I just attended a weekly Qur’an reflection circle organized by GWU Muslim Student Association (MSA). We were reading Al-Qur’an Surah Rum (The Roman, 30) ayat 33-42. There are endless interesting points in these ayat, as usually are with Qur’an ayat. I would like to highlight one part related with (conventional) economics theory. The respective ayat are as follows.
“Do they not see that Allah extends provision for whom He wills and restricts [it]? Indeed, in that are signs for a people who believe.
So give to the kindred his due, and to Al-Miskin (the poor) and to the wayfarer. That is best for those who seek Allah’s Countenance, and it is they who will be successful.
And that which you give in gift (to others), in order that it may increase (your wealth by expecting to get a better one in return) from other people’s property, has no increase with Allah, but that which you give in Zakat seeking Allah’s Countenance then those, they shall have manifold increase.” (Q.S. Rum: 37-39).
In economics theory, there are strands of literature related with human behavior regarding the life/business cycle (i.e. the ups and downs of economic/financial condition). Among of the theories are the permanent income hypothesis and certainty equivalence. The theories say human or an economic agent will try to smooth out its consumption path in order to maximize its utility. The consumption allocation will be based on that of permanent income, i.e. the part of income that is expected to be stable, rather than the actual income. Central to these theories is that there will be savings and borrowings, i.e. people will save during good time and borrow during bad time. This savings and borrowings take place in a market called asset market, which will be cleared/settled with an equilibrium interest rate. Interest rate is key in this economy because it incentivizes people to save and penalizes people for borrowing. The model also predicts, at the end of the day, there will be large asset accumulation on individuals with the highest savings rate (i.e. the most patience individual).
Smoothing out the impact of business cycle fluctuation is part of Islam teaching (e.g. in Surah Yusuf). However some part of the theory above is not what Allah SWT teaches. In these ayat 37-39, Allah SWT sets a system for us in living this life: for sure there will be ups and downs; but there is a system set up for this: we should help our kindred, the miskin (people who are stuck in difficult situation and cannot get out), and the wayfarer. In addition, Allah SWT in ayah 39 forbids the use of interest rate (usury) among us, something very central in the conventional economics theory. Allah SWT forbids us to take advantage of people who are in needy situation. Listening to this, many economists would argue there will be incentive problem: if there is no interest rate, then people will be less likely to save (due to no rewards) and people would expect to get ‘free’ loan during bad time. In short, people will game/free ride on the system which in the end will lead to an equilibrium where there will be no body saves. However, as Allah SWT is great, His system will not fail. He mentions in verse 38 that helping the kindred, miskin, and wayfarer is a very good act. Helping people is an act of those who seek Allah’s countenance and will lead them to be successful in akhirah (hereafter). This is something insightful and in contrast with standard economic theory. In standard economic theory, human being is assumed to maximize their utility function which usually contains their consumption/wealth. However Allah SWT mentions that the reward in akhirah should be in our utility function, i.e. our utility should not only depends on how much stuffs we consume and how much money we have, but it should be about our state in akhirah. Thus by having this akhirah rewards in mind, actually the removal of interest rate will not make people save less, but rather people will save more because they want to help other people in need in order to seek Allah’s pleasure. This is a great way of life that Allah SWT teaches us.
On another point, it is very interesting in ayah 37, Allah SWT mentions, the fact that there are heterogeneity in terms of wealth/endowment/provision level across human being is actually a sign of Allah’s existence. This is a stark contrast to many atheist argument who says how can there is God if there are many poor people suffering. In this ayah, Allah SWT says actually these heterogeneity is a sign of His existence. This sign will be understood by the faithful (“…in that are signs for a people who believe.”). We always ask Allah SWT to grant us clear mind so we can understand and see through His revelation. Probably one of the wisdom why we human being have different level of wealth is because the heterogeneity is crucial for our life. How so? Maybe if all people are endowed with equal amount of wealth (no heterogeneity), e.g. all people are equally wealthy, there will be less interaction among human being, less empathy, less entrepreneurial efforts, less innovation, and many other things which will render our society worse off compared to the setting with heterogeneity among us. Only Allah knows the true wisdom (hikmah) behind this. May Allah SWT grants us wisdom to understand His teaching.
Finally, to conclude, how lucky and elevated we are to be given and blessed with Al-Qur’an. It is a book full of wisdom and beautiful way of life. From Qur’an we know who our creator is, what He wants us to do, where we are going to go, and how we can live this life in the best way. May we are among people who take Qur’an as its guidance and not among those who disregard and abandon it.