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PROJECT TITLE:...............Islamic Economic System, Capitalism and Socialism 1 UN ER T%#EN B&:......................................... 1 #i!an %'s$an and ()ma Na*

Islamic Economic System, Capitalism and Socialism August 13, 2009 CHAPTE CHAPTE CHAPTE 1.................................................................................. ...............................3 2................................................................................ ...............................11 3................................................................................ ...............................19

IS!A"IC EC#$#"IC S%STE"...................................................................................3 CAPITI!IS" EC#$#"IC S%STE".............................................................................11 Socialism............................................................................................ ...................19 C&apte' (.................................................................................................................. 23 C#"PA IS#$ )ET*EE$ THE IS!A"IC EC#$#"IC A$+ #THE EC#$#"IC S%STE" ............................................................................................................... ...............23 +II,,E E$CE )ET*EE$ IS!A" A$+ CAPITA!IST"-.............................................2( THE +I,,E E$CE )ET*EE$ IS!A"IC A$+ C#"".$IST S%STE" #, EC#$#"%-.2/

Islamic Economic System, Capitalism and Socialism August 13, 2009

C(%PTER ,
ISL%MIC ECONOMIC S&STEM

Economic system of Islam

Meaning:

Islamic Economic System, Capitalism and Socialism August 13, 2009

Islam is an entire way of life, and Allah's Guidance extends into all areas of our lives. Islam has given detailed regulations for our economic life, which is balanced and fair. Muslims are to recognize that wealth,earnings, and material goods are the property of God, and we are merely is trustees. !he principles of Islam aim at establishing a "ust society where in everyone will behave responsibly and honestly. !he Arabic words Ma'eeshat and Aish share the same root. Ma'eeshat also means #economy# and #Aish# means #pleasure and happiness#. !here is no doubt that if the economy of a nation is good, it will have a life of pleasure and happiness. In other words, if Ma'eeshat of a country is good, the nation will have Aish. In $%&'$(, Allah says, "Those who will disregard my Message [ZIKR], their economy will be in dire straits and they will be resurrected blind on the ay o! "udgment" [#$%&#'](

4 Key Aspects of an Islamic Economic System

1. )eed *ulfillment.

Respectable source of earning:

2. +,uitable distribution of income and wealth. 3. Growth and stability.
Islam - .laces a greater emphasis on duties than on rights. /nder Islam, the criteria for determining a man's worth are not his race, family, position or wealth but rather his character 0which is a reflection of his faith and practice1 and service to humanity. 2ifestyles that reflect arrogance, pomp, grandeur or moral laxity lead to extravagance and waste and result in unnecessary pressure on resources, reducing societies' ability to satisfy the needs of all. !hey also promote unscrupulous ways of earning and generate ine,ualities of income beyond the normal distribution that is warranted by differences in s3ill, initiative, effort and ris3. !he adoption of Islam protects society form going to excess in lusts, luxury and pleasure, e,ually, in following restraint and privation. A 'real' Muslim is he whose goodness and efforts are directly aimed to benefit the community. All values conceived on the basis of utilitarianism and self-interest can be disputed, whereas human society needs to be based on values of4on 0for1 'good' or 'evil,' and 'right' or 'wrong' which are not disputed even if they benefit the 'have-nots' at the expense of the 'haves.' 5ithout the feeling of Moral obligation to ma3e sacrifice, what is it that can motivate a rich man to forgo his luxuries and economic resource use for the need satisfaction of all. )eoclassical, 6eynesian 7 8ocialist +conomics are all secularist in their approach to the realization of human well-being and analysis of human problems. !hey all place too much emphasis on consumption and material possessions as a source of human happiness. +,uitable distribution re,uires a motivation to serve social interest even if this involves sacrifice of self-interest.

Islamic Economic Strategy&

9onsists of reorganizing the entire economic system with a set of four indisputable and mutually reinforcing elements&

1. A socially-agreed filter mechanism. 2. A strong motivating system to induce the individual to render his best in his own
interest as well as in the interest of society.

Islamic Economic System, Capitalism and Socialism August 13, 2009 3. :estructuring the whole economy, with the ob"ective of realizing the "Ma)asid" 0see
below1 in spite of scarce resources.

(. A positive and strong goal-oriented role for the government.

!his must provide&

1. Need Fulfillment. - assure everyone a standard of living that is humane and

respectable.

2. Respectable source of earning. - )eed fulfillment must be through individuals

own effort. rich.

