Islam and Mammon: The Economic Predicaments of Islamism.

Timur Kuran, 2004\,

Although Bernard Lewis is a deeper scholar of Islamic history, and the late

Charles Issawi was a greater scholar of the economic history of Muslim societies, Timur

Kuran has emerged in the last decade and a half as the leading scholar in the world of the

rising field of Islamic economics. While most who study this field are advocates of

Islamic economics as a superior system for Muslim societies, and possibly for all

societies, Kuran has been a consistent critic. This volume gathers six of his papers

published on the subject between 1989 and 1997 together, along with an updating

preface. Although they have been edited to some degree, Kuran himself argues in his

preface (p. xvii) that, “Looking back at the essays grouped in this book, I am struck by

how well they have stood the test of time.” By and large this is a correct assessment, and

his critical stance now is heightened in the wake of the events of 9/11/01 and its

aftermath. The clear theme unifying these essays is that Islamic economics as such is not

a genuine answer to the world’s economic problems, but an “invented tradition” that

serves as an adjunct to the broader, anti-Western, Islamist (or Islamic fundamentalist)

political-religious movement.

The six main chapters are as follows: “The Economic Impact of Islamic

Fundamentalism,” which initially appeared in a very important 1993 volume edited by

Marty and Appleby on fundamentalist movements more generally; “Islamic Economics

and the Islamic Subeconomy,” from the Journal of Economic Perspectives in 1995;

“Islamism and Economics: Policy Prescriptions for a Free Society,” from International

Review of Comparative Public Policy in 1997; “The Genesis of Islamic Economics: A

Notion of Economic Justice in Contemporary Islamic Thought,” from International

Journal of Middle East Studies from 1989; and “Islam and Underdevelopment,” from the

Journal of Institutional and Theoretical Economics in 1997.

One problem with this group of essays is that there is a fair amount of repetition,

especially about the core concepts of Islamic economics. Thus several essays recount the

principles of Islamic banking and the peculiar history of that institution in practice. The

sacred book of Islam, the Qur’an, forbids riba, generally translated and interpreted as

meaning “interest.” Hence, the forbidding of interest is probably the most widely known

and distinctive demand of most Islamic economists. However, Kuran notes that riba

originally referred to a practice of doubling a debt (and its accumulated interest) if it is

not paid on time, a practice that led to slavery in the time of the Prophet Muhammed, a

practicing merchant. Thus, some Islamic scholars and economists deny that interest in

general is forbidden but only excessive interest (or usury), but theirs is a minority view.

Despite this, Kuran notes that in practice for centuries in Muslim countries there were

few restrictions on interest. The current self-styled “Islamic banks,” now operating in

over 60 countries, arose in the last half of the 20th century, especially after the rise of oil

prices in the 1970s allowed the Saudis to establish the Islamic Development Bank and to

provide funds to encourage their spread. They have become the only allowed forms of

banking in a few countries, such as Iran and Pakistan.

Kuran recounts their failure to conform to the ideals set forth by the official

Islamic economists. In principle, Islamic finance should involve the sharing of profits

and losses. In their early days many such banks attempted to follow this. However, they
tended to encounter serious losses due to asymmetric information as debtors engaged in

understating profits. Hence, these Islamic banks have moved to the use of financial

instruments that resemble interest in all but name, while technically conforming to the

requirement of not paying interest, such as briefly buying the assets of a borrower and

then selling them back at a higher price. Kuran quotes a Malaysian observer of Islamic

banking as saying (p. 55): “The only difference is whether the man behind the counter is

wearing a religious hat or a bow tie.”

Likewise, there are repeated discussions of zakat, the principle of charity, which

is described in considerable detail in the Qur’an, with specific percentages of wealth in

various forms that should be paid for distribution to the poor. Several countries have

instituted state systems of zakat as well, including Pakistan, Saudi Arabia, and several

others. Kuran reports that these systems have been marked by corruption,

mismanagement, and have resulted in little alleviation of poverty anywhere they have

been instituted. While modern Islamic economists hark back to a “golden age” of the

early days of Islam, Kuran argues that there is little evidence that even then did the zakat

system successfully redistribute much income to the poor.

