[Extract from Preface of Islam and Business Ethics by Dr S M Hasanuzzaman,
published by the Institute of Islamic Banking and Insurance, London, UK 2003]

With the requirement for strict observance of the elaborate system of values that Islam prescribes and with its negation of full freedom, the question is whether there is still any possibility of a market economy in an Islamic system. How will the benefits that free market operation brings about in the domestic sector be achieved? The market mechanism calls for the unhindered interplay of the forces of demand and supply in determining the price of a product. Price reacts to surpluses and shortages. What the Islamic system of values ensures is that supply should not be artificially suppressed or withheld, nor should demand be artificially created. The Prophet refused to interfere in the free operation of real market forces. He condemned the ousting of a new entrant in the market. He also prohibited the anticipation of the proper market price. He condemned hoarding with a view to creating artificial scarcity. He similarly discouraged the operation of those forces that artificially create a demand market. He regulated demand by rejecting the dictating of an arbitrary price by monopoly purchasers, placed moral restrictions on the advertisement of products and emphasised simple living. By regulating the activities of intermediaries and brokers, he discouraged the manipulation of prices.

All these facts lead to the conclusion that Islam does not allow unbridled freedom to traders to manipulate the supply, demand or price of the available goods. Buyers and sellers are motivated to maximise their utility without involving themselves in unethical or unsocial activities. A trader has complete freedom to maximise his profit through the optimum utilisation of resources, planning, accurate anticipation and managerial efficiency, but not through the means that Islam treats as immoral or sinful.


Source : islamic-banking.com