Free trade is about people selling and
buying as they want without barriers or obstacles. Free trade has links
in Islam. The proposition in this article is to refute any doubt that
free trade is alien to Islamic countries and a response to the myth that
Islamic law is passé or just does not apply to modern trade law. This
proposition is also an opportunity to discuss matters beyond interest,
the centerpiece of Islamic economics. However, Islamic law and
economics do not adopt free trade as the single theorem per se or
economic code of Islam. There are limitations on free trade in Islam
such as prohibition on trade in pork and alcohol. International trade in
Islam is trade with an Islamic “purifier”. This is an Islamic market
1. The Role of Islamic State
Medina, known previously as T¯abah, was much poorer than Mecca
because its people were not merchants. Medina had no pilgrimage
destination like the Ka’ba. Medina also experienced deep-rooted enmity
between groups of its citizens. After his arrival in Medina, Prophet
Muhammad (s.a.w) established a Mosque (Masjid) for worship and
education. His next act was to create a new set of trade regulations.
These were based on the principles of no restrictions. Neither Prophet
Muhammad (s.a.w) nor the four Rightly-Guided Caliphs (Al-Rashidin) who
succeeded him, directly engaged in trade and competition. They
regulated trade so as to prevent unfair trade, deception or fraud.
However, later Islamic governments, tempted by profitability, competed
with enterprises to the detriment of their societies.
In Islamic society, like in most others, some have more resources
than others and some are gifted with more abilities than others. In
other words, people are not equal in terms of resources and abilities.
The role is for the individual himself to make an effort in the
direction of increasing his share. Many Muslim jurists agree that a
Muslim must do his utmost to earn a livelihood. They assert the
negative effects of subsidies. Muslim jurists tend not to support the
arguments made for subsidies that they alleviate poverty and increase
equality and efficiency. By the same token, infant industry should not
depend on state subsidies. Subsidies should be temporary. Nevertheless,
the Islamic state has the role of addressing social injustice through
available mechanisms such as Zakat, Islamic rules of inheritance, and
taxes. These mechanisms can be used to redistribute wealth.
The role of the early Islamic state was confined to providing
necessities such as public services and law enforcement. The state
should be a minimal state in terms of involving in trade. The state
should not be in the business of making profit. When the Islamic state
relaxes its grip on trade, prosperity may flourish for society.
Out of the legal principles enjoining fair trade the institution
of “Hisbah” emerged. Hisbah is an Islamic legal and commercial
institution that was entrusted with the task of supervising and
enforcing market and public morality. The institution of Hisbah
exemplified the preciousness of equitable environment for the exchange
of goods. The office of “Mohtaseb” (head of the Hisbah) was created
carry out the duty of quality control over a host of traders, crafts and
professions such as bakers, blacksmiths, and silk manufacturers. The
Mohtaseb duties extended well beyond the mere inspection of weights and
measures to carry out different functions.
The Mohtaseb had jurisdiction over “Dar alIyar” (House of
Measurements) where standardized weights and scales were manufactured.
Despite the fact that the Mohtaseb was an officer of the Islamic State,
he could exercise his duties independently and take actions against
errant traders. The independence of actions allowed the Hisbah
institution to carry out its functions of enforcing justice and fairness
and more so of enhancing consumers’ interests.
2. Market Agents and Forces in Islam
After the expansion of the Islamic state beyond Medina, vast
lands came into the hands of Muslims. Prophet Muhammad (s.a.w) and his
followers recognized individual entrepreneurship, the basic premise of
free trade. They encouraged the maximum utility of barren land (Mawat).
Islam also cherishes the inviolability of private property.
Private property is limited only by the realization of others’ rights
and public interest. Some argue, correctly, that economics of Islam is
based on mixed ownership. Since Allah (s.w.t) owns all natural
resources, the Islamic state can exercise control over anfal such as
land, water, and mineral deposits. Thus, Islamic economics embraces a
dual ownership concept. In other words, even though private ownership is
guaranteed, the owner of such property acts as a trustee or agent for
Allah (s.w.t), the ultimate owner.
Interestingly, Islamic law lacks clear substantive rules on the
protection of intellectual property. Perhaps because of the nature of
ideas as incorporeal objects, there can, according to Islamic law, be no
absolute legal rights to intellectual property. The Islamic state is
not obliged to protect intellectual property. Protection of intellectual
property would fall into the category of permitted action. The Islamic
state, based on its discretion, can “honor” intellectual property.
