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Comparison between Fundamental

features of Islamic economic System,
Socialism and Capitalism

Islamic economic system

Definition:
Islamic Economics is the study of man-not of an isolated individual but of a
social individual having faith in the islamic value of life.
According to Akram khan, ”Islamic Economics aims at the study of human
falah achieved by organizing the resources of Earth on the basis of co-
operation and participation”.
Basic Features/ Characteristics of Islamic Economy:

The features/ characteristics of Islamic Economy can be explained in various

ways.

The concept of private property

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Basic principles in Islam for consumption or

investment of private property are:

 Concept of “HALAL” and “HARAM “for earning or in production and

consumption of wealth.
 A property can’ be used against public interest.
 Show much as you have something.
 Real/money Capital can’t be used for gain.
 Payment of Zakat is compulsory.
 Surah4. An – Nisa,Ayat 5-5
Do not entrust your properties which Allah
has made a means of support for you- to the weak of understanding,
but. Maintain and clothe them out of it,and say to them a kind word of
admonition.
Consumption of wealth
In Islamic system uses of luxuries are not allowed because it against the
the concept of”TAQWA should have distinguish between”HALAL” and
“HARAM”. “BUKHAL” and “ISRAF” are to be avoided.
According to Quran
Humans have desire to consume positional goods
and indulging in conspicuous consumption.

Production of wealth

Price mechanism plays a key role in carrying out the production process
in an Islamic Society. As price system results in the expectations of
workers and consumers the government interferences with the price
mechanism to over come the problem.

Freedom of work and enterprise: Islam has allowed freedom of work and
enterprise. This is evident from the Madinitc model of Islamic economy. A
reading of the chapter of any Hadith collection in respect of agriculture,
gardening, business etc. will establish this. The Quran also clearly states that
"Allah has made business lawful for you (Surah Baqara, Ayat-275)" Islam
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essentially allows economy to operate freely according to the market forces

subject to Islamic restrictions and guidelines on production. distribution,
marketing, investment trade, exchange, wages etc.
A special concept of ownership: In Islam God is the true owner of all things.
The Quran says: "To Allah belongs whatever is in the earth". (Al- Imran).
However, Allah in His mercy allows human beings to inherit wealth, own it
and use it subject to His laws as evident from the following verses: i) The land
belongs to Allah. He allows it, to be inherited by whom so ever he pleases.
(Surah Araf, Ayat: 128). ii) Do they not see that we have created for them -----
among the things fashioned by us----- cattle of which they become owners?
(Surah Yassin, Ayat: 29). Islam, therefore, allows man as Vice-gerent, to
inherit from Allah (that is to own) wealth. This is indeed a trust for proper
use. We may call it Trust ownership.

Kinds of Ownership: In early Islam there were three kinds of ownership:

private, communal and state ownership. The books' of Hadith are full of
accounts of individual ownership. This was the standard ownership. Some
important things like water, canals pastures and graveyards were communal
properties. The state owned the mines, rivers and large tracts of land. After
the conquest of Syria and Iraq, these lands were made state lands and were
not allowed to go into private ownership. (Tafhimul Quran, Surah Hasher,
Syed Abul Ala Maududi)

State Ownership: There is no bar on state ownership of enterprise in Islam.

The basic economic institutions may be brought under state control, if this is
required to establish social justice or protect the interests of the community.
Islam protects lawful property and is in favour of confiscation of unlawful
property. There are some instances of take over of unlawful property during
the period of Hazart Omar and Hazrat Omar bin-Abdul Aziz. Lawful property
can be taken over by the state only for valid social reasons after due
compensation. During the last Hajj the Prophet (SM) announced the principle
of protection of lawful property. The Quran says, "don't eat each other's
property wrongfully" (Surah Nisa, Ayat-29).
Prohibition of Interest: Islam prohibits interest. This requires a total
reorganization of the economy, banking, investment, exchange, business and
international trade. Already in the last 30 years hundreds of Islamic banks
and financial institutions have been set up and this has become an
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alternative mode in most Muslim countries and some non- Muslim countries.
Its viability and practicability has been accepted by economists and bankers
and many consider this system superior in some respects. A body of literature
has already come up on this subject.
Below are some verses from the Holy Quran related to the prohibition of
interest

Those who eat riba will not stand (on the day of resurrection)
except like the standing of a person beaten by Shaitan leading him to
insanity that is because they say:” Trading is only like Riba”,whereas
Allah has permitted trading and forbidden Riba.Sowhosoever recieves
an admonition from his Lord and stops eating Riba shall not be
punished for the past; his case is for Allah (to judge); but whoever
returns (to Riba),such are the dwellers of the Fire-they will abide
therein. (Surah Baqara verse 275).

