essay on islamic economic system

• DOI: 10.1016/0147-5967(85)90039-3
• Corpus ID: 53559788

The islamic economic system

• Frederic L. Pryor
• Published 1 June 1985
• Journal of Comparative Economics

109 Citations

Islamic economics: foundations and practices, a comparative analysis on capitalism and islamic economic system, islam and the economic challenge, islamic finance: a review of the literature, the financial system and monetary policy in an islamic economy, on the notion of economic justice in contemporary islamic thought, islamic banking: experiences in the islamic republic of iran and in pakistan, islamic and neo-confucian perspectives on the new traditional economy, islamic economy as an alternative solution of european economic crisis, comparative analyses of the islamic system with other economy system in the world.

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14 References

Behavioral norms in the islamic doctrine of economics: a critique, islam and financial intermediation, islam and capitalism, ethics and economics : an islamic synthesis, a history of islamic law, an economic history of the middle east and north africa, the meaning of the glorious koran, partnership and profit in medieval islam, foundations of gandhian economics, the economic structure of the middle east, related papers.

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ISLAMIC ECONOMICS SYSTEM: FROM PRINCIPLES TO MICROECONOMICS AND MACROECONOMICS FIELDS

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Said A. Sehliye , Abdul Ismail

PRINCIPLES TO MICROECONOMICS AND MACROECONOMICS FIELDS

Magda Abdel Mohsin

Abstract: Islam is not just a religion of worship; it is a comprehensive discipline that includes all aspect of sciences including economics. It provides many institutions that have to function in parallel in order to meet a just and a welfare society for all. The current global economics and financial crises urged economists to search for alternative institutions to solve these crises. This brings in the question of whether the Islamic economic system is capable of solving such crises or not. The main objective of this paper is to present the different Islamic institutions within the structure of the Islamic economic system, and to show their roles in handling the current economics and financial crisis. This research uses both primary and secondary sources. Data collected from primary sources includes text from the Quran and ahadith from the Sunnah (saying of the Prophet (pbuh), while data collected from secondary sources includes books, articles, journals besides websites and e-books. The expected finding of this research is to give a comprehensive structure of the Islamic economic system, as provided in Quran and Sunnah. This in turn will open the door wider from more researchers to study and to examine the different institutions within the structure of the Islamic economic system in depth which God/Allah (swt) provided to serve all mankind in the best way. Key words: economics; crises; Islamic financial institutions; remedies.

Prof Dr Mohd Ma’Sum Billah.

Global Review of Islamic Economics and Business, Vol. 2, No.1 (2014) 069-083 Faculty of Islamic Economics and Business-State Islamic University Sunan Kalijaga Yogyakarta ISSN 2338-7920 (O) / 2338-2619 (P)

Basharat Hossain

One of the main goals of economics is to satisfy the wants of consumer. Like as conventional economics, Islamic economics has also its own law of consumption which is superior to that of conventional economics. This paper presents an empirical survey report on the application of Islamic consumer theory in Bangladesh.The survey is conducted on 184 graduate students of economics from university of Dhaka, Bangladesh. Besides, the consumption framework of Islamic economics has been discussed in this paper. The research finds that, the majority percent of respondents consider Halal (lawful), Haram (unlawful), economic disadvantages of other consumers, scope of reward and punishment in hereafter life (life after death) in their consumptions and other economic activities. The report explores that, though the wants is unlimited, the respondents are capable to control their wants and choose moderate and simple standard of living. In addition, they mentioned that, the use of interest is not essential to run economic activities and interest free economy is possible. It is found that, a large proportion of the respondents did not study Islamic economics due to unavailability of the reading materials in spite of having their interest while half of the respondents read it. Finally, the opinion is found that, religious and ethical instruments (Zakat, donation, hereafter life etc.) should be included in the syllabus of modern economics in school, college and university level. The findings satisfy the assumptions of Islamic consumption framework. Finally, it presents the problems, prospects and recommendations to apply the Islamic consumer theory in Bangladesh. Keywords: Islamic Consumer Theory, Islamic economics, Consumption, Bangladesh Introduction

Journal of economics and sustainable development

This paper presents a comparative view of Islamic economic rationalism and consumption framework to its counterpart’s conventional capitalist and socialist economic system. In conventional economic system, only self-interest and rationality of the consumer is the main principle to maximize utility whereas moral, religious, national, historical, cultural and social values are absent here. Consequently, the consumers enjoy sovereignty with little or no intervention of regulatory authority to maximize the utility. On the contrary, Islamic economic system designs its rationality and consumption principle in moderation that is far away from extremism where freedom and regulation is moderately recognized. Therefore, Islamic rationality encourages the consumers to maximize his utility by insuring religious, national, historical, cultural and social values. Besides, conventional economics have no treatment to immoral activities of consumer while Islamic economics derived from the Holy Qura...

Syed Suhail

this book deals with general islamic concepts

Muhammad Ariffuddin Arifin

ANAS P ABOOBACKER

Journal of economics, finance and management

Ahmad Murtala

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Islamic Finance and Sustainable Economy: A New Model of Islamic Financial Ecosystem

• First Online: 14 August 2021

Cite this chapter

• Sutan Emir Hidayat 4 ,
• Yodi Izharivan 5 &
• Citra Atrina Sari 5  

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The study intends to propose an Islamic financial ecosystem that supports Sustainable Development Goals (SDGs). This study uses a qualitative research method employing content analysis and literature-based approach in deriving inferences and insights. Extensive literature related to SDGs, basic objectives of the existence of Islamic finance, and Maqashid al-Shariah are reviewed, analyzed, and used as references to create a proposed Islamic financial ecosystem that supports SDGs. The proposed ecosystem integrates Islamic commercial and social finance in order to improve the people’s welfare. The proposed model also provides evidence on how Islamic financial system can play a role as a catalyst for sustainability in the economy. This study can be used by the governments of OIC countries as a reference in developing a financial ecosystem that helps them in achieving most of the SDGs by 2030. The study also benefits regulators of the financial system in OIC countries as a reference for them to create a stable and resilient financial system that can ensure sustainability in the economy.

