Religion & Economics
Question:-
You say: Islam is a conscious comprehensive self-consistent way of life. How, from the Islamic point of view, does Economics fit into Religion?
Answer:-
Human beings exist as part of a greater world of Total Reality with which they interact through inputs, transformations and outputs, of three interdependent factors, namely the Physical, the Social and the Psychological at conscious, sub-conscious and unconscious levels.
Religion refers to the conscious methods of human development in progressive adjustment to Objective Reality (i.e. Surrender to Allah). This has a physical, mental and spiritual aspect corresponding to the three aspects of man and three ways we interact with the environment. These are interdependent and each has similar three aspects. This applies to:- (a) the physical constructions and order (b) the social culture consisting of ideology, organisation, and patterns of behaviour and (c) the general state of existence. There is a correspondence, but not identity, between these aspects and the divisions of Islam into Shariat (Law), Tariqat (Method or Way) and Haqiqat (real state) which are also interdependent.
Economics refers mainly to the Physical interactions with the physical environment, though not exclusively. It has also mental as well as spiritual aspects and affects them. The Mental aspect that concerns feeling, thought and action refers to the social, cultural and ideological aspects of life - the institutions, laws, arts, sciences, philosophies and theologies. The Spiritual aspect that concerns consciousness, conscience and will, refers to moral states, attitudes and behaviour - the ethics, values, motives, the world view, the psychological techniques, the worship, and the whole state of being.
Inherently, human beings have the desire to benefit themselves and not to harm themselves. This requires adjustment to Reality of which they are a dependant and interactive part. In order to live correctly human beings require correct knowledge, correct motives and correct action. They have a built in capability for these. Action is a bridge between knowledge (facts) and Motives (values). Economics can be regarded as a bridge between facts and values and between the scientific aspect and the ethical aspect.
There are three kinds of Economies - Real, Illusory and False. Real Economics concerns the real benefits or harm and real reactions to these. This should be a part of the greater system of Planetary or even Universal Ecology. Illusory Economics depends on the fact that human beings behave according to their perception and knowledge which is not the same as reality but is affected by their limitations. False Economics refers to the fact that human beings often seek what is, in fact, harmful to them. This produces frustration and further needs that would otherwise be unnecessary. But misinterpretation of these needs leads to even more harm. A destructive vicious circle is formed that acts as a self-maintaining parasite on them. Human welfare and development requires us to get rid of False and Illusory Economies.
There are three interdependent aspects to an Economy:-
(a) The institutions, activities and processes. These may have been established by human beings to serve a human purpose, but tend to become machines that enslave man.
(b) The motives, purposes, incentives. They manifest as pleasure and pain, comfort or discomfort, likes and dislikes. But there is a difference between what is really beneficial or harmful to the individual and what he feels as pleasure and pain or likes and dislikes. Motives derive from the inherent drives such as the self-preservative, the sexual-social (society is a network of families) and the self-extensive. In general pain is an indicator that something is wrong and provides an incentive to rectify it. In that it is beneficial. But we might be addicted to certain kinds of pleasure such as eating too many sweets, and this causes us harm. It is also possible to get addicted to excitement and danger or get pleasure from pain as in masochism and sadism. We form many kinds of habits and automatism that might be useful in some circumstances but debilitating in others. Incentives are often socially provided motives. There are three kinds: (i) Economic - wages, salaries, profits, rewards, bonuses, fines, penalties. (ii) Social - approval, disapproval, ridicule, hostility, ostracism, imprisonment, assault. (iii) Moral - value systems, idea about what is beneficial or harmful.
(c) The principles including the values on which the system is based. These are not always known or understood though efforts are made to discover them and to establish consciously constructed comprehensive self-consistent systems.
Economics has three inter-connected aspects:- (a) Econ-1 - The actions of individuals in their own interest. This interest may include perceived benefits to themselves as well as to others with whom they identify. It is not, therefore, necessarily selfish or self-centred. Western Economic systems tend to base themselves on this. (b)Econ-2 - The actions of individuals in association with each other. This requires mutual benefits and mutual consultation and agreement based on adequate information. Islamic Economics favours this. (c) Econ-3 - The collective action of groups or communities. This is done through individuals that govern the people. They ought to represent the people and be responsible to them. But this can vary from one extreme of dictatorship, tyrannical or benevolent, to the opposite which has not been achieved. Socialist systems, including the extreme form of Communist ones, tend to place emphasis on this aspect.
