The Garden of Knowledge

بسم الله الرحمن الرحيم

 01 Dhul Hijjah 1443/01 July 2022

All praise is due to Allah, the Cherisher, Sustainer, Nourisher and Provider of the entire creation. May peace, blessings and salutations be upon our Beloved Prophet Muhammed ﷺ.

In order for us to propose the implementation of an Islamic Economic System we need to have an understanding of what are the different economic systems, what are their key functions and why would an Islamic Economy be a better fit for society. An Economic system is a mechanism which deals with the production, distribution and consumption of goods and services in society.

Communism and socialism are umbrella terms referring to left-wing schools of economic thought, both opposing the capitalist school of economic thought. A socialist economy is a system of production where goods and services are produced directly for use and not aimed at generating a profit. It is a populist and political economic system based on public and collective ownership.

Amongst the salient features of the socialist economic system we find the following:

• All economic activities are not driven by demand and supply however they are planned and coordinated by a Central Planning Authority (CPA). The CPA are responsible for setting socioeconomic objectives. In terms of occupation, one cannot enter a field of their choice rather the occupation is determined by the CPA. In most socialist economies, the CPA is controlled by members of government.
• Within the socialist economy there is an equal distribution of income to try and bridge the gap between the rich and the poor.
•  Due to the lack of competition and absence of profit motive the price of commodities are not determined by market forces and production is planned which means consumer sovereignty does not exist.

Capitalism is an economic system in which the means of production, trade and industry are owned and controlled by private individuals or corporate with the aim of making profits in the market economy. It is also known as the free market economy or as the laissez-faire economy. Key characteristics of capitalism include capital accumulation, competitive markets and wage labour.

Amongst the salient features of capitalism we find the following:

• The key component of capitalism is profit.
• There is freedom of enterprise meaning every individual is free to engage in the economic activity of his/her choice.
• Extreme competition exists within the market between firms.
• Production and pricing is determined by the demand for goods and services and by the difficulty to produce goods and services.
• There is unequal distribution of income which means the gap between the rich and the poor are massive.

A mixed system is one that combines capitalism and socialism. Governments have a strong influence over how resources are allocated, particularly when it comes to vital sectors like transportation, energy production, communication, and health care, while simultaneously encouraging private ownership and decision-making.

In sha Allah in our upcoming articles we will take a look at the Islamic Economical System thereafter doing a comparison between the various systems.

May Allah accept our efforts from us and grant us understanding In Sha Allah!