Economics

CONTENTS

CHAPTER 1 .............................................................................3 (INTRODUCTION )

CHAPTER 2 .............................................................................4
(CAPITILISM ECONOMIC SYSTEM)

CHAPTER 3 ...........................................................................11
(SOCIALISM ECONOMIC SYSTEM)

CHAPTER 4 ..........................................................................14
(MIXED ECONOMIC SYSTEM)

CHAPTER 5 ………..……………………………………………………………….16
(ISLAMIC ECONOMIC SYSTEM)

CHAPTER 6 ………..……………………………………………………………….24
(COMPARISON BETWEEN THE ISLAMIC ECONOMIC AND OTHER ECONOMIC SYSTEM) 1. DIIFFERENCE BETWEEN ISLAM AND CAPITALISTM 2. THE DIFFERENCE BETWEEN ISLAMIC AND COMMUNIST 3. THE DIFFERENCE BETWEEN ISLAMIC AND MIXED

CHAPTER 1
ABSTRACT

Abstract:
This paper compares the fundamental postulates of major economic systems i.e. Capitalism, Socialism, Mixed economy (a hybrid of Capitalism and Socialism) and the Islamic economic system. It identifies through a review of theoretical economics the structural problems that lie in the current economic order. Poverty and Inequality have increased in last two decades and the millennium development goals are still far from achieved. The research identifies that lack of an ethical foundation, unbridled pursuit of self interest in production as well as in consumption, interest based financial ad monetary system are the major problematic issues in Capitalism against which mixed economy has also shown limited effectiveness. Socialism promises to create heaven on earth, but takes fundamental human rights and profit motive away and in the extreme case give way for an autocratic or totalitarian regime. Islamic economic system in its true sense is not present in any country. It is a blend of natural features present in Capitalism i.e. right to private property, private pursuit of economic interest, use of market forces etc used along with some distinct features derived through Islamic economic teachings i.e. interest free economy, moral check on unbridled self-pursuit and provision of socio-economic justice to achieve the goals of Socialism as far as is naturally possible without denying individual freedom and profit motive

CHAPTER 2
INTRODUCTION

Introduction:
An economic system is a set of principles on which an economy can run and make decisions about the problems it faces in the form of scarcity of resources and unlimited wants.
There are following economic systems that the countries adopt in running their economies. 1. Capitalism 2. Socialism 3. Mixed Economy 4. Islamic Economic System

Humans indeed made systems and who can change them for better. Systems do not need to be modified or altered if they are stable and providing the benefits for which they are created and made to operate. But, if they are not providing the desired results, they can and should be altered to provide the desired results. Not realizing this, we’ve given way to interest bringing inequality & consumerism whereby Co. selling edibles can invest billions on ads yet 2/3rd people are poor who can't afford it.
Indeed, when one sees poor, ill fed, malnourished children on one side and observe multinationals investing millions in ad campaigns to market durables and luxuries which most cannot afford, it provides a strong enough reason to revisit the systems.

CHAPTER 3
CAPITILISM ECONOMIC SYSTEM

Capitalism:
Capitalism is can be simply defined as an economic system, marked by open competition in a free market, in which the means of production and distribution are privately or corporately owned and development is proportionate to increasing accumulation and reinvestment of profits. However, capitalism tends to incorporate a certain "way of thinking", driven by greed, the search for ever-increasing profits, worldwide expansion, and internal development. Starting from the earliest origins of capitalism, only societies with the capabilities and the appropriate mindset could flourish amidst this period of economic, social, and religious dispersion. The earliest form of capitalism is seen in feudalism, the political and economic system based on the relation of lord to vassal held on conditions of homage and service. The earliest establishment of capitalism originated in Rome through mercantilism. Mercantilism involves the distribution Capitalism, economic system in which private individuals and business firms carry on the production and exchange of goods and services through a complex network of prices and markets. Although rooted in antiquity, capitalism is primarily European in its origins; it evolved through a number of stages, reaching its zenith in the 19th century. From Europe, and especially from England, capitalism spread throughout the world. The term capitalism was first introduced in the mid-19th century by Karl Marx, the founder of communism. Free enterprise and market system are terms also frequently employed to describe modern non-Communist economies. Sometimes the term mixed economy is used to designate the kind of economic system most often found in Western nations. The individual who comes closest to being the originator of contemporary capitalism is the Scottish philosopher Adam Smith, who first set forth the essential economic principles that undergird this system. In his classic An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Smith sought to show how it was possible to pursue private gain in ways that would further not just the interests of the individual but those of society as a whole. Society's interests are met by maximum production of the things that people want. In a now famous phrase, Smith said that the combination of self-interest, private property, and competition among sellers in markets will lead producers “as by an invisible hand” to an end that they did not intend, namely, the well-being of society.

