Islam & Capitalism
IBM 11013 Introduction to Islamic
Economics
RA.Sarjoon
Lecturer 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 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 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 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
of Priorities
•
•
Concept of Selfish
Interest
•
Supply & Demand will
determine the priorities.
•
2. Allocation of
Resources
3. Development
Every individual has
unconditional & absolute
right to participate in
any business to maximize
profits
•
Market forces will
decide where to
invest resources
Market forces will
decide
Socialism
•
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.
•
Govt. will decide
where to allocate
resources
•
Govt. will decide
Comparison of Capitalism & Socialism
Capitalism
4. Distribution of
Income
Right to
Wealth
•
Land - Rent
•
Labor - Wages
•
Capital- Interest
•
Entrepreneur- Profits
Right to wealth is
with the factors of
production only.
Socialism
•
Land – Rent fixed by
Govt.
•
Labor – Wages fixed by
Govt.
Right to wealth is
with the Govt.
which then
distributes it
among the factors
of production.
What is Islamic Economics

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 wellbeing and making maximization of wealth as the main
objective of 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.
What is Islamic Economics

Capitalism as well as Socialism have both
failed to lead mankind to such an overall wellbeing. 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.
Islamic Economic System

Islam accepts the market forces of supply and demandReference 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, Ushr
Warasat, Sadqaat
Qurbani,Kharaj
Summary of The Comparison

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
considerations
2. Govt. restrictions
3. Moral
Summary 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.
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 Allah’s is the kingdom
of the heavens and the earth, and Allah has power
over every things." [Al- Imran, 3:189].
‫هو الذي خلق لكم ما في األرض جميعا‬
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 [‫كفالت عامه‬
‫‪Teaching of the Qur,an Regarding‬‬
‫‪Economics‬‬
‫‪Wright of private ownership‬‬
‫التأكلوا أموالكم بينكم بالباطل(النساء)‬
‫التدخلوابيوتا غيربيوتكم ‪(......‬النور)‬
‫‪ No concept of equality in economics‬‬
‫أهم يقسمون رحمة ربك نحن قسمنا بينهم معيشتهم ‪Allah says‬‬
‫في الحياة الدنيا ورفعنا بعضهم فوق بعض‪(..‬الزخرف)‬
‫‪ No priesthood‬‬
‫وكلوا مما رزقكم هللا(البقرة) ‪ Allah says‬‬
‫‪‬‬
Teaching of the Qur,an Regarding
Economics
Distinction between legal and illegal
‫التأكلوا اموالكم بينكم بالباطل‬
 Exaggeration is not allowed
‫والتسرفوا انه اليحب المسرفين‬
 How to spend?
 The concept of zakat
 Spoils of war
 The concept of Islam regarding inheritance
 The concept of public property
 ‫الماء والكالء والنا‬,‫الناس شركاء في ثالث‬
