Islamic Economics System and Other Economics Systems

Introduction

What is system?

System (from Latin systema, in turn from Greek systēma) is a set of

interacting or interdependent entities, real or abstract, forming an integrated

whole. A group of interdependent items that interact regularly to perform a

task.

Economic System

An economic system is a system that involves the production, distribution

and consumption of goods and services between the entities in a particular

society. The economic system is composed of people and institutions,

including their relationships to productive resources, such as through the

convention of property. In a given economy, it is the systemic means by

which problems of economics are addressed, such as the economic problem

of scarcity through allocation of finite productive resources. Examples of

contemporary economic systems include capitalist systems, socialist

systems, and economic system of Islam. Economic systems are the

economics category that includes the study of respective systems.

Economic System of Islam

Islamic Economic System implies a mood of satisfying the economics needs

of the members of organized society in accordance with is injection of Quran

and Sunnah. The mood of spending production, distribution and exchange of

wealth is determined by the tenor of these injections. In this system the

economic activities of the members of the society are regulative by the

certain values of which pity, justice, benevolence, cooperation, brotherhood

and equality are especially important. The sources and origin of these values

are the Holy Quran and the Sunnah of Allah’s Apostle (PBUH). They are

eternal and immutable. Consumers, producers and traders are must abide

these values.

At one level, the state can also use the its powers to implements and enforce

these values, however, Islam mostly ensure their implementations and daily

affairs of life through its system of education and training and by creating a

general climate of piety in the society.

Some Fundamental features of Islamic Economics System are written below.

All the wealth belongs to Allah (SWT):

"And give them of the wealth of Allah which He has given you." [An-Nur:

33]

The community is the trustee of the wealth:

"Believe in Allah and His Messenger, and spend whereof He has made you  

heirs."[Al-Hadid: 7]

Hoarding of wealth is prohibited:

"And those who hoard up gold and silver and spend not in the way of Allah;  

announce to them a painful chastisement." [At-Tauba: 34]

. Circulation of wealth is a duty:

"Whatsoever Allah may restore unto His Messenger - is due unto Allah and

unto His Messenger - the orphans and the needy. So, that it may not be

confined to the rich amongst you." [Al-Hashr: 7]

Other Economic System

There are two economic systems

•    Capitalism

•    Socialism

Capitalism

Capitalism is the economic system in which the means of production are

distributed to openly competing profit-seeking. Capitalism is not merely an

economics system but a peculiar attitude of mind and behaviour. Basically it

springs out of the notion of the capitalist that he has earned his wealth by his

own ability, skills, knowledge and wisdom.

Some of the features of capitalism are written below. 

1. Private persons and where investments, distribution, income, production and

pricing of goods and services are predominantly determined through the

operation of a market economy

2. Capitalism is originally defined as a mode of production, where it is

characterized by the predominant private ownership of the means of

production, distribution and exchange in a mainly market economy

3. Capitalism is usually considered to involve the right of individuals and

businesses to trade, incorporate, and employ workers, in goods, services

(including finance), labor and land.

4. In Capitalism, state action is confined to defining and enforcing the basic

rules of the market though the state may provide a few basic public goods

and infrastructure.

5. The most laissez-faire capitalist economies, as measured by indices of

economic freedom, include countries like Hong Kong and Canada

 

Socialism

Socialism or communism means an economics system in which the mean of

production are owned by the state. A central directorate controls the

production of goods and services. The directorate decides the nature,

quantity, and mood of production of goods. This distribution of goods is also

directed by the central body. 

Socialism refers to a broad set of economic theories of social organization

advocating state or collective ownership and administration of the means of

production and distribution of goods, and the creation of an egalitarian

society.

Modern socialism originated in the late nineteenth-century working class

political movement. Karl Marx posited that socialism would be achieved via

class struggle and a proletarian revolution which represents the transitional

stage between capitalism and communism.

Socialists mainly share the belief that capitalism unfairly concentrates power

and wealth among a small segment of society that controls capital and

creates an unequal society. All socialists advocate the creation of an

egalitarian society, in which wealth and power are distributed more evenly,

although there is considerable disagreement among socialists over how, and

to what extent this could be achieved

Some features of socialism are written below

1. Socialism is not a discrete philosophy of fixed doctrine and program

2. its branches advocate a degree of social interventionism and economic

rationalization, sometimes opposing each other.

3. Another dividing feature of the socialist movement is the split on how a

socialist economy should be established between the reformists and the

revolutionaries.

4. Some socialists advocate complete nationalization of the means of

production, distribution, and exchange;

5. While others advocate state control of capital within the framework of a

market economy. Social democrats propose selective nationalization of key

national industries in mixed economies combined with tax-funded welfare

programs.

6. In the 1970s and the 1980s, Yugoslavian, Hungarian, Polish and Chinese

Communists instituted various forms of market socialism combining co-

operative and State ownership models with the free market exchange.

7. This is unlike the earlier theoretical market socialist proposal put forth by

Oscar Lange in that it allows market forces, rather than central planners to

guide production and exchange.

