[amended 19 August 2023 to include references to the Irish potato famine and two Bengal famines]
Prophet Yusuf (عليه السلام) advised Pharoah to hoard grains during the years of plenty. I think this episode is a noteworthy one because it shows how a State can intervene in the marketplace in order to improve the welfare of the wider population.
But as we shall see below, the government intervention that Prophet Yusuf (عليه السلام) instigated favoured some sections of the population over others - it was not neutral in terms of how it spread gains and losses across the population.
al-Qummi reports that Yu−suf (عليه السلام) ordered that grain silos be erected from stone and clay and plastered with lime. He cultivated lands throughout Egypt, distributing food and storing the excess in its husks. This was done for seven years. During the drought, it was his duty to sell the wheat (or corn) as he saw fit.
While there is other material in the Qur'an that deals with transactions within the marketplace between individual participants - this story stands out in terms of its focus on state intervention.
I'll be coming back to this issue later - but I think it informs the discussions we have about Islam and contemporary socio-economic theories. In particular, I think it illustrates that Islam does see the State as an active market participant and that in an Islamic state, the role of government is not one that is hands-off or laissez-faire.
What policy options did Prophet Yusuf (عليه السلام) have?
We should not take the story as presented 'for granted'. In reality, the Prophet (عليه السلام). had a range of choices open to him, and thinking those through helps us better understand the reasons for the policy he undertook and the reason why.
No government interference
Let's start with the simplest and easiest option that Pharoah's government could have pursued once they knew that there would be seven years of plenty followed by seven years of famine (as predicted by the Pharoah's dream which was interpreted by Prophet Yusuf (عليه السلام).) .
Pharoah could have left the entire issue to the 'market'. During the years of plenty, the price of food would have fallen and people would have enjoyed a higher standard of living. For example, the lower grain prices could have led to people rearing more cattle and their diets would have improved with more meat.
However, during the years of famine, grain prices would have risen and those people who had accumulated assets in the years of plenty would be able to pay the higher prices in the famine years. Those who had not had such assets would have starved.
This assumes a fairly high level of self-discipline on the part of the population, but as Milton Friedman would say, the people would have been 'free to choose'. This is not a hypothetical option. The British lack of action to the Irish potato famine has been attributed to the British government's ideological adherence to a laissez-faire approach to macro-economics:
Laissez-faire, the reigning economic orthodoxy of the day, held that there should be as little government interference with the economy as possible. Under this doctrine, stopping the export of Irish grain was an unacceptable policy alternative, and it was therefore firmly rejected in London, though there were some British relief officials in Ireland who gave contrary advice.
The Bengal famine is another one where government policy was different to the one Prophet Yusuf ((عليه السلام).) prescribed to Pharoah. In this instance, it was lack of government restriction over the action of privateers:
But the Nobel prize-winning economist Amartya Sen argued in 1981 that there should still have been enough supplies to feed the region, and that the mass deaths came about as a combination of wartime inflation, speculative buying and panic hoarding, which together pushed the price of food out of the reach of poor Bengalis.
Going back still further, the Great Bengal Famine of 1770 has been directly attributed to British government laissez-faire economic policy.
The British government abandoned pre-colonial policies to combat natural calamities and food scarcity in India. They were more interested in the implementation of non-interference in the market. Adam Smith’s laissez-faire approach, i.e. the principle of non-intervention, was firmly laid down as a part of state policy (Siddiqui, 2015a), and therefore was strictly implemented in all subsequent famines. It was said that in the past during the natural calamities, the previous rulers undertook harsh measures to persecute traders and fixed maximum selling prices for foodgrains, which were seen by the colonial government as unhelpful and as interfering in the operations of the markets. As (Bhatia, 1991: 106-107) noted, “The Government of India persistently refused to control or interfere with prices. And it went to the other extreme of giving an absolutely free hand to the trader and discouraged local administration and its officers from interferences in his activities.
Light interference - provision of information
A common policy option nowadays, where people do not want direct government intervention is to recommend improving the provision of information to the population who will then be better able to make the correct decisions for themselves. The government could have mounted an information campaign during the years of plenty and told people to hoard food themselves, hoarding when there is no shortage is allowed in Islam.
However such attempts to influence awareness about the famine to come and changing peoples' attitudes so that they saved more than they were used to, would likely have run against increased social pressures on people to do the opposite. For example typically in societies as wealth increases there is social pressure to spend more, in this case, for example, have more lavish weddings.
Also providing information would have been a practical benefit for the better off e.g. those with storage capacity, but not so good for the poor (who would not have room to store grain, for example).
The government (using a bit more intervention) could have given tax breaks to people who owned granaries, to help the poor who needed such facilities. Again this solution would be to focus on market-based interventions and simply alter the working of the market using incentives. Current economic theory holds that people discount future risks very heavily i.e. they don't perceive them as much of a threat as they should. So, for example, just telling people they should save for a pension does not work.
So we can likely predict that the solutions described above would not have worked had they tried them.
This is what they actually did.
In times of plenty, Pharoah's government did not let prices fall as would have happened under free market conditions. They kept prices higher than they otherwise would have been because the government intervened and took excess stocks of grain out of circulation.
All people (rich and poor alike) had no option but to pay the usual higher prices - effectively, the government was taxing everyone, but this was not seen as a loss by anyone because the prices were no higher than usual.
The government stored the grain centrally and then they decided to release the grain according to their own policies.
Assumptions made by Prophet Yusuf's government
If you leave people to their own devices they may not make the best decisions (whether they are rich or poor), this could be due to:
- People do not have the resources to cater for future shocks (mainly the poor)
- People do not have the discipline to address future shocks (applies to both the rich and the poor)
The government can make better decisions than individuals acting in their own self-interest because:
- The government can have access to more and better information than individuals do
- The government may not be as susceptible to a lack of self-discipline
Of all the policy options open to Prophet Yusuf (عليه السلام) he advised Pharoah to pursue the most interventionist one. Some people may be tempted to call this socialist or communist, but I think those terms carry a lot of excess baggage, so I won't bring them into the discussion.
What I think can be safely inferred from his choice of policy is a fundamental principle that could inform economic policy in any Islamic state.
Facing an external shock to the Egyptian economy, he went for the option that would cause the least pain to the worst off in society. Other policy options would have caused more pain for the poorest but somewhat less for the better off.