Of course each of the discussions of these issues in the respective chapters

emphasizes different aspects. Given their centrality to the discussion, and the

unfamiliarity that most readers have with them, the repetitious elements are not all that

harmful.

Another relatively minor criticism I have is that there is probably an insufficient

amount of attention paid to the case of Iran. It was the first full-blown Islamist state that

had a theocratic government, and has gone further than any other (with the brief
exception of the Taliban regime in Afghanistan) to completely Islamicize itself. Kuran

tends to focus more on Pakistan, the nation where Islamic economics first emerged, and

Turkey, home of the Ottoman Empire, the last truly powerful Muslim state. An argument

for this focus, aside from the intrinsic interest of those nations, is that Iran is a

predominantly Shi’a nation, the minority group of Islam, in contrast to Pakistan, Turkey,

and also Saudi Arabia, which are of the majority Sunni orientation. Thus, Iran has a

number of peculiarities that other Muslim countries do not have, including a much more

entrenched clerical hierarchy and tradition of their direct involvement in governance. It

must be also noted that Kuran does not ignore Iran, and there is a fair amount of

discussion of aspects of its regime, society, and economics.

Arguably the most important of the chapters is the fourth on the genesis of Islamic

economics, where the theme of its emergence as part of a broader Islamic identity

movement is developed. Kuran notes that Islamic economics was largely the invention of

one man, Sayyid Abul-Ala Mawdudi of Pakistan, whose 1947 book (originally in Urdu)

The Economic Problem of Man and its Islamic Solution, is the origin of the doctrine.

Although he soon had followers elsewhere, Pakistan long remained the center of

development of the idea and even today a disproportionate number of Islamic economists

are of Pakistani origin. Kuran notes that Mawdudi was the founder of a political party

urging the adoption of a strong Islamic identity by Muslims in British-ruled India against

the feared encroachments by the majority Hindus as independence approached.

Curiously he initially opposed the creation of the Pakistani state, and said this cultural

identity assertion should occur within a unified political entity. Of course, once Pakistan

appeared, then he argued that it should become a fully Islamic state. He saw Islamic
economics as being important because in the industrialized modern world economy,

economics was becoming a more important part of life. He was also aware of the

influence of British economic thought on many of his countrymen, and sought a

resolution to the dualism in their minds, a new synthesis. He introduced the theme of a

romanticized nostalgia for the reputed golden age of early Islam, where supposedly

Islamic economics was truly practiced, even as he attempted to propose its adoption in a

modern economic and social context as the solution to “the economic problem of man.”

It is in connection with this discussion that Kuran links Islamic economics to the

broader issue of Samuel Huntington’s “clash of civilizations” thesis (1996). While

recognizing its controversial nature, Kuran clearly is sympathetic to it. He notes that

certainly this was the mentality of Mawdudi and his followers, although they viewed

themselves as defending their culture and society from aggression and pressure from the

West as well as from Hinduism. While Kuran mostly is critical of Islamism, noting its

failures in practice and its numerous contradictions in theory (such as unresolved issues

over state intervention), he does recognize that it has had some legitimate complaints in

some parts of the world, especially against undemocratic and corrupt regimes.

Something a bit surprising in connection with this is that Kuran does not pursue

this point to emphasize the much broader pattern of fundamentalist movements and their

similarities, aside from a brief reference to the “protectionist, antimarket streak” of

“Christian economics” (p. 72; see Iannacone, 1993). Rosser and Rosser (1996) have

identified this broader movement as the new traditionalism, movements that seek to re-

embed modern, technologically advanced economies into traditional religious systems.

