DEPARTMENT OF ECONOMICS

COURSE TITLE: ISLAMIC ECONOMICS

ASSIGNMENT TOPIC:
“ISLAMIC ECONOMIC SYSTEM VERSUS OTHER ECONOMIC
SYSTEMS”

SUBMITTED BY: SUBMITTED TO:

MARYUM JAVED MISS BUSHRA MUSHTAQ
1725111050 LECTURER OF ISLAMIC
SECTION: B ECONOMICS
SEMESTER: IV DEPARTMENT OF
BS. HONs ECONOMICS ECONOMICS
(2017-2021)

DATED:
 ISLAMIC ECONOMIC SYSTEM VERSUS OTHER ECONOMIC SYSTEMS
ECONOMIC SYSTEM:
An economic system can be defined as a set of principles based on which an economy can operate and make
decisions about which goods and services to produce, how to produce and exchange them, how should the
income from the production be distributed among the factor resources and what shall be the right balance
between public sector and private sector and that between free market mechanism and regulation.
VARIOUS ECONOMIC SYSTEMS:
Many types of economic systems, each with its own pros and cons have evolved over time with certain
differences rendering them apart from one another. A few of these economic systems are as follows:-
i- Islamic Economic System
ii- Capitalism
iii- Communism
GEENERAL COMPARISON
DEFINITION
Islamic Economic System Capitalism Communism
This economic system involves This economic system is based on This economic system involves
the application of injunctions and self-interest and individualism the state ownership of the means
rules of Shariah that prevent and is completely devoid of of production and seeks to create
injustice in the acquisition of moral values. It involves the a classless society in which the
resources in order to provide private ownership of the means of major means of production, such
satisfaction to human beings and production and their operation for as mines and factories, are owned
enable them to perform their profit. and controlled by the public.
obligation to ALLAH and
society. All economic operations
occur within Islamic framework.

FOUNDATIONS

Islamic Economic System Capitalism Communism

The following ideological basis
form the foundation of Islamic
economic system:-
- Existence of Creator
- Abundance of provisions
- Benefit of society
- Sense of responsibility
Four basic rights that form the
foundation of capitalism are as
follows:
- Right to private property
- Right to keep profits made
after taxes
- Right of choice
- Right to compete
Theories of Karl Marx have set
forth the foundation of
communism. His ideas attempt
to set up a fair society in view of
his maxim: “From each
according to his abilities, to each
according to his needs.”

Islamic Economic System
Based on cooperation, generosity
and principles of justice, this
system aims temporal and
permanent success and ensures
welfare of both here and
hereafter.
GOALS
Capitalism
Based on individualism and
disregard of social
responsibilities, this system aims
ruthless competition, callous self-
interest and the survival of the
fittest.
Communism
Based on materialism, this
system aims at establishing a fair
classless society where everyone
owns everything.

Islamic Economic System
Islam presents a concept of
higher world which is the higher
level of civilization attained by
valuing social welfare over
material gain. It seeks to bring
prosperity and well-being in both
the mundane and eternal world.
COMPARISON IN TERMS OF CHARACTERISTICS
Islamic Economic System
The earning of livelihood and
acquiring of wealth is neither
prohibited in Islam nor it is
discouraged given that, it satisfies
the basic necessities of man and
is earned through lawful means
and not unlawful means. Hence,
manufacture, sale, purchase or
consumption of wine and
narcotics is illegal. Interest,
bribery, stealing, prostitution,
singing is forbidden. Gambling,
betting, and games of chance are
unlawful means of earning.
Business malpractices such as
hoarding and black-marketing are
prohibited.
Islamic Economic System
Islam calls for maximum
exploitation of resources and as a
consequence, their minimum
wastage. It is incumbent upon
man to utilize resources in
accordance with the will of his
Creator.
Islamic Economic System
This system uses the authority of
state to promote economic
prosperity and relieving poverty.
VIEWPOINT
Capitalism
This system views one’s self-
interest as the only thing that
matters disregarding moral values
and social responsibilities. It
brings in its wake hedonistic self-
satisfaction and competition for
existence.
MEANS OF EARNING
Capitalism
There is unrestricted freedom in
capitalism as far as earning
livelihood is concerned. People
can earn and acquire wealth in
whatever way they like. This
system is operated without any
check and control. It includes
private property, capital
accumulation, wage labour,
voluntary exchange, a price
system and competitive markets.
The desire to earn profit is the
sole consideration and everybody
is allowed to take up any line of
production he wishes. It leads to
the exploitation of consumers and
establishment of supremacy.
UTILIZATION OF RESOURCES
Capitalism
There is maximum utilization of
both natural and human resources
galvanized by profit earning.
Goods and services are produced
in abundantly to satisfy consumer
demands. There is large-scale
wastage of resources.
INTERVENTION OF STATE
Capitalism
This system is Laissez-faire.
Capitalists are given free-hand to
do as they please.
Communism
This system has arisen from
materialism and regards material
needs as the only real needs of
man. Man struggles to satisfy
these needs. Hence, this concept
is limited to the mundane world
only.
Communism
In communism, people are
chained in control and are
prohibited to have any individual
freedom in this sphere.
According to this, all property is
owned collectively and
everything is collectively shared
with everyone else, Whatever the
means of earning, the wealth is
divided and shared equally
thereby eliminating the difference
between haves and have-nots and
creating an equal classless society
though it involves snatching
away of means from legitimate
owners.
Communism
The resources are utilized such
that the basic necessities of life
for every citizen are efficiently
met. Goods and services are
produced according to the needs.
Hence, large-scale wastage of
resources is eliminated.
Communism
State or government is largely
involved I this system deciding
the allocation of resources.