Zakat: Islam has made Zakat compulsory on the wealth of rich Muslims. This
is spent for the weaker and distressed sections of the society. Zakat not only
distributes wealth between the rich and the poor of the society, it also
influences investment, savings and allocation of income and resources. A
detailed study has been made in this regard by Dr. Monzer Kahf in his book
"Islamic Economy" American Trust Publications, USA, A rich body of
literature has come up in recent times on Zakat. The Zakat and Ushr
ordinance of Pakistan can be particularly referred to in this connection.

And establish prayer and give zakah, and whatever good you put
forward for yourselves-you will find it with Allah.Indeed,Allah of what
you do, is Seeing.(2:110).

On one another place Quran says about the zakah

Indeed, those who believe and do righteous deeds and

establish prayer and give zakah will have their reward with their Lord,
and there will be no fear concerning them,nor they grieve (2:277).
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Concern for Poor: This is a special feature of Islam. Zakat is one institution
which testifies to this. In this connection we may refer to ayat 5-6 of Surah
Qasas) We desired to show favour into those who were depressed in the
earth, and to make them leaders and to make them inheritors and to
establish them on earth (Surah Qasas, Ayat: 5-6). In these verses Allah, the
Almighty has expressed His desire to show favour on the depressed people.
Islamic economy shall establish all possible institutions to carry out this
desire of the Almighty.

Distribution of inheritance: Islam has not left the distribution of

inheritance on the whims of a person, In Islam a person can not favour one
over the other of his relations for temporary or subjective reasons as is the
rule in the West. Islam distributes inheritable property among several groups
of people: i)Children ii) Husband/Wife iii) Parents iv) Brothers and sisters in
certain situation.

There are 3verses in Surah Al-Nisa. Here is the approximate

translation:
Allah enjoins you concerning your children:The male shall have
the equal of the portion of two females;then if they are more than two
females they shall have two thirds of what he deceased has left, and if
there is one, she shall have the half; and as for his parents, each of them
shall have the sixth of what he has left if he has a child, but he has no
child and only his two parents inherit him, then his mother shall have
the third; but if he has brothers, then his mother shall have the sixth
after (the payment of) a bequest he may have bequeathed or a debt;
your parents and your children, you know not which of them is the
nearer to you in usefulness; this is an ordinance from Allah: Surely
Allah is Knowing

Islamic Economic System implies a mood of satisfying the economics

needs of the members of organized society in accordance with is injection of
Quran and Sunnah. The mood of spending production, distribution and
exchange of wealth is determined by the tenor of these injections. In this
system the economic activities of the members of the society are regulative by
the certain values of which pity, justice, benevolence, cooperation,
brotherhood and equality are especially important. The sources and origin of
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these values are the Holy Quran and the Sunnah of Allah’s Apostle (PBUH).
They are eternal and immutable. Consumers, producers and traders are must
abide these values. At one level, the state can also use the its powers to
implements and enforce these values, however, Islam mostly ensure their
implementations and daily affairs of life through its system of education and
training and by creating a general climate of piety in the society.

Some Fundamental features of Islamic Economics System are

written below.

All the wealth belongs to Allah (SWT):

 "And give them of the wealth of Allah which He has given you." [An-
Nur: 33]

The community is the trustee of the wealth:

 "Believe in Allah and His Messenger, and spend whereof He has made
you heirs."[Al-Hadid: 7]

Hoarding of wealth is prohibited:

 "And those who hoard up gold and silver and spend not in the way of
Allah; announce to them a painful chastisement." [At-Tauba: 34] .

Circulation of wealth is a duty:

 "Whatsoever Allah may restore unto His Messenger - is due unto

Allah and unto His Messenger - the orphans and the needy. So, that it may not
be confined to the rich amongst you." [Al-Hashr: 7]

Capitalism
Definition
Capitalism is the economic system in which the means of production
are distributed to openly competing profit-seeking. Capitalism is not merely
an economics system but a peculiar attitude of mind and behaviour. Basically
it springs out of the notion of the capitalist that he has earned his wealth by
his own ability, skills, knowledge and wisdom.

Some of the features of capitalism are written below.

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1. Private persons and where investments, distribution, income,

production and pricing of goods and services are predominantly determined
through the operation of a market economy
2. Capitalism is originally defined as a mode of production, where it is
characterized by the predominant private ownership of the means of
production, distribution and exchange in a mainly market economy
3. Capitalism is usually considered to involve the right of individuals
and businesses to trade, incorporate, and employ workers, in goods, services
(including finance), labor and land.
4. In Capitalism, state action is confined to defining and enforcing the
basic rules of the market though the state may provide a few basic public
goods and infrastructure.
5. The most laissez-faire capitalist economies, as measured by indices
of economic freedom.