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Hidayat, S.E., Izharivan, Y., Sari, C.A. (2021). Islamic Finance and Sustainable Economy: A New Model of Islamic Financial Ecosystem. In: Hassan, M.K., Saraç, M., Khan, A. (eds) Islamic Finance and Sustainable Development . Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-76016-8_11

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ECONOMIC SYSTEM OF ISLAM -AN INTRODUCTION-

Dr. muhammad hamidullah.

Note: This book was published by Dawah Academy, IIU, Islamabad, Pakistan

Different problems have dominated the world of scholarship in different ages. There were days when Muslim scholars were seized with problems philosophical and theological in nature. In the recent past political and constitutional issues reigned supreme. Today, the economic question has acquired great significance and various religious philosophies and ideologies are being judged in the light of their economic teachings and the solutions they present to the economic problems of man. Muslim scholarship is trying to rise equal to this challenge quite successfully. There are, by the grace of Allah, specialized institutions and learned bodies devoted to higher studies and research in the economic teachings of Islam and a good deal of literature has already come out on this new discipline.

The purpose of the present publication is neither to add anything to this literature nor to present a comprehensive picture of the economic system of Islam; for, it is outside the purview of the Da'wah Academy. The purpose of this booklet is to give a general introduction to some of the basic teachings of Islam which have a bearing on the economic activities of man. This article highlights the importance and significance given by Islam to the economic aspect of human life. The learned author, who is one of the celebrated authorities on Islamic Law and jurisprudence, has drawn attention to some important dimensions of the law of Zakat. The idea is not to give the details of the law of Zakat but only to underline the message of this basic pillar of Islam. This booklet is being presented for the benefit of our educated new Muslims who have recently entered the fold of Islam and require an orientation in the teachings and religious lore of Islam. We are grateful to the author for giving permission to the Dawah Academy to bring out this edition.

DR. MAHMOOD A. GHAZI Director General Da'wah Academy

ISLAM provides guidance to its adherents in all phases and activities of life, in matters, material as well as spiritual. Its basic teaching with regard to economics is mentioned in several passages of the Quran. Far from despising material well-being, it recognizes (4/5) that: "... your goods which God has made as the very means of your subsistence..." and it orders: "and neglect not thy portion of this world" (Q. 28/77). However, it lays emphasis on the dual composition of man, by reminding that "... of mankind is he who saith: Our Lord! give unto us in this world; and he hath no portion in the Hereafter. And of them is also he who saith: Our Lord! give unto us what is good in this world and what is good in the Hereafter, and guard us from the doom of Fire. For these there is in store a goodly portion out of that which they have earned; God is swift at reckoning." (Q. 2/200-2). In other verses we find it stated plainly and definitely that, all that is found on the earth, in the seas and even the heavens has been created by God for the benefit of man; or that all that is on earth, in the heavens, the ocean, the stars and others have been made subservient to man by God. It remains for man to know and to profit by the creation of God, and profit in a rational way, paying due regard to the future.

The economic policy of Islam has also been explained in the Quran, in most unequivocal terms: "... so that this (wealth) may not circulate solely among the rich from among you... " (Q. 59/7). Equality of all men in wealth and comfort, even if it is ideal, does not promise to be of unmixed good to humanity. First because natural talents are not equal among different men, so much so that even if one were to start a group of persons with complete equality, soon the spendthrift will fall into difficulties and will again look on the fortune of his comrades with greed and envy. Further, on philosophical and psychological grounds, it seems that in the very interest of human society it is desirable that there should be grades in wealth, the poorer having the desire and incentive to work harder. On the other hand, if everybody is told that even if he works more than what is required of him as his duty, he would get no reward and would remain as those who do not do more than their duty, one would become lazy and neglectful, and one's talent would be wasted to the great misfortune of humanity.

Everyone knows that human livelihood is in constant progress, through the domination and exploitation one after the other of all those things that God has created, whereas one sees that the rest of animals have changed nothing in their livelihood ever since God has created their species. The cause of this difference as discovered by biologists is the simultaneous existence of a society, a co-operation, and a liberty of competition inside the members of the society, i.e., human beings whereas other animals suffer from the lack of some or of all of these requisite conditions. Dogs, cats and snakes for instance do not create even a family; they perpetuate their race by means of free and momentary "love". Others, such as crows and pigeons do create a family in the form of couples, yet, even if the male helps in the construction of the nest, every member of the couple depends on its own gain for its livelihood. Perhaps the most developed social co-operation is found among bees, ants and termites (white ants): they live in a collective way, with complete equality in livelihood, yet without any competition among its members, and consequently it is not possible for the more intelligent or more industrious bee to live more comfortably than others. For this reason there is neither evolution nor change, much less progress in any of these species, as against the human race. The past history of man shows that every advance and every discovery of the means of comfort came into existence through competition and desire for amelioration, and also through the existence of grades of wealth or poverty among men, one above the other. Yes, the absolute liberty would lead devilish men to exploit the needy, and ooze them out gradually. So it was necessary for every progressive civilization and every healthy culture to impose certain duties on its members (such as the order to pay taxes, the interdiction of having recourse to oppression and cheating, etc.), and to recommend certain supererogatory acts (like charity and expenditure for the sake of God), yet nevertheless, to have a great deal of liberty of thought and action to its members, so that each one benefits himself, his family, his friends and the society at large. This is the exigency of Islam, and it also conforms to nature.

It is on the basis of this fundamental principle that Islam has constructed its economic system. If it tolerates the minority of the rich, it imposes on them heavier obligations: they have to pay taxes in the interest of the poor, and they are prevented from practicing immoral means of exploitation, hoarding and accumulation of wealth. For this end there will be some orders or injunctions, and also some recommendations - for charity and sacrifice -with the promise of spiritual (other worldly) reward. Further, it makes, on the one hand, a distinction between the necessary minimum and the desirable plenitude, and on the other hand between those orders and injunctions which are accompanied by material sanctions and those which are not so, but for which Islam contents itself with persuasion and education only.