Difference between Islamic economic System and

others (Capitalism and Socialism)

Here we will discuss the difference between the Islamic and Other Economic

System like Capitalism and Socialism briefly by comparing Islamic and Other

Economic Systems in respect of their basic concepts.

Comparison of Capitalism with Islam:

Capitalism and Islam are compared in respect of their basic economic

concepts as under:

1.  Right to ownership:

The existence of right of private ownership of property is the hallmark of

capitalism. The system believes in the private ownership of the means of

production, distribution and exchange which are managed and controlled by

individuals or groups of individuals for private profit. The unrestricted right to

own property and earn profits leads to concentration of wealth in few hands.

This necessarily disturbs the balance of distribution of wealth and income in

society. The economic disparities and the ever-increasing gulf between the

rich and the poor sows the seeds of discord and destruction in the capitalist

society.

Islamic concept of ownership is unique one. Ownership, in reality, belongs to

God while some rights only vest in man so that he may fulfill the purpose of

God, that is the purpose of community by acting as a trustee for those in

need. In other words, what Allah has created for benefit of and service to

man belongs collectively to the whole humanity. Legal ownership by the

individual is recognized in Islam but it is subject to the moral obligation that

in all wealth all sections of society have the right to share. Thus private or

individual ownership in Islam is not unlimited or unrestricted. All the means

of production are not placed under private ownership as public ownership of

certain things of common utility exists side by side with it in an Islamic state.

Islamic state has also the right to nationalize certain things which are under

private ownership for the benefit of the community. In this way the limited

right of private ownership with law of inheritance which distributes the estate

of the deceased among fairly large number of heirs averts concentration of

wealth in few hands and thus prevents class-conflict.

2. Economic Freedom:

Unrestricted economic freedom and non-interference of the state in such

freedom is another feature of capitalist economy. Every individual is at

liberty to initiate, organize and establish any enterprise, business, trade,

profession, etc. He has full freedom to earn as much income as he can and

spend his wealth in whatever manner he likes. This unrestricted economic

freedom generally leads to earning of wealth through foul means such as

gambling and prostitution. It also encourages business malpractices such as

smuggling, black marketing, profiteering, hoarding, speculation, forward

transactions, fraud, exploitation, adulteration, etc. Thus a mad-race for

earning wealth becomes order of the day and high social and moral values

such as fraternity, brotherhood, mutual help, love, benevolence, truthfulness

give place to selfishness, callousness, hatred, falsehood and mistrust.

Capitalism, in fact, has come to signify a religion of money or dollar

dictatorship.

Islam also allows economic freedom to an individual who is at liberty to earn

wealth, own it and spend his wealth at his discretion. But the freedom given

by Islam in economic sphere is not unlimited. Islam makes distinction

between halal (permitted being lawful) and haram (forbidden being unlawful)

in every economic activity embracing vast fields of production, exchange

and consumption.2 Similarly consumption of wealth on luxurious living,

haram things and extravagant spending is also forbidden. A Muslim is

required to pay Zakat and spend whatever he can for the cause of the poor

and the destitute. All these regulations promote moral values in Islamic

society and eliminate mad-race for wealth and material gains.

3. Monopoly:

Competition, which is another feature of capitalism, leads to the destruction

of minor enterprises and firms. This encourages merger of smaller business

organisations into major ones and thus monopolies or cartels are

established. Monopolies kill free competition, cause inflation in prices and

ultimately result into unemployment. Thus labour and consumer are both

exploited in such a situation. Moreover, trade-cycles, unplanned production,

over-competition, increasing accumulation of capital upsets the balance

between production and consumption which sometimes leads to economic

depressions.

Islam forbids unhealthy competition and bans all the ways which lead to it.

Islam also disallows establishment of monopolies. The Prophet of Islam is

reported to have said Whoever monopolies is a sinner. Especially monopolies

over food-stuffs or articles of daily use are forbidden by Islam. Commodities

and services which are of the common interest of the community are never

allowed to be monopolized. 

4. Institutions of Interest:

The Institution of banking and interest is the life-blood of capitalistic form of

economy. For business, trade and industry especially for big projects and

economic ventures, huge funds are required which no individual or firm can

arrange. This leads to establishment of banks who borrow capital from

depositors and investors on lower rate of interest and lend it to business

enterprises on higher rate of interest. Thus the institution of interest has

become part and parcel of capitalism.

Islam considers interest as the most exploitive institution for humanity and

has abolished it root and branch in its every form and manifestation.

According to al-Quran taking of interest tantamount to war against God and

His Apostle, while according to Prophet Muhammad (PBUH) interest is worse

than adultery. Islam builds its economy on interest free basis and promotes

profit and partnership as incentive for saving and investment.

5. Exploitation:

Unrestricted right of economic freedom and uncontrolled right of private

ownership has practically resulted into exploitation. Economic exploitation of

the weak by the strong is an order of the day in a capitalist society. Wealth is

the religion of every person (but a few honorable exceptions) and earning of

it through fair or foul means is his creed. Consequently, everyone exploits

the other economically with a view to gather as much fortune as possible.

Islamic economic system, on the other hand, ensures elimination of

exploitation of one man by the other. Many effective measures have been

taken by Islam to do so. Riba or usury is one of the worst instruments of

human exploitation and this has been abolished in all forms by Islam. 

