unfonunately these discussions are outside the scope of this study. See Masudul Alam

I Choudhury. IO? The Pnnci~les of Islamic Political Economv (London: Macmillan. 1986). John A. Rawls. A Theory of Justice (Cambrid_ge: Harvard UP. 197 1)-

1. Each person has an equd ri@ to the most extensive liberty

compatible iith a like liberty for dl. and

2. Inequalities are arbitrary unless it is reasoaable to expect that

they will work out €'or everyone's advantage. and provided that the

position and offices to which they attach or from which they are

gained are open to ali.

Naqvi maintains that the most attractive part of Rawls' theory for Islamic

economists is that the worst off in society is made the best off. One of the

drawbacks of the theory is that it is not a principle of equality because it does not

"put Limits on how much is being done at the same time for the best off in a

society in an alternative state of the e c o n ~ m ~ . " ' ~ ~ Naqvi maintains that the

Islamic position would modify the Rawlsian model such that not only is the

relative position of the worst off improved. but also that it reduces the number in

the worst off category. and there is an upper limit on the position of the rich in

each state of the economy.

C. The Role of the State

Given the modifications required to initiate the kind of change that Naqvi

outlines. the sbte will have to adopt a major role in the transition to Equilibrium.

The laissez-faire madel. defined as -free markets run by self-interest-maximizing

economic agentsy often do not rnaximize social welfare. Naqvi also rejects the

sociaIist model of the state. in which al1 resources are brought under absolute

state controI. Naqvi maintains that islam adopts a middfe position between

'OB Naqvi, Society, 63.64.

socialism and capitalism on private pmperty.l" Thus. the Islamic view attempts

to combine a "private initiative with government intervention..-'Io However.

Naqvi also asserts that the level of govemment intervention will be determined

by the various conditions. and it cannot be specified a priori-

While it may seem unusual that Naqvi wants to maintain the institution of

private property with some major modifications this position can be clarified by

adopting A.M. Honoré-s paradigm of the incidents of ownership."' Honoré

outlined the standard incidents of ownership as comprising: the right to possess.

the right to use. the right to manage. the right to the income of the thing. the right

to the capital. the right to security. the rights or incidents of transmissibility and

absence of tenn. the duty to prevent harm, liability to execution. and the incident

of residuarity. The important thing to notice here is that along with the rights

that come as a result of ownership. there is also a duty. in this case. not to harm

others. In the Islamic system. one could argue that there is a "real obligation."

which is an "obligation to which a person is bound only by reason of his or her

quality as titulary of a real right. in pxticular the right of ownenhip.""' So

aiong with rights such the right to use. manage and transmit. in the Islamic

paradigrn. there could be an obligation to use resources to help the least-

privileged in society.

lm Naqvi, Society, 73. 110 Naqvi. Socieni, 65, "' A.M. Honoré, Makine Law Bind (London: Oxford University Press, 1987). "' Quebec Research Centre of Private and Comparative Law. Private Law Dictionary, znd ed. (Montreal: Yvon Blais. 1991). 359.

One of the challenges of Naqvits theory is regarding the role of the

state.'13 He explains that the involvement of the government is crucial, due to the

extent of social engineering required:

But such is not the Islamic view [sociaiism]. which seeks to combine private initiative with govemment intervention in order to achieve. what Sadr (1982) calls. a -social baiance'.""

The inconsistency surrounding govemment intervention is this: Why would the

government need to intervene in order to initiate or maintain a situation in which

the welfare of the least-privileged in a society was addressed? Naqvi has clearly

explained that the ethical axioms are included in the belief system of a given

representative Musiim and as a result of the belief in the Divine Presence. the

belief in these ethical axioms is empirically verifiabIe. at least in theory. Thus.

the representative Muslim would already be concerned about the Ieast-privileged

in society.

Timur Kuran also notes this inconsistency:

What is not clear is why there is any need to have the sate enforce the noms if people would. as the Isiamic economists claim. dutifully conform on their own. Further. the contention that the system wouId be largely free of coercion is perplexing in view of the fact that many of the programs advocated by the IsIamic miters involve massive resource transfers and sharp restrictions on individuai freedom ... One is left with the impression that the Islamic economists either do not reaily believe that coercion will be absent or are assuming that individuals will

Il; This cnticism is based on Timur Kuran, The Economic System in Contempotary Islamic Thought." International Journal of Middle East Studies 18 (1986): 135-1 64. "' Naqvi. Sociew. 65.

somehow internalize state-imposed constraints and voluotarily transfer substaotial cesources to the state."'

In this chapter. we saw that Naqvi deveiops a system of Islamic economics

based on ethical axioms derived from the Qu'an. Having considered the role of

assumptions in scientific theorizing. we also saw that it may be desirable for the

islamic economic system to have premises that can be experientially proven. In

Naqvi's system. however, we saw that one c m challenge his conclusion that his

premises satisQ the criteria he established. We also saw some inconsistencies

sunounding the role of the state, In the next chapter. Naqvi's views on the

abolition of interest. use of the Qur'in wiiI be considered.