We shall describe first in a few words this moral aspect. Some illustrations would enable us to better understand its implications. Most emphatic terms have been employed by Islam to show that to beg charity of others is something abominable and it would be a source of shame on the day of Resurrection; yet simultaneously unlimited praise has been bestowed on those who come to the aid of the others, the best of men being in fact those who make a sacrifice and prefer others to their own selves. Similarly avarice and waste are both prohibited. One day the Prophet of Islam had need of considerable funds for some public cause. One of his friends brought a certain sum to offer as his contribution, and on the demand of the Prophet, he replied: "I have left at home nothing but the love of God and of His messenger." This person received the warmest praise from the Prophet. Yet on another occasion, another companion of his, who was seriously ill, told him when he came to inquire about his health: "O Messenger of God! I am a rich man, and I want to bequest all that I possess for the welfare of the poor." The Prophet replied: "No; it is better to leave to thy relatives an independent means of livelihood than that they should be dependent on others and be obliged to beg." Even for two-third and for a half of the possessions the remarks of the Prophet were: "that is too much." When the proposal was submitted to give one-third of the property in charity, he said: "Well, even the third is a large amount." (cf. Bukhari). One day the Prophet saw one of his companions in miserable attire. On inquiry, he replied: "O Messenger of God! I am not at all poor; only I prefer to spend my wealth on the poor rather than on my own self." The Prophet remarked: "No; God likes to see on His slave traces of the bounty that He has accorded him!" (cf. Abu Dawud and Tirmidhi). There is no contradiction in these directions; each has its own context and relates to distinct individual cases. We are afforded an opportunity of determining the limits of the discretionary choice in excess of the obligatory minimum, vis-a-vis the other members of society.

INHERITANCE

Both the individual right of disposing of one's wealth, and the right of the collectivity vis-a-vis wealth of each individual, in as much as one is a member of society, have to be simultaneously satisfied. Individual temperaments differ enormously. Sickness or other accidents may also affect a man out of all proportion. So it is necessary that a certain discipline should be imposed upon him in the interest of the collectivity.

Thus Islam has taken two steps; firstly the obligatory distribution of the goods of a deceased person among his close relatives, and secondly a restriction on the freedom of bequest through wills and testaments. The legal heirs do not require any testamentary disposition, and inherit the property of the deceased in the proportions determined by law. A testament is required solely in favour of those who have no right to inherit from a deceased person.

There is equality in the relatives of the same category, and one cannot award to one son (elder or younger) more than to the other, whether major of minor. The first charges on the property left by the deceased are the expenses of his burial. What remains goes then to his creditors, the debt having priority over the "right" of the inheritors. In the third place, his testament is executed, to the measure and extent that it is does not exceed one third of the available property (after burial and payment of debts). It is only after satisfying these prior obligations that heirs are considered. The (male or female) partner of life, the parents, the descendants (sons and daughters) are the first class heirs, and inherit in all cases. Brothers and sisters, and other remoter relatives inherit from a deceased person only in the absence of nearer relatives. Among these remoter relatives we find uncles, aunts, cousins, nephews and others.

Without entering into technical details, certain basic rules may be described. A homicide is excluded from the inheritance of his own victim, even if the court decides that it was a case of death by involuntary accident. The underlying idea seems to be to prevent all temptations to kill a rich relative in view of earlier inheritance. The Prophet has also prohibited inheritance among relatives of different religions, even between the husband and wife. However, the right of donating gifts and testament can be availed of in this respect; the Muslim husband, for instance, may bequest even on his death-bed a part of his property in favour of his non-Muslim wife. On the strength of the international and political conditions of their times, the classical Muslim jurists have instituted another hindrance, viz., the difference of the territory (i.e., political nationality) as barring inheritance. Evidently the statal treaties may regulate the question of private international law, in a contrary sense, on the basis of reciprocity.

In countries where the Islamic law of inheritance is not applied by governments, yet the right of testament is recognized, the Muslim inhabitants can, and must, utilize this facility, in order to fulfil their religious duty with regard to the disposition of their property after their death.

We have just mentioned that the right of testamentary bequests is operative only within the limits of a third of the property, in favour of persons other than creditors and heirs. The aim of this rule seems to be two-fold: Firstly, to permit an individual to adjust things, in extraordinary cases, when the normal rule causes hardship; and a third of the property is sufficient for fulfilling all such moral duties. Another motive of the law of will is to prevent the accumulation of wealth in the hands of a few, a thing which would happen if one should give all his property by will to a single person excluding totally one's near relatives. Islam desires the circulation of wealth among as large a number of people as possible, taking into account the interests of the family.

PUBLIC GOODS

One also has obligations as a member of a larger family, viz., society and the State in which one lives. In the economic sphere, one pays taxes, which the government redistributes in the interests of the collectivity.

The rates of taxes differ according to the various kinds of the sources of income, and it is interesting to note that the Quran, which gives precise directions with regard to budgetary expenditure, has enunciated neither rules nor rates of the income of the State. While scrupulously respecting the practice of the Prophet and of his immediate successors, this silence of the Quran may be interpreted as giving a latitude to the government to change the rules for income according to circumstances, in the interests of the people.

In the time of the Prophet, there were agricultural taxes, and the peasants handed over a tenth of the harvest, provided it was above a certain taxless minimum and irrigated their lands with rain or spring water, and half that rate in the case of wells as the means of irrigation. In commerce and exploitation of mines, one paid 2 1/2% of the value of goods. As for the import taxes, on foreign caravan-leaders there is an interesting fact which should profitably be brought into relief. In the time of the Prophet, these were subject to a tithe as customs duty; caliph 'Umar reduced by half this tax on foreigners, concerning certain categories of victuals imported in Madinah (as reported by Abu 'Ubaid). This precedent of high authority casts light on the essential principles of the fiscal policy of Islam. In the time of the Prophet, there were taxes on herds of camels, sheep and goats, and oxen provided they were fed on public pastures and exceeded in number the taxless minimum. Exemption was accorded further to beasts of burden and those employed for ploughing and irrigation.

There was a tax of 2 1/2% on savings and on silver and gold. This obliged people to employ their wealth for increase, and not indulge in idle hoarding.

