Dr.

Bahrawar Said
Assistant Professor
Dept. of Mgt Sciences
University of Wah
1. Capitalism (free system)
2. Communism/Socialism (controlled system)
3. The Islamic Economic System (the guided
system)
An Economic System is a systematic way of
performing economic activities in order to address and
solve economic problems.
 Basic Economic Problems

1. Determination of priorities (How)

2. Allocation of resources (How)
3. Distribution of income (How)
4. Development (How)
 An Economic System is needed to solve the basic
economic problems of individuals and the nation
as a whole. So the various Economic systems
are:
1. Capitalism (free system)
2. Communism/Socialism (controlled system)
3. The Islamic Economic System (the guided
system)
Capitalism is an Economic System

 Investment in and Ownership of the resources of

production, distribution, and exchange of wealth is
made and maintained chiefly by Private Individuals
or Corporations.
 Economic system.
 Believes in individual ownership and
competition.
 The theory is that when everyone is
selfish, it benefits everyone.
 Adam Smith is “the” capitalist
 Wealth of Nations: capitalism good for society
Principles of Capitalism

Capitalism which prevails in the most parts

of the globe as an economic system, has
the following basic principles

1. Personal Profit Motive

2. Private Property
3. Laissez Faire (Allow to do)
Mechanism for the solution of Economic
Problems in Capitalism

The market forces (the forces of

demand and supply) are used as
mechanism for the solution of
economic problem in capitalism.
Pros Cons
 Competition to provide  Exploits people who cannot
goods and services keeps compete
prices low  Uneven distribution of
 Rewards hard work wealth
 Provides choice  Creates a money-oriented
 Allows for the building up society
of wealth and possessions  Constant economic growth
 Consumers regulate the may lessen the earth’s
market resources
According to Merriam-Webster, Socialism is…

 Government Ownership and Administration of the

means of production and distribution of goods
 A system of society or group living in which there is
Not Private Property
 A system or condition of society in which the means
of production are Owned and Controlled by the State
 The Government should have control over
economic activities, and private ownership of
land and capital should be eliminated or put
under tight restrictions.
 Socialism: A political and economic theory that
a country’s land, transport, natural resources and
chief industries should be owned and control by
the whole community or by the state, and the
wealth should be equally distributed.
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 Thus we can say that, Socialism is a system
under which all capital and natural resources
are owned by the state and all production is
certainly planed as if the whole economy is
one big firm.

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Principles of Socialism

Socialism which is emerged in contrast to the

capitalism and prevailed as an economic system
in communist countries has the following basic
principles

• Collective Property
• Collective Interest
• Equitable Distribution of Income
Mechanism for the solution of Economic
Problems in Socialism

Planning (Economic planning) is used

as mechanism for the solution of basic
economic problems in Socialism.
Pros Cons
 All members share benefits  No incentive to
 Those who cannot
contribute may still work harder
participate (disabled,  No competition
elderly) means no reward
 Each member’s survival
needs are met
to be innovative
 Equal distribution of
wealth
 No socio economic classes
 [Link] ISLAMIC ECONOMIC SYSTEM
 A Guided System
 Sources of Guidance
 Quran: The holy book of Islam.
 Sunnah: The practices and teachings of the Prophet
Muhammad.
 Ijma: Consensus among Islamic scholars on particular
issues.
 Qiyas: Analogical reasoning to derive legal rulings based
on existing texts.
 Islamic Fiqah (Understanding)
 Islam - A Complete Way of Life

- Covers all aspects of life

- Including: -
- Personal
- Social
- Legal
- Political
- Economics
 Regarding Economics,

Islam Explains

- Halal (permissible) Economic Activities

- Haram (non-permissible) Economic Activities
- Allows Halal Economic Activities
- Forbids Haram Economic Activities
- Considered Halal Economic Activities as worship
- Considered Haram Economic Activities as Sin
 ISLAMIC ECONOMIC PHILOSOPHYY

 No scarcity of resources
 Only worship of Allah almighty
 FACTORS OF PRODUCTION IN ISLAM

- Land-God gifted and reservoir of resources

(minerals, water, fertile soil, and forests)
- Human Labour – The only means of
production and distribution of wealth and
legitimizer of wealth acquisition
THE BASIC PRINCIPLES OF ISLAMIC
ECONOMIC SYSTEM

 ALLAH – The absolute owner of all Economic

resources.
 Human Beings – The representatives of Allah for the
management and use of economic resources.
 The Economic Resources will be used as per the
instruction of Allah Almighty.
 The Economic aspects of man’s life are not
completely free.
 The Economic Resources entrusted to mankind by
Allah Almighty will be available for society’s welfare
and betterment.
According to Quaranic verses, every thing in this
universe belongs to God almighty.
"Whatever is in the heavens and whatever is in the
earth belongs to Allah." [Al-Baqarah, 2:284].
He is the real owner of everything
"And Allah’s is the kingdom of the heavens and the
earth, and Allah has power over every thing." [Al-
Imran, 3:189].
‫هو الذي خلق لكم ما في األرض جميعا‬He is the One who
created for you all that is in the earth

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‫‪‬‬ ‫‪Right of Private Ownership‬‬
‫‪ Do not consume one‬التأكلوا أموالكم بينكم بالباطل(النساء)‬
‫‪another's wealth unjustly.‬‬
‫‪ Do not enter houses‬التدخلوابيوتا غيربيوتكم ‪(......‬النور)‬
‫‪other than your own.‬‬
‫‪ No Concept of Equality in Economics‬‬
‫أهم يقسمون رحمة ربك نحن قسمنا بينهم معيشتهم في ‪Allah says‬‬
‫الحياة الدنيا ورفعنا بعضهم فوق بعض‪(..‬الزخرف)‬
‫"کيا وہ تيرے رب کی رحمت تقسيم کرتے ہيں؟ ہم نے ان کے ‪‬‬
‫درميان زندگی ميں رزق تقسيم کيا ہے اور بعض کو بعض پر بلند‬
‫کيا ہے‪"...‬‬
‫وكلوا مما رزقكم هللا(البقرة) ‪ Allah says‬‬ ‫‪42‬‬
 Distinction between legal and illegal
‫ لاتأكلوا اموالكم بينكم بالباطل‬Do not consume one
another's wealth unjustly.
 Useless and over spending is not allowed
‫ والتسرفوا انه اليحب المسرفين‬And do not waste
[resources], indeed, He does not like the
wasteful.
 How to spend?
 The concept of zakat
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PROHIBITED ECONOMIC ACTIVITIES

 Monopoly in all forms

 Hoarding ‫ذخیرہ اندوزی‬
 Gambling and Betting in all forms
 Cheating in quality, quantity, weight or any other
specifications of the goods and services
 Speculation
 All types of fraudulent sale
 All trade malpractices
 Interest in all forms and levels
 [Link]
QgOdU
Assignment. 1: What is your Best Economic
System and Why?

End…