115 Kuran, Economic Svstem, 140.

Chapter Three: INTEREST GND EXPLOITATION

One of the elements that has been considered intrinsic to the Islamic

economy is the abolition of interest. In this chapter it will be demonstrated that

Naqvi adopts the popular position that ribi the prohibition of which is found in

the Qur'in, is equivalent to interest: and therefore, in the Islamic economy.

interest is prohibited. A review of the views surrounding the definition of ribà

will be outlined. and a critique of Naqvi's view of equating ribi and interest will

be examined. A critique of Naqvi's method in interpreting the Qur'in in this

regard wilI also be outlined.

1. Definition of ribi

Naqvi begins his first of three chapters on interest. by explaining that the

abolition of n'ha is not synonymous with an Islarnic economy: but rather. that an

lslamic economy entails the abolition of ribi The definition of ribi which is the

focus of the last section of this study. is left to a long f~otnote."~ In this

footnote. Naqvi explains that n'bi has come to mean three things: 1) All forms

of interest (both simple and compound. which is the position of the Pakistan

Sharia court). 2) only usury, which he defines as compound interest."' and 3)

-al1 uneamed income taking the form of interest. usury, and land rent which

accrues to owners without equivalent ex~han~e . ""~

I l6 Naqvi, Socieyç, 1 17. En. 1. lL7 The equation of cornpound interest with usury can be challenged. "' Naqvi, Societv, 1 17.

Although Naqvi writes of a general consensus about the meaning of ribz

it is important to recognize that there has been considerable debate about its

meaning. Furthermore, the views are more varied than the three that Naqvi

provides. Some scholars ague that the prohibition of r i b i extends only to the

form of r i b i practiced in pre-islamic times."' Others have asserted that the

prohibition can be equated with al1 forrns of exploitation. including interest on

loans.

Before examining some views regarding the definition of ribi. the sources

of the prohibition will be outlined. The sources for the prohibition of ribican be

found primarily in the Qur'àn and the Hadith literature. For the purposes of this

study. the focus will be on the Qur'in, The rationale for this is that Naqvi does

not engage any mention of the Hadith for any aspect of his theory. Furthermore.

the evaluation of the Haditfi materid on this tupic is a large area of investigation.

and it cannot be adequately represented in this b ief study. Lastly, the late Fazlur

Rahman has offered a strong argument that the Hadith material about r i b i is so

inconsistent that it is difficult to draw meaningfui conclusions about the nature of

r ib ior its use or prohibition in the earIy Islmic period."O

The three verses in the Qur'ân that refer to the prohibition of ribaare as

follows:

119 For example Abdullah Saeed, Istamic Bankine and Interest: A Studv ofthe Prohibition of Ribi and its Conternooray lnterpretation (Leiden: E.J. B i l l , 1996): and Farlur Rahman. "Riba and inter es^^ tram. Mazheruddin Siddiqi. Islamic Studies 3: 1-43. 'B Rahman, Interest, 8-37.

And, whatever you may give out in ribi so that it may increase through other people's weaIth. does not increase in the sight of God: but whatever you give by way of ch- seeking God's pleasure. will receive manifoLd increase ~ : 3 9 ] . ' ~ '

O Believers! Do not consume ribai doubling and redoubling. and fear God so that you may prosper [111:30]!~

Those who devour ri65 shaIl not rise except as he anses. whom Satan has confounded by his touch. That is because they said. "Buying and selling is like ribi" And yet God has made buying and selling lawfui, and r ib i unlawful. Hence, whosoever receives this admoniiion from his Lord. and then gives up [taking ribai. may keep bis previous gains. and it wil1 be for God to judge him. Whoever reverts to it. they are the people of the Fire. and there they shall abide. God deprives ribi of al1 blessing. whereas He blesses charity (sadaqat) with growth. And God loves none who is ungratehl and persists in sin. Truly those who beIieve and do righteous deeds and establish prayer and pay zakar will find that their reward is with their Lord. and that they have no reason to entertain fear or grief. Believers! Hold God in fear and give up aH outstanding ribi if you tmly believe. But if you do not do so. then be warned of war from God and His Messenger. If you repent. you are entitled to your principal: neither wvill you do wrong nor will you be wronged. But if the debtor is in straitened circumstances. let him have respite until the time of ease. 123

Havinp outlined the Qur'ânic sources of the prohibition. we can now turn

to Abdullah Saeed, who presents an insighthl approach to the debate surrounding

the meaning of n'bi Saeed argues that the current attention given to Islamic

"' The translations of the Qur'in used in this section are those of Abdullah Saeed found in Saeed. 20. The verses have been presented in chronological order. " Saeed. 22. l3 Qur'iin 2:275-280. Saeed, 24

banking is a result of the revivalist movement of the eighteenth century.

Refemng to modernist Fazlur ahm man."' he argues that during the later

medieval period, the Muslim world found itseIf in a state of intellectual and

moral decline:

After the crystallisation of the classical schools of Islamic law. independent inquiry and innovation among Muslim jurists gradually declined from about the eleventh century AD.'^

Saeed asserts that this pattern continued until the eighteenth and nineteenth

centuries. when Islamic revivalism emerged as a dominant social. moral and

intellectual f~ r ce . "~ From the revival movernent. neo-revivalism and modernism

were born. both of which are deepIy engaged in the study and adoption of Islamic

banking.'"