3. E uitable distribution of income and !ealt". - ; do not only circulate among the (. #ro!t" and stability.

Important institution of Islamic economic system:

Most important institution of Islamic economic system are& .rivate ownership !he system of za3at and usher 6hamas and 3hara" 2aw of inheritance 8pending and sad,at 8hara3at and mazarbat :ule and regulation of commercial dealing .rohibition of interst and gambling 8tate responsibility of providing necessities of life

#oals
$%. Ac"ie&ement of !elfare: !he higher goal of Islamic economic system is the achievement of welfare of human beings. As in Islam prohibited the interestfor the well beings of people. Muslims are not to deal in interest. #< you who believe= >evour not usury, doubled and multiplied. ?ut fear Allah thatyou may really prosper.# 0@&'@%1 !his prohibition is for all interest-based transactions whether giving or receiving, whether dealing with Muslims or non-Muslims. It is reported that the .rophet Muhammad 0peace be upon him1 cursed those who pay interest, those who receive it, those who write a contract based on it, and those who witness such a contract. It is forbidden to gain property or wealth by fraud, deceit, theft or other falsehoods. '%.Economic de&elopment: *or economic growth to benefit human development in a "ust and Islamic economic environment, it must contain,

*ull +mployment 8ecurity of Income .articipation for all in the >emocratic process An e,uitable distribution of wealth 8ocial 9ohesion 9ultural +nrichment 8ustainable development for future generations

Islamic Economic System, Capitalism and Socialism August 13, 2009

Interest 0Riba1 is pro"ibited( !he principle is that any profit which we should see3 should be through our own exertions and at our own expense, not through exploiting other people or at their expense. )%.Relief from po&erty and star&ation& an important goal of Islamic economic system is the relief from starvation and poverty. Aa3Bt and 8adat play an important role in this purpose. #And they have been commanded no more than this& to worship Allah, offering im sincere devotion, being true in faith. !o establish regular prayer, and to give za3at. And that is the religion right and straight.# 0CD&E1 +very Muslim who owns wealth, more than a certain amount to meet his or her needs, must pay a fixed rate of Aa3Bt to those in need. Aa3Btis a means of narrowing the gap between the rich and the poor, and to ma3e sure that everyone's needs are met. Muslims are encouraged to give constantly in charity. #Four riches and your children may be but a trial. 5hereas Allah, with im is the highest reward. 8o fear Allah as much as you can, listen and obey, and spend in charity for the benefit of your own souls. And those saved from the selfishness of their own souls, they are the ones that achieve prosperity.# 0G(&'E-'G1. !he .rophet Muhammad once said that #nobody's assets are reduced by charity.# 4%.Economic *ell+,eing - t"e Moral Norms of Islam 5e read in the Huran these verses& I+at and drin3 of that which God has provided and act not corruptly, ma3ing mischief in the worldJ 0Al-?a,arah $&G%1. I< you who believe= *orbid not the good things which God has made lawful for you and exceed not the limits. 8urely, God loves not those who exceed the limits. And eat of the lawful and good that God has given you, and 3eep your duty to God in whom you believeJ 0Al-Ma'idah E&DK-DD1. !hese verses of the Huran, and there are many others li3e these, stri3e the 3eynote of the Huranic message in the economic field. Islam urges Muslims to en"oy the bounties provided by God and sets no ,uantitative limits to the extent of material growth of Muslim society. It even e,uates the struggle for material well-being with an act of virtue.I5hen the prayer is ended, then disperse in the land and see3 of GodLs bountyJ 0Al-MumuNah G$&'%1. !he .rophet Muhammad has also said&#If God provides anyone of you with an opportunity for earning livelihood, let him not leave it unexploited until it is exhausted or becomes disagreeable to him.# 0Ibn Ma"ah1 #Any Muslim who plants a tree or cultivates a field such that a bird, or a human being, or an animal eats from it, this act will be counted as an act of charity.# 0Al-?u3hari1.Islam goes even further than this. It urges Muslims to gain mastery over nature because, according to the Huran, all resources in the heavens and the earth have been created for the service of man3ind. 02u,man @'&$%1.*rom this, one cannot but infer that the goal of attaining a

Islamic Economic System, Capitalism and Socialism August 13, 2009

suitably high rate of economic growth should be among the economic goals of a Muslim society. Islam has prohibited begging and urged Muslims to earn their livelihood. *rom this premise one may infer that one of the economic goals of a Muslim society should be to create such an economic environment that those who are willing to and loo3ing for wor3 are able to find gainful employment in accordance with their abilities. If this is not accomplished then the Muslim society cannot succeed even in its spiritual aims, because those unemployed would be sub"ected to a life of extreme hardship unless they depend on the dole, or resort to begging or immoral practices, all of which, particularly the last two, would be repugnant to the spirit of Islam. !his stress of Islam on economic wellbeing springs from the very nature of its message. Islam aims at ma3ing life richer and worth living and not poorer, full of hardships. .%.E uitable of distribution of !ealt": Aa3at and sad,at play an important role for the distribution of wealth. !he root of the word Aa3Bt 0t1 is A-6-5 0za-3af-waw1, which leads to the following meanings& !o increase, !o grow, to thrive, to increase in the purity of heartO to increase in integrity. Zakt means increase or augmentation or growth or development. Sadaqa is what is given voluntarily for the sa3e of Allah to obtain the recompense from Allah when the person who does so aims at conformity with the truth in his deed. SADAQA is &oluntary !"ile ZAKA is obligatory. *or za3at, there are direct commands of Allah in the imperative while *A A+A is not en"oined in the Huran in the imperative.

