Halalaustrian Economics

Halalaustrian Economics
Mulberry Street, New York City

The intersection of Austrian Economics, Individual Sovereignty, and Islamic Finance is a fascinating area of study that sits at the confluence of economic philosophy, personal freedom, and religiously-guided financial ethics. Let's see how these concepts taken together help promote prosperity and societal welfare.

Austrian Economics

Austrian Economics is a school of economic thought that emphasizes the spontaneous organizing power of the price mechanism, the importance of an unhampered market economy, and the dangers of government intervention. It posits that individuals make choices based on their own entirely subjective values (and valuations of various assets and commodities), and that this is what, in aggregate, drives economic outcomes.

The Austrian school is deeply connected with principles of individual sovereignty, advocating for minimal interference in personal choices, including in financial decisions.

Individual Sovereignty

Individual Sovereignty refers to the freedom of individuals to make choices regarding their lives, wealth, and property without coercion. It aligns with the libertarian aspects of Austrian Economics, which champion personal freedom, voluntary exchange, and private property rights. These are, indeed, the cornerstones of a prosperous and ethical society.

Islamic Finance

Islamic Finance is a system of banking and financial management that complies with Sharia law, which prohibits interest (riba) as well as speculative activities (gharar). It promotes risk-sharing, ethical investments, and the avoidance of harm. It focuses on real economic activities with tangible assets, as opposed to financialization and excessive speculation. This approach aligns with broader ethical investment principles. It emphasizes societal welfare, resource stewardship, and honest business practices.

Implications for Ethical Investments

Both Austrian Economics and Islamic Finance offer frameworks that encourage ethical investments. Austrian Economics, through its emphasis on voluntary exchange and property rights, naturally discourages investments in activities that infringe on others' rights.

Investable vs. Non-investable Enterprises

Islamic Finance explicitly defines certain 'unethical' activities (e.g., gambling, alcohol) as flat-out 'non-investable'. This subset of beliefs may be specific to Islam, but where there is potentially good compatibility with Austrian Economics is in the endorsement of business activity and production of goods and services with real-world value (i.e. in the context of markets that are not distorted by fiat money and fiat incentives).

Hedging & Trading

In Islamic Finance, trading in derivatives/options/futures/etc. is also generally discouraged (viewed as haram) [1], whereas trading for 'prudent profits', i.e. while hedging production of a commodity by a given firm, may be seen as acceptable or halal [2].

Risk Sharing

The "risk-sharing" principles of Islamic Finance would seem to resonate with Austrian Economics' understanding of market dynamics and the importance of personal responsibility in investment decisions.

Transparency & Due-Diligence

Both advocate for informed decision-making and due diligence, which aligns with ethical investment strategies seeking long-term, sustainable returns rather than short-term gains at the expense of others.

Tangible Benefits

The synergy of these principles promotes investments in sectors that offer tangible benefits to society (e.g., energy, healthcare, mining, education). By focusing on investments that are not only profitable but also socially beneficial, this approach can lead to more opportunities for individuals and a more dynamic market overall.