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What Austrian Economics taught me about Islam

In all the argument over stimulus and austerity few people realize that the current state of the economy was defined, debated, and diagnosed back in the 1930s by two of the greatest economists of the 20th century, John Maynard Keynes and Friedrich Hayek. Keynes argued that free markets are inherently unstable, causing unemployment, causing decreased spending, causing more unemployment, causing a vicious cycle that results in economic depression. Therefor the government must step in and print money to stimulate the economy. Hayek on the other hand warned of the inflationary impact of over stimulation. Printing money causes price increases which only exacerbates the depth of an economic depression. Hayek advocated free markets and a natural course correction guided by self-regulating market signals. It was a bitter pill to swallow, but history has vindicated Hayek's position.


Hayek won the debates in his day. Hayek was awarded the Nobel Prize in economics. And Hayek's economic predictions have come to pass. Yet Keynesian economics is the ruling paradigm or our time. Court economists like Paul Krugman are classic Keynesians. The Federal Reserve's constant cycles of "quantitative easing" are examples of Keynesian theory. And the constant march of corporate and bank bailouts are the Keynesian response to economic depression. And now we're seeing the inflationary environment Hayek warned about.

The question is why? Well, it's pretty obvious to me. Keynes put forward a theory that grew State power and Hayek put forward a theory that diminished State power. It has nothing to do with reason, nothing to do with evidence, nothing to do with Truth. It has everything to do with the expansion of State power. Politicians prefer Keynesian policies because it means more money passing through their hands. Universities teach Keynesian economics because it means more public funding for them. It's not any kind of conspiracy. It's just the natural reaction decision makers have to perverse incentives, and ironically it's exactly what Austrian economists predict.

So, what does this have to do with Islam?

Islamic jurisprudence, like economics, is a soft science. Scholars consult the relevant data, make observations, debate the methodology, and derive a theory. But direct experimentation in laboratory conditions is essentially impossible. As a result, scholars of Islamic jurisprudence, both today and throughout history, are subject to the same perverse incentives as scholars of economics. In addition, political leaders in Islamic countries, both today and throughout history, have a systemic bias toward theories that expand State power. Because they are all human.

Realizing this, all Islamic scholarship must be viewed through this lens. For example, world renowned Islamic jurist and mystic, Al-Ghazali famously served as the grand visier to the Seljuq sultans in Baghdad. Then he experienced a spiritual crisis and abandoned his career. He underwent a period of seclusion and asceticism and became the mystic he is known as. After that be continued to publish, and even teach in private settings, but abstained from all State-sponsored institutions.

Al-Ghazali is a Hayek among Islamic scholars. But a Keynesian in Al-Ghazali's position would never have had that attack of conscience, and would have continued as a court scholar. He would enjoy the praise and gifts of the political leaders he served, and he would have lived a luxurious life. Further, his ideas would be published more, his books archived in more libraries, his opinions enforced by more rulers, and his footprint in history much deeper. Because he would have been stimulated and inflated by the State.

This is a common story with many venerated Islamic scholars.

Ahmad ibn Hanbal, progenitor or the Hanbali school, was famously arrested and interrogated by the Abassid Caliph for contradicting the religious doctrine of the State. Due to his refusal to recant his position, ibn Hanbal was imprisoned, tortured and ultimately banished.

Abu Hanifa, progenitor of the Hanifi school, was offered a position a Chief Judge in the Abbasid Court and he refused. Incensed by his refusal, the ruler had Abu Hanifa arrested and tortured. Abu Hanifa continued to teach those who visited him in prison, and his student Abu Yusuf accepted the post of Chief Judge. Abu Hanifa was a Hayek, but Abu Yusuf was a Keynesian.

We cannot pretend the course of Islamic history and jurisprudence has been a free market of ideas, or a consensus process if a systemic bias toward State power has been subsidized the whole time.

As Muslims we have a schizophrenic view of history. If our scholars reject the State we speak of them in hallowed tones for their courage and virtue. But when our scholars work for the State, we pretend that gives them some kind of legitimacy, as if the State's seal of approval makes them official.

It's simply an indisputable fact of human nature. The State creates perverse incentives. It's not a conspiracy. It's not an agenda. It's just a fact. The State cares not for reason and evidence. The State cares about power. So, it will always prefer, publish and promote the scholar that legitimizes it's power. And the scholars who appose State power will always be ignored, obscure, and if necessary attacked. The State will always chose Keynes over Hayek, and the seekers of Truth have an obligation to revisit their view of history, theology, politics, economics and every other soft science in light of that fact.


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