In order to address the economic system in Islam, we first of all need to clarify the position of Islam.
In relation to the quest for material well being. This is because the
word dunya, which is associated with material wealth or worldly
matters, has become a dirty word for many Muslims. The separation for
deen from dunya (secularism) is a Western-Christian concept that has
been recently become widely internalized amongst Muslims. Consequently,
seeking to increase in economic or worldly matters is frowned upon, –
while continuous engagement in prayer and other personal ibadat is
regarded as meritorious. As such, many people get confused and conduct a
double life. On
the one hand, money talks, it gives status and makes life comfortable,
so they seek it vigorously. On the other, they feel guilty, thinking
that their effort should be spent on ‘religious’ duties. This is due to a
misunderstanding of the position of the economic question in Islam.
There is no doubt that Islam is opposed to monasticism and views the
economic activities of man as quite lawful and sometimes even obligatory
and necessary. We find many injunctions in Islam that allude to this.
For example Allah (SWT) says in the Qu’ran: ” Disperse through the land and seek the bounty of Allah” [EMQ-62:10],
He also says, “Allah has permitted trade” [EMQ-2:275],
And even more directly, Allah (SWT) says, ” Seek the
other world by means of that which Allah has bestowed upon you, and do
not be negligent about your share in this world.” [EMQ-28:77]
These are all in reference to economic activity.
In the sunnah, we find that one of the most commonly said du’as that the Prophet (saw) taught us is: ‘ our lord give us the good in this life and the good in the hereafter’. But despite this, we find expressions in the Qu’ran which state: ”
The life of this world is but a delusion” [EMQ 3:185]; “The mutual
rivalry for piling up the good things of this world diverts you from the
more serious things.” [EMQ 102:1]; and many others, stating that man has lust and greed for wealth (89:20) and that he is violent at this greed (100:8) and that he becomes boastful and proud (11:10) and so on.
This apparently sounds like a contradiction in terms. But actually, what we are taught by Islam is that the real objective of our existence is to worship Allah (SWT) through righteous conducts by living as humans in this world. So all those things that are necessary for this life become essential for man. It is one thing to say that material well being is important and even compulsory but it is quite another to state that it is the ultimate goal and center of thought and action in life. This is where the confusion arises about the Islamic economic question. The fundamental difference between Islamic economics and all materialist ones is precisely This. The materialists view that economic well being is the ultimate end of human life, while Islam says that these things may be necessary and Indispensable, but cannot be the true purpose of life. Economic endeavors only become an allurement or delusion if man loses sight of his real purpose in their pursuit. The right path to follow therefore is to fully engage into the worldly economic life in the manner prescribed by Allah (SWT) and his Prophet (saw), both at a societal and individual level. The Prophet (saw) said: ‘Work for your worldly life as you were going to live forever, but work for the life to come as if you were going to die tomorrow.’
THE ECONOMIC PROBLEM IN ISLAM
Unlike the current world view as pushed by the capitalist west, Islam
considers that the main economic problem that mankind will ever have is
that of distribution of wealth and not production. In the eyes of the
capitalists West, there is relative scarcity of resources available in
the world, and people’s demands for these resources are endless. Hence
each nation and, in fact the world, should concentrate on more and more
production. The higher the amount of wealth produced, the higher the
number of people will satisfy their demands through the process of
economic activity, or so the theory goes. Islam distinguishes between
basic needs which include food, clothing and shelter, and luxurious
wants which includes all those things that are not necessities in life.
It views that there are enough resources to satisfy the basic needs of
all people all the time and to satisfy some of the luxurious wants of
people and that the economic problem is that of correct distribution of
wealth and not merely increasing production. There are enough resources
to feed, cloth and house everybody in the world fully as can be seen by
the food mountains of Europe and the excess of the few rich in each
country, including the 3rd world countries.
In accordance with their capitalist philosophy of maximizing profit,
we find governments paying farmers less as in the EC countries, or even
to destroy what has already been produced as happened in poor Latin
America where in the past a huge amount of coffee was burnt to maintain a
certain price level. Far more wealth leaves the poor countries of
Africa for the rich West than vice versa due to unjust economic deals.
Even at the height of the Ethiopian famine crises in the late eighties,
the country was exporting millions of dollars worth of resources to the
west. Allah (SWT) says in the Qu’ran,
“It is Allah who created the heavens and the earth, and
sent down from heaven water wherewith He brought forth fruits to be your
sustenance. And He subjected to you the sea at His commandment; and He
subjected to you the rivers and He subjected to you the sun and the moon
constant upon their courses, and He subjected to the night and night
and the day, and gave you all that you asked Him. If you count Allah’s
blessing, you will never number it; surely man is sinful, unthankful.”