It is supposed in some quarters that the Free Market based on Econ-1 can work perfectly by itself for the benefit of all. But this is a mistake. It can work only if every one has equal opportunity to fulfil their needs. In fact, people live in communities and are inter-dependent, and they differ in age, experience, knowledge, personality intelligence, abilities, motives and advantages and opportunities provided by the physical, social and cultural environment. There is a tendency in most people to take advantage of and increase their own advantages over others. That is why all communities have found it necessary to regulate affairs by means of Law and methods of its enforcement. This brings in the need for Econ-2 and Econ-3. But the Economic system will differ according to which of these aspects takes the dominant position.
Econ-1 works as follows:-
Resources in the environment acquire value only when there is demand for them because they have some usefulness in providing satisfaction. Though the natural resources of the earth are limited, human ingenuity can turn things that had no value into something valuable - e.g. oil to fuel cars and material that is turned into plastics. Skills of labour and organisation also make possible what is otherwise not possible. Resources, therefore, includes Material, Social and Psychological resources. But the size, the increase or decrease of the population not only affects the work force but also the needs and demands, the values. These can vary in kind and increase or decrease according to various environmental, cultural, social, political and psychological changes.
A certain amount of work has to be done to convert the resources into supply. This constitutes a sacrifice. There is, therefore, a balance between sacrifice and satisfaction. The satisfaction must be equal or more than the sacrifice. The difference constitutes the Profit and the incentive for the work. Economics can be defined as the method of balancing sacrifice and satisfaction or more specifically of the methods of maximising utility or benefits - i.e. maximising satisfaction per unit of sacrifice or minimising sacrifice per unit of satisfaction.
When supply is scarce prices demanded and paid are high and this reduces the demand but ensures that the product is used in the most useful way - i.e. utility or profit is maximised and it provides an incentive for expanding supply. When supply expands then prices fall and demand increases, the utility, profit and incentive diminishes which reduces supply. We have two opposite processes that tend to reverse each other and reach a balance.
So, things seem to work perfectly. Why then do we get economic malfunctions? There are several reasons, some of which are as follows:-
(1) The fact is that these processes are not a deterministic mechanical law as those who think economics is a science suppose. It is human beings who decide to raise or lower prices and by how much. They assess satisfaction and sacrifice which are subjective judgements that may not correspond to real needs and benefits. They may weigh up physical satisfaction against social, mental or spiritual satisfaction and sacrifice one for the other.
(2) Balancing takes time and the economic pendulum can swing to greater or lesser extremes. All parts of an economic system tend to be interdependent. It depends on unpredicted factors such as new inventions that change relative demand. Changes in demand or supply of one thing affect changes in demand or supply for others. Satisfying or frustrating one need to a certain level allows demand for something else to be increased or decreased. At the more basic level needs tend to be predictable – there is an order of urgency from things affecting self-preservation such as food, to social needs for family and friends to psychological or spiritual needs for science, art, philosophy and religion. At higher levels there is greater diversity and, therefore, predictability decreases and uncertainty increases. Economic changes also dependent on environmental factors such as the weather and other geophysical, social and psychological forces such as population and cultural changes. Populations grow or shrink owing to emigration, birth rate and these days, abortion, and there are changes in the constitution of populations – different age or cultural groups have different needs and demands. Competition between firms causes some to succeed and others to fail and the work force may not be flexible or mobile enough to move or more efficient processes of manufacture may require fewer workers. In general, if fewer workers are required to produce a product then either the price of the goods will fall because of reduced costs of manufacture or wages of the fewer workers will rise, or the profits will rise or some combination of these factors will take place. As the total price of goods is always equal to the total cost of manufacture including wages and profits, there will always be enough money to purchase the goods that are manufactured. But there may not be any demand for the goods. The extra money could be invested in new projects and this would re-appear as wages and buying power for the new goods. But there may not be any new projects or there may be reluctance to invest. Economic malfunctions consist of a separation between goods in shops, workers in factory and money in banks, a lack of co-ordination. Every individual can and usually does co-ordinate these factors when left to himself but a community collectively is not usually so well integrated as the individual. Some kind of central control is needed. Unfortunately, individuals in interaction with such economic systems also tend to become irresponsible. They borrow money, thereby selling their future for a greater price (when interest is added). The surplus money that is not used to purchase goods or invested in new projects can be lent out to purchase goods. The Banks make earn from the interest. But they must attract money from savers by paying them interest. The Banks profit is the difference between these. There is, therefore, a pressure for the Bank to lend out the surplus money. But as a greater amount has to be paid back this can only be balanced if this is balanced by an expansion of lending or other economic activity.