STATE EXPENDITURE

The Quran (9: 60) has prescribed the principles regulating the budget of State expenditure in Islam in the following terms:

"Verily the sadaqat (i.e., taxes on Muslims) are only for the needy, and the poor, and those who work for these (taxes), and those whose hearts are to be reconciled, and to free the necks (i.e., slaves and prisoners of war), and the heavily indebted, and in the path of God, and for the wayfarer - a duty imposed by God; God is Knower, Wise."

These eight heads of expenditure which cover practically all the needs of a collectivity, need elucidation to enable the understanding of their exact range and application.

The term sadaqat, which we translate as the State tax on Muslims, and which is a synonym of zakat, signifies the taxes paid by Muslims to their government, in normal times, whether on agriculture, mines commerce, industry, pasturing herds, savings or other heads. These exclude the provisional taxes imposed in abnormal times, the revenues levied on non-Muslims, - subjects or foreigners, - and also all the non-obligatory contributions. Juridical literature of early Islam, and particularly the sayings of the Prophet leave no doubt that the term sadaqat was employed in this sense. It did not refer at all to alms, which can be neither obligatory nor determined as to the quantity and the time of payment. The equivalent for alms is infaqfl sabil Allah, expenditure in the path of God, or tatauwu, voluntary charity.

The first two categories of the needy (fuqara') and the poor (masakin), which are almost synonymous, have not been explained by the Prophet; there is a divergence of opinion. According to the sayings and constant practice of the caliph 'Umar, (recorded by Abu Yousuf in his Kitab-al-Kharaj and Ibn Abi Shaibah in his Musannaf), fuqara' are the poor among the Muslims, and masakin are from among the non-Muslims residing in the Islamic territory, such as jews. In his Futuh al-Buldan, Baladhuri cites another case of the same caliph, who awarded pensions to Christians of Jabiyah (Syria) from the Sadaqat i.e. Zakat-revenues. The jurist ash-Shafi-i thought that the terms were absolutely synonymous, and that God, out of His bounty, named them twice in order to make a double provision. According to this authority, as each of the eight heads in the Quranic verse should receive one-eighth of the State income, the poor would receive two-eights. Be it what it two-eights. Be it what it may, the first duty of the State is to see that no dweller on the Islamic soil is deprived of the means o livelihood: food, dress, lodging, etc.

The next item concerns the salaries of the functionaries: collectors, accountants, controllers of expenditure, auditors of accounts, etc. If the truth is to be told, this category comprises the entire administration, civil, military and diplomatic, as one can see in the description of the categories of the beneficiaries. The historian al-Baladhuri (in his al-Ansab) has preserved a document in which the caliph 'Umar demands of his governor of Syria: "Send us (to Madinah) an expert Greek, who may put in order the accounts of our revenues". (hisaba faraidina). We require no better authority for asserting that the non-Muslims could not only be employed in the administration of the Muslim State, but also be beneficiaries of the sadaqat levied exclusively on Muslims.

The category of those whose hearts are to be reconciled can more easily be understood by the modern term "secret funds". In his al-Ahkam as-Sultaniyah, the jurist Abu-Yala al-Farra' says: "As to those whose hearts are to be won, they are of four kinds: (I) Those whose hearts are to be won for their coming to the aid of the Muslims; (2) or for abstaining from doing harm to Muslims; (3) for inviting them to embrace Islam; and (4) for inviting through them their clans and families to embrace Islam. It is lawful to spend on each and every one of these whether they be Muslims or polytheists.

By the term "freeing the necks", one has always understood two kinds of expenditure: the liberation of slaves, and ransoming of the prisoners of war in the hands of the enemy. According to the Islamic law (Quran 24/33), every slave has the right to purchase his emancipation by paying his value to his master; and in order to earn the necessary amount he may compel his master to give him facilities to work, and during this period he does not require to serve his master. Moreover, as we have just seen, it is the duty of the government to allot every year in the budget a certain sum for aiding the slaves to by their freedom. A document of the time of the Umaiyad caliph 'Umar ibn 'Abd al-Aziz (reported by Ibn Sa'd), says, that the payment of the ransoms by the Muslim government includes liberating even the non-Muslim subjects who would have been made prisoners by the enemy.

The category of those who are heavily indebted has, according to the practice of classical times, a whole series of applications: one helped those who had suffered from calamities such as floods, earthquakes, etc. It does not refer to the poor, who have already been mentioned in the beginning of the verse, but to the well-to-do who have suffered from abnormal conditions, beyond their power. Caliph 'Umar started a special section in the Public Treasury, in order to lend money, free of interest, to those who had temporary needs and provided the necessary guarantees for repayment. The caliph himself had recourse to it for his private needs. It goes without saying that the "nationalization' of lending without interest was the necessary concomitant of the prohibition of interest in Islam. The same caliph used to lend public money even to merchants for fixed periods, and the Treasury participated with them in a percentage of their business returns, participated not only in gains, but also in the event of losses. Another application of this State expenditure was for a kind of social insurance. If somebody was found guilty of involuntary homicide and was unable to pay the blood money, required by law, out of his own means, the government came to his help under this head of the budget, as is evidenced by several cases of the practice of the Prophet. We shall revert to this, again, later in detail.

The expression "in the path of God", in the Islamic terminology, signifies in the first instance military defense and the expenditure for the personnel, equipment, etc. But the term applies in fact to all sorts of charitable works, such as helping students, grants and aids in religious causes such as the construction of mosques, etc.

The last category concerns communications and tourist traffic in a wide sense: construction of bridges, roads, hotels, restaurants, security of routes (police included) hygienic arrangements, transport of travelers, and every comfort provided to aliens in the course of their journeying, including extending of hospitality to them without charge and in proportion to the means available. Formerly such hospitality was assured for three days in every place of stay.

In order to appreciate the merit of these Quranic dispositions, one must remember that the time was the very beginning of Islam, fourteen centuries ago. There is not much that could be added to these heads of expenditure. They seem to be well applicable to our own times in a progressive and welfare State, having a concern for the well-being of its subjects.