Merits of the capitalism

The merits of the capitalism are as follows:
1.If the production of goods is as per the taste and preferences of the
consumer, it leads to maximum satisfaction
2.In the market capitalist economy, people possess the right to own
property and to pass on to their successors. It leads to a higher rate of the
economy and more economic growth
3.There is absolute economic freedom that means freedom to choose
occupation and enterprise
4.As per the availability of resources, the optimum utilization of goods is
to be done
5.The customer tends to find the products at minimum cost available.
Hence, the object of a market capitalist economy is the efficient production of
goods and services
6.A free-market economy provides a variety of goods to consumers
7.The merit of a capitalist economy is that it provides flexibility in the
market
8.It motivates the entrepreneurs to take risks and to adopt bold schemes
Different perspectives have been adopted by economists, political
economists and historians in their analysis of capitalism and recognized
practice of various forms. The example of the capitalist economy is laissez-
faire (free-market capitalism), welfare capitalism and state capitalism. 
The Demerits of the capitalism

The demerits of the capitalism are as follows:

1. Unequal distribution of income
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2. Poor get poorer and the rich get richer- class struggle
3. High social costs
4. Unwanted multiplicity and way too much competition
5. Unsteadiness of capitalist economy
6. The situation of unemployment and under-employment
7. Slow development
8. Causes exploitation of workers in a lack of right to bargaining 
ntries like Hong Kong and Canada

Socialism
Definition
Socialism or communism means an economics system in which the
mean of production are owned by the state. A central directorate controls the
production of goods and services. The directorate decides the nature,
quantity, and mood of production of goods. This distribution of goods is also
directed by the central body.
Socialism refers to a broad set of economic theories of social
organization advocating state or collective ownership and administration of
the means of production and distribution of goods, and the creation of an
egalitarian society. Modern socialism originated in the late nineteenth-
century working class political movement. Karl Marx posited that socialism
would be achieved via class struggle and a proletarian revolution which
represents the transitional stage between capitalism and communism

Some features of socialism are written below

1. Socialism is not a discrete philosophy of fixed doctrine and program

2. its branches advocate a degree of social interventionism and
economic rationalization, sometimes opposing each other.
3. Another dividing feature of the socialist movement is the split on
how a socialist economy should be established between the reformists and
the revolutionaries.
4. Some socialists advocate complete nationalization of the means of
production, distribution, and exchange;
5. While others advocate state control of capital within the framework
of a market economy. Social democrats propose selective nationalization of
key national industries in mixed economies combined with tax-funded
welfare programs.
6. In the 1970s and the 1980s, Yugoslavian, Hungarian, Polish and
Chinese Communists instituted various forms of market socialism combining
co-operative and State ownership models with the free market exchange.
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7. This is unlike the earlier theoretical market socialist proposal put

forth by Oscar Lange in that it allows market forces, rather than central
planners to guide production and exchange.

Merits
1. Optimum Utilization of Resources: In Socialism, the resources are
owned and controlled by the state in a socialist economy. The central
planning authority allocates the resources in the best possible manner. There
is no -interest of self private individuals  and so no profit motive.
2. Equal Opportunity to all:All people get income for the work done
by them in the form of salary or wage. Wage structure is so designed that
there are  no wide inequalities in it. There is equal opportunity  for all under
this system
3. Rapid Economic Development: Economic is closely associated with
socialism. Planning ensures  rapid economic development along desired lines.
4. Absence of Trade Cycles: In socialist economy, central planning
authority maintains the balance between the forces of demand and supply.
Thus, there is no threat of price fluctuations  and trade cycles.
5. Full Employment: Central planning authority gives boost to
employment on behalf of the state. So it eliminates unemployment. As the
government directs production and distribution, there is no possibility of
depression and unemployment as in capitalism.
6.Economic equality:The greatest merit of socialism is its economic
equality. It does not recognize private property. It does not allow anyone to
amass wealth. So, there is no scope for becoming rich. There will be economic
equality in society. The struggle of the poor against the exploitation of the
rich will be absent in socialism.

De-merits
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1. Concentration of Economic and Political Powers in the State

2. Lack of initiative on the Part of People
3. Reduction of overall Productivity
4. Absence of Consumer Sovereignty
5. No Occupational Freedom
6. Bureaucracy and Red-tapism
7. Reduction in efficiency of State enterprise
8. Loss of liberty