Some differences bet!een ZAKA and SADAQA:

'. Za,a is obligatory while *ada)a is supererogatory or voluntary. !he money for the purpose of Za,a can be ta3en by force by the authorities while for *ada)a, this is not the case $. Za,a must be managed by a central authority while *ada)a may be given individually or through authorities @. *ada)a is usually for exigencies or a sudden unforeseen crisis while Za,a is a continuous program aimed at providing the resources for the physical and personal development of the people /%. Security of freedom& Another purpose of Islamic economic system is to adopt a course of economic struggle which& does not crub the freedom of thought and action of the individual

Islamic Economic System, Capitalism and Socialism August 13, 2009

preserve human liberty give to the human freedom to relies his potential in any sphere of his choicegives him complete control over the use and spending of resources earned by lawful mean. !his would be the manifestation of a continuous effort to use, through research and improvements in technology, the resources provided by God for the service and betterment of man3ind, thus helping in the fulfillment of the very ob"ect of their creation. impose no restriction on him except that he remain within the limits setup by the will of Allah

0%. Elimination of !aste: A Muslim should be responsible in spending money. +xtravagance and waste are strongly discouraged. #P!he 8ervants of Allah areQ !hose who, when they spend, are not extravagant and not stingy, but hold a "ust balance between those extremes.# 0$E&GK1. #< 9hildren of Adam= 5ear your beautiful apparel at every time and place of prayer. +at and drin3, but waste not by excess, for Allah loves not the wasters.# 0K&@'1

Function of t"e Islamic economic system !he decision which the economic system of Islam has to ta3e in the practical field are called its function. !his decision determined to what things are produced, for whom they are produced and which mode of production are used. Islamic economic system regulates this whole economic struggle by its moral values. !hese values are the "ustice, pity, benevolence and cooperation. !he source of these values is Huran and tradition. !his is the main difference between Islamic economics and other economic system.

Ideological foundation of Islamic economics:

+xistence of the creator of universe& the basic foundation of Islamic economic system is that the creator of whole world, master of the world, sustainer and lord is Allah. !he whole creation is his family and he is guardian and protector of his family. '1.Man is vicegerent of God& Man is vicegerent of God and deputy of god. In this capacity it is his duty to establish the will of his master in his own sphere. $1. Abundance of provision& Allah has fulfilled this world with infinite resources and these all are for man to use and con,uer it. I!he door of provision open wide up to s3yJ @1.!hese sources are for the benefit of human beings. (1. these sources of provision only utilized according to will of god. E1. +conomic problems only one part of life.

Islamic Economic System, Capitalism and Socialism August 13, 2009

G1. It creates a sense of responsibility. Man should perform all action in the economic struggle and ma3e all efforts to utilized resources.

Fundamental features of t"e economic system of Islam:

$%.1se of la!ful means for earning li&eli"ood It provides all lawful means for earning of wealth and discourages wealth with out wor3.#5ealth without wor3 is a deadly sin#. According to the ha-e nothing but what he stri-es !or. Al-Hur'an, %E@.%@C Almaysir, which is usually translated as gambling, but includes any form of 'easy money', has been forbidden in the Huran 0see Al-Huran, 9hapter $ verse $'C and chapter E verse C%-C'1. '%. 2ro"ibition of amassing !ealt" !he Arabic word #Su"t# as it appears in E&($, E&G$, E&G@, has the following meanings& A thing that is prohibited, forbidden or unlawful. Any money or property that is forbidden, not lawful to be gained or devoured I8uht# in all the above meanings is strictly forbidden by the Huran. In E&('-($, Allah says that for those who ma3e money by illegal, unlawful, forbidden or prohibited means or trade or by ta3ing bribes, there is disgrace in this world and a great torment in the hereafter. In E&G$, Allah has described it as superlatively evil and bad deed. "/hy do not the rabbis and the 0riests !orbid their e-il1s0ea,ing and their de-ouring o! illicit gain2 3erily e-il is their handiwor,(" [4%56] )%. 3irculation of !ealt" As in Huran Allah says& oly Huran, That man can