EXCEPTIONAL TAXES

The sadaqat were the only taxes of the State in the time of the Prophet and the Orthodox Caliphs. In later times, on occasions of extraordinary need, the jurists have admitted the legal possibility of imposing supplementary charges, on a strictly provisional basis, for possible exigencies. Such taxes are called Nawa'ib (calamities).

SOCIAL INSURANCE

Only risks involving heavy charges from objects of insurance, and these differ according to the times and social conditions. Among the Arabs at the commencement of Islam, the daily ailments were unknown, and medical care cost practically nothing; the average man built his house with his own hands, and did not pay even for the major part of the material. Thus it is easy to understand why one had then no need of insurance against sickness, fire, etc. On the contrary, insurances against captivity and against assassination were a real need. Already in the time of the Prophet, this point had received attention; and certain dispositions were made which had the elasticity of further development and adaptation to circumstances. Thus, in the Constitution of the City-State of Madinah of the first year of the Hijrah, this insurance is called ma'aqil and it worked in the following manner. If someone was made prisoner of war by an enemy, payment of ransom was needed for purchasing his liberation. Similarly, all bodily torts or culpable homicides required payment of damages or blood money. This often exceeded the means of the individual concerned, prisoner or criminal. The Prophet organized an insurance on the basis of mutuality: the members of a tribe could count on the central treasury of their tribe, to which everybody contributed according to his means; and if the treasury of the tribe proved inadequate, other related or neighboring tribes were under obligation to render aid. A hierarchy was established for organizing the units into a complete whole. At Madinah, the tribes of the Ansarites were well known; the Prophet ordered the Meccan refugees there, who belonged originally to the various tribes of Mecca, or were Abyssinians, or Arabs belonging to different regions, should all constitute a new "tribe" of their own, for purposes of the said social insurance.

Later in the time of the caliph 'Umar, the mutualities or units of insurance were organized on the basis of professions, civil or military administrations, to which one belonged, or even of regions. Whenever needed, the central or provincial government came to the succor of the units, as we have described above when speaking of State expenditure.

Insurance signifies essentially the repartition of the burden of an individual on as many as possible, in order to lighten the burden of each. Instead of the capitalistic companies of insurance, Islam preferred organizing insurance on the basis of mutuality and co-operation, aided by a gradation of the units culminating in the central government.

Such a unit could engage in commerce with the help of the unutilized funds remaining at its disposal, so that the capital is augmented. A time might come, when the members of a unit could be fully exempted, from paying further contributions, and might even receive amounts as profits of commerce. It goes without saying that these units of mutual aid could insure against all kinds of risks, such as accidents of traffic, fire, loss in transits, and so on. It goes also without saying that the insurance business is capable of being "nationalized" for all or certain kinds of risks, for instance, for temporary motives such as the dispatch of parcels, etc.

Without entering into technical details, it may be pointed out that the capitalistic insurance's, in which the insured person does not participate in the benefits of the company in proportion to his contributions, is not tolerated in Islam. For, such an insurance constitutes a kind of a game of chance.

In passing, we might mention another social institution of the time of the caliph 'Umar. He had organized a system of pensions for all the inhabitants of the country-and according to the Kitab al-Amwal of ibn Zanjuwaih and ar-Risalah al-'Uthmaniyah of al-Jahiz, even the non Muslim subjects were among the beneficiaries of these pensions-so much so that as soon as a child was born, he began to receive a certain pension. The adults received the minimum necessary for living. In the beginning, the caliph practised a certain discrimination amongst the different categories of the pensioners and if the minimum was 1, the most favoured person received 40; yet towards the end of his life, he decided to observe complete equality, but he died before this reform could be introduced. This institution, named "Diwan" by 'Umar, seems to have originated in the very time of the Prophet, as the following report implies" "The basis of this practice is the narration that the Prophet named Mahmiyah ibn Jaz' to be in charge of the governmental fifth of the booty captured on the Banu'l-Mustaliq; and in fact Mahmiyah was in charge of the governmental fifth of the booties. The sadaqat (=zakat taxes) were administered separately, and had their particular functionaries. The Prophet used to spend the sadaqat on orphans, weaklings and poor: if the orphan reached his puberty and military service (Jihad) became his duty, he was transferred from the list of the beneficiaries of the sadaqat to that of the fay', yet if he refused to render military service, he benefited no more from the sadaqat and was commanded to earn his livelihood himself'. (cf. Sarakhsi, Sharh as-Siyar al-Kabir, ed. Munajjed, $ 1978).

GAMES OF CHANCE

In prohibiting these, the Quran (5/90) has characterized them as the "work of Satan"; and this for cogent reasons. It is recognized that most of the social evils emanate from the bad distribution of the national wealth, some individuals becoming too rich and the others too poor and as a result they fall victim to exploitation by the rich. In games of chance and lotteries, there is great temptation for quick and easy gains, and often an easy gain is bad for society. Supposing that in the races-of horses and others-and in the lotteries, public or private, as well as all other games of chance, the people of a country spend 3 million pounds every week-as is the case in certain countries-in the course of only ten years, a sum of 1,560 millions of pounds will be collected from a very large number of the inhabitants and redistributed among a ridiculously small number. Less than one per cent of the people thrive at the expense of the remaining 99 per cent. In other words, the 99 per cent are impoverished in order to enrich the 1 per cent, and this one per cent of millionaires are created by systematically ruining the 99 per cent. Whether games of chance, including lotteries, are private or nationalized, the evil of accumulating wealth in the hands of the few, at the expense of a very vast majority, works with full force. Hence the total prohibition of games of chance and lotteries in Islam. As in capitalistic insurances, games of chance bear one-sided risks.

INTEREST ON MONEY-LENDING

Probably there is no religion in the world which has not prohibited usury. The distinctive trait of Islam is that it has not only forbidden this kind of gain, but also remedied the causes leading to the existence of this evil institution in human society:

Nobody pays willingly an interest on what he borrows: he pays only because he requires money and he finds that he could not get it without paying interest.

Islam has made a very clear distinction between commercial gains and interest on money-lending. The Quran (2/275) says: "...God permitteth trading and forbiddeth interest:" A little later (2/279), it says: "If you do not give up (interest), then be warned of war against God and His messenger; and if ye repent, then ye shall have your principal, (without interest); neither ye wrong nor be wronged."