Philosophical Foundations of Capital system: Materialism:
Capitalism system has been derived from materialistic philosophy of life. The center and the focus of man’s struggle should be the satisfaction of material needs.
Liberalism:
The4 individual have complete freedom of thoughts and action in every sphere of life. No higher authority has the power to impose any restriction on the liberty of individual. The function of the sovereignty of state is not to circumscribe, but to safeguard the liberty of the individual.
Hedonism:
The entire struggle of the individual has only one goal personal interest. That thing attitude, behavior is right which brings profit, pleasure and happiness to the individual. That thing attitude or behavior is wrong, false and unacceptable which brings loss, grief or pain to the individual. A system of life raised on this philosophy of life will give rise to cut throat competition among individuals to gain economic means. Freedom of thought and action will not only intensify this competition but also tilt the balance in favour of dominant classes. Moreover hedonism will provide moral justification the exploitation of the upper classes. In the presence of these factors capitalism system can never be free of the evil of exploitation.

Characteristics of capitalist economies :
A set of broad characteristics are generally agreed on by both advocates and critics of capitalism. These are a private sector, private property, free enterprise, profit, unequal distribution of wealth, competition, self organization, the existence of markets (including the labor market) and the capitalist class and the proletariat, and the pursuit of self-interest

1).Private property rights
An essential characteristic of capitalism is the institution of rule of law in establishing and protecting private property, including, most notably, private ownership of the means of production. Private property was embraced in some earlier systems legal systems such as in ancient Rome but protection of these rights was sometimes difficult, especially since Rome had no police. Such and other earlier system often forced the weak to accept the leadership of a strong patron or lord and pay him for protection. It has been argued that a strong formal property and legal system made possible

I. Greater independence;
II. Clear and provable protected ownership;
III. The standardization and integration of property rules and property information in the country as a whole;
IV. Increased trust arising from a greater certainty of punishment for cheating in economic transactions;
V. More formal and complex written statements of ownership that permitted the easier assumption of shared risk and ownership in companies, and the insurance of risk;
VI .Greater availability of loans for new projects, since more things could be used as collateral for the loans;
VII. Easier and more reliable information regarding such things as credit history and the worth of assets;
VIII .An increased fungibility, standardization and transferability of statements documenting the ownership of property, which paved the way for structures such as national markets for companies and the easy transportation of property through complex networks of individuals and other entities. All of these things enhanced economic growth. Many governments extend the concept of private property to ideas, in the form of " intellectual property
." It has been argued that the introduction of the patent system was a crucial factor behind the rapid development and widespread use of new technology and memes during and following the industrial revolution. Some oppose the establishment of intellectual property as being counterproductive or coercive. Others argue that some intellectual property rights may be too rigid or constraining to innovation, favoring weaker protections.

2). Free market:
Responsibility of Business is to Increase Profits, as he asserts that business has no social responsibility other than to increase profits and refrain from engaging in "deception or fraud." He maintains that when business seeks to maximize profits, while respecting the guidelines of a free market by not defrauding or deceiving, it almost always incidentally does what is good for society. Friedman does not argue that business should not help the community but that it may indeed be in the long-run self-interest of a business to "devote resources to providing amenities to community..." in order to "generate goodwill" and thereby increase profits. Some, including some supporters of capitalism, dislike the focus oneself-interest. For example, self-described "free market libertarian" founder and CEO of Whole Foods Market, John Mackey, claims in an article in Reason magazine that he is serving customers and society out of "love" rather than self-interest while he boasts the profitability of his company in that article. (Rethinking the Social Responsibility of Business,

3).Free enterprise:
In capitalist economies, a predominant proportion of productive capacity has belonged to companies, in the sense of for-profit organizations. This include many forms of organizations that existed in earlier economic systems, such as sole proprietorships and partnerships. on-profit organizations existing in capitalism include cooperatives, credit unions and communes.