6. Distribution of Wealth: Capitalism does not believe in fair and just

distribution of wealth. Since it believers in full economic freedom and private

ownership of means of production. Concentration of wealth in few hands

takes place while huge majority of the populace is deprived of the very basic

necessities of life. The privileged few live in luxury while poverty, ignorance,

disease and unemployment is the lot of the multitude. This disturbed balance

of distribution of economic resources and unbridgeable gulf between the

haves and have-nots ultimately leads to class struggle and ultimate

overthrow of the very system.

Islam on the one hand guarantees provision of basic human needs such as

food, clothing and shelter to everyone and, on the other hand, ensures fair

and equitable distribution of wealth and economic resources among all. For

bridging the gulf between the rich and the poor and for ensuring equitable

distribution of wealth, Islam has taken many steps such as Zakat and

Sadaqat, laws of inheritance and compulsory contributions in the form of

taxes and duties. To prevent concentration of wealth in few hands Islamic

economic code has taken measures like abolition of interest, prohibition of

earning of wealth through haram means, prohibition of hoarding of wealth,

etc.

Comparison of Socialism with Islam

Socialism and Islam are compared in respect of their basic economic

perceptions as under:

1. Ownership:

State ownership of all property and means of production, as stated earlier, is

the most distinctive feature of socialist economy. Private ownership of

property and of all the means of production, distribution and exchange is

totally abolished. This leads to management of these means of production by

the bureaucracy. Bureaucratic running of economic machinery results into

inefficiency, low production and collapse since the bureaucrats lack initiative,

follow rigid rules and are not trained to run business.

Islam does not abolish private ownership of property and does not place all

the means of production, distribution and exchange in the hands of the

state. Although Islam upholds public ownership of some means of production

which are the common utility to the people, but it concedes the rights of

private ownership of majority of the means of production and distribution.

Unlike socialism, Islam gives economic freedom to an individual who can

earn wealth, own it and enjoy it within certain limits provided he does not

infringe teachings of Islam in the process of earning, owning and consuming

it.

2. Materialism:

Socialism, especially scientific socialism rests on a purely materialistic basis.

Dialectic materialism or materialistic interpretation of history is the most

vital element of Marxism. Marx has sought to explain every event in history

on economic grounds. According to him, origin of every activity of man lies in

economic factors. Marx does not believe in religion which, in his view, is a

bourgeois invention to keep the proletariat under their perpetual control.

Engels said : Matter is the only real thing in the world. The communists

believe that human reason is just a manifestation of matter and soul has no

independent existence of its own but is a product of matter. They hold that

all the different stages of human progress are determined by the interplay of

conflicting economic forces alone, thus leaving no place for God’s will. 

Islam is the perfect and final religion revealed by Lord of the universe for the

guidance of mankind. Its foremost aim is to ensure ‘falah’ or well-being of

humanity in this world and in the Hereafter. It does not give importance to

matter only at the cost of spirit as does a secular ideology like socialism.

Islam believes in the material as well as moral and spiritual welfare of its

followers at micro and macro level. Followers of Islam believe in one God, in

all the Prophets and Holy Scriptures, in the Hereafter, in the moral code and

in the universal brotherhood of mankind. 

3. Regimentation and Totalitarianism:

Communism sets up a totalitarian state in which bourgeois class is liquidated

and strong dictatorship of the proletariat class is established. Fundamental

rights and civil liberties are crushed and man is rendered merely to the

status of an economic animal. In the name of bread he is deprived of

freedom of conscience, freedom to think, freedom to speak and freedom to

act. In order to achieve economic objectives and in order to work the huge

productive machine efficiently, the state becomes all powerful and

establishes complete regimentation. 

Islam, on the contrary, believes in democratic form of government as the

Quran, its revealed book, enjoins upon Prophet Muhammad (PBUH) to

conduct public affairs in consultation with his followers. Islam gives all the

fundamental rights and civil liberties to the people living in the Islamic state.

Islamic state does not establish dictatorship of any class; neither is it a

totalitarian state. The state under Islam does not wither away; rather it

becomes indispensable as it discharges all the functions of a traditional state

and modern welfare state.

4.Economic Equality:

Economic equality is another claim of communism although it has never

been realized so far. In theory at least it is claimed that the rights of the

individuals in the economic sphere are governed by the principles of

equality. Every individual is provided with the necessaries of life according to

his needs.

Islam, unlike communism, recognizes that there is no equality among human

beings as regards the economic means and possession of worldly wealth.

The Quran considers these inequalities and disparities in the distribution of

wealth as part of Divine economic order and, therefore, does not try to

eliminate them by unnatural and artificial means. Islam does not tolerate the

existence of unbridgeable gulf between the rich and the poor, but unlike

socialism it does not believe in equal distribution of wealth. Actually Islam

believes in fair, just and equitable distribution of wealth and in social justice.

For ensuring equitable distribution, Islam has taken many steps such as

institution of Zakat and Sadaqat, laws of inheritance and bequest, voluntary

alms and levy of compulsory contributions in the form of taxes and duties