[EMQ 4:32-34].
In another verse He says: “Verily, thy lord doth provide sustenance in abundance for whom He pleases and He straiten it, for He doth know and regard all his creatures.” [EMQ 17:30].
In another verse He says: “Verily, thy lord doth provide sustenance in abundance for whom He pleases and He straiten it, for He doth know and regard all his creatures.” [EMQ 17:30].
These verses among many others show that Allah (SWT) has pooled in
this universe all the needs and beneficial things for man, and has
provided sufficient resources to satisfy the material needs of man. In
Islam, a distinction is made between economic science, which is to do
with the means of production, and the Economic system which is concerned
with the problem of distribution of wealth, namely the rules by which
wealth can be acquired, used and disposed of. It is through the economic
system that is specific to Islam as such but can be acquired from any
other people or developed as seen fit.
OBJECTIVES OF THE ISLAMIC ECONOMIC SYSTEM
The objectives of the Islamic economic system can be classified as follows:
1) To satisfy the basic needs of each and every individual in the Islamic state completely.
2) To provide the citizens of the Islamic State with the means to satisfy their luxurious needs.
3) To achieve 1) and 2) through a naturally workable
system with due incentives for economic activity and an equitable system
of distribution.
PRINCIPLES AND POLICIES TO ACHIEVE THE OBJECTIVES
In
an Islamic State, the currency is backed by Gold / Silver unlike in
today’s capitalist world Ownership. Ownership constitutes one of the
important incentives for
engaging into economic activity as the owner of wealth has the right to
use or dispose of it. The means of acquiring such rights is one of the
fundamental principles through which the objectives of the Islamic
economic system are achieved.
In the Islamic economic system, it is understood that the real owner
(creator) of all wealth is Allah (SWT). We only ‘own’ wealth by proxy as
guardians. Some of us acquire wealth by engaging in the production
process and hence have a direct access to wealth. These include the
factors of production as defined by Islam. Others have an indirect
access to wealth simply because Allah (SWT) as the real owner of wealth
has stipulated that those with direct access to wealth through
engagement in the production process must pass some of it on to them as
He made clear in the Qu’ran: ” Give to them from the property of Allah (SWT) which He has bestowed upon you.” [EMQ 24:33].
This usually takes the form of Zakat, Kaffarat, sadaqat-ul-fitr,
inheritance, etc. Which are given to the poor, the needy and later
generations. It is the duty of the government to ensure that such wealth
is duly transferred by law.
Not withstanding this, Islam does not impose a limit on the amount of
wealth that one can own. Rather it controls the means of ownership such
that people acquire the right to wealth in a just manner. This excludes
speculation, forward transactions, lottery, and dealing with interest,
among other things.
Additionally, Islam also stipulates in accordance to the ahadith of
the Prophet (saw) that certain properties are to be collectively owned
for the use of all citizens. These include sources of energy, pastures
and natural resources including water. Through these ownership
principles, Islam ensures that everyone gets what is rightfully due to
him from his creator, unlike the capitalist system where only those who
take part in the production process have the right to wealth. At the
same time, it gives full incentives to individuals to fully participate
in the economy by not imposing a limit on how much they can own.
Economic enterprises and the prohibition of
interest and hoarding. Interest rates from the backbone of the
capitalist system in many ways. It is used as a tool to regulate
economic growth and monetary supply by acting as an ‘incentive’ for
those who surplus money to save/hoard. In Islam both interest and
hoarding are prohibited. Allah (SWT) says in the Qu’ran:
“And those who hoard up gold and silver and do not spend in the way of
Allah, announce to them a painful chatisement.” [EMQ 9:34]. He also says: “Allah has permitted trade and forbidden interest.” [EMQ 2:275].
Owners Of capital therefore have to invest it either in the form of
private business or partnership. The most fundamental criteria that must
be met by all companies of partnership are that there must be offer and
acceptance between two or more parties, and that once they become
partnered they have equal say in the running of the company.
In addition to these criteria, the manner of sharing profits and
losses is dependent on the type of company and agreement made. In the
Company of Equals (Anan) where partnership is formed by the wealth of
two or more parties, any loss suffered by the company would be shared
among the partners in proportion to the capital they put. In the Company
of Persons (Abdan) where partnership is based on services provided by
the partners, loss is shared according to the salaries/wages of the
partners. In the Company of Mudharaba where partnership is based on
capital from one party and labour from another, loss is incurred by the
owner of capital of labour loses their wage/salary. From these
elementary rules and structures, many other forms of company can be
formed. In all cases, profit is shared according to mutual agreement
independent of the amount of capital or service/labour provided.