(3) Power depends mostly on ownership, including patent rights, and its enforcement. It is not a natural concept but a man made legal one. It is true that in nature animals do protect the territories upon which their livelihood (food) depends, but this is more like a right to use. Usually natural justice rules in that what the organism obtains is proportional to the work it does depending on the environment and its own nature. Human beings too would require only the amount of land which they could work to provide their needs. But the concept of ownership allowed them to control more than that, allowing them to rent it out to others. That is, others were put under the control of the owner who forced them to work for the owners benefit. That is, they had to work not only to provide their own needs but also had to work extra to pay the owner. The owner, apart from what he could obtain from his own work, acquired the results of the work of others. These others became his extra limbs and even brains. It is not difficult to see that this is the same as slavery also done through law backed by force which also has to be paid for. But it is paid for by extracting it in the same way. The employed are dependent for their living on the employer who is dependent on them. The Law enforcing it depends on governments, Econ-3. Thus a self-maintaining vicious circle is created. It is the concept of ownership that allowed the Europeans to dispossess the American Indians and the native Africans.
People are unequal in that the Resources and means of production are owned by the few and they control others and determine who will be given employment or thrown out of work, what they will produce and how much they will be paid according to their profits. If the profit of the factory falls then even if there is demand for the goods, the factory closes and the workers are thrown out of work. They loose wages and this means that demand falls because there is no money to buy. Unemployment exists because people do not possess the means of production. It means that some people are working or earning more than they need while others are working or earning less than they need. If 10% of the population is unemployed then it is not difficult to see that this could be prevented by reducing the amount of work the rest of the population did by 10%. This would require greater flexibility of employment which comes only if the workers had greater control of their own affairs and each could work only as much as they required to satisfy their needs. This cannot be the case where employers wish to extract as much work as possible from each employee and fix the amount of time and wages.
(4) Money which is a medium of exchange has been converted into a product that is bought and sold, and there are institutions that deal purely in money. Fortunes are made by gambling on the stock exchange. Usury is an aspect of this and transfers money from those in need to the rich who have a surplus. It creates an illusory Economic system. It is not the real utility of products that is being assessed but its value in money.
(5) Profits can be increased by creating more efficient means of production or new inventions which encourages research, development and invention and, therefore, also encourages development of organisation, education and training. But it also be done by all kinds of swindling and expansion of control, forming monopolies and manipulating scarcity. Firms and Companies become larger and larger because profit per item can be reduced giving competitive advantage when the total profit in increased because the number of items from which it is made is increased rather than by making greater profit per item from fewer items. Government, Econ-3, action is necessary to prevent monopolies, cartels and industrial conspiracies and maintain competition. But it may be that Government ministers or officials have interests in these things. The fact is that if firms need to expand in order to make profits then preventing them from doing so must militate against the economic advantages this provides. Great variety though it gives greater choice also means that the same costs in research, development and mechanisation have to be unnecessarily repeated and this adds to the cost of goods. A few types in greater bulk can be made at less cost than many types in smaller numbers. It is also much more difficult to create new companies and factories because of the huge capital costs involved. In fact, existing companies have shares in other companies and groups of companies are controlled by a single parent company.
(6) The more general problem, of which the above is an aspect, is disintegration - the existence of separate units isolated from one another to different degrees. Though there is always an underlying unity and it is impossible to stop interaction between all things, these units create borders and barrier to certain influences and particularly conscious control. They try to confine information and cause contradictions owing to the fact that while trying to increase influence and control over others they also try to decrease the same from others. The result is conflict rather than co-operation. Co-operation and unification are obviously the direction of evolution. The smaller units are becoming progressively less viable. However, they may have to disintegrate to form even smaller units that can become co-operative parts of larger units. The Industrial and Commercial have grown so large and powerful that they have become International Organisations and are able to dictate terms to Governments. Even if a State claims to be Democratic they people and those they elect have little power over them. If a government does not provide condition that serves the interest of these Companies then they can take their business to other countries that will provide the facilities they require. Thus firms move factories and offices from one country where the work force is discarded to another where the work force is cheaper. The original work force is not consulted or even informed until the last moments and has no power. They are no more than objects to be used and thrown away at will. There is, however, a global advantage to this. It tends to spread out wealth more evenly through the world. And Governments in order to combat their disability seek to form alliances into greater units such as the European Common Market where trade can be equalised. However, this tends to create an even greater Bureaucracy which is like an unwieldy unintelligent machine controlled by rules and regulations. These are required to prevent abuse from human ambitions and confusion because of human limitations and diversity but also create disability and inertia. A radically different system of organisation is necessary.