Neo-revivalism focuses on a rejection of Westernisation of the Muslim

worId. a rejection of interpretation or reinterpretation of the Qur'in and Suanab.

and the advocating of Islam as a way of life, The crucial element for the present

study is the neorevivalist approach to the Qur'in:

According to the neo-Revivalists, no rule stated in the Qur'àn or the srinna is to be reinterpreted or modified. Muslims need to accept them and apply

'" Fazlur Rahman, Islam and Modemiw: Transformation of an Intetlectual Tradition (Chicago: University of Chicago Press. 1982). 45. '"' Saeed, 5.

Saeed refers to Rahman's depiction of the elements of revivalism: 1) concem for the moral and social degeneration of Muslim society: 2) a return to original islam; and 3) an abandonment of the "finality" of the traditional schools of law. and to perform Ïjti6id rethink the meaning of the original message of Islam. For a comprehensive treatment of utioid see Wael B. Hallaq, The Gate of fjtihid A Study in Islamic Legal History- (Fh.D. dis., University of Washington, 1983). '3 Saeed. 6.

thern without modification irrespective of time. place and level of social or economic d e v e l ~ ~ m e n t . ' ~ ~

Saeed explains that it is the neo-revivalists that have been influential in

development of Islarnic banks and Islamic banking theory. As a result it is their

approach to the Qur'àn that will color the discussions on r i b i It will becorne

clear that neo-revivalists opt for a literal interpretation of the Qur'inic verses

which are found at the beginning of this chapter.

In contrast with the neo-revivalists. the modemists advocated reviving

ijtibid '" PO derive relevant principles from the Qur'in and the Sunnali. In

contrast with the neo-revivalists. modemists see the Qur'in as having a limited

application to a particular social and historical background:

They [modemists] saw it as a response to that situation consisting, for the most part. of moral. religious. and social pronouncements in answer to specific problems confronted in concrete histotical situation^.'^^

Thus for the modernists to insist on literai meanings of the Qur'in. ignoring

cennines of change. falls short of the social and moral goals of the ~ u r ' i n . ' ~ '

Saeed explains that the neo-revivaIist arguments for the equation of riba

and interest are based largely on the notion that: 1) the Qur'in clearly States that

'" Saeed. 8. " tjtihid is an individual interpretation of the tenets of faith. LX Saeed. 7. 1 3 Saeed also explains that modernists advocated: 1) the selective use of the Sunnah: 2) the utilisation of original thinking without claiming finality: 3) a distinction between sharia and fi&

lS2 7 only the principal should be returned in repaying a loan; -) money is

t te ri le;"'^' and 3) the mooey must be put at risk in order to gain a profit.'Y

With reference to the first argument. Saeed explains that neo-revivdists

focus on the Iegal form of r i b i and assert that the words of the Qur'in should be

understood literally. regardtess of the social context of their revelation. Since the

Qur'in States. "If you repent. you are entitled to you there was a

belief that for loans, only the principal should be returned. as any value over and

above the principal is ribà and is therefore prohibited. Although sorne neo-

revivalist scholars discuss the injustice of n'hi Saeed notes that they stop short of

stating that it is the injustice whkh is the rationale of the prohibition.'36 Of

course. if it were accepted that the rationale behind the prohibition of ribi was to

prevent injustice, then it woutd have to be accepted that if there were cases in

which it was nut unjust to accept a value greater than the principal. then r ib i

should be not prohibited for these cases. Saeed quotes Mawdüdi:

[ q h e contention that zufm (injustice) is the reason why interest on loans has been disalbwed and hence al1 such interest transactions as do not entait cruelty are permissible. remains yet to be s~bstantiated.'~'

4) avoiding sectarianism; 5)a retum co the meihodology of isIamic Law, but not necessarily the rufes ernbodied therein. 'j' Naqvi adopts this first argument. 133 Abbas Mirakhor. *The Pmgess of Islamic Banking: The Case of Iran and Pakistan." in IsIamic Law and Finance, ed. Chibli MalIat (London: Graham & Trotman. 1988). 91-1 16. '" Saeed. 119. 13' Qur'h, 2278. '" Saeed 49. ln Abu al-A'Ia Mawdüdi, "Prohibition of lnterest in Islam." Al-Isiam June 1986: 6-8.

Saeed asserts that the neo-revivaIists generalIy interpret the prohibition of r ibi to

mean not allowing any increase on the principal.'3E Thus many neo-revivalists

hold that ribainchdes al1 fonns of interest.

In order to understand Naqvi's arguments for the abolition of interest

within Saeed's framework, one c m consider his carrier work, Ethics and

Economics. from which Mam. Economics and Societv draws heavily. Naqvi first

quotes the Qur'in to explain the clarity of the prohibition. .'O ye who believe!

