Islam & Capitalism

Dr. Muhammad Hamid Ullah

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 Production
2 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.
2.
3.
4.

Determination of Priorities
Allocation of Resources (Land, Labor, Capital, Entrepreneur)
Distribution of Income
Development

We will compare how Capitalism, Socialism and Islamic Economic system

addresses to these problems.

Capitalism is an Economic
System in which a countrys 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 system
Distribution of wealth in a few
Concentration of wealth and economic power only
Wasteful competition
Human welfare ignored
Exploitation
Mismanagement

Comparison of Capitalism & Socialism

Capitalism
1. Determination
ofPriorities

Everyindividualhas
unconditional&absolute
righttoparticipatein
anybusinesstomaximize
profits

ConceptofSelfish
Interest

3. Development

Supply&Demandwill
determinethepriorities.

2. Allocationof
Resources

Socialism

Marketforceswill
decidewhereto
investresources
Marketforceswill
decide

Noindividualhasthe
righttoparticipatein
anybusiness
independently.
Statewilldeterminethe
prioritiesasperthe
overallplanning.
Conceptofcollective
interest.

Govt.willdecide
wheretoallocate
resources

Govt.willdecide

Comparison of Capitalism & Socialism

Capitalism
4. Distributionof
Income

Rightto
Wealth

Land-Rent

Labor-Wages

Capital-Interest

Entrepreneur-Profits

Righttowealthis
withthefactorsof
productiononly.

Socialism

LandRentfixedby
Govt.

LaborWagesfixedby
Govt.

Righttowealthis
withtheGovt.
whichthen
distributesit
amongthefactors
ofproduction.

What is Islamic Economics

IslamisaDeenwhichgivesguidanceforAqaid,Ibadat,Muashrat,Akhlaq&
Muamalat.

Hidaya-famousnookofFiqhhas70%portiondedicatedtoMuamalat.

Thehumanitariangoalofachievingthewellbeingofallmembersofthehuman
familycannotbeattainedbyconcentratingprimarilyonthe material

constituentsofwell-beingandmakingmaximizationofwealthasthemain
objectiveofEconomics.

Itisalsonecessarytoraisethespiritualcontentofwellbeingandreduceallthe
symptomsofanomie,likefamilydisintegration,heavyinterestbaseddebtpayments,
conflictandtensions,crime,alcoholism,drugaddiction,andmentalillness,all
indicatinglackofinnerhappinessandcontentmentinthelifeofindividuals.

What is Islamic Economics

CapitalismaswellasSocialismhavebothfailedtolead
mankindtosuchanoverallwell-being.Itistherefore,
necessarytolaydownthecontoursofanewsystem
whichcouldhelpoptimizehumanwell-beingasperthe
divineguidelinesofAllah.

Islamic Economic System

Islamacceptsthemarketforcesofsupplyanddemand-
ReferenceofHolyQuran.

InfactIslamgavetheconceptofMarketForces1300years
beforeKeynespresentedthemodernmodelofEconomicsin
1927.

Islamacceptstherighttoprivatepropertyandacceptstheright
tomaximizeprofits.Buttheserightsarenotunbridledandun
conditionalrathertherearesomeprohibitions.

Islamic Economic System- The prohibitions

& considerations

1.

DivineProhibitions:
Islamhasprohibitedsomeeconomicactivitiesthatarenotallowed
atanytimeatanyplace.(Interest,Gambling,Hoardingetc.)

2.

Govt.Restrictions:
IslamallowsGovt.tointervenewhereitfeelsappropriate,but
theserestrictionsaretemporaryaspertheneedofthetime.

3.

MoralConsiderations&Restrictions:
Lifeinthisworldistemporaryandthereisaneternallifeafter
words.Onehastomakethisworldlylifeawaytogetthe
maximumbenefitinthelifehereafter.

Factors of Production in
Islamic Economic System

InIslamtherearethreefactorsofproduction
1.Land
2.Labor
3.Entrepreneur

Entrepreneur&Capitalisasinglefactorofproduction.

AsinterestisHaramhencetheriskofprofit&lossiswiththe
capital.

Anyoneinvestingcapitalmustalsotaketheriskofthe
investment.

Right to Wealth in Islam

InbothCapitalism&Socialismtherighttowealthiswiththose
factorsofproductiononlythathavetakenpartdirectlyinthe
processofproduction.

Islambelievesthattheoriginalownershipofeverythingiswith
AllahandwithoutAllahsTaufeeqnofactorofproductioncan
produceanything.

ALLAH
Factors of Production

Secondary owners of wealth

Zakat, Ushr
Wirasat, Sadqaat
Qurbani,Khiraj

Summary of The Comparison

Capitalismgivesunbridledandun-conditionalrighttoprofit
motiveandprivateownership,whilesocialismgoestoother
extremebyassumingthatperfectplanningbythegovt.isthe
cureofallills.

Islamgivesabalanceviewamongthetwoextremesby
recognizingtherighttoprivateownership,marketforcesand
profitmotivebutundertherestrictionsof:

1.Divinerestrictions
considerations

2.Govt.restrictions

3.Moral

Summary of The Comparison

Islamensuresequitabledistributionofwealth
throughtheconceptofprimaryandsecondary
ownership.

Allthesefactorscombinedhaveacumulativeeffect
ofachievingthewellbeingofallmembersofthe
humansociety.

Islamic Economics System

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 Allahs is the kingdom
of the heavens and the earth, and Allah has power over
every things." [Al- Imran, 3:189].

Islamic Economics System

Halal & Haram

Justice

Equality

Cooperation

Brotherhood

kindness

Solution for Economics Problems

Basic rules of Islam

Naturally

Concentration on ethics and morality

The role of government where required

Solution for Economics Problems

Achieving wealth

Rights of ownership

How to use that Rights?

utilization of capital

Distribution of wealth [

Teaching of the Qur,an Regarding

Economics
Wright

of private ownership
)(
)......(
No concept of equality in economics
Allah says
)..(
No priesthood
)( Allah says

Teaching of the Qur,an Regarding

Economics
Distinction between legal and illegal

Exaggeration is not allowed

How to spend?
The concept of zakat
Spoils of war
The concept of Islam regarding inheritance
The concept of public property
,,