The main cause for the recent spurt in prices can be attributed to unfavourable climatic and weather conditions across large parts of the world. Agricultural production around the world has been hit by bad weather, including heavy and unseasonal rains, severe cold, extreme heat in some areas and floods. Some of the long-term infirmities in the production, supply and distribution chains have made matters worse. In a few countries, prices rose on account of the mismanagement of the public distribution system, despite the bumper stocks of agricultural commodities lying with governments.
The problem of price rise in Muslim countries and elsewhere cannot be isolated from the wider problems relating to agriculture, agriculture markets, consumer markets and the administration. Though the importance of production is undeniable, it is equally important to ensure an efficient management of supply and distribution. There is an urgent need to find a viable solution to the problem of large-scale wastage of agricultural produce. There is a growing feeling among the general public as well as among policy-makers that the time has now come to shift the focus to such medium-term and long-term strategies as would better manage prices of essential commodities.
There are four broad areas which need to be properly integrated to evolve a common approach. These are production, supply, distribution and export-import management of agricultural produce. Unless we raise agricultural productivity to a high level and within a short time frame, we are likely to face the recurring incidence of scarcities and price spurts in the coming years. In this context an attempt is made in this paper to examine Islamic approach in respect of price rise.
Given the prevailing situation in a number of countries around the world, it would not be possible for Muslim countries to remain unaffected by the worldwide phenomenon of price rise. Notwithstanding their local problems of low agricultural productivity and inefficient supply-management, Muslim countries have less control over external inflation which gets imported in one way or the other.
There are reasons to assume that the control of inflation and the maintenance of price stability assume more significance in an Islamic economy. First, there is a total ban on interest-based transactions. In conventional economics, this argument is generally adduced to justify the imposition of interest that to some extent the interest receipts may compensate the fall in the purchasing power of money. But Islam prohibits the use of interest in any form and for any purpose. Secondly, the depreciation in the value of monetary unit is not desired from the perspective of the Islamic Shariah. Thirdly, the zakat base, nisab level and slabs are expressed in real terms (i.e., certain grams of gold and silver; certain kilograms of agricultural produce; certain number of animals, etc.) for which price stability is quite necessary. Finally, Islam puts the poor and indigents on the centre stage of the development process. These two suffer most on account of price rise and hence the controlling of prices is crucial.
Islamic Shariah takes a holistic view of price rise. The price rise caused by natural factors is considered differently from the one which is caused by man-made factors. In each case of price rise, the approach of Islamic Shariah is judicious and balanced. “Under normal circumstances, traders and producers have freedom to sell different goods at rates they feel proper. Prices will be mainly determined by the forces of demand and supply.
Ordinarily an Islamic would not intervene. However, since it is obligated upon it to protect public interest and prevent unfair trade practices, it would under certain [special] circumstances, fix prices of different articles of trade. It could limit the autonomy which is otherwise available to traders under normal circumstances” i.
The Holy Quran mentions a severe famine during the period of the Prophet Yusuf [12: 43-49]. On the basis of the Quranic narrative, the commentators have derived certain policy guidelines in respect of crisis management for the benefit of rulers and states. The most important of these is the creation of buffer stocks so as to minimize the incidence of famine and the severity of price rise which occurs following a decline in real supplies.
Once during the lifetime of the Prophet a severe price rise occurred. Several factors contributed to it. For one thing, the cultivation of cereals in general and wheat in particular in and around the vicinity of Madinah was adversely affected. Secondly, wheat and other cereals were imported from distant areas at high prices. Thirdly, wheat and other cereals were not imported exclusively but their import was combined with other less important items of consumption causing delay in their arrival at the markets of Madinah. Fourthly, the demand for food articles had increased due to a large migration of Muslims to Madinah following the establishment of the city-state. Madinah had become a safe citye and the migrants had expectations that the Islamic state would arrange for them the supplies of essential goods.