Devour not usury. doubling and quadrupling (the sum lent)."L39 Again. in a

footnote. Naqvi explains that although the translater uses the word "usury". the

tslamic world is alrnost unanimous in the opinion that ribishould be translated as

interest. Here we see that Naqvi adopts a literal use of the Qur'inic verse. which

Saeed explains is the approach of neo-revivalists. He does not engage a

discussion of the historical context or problem to which the verse provides a

solution. He merely takes the work '-n3i" transIates it as -interest" and

concludes that interest is prohibited.

Furthemore. Naqvi maintains that what constitutes d i is not crucial for

the argument which he presents. In his footnote after outIining the differing

views surrounding the definition of nbi. Naqvi States:

However. to avoid uanecessary controversy. we do not go into the controversy about what constitutes îfbi. [nstead, vie focus on evaluating the merits of

lx Saeed 49. 139 Qur'&, 3: 130.

the alternative ways of pricing capital once interest has been aboli~hed.'~

This clearly begs the question. Why look for alternative methods of pricing

capital if ribi does not prohibit interest. and there can be a viable Islamic

economy that engages interest?

Other writers have also adopted the position that r ibi means interest. at

least as a starting point. as does Abbas Mirakhor. However. Mirakhor and others

do not refer to the Qur'in in their argument. Abbas Mirakhor writes:

There is now a genera! consensus among Muslim economists on the fact that the concept of n'biis not restricted to *usury', therefore, the prevailing view is that the Islamic prohibition against ribiextends to interest and that the banking system in an Islamic society would violate this prohibition if it allows the use of an interest ~ate. '~ '

Mirakhor's explanation for the prohibition of interest follows from an economic

explanation of property rights in h m . He maintains that Islam acknowledges

two types of property daims. The first is a mixing of the individual's Iabor with

natural resources. The second type of claim is obtained through "exchange.

remittances of what Islam recognizes as the rights of those less abie to utilize

society's resources. outright beneficience grants and inheritance."'" As money

represents the claim of property rights obtained through one of the two types of

property claims. lending rnoney is the transfer of these property rights. If more

than the equivalent amount is rettrmed to the lender then there has been an

Naqvi. Ethics, 1 17, 1 18. "' Mirakhor, 92.

unjustifiable creation of instantaneous property rights. Mirakhor explains that

the interest arnount which represents additional property rights is unjustified

because interest is not recognized as a legitimate propers right in Islam. The

additional property rights are instantaneous because when the agreement has been

concluded the lender has rights to the borrower's property regardless of the

outcome of the enterprise.

In considering Mirakhor's first concern of the unjustified creation of

additional property nghts. his argument is basically a tautoiogy: it is unjustified

because it is '-outside the legal framewark of individual property rights in

~slarn.""'~ So. basically it is unjustified because it is illepitirnate. Of course the

question to ask here is why is the creation of additional property rights in Eslam

illegitimate? The second issue of the instantaneous creation of additional

property rights focuses on the fact that additionai property is created for the

lender before the outcome of the enterprise is known. Mirakhor does not indicate

what is probIematic about this: however. one could interpolate and suppose that

the problem is that it is unfair for the borrower to bear al1 of the risk, that he has

to pay a fixed rate of interest even if his venture fails.

Mirakhor is not this specific: however. other schoiars writing about profit

and loss sharing as an alternative to bank interest adopt the view that the sharing

of risk between the entrepreneur and the lender reduces inequalities between

them. The problem with bank interest in this regard is that that charging a fixed

'" Mirakhor, 95. Mirakhor. 93.

rate of return. regardless of the success or faiIure of the business venture. exploits

both the lender, in the case of the profit exceeding the fixed rate of return: and

the entreprene. in case of the failure of the venture. n u s . depending on the

outcome of the venture. the unequa1 division of risk between the lender and the

borrower can create inequities between them. Profit-loss sharing banking

introduces a system in which the lender and entrepreneur are more like partners,

both share in the profit and both share in the loss.

Baidwin and Wilson in their article, "[slamic Finance in Principle and

~ract ice ." '~ outline two views that equate ribi to interest. Neither of these

arguments refer to the Qur'in. The first views holds that interest rates should be

prohibited on the basis of equity. and the second argument prohibits interest

because it is unearned income, The argument on the basis of equity is that since

the poor and underpcivileged are forced to borrow money. and the rich have

enough surplus to Save. interest *-penalizes the poor and benefits the cich.'.'" The

underlying assumption of this argument is that more often than not. it is the poor

that need to borrow. and the rich have enough money to Save some. This is of

course contradicted by the fact that the poor can also Save money (perhaps a

modest retirement savings). and the cich orten bomw (CO invest in a business). if

the argument based on equity is accepted, then one could argue that it is also not

equitable for the poor not to eam interest on money that is being lent through

their bank to the rich, who may become richer through the business venture.

lu Rodney Wilson and David Baldwin. "lslamic Finance in Principle and Practice. in Islarnic Law and Finance, ed. Chibli Mallat (London: Graham h Tronnan. 1988), t 71-189.

However. Omar Asghar Khan reiterates the initiai assumption that the

poor are forced to borrow while the rich have the luxury to Save. Khan argues

that the inequities are inherent in the relationship between the borrower and the

lender. He explains that this relationship:

derived its exploitative nature in the popular mind from the highly unequa1 relationship betwren the money-lenders (who in a large number of cases have been the owners of large estates) and weak and poor borrowers. This was the case in Western Europe prior to the development of modern capitalism, and is still so in the Indo-Pakistan subcontinent and many other Third World countries.'"