>o not be a spendthrift but feed the indigent, instead P'K&$GQ Allah commands you to give alms Psada)aQ to the indigent PC&G%Q >o good to the indigent till their economic imbalance is no more P$&D@, $&$'E, (&@GQ
4%. Morale &alue and t"e role of state +very society has a diversity of "obs to be done. It needs sweepers as much as shop3eepers, boo3-3eepers, as well as leaders and so on. Huran alludes to this diversity of endeavors or "obs in C$&(. ?ut in virtually every society today, those who have amassed some wealth are always at a vantage point to be able to earn more than the deprived, either through investments or interest. Also those who are sharp-minded, shrewd or more intelligent than others are more li3ely to earn more than those who are less so. ?ut isn't it in"ustice. 8houldn't man be rewarded by measure of his endeavors and not by measure of his intelligence or capitalR Huran suggests a system in which people are rewarded by the measure of their endeavors P$%&'EQ, whereby no one can have more than what he strives for PE@&@CQ.

Islamic Economic System, Capitalism and Socialism August 13, 2009

<ther important features of Islamic economic system are economic freedom, flexibility and price mechanism of goods.

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Islamic Economic System, Capitalism and Socialism August 13, 2009

C(%PTER .
C%PITILISM ECONOMIC S&STEM

3apitalism
9apitalism is can be simply defined as an economic system, mar3ed by open competition in a free mar3et, in which the means of production and distribution are privately or corporately owned and development is proportionate to increasing accumulation and reinvestment of profits. owever, capitalism tends to incorporate a certain #way of thin3ing#, driven by greed, the search for ever-increasing profits, worldwide expansion, and internal development. 8tarting from the earliest origins of capitalism, only societies with the capabilities and the appropriate mindset could flourish amidst this period of economic,

,,

Islamic Economic System, Capitalism and Socialism August 13, 2009

social, and religious dispersion. !he earliest form of capitalism is seen in feudalism, the political and economic system based on the relation of lord to vassal held on conditions of homage and service. !he earliest establishment of capitalism originated in :ome through mercantilism. Mercantilism involves the distribution 9apitalism, economic system in which private individuals and business firms carry on the production and exchange of goods and services through a complex networ3 of prices and mar3ets. Although rooted in anti,uity, capitalism is primarily +uropean in its originsO it evolved through a number of stages, reaching its zenith in the 'Cth century. *rom +urope, and especially from +ngland, capitalism spread throughout the world. !he term capitalism was first introduced in the mid-'Cth century by 6arl Marx, the founder of communism. *ree enterprise and mar3et system are terms also fre,uently employed to describe modern non-9ommunist economies. 8ometimes the term mixed economy is used to designate the 3ind of economic system most often found in 5estern nations. !he individual who comes closest to being the originator of contemporary capitalism is the 8cottish philosopher Adam 8mith, who first set forth the essential economic principles that undergird this system. In his classic An In,uiry into the )ature and 9auses of the 5ealth of )ations 0'KKG1, 8mith sought to show how it was possible to pursue private gain in ways that would further not "ust the interests of the individual but those of society as a whole. 8ociety's interests are met by maximum production of the things that people want. In a now famous phrase, 8mith said that the combination of self-interest, private property, and competition among sellers in mar3ets will lead producers Ias by an invisible handJ to an end that they did not intend, namely, the well-being of society.

2"ilosop"ical Foundations of 3apital system: Materialism:

9apitalism system has been derived from materialistic philosophy of life. !he center and the focus of manLs struggle should be the satisfaction of material needs.

4iberalism:
!he( individual have complete freedom of thoughts and action in every sphere of life. )o higher authority has the power to impose any restriction on the liberty of individual. !he function of the sovereignty of state is not to circumscribe, but to safeguard the liberty of the individual.

5edonism:
!he entire struggle of the individual has only one goal personal interest. !hat thing attitude, behavior is right which brings profit, pleasure and happiness to the individual. !hat thing attitude or behavior is wrong, false and unacceptable which brings loss, grief or pain to the individual. A system of life raised on this philosophy of life will give rise to cut throat competition among individuals to gain economic means. *reedom of thought and action will not only

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Islamic Economic System, Capitalism and Socialism August 13, 2009

intensify this competition but also tilt the balance in favour of dominant classes. Moreover hedonism will provide moral "ustification the exploitation of the upper classes. In the presence of these factors capitalism system can never be free of the evil of exploitation.

