Islam & Capitalism IBM 11013 Introduction to Islamic Economics RA.Sarjoon Lecturer in charge

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

2. Preamble 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

3. 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: • 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. 

4. Capitalism 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.

5. What is Capitalism? Capitalism is a social system based on the recognition ofindividual rightsincluding 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 .

6. 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.

7. 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

8. Characteristics of Capitalist Economies Right of private property Freedom of enterprise Freedom of contract Freedom to use own property

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

10. Failure of Capitalism An imbalanced system Distribution of wealth in a few Concentration of wealth and economic power only Wasteful competition Human welfare ignored Exploitation Mismanagement

11. Comparison of Capitalism & Socialism Capitalism Socialism • 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. • Determination of Priorities • Market forces will decide where to invest resources • Govt. will decide where to allocate resources 2. Allocation of Resources • Market forces will decide 3. Development • Govt. will decide

12. Comparison of Capitalism & Socialism Capitalism Socialism • Land – Rent fixed by Govt. • Labor – Wages fixed by Govt. 4. Distribution of Income • Land - Rent • Labor - Wages • Capital- Interest • Entrepreneur- Profits Right to Wealth 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.

13. 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

14. 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.

15. What is Islamic Economics • 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.

16. 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

17. Divine Prohibitions: Islam has prohibited some economic activities that are not allowed at any time at any place.( Interest, Gambling, Hoarding etc.) Govt. Restrictions: Islam allows Govt. to intervene where it feels appropriate , but these restrictions are temporary as per the need of the time. 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. Islamic Economic System- The prohibitions & considerations

18. 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. Factors of Production in Islamic Economic System

19. 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 Zakat, Ushr Warasat, Sadqaat Qurbani,Kharaj Factors of Production Secondary owners of wealth Right to Wealth in Islam

20. 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 Comparison Summary of The Comparison

21. 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.

22. 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 الأرض جميعا

23. Islamic Economics System • Halal & Haram • Justice • Equality • Cooperation • Brotherhood • kindness

24. Solution for Economics Problems • Basic rules of Islam • Naturally • Concentration on ethics and morality • The role of government where required

25. Solution for Economics Problems • Achieving wealth • Rights of ownership • How to use that Rights? • utilization of capital • Distribution of wealth [كفالت عامه

26. Teaching of the Qur,an Regarding Economics • Wright of private ownership لاتأكلوا أموالكم بينكم بالباطل(النساء) لاتدخلوابيوتا غيربيوتكم ......(النور) • No concept of equality in economics Allah saysأهم يقسمون رحمة ربك نحن قسمنا بينهم معيشتهم في الحياة الدنيا ورفعنا بعضهم فوق بعض..(الزخرف) • No priesthood • Allah says وكلوا مما رزقكم الله(البقرة)

27. Teaching of the Qur,an Regarding Economics • Distinction between legal and illegal لاتأكلوا اموالكم بينكم بالباطل • Exaggeration is not allowed ولاتسرفوا انه لايحب المسرفين • How to spend? • The concept of zakat • Spoils of war • The concept of Islam regarding inheritance • The concept of public property • الناس شركاء في ثلاث,الماء والكلاء والنا