Some residents of Madinah approached the Prophet when they found that the price rise was unbearable and fervently requested him to fix the prices. The Prophet refused to oblige them, saying: “It is only Allah who determines prices, who creates shortages and abundance as well (in the production and supply of goods), who sanctions provisions. I want that I should go before Allah in a state that no one from you should claim reparation (from me) against any excess on either his life or property” ii. Similarly, Abu Hurayra reports that a person approached the Prophet requesting him to fix prices. “The Prophet said: ‘No! However, I would pray for a fall in prices’. Another person came and he too made a similar request: ‘Oh Prophet of Allah! Fix prices’. The Prophet replied: ‘No! it is only Allah Who causes rise and fall in prices. I want that I should go before Allah in a state that I am not carrying any load of oppression on me’ iii.
In another tradition it is reported that during the time of the Prophet, following a rise in prices, people complained: “Prices have gone up, therefore, Oh Prophet! You should fix prices for our respite”. The Prophet replied: “High and low prices are under the command of Allah. For us it is not correct to trespass the Will and Wish of Allah” iv. From the above mentioned narrations one gets an impression that the Islamic Shariah does not permit the state to fix prices of essential goods. In reality this is not the case. Commenting on these traditions, Ibn Taimiyah remarks that it is wrong to maintain that price fixation by the state is totally prohibited. The Prophet’s refusal was in the context of a peculiar situation afflicted by famine, it was not meant as a permanent command v.
The sum and substance of the afore-mentioned traditions is that increase and decrease in production and thereby variations in supplies are subject to the Will and Wish of Allah. Scarcity and abundance too are under the Command of Allah. Under such circumstances, the Prophet held that fixation of prices would be unnatural and repressive and any form of repression in Islam is wrong. The traders who have already purchased food grains at high prices are their rightful owners and they have every right to sell them at high prices. Unless the sale is subsidized by the state, it is illegal to prevent them from selling their goods at high prices. Any command of the Prophet to the sellers to sell high cost imported grains at low price would have been a form of oppression and the Prophet stood against all forms of oppression.
The Prophet’s approach was undoubtedly balanced. What is specially note-worthy is his economic wisdom. The Prophet was aware of the fact that price fixation might further aggravate the discomforting situation by creating shortages. When importers of food grains learn that they are compelled to sell at pre-fixed prices, they would not import food grains. Further, they might wait and watch the situation. It is also possible that they might divert their stocks to other areas. Similarly, the local sellers might also prefer hoarding to selling. There is, thus, ‘loss of efficiency’ in the sense that on the one hand the uncalled for control over prices promotes black marketing and on the other make consumers suffer when black-marketing and hoarding are rampant. Thus, the refusal on the part of the Prophet to fix prices was not for the reason that he was unable to do so but he was exercising his economic wisdom.
The Prophet’s approach has clearly articulated a principle that the Muslim governments should not unilaterally fix prices ignoring the interests of producer/sellers. They should take into account all relevant factors before arriving at a decision to fix minimum and maximum prices. It is also possible that occasionally prices of food grains may fall so low that it will be necessary for the Islamic state to fix minimum support price. Otherwise, the cost will exceed return, creating ultimately a mismatch between demand and supply.
On the other hand, the Prophet used to visit market places so as to reform corrupt market practices. Once he saw a heap of food, inserted his fingers, and found it damp inside. The Prophet did not approve the practice and maintained that it was a form of deceit. He appointed special officers for market supervision, for example, Sa’ad bin al-A’as and Umar bin Khattab were appointed as market supervision officers at Makkah and Madinah respectively. In addition to these special officers, the provincial governors and their representatives were entrusted with the task of supervision of markets.
The righteous caliphs too took the problem of price rise seriously. In the year 18 AH/639 CE, the Islamic state experienced a severe price rise due to a protracted famine. Caliph Umar (643-644 CE) was in command of the affairs of the state. He imported huge quantities of food grains, fats and other essential goods from far off places and augmented local supplies. For months together thousands of people were fed at the state’s expenses. Since the price rise was on account of severe famine and thereby natural shortage of essential food items, Umar never fixed prices and followed the tradition as set by the Prophet. On the contrary he changed rates of ushur to provide tax incentive so as to encourage imports of food grains. But, Umar kept himself informed of the price situation even in the remote parts of his dominions vi.
