www.stand4islam.blogspot.com: Basic Economic Principles of Islam

About this blog

In recent times a plethora of misconceptions, misrepresentation and myths have been forged about Islam
and Muslims. Many western influentials from politicians, policymakers to judges have taken it upon
themselves to undermine the Islamic beliefs, values and rules so to make it palatable to their
egotistic minds and the secular liberal thoughts.

This blog is dedicated:-

1. To argue the point for Islam in its belief and systems and to refute the misconceptions.
2. To expose the weakness and contradictions of all forms of secularism.

3 Nov 2008

Basic Economic Principles of Islam

1. Islam focuses on the distribution of wealth not just the production.

Islam views the economic problem in a radically different way than Capitalism and Socialism. Islam focuses on the distribution of wealth not just the production. The problem of poverty will not be solved by producing more and more for the rich to consume rather it will be solved by ensuring that basic needs of every individual are satisfied completely. There are enough resources in the world to satisfy the basic needs (not wants) of everyone.

Islam looks at every individual by himself rather than the total of individuals who live in the country. It looks at him as a human being first, who needs to satisfy all of his basic needs completely. Then it looks to him in his capacity as a particular individual, to enable him to satisfy his luxuries as much as possible.

2. All basic needs guaranteed

The Ahkam Shari'ah have secured the satisfaction of all of the basic needs (food, clothing and housing) completely, for every citizen of the Islamic State (Khilafah).

The Prophet (saws) said, "The Son of Adam has no better right than that he would have a house wherein he may live, a piece of clothing whereby he may hide his nakedness and a piece of bread and some water" [Tirmidhi]

The Islamic state has a duty to provide for those who cannot provide for themselves or whose families cannot provide for them

Umar ibn Abdul-Aziz (ra), the famous Khalifah, wrote to his agent in Basra, Iraq, ‘Search for the people of the covenant in your area who may have grown old, and are unable to earn, and provide them with regular stipends from the treasury to take care of their needs.’ [Abu Ubayd, al-Amwaal, p. 805]

The Islamic state used to have public baths, Musafir Khana’s where travellers could stay for free and even open kitchens – e.g. in Bosnia during the Ottoman Khilafah period there were open kitchens where the poor could go and eat for free.

The first organised hospital was built under Islamic rule in Cairo in 872CE. The Ahmad ibn Tûlûn Hospital treated and gave free medicine to all patients. It provided separate bath houses for men and women, a rich library and a section for the insane. Patients deposited their street clothes with the hospital authorities for safe keeping, before donning special ward clothes and being assigned to their beds. Each patient would also have his or her own medical record.

3. Circulation of wealth is a duty

Allah (swt) emphasizes that the wealth should not circulate amongst the few, He (swt) says referring to wealth: “That it does not become a commodity between the rich among you.” [Surah Al-Hashr (59): 7]

Islam has made the circulation of wealth between all citizens an obligation, and it has forbidden the restriction of such circulation to a certain group of people to the exclusion of others.
Hoarding/monopolizing goods is forbidden. Producers or retailers cannot hoard or monopolize goods in order to cause the price to rise. This is based on the ahadith: “The Messenger of Allah (saw) forbade that a foodstuff be monopolized.” [Athram] and “Whoever monopolized is a wrongdoer.” [Muslim].

4. Prohibition of Riba – encouragement of investment

The abolition of all interest based contracts, to be replaced by contracts which share returns and risks. Allah (swt) says:“Allah has permitted trade and forbidden (all) interest.” [Surah Al-Baqarah (2): 275]

The prohibition of Riba (usury/interest) encourages people not to just save their money in a bank waiting for the interest – rather if there will be 2.5% Zakah charged on their unused wealth – this encourages people to spend and invest which generates economic activity and is healthy for the economy. The more spending and investment, the more jobs are created and more wealth is circulated.

In Islam loans are given for ethical reasons with the intention of achieving a reward from Allah. The Prophet (saws) said: "Every loan is a sadaqah". In capitalism the one who gives the loan, shares the profit but not the loss, this is very unfair and unjust. In Islam if you want to share the profit then you must share the loss also – this is the model of Partnerships or company structures in Islam. Like Mudharabah - where someone invests and the other person works and they share the profit and loss. Islam has an equity based system when both sides share the risk and the reward is fair unlike the oppressive Riba based system.

Today interest based debts are crippling people and entire nations. Ali (ra), the cousin of Allah's messenger, pointed out regarding the pre-Islamic age: "We withstood the weight of the Iron, the Stone and the Lash, but we could not endure the weight of debt."

