Capitalism, Socialism and Islamic Economics Explained
Capitalism is derived from the word capital which
means money or resources which can be distinguished in the form of land and
labor. Capitalism was born during the industrialization period where products
were mass produced for example in Great Britain. Mass production required
machinery or capital investment and a massive labor force. The wealthy
industrialists competed among themselves to maximize profit and minimize costs
which they did by enslaving people. Slaves meant no labor costs, and more
profit. The rich became super rich and the poor became very poor.
The ideology of classical capitalism was expressed
for the first time by Adam Smith in 1776. The definition of capitalism as in A
Modern Dictionary of Sociology is “An economic system based upon the
accumulation and investment of capital by private individuals who then become
the owners of means of production and distribution of goods and services”.
The main features of the capitalism system
are
1) Private ownership or enterprise, in a free market
thus able to produce any products and distribute it at will. There is no
central economic plan.
2) Each individual pursues his self-interest without
government interference. The government takes a laissez-faire attitude towards
the businessmen.
3) Steep competition between the market players
based on the concept of survival of the fittest.
4) Markets and price systems dependant on the demand
and supply
The wide disparity between the few super rich and
the poor masses led to social injustice. In 1917 a revolution exploded in
Russia led by soldiers, workers and peasants who rose against the ruling class.
They executed the monarchy and established the Soviet Union, the first communist
country. There was no private ownership and everything belonged to the
government. Everyone was given a job and had enough to live without falling
into poverty.
Communism is derived from socialism. Encyclopedia
Americana defines socialism as “a doctrine that espouses public ownership or
control of the major means of production. It aims to achieve a more equitable
and efficient distribution of social goods and greater planning than exists
under capitalism.” Communism is the idea of a classless society where everyone
is equal. Although there are many proponents of socialism, Karl Marx is well
known because of his books the Communist Manifesto and Das Kapital.
These are some key characteristics of socialism
1) The central planning system decides what and how
much to produce. The motive to produce is not profit but usefulness to society.
2) Socialists establish equitable income
distribution through public ownership of the material means of production.
3) Public enterprise where the industry and price of
products are controlled by the government.
Other countries also followed the ideology of
socialism and communism like China and Cuba. The USSR collapsed in 1991 after
70 years of rule. The reason it collapsed is true classless society was never
achieved. The leaders and their cronies had privileges that the masses were
deprived of. It became a police state and the people lived in constant fear for
dissent was treated with violence. Capitalism remains the only ideology that is
practiced in most parts of the world despite its many faults. Now let’s look at
Islamic Economy.
Economy during the time of the Prophet (SAW) and in
Medina was solely based on the Shariah. Islamic economy was practised during
the period of Ummayyad, Abbasid, Mamluks and finally the Ottoman Empire. Based
in Constantinople the Ottoman Empire included southeast Europe, Western Asia
and North Africa and ruled for 633 years until the caliphate was abolished on
November 1st 1922.
Muhammad Abdul Mannan, defined Islamic economics as “A social science
which studies the economic problems of a people imbued with the values of
Islam. It has to deal with the production, distribution and consumption of
goods and services within the framework of an Islamic society where the Islamic
way of life is fully established.”
The key characteristics of Islamic economics are
1) Traders are allowed to trade in a free market
with no government interference. Hisbah was established to monitor the market
of wrongful acts. Monopolies and cartels are not allowed.
2) Private ownership is a right of each Muslim. The
law of inheritance has been outlined in the Quran, and if the person has no
legal heir, the property will belong to the public treasury.
3) Zakah is obligatory on all Muslims. The
non-muslims have to pay jizyah and kharaj (land tax). Other forms of taxation
are forbidden in Islam for example toll and sales tax.
4) Riba or interest is forbidden in Islam. Allah
clearly says that whoever involves with riba is at war with Him and His Rasul,
Allah forbid!
Islamic economics was practiced successfully for
example during the reign of the Caliph Umar ibn Abdul Aziz in the Umayyad era,
when zakat could not be distributed due to the economic well-being of his
subjects.
Thank you for sharing your knowledge. Very useful indeed.
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