(7) Power depends on having knowledge, motivation and ability. These are dependent on education and the whole of the culture usually dominated by the few. A just transaction depends on having sufficient information about it. But there is a tendency to deceive or create information asymmetry by suppressing certain facts and exaggerating or distorting others. This is done by advertisements, shop and store displays and by often subtle propaganda by the media and many pressure groups in their own interest. Industrial, Business and political secrecy is widespread and enables much criminal behaviour and public deception to be committed with impunity.
(8) Owing to mechanisation, manufacture is relative easy but takes time and has to be done in bulk to be profitable as the huge costs of the machines and the research and development have to be spread over a great number of products. This means that the industry has to predict what the demand will be in the future or create it artificially. There is pressure to sell whether or not the products are needed or useful. Only a small percentage of what people are made to buy is actually beneficial and provides true satisfaction. In general, people are given the right to make a living however they can. But the consumer is not adequately protected. This leads to materialism and pressure on resources. It is, of course, essential for the Economy that people should buy the products because if they do not then the factory will close and the workers will be thrown out of work. They will then have no money to buy the goods. So there is a self-maintaining vicious circle in which the economic system controls man rather than the other way round.
(9) The system is based on a hierarchical or pyramid organisation which creates great inequality of power and wealth. Great inequality of wealth causes distortion of the economy. Much of industry is geared to produce luxury goods that have little real benefit value. This takes away production and supply of the more essential goods. These become scarcer and costlier for the majority. They are relatively further impoverished. There is a devaluation of money because £1 to someone who has £ 1000 has less value than it has to someone who has £ 100. However, those who have a surplus over their basic needs could invest that money to produce factories to give employment and produce goods which could be bought from the wages of the producers. As the poorer people would have little to invest the mere distribution of the wealth of the rich among the poor would not make them much better off. There is, therefore, a policy to ensure that there is a sufficient number of rich people. It should be realised that he distribution of wealth is not so much the result of natural differences of talent and amount of work but of man made laws and organisation. It can hardly be the case that someone earning many thousands more than others is that many times more meritorious. The earnings depend on the fact that the hierarchical organisation ensures that the number of positions at the top of the pyramid where the remuneration is highest is always limited and there is competition between the many to get to the top. This competition is often cut-throat and stressful using foul means by undermining and trampling on others and involves ingratiation with those having the power. This ensures that the ruthless get to the top and interest of those at the top is served and that their ideas dominate over those of others. Thus we get a self-maintaining system that is only broken with difficulty or changes very gradually because those that rise to the top have also been influenced by new developments in the cultural environment and may have to deal with new situations. There is an increase of power as one goes to the top and an equivalent powerlessness towards the bottom and a narrowing down of diversity. Those at the top control not only the actions of the majority at the bottom but also often their dress and their social status and relationships, their allegiances, their thoughts, ideas and motives and their conscience.
(10) There is a distortion in the Economic system owing to the fact that price of goods does not reflect the real cost of production, but much of this is paid for either by the government through taxes or in other indirect charges or it is not paid for in monetary terms at all but through many other environmental, social and psychological consequences. These costs are as follows:- (i) The cost of the infra-structure such as roads, regulatory government institutions and law enforcement. (ii) The cost of dealing with waste, pollution and the disruption of the ecological environment. (iii) The cost of dealing with the social consequences caused by the industrial system and the stresses it produces. This includes the breakdown of families and its consequences in domestic violence, divorce, unmarried pregnancies, child abuse, juvenile delinquency, drug and alcohol addiction and so on which must be dealt with by employing an increasing number of social workers. There is also an increase in psychosomatic, organic and stress related diseases. (iv) The cost of Psychological and moral malfunctions such as various types of psychopathy, neurosis and psychosis. There are also milder forms of disorders with wide ranging consequences such as feelings of apathy, hopeless, powerlessness, lack of confidence, purposelessness, low self-images and reactions or bizarre over compensation for these. These debilitate an increasing proportion of the population or lead to negative destructive activities that neutralise constructive ones.