5. The Islamic economy is real and Islam prohibits the current form of financial markets

The Islamic economy is based upon wealth generation where participants partake in investment, employment and trade in the real economy. Islam does not have a dual economy where the real economy operates alongside a financial sector. The Islamic economy focuses all participants on the real economy, through employment, company profits, utilisation of land (agriculture) and manufacturing, wealth is generated in only one sector. This brings the huge benefit of wealth only circulating in one sector - the real economy, where all can participate.

The Islamic system does not recognise the financial markets in their current form. One is able to purchase shares and transfer them without actually partaking in the running of the underlying company that the shares are meant to represent. In Islam ownership is a direct role in a company and not just a share certificate which in effect the stock market allows to be traded and re-traded. It is this ability to not have a direct role in a company that allows excessive speculation. The financial markets are different to the real economy of goods and services.

As the first speaker pointed out this is in fact one of the root problems of Capitalism, the size of the world’s stock markets are estimated at $51 trillion, the world derivative markets are valued at $480 trillion, 30 times the size of the US economy and 12 times the size of the world economy!

There are many reasons as to why Public Limited Companies (PLC’s) stock markets are haram in Islam. One of the key reasons being the issue of liability. The public limited company system gives the public company a distinct quality of limited liability, aimed at protecting major capitalists and businessmen in case the company fails and incurs losses, in which case, those who have claims against it would not be able to demand from its investors any compensation no matter how large the personal assets of the investors are. The financial claims are only confined to what is left in the company in terms of assets. This system is contradictory to Shari'ah in every aspect. The Shari'ah rule obliges all to repay debts in full to the rightful owners, and it is forbidden to cut anything from them.

Al-Bukhari reported on the authority of Abu Hurayrah (ra) that the Messenger of Allah (saws) said: "He who takes money from people with the intention of paying it back Allah will pay on his behalf, and he who takes it with the intention to waste it Allah will waste him."

Ahmed also reported on the authority of Abu Hurayrah (ra) who said: The Messenger of Allah (saws) said: "You shall return the rights to their rightful owners on the Day of Judgement, even the ewe with no horns will get even with the ewe with horns by butting it back."

Hence, the Messenger of Allah (saws) has confirmed the obligation of fulfiling one's rights in full in temporal life, and if one does not he will do so on the Day of Judgement. This serves as a warning for those who devour people's rights.

Islam has its own company structures, there are 5 types which are all related to real partnerships between body and capital. These are Al-'Inan (equal), Al-Abdan (bodies), Al-Mudharaba (two or more), Al-Wujooh (faces) and Al-Mufawadha (negotiation)

Ad-Daraqutni narrated from Abu Hurairah (ra) that the Prophet (saws) said: “The Supreme said I am the third of the two partners as long as one of them does not betray his companion. If he betrayed, I would withdraw from them.”

Islam is against monopolies and encourages competition

PLC stock market companies are able to amass huge amounts of wealth today, to the extent that some companies have more wealth than some countries. In an Islamic system this could not happen due to the prohibition of PLC’s who are able to generate this wealth by issuing shares to the public. This has a positive impact on the economy, as huge companies are able to become monopolies, duopolies or oligopolies which are able to dominate the market place such as Microsoft, Coca-Cola and Pepsi. Even Capitalist agree that monopolies are negative externalities and Adam Smith, the founding father of Capitalism dreamed of an economy with perfect competition an ideal which they can never achieve due to the free market itself. However the Islamic economic system leads to this as by applying its rules it would lead to small to medium companies competing with each other in every market which is healthy for the economy as competition decreases the price and increases quality.

E.g. Why should 3 companies dominate the entire soft drinks market in the world as is today? They completely dominate the market, have enough wealth to buy out any competitors like Coke did with ‘Thumbs Up’ in India. Monopolies have the power to sell lower grade goods to the market without us having any choice, we all remember the Pesticide scandal that took place here.

It is prohibited to sell what you don’t have.

Unlike today where we see short selling or forward selling, where people sell what they don’t yet own. Islam makes it a requirement for traders to own currencies, instruments and commodities before selling them. It is narrated from Hakeem bin Hazam (ra) who said: “I said: O Messenger of Allah, there comes to me a man asking me to sell what I do not have to sell then I buy if from the market. He said: Do not sell what you do not have” [Ahmad]

Islam neither believes in a free market nor a command economy

The Islamic economic system is neither Capitalist where the market is left free to lead to the disasters that we are seeing nor Communist where everything is owned and controlled by the state. Islam distinguishes between public property, state property and private property. Islam forbids the private ownership of the large resources such as the Oil and Gas that we see the Western companies fighting over in the Muslim world. The Prophet (saws) said: "People share in three things, fire, water and the green pastures" reported by Abu Dawud. Anas reported from Ibn Abbas (ra) adding “and its price is forbidden”.