Thus, as the poorer sections are required to seek subsistence loans. an argument

could be made that ribai regardless of whether is defined as interest or usury.

would benefit the rich at the expense of the poor.

Baldwin and Wilson's second argument in favor of abolishing interest is

that it is seen as unearned income. which corrupts the recipient. As the lender

receives in return more money than he gives. intenst is seen as a reward without

an effort.'" According to Baldwin and Wilson. this view can be contrasted with

the view of western economists. which sees "interest as a reward for waiting or

deferring consumption untiI a hture time period."'a In the latter case. time is

seen as a commodity; in the forme. time has no value. The approach taken by

Baldwin and Wilson is very similar to that of Mirakhor. who discussed how

1s Wilson and Baldwin. 171. 154 Omar Asghar Khan. 'Economic Aspects of [slamisation in Pakistan," in Islamic Economic Alternatives, ed. Jomo K.S. (London: Macmillan. 1992). 148. 117 Wilson and Baldwin. I72.

Wilson and Baldwin. 172.

property rights are acquired in Islam. Both views looks at what kinds of effort

shouId be rewarded, and how property can be acquired.

While Naqvi equates rfbi with interest on the b a i s of Qur'ànic verses.

Mirakhor. Baldwin and Wilson offer arguments from property and equity to

support their claim. In Iight of Saeed's distinction between neo-revivalists and

modemists and their use of the Qur'Zn. it is clear that Naqvi falls into the neo-

revivaht category. Although both Mirakhor. Baldwin and Wilson assert the

equation of ribi with interest. they did not ground their argument on the Quran.

As a result it is unclear how Saeed would classifi them in his framework.

B. Ribi means dl forms of ex~loitation

Having examined the narrow definition of ribias interest. in this section.

a broader definition of ribàas exploitation in general will be examined. Here. it

will be demonstrated that Nabil Saleh, Omar Asghar Khan Asghar Ali Engineer

adopt a wider range of transactions inciuded in ribi These three schotars argue

that ribashould be defined as al1 forms of exploitation; however it will a h be

shown that this position does not preclude interest being included among the

various prohibited actions.

Nabil Saleh hoIds that d i means more than bank interest.IJ9 He

maintains that n3C can be defined as an unlawful gain derived From the

quantitative exchange of two or more items of differing values under certain

'" Nabil Sateh, Unlawhil Gain and Legitimate Profit in islam, Zed. with additional research by Ahmad Ajaj (London: Graham & Trotman, 1992).

conditions. which va- arnong the ç c h o ~ l s . ~ ~ ~ Saleh argues that barter. money

exchange with deferment. and loans used to be the transactions that were

vulnerable to ribz with only the latter having elements that correspond to bank

interest. However. with deferred money exchange and barter loosing their

popularity. loans have becomr the primary source of transactions involving ribk

Although in theory it is incorrect to equate riba with bank interest, ;ri reality it

may not be incorrect:

This is to Say that. practically speaking. popular belief is not far from reality and the censure of riba in practice amounts simply to the forbidding of payment and receipt of interest on loans of rn~ney. '~ '

Although Saleh's definition includes a wider range of transactions than mere

interest. he clearly includes interest on loans within the definition of ribi

Omar Asghar Khan, however. asserts that ri&Z has a wider meaning that

bank interest. He explains that in many deveIoping countries (and especially

Pakistan) feudalism and capitalism exist side by side. As a result, al1 oppressive

relations should be included in the interpretation of riba: including. "the feudal

lord and the landless tenants. the capitalist owner and the worker. the extortionate

merchant and the con~umer."'~' The important thing to notice is that if we adopt

the position that the dcfrnition of n'bi includes not only interest but al1

exploitative relations, then the abolition of interest provided in Naqvi's theory

does not address al1 of the elements included in rios RibZ in its complete

'% Saleh, 16. 15' Saleh. 6 1.

spectrum of transactions will not have been prohibited. In order to address ail of

these exploitative relationships. we wouId need a complete restmcturing of the

economy, but we would aIso require a restnicturing of politicai and legal

institutions to bring about a more paternalistic regime, This regime would have

to include strict tentai legislation. Iabor codes, and consumer protection

legislation. a well as easy access for victims of exploitation to be heard. Khan

continues:

Instead of making the elimination of interest and the institution of zakar and usbr the cornerstones of a so- called Islamic economy. the propagators of such an economy should concentrate on the establishment of a society where true egalitacianism e~ i s t s . "~

While Khan focuses on an egalitarian society. Naqvi. in a similar vein. proposes

the abolition of ribgas a policy instrument. to bring about the objectives of an

-exploitation-free" Islamic economy:

The proposal to abotish interest is a key element of the set of [slarnic poiicy instruments. not a policy objective. The objective is to End a solution which is consistent with the dictates of the Islamic ethical a ~ i o r n s . ' ~

Although both share the same end goal; for Naqvi. r h ï will be abohshed when

interest is eliminated, while for Khan, ribiwiII be abolished when the final goals

have been achieved.

