Islam & CapitalismIBM 11013 Introduction to Islamic Economics RA.SarjoonLecturer in charge

Many problems are facing by the human being, economic is the one of them and its significance cannot be denied in the life of human being.In the very beginning it was said that economic problem is due to the scarcity.1 Economics of Production2 Economics of Distribution

Economics & Its Problems

What is economics?“To utilize the limited resources in a way that maximum needs and wants

are met to ensure the well being of all members of the human society.”

The four basic economic problems:1. Determination of Priorities2. Allocation of Resources (Land, Labor, Capital, Entrepreneur)3. Distribution of Income4. Development

We will compare how Capitalism, Socialism and Islamic Economic system addresses to these problems. 

Capitalism is an Economic System in which a country’s trade and industry are controlled by private owners for profit rather then controlled by the state.

What is Capitalism?

Capitalism is a social system based on the recognition of individual rights including property rights, in which all property is privately owned.

Under capitalism the state is separated from economics, production and trade just like the state is separated from religion .

What is Capitalism?

It is the system of laissez faire. It is the system of political freedom. It is the economic system based on the principle of private ownership and use of factor of production and individual freedom in all economic matters.

An economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market.

What is Capitalism?

Under this system all farms, factories and other means of production are the property of private individual and firms.

They are free to use them, any way they like, with a view to making

profit. The desire for profit is the sole consideration with the property

owner in the use of their property.

Beside free and unfettered use of their property, everybody

is free to take up any line of production he likes and is free to enter

in and contract with other fellow citizens for his profit

Right of private property

Freedom of enterprise

Freedom of contract

Freedom to use own property

Freedom of choice by the consumer Automatic working Higher efficiency and incentive to hard work Economic development and prosperity Optimum utilization of resources

An imbalanced systemDistribution of wealth in a fewConcentration of wealth and economic power onlyWasteful competition Human welfare ignoredExploitation Mismanagement

Comparison of Capitalism & SocialismComparison of Capitalism & Socialism

Capitalism Socialism

1. Determination of Priorities

2. Allocation of Resources

3. Development

• Every individual has unconditional & absolute right to participate in any business to maximize profits

• Concept of Selfish Interest

• Supply & Demand will determine the priorities.

• No individual has the right to participate in any business independently.

• State will determine the priorities as per the overall planning.

• Concept of collective interest.

• Market forces will decide where to invest resources

• Govt. will decide where to allocate resources

• Market forces will decide • Govt. will decide

Comparison of Capitalism & SocialismComparison of Capitalism & Socialism

Capitalism Socialism

Right to Wealth

• Land - Rent

• Labor - Wages

• Capital- Interest

• Entrepreneur- Profits

4. Distribution of Income

• Land – Rent fixed by Govt.

• Labor – Wages fixed by Govt.

Right to wealth is with the factors of production only.

Right to wealth is with the Govt. which then distributes it among the factors of production.

Islam is a Deen which gives guidance for Aqaid, Ibadat,

Mu’ashrat, Akhlaq & Mu’amalat.

Hidaya- famous nook of Fiqh has 70 % portion dedicated to

Mu’amalat.

The humanitarian goal of achieving the well being of all

members of the human family cannot be attained by

concentrating primarily on the material constituents of well-

being and making maximization of wealth as the main

objective of Economics.

What is Islamic Economics

•It is also necessary to raise the spiritual content of well being and reduce all the symptoms of anomie, like family disintegration, heavy

interest based debt payments, conflict and tensions, crime, alcoholism, drug addiction, and mental illness, all indicating lack of inner happiness and contentment in the life of individuals.

Capitalism as well as Socialism have both

failed to lead mankind to such an overall well-

being. It is therefore, necessary to lay down the

contours of a new system which could help

optimize human well-being as per the divine

guidelines of Allah.

What is Islamic Economics

Islamic Economic System

Islam accepts the market forces of supply and demand- Reference of Holy Quran.

In fact Islam gave the concept of Market Forces 1300 years before Keynes presented the modern model of Economics in 1927.

Islam accepts the right to private property and accepts the right to maximize profits. But these rights are not unbridled and un conditional rather there are some prohibitions.

Islamic Economic System- The prohibitions & considerations

1. Divine Prohibitions:

Islam has prohibited some economic activities that are not allowed at any time at any place.( Interest, Gambling, Hoarding etc.)

2. Govt. Restrictions:

Islam allows Govt. to intervene where it feels appropriate , but these restrictions are temporary as per the need of the time.

3. Moral Considerations & Restrictions:

Life in this world is temporary and there is an eternal life after words. One has to make this worldly life a way to get the maximum benefit in the life hereafter.

Factors of Production in Islamic Economic System

In Islam there are three factors of production

1.Land 2. Labor 3. Entrepreneur

Entrepreneur & Capital is a single factor of production.

As interest is Haram hence the risk of profit & loss is with the capital.

Anyone investing capital must also take the risk of the investment.

Right to Wealth in Islam

In both Capitalism & Socialism the right to wealth is with those factors of production only that have taken part directly in the process of production.

Islam believes that the original ownership of everything is with Allah and without Allah’s “Taufeeq” no factor of production can produce anything.

ALLAH

Factors of Production

Secondary owners of wealth

Zakat, UshrWarasat, SadqaatQurbani,Kharaj

Capitalism gives unbridled and un-conditional right to profit

motive and private ownership, while socialism goes to other

extreme by assuming that perfect planning by the govt. is the

cure of all ills.

Islam gives a balance view among the two extremes by

recognizing the right to private ownership, market forces and

profit motive but under the restrictions of:

1. Divine restrictions 2. Govt. restrictions 3. Moral

considerations

Summary of The ComparisonSummary of The Comparison

Islam ensures equitable distribution of wealth

through the concept of primary and secondary

ownership.

All these factors combined have a cumulative effect

of achieving the well being of all members of the

human society.

Summary of The Comparison

According to Quaranic verses, every thing in this universe belongs to God almighty.

"Whatever is in the heavens and whatever is in the earth belongs to Allah." [Al-Baqarah, 2:284].

He is the real owner of everything "And Allah’s is the kingdom of the heavens and the earth, and Allah has power

over every things." [Al- Imran, 3:189].

جميعا األرض في ما لكم خلق الذي هو

Islamic Economics System

Islamic Economics System

– Halal & Haram

– Justice

– Equality

– Cooperation

– Brotherhood

– kindness

Basic rules of Islam

Naturally

Concentration on ethics and morality

The role of government where required

Solution for Economics Problems

Solution for Economics Problems

Achieving wealth

Rights of ownership

How to use that Rights?

utilization of capital

Distribution of wealth [ عامه كفالت

Wright of private ownership) ( النساء بالباطل بينكم أموالكم التأكلوا) النور ......) غيربيوتكم التدخلوابيوتا No concept of equality in economicsAllah says بينهم قسمنا نحن ربك رحمة يقسمون أهم

.. بعض فوق بعضهم ورفعنا الدنيا الحياة في معيشتهم) الزخرف)

No priesthood Allah says ) ( البقرة الله رزقكم مما وكلوا

Teaching of the Qur,an Regarding Economics

Teaching of the Qur,an Regarding Economics

Distinction between legal and illegal بالباطل بينكم اموالكم التأكلوا

Exaggeration is not allowedالمسرفين اليحب انه والتسرفوا

How to spend? The concept of zakat Spoils of war The concept of Islam regarding inheritance The concept of public property , والنا والكالء الماء ثالث في شركاء الناس