Through this arrangement, continuous business investment keeps employment level high and both the rich and the poor get richer.
THE ROLE OF THE STATE
The government plays an important role in the economic system of
Islam. Islam makes it the responsibility of the state to provide food,
clothing, shelter, education, health and security to every individual.
It is also the responsibility of the state to enable citizens with the
means of getting luxurious needs in addition to these basic needs by
themselves. The state achieves this through the management of public
property, through the use of income from other sources and through
provision of a good economic environment so that people satisfy their
needs due to their involvement in economic activity.
SOURCES OF REVENUE FOR THE STATE
1) Taxation Fai – property captured from the enemy
without fighting Ghanima - Booty Ushr - Land Tax on unconquered and
Kharaj - Land Tax on conquered land Jizya - Head-tax on non-Muslims.
2) Others – Revenues from natural resources – Fines levied.
3) Facilitating luxurious needs.
It is also the responsibility of the state to provide adequate
infrastructure for the supply of such commodities to the people. The
most fundamental aims of the economy of any nation is to provide an
adequate supply of goods and services for its citizens and to enable
each citizen to acquire and use them to raise their standard of living.
This requires that wealth be created in the form of usable goods and
services and that people get the means of owning and/or using these
goods or services. The degree to which these aims and objectives are met
and the efficiency with which the citizens of the state participate
depends on the specific rules of engagement, namely the economic system
which the nation implements. Apart from the general ideological
framework upon which the economic system is based, the key ingredients
for the economic success of any nation include:
-Confidence in and stability of the system.
-Workability of the system by providing appropriate economic incentives for wealth distribution.
-A just method of distribution.
-Although only the capitalist economic system is practiced in the
world today, the Islamic economic system gives the best rules of
engagement in economic activity and would be the most successful towards
raising the standard of living of any nation.
ON CONFIDENCE AND STABILITY
The
flawed western capitalist model led to the current ‘Credit Crunch’ –
such a problem is impossible in an Islamic economy. Economic activity by
its very nature is risky as those who partake in
it directly can gain or lose wealth. Hence in all economic systems,
there is always an understanding by those who participate that they may
lose their capital effort. However, there are other phenomena that
adversely affect the economic life of a nation by artificially creating
an atmosphere of insecurity, and thereby reducing the level of economic
activity. These arise because of the specific economic system
implemented and include the followings:
i) Booms and Busts: In the capitalist system, periods
of good and bad trade have become evident from the records. Although
opinions differ widely among economists on the conditions responsible
for trade fluctuations, a common feature is that root cause of these
condition stems from the foundations of the capitalist economic system.
ii) Runaway inflation: The fact that money
continually loses its value has become an intrinsic part of capitalist
economies. Here again there are many opinions from economists as to what
causes runaway inflation. But the recipe for runaway inflation lies at
the heart of established financial controls in the capitalist system.
iii) Money market crashes: These occur regularly in
the form of sudden exaggerated changes in foreign exchange rates and
sudden falls in share prices.
The most fundamental characteristics of the capitalist economic
system which forms the root of these phenomena are speculation and false
representation. These are manifested in:
The artificial creation of money: There is nothing to prevent
governments from literally creating money at will. Excessive creation of
paper money which cannot be represented by real wealth is the root
cause of inflation. Further, governments and banks refer to this blandly
as increasing money supply, i.e. they have printed more money while the
assets the money represents remain constant. In addition, high street
banks can lend money that is non existent by crediting peoples accounts
on paper. This false representation that is meant to keep the system
going actually creates more artificial money. In Islam it is prohibited
for the state to artificially alter the supply of money which is based
on real tangible assets (gold and silver). Therefore there is no
increase in money supply beyond real increases in wealth and accordingly
inflation is not a problem.
In such an environment businesses have far greater stability and
bust/boom, inflationary/ recessionary cycles will not occur. In
capitalist economies governments often use instability in money supply
taxation upon the people. As the value of their earnings or assets and
savings rapidly plummit there is a massive transfer of value to the
government / banking system that control the currency. The ex-Yugoslavia
and Russia are recent examples of economies where governments used
hyper-inflation for these ends. That inflation may be 2-6% in many
western countries is little comfort as it is still the eating of the
wealth of the people. In conclusion, the above points clearly outline
certain fundamental differences between the capitalist economic system.
The inherent failing of capitalist economies can be seen today
throughout the world, even in the Muslim countries, where it has been
forcibly applied by corrupt rulers. The details of Islamic economics
should fill us with confidence that Islam provides solutions to the
‘economic problem’, which the world around us currently faces.
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