While the Islamic economics movement is the most prominent and influential (and highly
developed) such movement, it is hardly the only one. Even in Mawdudi’s time, Gandhi

was developing a distinctive economics in India that is now admired by modern Hindu

nationalist economists to some degree (Dasgupta, 1996). Movements of Buddhist

economics and orthodox Judaic economics, as well as the above-mentioned Christian

economics and others, are all of considerable influence in various parts of the word today.

An excellent book summarizing and discussing these and some others is the Marty and

Appleby (1993) volume in which Kuran’s first chapter initially appeared.

Another topic of considerable controversy Kuran deals with is the relation of

Islam and economic development in his final chapter. He notes that some say there is no

relation and some even argue that at least during certain periods Islam aided economic

development. However, he agrees with those who see it is having served as a mostly

negative force in more recent centuries, despite criticism of such arguments as being

imperialist “orientalism” (Said, 1978). Among its problems are traditions that did not

allow the rise of juridical corporations or banks, mostly associated with communalistic

tendencies in the religion. Another serious problem has been a tendency to oppose

innovation that he sees as associated with an ossification of the religion. A possible

source of that might be the “closing of the gate of ijtihad” (interpretation) in the tenth

century, an ending of allowing interpretations of Islamic law. The deeper issue regarding

that is how and why this particular event came about, which probably was important,

although it would seem to have coincided with a general decline of the political and

economic power of the Abbasid caliphate based in Baghdad. Arguably these were

intertwined phenomena, although the Ottoman Empire would later provide a second

chance for Islamic military and political power that surpassed Europe’s for a time.
 More broadly, Kuran seems pessimistic about what is likely to transpire in the

Muslim world. He sees Islamism, and Islamic economics, as spreading, not declining, for

some time to come as an identity movement reacting against the power of the West. He

suggests that many in the more Islamist parts of the Muslim world, such as Iran and

Pakistan, already recognize that Islamic economics does not really work as advertised,

but engage in preference falsification (Kuran, 1995) out of fear of the power of

entrenched Islamist political leaders. The rebellions of youth in Iran against the Islamist

regime are the straw in the wind of eventual greater disillusionment.

However, he notes that there are now entrenched intellectual establishments

supporting the development of Islamic economics, much of this originally funded by

Saudi oil money starting in the 1970s. He suggests that failures of Islamic regimes will

lead them to try harder and harder to achieve hopeless utopias. “The discipline of Islamic

economics could feed on itself for decades, mistaking apologetics for serious reflection

and cosmetics for genuine reform. The twenty-first century could thus become for Islam

what the twentieth was for socialism: a period of infinite hope and promise, followed by

disappointment, repression, disillusionment, and despair” (p. 36). Unfortunately, this

dispiriting conclusion appears all too likely. For all its peculiarities and limits, Kuran’s

book makes this case all too clearly and eloquently.

References

Dasgupta, A.K. 1996. Gandhi’s Economic Thought. London: Routledge.

Huntington, S.P. 1996. The Clash of Civilizations and the Remaking of World Order.
New York: Simon and Schuster.
Iannacone. L.R. 1993. Heirs to the protestant ethic? The economics of American
fundamentalism, In: M.E. Marty and R.S. Appleby, R.S. (Eds.), Fundamentalisms and the
State: Remaking Polities, Economies, and Militance. Chicago: University of Chicago
Press pp. 342-366.

Kuran, T. 1995. Private Truths, Public Lies: The Social Consequences of Preference
Falsification. Cambridge: Harvard University Press.

Marty, M.E. and Appleby, R.S. (Eds.). 1993. Fundamentalisms and the State: Remaking
Polities, Economics, and Militance. Chicago: University of Chicago Press.

Mawdudi, S.A-A. 1947 in Urdu/translated in English 1975. The Economic Problem of

Rosser, J.B., Jr. and Rosser, M.V. 1996. Comparative Economics in a Transforming
World Economy. Chicago: Irwin. (2nd edition, 2004. Cambridge: MIT Press).

Said, E.W. 1978. Orientalism. New York: Pantheon.

J. Barkley Rosser, Jr.