General Equilibrium Analysis in the Islamic Economy

It was pointed out in Chapter 1 that there is an intrinsic micro-macro interface in the Islamic political economic order. That is to say that macroeconomic relations of output, income, price stabilisation, employment, economic growth and distribution are not independently established at the macroeconomic level in the Islamic economy. They are the result of theoretical and institutional ramifications at the microeconomic level. This is so because of the great role of ‘shura’ in formulating ethical policies, which thereafter influence and interact with the grand ecological order, the market system being a particular subset of that order. The role of free play of the market in pricing and output determination and in acting under ethical requirements of consumption, production and distribution is very important in the Islamic economy; the market system when impacted by the ‘shuratic’ policies is the ultimate test of the ethical transformation. The ‘shura’ can simply research, deliberate and enact newer levels of ethical policies in the drive toward establishing social consensus within the ‘shura’ and between itself and the market system through the ethical transformation of preferences. It cannot legislate the ‘shariah’, the responsibility for which is given to the courts of law and to the social regulatory body of the market place known as ‘al-hisbah’ (Makari, 1983). There is thus no coercion placed by the Islamic polity on the free play of the market system.