An introduction to the Islamic Economic System

By 16 December 2010 Opini Mahasiswa No Comments

The following is a summary of some key aspects of the Islamic Economic system

Islam recognised that humans will undertake a number of actions to survive. These range from the buying of food, taking ownership of property, selling goods, investment, agriculture, taking loans, exchanging currency, taking up employment and giving work, setting up a company, importing and exporting abroad, disposing of assets etc. In this regard, Islam made a distinction between the economic system and economic science i.e. it views them as two separate issues. This is because there is a fundamental difference between the method of production of goods and services (economic science) from the manner of their distribution (economic system).

The production of goods and services follow no particular viewpoint in life. A conveyor belt is neither Capitalist, Islamic nor Communist it is universal. Questions as to how processes can be made more technological, how mechanisms and robots can improve productivity and how inventions can improve the process of manufacturing do not follow any specific viewpoint in life.

This means basic facts on productivity, marketing and manufacturing (economic science) remain the same irrespective of belief or location. This is similar to scientific facts. These are the same whether in China or the US because they are not influenced by any belief. They are questions based upon the reality i.e. understanding the reality at hand leads one to a conclusion. So the fact Inflation occurs when there is too much money chasing too few goods does not change if one is a Christian or if an atheist becomes Muslim or if one move’s form China to the US. This is no different to the fact that wood burns whatever your religion or weather you’re in the UK or the North Pole.

The distribution of resources, how goods and services should be given to the public, whether they should go to the rich or the orphans, aristocracy or the landlords is not a discussion upon the reality i.e. understanding the reality at hand does not lead one to a conclusion. The manner that defines how to distribute the wealth, how to possess it, and how to spend or dispose of it (economic system) can never be a taken from the reality around us, as the reality does not explain this. The goods and what they are made of do not manifest themselves with answers of whom they should go to. Neither is there any evidence from looking purely at the goods nor services themselves of an indication of a way of deciding how they should be distributed. Therefore the answer must emanate from some point external to the reality i.e. a belief system or ideology.

Islam does not view the human as an economic unit and then look to find the most economically viable solution thus viewing all problems, whether from marriage to pensions to drugs to education, from the angle of the economic effect and cost. Neither does Islam view the human the way the Communists did which is that people are simply matter, just one aspect of nature, nothing more. Islam views the human as being composed of organic needs as well as instincts, all of which requires answers on how to satisfy them. So Islam organised these instincts and needs in a way that ensures the satisfaction of them all, such as the needs of the stomach and the need to reproduce and others. However, this organisation is not arranged in Islam by satisfying some of them at the expense of the others, nor by suppressing some of them, setting others loose, or setting all of them loose. Instead, Islam has co-ordinated the satisfaction of all of them in a way to ensure comfort, preventing conflicts and a lapse to a primitive level through the anarchism of instincts.

Through its own economic system, Islam laid down rules for the means to acquire wealth and commodities, how they can be utilised and their manner of disposal. It certainly did not make freedom of ownership the basis of the economic system or even the socialist principal of ‘from each according to his ability, to each according to his needs’.  It did not define the basic problem as ‘unlimited wants, limited resources’. Islam views the resources to be ample enough to completely satisfy the basic needs of all. Therefore, amongst a host of other detailed rules, one will find the Shari’ah aims to secure the satisfaction of all basic needs (food, clothing and housing) completely for every citizen of the Khilafah State.

Islam defined the manner by which humans acquire wealth to prevent a minority of the populace from controlling the majority of the wealth so that the majority of people are not deprived of satisfying some of their needs. Via qiyas (anological deduction) the following verse in the Qur’an ensures this situation never arises:

“That it (i.e. the nations wealth) does not become a commodity between the rich among you”
[TMQ Al-Hashr: 7]

This verse was discussing the issue of the rich receiving wealth and addressed the Khaleefah to ensure the wealth is not distributed in a manner where it remains amongst the rich alone.

The Islamic economic system is built upon three principles:

1. Ownership
2. Disposal of ownership
3. The distribution of wealth amongst the people

In order to facilitate the acquisition of goods and services Islam put forward rules related to the manner of possessing wealth without any complications. Islam defined the legal means of ownership, and it defined the contracts through which possession can take place. This left humanity free to develop the styles and means by which they earn, as Islam did not interfere in the production of wealth.

Islam defines the legal means of ownership and contracts in general guidelines that include legal principles and rules, under which numerous issues belong and against which numerous rules are measured by qiyas (analogical deduction).

Thus Islam allowed employment, detailed its rules and left the person to work as a manufacturer, technician, trader, investor etc. Employment was legislated in such a way that by qiyas it also includes representation. This is because the employee represents the employer of the company and is entitled to a salary. Gifts are legislated as a legal means of ownership and by qiyas this can be extended to include donations, grants, charity and rewards as means of ownership. Thus in Islam the means of ownership and the contracts are detailed by the Shari’ah in general outlines and set in such a way as to include any contemporary incident.

Islam confined possession to particular means and as a result of this fact ownership came to be defined by the Shari’ah as the possession of goods, services and wealth according to divine means as permitted by the Lawgiver.

The Shari’ah has determined the means of ownership by specific cases, which it made clear in a limited, rather than unrestricted form. The Shari’ah has laid down these means in clear general guidelines. These comprise of numerous sections, which are branches of these means and clarifications of their rules. The Shari’ah did not characterise the means by certain general criteria, so no other general means can be included through qiyas. Islam allowed the work of an individual in return for a salary as this is considered, as a legal means of ownership and the core condition for this is that he would be compensated for the effort by being paid a salary for the work. Islam allows the cultivation of land, its farming as well as what is known as agriculture. It allowed the extracting of what is in or on the earth, which means mining, exploration as well as construction. Under this general guideline you also have hunting, brokerage as well as sharecropping. Each of these sections can be extrapolated further by qiyas.

By looking at divine rules from the Shari’ah that allow humans to possess property, it becomes apparent that the means of possession in Islam are limited to five which are:

1. Work
2. Inheritance
3. Obtaining wealth for the sake of life
4. The State granting wealth to the citizens
5. Wealth and commodities that individuals take without exchange (gifts, donations and the like)

It cannot be claimed that Islam is restrictive and hinders economic activity because it has rigid rules, which cannot evolve with time as economic activity increases and changes via the invention of new technologies. This is because humans want to own things in order to survive. Islam clarified which of these means can and cannot be utilised and many of these means can be applied and extended to new realities via qiyas. The ownership of things will increase, decrease and diversify therefore its not necessary that new transactions and contracts be required as the issue at hand is which five means of possession are acceptable to acquire such things. The means to acquire have been laid down and as discussed earlier can be used forever, as they are not time specific.

In future articles other aspects of the economic system in Islam will be explored (

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