The basis of the prohibition of interest is also the unilateral risk. For when one borrows a certain sum for earning an increase, it is possible that circumstances should not have been propitious enough for earning sufficiently to be able to pay the promised interest, the lender not participating in the risks of the exploitation.

It is not possible to compel an individual to deprive himself of his money, in order to lend it to others gratuitously and without interest. We have pointed out that Islam has ordered that one of the charges on State income is the obligation of helping those who are heavily indebted hence, the Public Treasury organizes interest-free loans, in addition to and for supplementing the loans offered by charitable men or organizations, to help those who are in need of them. The principle is the mutual aid and co-operation.

In the case of commercial loans, there is also the system of mudarabah, in which one lends money and participates equally in gains as well as in risks. If, for instance, two individuals form a company, each one furnishing half of the capital and labour, the distribution of the profit is not difficult. However, if the capital comes from one party and the labour from the other, or if the two furnish the capital though only one of them works, or the proportions of the partners' share are not equal, in such cases a reasonable remuneration of the labour, on the basis of the previously agreed conditions is taken into consideration before the distribution of gains and profits is effected. Of course all possible precautions are taken, in order to prevent risks, yet Islam demands that in all contractual participations, the profit as well as the loss should be participated in by both the contracting parties.

As far as banks are concerned, their activities are principally of three kinds: remitting of amounts from one place to another, assuring safety of the savings of the clients, and lending money to others on profit. The expenses of the functioning are borne by those who utilize the service of banks. The question remains of loans for commerce, industry or any other trade motive. If the bank participates in the profit of its debtors as well as in their risks, Islam allows such banking activities, otherwise not.

Confidence is borne of confidence. If the savings banks of a government declare at the end of the year, and not at its beginning, that they are in a position to pay such and such percentage of profit to the clients, not only would this be lawful according to Islam, but the public also would have no hesitation in depositing its savings with governmental banks, in spite of the silence in the beginning with regard to the quantity of the expected profit. For one has confidence in the public administration.

To sum up, the principle of mutual participation in profits as well as in risks must be observed in all commercial contracts.

In all planning, it is necessary to have an idea of the available resources. The Prophet organized the census of the Muslim population, as al-Bukhari informs us. In the caliphate of "Umar, the census of beasts, fruit-trees, and other goods was organized; and in the newly-acquired provinces, cultivable lands were measured. With a large spirit, full of concern for the well-being of the public, caliph 'Umar had the habit of inviting representatives of the people of different provinces, after the collection of taxes, to find out if they had any complaint against the behaviors of the collectors during the year.

THE DAILY LIFE

We may end this brief sketch by mentioning two prohibitions of considerable importance, which form in fact characteristic features of the daily life of a Muslim, games of chance and alcoholic drinks. We have had occasions to discuss games of chance, in which one spends sometimes continually during long year without obtaining anything in return. What a loss to those who are economically weak! The use of Alcohol has the peculiarity that its consumption in a small quantity makes one gay and weakens his resolution to drink no more; and when one becomes drunk, one has no more control over one's acts. One may then squander money without noticing it. To these evils may be added the unhygienic effects of alcoholic drinks which are transmitted in the children and the posterity also. One of the Quranic verses (2/219) speaks of it, in interesting terms: "They question thee about wine and games of chance; say in both is great sin and some profits for men; but the sin of them is greater than their usefulness." (Quran 2/2 19). The Quran does not deny that there are certain profits in the use of alcohol, yet it declares it a sin against the Legislator. In another verse (5/90) it relegates it to the same level as idolatry, and declares it to be the handiwork of Satan; and adds, if one would desire to be happy in the two worlds, one should abstain from games of chance and alcoholic drinks.

Islamic Economic System and Socialism Comparison Essay

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What is socialism?

Types of socialism, scientific socialism, what is the islamic economic system, comparison of socialism with islam concerning, works cited.

When exploring the nature of socialism, the key idea to understand is that socialism is grounded on the collective ownership of world resources by society. This means that separate entities do not have a right to control resources beyond their possessions and that every member of the society is entitled to participate in the decision-making process regarding the usage of such resources. Therefore, socialism can be defined as a system of society advocating “collective or governmental ownership and administration of the means of production and distribution of goods” (Merriam-Webster par. 2).

Socialism experienced its key stages of development in the nineteenth century. The most popular types of socialism were created to oppose capitalistic views and therefore present alternatives grounded on socialistic opinions. When discussing types of socialism, it is important to distinguish Democratic, Revolutionary, Libertarian, Market, and Eco-Socialism. The table below presents key ideas of each type of socialism:

Marxist philosophy

Friedrich Hegel and Karl Marx initially developed the scientific approach to Socialism. Scientific socialism is divided into three main divisions such as politics, economics, and philosophy. As to the philosophy division, Karl Marx based his exploration on the dialectical theory of Hegel, and with the abandonment of the idealistic views, introduced the theory of materialism. Regarding the economy division, Marx agreed with concepts previously outlined by the Classical School of British economists, who introduced the theory of value as labor. Concerning the political division, the Marxist theory agreed with Hegel’s work as to the class struggle within the society and proposed a thesis conjuring of new societal systems – Communism and Socialism.

It is important to mention that Marxist theory was not the only socialistic theory that utilized the notion of science. It can be stated that early members of the British Fabian Society saw the necessity of the “rational and scientific reform and administration” (Vincent 96).

Islamic Critique of Marxism: Unacceptable philosophy and Failure in Practice

While Marxism has a completely anti-religious outlook on the structure of human life, Islam is grounded in the fundamentals of faith in the invisible, something that transcends natural phenomena and is incomprehensible to the regular perception. While each of these ideologies has a specific code of conduct and the outlook on the world and the future, Islam and Marxism were built on completely different concepts and systems of values expressed by their proponents.