In addition to this the Prophet (saws) used to take back lands from people if he found they contained vast resources such as a salt mine.

The huge revenue generated by public resources such as Oil and Gas in an Islamic state be utilised for the benefit of the public and not for the personal interests of the rulers who siphon off the money into their swiss bank accounts and spend it for their own pleasure as we see the rulers of the Gulf doing today. The Prophet (saw) said:“The Imam is a shepard and he is responsible.” [Bukhari]

6. The Gold & Silver standard for currency

As the brother has explained in the first talk, today’s currency is fiat currency backed by no real assets, only backed by confidence. This is the reason we have increasing inflation the world over. Islam solves this problem as the basis of the currency in Islam is Gold & Silver, the currency is backed by and is interchangeable with it.

The Prophet (saw) established the basis of the Islamic currency, the Dirham and the Dinar upon these tangible things which hold real value and retain value. The Islamic rules have been set in the Quran and Sunnah in terms of Gold and Silver such as the Nisab of Zakah.

It is allowed to have paper notes as long as they are backed by Gold and Silver. So in the Islamic state you can go to the Bayt al-Mal and exchange the paper notes. Therefore inflation is eliminated as the value of gold and silver are stable. The Islamic state cannot just simply print money as they do today without any asset backing, or create money out of thin air! In fact due to the current inflation and financial crisis we can see people are turning to buying gold instead of putting their money in stocks as they know it has a real value.

[Extracted from a transcript of a speech, the Islamic Revival Website]

2 comments:

Tarps said...: I like your post. It is good to see you verbalize from the heart and clarity on this important subject can be easily observed.
Female Quran Teacher; 18 August 2020 at 23:24
zasma yasmin dawood said...: UTIITSL; 30 January 2021 at 12:04

What they said...

“Islam represented the greatest military power on earth…It was the foremost economic power in the world…It had achieved the highest level so far in human history, in the arts and sciences of civilization...Islam in contrast created a world civilization, poly-ethnic, multiracial, international, one might even say intercontinental.”

[Bernard Lewis, Professor of Near Eastern Studies, Orientalist and Historian, 2001]

"There was once a civilization that was the greatest in the world. It was able to create a continental super-state that stretched from ocean to ocean, and from northern climes to tropics and deserts…the civilization I'm talking about was the Islamic world from the year 800 to 1600… Although we are often unaware of our indebtedness to this other civilization, its gifts are very much a part of our heritage"

[Carly Fiorina, ex-CEO of Hewlett-Packard, 2001]

"For the first three centuries of its existence (circ. A.D 650-1000) the realm of Islam was the most civilized and progressive portion of the world. Studded with splendid cities, gracious mosques and quiet universities where the wisdom of the ancient world was preserved and appreciated, the Moslem world offered a striking contrast to the Christian West, then sunk in the night of the Dark Ages."

[Lothrop Stoddard, Ph.D (Harvard), American political theorist and historian, 1932]

"Medieval Islam was technologically advanced and open to innovation. It achieved far higher literacy rates than in contemporary Europe;it assimilated the legacy of classical Greek civilization to such a degree that many classical books are now known to us only through Arabic copies. It invented windmills ,trigonometry, lateen sails and made major advances in metallurgy, mechanical and chemical engineering and irrigation methods. In the middle-ages the flow of technology was overwhelmingly from Islam to Europe rather from Europe to Islam. Only after the 1500's did the net direction of flow begin to reverse."

[Jared Diamond, UCLA sociologist and Author, 1997]

"No other society has such a record of success in uniting in an equality of status, of opportunity and endeavour so many and so varied races of mankind. The great Muslim communities of Africa, India and Indonesia, perhaps also the small community in Japan, show that Islam has still the power to reconcile apparently irreconcilable elements of race and tradition. If ever the opposition of the great societies of the East and west is to be replaced by cooperation, the mediation of Islam is an indispensable condition."

[Hamilton Alexander Rosskeen Gibb, Professor at Harvard University, 1932]

“The Muhammadan Law which is binding on all -- from the crowned head to the meanest subject is a law interwoven with a system of the wisest, the most learned and the most enlightened jurisprudence that ever existed in the world.”

[Edmund Burke, British Statesman and Philosopher, 1789]

"The Exile here is not like in our homeland. The Turks hold respectable Jews in esteem. Here and in Alexandria, Egypt, Jews are the chief officers and administrators of the customs, and the king’s revenues. No injuries are perpetuated against them in all the empire. Only this year, in consequence of the extraordinary expenditure caused by the war against Shah Tahmsap al-Sufi, were the Jews required to make advances of loans to the princes."