3"aracteristics of capitalist economies:

A set of broad characteristics are generally agreed on by both advocates and critics of capitalism. !hese are a private sector, private property, free enterprise, profit, une,ual distribution of wealth, competition, self organization, the existence of mar3ets 0including the labor mar3et1 and the capitalist class and the proletariat, and the pursuit of self-interest. $%.2ri&ate property rig"ts An essential characteristic of capitalism is the institution of rule of law in establishing and protecting private property, including, most notably, private ownership of the means of production. .rivate property was embraced in some earlier systems legal systems such as in ancient :ome but protection of these rights was sometimes difficult, especially since :ome had no police. 8uch and other earlier system often forced the wea3 to accept the leadership of a strong patron or lord and pay him for protection. It has been argued that a strong formal property and legal system made possible

I. Greater independenceO II. 9lear and provable protected ownershipO III. !he standardization and integration of

property rules and property information in the country as a wholeO I0. Increased trust arising from a greater certainty of punishment for cheating in economic transactionsO 0. More formal and complex written statements of ownership that permitted the easier assumption of shared ris3 and ownership in companies, and the insurance of ris3O 0I. Greater availability of loans for new pro"ects, since more things could be used as collateral for the loansO 0II. +asier and more reliable information regarding such things as credit history and the worth of assetsO 0III.An increased fungibility, standardization and transferability of statements documenting the ownership of property, which paved the way for structures such as national mar3ets for companies and the easy transportation of property through complex networ3s of individuals and other entities. All of these things enhanced economic growth. Many governments extend the concept of private property to ideas, in the form of #intellectual 0ro0erty.# It has been argued that the introduction of the 0atent system was a crucial factor behind the rapid development and widespread use of new technology and memes during and following the industrial revolution. 8ome oppose the establishment of intellectual 0ro0erty as being counterproductive or coercive. <thers argue that some intellectual 0ro0erty rights may be too rigid or constraining to innovation, favoring wea3er protections. '%. Free mar6et

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!he notion of a #free mar3et# where all economic decisions regarding transfers of money, goods, and services ta3e place on a voluntary basis, free of coercive influence, is commonly considered to be an essential and exclusive characteristic of capitalism. In systems where individuals are prevented from owning the means of production 0including the profits1, or coerced to share them, not all economic decisions are free of coercive influence, and, hence, are not free mar3ets. In an ideal free mar3et system none of these economic decisions are decreed by government. Instead, they are determined in a decentralized manner by individuals trading, bargaining, cooperating, and competing with each other. In a free mar3et, government may act in a defensive mode to forbid coercion among mar3et participants but does not engage in proactive interventionist coercion. )evertheless, some authorities claim that capitalism is perfectly compatible with interventionist authoritarian governments, and4or that a free mar3et can exist without capitalism. )%. 2rofit !he pursuit and realization of profit is an essential characteristic of capitalism. .rofit is derived by selling a product for more than the cost re,uired to produce or ac,uire it. 8ome consider the pursuit of profit to be the essence of capitalism. 8ociologist and economist, Max 5eber, says that #capitalism is identical with the pursuit of profit, and forever renewed profit, by means of conscious, rational, capitalistic enterprise.# owever, it is not a uni,ue characteristic for capitalism, some hunter-gatherers practiced profitable barter and monetary profit has been 3nown since anti,uity. <pponents of capitalism often protest that private owners of capital do not remunerate laborers the full value of their production but 3eep a portion as profit, claiming this to be exploitative. owever, defenders of capitalism argue that when a wor3er is paid the wage for which he agreed to wor3, there is no exploitation, especially in a free mar3et where no one else is ma3ing an offer more desirable to the wor3erO that #the full value of a wor3er's production# is based on his wor3, not on how much profit is created, something that depends almost entirely on factors that are independent of the wor3er's performanceO that profit is a critical measure of how much value is created by the production processO that the private owners are the ones who should decide how much of the profit is to be used to increase the compensation of the wor3ers , and that profit provides the capital for further growth and innovation. 4%.Self interest !he pursuit of self-interest is commonly regarded as playing an essential role in capitalism. Many writers, such as Adam 8mith and Ayn :and, point to what they believe to be the benefit of individuals trading for their self-interest rather than altruistically attempting to serve the #public good.# 8mith, widely considered to be the intellectual father of capitalism, says in 5ealth of )ations& #?y pursuing his own interest fre,uently promotes that of the society more effectually than when he really intends to promote it. I have never 3nown much good done by those who affected to trade for the public good.# Ayn :and, probably the most outspo3en advocate of the role of self-interest in capitalism, says in 9apitalism& !he /n3nown Ideal& #America's abundance was created not by public sacrifices to the common good, but by the productive genius of free men who pursued their own personal interests and the ma3ing of their own private fortunes.# )obel-economist Milton *riedman also embraces the role of self-interest in capitalism. In his famous article !he 8ocial

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Islamic Economic System, Capitalism and Socialism August 13, 2009