In his book Marxism and Other Western Fallacies: An Islamic Critique Ali Shari’ati criticized Marxism for its categorical denial of any spiritual and supra-material essence of an individual and the focus on merely material needs and the triumph of the economy above other values (32). As to the unacceptable philosophy, Islam also put Marxism under major scrutiny for the confrontation of the religious faith and the dependence on the production and economy as the main focus of the civilization. Therefore, the materialistic and needs-oriented ideology shared by the proponents of Marxism does not coincide with Islamic opinions, the majority of which share a common religion-oriented worldview. It is important to examine the nature of the Islamic Economic System to trace differences between it and socialism.

Nature of the Islamic Economic System

To define the nature of the Islamic economic system, the following quote should be taken into account: “Islamic economics aims at the study of human Falah achieved by organizing the resources if earth based on cooperation and participation” (Khan 51). In Islamic tradition, Falah is a concept that exists in both worlds; however, in the real human world in it represents survival, honor, and freedom from want. Another component of the quote given above is the ‘resources of earth’ notion. This notion exists within the framework of the Islamic economy and is associated with how the resources can be utilized to achieve Falah . Muslims believe that God created enough resources that provide a livelihood to his creatures. Following this logic, the scarcity of the natural resources is connected with the improper utilization of the available resources or their irregular distribution. This means that there is not necessarily something wrong with the resourced but that specific measures should be applied to deal with distribution to achieve Falah .

Bases in Quran, Sunnah, and Ijtihad.

Islamic economics is based on the assumption that real-life data has been ordained by the divine being. The concept of interest in the Islamic economy is strictly prohibited in the Qur’an. Furthermore, it is taught that society should completely reject not only the notion of interest but also other concepts that bear any resemblance to it. Thus, the Islamic economic system does not regard financial phenomena as important. Islam is much more concerned with the spiritual side of the economic system and states that everything the society owns was given by God. Because Islam is a religion and a set of values that regulates all aspects of human behavior and because the economy is a form of human behavior, Islam guides the economy of the countries. Muslims exhibit economic behavior in production, distribution, as well as the consumption of services or products (Islam Religion par. 8). As to Islam, economic behavior is value-neutral rather than value-free, an assumption based on the ideological background of the religion.

Qur’an and the Sunnah provide Muslims with the framework of economic behavior and how society should be organized. The chain of rules called the Shariah to define the Islamic economic system in terms of regulation and constitution. Sunnah explained the application of the economic rules by Prophet Muhammad, who provided them as guidance for humankind.

Historical Application of The System

Originating in the middle of the twentieth century, the history of the Islamic economic system was tightly bound to Islamic financial practices. However, in the history of its application, Islamic economics experienced the tension caused by the contrasting ideas between practice and theory, forcing the discipline to divide into two directions such as the aspiration-focused approach (oriented towards the ideal of Islamic economics) and the reality-focused approach (targeted at achieving the feasibility of Islamic economy and the acceptance of the already existing practices) (Shinsuke 114). Thus, the history of the Islamic economics application revolved around the dynamic relationship between reality and aspiration. Throughout its development, Islamic economics facilitated the emergence of different concepts connected with charity, money, and property. These concepts included notions such as Riba , Gharar , and Z akat – all of which came from religious writings such as the Sunnah of the Prophet Mohammad.

Apart from being connected to the oldest Islamic financial practices, the historical application of the economic system implied the involvement of the family, the government, and the society as well as the close interactions between them. Furthermore, the concept of mutual sacrifice has been distinguished as a crucial contributor to the market as well as to the management and maintenance of the family relations. The lack of people’s willingness to sacrifice for others’ sake may potentially cause a decrease in the human input into all institutions such as the market, society, and the government (Chapra par. 10).

Private and Public Ownership

When comparing private and public ownership in Socialist and Islamic frameworks, it is important to distinguish its major differences. In Islam, private ownership is completely guided by the Qur’an, which states that ownership of any objects belongs only to God while separate individuals are only given the right of possession and not ownership. Public ownership in Islam is designed in such a way that all members of the society can use resources, which should not be restricted or limited by the government’s attempts to monopolize them.

As to the similarities, both Islam and Socialism have specific restrictions when it comes to ownership. Despite the availability of the restrictions, their nature is significantly different. Islamic view on ownership and economic freedom does not coincide with socialist ideas. For example, in socialist societies where the government controls the majority of the operations people never expect any charitable help from others in cases of emergency. Contrary to this, Islamic societies support the concept of charitable donation, which implied that those individuals that make more money than others are responsible for diminishing the shortcomings experienced by the less privileged members of the society.

Materialism and Non-Material Targets

It is important first to mention that in comparison with Islamic ideologies, Socialism relies on materialistic ideas and concepts. The father of Socialism, Karl Marx, explained all historical events through the interaction of materialistic elements. Furthermore, there is a total rejection of religious and non-material targets within the socialist framework as Engels stated “matter is the only real thing in the world” (qtd. in Chaudhry par. 17). Thus, it can be concluded that various stages of human development are grounded in the relationships between different economic forces, which means that there is no place for God in the socialist theoretical framework.

Contrary to the socialist views, Islam believes in both material and non-material aspects of human life. In Islamic tradition, there are no antagonistic relationships between different classes that compete with each other for material goods. Moreover, Islam does not believe that all past historical events can be defined by the “interplay of economic forces” (Chaudhry par. 18). In Islam, the value of the economic system lies in the moral and spiritual development of the society, although the achievement of material success through fair work is considered important and valuable.

Individualism and Totalitarianism

In a socialist society, the ruling of the bourgeoisie is completely abolished and substituted with the totalitarian power of the middle or proletariat class. Therefore, some of the fundamental rights and civil liberties are suppressed by the totalitarian power, making people to only regard themselves as members of the society and not separate individuals with rights and the freedom of decision-making. To fit in the society, a person is forced to comply with common ideas and beliefs that present the basis for their existence within the totalitarian regime. The suppression of individualistic ideologies is what makes a social state very powerful in terms of economy.

Islamic economy, on the other hand, does not agree with the complete rejection of individual rights and believes in the democratic form of government, as mentioned in the Qur’an. People living in the Islamic state are granted some freedoms and civil liberties that are crucial in a democracy. If one is to examine the history of the struggle between the state and religion in the majority of Western societies, it can be concluded that the denial of any religious ideologies as components of economy and politics was the mutual characteristics shared by many states. In contrast to this, Islamic states did not eliminate religious ideas from social affairs and managed to prosper in those times when the Western part of the world went through the so-called ‘dark ages.’

