CHAPTER # 2
ISLAM AND OTHER ECONOMIC
SYSTEMS
2-1
Chapter`s outlines
• Meaning of system
• Meaning of Economic system
• Capitalism,
Brief history, Definition, Merits and Demerits
• Socialism,
Definition, Merits and Demerits
• Economic system of Islam,
Definition, goals and its special features
• Comparison and conclusion
2-2
Meaning of system
• The word “system” is defined by various ways;
A combination of related things or parts that form a
complex whole.
OR
Simply system means set of principles, rules,
method, or procedure etc
2-3
Meaning of Economic System
• A systematic relation among individuals
engaged in the production of wealth,
distribution, and exchange of wealth and the use
of commodities and services is called Economic
system.
2-4
Brief History of Capitalism
• Capitalism began with the destruction of feudal system
in Europe caused by merchants and bankers. The west
entered into new world of trade and discovery
• The need and importance of productive resources,
particularly Capital became prominent for continuous
economic development.
• Since the capital was the nucleus of this system, it came
to be known as Capitalism.
20-5
Brief History of Capitalism
• Modern Capitalism had taken the deep roots in Europe
by the time of the industrial revolution and at the
beginning of 20th century it had reached its peak in
America and Western Europe.
• It held influence in all countries of the world except
few communist countries.
• After the great depression of the 1930`s some countries
introduced some amendments and it took the shape sort
of mixed economic system.
20-6
Definition of Capitalism
• It is difficult to offer a comprehensive and
absolute definition of capitalism. However
some scholars have given their own
definitions.
2-7
Definition of Capitalism
• Capitalism, as defined by the Collins Dictionary,
“is an economic system based on the private
ownership of the means of production, distribution and
exchange”.
• Broadly speaking, capitalism is the name given to the
economic system in which the principal means of
production, distribution and exchange are in private
(individual or corporate) hands.
20-8
Characteristics of Capitalism
1
2
3
4
5
6
7
8
Right of private property
Profit Motive
Competition
Economic Freedom
Wage System
Consumer`s Sovereignty
Price Mechanism
Laissez- faire
2-9
MERITS of Capitalism
1 Maximum utilization of resources
2 Invention
3 Technical advancement.
2-10
DEMERITS of Capitalism
•
•
•
•
•
•
•
•
•
Philosophical Errors
Cruel Competition
Class Struggle
Unjust Distribution of Wealth
Economic Crisis
Corrupt Business Practices
Poverty & Unemployment
Disaster of Interest-based Trade
An Expensive Way of life
2-11
Emergence of Socialism…
• The capitalist system which emerged after the industrial
revolution in Europe subjected the workers to merciless
exploitation.
• In reaction to it several philosophers and reformers
advanced the idea of abolition of private ownership in
the interest of society.
• But it was the distinction of German Philosopher Karl
Marx to present socialism as a concrete philosophy and
practical system.
2-12
Cont`d….
• He wrote his famous book Das Capital in 1867 which
is considered to be the Bible of socialism
• In this system collective ownership of the means of
production will replace private ownership. Every
citizen shall have an equal share in the resources of the
state.
• The motive for the work will NOT be personal profit
but collective or social interest.
2-13
Definition of SOCIALISM
• According to the Collins Dictionary,
“Socialism is an economic theory or system in
which the means of production, distribution and
exchange are owned by the community collectively
through the state”
• Advanced Learner’s Dictionary explains socialism as
“a political and economic theory advocating that a
country’s land, transport, natural resources and chief
industries should be owned and controlled by the whole
community or by the state and that wealth should be
equally distributed”.
20-14
MERITS of Socialism
1
2
3
4
5
6
Elimination of wastage of resources
Eradication of exploitation
Elimination of concentration of wealth
No unequal distribution of wealth
Provision of necessaries of life
Elimination of unemployment.
2-15
DEMERITS of Socialism
1 End of liberty
2 Weakness of the will to work
3 Errors in planning
4 Failure in practice.
2-16
Economic system of Islam
• Meaning
• Islamic economic system implies a mode of satisfying
the economic needs of the members of an organized
society in accordance with the commands of the Quran
and the Sunnah.
• In this system the economic activities of the society are
regulated by certain values of which, piety, justice,
benevolence, cooperation, brotherhood, are especially
important.
2-17
Goals of Economic system of Islam
1
2
3
4
5
6
Achievement of welfare
Economic development
Relief poverty and starvation
Equitable distribution of wealth
Elimination of waste
Security of freedom
2-18
Goals of Economic system of Islam
1 Achievement of welfare
The higher goal of economic system of Islam is the
exploitation of the God-given resources of the
universe for the satisfaction of the economic needs in
such a manner that the greatest number of men get the
greatest Temporal and Eternal Welfare
20-19
Goals of Economic system of Islam
2 Economic development
An important objective is to achieve the rapid
economic progress. The Holy Quran and Holy Prophet
(s.w.s) lay great emphasis on full utilization of
resources of the universe.
If all people devote all their mental and physical
capabilities in exploring the natural wealth hidden in
seas, mountains, earth and air, sufficient provision for
the entire population of the world can be made
available.
20-20
Goals of Economic system of Islam
3 Relief poverty and starvation
The Islamic economic system lays a great emphasis on
elimination of poverty.
The Holy Prophet (s.w.s) said
“it is near enough for poverty to become disbelief”
In this context elimination of poverty and hunger is
necessary for the security & preservation of faith.
20-21
Goals of Economic system of Islam
4 Equitable distribution of wealth

