‫بسم اللہ الرحمن الرحیم‬

ECONOMICAL SYSTEMS AND ISLAM

 The Basic Economic Problems
• Determination of Priorities
• Allocation of Resources
• Distribution of Income
• Development
 The Economic Systems

•Feudalism
•Capitalism
•Socialism
–Communism
•Islam
Feudalism
 Feudalism
• In the year 650 AC
– Spain
– Sicily
– Carsa
– Sardania
– Southern Italy
 Feudalism
• End of sixth century
– Iran
– Syria
– Palestine
– Jordan
– Lebanon
– Egypt
 Feudalism
• Europe was confronting with the problem of
trade routes.
• Cultivation was their main occupation.
 Feudalism
• The decline of the ROMAN empire
– Small kingdoms
– Feudal States.
 Feudalism
• The landowners and feudal lords gave small
pieces of land to farmers for cultivation. The
produce was divided.
• It was the duty of the feudal lord to protect
the life and honor of the farmer
• The farmer was bound to offer his military
service when needed.
 Feudalism
• The farmer was burdened with taxes
• If his master was taken prisoner, farmer must
ransom him
• When the daughter of the master was wedded
farmer has to arrange her dowry
• Farmer had to bear the expenses of
celebration when his master’s son become
chief
 Feudalism
• The Crusade Wars
– Muslims Lost Control over
– Eastern Mediterranean Sea
– Sicily
– Cyprus
 Feudalism
• Money Lenders
• Progress in Transport
• Thinking in Terms of National interests
• Patriotism
 Muslims Downfall and its Effects
• Muslims downfall in Spain
– 1492 King Ferdinand and Queen Isabella defeated
Muslims
– Turk Muslims rule over Constantinople and
captured River Bosbhorus and other Sea routes of
Europe
 Discovery of Ocean Routes
• In 1598 Vasco De Gama discovered an ocean
route to India
• Doctrine of Discovery
 Industrial Revolution
• Gold and Silver trade
• Art of shipping attained new heights
• New tools and methods of cultivation
• Small farmers sold their land
• Increase in city population
• Many large and new cities and towns
 Capitalism

Eighteenth Century
 Capitalism
• Determination of Priorities
– Law of demand and supply
• Allocation of Resources
– Law of demand and supply
• Distribution of Income
– Law of demand and supply
• Development
– Law of demand and supply
 Capitalism
• Factors of Production
– Land
– Labor
– Capital
– Entrepreneur
 Capitalism
• Private Property
• Profit Motive
• Laissez Faire
 Capitalism
• For economic solutions
– Profit motive a Greed r
– Law of supply and demand a
– No prohibition of any kind in maximization of
profit r
 Capitalism
• No prohibition of any kind in maximization of
profit
– Appeal evil desire of society
– Un wanted inflation
– Invest against social benefits
– Monopoly
 Capitalism
• No prohibition of any kind in maximization of
profit
– Difference in standard of living
– GDP Un employment
 Capitalism
• According to G. William Domhoff
• As of 2007
– The top 1% (upper class) owned 34.6% of wealth
– 19% (Managerial professionals) 0wned 50.5%
• Which means 20% of people owned 85% of
wealth.
http://sociology.ucsc.edu/whorulesamerica/power/wealth.html
(updated October 2009)
 Capitalism

Distribution of Wealth 2007

80%
15%

1%
35%

19%
50%

1% 19% 80%
 Capitalism
• No prohibition of any kind in maximization of
profit
– Interest
– Gambling
– Speculation
Socialism
 Socialism
• Determination of Priorities
– Planning
• Allocation of Resources
– Planning
• Distribution of Income
– Planning
• Development
– Planning
 Socialism
• Factors of Production
– Land
• Hence it is not in the ownership of anyone, so no need
to pay rent.
– Labor
• Government will decide the wedge.
 Socialism
• Capital
– Result of Production
• Entrepreneur
– Labor
– Actually State is the risk taker
 Socialism
• Collective Property
• Planning
• Collective interest
• Equitable distribution of Wealth
 Socialism
• Human error and Chances of Corruption
• Tyrant State
• Decrease in Performance
Islamic Finance
 Islamic Finance
• Islam is a complete deen it is not an economic
or financial system
 Islamic Finance
• Islam does not reject the supply and demand
theory
 Islamic Finance
• But there are certain prohibitions
1. From the creator
– Forever
– For economic stability
– For the well being of society
 Islamic Finance
2. From the state
– They are temporary
3. Moral
 Islamic Finance
• Factors of Production
– Land
– Labor
– Entrepreneur
– The Owner
• Zakat
• Ushar
• Sadaqat
• The holy Slaughtering
 Islamic Finance
• Difference between Land and Capital
Land Capital
Usable by itself and remains with in Does not have its own use only a
your hand after use medium of exchange.

Accept depreciation Does not depreciate

Risk belongs to the owner Does not belong to the owner

 Islamic Finance
• That is why Islam does not consider capital
same as land
• So you can get rent for the land
• Not interest for the capital
• If you want profit so bear the risk