Rethinking Market Institutions From the Perspective of Islamic Moral Economy: A Proposal for Hisbah-based Islamic Market Institution

Mahyuddin Ahmad, University of Teknologi Mara

This paper begins with a quick review of the 2008 global financial crisis and the dark, devastating and dismal consequences to the global economy it has brought about. This paper then echoes the growing calls for reforms in the economics conventional thoughts and practices mainly characterised by the capitalism key fundamentals such as self-interest, profit motive, market mechanism, limited government roles, unfettered liberalisation and free trade. Stiglitz (2010) is one of the notable calls, and he has proposed an agenda for reforming economic theory as he argues that conventional theories such as efficient market hypothesis, rational human behaviour and perfect availability of information do not hold anymore. In truth, the market is never efficient and bounds to fail, risks exist since human can be irrational due to limited mental capacity and information, and the presence of transaction costs often impedes the markets. Embarking upon this reform agenda, this study proposes a new concept of market institutions that put greater emphasis on value-based economic policies such as rule of law, social justice, trustworthiness, and transparency. The Islamic moral economy (IME) provides the underlying foundation to this proposition as it is, according to Asutay (2011), “an approach to, and a process of, interpreting and solving the economic problems of human beings based on the values, norms, laws and institutions found in, and derived from the sources of Islam.” To ensure these universal values are adhered to and religiously followed by the market participants, an appropriate regulatory framework based on the concept of hisbah, called as “Islamic Market Institution (IMI)” is proposed. It is expected that such market-supporting value-laden regulatory framework would be able to make a recurrence of crisis less likely and could enhance the prospect of achieving sustainable economic development.

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