Therefore, Islam managed to achieve a balance between individualistic and collectivistic views. It is believed that God appointed each person as the ruler of the land. To exist in a fair society, one must perform the duties to sustain God’s trust. Lastly, the Islamic perspective on the structure of the society is divided into three concepts: individual development and progress, the right to learn and transmit knowledge, and the understanding of how the Islamic society works.

Equality: Socio/Economic Justice vs. Philosophy of Absolute Equality

Socio-economic justice is the key concept that has created a basis for the majority of Islamic teachings. All of the ideas presented in the Qur’an revolve around people living with each other in peace and fulfilling the mutual responsibilities fairly and honestly to make sure that falah is achieved. As to these teachings, the Qur’an states that injustice in society will lead to destruction. Sunnah, the collection of Prophet Muhammad’s sayings, also strongly advocates for social and economic justice in the society, and completely disapproves of injustice. The result of injustice, according to Sunnah, is not destruction but darkness.

Because Islam does not ground its economic laws on scientific knowledge and discoveries, it manifests the structure of the society through specific socioeconomic ideas that do not coincide with any distinct branches of science. For example, when Islam discusses the increase of interest in monetary means, only then it applies scientific knowledge about the sphere of economics. Without the involvement of the scientific interpretation of the issue, Islam usually evaluates its socioeconomic effects and decides whether it will be unjust to prescribe it in society. This means that at times of dealing with specific economic and social problems, Islam rather implements a moral investigation instead of the scientific one. Like any other religious ideology, Islam is concerned with the disparities existing between simple human needs and economic wealth. While Qur’an commands absolute equality before God for all people regardless of their class, it disregards absolute equality of economy and wealth. Therefore, income differences are allowed and are considered natural for a well-functioning society and the economy (Kenny and Koylu 76). On the contrary, it is important to mention that the Qur’an emphasizes absolute equality for all members of society in terms of the distribution of natural resources. Because according to the Islamic faith all creatures were created by God, all of them possess equal rights to access the resources of the earth, which were also given by God.

When comparing socio-economic justice in Islam to that of socialism, it is important to mention that equality for all is one of the key principles of socialism. Socialism does not agree with the fact that people are different and implies equal treatment for all, except for the police and the law (Poulo par. 2). Therefore, in many ways social and political justice within the framework of socialism cannot work efficiently due to the abandonment of the inherent differences with which people are born. In practice, socialism supports the philosophy of absolute equality, although it gives it some explanation.

Absolute equality in the socialist society is needed because the demands of the community may go across with the idea of justice. Therefore, absolute equality is required for justice to overcome the desires of the community to reach a certain outcome. The second reason is that not all inequalities may undermine the community. In this sense, some members of society may be ‘equally unequal’ in some respects when there is no danger for society overall.

The analysis of the Islamic economic system in comparison with socialism has given some interesting results. As the background for the findings, it is important to mention the key difference between the two ideologies analyzed in this paper. The most important difference between Islam and socialism is the attitude towards the idea of faith. While Islam is concerned with the spiritual and moral aspects of human life and integrates religious ideas into the political and economic operations, socialism disregards any religious teachings and focuses on the material phenomena and the acquisition of monetary means and strengthening the economy.

As to the public and private ownership, both ideologies imply some restrictions although they are different. For example, in the socialist society people are not expected to make charitable donations while Islam implies the making of such donations for achieving Falah . Individualism is not recognized by the socialist society where all people are considered equal ‘components’ of the community that does not have any individualistic rights. Islam, on the contrary, supports both collectivism and individualism and recognizes the importance of helping other people while preserving personal beliefs and ideas. Therefore, there is no place for complete totalitarianism in Islamic society. Socioeconomic justice in Islamic society is achieved through moral rather than scientific investigation. Contrary to the socialistic views, Islam does not fully support absolute economic and wealth equality for all people and agrees with the idea that individuals can gain monetary values through fair means.

Chapra, Umer. Islamic Economics: What It Is and How It Developed . n.d. Web.

Chaudhry, Muhammad Sharif. Islam and Other Economic Systems . 2003. Web.

Forms of Socialism . 2013. Web.

Islam Religion. The Economic System of Islam (Part 1 of 2): The Sources of Islamic Economics . Web.

Kenny, Joseph, and Mustafa Koylu. Philosophy of the Muslim World: Authors and Principal Themes. Washington, DC: The Council for Research in Values and Philosophy, 2003. Print.

Khan, Akram. “Islamic Economics: Nature and Need.“ J. Res. Islamic Econ 1.2 (1984): 51-55. Print.

Merriam-Webster. Socialism . n.d. Web.

Poulo, George. Social Justice and Socialism . 2009. Web.

Shari’ati, Ali. Marxism and Other Western Fallacies: An Islamic Critique . Tehran, Iran: Mizan Press, 1980. Print.

Shinsuke, Nagaoka. “Critical Overview of the History of Islamic Economics: Formation, transformation, and New Horizons.“ Asian and African Area Studies 11.2 (2012): 114-136. Print.

Vincent, Andrew. Modern Political Ideologies. 3rd ed. 2010. Chichester, UK: Wiley & Sons. Print.

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"Islamic Economic System and Socialism Comparison." IvyPanda , 6 Aug. 2020, ivypanda.com/essays/islamic-economic-system-and-socialism-comparison/.

IvyPanda . (2020) 'Islamic Economic System and Socialism Comparison'. 6 August.

IvyPanda . 2020. "Islamic Economic System and Socialism Comparison." August 6, 2020. https://ivypanda.com/essays/islamic-economic-system-and-socialism-comparison/.

1. IvyPanda . "Islamic Economic System and Socialism Comparison." August 6, 2020. https://ivypanda.com/essays/islamic-economic-system-and-socialism-comparison/.

Bibliography

IvyPanda . "Islamic Economic System and Socialism Comparison." August 6, 2020. https://ivypanda.com/essays/islamic-economic-system-and-socialism-comparison/.