:esponsibility of ?usiness is to Increase .rofits, as he asserts that business has no social responsibility other than to increase profits and refrain from engaging in #deception or fraud.# e maintains that when business see3s to maximize profits, while respecting the guidelines of a free mar3et by not defrauding or deceiving, it almost always incidentally does what is good for society. *riedman does not argue that business should not help the community but that it may indeed be in the long-run self-interest of a business to #devote resources to providing amenities to community...# in order to #generate goodwill# and thereby increase profits. 8ome, including some supporters of capitalism, disli3e the focus on self-interest. *or example, self-described #free mar3et libertarian# founder and 9+< of 5hole *oods Mar3et, Mohn Mac3ey, claims in an article in :eason magazine that he is serving customers and society out of #love# rather than self-interest while he boasts the profitability of his company in that article. 0:ethin3ing the 8ocial :esponsibility of ?usiness, .%.Free enterprise In capitalist economies, a predominant proportion of productive capacity has belonged to companies, in the sense of for-profit organizations. !his include many forms of organizations that existed in earlier economic systems, such as sole proprietorships and partnerships. )on-profit organizations existing in capitalism include cooperatives, credit unions and communes. /%.Economic gro!t" <ne of the primary ob"ectives in a social system in which commerce and property have a central role is to promote the growth of capital. !he standard measures of growth are Gross >omestic .roduct or G>., capacity utilization, and 'standard of living.!he ability of capitalist economies to sustainably increase and improve their stoc3 of capital was central to the argument which Adam 8mith advanced for a free mar3et setting production, price and resource allocation 0%. Economic mobility <ne of the 3ey mar3ers of entrepreneurial economies and 'growth' in a society is its economic mobility, defined as the existence of large changes in the ma3e-up of its socioeconomic strata. !his is manifested as the occurrence of large fluctuations in the various deciles or ,uintiles of income and wealth among the population, and the existence of large changes over a person's lifetime in relation to their real earning power. In standard economics, a capitalist system provides more opportunities for an individual to rise faster in the world by entering new professions or establishing a business venture. !he instability of economic strata is contrasted with traditional feudal or tribal societies, which are considered to have more stable wealth relationships, and with the egalitarianism that exists in socialist societies, which distribute more of their wealth in the form of social benefits and therefore reduce income mobility, particularly among those who own capital and wish to trade it.

Merits:
Ma7imum utili8ation of resources:

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Islamic Economic System, Capitalism and Socialism August 13, 2009

.rivate ownership, profit motive and economic freedom force individuals to exercise their God gifted talent to the full and in the best possible manner. !his lead to the maximum utilization of human and natural resources. Goods and services are produces in large ,uantity to satisfy consumer needs. In&entions and 9ec"nical Ad&ances: In the presence of profit motivate and competition the entrepreneurs are forever see3ing better techni,ues of production. !his motive leads to new inventions and development of new techni,ues of wor3 and business management which are calculated to facilitate and increase production at reduced cost.

:emerits:
2"ilosop"ical Errors: Materialism gives rise to selfishness in the society which eliminates sympathy and 3indles the fire of mutual conflict in the society. Ma3es individual indifferent to collective interest. !hey indulge in nepotism and become slaves of pleasure. Man loss the ability to see beyond the self interest. A society whose members are self see3ing, selfish and self centered can never be free of economic hardship and misery. 3allous 3ompetition: 9ompetition and conflict hold great importance in the capitalist system. !he expectations attached to competition are based on a supposition which does not exist in practical life. 9ompetition can deliver well only when all parties in competition is e,ual in power and strength. ?ut in the capitalist system power and strength is concentrated in the hands of big capitalists. 3lass Struggle: !he capitalist system divides the society in cases& the employer and wor3er. !his thing shatters peace and harmony in the society. In;ustice distribution of *ealt": !he capitalist utilize their wealth to earn more wealth so that gradually the bul3 of national resources is concentrated in the hands of a few big cabalists. Economic 3rises: In the conse,uences of the concentration of wealth under this system the purchasing power of the masses diminishes leading to reduction in the demand of produced goods. !he sale of goods stopped. 2arge 8cale production heaps up stoc3 unsold goods. !his creates serious economic crises. :isaster of Interest base 9rade: Interest is the bac3bone of capitalist system. /nder this system, interest is the chief means of providing finance for the brin3 of economic disaster. Interest is the ma"or cause of the concentration of wealth. ?y increasing the ine,uality of distribution of wealth it creates an