4).Economic growth:
One of the primary objectives in a social system in which commerce and property have a central role is to promote the growth of capital. The standard measures of growth are Gross Domestic Product or GDP, capacity utilization, and 'standard of living.The ability of capitalist economies to sustainably increase and improve their stock of capital was central to the argument which Adam Smith advanced for a free market setting production, price and resource allocation

6). Economic mobility:
One of the key markers of entrepreneurial economies and 'growth' in a society is its economic mobility, defined as the existence of large changes in the make-up of its socio-economic strata. This is manifested as the occurrence of large fluctuations in the various deciles or quintiles of income and wealth among the population, and the existence of large changes over a person's lifetime in relation to their real earning power. In standard economics, a capitalist system provides more opportunities for an individual to rise faster in the world by entering new professions or establishing a business venture. The instability of economic strata is contrasted with traditional feudal or tribal societies, which are considered to have more stable wealth relationships, and with the egalitarianism that exists in socialist societies, which distribute more of their wealth in the form of social benefits and therefore reduce income mobility, particularly among those who own capital and wish to trade it.

Merits:

Maximum utilization of resources:
Private ownership, profit motive and economic freedom force individuals to exercise their God gifted talent to the full and in the best possible manner. This lead to the maximum utilization of human and natural resources. Goods and services are produces in large quantity to satisfy consumer needs.
Inventions and Technical Advances:
In the presence of profit motivate and competition the entrepreneurs are forever seeking better techniques of production. This motive leads to new inventions and development of new techniques of work and business management which are calculated to facilitate and increase production at reduced cost.

Demerits:

Philosophical Errors:
Materialism gives rise to selfishness in the society which eliminates sympathy and kindles the fire of mutual conflict in the society. Makes individual indifferent to collective interest. They indulge in nepotism and become slaves of pleasure. Man loss the ability to see beyond the self interest. A society whose members are self seeking, selfish and self centered can never be free of economic hardship and misery.

Callous Competition:
Competition and conflict hold great importance in the capitalist system. The expectations attached to competition are based on a supposition which does not exist in practical life. Competition can deliver well only when all parties in competition is equal in power and strength. But in the capitalist system power and strength is concentrated in the hands of big capitalists.

Class Struggle:
The capitalist system divides the society in cases: the employer and worker. This thing shatters peace and harmony in the society.
Injustice distribution of Wealth:
The capitalist utilize their wealth to earn more wealth so that gradually the bulk of national resources is concentrated in the hands of a few big cabalists.

Economic Crises:
In the consequences of the concentration of wealth under this system the purchasing powerof the masses diminishes leading to reduction in the demand of produced goods. The sale of goods stopped. Large Scale production heaps up stock unsold goods. This creates serious economic crises.

Disaster of Interest base Trade:
Interest is the backbone of capitalist system. Under this system, interest is the chief meansof providing finance for the brink of economic disaster. Interest is the major cause of the concentration of wealth. By increasing the inequality of distribution of wealth it creates an atmosphere of class conflict. It increases the cost of production, raises the prices, weakens the purchasing power of the people and discourages the investments.

Flow of Economic Resources in the wrong Direction:
Under this economic system resources flow in the direction of vocations which promise maximum profit, even if they are inferior on the social scale and spread mischief.
Corrupt Business Practices:
This philosophy behind this system is devoid of moral values. Businessmen feel no hesitation in resorting to fair or foul means in order to earn maximum profit. The consumers are exploited by creating artificial monopolies and small businessmen are squeezed out of the sector of production.
Economic Rivalries and Wars:
When due to over production demand decreases then capitalists look to foreign markets. All capitalist countries enter into a conflict over capturing international markets. This conflict sometime escalates into wars. Economic rivalries were the main cause of two world wars in the twentieth century.

Shadows of Poverty:
In this system easy methods of mass production creates an environment of economic prosperity, but the fruits of this prosperity are enjoyed only by a tiny wealthy class. The large majority of people live in the dark shadow of poverty.