Islamic Economic System
According to this system, all
property is ALLAH’s trust with
the individual. Private property is
recognized as long as it is earned
through lawful means and it
should be used according to
ALLAH’s will. Property cannot
be used to satisfy personal needs
or business motives contrary to
Shariah. However, the state also
plays a guiding role to ensure
elimination of economic injustice
and exploitation.
Islamic Economic System
In this system, the price
mechanism is not absolutely free
rather regulated by moral values
which act as built-in stabilizer.
Prices are maintained at
reasonable level and prevent any
economic disruption.
Islamic Economic System
This system recognizes economic
freedom of individuals and
provides equal opportunities to
make a living for all members of
the society. There is no chance
for monopolies. It is an essential
duty of the individuals to exercise
economic freedom within the
bounds set by ALLAH.
Islamic Economic System
Islam recognizes the individual
differences with respect to
economic means and possession
of wealth. The Quran considers
these inequalities in the
distribution and does not try to
eliminate them artificially.
RIGHT TO OWNERSHIP
Capitalism
It views private ownership as a
basic need which voluntarily
fulfils the community’s desires
and requirements. The individual
can use his wealth to satisfy his
private needs and can gain more
wealth by lending it on interest or
investing it elsewhere.
PRICE MECHANISM
Capitalism
The price mechanism determines
the course of economic activities
in this system. All economic
variables are controlled by forces
of supply and demand. Means of
production, which goods to
produce and factors of production
are determined by this
mechanism. National and social
interest is of no importance.
ECONOMIC FREEDOM
Capitalism
This system permits individuals
to manipulate their wealth in all
ways and means, regardless of
their possible consequences on
the society. The society’s
interests are served by
individual’s motives and
enterprise who can adopt any
vocation they want in order to
increase their wealth.
ECONOMIC EQUALITY
Capitalism
Capitalism nurtures economic
inequality due to its inequality of
power and wealth. This splits the
society into the class system
creating gap between the rich and
poor.
Communism
It claims collective ownership as
a fundamental concept. In this
system, all cultivators, traders
etc. are deprived of their
individual property and the
means of production are taken
under the state’s control.
Individuals depend upon state
officials for their livelihood.
Inputs and outputs are determined
by the state.
Communism
There are no prices in
communism as production is for
use and not for profit. Individuals
work in order to survive and
satisfy basic needs than out of
passion or desire to create. Prices
are entirely regulated by state
with little regard for the actual
cost of production.
Communism
This system denies individual’s
economic freedom. The state
steps in, plans and administers
the bulk of the country’s
economy with no regard to
people’s incentives. Economic
power is concentrated in the
hands of government and
individuals are deprived of
freedom of action or thought.
Communism
This system claims economic
equality by eliminating
differences between haves and
have-nots. This is achieved by
equitable distribution of resources
which provide for basic
necessities of life.

