The Role of the Market
The sale of goods and services is central to the market. That particular exchange is what markets are all about. The market plays a vital role as a distinctive place for transactions. The market facilitates the exchange of people’s needs, whether they are producers, suppliers, or consumers. The fulfilment of needs and necessities is vital for humans to function properly and optimally. It removes barriers to growth, productivity, and optimisation. When living necessities are met, people are able to focus on more important things in life. Shariah has given us a suite of contracts and transactional forms, which are needed for humans to be able to fulfill their worldly needs. Just as efficient markets are key to the economy, efficient and optimised humans are key to the markets. The entire guidance of Shariah, all the prohibitions and recommendations are there to support the human to maintain spiritual, mental, economic health. It is humans who are the entrepreneurs, and it is humans who are the pulse of the economy. Transactions are just the manifestation of human cognition, volition, and input. All the prohibitions ultimately impact humans emotionally, psychologically, and mentally, which impacts consumer confidence and the markets. Maintaining healthy and sound humans is what the Shariah guides us towards. And this guidance is there so we can fulfil our greater purpose of existence.
The Mechanism of the Price
An economy is said to exist when there are interactions between groups of people for the purpose of trading or exchanging goods and services. Their interdependence on each other for goods and services will be mutually beneficial for everyone if they are able to meet the demand for and supply of goods and services. Since there are many suppliers and consumers of products and services, such economic activities are coordinated through a market where price acts as the instrument to direct economic activities. In an efficient market, the demand for and supply of goods and services reflects the price. The secret to the success of the market is price. And the price is something which is a manifestation of the power of Allah. Hence, the prophetic narration states:
“Verily, it is Allah who regulates the price; Allah is the one who contracts, expands and provides.” [Sunan Abu Dawud]
The economy consists of a myriad of variables, a web of complexities and actors with multiple intentions. Every economic unit is so complex and requires such minute description and analysis. The flow of goods and services are constantly negotiating all these factors. It is truly Allah and His power that ultimately overpowers all these intricacies and facilitates the smooth running of an economy through the regulation of the price. Allah is the one who ultimately supplies provisions, goods, and capital to people. The natural order of supply and demand is something which Allah is regulating. It is the abundance or constraint of these factors which impact the pricing mechanism. Further, it is Allah who ultimately grants contentment and satisfaction to economic agents, which induces them to accepting a particular pricing. Thus, the end price represents an entire economic operation overseen by Allah.
When people adopt a command economy, regulate the price of every commodity, hoard, manipulate pricing mechanisms, they are distorting supply and demand, and impacting the natural order regulated by Allah. Hence, Mulla Ali al-Qari (d.1014 AH) states that any economic agent who attempts to manipulate the price is in fact challenging Allah and setting themselves as a rival to Allah. Such a person is trying to intervene in divine affairs and the divine allocation of resources[1]. Allah regulates markets through price mechanisms whereby His power and His force of supply and demand helps the market to achieve equilibrium. In other words, people are free to transact and exchange goods and services, and Allah only instructs intervention by the authority to stop unjust or illegal acts that cause grievance to other stakeholders. It is Allah who directs his Khalifa (representatives on Earth) to act in such matters. Shariah provides guidance for fair and free trading, and price controls are meant to avoid monopoly and fight corruption. Islam prohibits market players from harming societal wellbeing through hoarding and profiteering from people’s urgent needs for particular commodities.
The representatives of Allah on Earth are there to prevent market failures, as it can have a significant impact on the wellbeing of society due to inequality and inefficiency in allocating the resources or due to a party having more power in controlling the market price. Hence, the Islamic authority can help improve market outcomes by remedying market failures through enforcement of Shariah-based rules or regulations on institutions that are key to a market economy, or alternatively promoting greater economic equality through public policies[2].
Equilibrium
The guidance of Shariah is about equilibrium. In particular, the economic guidance in Shariah is about optimisation through equilibrium. Every injunction is there to bring about the desired balance and equilibrium which is healthy for the economy and as such, healthy for people. Equilibrium is in part, maintained through the forces of supply and demand, which drive the pricing mechanism, and are all ultimately regulated by Allah. It is of no surprise that the Arabic word used for economics is Iqtisad. The roots of this Arabic word refer to the idea of moderation and balance, or in more economic terms, equilibrium.
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[1] Mulla Ali al-Qari, Mirqat al-Mafatih. Beirut: Dar al-Kutub
[2] Haniffa, R. and Hudaib, M. (2019). Islamic Banking and Finance. UK: Cengage