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Islamic Economic System, Capitalism and Socialism August 13, 2009

atmosphere of class conflict. It increases the cost of production, raises the prices, wea3ens the purchasing power of the people and discourages the investments. Flo! of Economic Resources in t"e !rong :irection: /nder this economic system resources flow in the direction of vocations which promise maximum profit, even if they are inferior on the social scale and spread mischief. 3orrupt ,usiness 2ractices: !his philosophy behind this system is devoid of moral values. ?usinessmen feel no hesitation in resorting to fair or foul means in order to earn maximum profit. !he consumers are exploited by creating artificial monopolies and small businessmen are s,ueezed out of the sector of production. Economic Ri&alries and *ars: 5hen due to over production demand decreases then capitalists loo3 to foreign mar3ets. All capitalist countries enter into a conflict over capturing international mar3ets. !his conflict sometime escalates into wars. +conomic rivalries were the main cause of two world wars in the twentieth century. S"ado!s of 2o&erty: In this system easy methods of mass production creates an environment of economic prosperity, but the fruits of this prosperity are en"oyed only by a tiny wealthy class. !he large ma"ority of people live in the dar3 shadow of poverty. 1nemployment: /nemployment becomes an integral part of this system. !o gain maximum profit the entrepreneurs prefer to use capital intensive technology leading to large scale retrenchment of wor3ers.

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Islamic Economic System, Capitalism and Socialism August 13, 2009

C(%PTER Socialism

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Islamic Economic System, Capitalism and Socialism August 13, 2009

Socialism:
8ocialism and communism means an economic system in which the means of production are owned by the state. A central >irectorate the production of goods and services. !he >irectorate decides the nature, ,uality and model of production of goods. !he distribution of goods is also directed by this central body.

2"ilosop"ical Foundations:
Materialistic Interruption of 5istory: !he evaluation of human history ta3es place due to material and economic factors. 9hanges in the social relations and contact follow the changes in the means and modes of production. !he large scale mode of production and factory system created by modern capitalism has led to the formation of labour unions and increase the collective strength of wor3ers. !his strength of the wor3ers will stri3e a death blow to capitalism and establish socialism. 9"eory of Surplus <alue: In the capitalism system a large portion of profit is expropriated by the capitalist. !he wage pays to the wor3er far less than the real value of wor3. !his in"ustice can only be removed in the system of collective ownership. 3lass *ar: !he war between rich and poor always exist in the society. In modern capitalist economy this conflict rages between the capitalist and the wor3er. /nder this system the number of capitalists in constantly decreasing while that of the wor3ers is increasing and unity among the wor3ers is growing strong day by day. ence It is the wor3ers who will be victorious in this war and a classless society dominated by wor3ers will replace the modern capitalist system. :ictators"ip of t"e 2roletariat: 5ith the end of capitalist system the supreme power in the state will come into the hands of the wor3ers. !hey will have the authority to exercise the power of the state. Anti+Religion: :eligion ma3es man forget material facts and entangles him in metaphysical issues.

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Islamic Economic System, Capitalism and Socialism August 13, 2009

3"aracteristics of Socialism:
Abolition of 2ri&ate property: An individual can own nothing expect necessaries of life. )o one can run private business. 3ollecti&e o!ners"ip of Means of 2roduction: All the means of production such as factories, farms, land, trade mines and means of transport and communication are under state ownership and control. 3entral 2lanning: !he forces of demand and supply are balances by central planning and a balance is not affected by price mechanism. Elimination of 1nfair #aps in Incomes: +ach person is paid compensation according to his needs. !his eliminates unfair gaps in incomes. !he system of distribution of wealth based on fair basis. 2ro&ision of Necessaries of 4ife: In this system state ensure that wor3 is extracted from each individual according to his capacity and compensation is given to him to supply all his needs. !he state guarantees economic security to every citizen.

Merits:
Elimination of *astage of Resources: Goods and services are produce according to needs. !his eliminates large scale wastage of resources which is an essential feature of competition under capitalist system. 9ost of advertisement and businesses are entirely eliminated. Eradication of E7ploitation: 8ince there is no opportunity to earn private profit in this system, the exploitation and economic plundering of the wea3 is eradicated. Elimination of concentration of !ealt": !here is no possibility of national wealth accumulating in a few hands. Eradication of 1ne ual :istribution of *ealt": In this system there is no scope of gaining wealth through rent, interest or private profit. +very member of the society is the wor3er and receives the fixed wage. 8o unfair gap in the distribution of wealth do not ta3e place at all. 2ro&ision of Necessaries of 4ife:

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Islamic Economic System, Capitalism and Socialism August 13, 2009

In this system the provision of necessaries of life to every citizen is the responsibility of the state. It is the reasonability of state to provide facilities li3e food, clothing, housing, education and medical care to every individual. Immunity from Economic 3risis: Good and services are produced according to the demand. ence there is no possibility of overproduction in this system. !he danger of economic depression is completely eliminated. Elimination of 1nemployment: In this system, the process of production is 3ept going according to a comprehensive plan. !his ma3es it possible to give employment to all capable individuals.

