ECONOMIC POLICIES OF EARLY ISLAMIC STATE

The period of the early Islamic State begins with the arrival of Prophet Muhammad (peace and blessings of Allah be to him) in Madinah to the demise of the fourth caliph Ali (may Allah be pleased with him). This period has always been referred to as the reference point for all generations of Muslims including their jurists and other scholars. 

The first major socio-economic issue that the newly formed Islamic state of Madinah after the migration of Prophet Muhammad (peace and blessings of Allah be to him) from Makkah in the thirteenth year of his prophethood was to rehabilitate all migrants (Mahajirs) from Makkah, who too came to the new place empty-handed. The Prophet solved the problem in a very simple and natural way. He arranged brotherhood between migrated persons severally with his local companion-followers (Ansar). There were about ninety relationships of brotherhood fixed comprising forty-five from each side. It was a historical feat where migrants merged naturally with the local inhabitants as if they were all in one. Later other persons joined this newly created team and some of them were eager to live closer to the Prophet and learn the tenets of the faith full-time. They were kept on a raised platform outside the abode of the Prophet. This team comprised the first formal institution of learning and they stayed there for considerable periods as guests of honour of the Master (peace and blessings of Allah be to him).

So an initial task performed by the newly formed state under the aegis of the Prophet was to arrange a place of abode and settle thereby everyone in the city-state of Madinah.  

The Mahajirs were businessmen, traders and artisans with little or no exposure to agriculture. The Ansars were agriculturists as palm-date- farming and other agricultural produce were their sources of earning. Business, trade and craftsmanship were the sole domain of the Jewish population living in and around the city of Madinah. The bond of brotherhood created by the new faith was very successful and so work was distributed between them accordingly. Madinan Ansars did the agricultural work and the Makkan Muhajirs helped them in their work. Both shared the produce equally. Another master stroke of the Prophet was to open a market near the Prophet’s mosque. This was in tune with the talents of the Muhajirs and it lead to turning the table in favour of inhabitants of the city as this Madinah market became the centre of all future business activities. It was a new and welcome addition to the landscape.

So the second notable task, in terms of its economic policies, performed by this early Islamic State was the optimum utilisation of the available talents and creation of opportunities for further growth. 

The economic policies of the early Islamic state may be studied under the broad two heads:

  1. Those related to ensuring a free and fair economic environment where everyone can pursue his chosen mode of economic activity. We may for our understanding use the expression Pre-emptive Approach for this. 
  2. Those relating to the growth of the economy and achievement of higher objectives of the state. Let us call this a Reactive Approach.

PRE-EMPTIVE APPROACH

To ensure a free and fair economic environment the newly formed state did not adopt the “revolutionary” approach of dismantling every institution and creating everything ab-initio. Rather it treaded the “evolutionary” path of maintaining the good practices in vogue and correcting the wrong practices. For example, the Prophet did not say anything about the trading practices prevalent there except those systems which were wrong and harmful. The silence maintained by the Prophet amounts to his approval of those practices. That is why such tacit approvals too have been recorded as part of the Prophetic traditions (sunnat).

Islam adopted a natural and gradual method for eradicating wrong practices. Examples of prohibition of interest and consumption of alcohol may be cited. The proper atmosphere for these steps was prepared through education and training. Hence when the relevant commandments of the Qur’an or announcement from the Prophet for their prohibitions came the society was fully prepared to accept the same. Laws and provisions themselves do not ensure practices. Proper education and inculcation of character thereby are their prerequisites. 

The prohibitions which Islam enshrined are not many. There is a very small list. The state must ensure that they are discouraged and kept at bay. Many of these forbidden items have been generally accepted by human society at all times as abhorring. For example, every individual and society of all times agree that misleading transaction is not acceptable no one should cause harm to anybody or no material information should be suppressed from the other party in a deal or hoarding of essential items causing harm to society is a heinous crime. The commandments of the Qur’an and the traditions of the Prophet instilled these in the character of the individuals and the society. The state must take all preventive and proactive measures to spare society from its ill effects.

However, it is required to mention two practices in the economy which that human society till a couple of centuries considered as severely injurious but which have now been accepted as useful or as necessary evils. These are interests and speculations. These have no place in an Islamic setup. Particularly Islam is uncompromising on interest. The Qur’anic term for interest is riba which means any increase in a debt or loan amount or anything which has become receivable/payable. The related verses of the Qur’an and the traditions of the Prophet are severe enough. Suffice it to say what the Qur’an says in this regard, “O you who believe! Observe your duty to Allah and give up what remains (due to you) from usury, if you are (in truth) believers. And if you do not then be warned of war (against you) from Allah and His messenger”. [The Qur’an 2: 275-280]   

The expression “war (against you) from Allah and His messenger” makes this task of abrogation of interest imperative for the Islamic state.   

REACTIVE APPROACH

Islam stands for free market economy. The pre-emptive steps, as above, prepare the market free to practice a free-market economy. However, the notion of a free-market economy has its preconditions. It cannot be practised to the extent of causing harm to society as societal obligations have preference over individual rights. The Islamic State in its early period maintained a balance. We may refer to the example of custom duty on goods from foreign nations levied by Caliph Umar (may Allah be pleased with him). He fixed the duty at ten per cent, equivalent to what was being levied in other countries. However, when the economy was in bad shape he decreased it to five per cent.

The state must ensure the goals of the economy in addition to keeping it free of all types of corruption. Such goals, in today’s parlance, may be called macroeconomic objectives. Islam stands for the welfare of human beings and its provisions are meant to ensure justice for all so that the desired prosperity in human society may be achieved. The ingrained principles of economic transactions in Islam may be summed up as justice, equity, growth and welfare of human beings. This can be done by ensuring that the higher objectives of Islamic law are adhered to. Islamic scholars have described these higher objectives of Islamic law as the Protection of Life, Religion, Reason, Progeny and Property, as also the preservation of dignity and freedom. (maslaha & maqasid al-shari’ah).

Two examples of the steps taken to ensure the achievement of desired macroeconomic goals may be cited. The practice from old times was that warriors were given a share of war booty. Islam too maintained the system with refinement. However, when considerable wealth came to the exchequer (bit-ul-ma’al) without any operation of war it was not distributed amongst the army men. It was earmarked for general charitable objects and the reason the Qur’an gave was “So that it may not (merely) make a circuit between the wealthy among you.” [The Qur’an 59:7]. This principle of circulation of wealth in society is a basic policy guideline for the state. Hence when Egypt was captured by the Muslim army and a demand for the distribution of its land to the army men was raised Caliph Umar may Allah be pleased with him) refused and cited this verse of the Qur’an. One of the reasons he put forward is that all wealth should not allow to accumulate in the hands of the few so that it may be available for all the children of the next generations.

Another example relating to the optimum utilisation of all the resources is that of providing free unstilted land to persons who promised to make it cultivable and do the cultivation within a time frame. There are several examples of the Prophet providing barren land for productive use. Further, there are examples where the Prophet took back such land on failure to use them for cultivation within the stipulated time and give them to other persons for the purpose. The purpose was not to let any asset go wasteful. 

Thus, we find that the early Islamic state applied both micro and macroeconomic methods, as we say today, to achieve the goal of justice, equity and growth.