[David dei Rossi, Jewish Traveller 17CE, quoted by Norman A. Stillman, The Jews of Arab Lands]

"The notable religious tolerance towards Christians and Jew under Muslim rule had given way to the uncompromising zealotry of Spanish Inquisition. Jews and Muslims thus fled Spain with large numbers of Jews immigrating to the Ottoman Empire which was known for its tolerance to the Jews."

[Graham Fuller, Author and former CIA, 1995]

“If there is much misunderstanding in the West about the nature of Islam, there is also much ignorance about the debt our own culture and civilization owe to the Islamic world. It is a failure, which stems, I think, from the straightjacket of history, which we have inherited. The medieval Islamic world, from central Asia to the shores of the Atlantic, was a world where scholars and men of learning flourished. But because we have tended to see Islam as the enemy of the West, as an alien culture, society, and systems of beliefs, we have tended to ignore or erase its great relevance to our own history”

[Charles Philip Arthur George, HRH The Prince of Wales, 1993]

"...Not being subject to the Sharia, Jews and Christians were free to go to their own religious authorities for adjudication of disputes; but in many cases they went instead to the [Muslim] Qadi"

[Richard W. Bulliet, Professor of History and Author, 2004]

"Here in the land of the Turks we have nothing to complain of. We possess great fortunes; much gold and silver are in our hands. We are not oppressed by heavy taxes and our commerce is free and unhindered. Rich are the fruits of the earth. Everything is cheap and each one of us lives in freedom. Here a Jew is not compelled to wear a yellow star as a badge of shame as is the case in Germany where even wealth and great fortune is a curse for a Jew because he therewith arouses jealousy among the Christians and they devise all kinds of slander against him to rob him of his gold. Arise my brethren, gird up your loins, collect up your forces and come to us."

[In his book 'Constantinople', Philip Mansel quotes a rabbi in Turkey writing to his brethren in Europe where they were facing increasing persecution after 1453]

"Praise be to the beneficent God for his mercy towards me! Kings of the earth, to whom his [the Caliph’s] magnificence and power are known, bring gifts to him, conciliating his favour by costly presents, such as the king of the Germans, the king of the Gebalim, the king of Constantinople, and others. All their gifts pass through my hands, and I am charged with making gifts in return. (Let my lips express praise to the God in heaven who so far extends his loving kindness towards me without any merit of my own, but in the fullness of his mercies.) I always ask the ambassadors of these monarchs about our brethren the Jews, the remnant of the captivity, whether they have heard anything concerning the deliverance of those who have pined in bondage and had found no rest."

[Hasdai Ibn Shaprut (915-990 CE) Jewish physician, chief minister of Islamic Caliphate in Cordova, 'The Jewish Caravan']

"In Baghdad there are about forty thousand Jews, and they dwell in security, prosperity, and honour under the great Caliph [al-Mustanjid, 1160-70 CE], and amongst them are great sages, the Heads of the Academies engaged in the study of the Law…’"

[Benjamin of Tudela, Rabbi in Baghdad in the year 1168 CE, 'The Jew in the Medieval World']

"Those Eastern thinkers of the ninth century laid down, on the basis of their theology, the principle of the Rights of Man, in those very terms, comprehending the rights of individual liberty, and of inviolability of person and property; described the supreme power in Islam, or Califate, as based on a contract, implying conditions of capacity and performance, and subject to cancellation if the conditions under the contract were not fulfilled; elaborated a Law of War of which the humane, chivalrous prescriptions would have put to the blush certain belligerents in the Great War; expounded a doctrine of toleration of non-Moslem creeds so liberal that our West had to wait a thousand years before seeing equivalent principles adopted.

[Leon Ostorog, French Jurist]

"The debt of our science to that of the Arabs does not consist in startling discoveries or revolutionary theories; science owes a great deal more to Arab culture, it owes its existence"

[Robert Briffault, Novelist and Historian, 1928]

"The only effective link between the old and the new science is afforded by the Arabs. The dark ages come as an utter gap in the scientific history of Europe, and for more than a thousand years there was not a scientific man of note except in Arabia"

[Oliver Joseph Lodge, Writer and Professor of Physics, 1893]

“Thus, when Muslims crossed the straits of Gibraltar from North Africa in 711 and invaded the Iberian Peninsula, Jews welcomed them as liberators from Christian Persecution.”

[Zion Zohar, Jewish scholar at Florida International University, 2005]

“Throughout much of the period in question, Arabic served as the global language of scholarship, and learned men of all stripes could travel widely and hold serious and nuanced discussions in this lingua franca. Medieval Western scholars who wanted access to the latest findings also needed to master the Arabic Tongue or work from translations by those who had done so.”

[Jonathan Lyons, Author, Writer and Lecturer, 2009]