Islamic Economic System
This system makes clear-cut
distinction between lawful and
unlawful in every economic
activity embracing vast fields of
production. This is governed by
the principles of piety and
prohibits any malpractices and
focuses on the production of
necessities.
Islamic Economic System
In this system, choice of
consumption is filtered by divine
injunctions according to which
lawful and pure products should
be consumed and moderation
should be maintained.
Islamic Economic System
This system keeps the profit
motive alive among the
individuals so that they have full
opportunity to exercise their
maximum potential and earn
profit within the bounds set by
Islam. Hence, their will to work
never slackens and no
government is needed to activate
the people.
Islamic Economic System
This system completely curbs the
possibility of wealth
concentration in few hands and
discourages the practices that
give rise to monopolies. Hence,
attention is put to circulation and
equitable distribution of wealth
through legal measures and
regular system of Zakat, Sadqat
and Law of Inheritance. In this
way, exploitation has been
completely curbed.
CHOICE IN PRODUCTION
Capitalism
Individuals have outright
freedom in the choice of
production, All decisions are
governed by private incentives
and self-benefit and private
economic agents are not obliged
to give consideration to the needs
of the society. Hence an
individual may be lead towards
unlawful methods of production.
CHOICE IN CONSUMPTION
Capitalism
People have freedom to consume
whichever goods they like as
long as they can afford them.
Consumers seek maximizing
utility through increased
consumption of material goods
and services.
PROFIT MOTIVE
Capitalism
Profit motive is a fundamental
principle of capitalism.
Individuals are lead to produce
such goods so as to earn
abnormal profit disregarding
moral-values and society. This
drive for profit is incompatible
with the needs of humanity and
creates wedge between the rich
and poor.
DISTRIBUTION OF WEALTH
Capitalism
In this system, unjust distribution
of wealth leads to the
concentration of wealth in few
hands as capitalists try to utilize
their wealth to earn more and
gradually the bulk of resources is
concentrated in hands of the few.
Individuals exercise their
freedom to establish their
economic monopolies and there
is no mechanism to transfer
wealth from the rich to the poor.
Communism
In this system, individuals have
no freedom to make choice for
production and such decisions are
made by the state or government,
All the economic policy and
planning done by the state
focuses on the provision of the
basic necessities for all.
Communism
Totally controlled by the state,
individuals have no liberty of
thought and action. Hence, the
choice of consumption is such
that the basic necessities are met.
Communism
There is no profit motive in this
system as all means of production
are under state ownership and
individuals lack any motivation
to wok. Their level of efficiency
and tendency to put in full effort
is very low as they do not achieve
what they deserve.
Communism
There is neither unjust
distribution of wealth nor
concentration of wealth in this
system. Every individual is a
worker and receives fixed wage.
Everyone receives compensation
which supplies his own needs
only and no one has any other
source of income except this
compensation. Hence, unfair gaps
and inequalities do not take place.

Islamic Economic System
Interest is prohibited in this
system which encourages equity
financing in which the loss or
profit would be shared. This
ensures better results from the
perspective of redistribution and
better cooperative behavior since
payoffs for all parties are linked
with the productive sector of the
economy.
Islamic Economic System
Through its administrative
measures, this system ensures
that economic injustice and
exploitation are eliminated. It
prevents disequilibrium in the
economy, narrow the gap in
incomes, alleviates
unemployment and keep prices at
a reasonable level thereby
confirming complete economic
security.
Islamic Economic System
This economic system is
completely immune to economic
problems. It considers the reason
of problems to be man himself
and if his attitude is in
accordance with Shariah, there
shall be no crises
INSTITUTION OF INTEREST
Capitalism
Interest is the backbone of this
economic system. Interest is the
chief means of providing finance
for production. It increases the
cost of production, raises prices,
weakens the purchasing power of
the people and discourages
investment by lowering profit
margin; all in all, it brings the
economy to the brink of disaster.
ECONOMIC SECURITY
Capitalism
This system is a constant threat to
economic security. The capitalist
uses the power to further,
strengthen and protect his own
interest. Greed for maximum
profit and usury add to the cost of
production leading to high prices
causing inflation. Class
differences are created and weak
sections of society become
largely insecure.
ECONOMIC PROBLEMS
Capitalism
This system spawns economic
crises bringing in its wake
concentration of wealth
diminishing purchasing power of
masses leading to reduction in
demand. Stocks of unsold goods
heap up causing closure of
factories and resulting in plagues
like unemployment.
Communism
There is no interest in this
economic system. Its absence is
beneficial for the society as it
secures the economy against
several fatal maladies.
Communism
Since there is no social class
system, there is no exploitation of
individuals and equal distribution
of wealth grants basic necessities
to all. Hence economic security is
ensured as it is the duty of the
state to provide facilities like
food, clothing, housing,
education and medical care to
every individual.
Communism
Since goods and services in this
system are produced strictly in
accordance with the national
demand in this system, there is no
possibility of over production and
danger of economic depression is
eliminated.
 COMPARISON IN TERMS OF MERITS
Islamic Economic System
This is the best economic system
with all merits:
- It is democratic in nature.
- It ensure economic
security and stability.
- Its outright advantages
can embark a nation on
the roadway of progress.
COMPARISON IN TERMS OF DEMERITS
Islamic Economic System
There is no drawback or demerit
of this system with the exception:
- Based on moral values, its
implementation is
difficult.
- It is difficult to implement
in non-Muslim societies.
Capitalism
The merits of this system lies in
its self-regulation which are as
follows:
- Free market mechanism
naturally promotes
equality.
- It provides opportunities
for innovations.
Capitalism
There are several demerits of this The demerits of this system are
system:
- It focuses on production
and profit making.
- Lack of consumption
destroys its foundations.
- It gives rise to
socioeconomic disparities.
Communism
The merits of this system are:
- It does not allow
monopolies.
- \It reduces socioeconomic
differences.
- It embodies equality and
hence a stronger social
community.
Communism
as follows:
- Individual rights are not
given priority.
- It hampers personal
growth and dictates
people.
- Most employment
opportunities are found in
agricultural sector.
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