15- Khan. 149. In Khan, 149-150 '" Naqvi, Socieni. 1 10.

Asghar Ali ~ n ~ i n e e r ' " maintains that ribican be seen not only as interest:

but rather, it m u t be interpreted as al1 exploitation. He asserts:

The essence of ribi m u t be understood as exploitation, and not merely as a fixed rate of interest. The actual purpose of prohibiting r i b i cannot be reaiised without ending exploitation in ail its f ~ m s . ' ~ ~

Engineer further maintains that introducing the prohibition of r i b i in an

otherwise capitalist economy would lead to greater exploitation. Omar Asghar

han"' also asserts that nba should be interpreted as al1 forms of exploitation.

and that the prohibition of r i b i within a capitalist framework would result in

more exploitation.'s8 Assuming a profit-loss sharing scheme. in the case of a

loss, the depositors. which largely belong to the lower middle class. will not be

paid any profit. In the case of a profit. the portion paid to depositors is subject

to the bank's operations. Thu. the depositors may receive only a nominal profit.

while the investors receive an interest-free loan and pay only a nominal fee.

While we have seen some authors define ribàas bank interest and nothing

more. others have defined ribâas exploitation of various types including interest.

Thus. the equation of r i b i to interest is still crucial to the discussion. As

proponents of the narrow and wide definitions have adopted bank interest as a

155 Asghar Ali Engineer. "Islamic Economics: A Progressive Perspective." in Islamic Economic Alternatives, ed. Jomo K.S. (London: Macmillan, 1992)- 117-124. 1% Engineer. 123. in Khan. 158 Engineer. Naqvi and others have asserted this view in order to combat the position that an fslamic economy can be achieved by instituting zakd and prohibiting ribi.

common point, it wouid be useful to examine a critique of including this aspect

of modem economies in the definition of ribi

iI. A Modemist Critique of Equating Ribiwith Interest

Saeed's first challenge to equating ri6iand interest is based on Qur'aaic

interpretation, Saeed maintains that the Qur'inic expression. " wa-'h fubrum fa-

lakum m'üsu amwdikum," bas been translated to mean, * if you repent then you

are entitled to receive your principal."'sg Saeed explains that the neo-revivalists

interpret this phrase tu mean that only the principal arnount of a loan should be

returned to the Lender, The argument that Saeed puts forth is that the term. "ru

'Üsu amwir'. means principal, However. Saeed argues that although the term.

'-ra's ai-mil*. frorn which the previous phrase is derived. could be vanslated as

principal. in order to understand the meaning of the phrase. it is c ~ c i a l to

consider what -principal" was in pre-IrIamic ~rabia.'*

Although Saeed does nut challenge the trandation. he asserts that the term

defined as "principal" (ru %'su amwif) cannot be defined as a numerical value of

fiat money. He expkns that the "principal" of the Prophet's time referred to

either commodity-money or a commodity. but not fiat money. The commodities

that came to be the principal in a loan inciuded goid. silver, animals. foods and

armaments. So although gald and siIver were used as commodity-money, they

were also used as c~mmodities.'~' Saeed explains that a distinction should be

1 9 Saeed, 119. 'mSaeed, 119. lbl Saeed. 120.

made between the principal in a debt of "full-bodied" money and the principal in

a debt of fiat money. A debt of full-bodied money would be treated as a

commodity loan. For examplel if a person borrowed one unit of gold of a certain

gotd content. they were obligated to return one unit of gold with the same gold

content. For a loan in fiat money. however. what would need to be returned

wodd be commodity value at the time of the loan. which was the purchasing

power of that value of fiat money. Saeed States:

Two situations require the principal, in this case, to be restated in different amounts of fiat money: (1) inflation in the economy will lead the principal to be stated in a greater number of fiat money units: and (II) deflation would lead the principal to be stated in a lesser number of fiat money units. When there is no inflation or deflation the principal will be returned in the sarne puantity of fiat money units.'"

A commodity loan would resuIt in the repavent of a given amount of the certain

type of object, and a fiat loan requires a consideration of the purchasing power at

the time of the loan. Therefore, in interpreting the rem, N'ÜSU amwâl. one must

consider the nature of the object of the loan. Saeed concludes that the "principal"

of pre-Islamic Arabia is not the same as principal as we know it today.

Another argument that Saeed brings forward against the neorevivatists is

that their interpretation does not consider the nature of pre-Islamic Bbi Saeed

explains that the type of lending that occurred in pre-lslarnic Arabia was largely

for subsistence Ioans for consumption.'" Saeed refen to modem day studies of

Saeed. 120. 163 Saeed expfains that one of the neo-revivalist arguments is that Mecca was a commercial city and most of the lending was for that purpose, In this lending was not allowed to have ribZ so a

lending in small subsistence economies to draw a cornparison with pre-Islamic

Arabia. He maintains that the prohibition of n'bi addressed a particular

transaction, narnely usury, in which the lender lends to the poor. and takes their

land or possessions as security. The percentage to be paid back over and above

the principal is often so high that the borrower is never able to repay the debt.

which often leads to a type of slavery for the bomwer and his family.'" Saeed

asserts that this was the transaction which the prohibition of r ib i addresses and

not interest on loans.

