Example of Economic System : Traditional Economic System

 

Traditional economy means an economy where customs, traditions, and beliefs prescribe the principles of economic organization for the production of goods and services.

The sectors of economic activity include agriculture, hunting, fishing, and gathering. 

In many situations, a traditional economy may have no official currency.

A primitive barter trade is used instead of money,

The next possible development of a traditional economy is a farmer’s economy centered on stable agrarian production structures (Rosser et al., 1999).

References: Mamedov, O., Movchan, I., Ishchenko-Padukova, O., Grabowska, M. (2016), Traditional Economy: Innovations, Efficiency and Globalization, Economics and Sociology, Vol. 9, No 2, pp. 61-72. DOI: 10.14254/2071-789X.2016/9-2/4

BASIC PRINCIPLES OF ISLAMIC ECONOMY

According to Mohammed B. Sadr, (1980) three basic principles of Islamic economy are multi-faceted ownership, economic freedom within a certain limit, and social justice. 

These are the three basic components of Islamic economic doctrine, according to which its theoretical content is defined. Islamic economics can also be distinguished from other economic regimes in terms of the broad lines given by these components.

1. Multi-faceted ownership 

Islamic economic doctrine acknowledges different forms of ownership at the same time. Ownership is accepted in a variety of forms instead of only one kind of ownership, that's why it adopts the principle of multi-faceted ownership. 

Types of ownership are: 

✉ Private ownership 

✉ Public ownership 

✉ State ownership 

Private ownership is for a number of kinds of property and means of production. Also, public ownership and state ownership are allows for some kinds of wealth and property. All three of the ownership are three parallel forms in Islamic law (Shari‟ ah).

(Surah Al-Baqarah: 284)

Based on verse above, it can be simplify that real ownership belongs to Allah and man holds property in trust for which he is accountable to him, in accordance with the rules clearly defined by the Shari‟ ah. Therefore, absolute ownership of man is an alien concept in Islam, as it belongs to God alone.

(Surah Al-Imran: 189)

He is the real owner of everything. 💖 

Reference: Assist. Prof. Dr. M. Kutluğhan Savaş ÖKTE, FUNDAMENTALS OF ISLAMIC ECONOMY AND FINANCE: THEORY AND PRACTICE (2010), Electronic Journal of Social Sciences, Winter-2010 V.9 Is.31

Historical and Ideology Background had Influence Economic System

     Historical and ideology background has influenced the development of the economic system. Before the era of capitalism, the social system in Europe was dominated by feudalism. Feudalism works when the king divides a country into pieces of land and a landlord will take over the land. The king will impose a tax on the landlords and the landlords will pass the tax to the workers. In the feudal society, people at one level of society will receive land from the higher rank people to live and work on. In return, they have to work for them and give food that had produced to them.


     However, in Islamic Economic system, the history of the economic system can be found in the seerah during prophet time.Islamic Economic also based on the principle of tawheed and shariah legal framework.


Reference : Dr.Mohd Nahar Mohd Arshad, A manual for foundation of Islamic economics basic Principles and illustrations.

THEORY APPRAISAL IN ISLAMIC ECONOMIC METHODOLOGY: PURPOSES AND CRITERIA

The main objective of methodological query is to develop criteria of acceptance and rejection of a theory and providing rationalizations and guidelines in the process of theory appraisal and evaluation.

The purpose of theory appraisal in Islamic economics

Methodology of Islamic economics is developed in accordance with:

• the needs and requirements of the subject-matter (object of study) of discipline
• the provisional sources of knowledge to solve that subject-matter (discipline’s body of problem).


The economic theory appraised from those multiple sources of economic knowledge does three tasks: 


• links the doctrine and practical reality
• explains realities and their relationship in a holistic way
• helps in goal realization

The criteria for theory appraisal in Islamic economics

- This methodological process aims at producing “good theory”; differentiating fit theory fromthe unfit one; and ensuring further progress in theoretical (nazariyyah) and practical (‘amaliyyah) aspects of the discipline.

1. The criteria of internal-integrity.

2. The criteria of relational-unity; Unity perspective in understanding realities ; Unity of doctrine and practical realities

References : Hafas Furqani, Mohamed Aslam Haneef, (2012) "Theory appraisal in Islamic economic

methodology: purposes and criteria", Humanomics, Vol. 28 Issue: 4, pp.270-284, https://

doi.org/10.1108/08288661211277335

ISLAMIZATION OF ECONOMICS?

The Islamization of economics seems to be done ‘dichotomously’ between the conceptual (theoretical) and the empirical dimensions.

•   In the conceptual part, Islamic economists attempt to find Islamic justification based on Quranic verses over certain theories.

•   While in the empirical part, Islamic economists just utilize and apply the common statistical methods into an Islamic/Muslim case, assuming no contradiction to Islamic heritage.

Syed Farid Alatas (2006) observed, Islamic economics as empirical theory has not done  much. It remains within the fold of Western modernist discourse in terms of theoretical concerns and methodology, and has therefore failed to offer alternative princples to modernization and dependency on the dominant paradigm.

Sardar (1988; 2002)  also warned that, “Islamic economics is little more than one huge attempt to cast Islamic institutions and dictates, like zakāh and prohibition of interest, into a western economic mould. The dominant models guide the analysis and shape the inquiry: everything is compared and contrasted with capitalism and socialism, highlighting the fact that there is an underlying apologia at work.”

 Islamic economists often get trapped into the conventional paradigm. They may actually be contributing to the ‘westernization of Islam’, by fitting Islamic teachings into the neo-classical framework rather than the opposite.

