The role of the state is a crucial and primary factor in achieving development and regulated economic freedom through justice. This enables the state to provide sufficient welfare for its citizens, fulfilling its duty to safeguard their worldly and Hereafter interests according to Allah’s law, which includes preserving religion, life, intellect, lineage, and wealth.
If economic development in the Islamic economic system starts with the individual or the private sector, the state’s role becomes evident in creating a suitable environment for achieving that development. This is done by organizing economic life, directing private projects to ensure the public interest, and taking measures to benefit society. The state only intervenes to complete what the private sector is unable to accomplish, considering this a Fard Kifayah (collective duty) that the nation sins if it is not fulfilled.
Thus, the state’s economic function involves undertaking significant projects that impact the lives and necessities of community members, such as public utilities, education, health and so on. Additionally, strategic projects that cannot be left to individuals, like armament and natural resource development, as well as necessary projects shunned by the private sector due to their size or low returns, fall under the state’s purview. The state provides general guidance and oversight of the economy, creating a healthy environment for private sector development and ensuring the necessary funding for charitable sectors to achieve social solidarity, thereby ensuring sufficient provision for community members.
The state does not compete with the private sector to displace it but supports and stimulates it. Ibn Khaldun recognized this long ago, as he sees that “trade by the ruler is harmful to the subjects, corrupting taxes, and diminishing construction.” Abu al-Fadl al-Dimashqi, centuries before Ibn Khaldun, mentioned that “matters involving dominance and deceit, is like the ruler’s trade, leading to harm when no one can surpass him in buying or prevent his control in selling. A wise person said: if the ruler competes with the people in their trades, they perish, and if they compete with him in bearing arms, they perish.”
In the Islamic economic system, the state acts as a guardian. This differs from the capitalist principle of exploiting society for the private sector’s benefit under the guise of a guardian state that governs without owning, or the socialist principle of state control over the economy and the displacement of the private sector through nationalization. In the Islamic system, the state has the right to enter the market as a producer, owner, and distributor of natural resources and as a market regulator through the institution of “Hisbah” in a regulated freedom. Hisbah means enjoining good when it is neglected and forbidding evil when it is committed.
State intervention aligns with providing people’s needs and necessities, expanding or contracting based on regulated principles of benefit, ensuring alignment with the objectives of Shariah. These benefits must be genuine, not illusory, serve the public rather than an individual or specific group, and prioritize essentials, needs, and improvements.
The state’s oversight of economic activity through Hisbah which include ensuring compliance with Shariah laws is a part of public interests, such as monitoring markets to prevent monopoly, usury, gambling, fraud, and cheating, and sometimes setting prices. It also involves regulating and overseeing the labor market, setting minimum wages, expropriating property, regulating production and consumption, imposing import restrictions on certain goods, and taking economic measures to achieve legitimate goals like reducing unemployment, encouraging the cultivation of specific crops, or supporting certain social groups. This enhances market efficiency and economic activity to the fullest.
Imam Ali’s advice, may Allah be pleased with him, to Al-Ashtar Al-Nakha’i concerning merchants highlights the importance of their role: “Take care of merchants and craftsmen and treat them well, whether they are established or traveling with their wealth, and those who earn a living with their bodies. They are sources of benefits and facilitators of conveniences, bringing them from far and wide, by land and sea, mountains and plains, where people cannot reach or dare not go. They are a peaceful with no fear of their harm, and no worry of their rebellion. Watch over their affairs in your presence and in the outlying areas of your country.
However, be aware that many of them are narrow-minded, greedy, hoarders of benefits, and controllers of sales, which is harmful to the public and disgraceful for rulers. Prevent hoarding, for the Messenger of Allah (peace be upon him) prohibited it. Let the sale be fair with just weights and prices that do not harm either party, seller or buyer. Punish those who hoard after your warning without excessive punishment.”
The Islamic economic system emphasizes fair competition to achieve market efficiency and justice. Islam generally refrains from imposing fixed prices on market goods, advocating for free mutual consent in transactions. Therefore, Islam prohibits anything that hinders this freedom, such as monopoly, fraud, deception, the sale of what is not present, and undercutting. “Do not go out to meet the riders, and do not urge someone to cancel a sale he has already agreed upon os as to sell him your own goods, do not artificially inflate prices, and let not a town-dweller sell for a desert-dweller.” (Sahih) This ensures no harm impedes market transactions or affects goods and product owners. Allah says, “O you who have believed, do not consume one another's wealth unjustly but only [in lawful] business by mutual consent.” (An-Nisa: 29)
Anas reported that during the time of the Prophet (peace be upon him), prices rose, and people said: “O Messenger of Allah, set prices for us.” He replied: “Indeed Allah is Al-Musa'ir, Al-Qabid, Al-Basir, Ar-Razzaq. And I am hopeful that I meet my Lord and none of you are seeking (recompense from) me for an injustice involving blood or wealth.” Ibn Al-Qayyim commented on this, explaining that price-fixing can be unjust and forbidden if it involves forcing sellers to sell at specific prices against their will or depriving them of what Allah has allowed. However, it is permissible and even obligatory if it ensures fairness, such as compelling sellers to trade at market value or preventing them from overcharging during times of need.
As for the first scenario, it is like what Anas narrated in the previous hadith: if people are selling their goods in the usual manner without any injustice, and the price has risen—either due to scarcity of goods or increased demand—this is up to Allah. Forcing people to sell at a specific price is coercion without right.
As for the second scenario, it is like when the owners of goods refuse to sell them, despite people's need for them, except at an inflated price above the known value. In this case, they must sell them at the fair market price. There is no meaning to price regulation except enforcing fair value. Here, price regulation is merely enforcing the justice that Allah has ordained.
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