Without equitable distribution of wealth the real
prosperity of society is an illusion. Concentration of
wealth in few hands cannot be regarded as prosperity.

One of the important aim of Islamic economic is to
establish equitable system of distribution of wealth.

Islam establishes permanent institutions like, zakat
and Anfaq system, Law of Inheritance, the Auqaf
system, etc
20-22
Goals of Economic system of Islam
5 Elimination of waste

The elimination of wastage of resources is also an
important Islamic economics. Allah Almighty has
created resources of the universe according to a scale
in order to fulfill the needs of all men.

Allah declares these resources as His Bounties
(gifts) and warn man that he shall be held accountable
for the use of these bounties.
20-23
Goals of Economic system of Islam
6 Security of freedom
Another purpose of the economic system of islam is to
adopt a course of economic struggle which
a. preserve human liberty
b. Freedom to realize his potential in any sphere of life
c. Give complete control over use and spending of
resources earned by lawful means
d. Give full freedom of thought and action to individuals.
20-24
Features of Economic system of Islam
1 Maximum utilization of resources
• The most important basic principle of Islamic system
is the maximum utilization of the infinite resources
spread over the vast universe.
• Full usage of all God-given faculty (talent)
• Islam declares it a punishable offense to let these
human faculties rust in idleness
“….for you shall be questioned for (the use) of your
eyes, ears and minds.[ Bani-israel 17:36]
2-25
Features of Economic system of
Islam
2 Use of Lawful means for earning livelihood
“O people! Eat of what is lawful and clean in the
earth and do not follow the ways of satan for he is
your declared enemy. [ Al-Baqara 2: 168]
20-26
Cont`d…
3 Inducement to spend wealth within limits
“… eat and drink, but do not transgress, for Allah does
not like the transgressor” [ Al-Ara`f 31]
4 Prohibition of amassing (gathering) wealth
“ Give them the news of a painful torment who
hoard up gold and silver and do not expend these in
the way of Allah” [ Al-Tauba 9:34]
2-27
Cont`d…
5 Circulation of wealth
“… so that it does not remain circulating among
your rich people only” [Al-Hasher 59: 7]
6 Economic freedom

Islamic economic system provides an equal
opportunity to make a living to all members of the
society.

No scope for monopolies and economic privileges.

Individuals are bound to exercise economic
freedom within the limits of Shariah.
2-28
Cont`d…
7 The right of private ownership
8 Equitable Distribution of wealth
9 Moral values and role of state
20-29
Cont`d…
10 Regulation of price mechanism
Islamic economic system is a free enterprise system.
Prices are controlled by forces of Demand and Supply.
However, its regulated by moral values.
11 Positive role of state
Even though this system is a free enterprise but the
state also plays a regulatory guiding and leadership role
in every sector of economic life so as to establish
economic justice in practice.
20-30
Comparison & Conclusion
• In conclusion, there exist many differences between
capitalism and Islamic economics BUT Charging
interest and the prohibition of riba being the most
defining difference between the two economic systems.
• Furthermore, Islamic economics are not fully
implemented currently in any nation. Instead, Islamic
nations attempt to maintain economic systems that are
as Islamic as possible, while fulfilling the needs of the
nation’s trade industry.
20-31
• thanks
2-32