Islamic law concentrates first and foremost on material objects property
thus reducing incorporeal objects to second or third degree of
Prices in Islam should be determined solely on the basis of the
market, the law of supply and demand. The cheapness or dearness of
prices is in the hand of Allah (s.w.t), who fixes the prices. Prices
should not be fixed, but left to divine guidance. In an anecdote,
Prophet Muhammad (s.a.w) refused to interfere in market prices, which
had risen abnormally in Medina even though the people asked him to.
However, the available Islamic literature reveals some cases in which
Prophet Muhammad (s.a.w) exercised his authority as head of the Islamic
state, and interfered. In one case, Prophet Mohammad (s.a.w) knew that
people met the caravans away from the market to buy the goods and then
sold them at a higher price in the market. This case was considered at
the time a kind of deception or illegal trading practice. The
obligation not to interfere in setting prices is not unfettered. There
are situations in which government involvement is needed to remedy
market failures when the market does not operate efficiently because of
1.4 Ibn Khaldun and the Theory of Commercial Policy
The wealth of nations, according to Adam Smith, is derived from
specialization and trade. Nations can gain economically from
specializing in production and trading the surplus produce.
Specialization and trading in surplus produce would generate multiplier
effects, known as the doctrine of mutual gains from trade, in the form
of increased national income, higher consumption, and an improved
standard of living. British political economist David Ricardo expounded,
in his 1817 publication of Principles of Political Economy and
Taxation, by stating that specialization and trade were based on
comparative advantage (relative costs) rather than primarily on absolute
advantage (production costs) as had been thought earlier.
Similarly, it is a source of pride that Ibn Khaldun (1332-1406
C.E), Adam Smith of the Arabs and the great Islamic
sociologist-cum-economist, was among the pioneers who analyzed the
economic problem scientifically and tried to resolve it. However, if he
had discussed his economic ideas in a separate treatise rather than in a
scattered manner, among many other subjects in his masterpiece Al-Ibar,
he could have been recognized as the father of free trade. Ibn
Khaldun, nevertheless, deserves to be listed as one of the great
economists of all time along with Adam Smith, David Ricardo, and other
Ibn Khaldun stated that Allah (s.w.t) created man in a form that
can live only by food. Allah (s.w.t) guided man to a natural desire for
food and enabled him to obtain it. Ibn Khaldun also called for
specialization. For example, if a tailor has the skill necessary for his
job, he has neither the necessary skills nor the time to be a carpenter
or builder. Even assuming that he could be skilled in crafts, he would
not be efficient in both of them at the same level. Specialization and
social organization of labor would allocate resources to their most
Specialization and division of labor would lead to a surplus of
production which can be used for trade. Therefore, international
division of labor can also be applied to trade among countries. The
basis of trade is to make a profit by producing goods at a lower price
and selling them at a higher price. Profits could be accrued by
supplying goods to other countries where demand for these goods is
greater than in the home country.
There is disagreement among Muslim scholars on the role of state.
Ibn Khaldun was suspicious of the state. He maintains that commercial
activity on the part of the ruler is harmful to his subjects and ruinous
to the tax revenue. The ruler has the job of protecting citizens from
aggression of other nations. In contrast to Ibn Khaldun’s “government
hand-off” approach, Ibn Hazm, a Muslim scholar, has called for
Islamic economic ideas may seem not to have a systematic
methodology. However, one can argue that each of these Islamic jurists
had a different approach to the economic problem of the Islamic state in
their respective eras. Second, they approached their solutions within
the parameters of the Islamic shari’a. Hence, there could be no
difference in the substance of their positions, but a difference in the
form. Therefore, it is possible for Muslim jurists to develop different
views of the same rule within the overall framework. Even assuming that
each of Islamic jurists lived at the same time would not obscure the
fact that their ideas are neither completely right nor completely wrong.
The question is not to allow one approach, state control of means of
production, to encroach aggressively on the other, free trade. In the
current time, countries adopt elements of both approaches, third way
approach, in their trade policies. Therefore, there is no such thing as
pure free trade.
Islamic economics have called for avoidance of israf (waste or
extravagance). Indeed, the term iqtisad (economics) implies the concept
of moderation. Islamic economics is not against materialism per se;
rather, it is “excessive” materialism that Islamic economics shuns. Ibn
Khaldun also warned of the “obsession” of excessive materialism.
Excessive materialism breeds a culture in which the typical individual
becomes materialistic and luxury-oriented. In this kind of culture, the
animalistic side of the human being takes precedence. Based on
materialism, a growing individualistic egoism is bound to be born with
the society’s social solidarity undermined. In other words,
individualism, characterized through actions of autonomous and separate
persons within a state, undermines collectivity in which an individual
is positioned within a social context of family or community.