(Haneef, 2005) At most, the current development of Islamic economics is working within the boundaries of neoclassical theory, with some adjustments to incorporate teachings/norms/values that reflected certain requirements of Islam.

Choudhury (1999, 1) also argues that: “In recent years when Muslim scholars wrote on Islamic economics, they had to turn to mainstream economic theories and clothe these up with a palliative of Islamic values. But no new challenge was posed on the epistemological beginnings of a new field of analytical and scientific study. There was no demand from the Muslim scholars to well-define a distinctive field of Islamic economics. The Muslim scholars thus approached the study of Islamic values in neoclassical economic models of behaviour and resource allocation without questioning either the value-orientation of neoclassicalism or the possibility of treating Islamic values in such otherwise value-free models of economic behavior, pricing and allocation.”

As a result, Islamic Economics has become almost a sub-discipline of conventional neoclassical economics, without Islamic justification.

References : methodology of Islamic economics :Overview of present state and future direction. International Journal of Economics, Management & Accounting 19, no. 1 (2011): 1-26

CHARACTERISTICS AND PURPOSES OF USUL AL-IQTISAD AS THE METHODOLOGY OF ISLAMIC ECONOMICS

-include knowledge of areas such as the Islamic worldview, its Islamic economic vision, philosophy, including its ontology, axiology, and especially epistemology (including methodology) relevant for Islamic economics and other social/human sciences (Haneef and Furqani, 2007).

USUL means “origin”, “roots”, “principles”, “fundamentals”, “rudiments” or “elements” of a particular thing.

IQTISAD literally means “moderation”, “in the middle” and also means economics. Nowadays, economic science is translated into Arabic as ilm al-iqtisad.

1. Usul al-iqtisad is an integration of methodology developed in our Islamic heritage (including usul al-fiqh and other usul of sciences developed in our heritage) and contemporary economics (which may involve the whole spectrum of conventional economics and not just the neoclassical school).

•     Usul al-iqtisad would have to deal with the primary sources of Islam (naqliyyah/revealed); Qur’ān and Sunnah as well secondary sources ( aqliyyah/reason); reasoning, experimentation and observation of both our legacy and of modern economics.

2. As a methodology of Islamic economics, usul al-iqtisad aims at delineating the principles that could be used to appraise Islamic economic theories. 

• It would have to develop principles that would have to deal simultaneously with both types of knowledge, naqliyyah and  aqliyyah. Rather than treating the heritage and modern economics separately, these principles must be integrated through a methodological dialectic and creative synthesis.

3. One thing should also be noted is that Islam has revealed sources (Quran and Sunnah) and non revealed sources, such as analogical reasoning (qiyas), consideration of public interest (istislah), juristic preference (istihsan), presumption of continuity (istishab), and so forth. Whereas the revealed sources may have clear injunctions and command permanent validity, their interpretation via usul al-iqtisad and its non-revealed sources are not permanent, for they are mainly the product of an ijtihad.

References : methodology of Islamic economics :Overview of present state and future direction. International Journal of Economics, Management & Accounting 19, no. 1 (2011): 1-26

ANALYSIS OF SCHOLARS’ APPROACH TO MODEL/THEORY BUILDING AND ITS IMPLICATIONS FOR METHODOLOGY OF ISLAMIC ECONOMICS

There might be some common ground where

• (some) conventional theories might be accepted as long as they are not in conflict with the logical structure of the Islamic worldview (Chapra, 1996)

• They are not against the explicit or implicit injunctions of Islam (Mannan, 1984)

• They do not contradict with the principles of Islamic teachings and should be evaluated within an Islamic framework and using Islamic criteria (Haneef, 1997)

 Integrative approach of Islamization of economics.

Anwar (1990) proposes to contrast the components of conventional economic theories with components of an Islamic corpus and nucleus in order to “classify” the components of conventional economic theories into Islamic and neutral elements and to then “accept” the Islamic economic theories while ‘rejecting’ the un-Islamic theories. 

Kahf (2003) proposes takhliyah, (identification and isolation of the biased postulates of conventional economics) and tahliyah (incorporation in economics of positive postulates derived from Sharīah) in order to revise the conventional economic theories.

Zarqa (2003)  argues that if we replace those values on which the science of economics should be based by Islamic values, and if we ‘add’ to the secular statements, then Islamic economic theories can be produced. 

Hasan (1998) accepts the positives ideas of conventional economics so long as “the process of Islamization may take conventional economics in manageable segments in the same vein: it can be sifted, pruned, and modified, where possible, to conform to the Sharīah tenets”. 

Naqvi (1981) opines that Islamic economics should integrate what relevant knowledge is already available and then transmute it into a ‘new frame of thought’ where Islamic economics can selectively assimilate elements in modern economics that are not contradictory to Islamic economic axioms. 

Choudury (1992) starts with developing original concepts, with unique meanings that represent a ‘reality’ that encompasses both the physical and spiritual realms. A new math, a new symbolic logic and formalism is needed. 

The implication for the development of Islamic economics 

the integration of Islamic economics and conventional economics will be in two areas of the discipline

(1) the substantive dimension of the discipline, which includes economic concepts, principles and theories in modern economics and economic teachings or views on economic matters in the Islamic heritage.

 (2) the technical dimension of the discipline, which includes methodology of modern economics and ulul studies in the Islamic heritage (Haneef and Furqani, 2007).

References : methodology of Islamic economics :Overview of present state and future direction. International Journal of Economics, Management & Accounting 19, no. 1 (2011): 1-26