Fazlur Rahman. in his article. "Riba and ~nterest."'~' presents a

comprehensive review of the issues surrounding the meaning of r ib i by

examining the Qur'in. the Hadith and various commentators. Rahman begins

with the verses in the Qur'ân about ribàand concludes that the ribiin the Qur'in

prohibits a pre-Islamic transaction in which a delay in the repayment o f a loan

would lead to the doubling and redoubling of the principal. making it impossible

for the borrower to repay the 10an.I~~ Rahman supports this idea by referring to

the historical record. He refers to the Muwa!ta'of Imam Malik who writes:

In the pre-islamic days ribàoperated in this manner: if a man owed another a debt. at the time of its maturity the creditor would ask the debtor: -Will you pay up or wi1I you increase?" ["am tudi.? -

foriiori, ribiwould be prohibited for subsistence loans. However. what Saeed argues is that regardless whether the loan was for consumption or investment. what the prohibition of ribi attempts to prevent is the situation in which the lender chooses prïces that are so high that the borrower Iooses his property, and even his kedom, and falls inescapably into debt.

W Saeed, 121. 16' Rahman, interest. 166 Rahman. Interest 5.

from nbii]. if the latter paid up the creditor received back the sum; otherwise the princi al was increased on the stipulation of a M e r term. P67

Having established that the ribiprohibited in the Qur'in addressed pre-

Islamic n'bà, Rahman asserts that even the milder forms of r ib i came to be

prohibited. Rahman explains that the reason for the evolution of the blanket

prohibition of the transactions over and above the pre-Islamic one is that they

were al1 part of the same -ribàsystemt. so the system as a whole had to be

banned and not just one transaction. The next question to ask is whether bank

interest on loans ought to be banned if within Islamic history. milder forms of

increase bad been prohibited. Rahman argues that one need not argue that bank

interest must also be considered a form of n'bk

When the entire system was banned, the milder cases within that system were also naturaily abolished since the system itself was tyrannical. It cannot, thetefore. be argued that since the Qur'ân abolished even the milder cases. it must be concluded that the bank-interest of today also stand condemned. This is because bank-interest of today is a separate kind of stem.'^^

Rahman concludes that aithough the Qur'in advocates establishing an economy.

based on the spirit of CO-operation and development which would make interest

an unnecessary tool, it does not prohibit the use of bank interest in current

economic systems.'69

Rahman. Interest, 5. 'a Rahman, Interest, 7-8. '* Rahman, Interest, 38-40.

Having outlined Saeed and Rahman's critique of defining nihi as interest

on the basis of Qur'hic interpretation, it is clear that they thernseIves fa11 into

Saeed's second category of modernist. It has been shown that Saeed undertakes

as historical and contextual examination of the Qur'inic verses containine the

words, "ru 'Üsu amwir. Saeed Ends that although these words can be translated

as principal. it must be understood in terrns of what was considered principal in

seventh century Arabia. In a similar vein. Rahman examines the historical

account of early Islam. He concludes that the prohibition of ribi addressed

particular types of transactions that were different from interest.

It is important to notice that both critiques were tendered through a return

to the historical and social context of seventh century Arabia when the Qur'in

was revealed. This seems to indicate that using a single methodology in

engaging the Qur'in will yield consistent results, This idea will be examined in

the following section.

III. The Approach to the Qur'in

It is clear that within the scope of Islamic banking and economics. the

Qur'ân has been used to support various conflicting ideas. in particular. the

various definitions of ribi. Timur Kuran supports this assertion:

Contemporary Ishnism is capable of supporting both pro- and anti-market ideologies. because this is true of IsIam itself. as it is of every other major religion. In the fundamental sources of Islam one can find justifications for respecting market outcornes dong with ones for restrïcting hem; and

precepts favoring interventions on behalf of the poor along with ones that preach tolerance of inequality."O

As argued in section 1 of the previous chapter. Naqvi and other neo-

revivalists reject the idea of a consistent rnethodology in interpreting the Qur'ân.

As we saw of Naqvi. the neo-revivalists support their arguments with verses of

the Qur'ân, without consideration of the historical context of their revelation.

Fazlur Rahman aiso asserts this criticism:

The essence of the matter is that the neorevivalist lias produced no Islamic educational system wonhy of the name. and this is primady because. having becorne rightly dissatisfied with much of the traditionai Ieaming of the uiema. he himself has been unable to devise any methodology. and structural strategy. for understanding Islam or interpreting the ~ u r ' i n . ' "

In light of the above criticism surrounding the lack of methodology of Qur'inic

interpretation, a brief outline of a possible method of interpretation could provide

an example. Fazlur Rahman proposes a double movement system. which

proceeds from the present back to the period of revelation. and then a return to

the present.

