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Is Islam Compatible With Market Economy?

OurIndonesia – We have been used to hearing Western public ask whether Islam is compatibale with democracy. The response can be both affirmative and negative, depending on where you are on the wide spectrum of ideological persuasions.

We can stretch the question even further to investigate whether Islam is compatible with capitalism and market economy. Had we been living in 50s and 60s when leftist and progressive sentiment was strong in Arab world, the response would be very negative. Mustafa Al-Siba’i, the Syrian cleric and an Ikhwani ideologue, for instance, penned a pocket book bearing the title of “Al-Islam wa al-Ishtirakiyya” (Islam and Socialism). The book is a plea for supporting socialism from Islamic point of view.

That era is long gone now, taken over by another era that Francis Fukuyama aptly called the era of ‘the end of history”, marking the triumph of liberal democracy and market economy. Which leads us to inquire further whether Islam is compatible with market economy.

These days, a debate rages in Jakarta, the capital of Indonesia, as to what is the best policy to deal with the sudden disappearance of cow meat from the market, resulting in its price hike. People protest. Vendors protest too by declining to sell the product, asking for the governement intervention to stabilize the sky-rocketing price.

There are two theories as to why the cow meat disappears and why its price hikes accordingly? First is what I call “tengkulak” theory. Tengkulak is Indonesian word for middle-person who is always perceived by people as the speculator and “gamer” of price. The disappearance, according to this theory, is simply a bad game played by the hand of tengkulak the reap the highest profit.

Second is the nationalism-theory which says that it is the end result of self-reliance economy rhetoric that current administration of President Joko Widodo (dearly addressed here as Jokowi) keeps using to shore up its popularity.

Nationalist sentiment, inward-lookingness and strong aversion to importation of goods and services are among the salient features of current governement. It cuts down the quota of cow import, hoping that it will do good service to local farmers. The result is rather disappointing; the supply of cow meat turns scarce in the market, causing the price to bump up.

Either way, the fact remains the same: The government should do something to stop this hiking price. Cow meat is the staple of Padang cuisine, the most popular food in Indonesia. Its disappearance would probably end in “cuisine-driven protest” in the sJakarta’s street. In other words, the government should intervene!

As a Muslim, I keep asking myself if there is historical precedence in the life of the Prophet Muhammad that may anticipate the current situation that we are dealing with these days in Indonesia. Voila! I found it. And this is the story.

The incidence of price hike occurred at least once in Madina during the life time of the Prophet as reported by hadiths collectors like Ibn Majah (d. 887 AD), Tirmidhi (d. 892 AD) and Abu Dawud (d. 889 AD). The story goes as such. A companion of the Prophet came to him to report the price hike in Medinian market, begging from him to do what is called “tas’ir” (from the root s-‘-r which means price; tas’ir: pricing), which means intervening in the price by forcing it to go down at the expense of the merchants.

The Prophet’s response is not what I expect in the first place, and seems counter-intuitive to many Muslim. He declined to intervene in the pricing, producing rather intriguing comment which said: Do not do pricing, since it is only God who is the Pricer. In its original version, it says: La tusa’’iruu, fa inna ‘l-Laaha huw al-Musa’’ir.

This prophetic tradition, to me, is quite intriguing and revealing at the same time. Why did the prophet decline to intervene in the pricing? Is it not the fact that price hike hurts consumer? Is it not the case that Islam holds fast onto the legal principle of maslaha or public good? Then, why this seemingly liberally-inclined pricing policy of the Prophet?

I do not know the exact answer. My suspicion, however, is that the Prophet, given his past experience as man of commerce who often travelled to Syria to trade on behalf of his future wife Khadija, knew very well that going against market forces and its internal mechanism is wrong. Forcing the merchant to sell goods on lower price during the time of scarcity does not make sense. The Prophet’s above statement seems to imply that this is against the Order of Things as God will it.

In other words, the Prophet’s approach to the problem of pricing seems to be quite liberal and pro-market. He cannot accept the unfair policy of pricing-intervention at the expense of market, albeit in the name of servicing the interest of larger consumers. This is so intriguing a fact!

Next question is obviously this: Is Islam truly against any kind of intervention? Does this mean that Islam is more inclined towards libertarian side in economic matters? Again, I guess this is certainly over-stretched a question. No one during the time of the Prophet ever enganged in such Keynes-Hayek debate, and it is just a total mistake to read our modern ideological biases into his era.

However, looking at Islamic classical jurisprudence (fiqh), there are many interesting views that might be of interest to us. Ibn Abidin (d. 1836 AD), the author of Radd al-Muhtar of Hanafi school, for instance, allows the government to intervene in the pricing only in one condition: the merchants indulge in practices that jeopardize the interest of buyers by applying an exorbitant price; the reason being to protect them from the harm (daf’ al-darar).

Should the governement be allowed to intervene, assuming that conditions to do so are all fulfilled, it cannot intervene in a manner that contravenes the market mechanism, ie the supply and demand forces. These invisible forces, as indicated by the above mentioned hadith, are reflective of God’s will in the nature.

Back to Jakarta: What the governement should do is not to force the vendors to cut down the prices, but rather to influence the balance of supply and demand by importing cows to allow the price to ease down. Or, by adopting certain monetary mechanism such as raising the interest rate to control the economy from overheating – the policy that Fed is about to embark on soon. This is, I guess, the kind of intervention that the Prophet would allow.

Many centuries later, Adam Smith in his classic, The Theory of Moral Sentiments, expressed this market force in a secular language: the invisible hand of the market. The Prophet of Islam articulated it in a different language that is indicative of theo-centric paradigm of his era: the invisible force of God as the sole Pricer. This force is natural that man’s and woman’s hand cannot tinker with, unless it destroy the order of things as ther are.

So, Islam is comptabile with market economy? It is your own turn now to reflect for yourself!