These problems could be solved when all firms and companies are partnerships of the workers, and the firms are integrated in the society, there is co-operation between firms and the shops, there is no Usury and all things are done through mutual consultation. The representatives or leaders of the various groups also consult with the rank and file and form groups within which the same mutual consultation takes place.
As Islam is surrender to Allah, the fundamental Reality, the emphasis in Islam is on Values and particularly on Justice, Compassion and Truth which are the attributes of Allah. The above defects can probably not be removed by Law alone, but Islam is also an educational system and creates or ought to create a self-consistent organised way of life in which all aspects support each other. The educational system it provides ought to produce an appropriate social system which, when properly applied ought to support an appropriate economic system. Instead we find it is usually the case that an accidentally arisen economic system governs the social system which then controls psychological and spiritual development. This sequence must be regarded as mechanical as opposed to a conscious one which is much more compatible with human evolution.
Question:-
How does Charity fit into Economics? It seems to be a contradiction of the desire to maximise benefits and minimise sacrifice.
Answer:-
From the Islamic point of view Charity is not a loss. There is always an exchange and everything has consequences. We are dependent on the community and the environment of which we are part and with which we are in interaction and exchange. It is not difficult to ascertain that a person or industry is much more prosperous if he or it can supply a more prosperous or greater market rather than a poorer or smaller market. Cheaper mass-production can be done, better and more efficient methods and organisation can be employed, and expenditure on research and innovation becomes worthwhile. It is advantageous to each individual that he lives in good relationships and interactions with a community of people that is more prosperous, better educated, has greater knowledge, talents and virtues and creates good influences than one that produces little or no beneficial influences but bad ones. It is, therefore, a good thing, for one’s own real advantage to promote the advantages of others and indeed of the whole environment.
One of the greatest human problems is the fact that the differences in wealth create great poverty and deprivation at the same time as great wastage of resources by the rich which could have been used to remove the poverty.. This poverty causes malnutrition and unbalanced diets which leads to debility and arrested development. Apart from the fact that this creates inherent incapability it also creates a deficient social and cultural environment which provides no opportunities for development, no stimuli or incentives for thought or effort, no education, no value systems, little organisation or quality leadership, no machinery to help their work and it reduces human behaviour to the very basic required for personal survival. Poverty increases where the size of the population relative to the available resources or disadvantages of the area is poor and movement of people, materials and finance is restricted by political borders and other cultural or physical factors. It is, of course, also these people who are deprived of the resources to deal with any environmental disasters such as earthquakes, floods and droughts leadings to deaths on a large scale. It seems, therefore, that there is a natural process that weeds out the less able.
From the global point of view this is a good thing. We can regard Humanity as a single organism in which the individuals are like cells. But even as such it is in the cells own interest to serve the interest of the whole organism. The cells that die are replaced by others like them. The same progress can be achieved by aiding the less fortunate. In fact it is better to do so because it encourages the growth of compassion which creates, maintains and enhances the unity of a community. However, simple aid that does not increase their ability to help themselves cannot change the condition of the recipient and could be regarded economically as a waste. Islamic charity, as demonstrated by the Prophet, should consist of something that enables and enhances capabilities.
But differences of wealth are certainly required not only as incentives to excel and as rewards for excellence, but also to provide investment for development. There could be no economic progress without that. In general the greater the wealth the greater is the power to produce even more wealth and this tends to be partly extracted from the poor who grow poorer. It is, however, necessary to have a value system and an organisation that ensures that these differences in wealth do in fact deliver the results that justify them. Greater wealth creates greater power and opportunities but also confers greater responsibilities. As the existence of differences in wealth depend party on the individual and partly on the Society, it also makes charity necessary. It becomes an obligation in so far as the individual has benefited from the forces and resources of nature that he did not create. What a person owes must be repaid in one way or the other. There are always consequences.
However, there are three kinds of relative wealth:- (i) The difference between the wealth of the individuals in a community. (ii) The difference between the resources a person has and his needs and wants. When the over all wealth of a community has increased there may still be great differences in wealth between people but this will not be disastrous as long as basic needs are satisfied. However, the poorer people might use their resources less efficiently. They may waste use their money on unnecessary consumption or even harmful ways such as alcohol and drugs. It may then be advantageous to transfer money to others who will invest it widely. (iii) The difference between what a person or community has and the real benefits that provides him. That which provides no real benefits or even does harm due to addiction, over indulgence or conflicts can be regarded as Illusory Wealth. Much is spent on security systems, arms, treatment of self-induced diseases, dealing with social malfunctions and so on that would be unnecessary if things were better organised.
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