Rahman argues that the Qur'ân was reveaIed during a historical

background. It was revealed in a commercial cornmunity in Mecca which was

plagued by poIytheism. exploitation of the poor and unethical business

transactions:

im Timur Kuran, "IsIamism and Economics: Policy Imptications for a Free Society," International Review of Com~arative Public Policy 9 (1997): 84. "' Rahman. Modemitv, 137.

The Qur'àn is a response to that situation. and for the most part it consists of moral, religious, and social pronouncements that respond to s ecific probtems confronted in historical situations. Id'

Thus. the Qur'àn should be seen as a response to the situation of the

seventh centwy Muslim cornmunity. Occasionaily, general laws were revealed,

which are easier to appIy to the present period. However. Rahrnan maintains that

rnany of the pronouncements refer and provide solutions to specific probiems.

He daims that by studying the background of their revelation. one can deduce

fiom them general laws that have meaning in the present.'73

Rahman explains that the first step requires an understanding of the

importance of the revelation in the historical period. One m u t understand the

nature of the probIem or situation to wfiich the Qur'inic statement referred. This

requires an understanding of the social. politicai and economic forces at play

during the period of revelation. From the specifics of Qur'inic texts and an

understanding of the context of their revelation. one must deduce general sociaI

and mord principles.

In the second sep. Rahman takes these general principles and specifies

them in tight of the present social. politicai. economic situation:

[Tlhe second is to be fiom this general view to the specific view that is to be fomulated and realised now. ïhat is. the general has to be embodied in the present concrete sociohistoricaI conte~t.'~'

IP' Rahman. Modemi~ 5. " Rahman, Modemi% 6.7. "' Rahman, Modemitva 7.

Again, Rahman exphins that a clear understanding of the present social, political.

and economic situation is required before any specific application of the general

principles. If both steps are completed successfully. Qur'Znic values can be

effectively applied to modern situations.

Given some of the difficulties in Naqvi's theory. a consistent approach to

the Qur'ân may fil1 in some of the gaps. We saw, in particular. that Naqvi failed

to specify substantive content for some of his rules of economic behavior. for

example. the role of the state and the tension between liberty and equality. These

may be concepts that would be operational if their meaning in seventh century

Arabia was understood. Then. one could "import" corresponding principles back

into the twenty-first century and apply lslamic concepts in a consistent manner.

Conclusions

isiarnic economists maintain that current theones of economics do not

adequately represent the behavior of Muslims. In so far as the enterprise of

theory-building goes. it is clear that Islamic economics presents difficult

challenges both in the development of a theory from the ethics of Islam. and in

the application of its principles.

Syed Nawab Haider Naqvi has offered a theory of Islamic econornics

based on the ethics of Islam in his book. Islam. Economics and Societv. Naqvi

and other Islamic economists have argued that the self-interest maximization

model of western economics is contrary to Islamic ethics. It was shown that

while the above theoretical statement about the gap between abstract theories has

considerable merit, Naqvi has failed to demonstrate that the actual behavior of

Muslims cannot be characterized by the self-interest model. The unfortunate

result of this failure to bridge the gap between belief and behavior is that it

undermines the scientific strength of Naqvi's theory.

Also in line with the problems associated with self-interest ma?cimization

for Islamic ethics, there are also other interpretations of the paradigm which

Naqvi does not adequately address. These economists. Jon EIster. Daniel

Hausman, and MichaeI McPherson in particular. argue that rationai choice is noi

necessdy divorced from value judgements. Although Naqvi addresses some of

these issues, he does not adequately challenge these theories.

On a sirnilar vein, Milton Friedman argues that rational agents act as

though they are maximizing their self-interest. He maintains that the validity of

the above assumption is irrelevant. What is important for economics is the

predicative capabilities to which the assumptions lead. In response to this

debate. Naqvi establishes criteria for his four axioms to satis&. He implies that

if the various criteria are satisfied, his theory will be as scientifically robust. if

not more so, than current economic theories.

With regards to Naqvi's own criteria, it was argued that he does not

satisfy his requirements for a minimal. independent and consistent set that has

predicative capabilities. Although Naqvi refers to the critique that al1 of his

axioms could be derived from the unity axiom. his reasoned response does not

defeat the challenge. [t was aiso demonstrated that Naqvi has difficulty

establishing the consistency of his set due to the limitations resulting from

including both free will and responsibility in the set. Further. the criterion of

predicative capability follows, in part. fiorn the independence of the set. which

has already been challenged.

Naqvi's approach to rizif a h reflects a weak element in his theory.

Although he does not explicitly srate his views. Naqvi adopts the position that

ribimeans bank interest, and he foresees an Islamic economy without interest.

After reviewing arguments in favor of various definitions of rib- and a critique

of the equation of ribiand bank interest. it evident that a consistent methodology

is required in interpreting the Qur'h. The approach of Fazlur Rahman was

outlined as a possible strategy to bring Qur'inic principles to bear in modem

situations. Rahman offers a double movement system, which commences from

an understanding of the importance of the revelation in its historical context to

the derivation of general social and moral principles. Given a clear

understanding of the present socid, political and economic situation. these

general prïnciples can be specified in the modem context. Thus. if there is an

understanding of Islamic principles in the context of their revelation. the level of

accuracy and consistency demanded by the enterprise of Islamic economic

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