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 economy.

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 importance. 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 informational deficiencies.

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 great thinkers. 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 efficient uses. 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 government intervention. 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.