:emerits:
End of t"e 4iberty: In this system, man becomes a slave of the government for the sa3e of eating two meals a day. +conomic and political power is concentrated in the hands of the government and the individual are completely deprived of freedom of thought and action. *ea6ening of t"e !ill to !or6: Absence of the profit wea3ens the will of the individual to thin3 about and discover new techni,ues of wor3. !he process of inventions and discoveries is affected. Errors in 2lanning: Good are produced in general interest and individual li3es and disli3es are not given any importance. All decisions in matters relating to planning are ta3en according to official priorities and people are forced to meet the official targets. Failure in 2ractice: !his system fails to achieve its ob"ective in practice. In the model of communist country :ussia despite the reign of terror and oppression and lac3 of freedom, the level of production has fallen below the production of capitalist countries. Members of the ruling party and high officials have en"oyed the same exorbitant salaries and facilities as their counterparts in capitalist countries. More and more restrictions are imposed on individual liberty.

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Islamic Economic System, Capitalism and Socialism August 13, 2009

C$apte! /
COMP%RISON BET6EEN T(E ISL%MIC ECONOMIC %N ECONOMIC S&STEM OT(ER

COMP%RISON BET6EEN T(E ISL%MIC ECONOMIC S&STEM %N OT(ER ECONOMIC S&STEMS

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Islamic Economic System, Capitalism and Socialism August 13, 2009

9apitalism and communism is that the latter systems study analyses and try to solve the economic problem of man by isolating it from the total framewor3 of human life. !hey do not give much consideration to the effect that their solution of the economic problems might have no other spheres of collective life. In contrast Islam studies the economic problem of man in the total perspective of individual and collective life and adopts a solution which not only tac3les the problem in the best possible manner but also does not have any adverse effect in other departments of collective life.

IIFFERENCE BET6EEN ISL%M %N

C%PIT%LISTM:

?oth recognize the right of private ownership of necessaries of life and the means of production. !here is difference between concept of ownership given by Islam and 9apitalism. According to Islam All 3ind of property are AllahLs trust with the individuals this interest can only be obtained with AllahLs will. Islam does not recognize the right of the individual to own a property which he has gained by those means which shariat declares unlawful. 9apitalism recognizes absolute right of the individual to own and utilize his property. !his opensthe door to all the evils li3e economic ine,uality, in"ustice distribution of wealth and class conflicts. Interest: Interest is the bac3bone of capitalism. !he creation and formation of capital and professional activity depends on it. Islam proscribes interest. 8o the rise of ma"or and blood- suc3ing usurious monsters has been stopped forever. :istribution of !ealt": !he capitalism economy by nature tends to concentrate means of livelihood in a few hands. In this system individuals exercise their freedom to rapidly establish their economic monopolies. !axes can be imposed only up to the limit. Moreover the capitalism class generally resorts to tactics of tax-evasion. Islam discourages all those means of earning wealth which leads to the rise of economic monopolies. Islam ensures the circulation and e,uitable distribution of wealth among all classes of society by establishing a regular system of Aa3at, sad,at and the law of inheritance.

T(E IFFERENCE BET6EEN ISL%MIC %N ECONOM&:

:ifferent &ie!points:

COMMUNIST S&STEM OF

!here is the difference between fundamental view points of both systems. !he communist system is the child of materialism. It regards material need as the only real needs of man.

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Islamic Economic System, Capitalism and Socialism August 13, 2009

ence man should struggle to satisfy these needs. Islam present the concept of higher world which is above this material world. !his higher world is permanent and everlasting. 3ollecti&e =!ners"ip: !he basic concept of the communist economy is to abolish private ownership and establish collective ownership of means of production. All means of production are ta3en under state control. Multitude of capitalists is replaced by only one big capitalist. !here is no doubt that collective ownership of means and production and state management of distribution of goods and services ensures the supply of necessities of life to individual citizens but for this gain they loss their natural blessing of free thoughts and actions. 2rofit Moti&e: .roduction targets are set in advance and then measures are ta3en to achieve those targets by force. Islam has 3ept the natural profit motive alive among the individuals so that they may have full opportunity to exercise their intellectual talent, capacities and energies. 5here the profit motive oversteps its lawful bounds, automatic chec3s are ready to 3eep it on the right trac3. Communism and Capitalism-----Two sides of same coin: 9apitalism and socialism are the two branches of same tree. ence they ta3e two different directions the fruit they bear are the same. In the capital system, the greed for profit has blinded on individual. In socialism collective ownership has robbed individual of not only their property but also their natural freedom of thoughts. In other words, both systems in their philosophy and action have proved destructive of social "ustice which guarantees peace and comfort to human beings.

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