Unemployment:
Unemployment becomes an integral part of this system. To gain maximum profit the entrepreneurs prefer to use capital intensive technology leading to large scale retrenchment of workers. the capitalist utilize their wealth to earn more wealth so that gradually the bulk of national resources is concentrated in the hands of a few big cabalists.

Economic Crises:
In the consequences of the concentration of wealth under this system the purchasing powerof the masses diminishes leading to reduction in the demand of produced goods. The sale of goods stopped. Large Scale production heaps up stock unsold goods. This creates serious economic crises

Critical Analysis of Capitalism:
Interest is prohibited in all monotheist religions (See Exodus 22:25, Leviticus 25:35-36, Deuteronomy 23:20, Psalms 15:5, Proverbs 28:8, Nehemiah 5:7 and Ezekiel 18:8,13,17 & 22:12). However, interest is pervasive in capitalism.
“Interest to-day rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital. An intrinsic reason for such scarcity, in the sense of a genuine sacrifice which could only be called forth by the offer of a reward in the shape of interest, would not exist, in the long run, except in the event of the individual propensity to consume proving to be of such a character that net saving in conditions of full employment comes to an end before capital has become sufficiently abundant. But even so, it will still be possible for communal saving through the agency of the State to be maintained at a level which will allow the growth of capital up to the point where it ceases to be scarce”.
Among Muslim Economists, Siddiqui (2002) criticized interest stating that even in commercial loans, the borrower may suffer a loss, yet interest based lending obliges him/her to repay the principal plus compound interest. Conversely, the borrower may reap huge profits, yet the lender gets only the stipulated rate of interest which may likely turn out to be small part of the actual profits. It results in inefficient allocation of society’s resources and increases the inequality in the distribution of income and wealth as it guarantees a continuous increase in the monies lent out, mostly by the wealthy, and puts the burden of bearing the losses on entrepreneurs and through loss of jobs on the workers

Growth Vs Development:
Growth is important but development is pivotal. Growth that does not result in development is less desirable. Reducing inequality is more important than increasing the growth rate.

Profit Optimization Vs Social Optimization:
Social Optimization is more important than Profit Optimization. Achievement of social optimization if not possible through the private sector, it must be brought about through government intervention.
What goes around comes around!
Reducing trade barriers is said to benefit consumers as they will have range of competitive products at their disposal. But, consumers earn through factor payments that come through producers. If domestic producers will be crowded out of the market in a no-trade barrier regime; then, consumers will lose jobs and their purchasing power will decrease subsequently. Therefore, in the long run, it merely becomes a zero sum game.
Summarily, as a capitalist, one even with the knowledge that weapons one sells will kill millions in Africa, would not bother as thats what he does for profits as a capitalist. Though, one may favor democracy in principle, but if nationalistic interests are better served by dictators, one will bear them as a head of state of a country in a developed world. Though, one may favor progressive taxation in principle, but if indirect taxes can pay back loans smoothly, one may direct imposition of indirect taxes in developing countries as a chairman of IMF or World Bank.

CHAPTER 4
SOCIALISM

Socialism:
Socialism and communism means an economic system in which the means of production are owned by the state. A central Directorate the production of goods and services. The Directorate decides the nature, quality and mode l of production of goods. The distribution of goods is also directed by this central body.

Philosophical Foundations:

Materialistic Interruption of History:
The evaluation of human history takes place due to material and economic factors. Changes in the social relations and contact follow the changes in the means and modes of production. The large scale mode of production and factory system created by modern capitalism has led to the formation o f labor unions and increase the collective strength of workers. This strength of the workers will strike a death blow to capitalism and establish socialism.

Theory of Surplus Value:
In the capitalism system a large portion of profit is expropriated by the capitalist. The wage pays to the worker far less than the real value of work. This injustice can only be removed in the system of collective ownership.

Class War:
The war between rich and poor always exist in the society. In modern capitalist economy this conflict rages between the capitalist and the worker. Under this system the number of capitalists in constantly decreasing while that of the workers is increasing and unity among the workers is growing strong day by day. Hence It is the workers who will be victorious in this war and a classless society dominated by workers will replace the modern capitalist system.

Dictatorship of the Proletariat:
With the end of capitalist system the supreme power in the state will come into the hands of the workers. They will have the authority to exercise the power of the state.

