It is noted that from the perspective of Islamic finance, which is discussed in following sections, there is also a clear command (al-Qur'an, chapter 5 verse 1)
1
The concepts of uncertainty and risk are used interchangeably in some parts of this chapter, but the important distinction is discussed in Chapter 3 about the analytics of finance.
2
It is noted that from the perspective of Islamic finance, which is discussed in following sections, there is also a clear command (al-Qur'an, chapter 5 verse 1) that believers must be faithful to the terms and conditions of contracts. This seems to imply faithfulness to the letter and spirit of agreements that could well serve as the first-best approximation of complete contracts.
3
It is also noted that money is irrelevant in the Arrow-Debreu model of general equilibrium.
4
It is noted that different arguments can be made regarding the essence of interest rates, including the view by Thornton (2013), among others, that interest rate represents the price of credit, not the price of money.
5
As noted by Stiglitz (1994), it is also possible to identify other singular conditions for markets to be constrained Pareto efficient. The existence of risk markets, or lack thereof, would be irrelevant to Arrow-Debreu analysis if all economic agents were identical and faced with identical shocks. Such conditions would preclude the development of markets for risk allocation since the rationale for securities trading is to allocate risks between different economic agents holding different pricing expectations.
6
As argued by Lippmann (1937), there is no architectural design or scheme in the good society, where the emphasis is rather made on the moral maxim of the golden rule, which establishes human inviolability, and the prohibition of arbitrariness in human transactions.
7
It is noted that the domain of Islamic law is, traditionally, divided in two broad branches: (1) worship, or ibādāt, and (2) transactions, or mu'āmalāt. The concept of social welfare is central to the objectives of Islamic law, or maqāsid al-Sharīa'h. As rightly argued by Ibn al-Qayyim al-Jawziyyah (691–75 °CE), “the basis of Sharīa'h is wisdom and welfare of the people in this world as well as the Hereafter. This welfare lies in complete justice, mercy, well-being, and wisdom. Anything that departs from justice to oppression, from mercy to harshness, from welfare to misery and from wisdom to folly, has nothing to do with the Sharīa'h.” The expression of the ultimate objectives of Sharīa'h in terms of welfare is also evident in the argument by Abu Hāmed al-Ghazāli (d. 1111) that “the basis of the Sharīa'h is to promote the welfare of the people, which lies in safeguarding their faith, their intellect, their posterity, and their wealth.” The primary sources of Islamic law are al-Qur'an and tradition of the Noble Messenger (saws), but there is also room for ijtihād, consensus of opinion, and qiyās, analogical deduction, though the latter may be de-emphasized by some scholars. Thus, Islamic finance bears some resemblance to conventional finance in having part of its epistemological roots in economic thought and reasoning. Since the scope of Islamic law encompasses not only the religious aspects of life, but also the ethical, moral, sociopolitical, and economic spheres, Islamic finance products should be Sharīa'h compliant and thus sanctioned and sanctified by religion.
8
Economic agents are commanded to act lawfully for their own benefit as well as the welfare of others. But the moral and ethical code of conduct may not be covered by modern laws governing the socio-political-economic system. This may explain in part the failure to internalize the morality and justice system, which may be, as argued by Adam Smith himself, sanctioned by religion, as is the case indeed with Islamic finance.
9
Boulding (1970) provides a clear definition of the different types of relationships. Whereas exchange relations can be expressed as “you do something that I want and I will do something that you like,” threat relations are reflected in statements such as “you do something that I want or I will do something that you do not want,” and integrative relations can be described with “you do something because of what you are and what I am.”
