As some of you might be able to infer from the title, my inspiration for this post did not come from any of my economics classes, but from my Introduction to Islam class. Last Thursday I was sitting in class listening to Professor Dagli give a lecture on Shariah, or Islamic religious law. He was outlining Maqasid al-Shariah or the objectives of the law. He talked about how Shariah was designed to protect the five things that Muslims believe are essential to our lives. Shariah was intended to protect one’s religion, one’s life, one’s intelligence or mind, one’s honor and one’s property.
The first four items seemed pretty self-explanatory and very similar to the ideals that I had learned about laws in Christian theology. However, once he got to the defense of property he immediately recaptured my attention. He explained that the intentions of Shariah to protect property went far beyond forbidding acts such as vandalism and highway robbery. He went on to say that there are several common economic practices today that would be forbidden by Islamic law. Usury, speculation, derivative trading and even some credit card companies would constitute as unlawful destruction of one’s property in the eyes of some Muslim scholars. He himself even said that some of these practices used to be illegal in the US as well, but today are extremely common in the US economy. I was particularly interested by this connection and decided to do some more research on my own.
The basis on which all of these economics practices would be seen as “illegal” or “sinful” under Shariah is because they make it very easy for a person to fall into debt. While a person should not spend more than they have, a person who loans another person money should not charge exorbitant interest rates on that loan. This is the fundamental issue that some Islamic scholars have with usury and even some credit card companies. Like many other pieces of literature, especially religious literature, there has been a lot of discussion on what exactly is meant by the passage. People who believe in a very literal interpretation of the Quran believe that it is immoral to charge any interest rate at all. And while I obviously do not agree with this school of thought for many economic reasons, I think that it is important to acknowledge that some people do have that belief. On the other hand there are people who come from the Mutazilite school of thought who believe that the Quran’s message is up for each person to interpret themselves. These people would allow interest rates to be charged on loans, as long as long as the number was not excessive. Personally, I think that the passages against usury are just trying to help protect people from others taking advantage of their misfortune.
The other piece of our financial market the Professor Dagli said that Islam would condemn is trading in derivatives or speculating on futures. The main problem that Islam has with these two types of trading is that in Islam, it is forbidden to trade in risk. While he did concede that many Islamic countries are changing their views on this topic, he did say that many scholars maintain to this day that it is sinful to trade in risk. We have all seen the danger of risky investments and some experts blame derivative trading for the financial crisis that started in 2008. Even Warren Buffet called derivatives “financial weapons of mass destruction” in Berkshire Hathaways annual report in 2002. While many parts of the Muslim world are now coming to accept the practice of trading in derivatives and options in futures, it is important to note that less than 100 years ago that these same practices were also illegal in the US and parts or Europe. Again, I do not think that these practices should be illegal, I just thought it was very interesting to see that there are a great many people who do.
In all honesty, I enrolled in my Introduction to Islam class to fulfill my religious studies common area requirement, to “get it out of the way” more or less. However, taking that class along with Macroeconomics class has given me a new prospective on our economy that I might not have ever considered. It is really amazing how economics affects so many parts of our life, whether we realize or not.