Anti-Religion:
Religion makes man forget material facts and entangles him in metaphysical issues.

Characteristics of Socialism:

Abolition of Private property:
An individual can own nothing expect necessaries of life. No one can run private business.
Collective ownership of Means of Production:
All the means of production such as factories, farms, land, trade mines and means of transport and communication are under state ownership and control.

Central Planning:
The forces of demand and supply are balances by central planning and a balance is not affected by price mechanism.

Elimination of Unfair Gaps in Incomes:
Each person is paid compensation according to his needs. This eliminates unfair gaps in incomes. The system of distribution of wealth based on fair basis.

Provision of Necessaries of Life:
In this system state ensure that work is extracted from each individual according to his capacity and compensation is given to him to supply all his needs. The state guarantees economic security to every citizen.
Merits:

Elimination of Wastage of Resources:
Goods and services are produce according to needs. This eliminates large scale wastage of resources which is an essential feature of competition under capitalist system. Cost of advertisement and businesses are entirely eliminated.

Eradication of Exploitation:
Since there is no opportunity to earn private profit in this system, the exploitation and economic plundering of the weak is eradicated.

Elimination of concentration of wealth:
There is no possibility of national wealth accumulating in a few hands.

Eradication of Unequal Distribution of Wealth:
In this system there is no scope of gaining wealth through rent, interest or private profit. Every member of the society is the worker and receives the fixed wage. So unfair gap in the distribution of wealth do not take place at all.

Provision of Necessaries of Life:
Since there is no opportunity to earn private profit in this system, the exploitation and economic plundering of the weak is eradicated.
Elimination of concentration of wealth:
There is no possibility of national wealth accumulating in a few hands.

Eradication of Unequal Distribution of Wealth:
There is a opportunity of equal distribution of wealth

Critical Analysis of Socialism:
On the economic criticism of Socialism, Maududi (1970) analyzed that socialism in its quest to tame capitalists brought one big capitalist in the form of government i.e. communist party accredited with the responsibility to operate, manage and administer the overall economy without giving society and individuals any recourse to challenge the government. In such a case, no government, consisting of human after all can keep itself judiciously pursuing common goals than individual goals. Usmani (2003) reasoned that socialism kills the self motive which drives individuals to excel and be efficient.
The predictions of Marx about Capitalism also did not materialize and his Theory of Surplus Value was also criticized later on. The problem in distribution of income in Capitalism from an Islamic perspective was only with interest. Land has an intrinsic value and its owners receive rent on land. Labor also earns wages even when the entrepreneur suffers loss. Value of production i.e. prices of goods is not always sufficient to create surplus after paying wages, rent and interest. While laborer earns wages for work it renders and the land owner earns rent for the use of land, money cannot have a separate compensation of its own until it transforms itself as capital and take the risk of entrepreneurship along with an entrepreneur.
Toutounchian (2006) also differentiated between money and capital and reasoned that if capital is combined with labor, it produces profit, but if money alone is lent, the interest it earns is not permissible.
M :{( 1) L=100%; (2) V>1; (3) MC=0; (4) d=0; (5) ó=0; (6) R=r}
K :{( 1) L<100%; (2) V=1; (3) MC>0; (4) d>0; (5) ó>0; (6) R=ñ}
Where: L= liquidity; V= velocity; MC= marginal cost; d= depreciation
R = return; ó = risk; r= rate of interest; and ñ = rate of profit
On the political criticism of communism, Fukuyama (1992) argued that following the collapse of the Soviet Union, liberal democracy no longer faced any serious ideological challenges and thus had proved itself to be the only sustainable and successful form of government. Marx used the phrase 'the end of pre-history' to symbolize the victory of communism over capitalism. Fukuyama claimed that capitalist liberal democracy would ultimately extend to all nations and this would be 'the end of history'.
CHAPTER 6
Mixed Economy

