Chapter 3: Islamic ethics and free market economy
Though ethics in Islam focuses primarily on behavior and relations among people, its coverage of the exchange function and entitlements and responsibilities in the marketplace underscores the intertwining relationships between people’s welfare and business activities. Indeed, the three elements of the ethical framework—public interest, moderation, and ehsan—set the stage for ethical conduct that is in line with optimal utilization of purposeful economic activities that ensure a balance between self-interest and societal welfare. Furthermore, the moderation elements, while safeguarding against both conspicuous spending and miserliness, highlight the virtue of responsible spending without ignoring the need to save for the future and invest in worthy projects. Traditionally, most of the writing on free market economy in Islam has attempted to show the link between Islam and capitalism. This is not the case in this chapter. The objective is to show that, based on the issue of moderation, market exchange and function must observe ethical principles that prevent any intentional harm to members of the exchange function and to stakeholders. This might be ideal but, according to early Islamic thinkers, the further members of the exchange function drift away from ethical principles the less stable the market will be. Thus, in this chapter, several issues pertaining to the nature of free market economy will be examined in the context of Islamic instruction.
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