Similarly, when the muezzin was calling faithful to the congregational prayers, Caliph Uthman, the third caliph (644-656 CE), was inquiring about the general price level from his officers vii. Caliph Ali used to visit the market personally and enjoin fair dealings on the traders viii. Based upon these precedents, Muslim jurists have, thus, declared that the supervision of market practices is one of the essential functions of an Islamic state. Control of inflation will be, therefore, a matter of prime importance.
If the rise in the prices is caused by non-natural and manmade factors such as hoarding, deliberate cut back in supplies, monopolizing industry and cartelization to raise prices, the Islamic state has necessary authority to control and fix the prices in public interest. It would deal with artificial shortages, black-marketing and other fraudulent market practices with a strong arm. Basically, it is the human greed for huge fortunes which incite traders and merchants resort to illegal trading activities. These have been severely condemned in Islam. The Prophet said: “He who hoards is a sinner. Further, the Prophet is reported as saying: “No one hoards but a sinner” ix. The Prophet prohibited those business practices which could lead to market imperfections. Consequently, stock-holding, speculation, oligarchic collusions, concealment of vital information, false vows (which could be compared to misleading advertisements of the present day), etc., were condemned in no uncertain terms. Thus, the Prophet nullified the influence of evil economic practices on the price mechanism x.
If at all a situation arises where an Islamic state is required to fix prices, then a few options are available to it. The first option is monopoly control over the purchase and sale of food grains. Subsidized public sale of essential goods is another option. The third option entails long term remedial measures to improve the supplies of essential goods. These include extension of irrigation facilities, crop-management, soil and moisture conservation, storage and marketing facilities, etc.
It may be pointed out here that the experience in respect of first option in erstwhile communist countries suggests that a complete monopoly control over purchase and sale of food grains might prove counterproductive leading to black-marketing, hoarding and smuggling, etc. Subsidize sale appears to be a feasible policy option which, however, puts immense pressure on state’s financial resources. This, therefore, calls for a very prudent fiscal management. This policy option, combined with long term measures to improve real supplies, appears to be a natural solution. The Islamic state is, therefore, required to use a suitable mix of the direct, monetary and fiscal tools. At the same time, certain direct actions such as rationing and import of food grains, if situation warrants, should be also used.
i Siddiqui M.N., Islamic Public Economics, Idarah-i- Adabiyat-i-Delli, Delhi, 2001, p.143
ii Sunan Abu Dawood: Kitab al-Bai’
iv Abu Yusuf., Kitab Al-Kharaj, p. 58. Urdu translation by Siddiqui M.N., Islam ka Nizam-e-Mahasil, Maktab-e-Chriag-e-Rah, Karachi, 1966.
v Ibn Taimiyah., Al Hisbah fi al Islam. English translation by Holland, Muhtar, Public Duties in Islam: The Institution of Hisbah, The Islamic Foundation, Leicester, 1982, p.25
vi Hasanuz Zaman S.M. The Economic Functions of Early Islamic State, International Islamic Publishers, Karachi, 1981, p.93
ix Muwatta Imam Malik: Book 22
x Khan, Muhammad Akram., Economic Teachings of the Prophet Muhammad: A Select Anthology of Hadith Literature on Economics, Oriental Publications, Delhi, 1992, p.125
Abu Yusuf., Kitab Al-Kharaj, p. 58. Urdu translation by Siddiqui M.N., Islam ka Nizam-e-Mahasil, Maktab-e-Chriag-e-Rah, Karachi, 1966.
Hasanuz Zaman S.M. The Economic Functions of Early Islamic State, International Islamic Publishers, Karachi, 1981.
Ibn Taimiyah., Al Hisbah fi al Islam. English translation by Holland, Muhtar, Public Duties in Islam: The Institution of Hisbah, The Islamic Foundation, Leicester, 1982.
Khan, Muhammad Akram., Economic Teachings of the Prophet Muhammad: A Select Anthology of Hadith Literature on Economics, Oriental Publications, Delhi, 1992.
Muwatta Imam Malik: Book 22
Siddiqui M.N., Islamic Public Economics, Idarah-i- Adabiyat-i-Delli, Delhi, 2001.
Sunan Abu Dawood: Kitab al-Bai’