Mixed Economy:
Mixed economy is a compromise between capitalism and socialism. A mixed economy takes the valuable features of both. Some mixed economies can be tilted more towards socialism and some can be tilted more towards capitalism. However, most countries can be classified as mixed economies in the real world. In the following lines, few fundamental features of a mixed economy are briefly stated.
Coexistence of Public and Private Sector:
In a mixed economy, public and private sector work in parallel to each other. Usually, the public sector is responsible to provide transport, communication, defense, currency management, utilities like telephone, water, gas, electricity etc. All the other industries are in the ownership of private sector.
Government Regulation and Prices:
Unlike in Capitalism, Government intervenes in the market to regulate prices. Governments give subsidies to encourage production of necessities and their cheap availability to the poor masses. On the other hand, high tariff rates are imposed on luxuries with inelastic demand.
Government Regulation and Market Imperfection:
Government intervenes in industries where cartels are formed. It disallows cartels and regulates oligopoly, and monopoly. The government sometimes set a ceiling price for goods and services to put check on monopolies and reduce the burden of inflation on poor people.
Government Intervention and Income distribution:
Government intervenes to redistribute income through progressive taxes, setting ceiling prices for necessities and setting minimum wages. The government also provides tax holidays, tax credits, tax rebates and other concessions and incentives to promote a particular social activity, economic activity or socioeconomic class.
Public Sector and Social Objectives:
Usually, the Public Sector is responsible to provide transport, communication, defense, currency management, utilities like telephone, water, gas, electricity etc. Government provides subsidies to public enterprises so that these enterprises do not increase their prices to cover their losses. Government sometimes bears losses to avoid public displeasure in the form of inflation.
Promotion of Private Sector:
Even though the government intervenes in the hour of need, it still provides incentive to the private sector and a level playing field to compete with the public sector. In industries where public sector and private sector coexist, government lets the market forces work and does not crowd out the private sector.
Deregulation, Liberalization and Privatization:
Governments in mixed economies encourage private sector to take on public sector enterprises that are not running efficiently or can be better run by the private sector. It enables the government to act as a regulator rather than a business entity.
Critical Analysis of Mixed Economy:
Though Mixed economy has solved some of the problems in laissez-faire and Anarcho-Capitalism, but it still lacks an ethical foundation to foster social optimization and development at a grand scale i.e. to influence social and human development. Secondly, it has retained interest free financial system which has created at least two havocs i.e. one in East Asia in 1990s and the Great Recession since 2007 in the short two decade long post-soviet union era. Therefore, much of the criticism that is made on Capitalism holds true for Mixed economy as well.

CHAPTER 7

ISLAMIC ECONOMIC SYSTEM

Economic system of Islam:

meaning
Islam is an entire way of life, and Allah's Guidance extends into all areas of our lives. Islam has given detailed regulations for our economic life, which is balanced and fair. Muslims are to recognize that wealth, earnings, and material goods are the property of God, and we are merely His trustees. The principles of Islam aim at establishing a just society where in everyone will behave responsibly and honestly. The Arabic words
Ma'eeshat and Aish share the same root.
Ma'eeshat
Also means "economy" and
Aish
" means " pleasure and happiness". There is no doubt that if the economy of a nation is good, it will have a life of pleasure and happiness. In other words, if
Ma'eeshat
of a country is good, the nation will have
Aish
. In 20:124, Allah says,
"Those who will disregard my Message [ZIKR], their economy will be in dire straits and they will be resurrected blind on the Day of Judgment" [20:124].
4 Key Aspects of an Islamic Economic System

1.Need Fulfillment.
2.Respectable source of earning:
3.Equitable distribution of income and wealth.
3.Growth and stability:

Islam - Places a greater emphasis on duties than on rights. Under Islam, the criteria for determining a man's worth are not his race, family, position or wealth but rather his character (which is a reflection of his faith and practice) and service to humanity. Lifestyles that reflect arrogance, pomp, grandeur or moral laxity lead to extravagance and waste and result in unnecessary pressure on resources, reducing societies' ability to satisfy the needs of all. They also promote unscrupulous ways of earning and generate inequalities of income beyond the normal distribution that is warranted by differences in skill, initiative, effort and risk. The adoption of Islam protects society form going to excess in lusts, luxury and pleasure, equally, in following restraint and privation. A 'real' Muslim is he whose goodness and efforts are directly aimed to benefit the community. All values conceived on the basis of utilitarianism and self-interest can be disputed, whereas human society needs to be based on values of/on (for) 'good' or 'evil,' and 'right' or 'wrong' which are not disputed even if they benefit the 'have-nots' at the expense of the 'haves.' Without the feeling of Moral obligation to make sacrifice, what is it that can motivate a rich man to forgo his luxuries and economic resource use for the need satisfaction of all. Neoclassical, Keynesian & Socialist Economics are all secularist in their approach to the realization of human well-being and analysis of human problems. They all place too much emphasis on consumption and material possessions as a source of human happiness. Equitable distribution requires a motivation to serve social interest even if this involves sacrifice of self-interest.

