||Holy Quran does not lay down any political or economic system but prescribes broad moral principles for developing or adopting that. The fact is that during the glorious period of Islamic history, the economic system followed by Muslims was capitalistic.
Capitalism is an economic system in which people individually or collectively as partners or business firms carry on privately the production and exchange of goods and services for profit or earning living. Capitalism has certain key characteristics as enumerated below.
First, basic production facilities land and capital are privately owned. Islam does not prescribe any limit but encourages investments for welfare of the masses. Islam condemns greed for money and its accumulation but does not prescribe any upper limit for honest earnings and encourages utilizing wealth for development or welfare instead of locking it up and keeping it idle.
Neither economic thinking
nor historical experience suggest that any other social system
could be as beneficial to the masses as capitalism, provided laws are
enacted and enforced and ethical standards are followed to ensure fair
trading practices to protect the interests of consumers as well as the
labor and entrepreneurs.
Islam prohibits usury but allows lending on sharing profit or loss basis. Sales at comparatively higher price than lump sum cash price is not regarded usury if the purchase price is paid in installments or at the end of specified period..
It was in the 7th century during the reign of Caliph Omer (RA) that it was decided that the ownership of the conquered land would vest in the state but the authorized possessors would be allowed to utilize it for their benefit on payment of taxes. Omer also introduced taxes on trade and custom duty. These practices are common in many capitalistic countries
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Second key characteristic is that economic activity is organized and coordinated through the interaction of buyers and sellers (or producers) in open markets and the price mechanism works according to supply and demands of the goods or services. Islam discourages hoarding, and profiteering and encourages full discloser, clean and honest dealings.
Third important characteristic is that owners of land and capital as well as the workers they employ are free to pursue their own self-interests in seeking maximum gain from the use of their resources and labor in production. Islam prescribes prompt and fair payment of wages and maintains the dignity of the labor and emphasizes upon making honest living. Consumers are free to spend their incomes in ways that they believe will yield the greatest satisfaction from the things made permissible in Quran and Sunnah but not from things prohibited like alcohol, gambling, night clubbing.
Fourth, a minimum of government control is required; if competition is present, economic activity will be self-regulating and producers will be forced by competition to use their resources in ways that will best satisfy the wants of consumers.
The term Islamic socialism was coined in recent years, but rarely practiced in the progressive days of Islam. Socialism demands state ownership and control of the means of production and distribution of wealth, to be achieved through peaceful, democratic, and parliamentary means. Socialism advocates nationalization of natural resources, basic industries, banking and credit facilities, and public utilities.
It is an economic axiom that the conflict between the principle of capitalism and socialism is irreconcilable, because of opposing approaches to ownership and control. Either the consumers' demand as manifested on the market decides for what purposes and how the factors of production should be employed or the government takes care of these matters. There is nothing that could mitigate the opposition between these two contradictory principles. They preclude each other. At best the Islamic socialism can be considered as application of moral standards of Islam for trade and industry to capitalism, by establishing monopolies for public sector ownership for the prescribed means of production and services.
Collapse of Communism and socialism in Soviet Union and Europe has once again highlighted the fact that capitalism has improved the people's standard of living in an unprecedented way in spite of population growth. Neither economic thinking nor historical experience suggest that any other social system could be as beneficial to the masses as capitalism, provided laws are enacted and enforced and ethical standards followed to ensure fair trading practices to protect the interests of consumers as well as the labor and entrepreneurs.
Related Article: Socialism,
Islam and Human Nature
Shah Nawaz Khan has vast experience in marketing and supervising life insurance sales force besides underwriting and advertising. He retired as Executive Director of State Life Insurance Corporation. He is now editing the weekly ezines that go to thousands of people around the world. For details of his Internet Consultancy visit his website
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