Islamic Economic Strategy:

Consists of reorganizing the entire economic system with a set of four indisputable and mutually reinforcing elements:
1.A socially-agreed filter mechanism.

2.A strong motivating system to induce the individual to render his best in his own interest as well as in the interest of society.

3.Restructuring the whole economy, with the objective of realizing the
"Maqasid"
(see below) in spite of scarce resources.
4.A positive and strong goal-oriented role for the government. This must provide:

1.Need Fulfillment.
- assure everyone a standard of living that is humane and respectable.

2.Respectable source of earning.
- Need fulfillment must be through individuals own effort.

3.Equitable distribution of income and wealth.
- $ do not only circulate among the rich.

4.Growth and stability.
- assure expected Growth and stability of economy of a country.

Important institution of Islamic economic system :

Most important institution of Islamic economic system are:

Private ownership

The ystem of zakat and usher

Khamas and kharaj

Law of inheritance

Spending and sadqat

Sharakat and mazarbat

Rule and regulation of commercial dealing

Prohibition of interest and gambling

State responsibility of providing necessities of life

Goals:

1)Achievement of welfare:
The higher goal of Islamic economic system is the achievement of welfare of human beings. As in Islam prohibited the interest for the well beings of people. Muslims are not to deal in interest."O you who believe! Devour not usury, doubled and multiplied. But fear Allah that you may really prosper." (3:130)This prohibition is for all interest-based transactions whether giving or receiving, whether dealing with Muslims or non-Muslims. It is reported that the Prophet Muhammad (peace be upon him) cursed those who pay interest, those who receive it, those who write a contract based on it, and those who witness such a contract. It is forbidden to gain property or wealth by fraud, deceit, theft or other falsehoods.
2).Economic development:
For economic growth to benefit human development in a just and Islamic economic environment, it must contain,

Full Employment

Security of Income

Participation for all in the Democratic process

An equitable distribution of wealth

Social Cohesion

Cultural Enrichment

Sustainable development for future generations

Interest ( Riba ) is prohibited!
The principle is that any profit which we should seek should be through our own exertions and at our own expense, not through exploiting other people or at their expense.

3).Relief from poverty and starvation:
:an important goal of Islamic economic system is the relief from starvation and poverty. Zakât and Sadat play an important role in this purpose."And they have been commanded no more than this: to worship Allah, offering Him sincere devotion, being true in faith. To establish regular prayer, and to give zakat. And that is the religion right and straight." (98:5)Every Muslim who owns wealth, more than a certain amount to meet his or her needs, must pay a fixed rate of Zakât to those in need. Zakât is a means of narrowing the gap between the rich and the poor, and to make sure that everyone's needs are met. Muslims are encouraged to give constantly in charity."Your riches and your children may be but a trial. Whereas Allah, with Him is the highest reward. So fear Allah as much as you can, listen and obey, and spend in charity for thebenefit of your own souls. And those saved from the selfishness of their own souls, they are the ones that achieve prosperity." (64:15-16).The Prophet Muhammad once said that "nobody's assets are reduced by charity."

4).Economic Well-Being & the Moral Norms of Islam:
We read in the Quran these verses: “Eat and drink of that which God has provided and act not corruptly, making mischief in the world” (Al-Baqarah 2:60). “O you who believe! Forbid not the good things which God has made lawful for you and exceed not the limits. Surely, God loves not those who exceed the limits. And eat of the lawful and good that God has given you, and keep your duty to God in whom you believe” (Al-Ma'idah 5:87-88). These verses of the Quran, and there are many others like these, strike the keynote of the Quranic message in the economic field. Islam urges Muslims to enjoy the bounties provided by God and sets no quantitative limits to the extent of material growth of Muslim society. It even equates the struggle for material well-being with an act of virtue.“When the prayer is ended, then disperse in the land and seek of God’s bounty” (Al-Jumu`ah 62:10). The Prophet Muhammad has also said:"If God provides anyone of you with an opportunity for earning livelihood, let him not leave it unexploited until it is exhausted or becomes disagreeable to him." (Ibn Majah) "Any Muslim who plants a tree or cultivates a field such that a bird, or a human being, or an animal eats from it, this act will be counted as an act of charity." (Al-Bukhari).Islam goes even further than this. It urges Muslims to gain mastery over nature because, according to the Quran, all resources in the heavens and the earth have been created for the service of mankind. (Luqman 31:20).From this, one cannot but infer that the goal of attaining a suitably high rate of economic growth should be among the economic goals of a Muslim society. Islam has prohibited begging and urged Muslims to earn their livelihood. From this premise one may infer that one of the economic goals of a Muslim society should be to create such an economic environment that those who are willing to and looking for work are able to find gainful employment in accordance with their abilities. If this is not accomplished then the Muslim society cannot succeed even in its spiritual aims, because those unemployed would be subjected to a life of extreme hardship unless they depend on the dole, or resort to begging or immoral practices, all of which, particularly the last two, would be repugnant to the spirit of Islam. This stress of Islam on economic well-being springs from the very nature of its message. Islam aims at making life richer and worth living and not poorer, full of hardships.

5).Equitable of distribution of wealth:
Zakat and sadqat play an important role for the distribution of wealth. The root of the wordZakât (t) is Z-K-W (za-kaf-waw), which leads to the following meanings: To increase, To grow, to thrive, to increase in the purity of heart; to increase in integrity.
Zakât
means increase or augmentation or growth or development.
Sadaqa
is what is given voluntarily for the sake of Allah to obtain the recompense from Allah when the person who does so aims at conformity with the truth in his deed.
SADAQA is voluntary while
ZAKA is obligatory

.For zakat , there are direct commands of Allah in the imperative while
SADAQA is not enjoined in the Quran in the imperative.

Some differences between ZAKA and SADAQA:

1.
Zaka
is obligatory while
Sadaqa
is supererogatory or voluntary. The money for thepurpose of
2.
Zaka can be taken by force by the authorities while for
Sadaqa
, this is not thecase
3.
Zaka must be managed by a central authority while
Sadaqa
may be given individually orthrough authorities3.
4.
Sadaqa is usually for exigencies or a sudden unforeseen crisis while
Zaka
is a continuous program aimed at providing the resources for the physical and personal development of the people

6). Security of freedom:
:Another purpose of Islamic economic system is to adopt a course of economic struggle which: does not crub the freedom of thought and action of the individual preserve human liberty give to the human freedom to relies his potential in any sphere of his choice gives him complete control over the use and spending of resources earned by lawful mean. This would be the manifestation of a continuous effort to use, through research and improvements in technology, the resources provided by God for the service and betterment of mankind, thus helping in the fulfillment of the very object of their creation. impose no restriction on him except that he remain within the limits setup by the willof Allah

7). Elimination of waste:
A Muslim should be responsible in spending money. Extravagance and waste are strongly discouraged. "[The Servants of Allah are] Those who, when they spend, are not extravagant and not stingy, but hold a just balance between those extremes." (25:67)."O Children of Adam! Wear your beautiful apparel at every time and place of prayer. Eat and drink, but waste not by excess, for Allah loves not the wasters." (7:31)

Function of the Islamic economic system:
The decision which the economic system of Islam has to take in the practical field are call edits function. This decision determined to what things are produced, for whom they are produced and which mode of production are used. Islamic economic system regulates this whole economic struggle by its moral values. These values are the justice, pity, benevolence and cooperation. The source of these values is Quran and tradition. This is the main difference between Islamic economics and other economic system.
Ideological foundation of Islamic economics :
Existence of the creator of universe: the basic foundation of Islamic economic system is that the creator of whole world, master of the world, sustainer and lord is Allah. The whole creation is his family and he is guardian and protector of his family.

1).Man is vicegerent of God: Man is vicegerent of God and deputy of god. In this capacity itis his duty to establish the will of his master in his own sphere.
2). Abundance of provision: Allah has fulfilled this world with infinite resources and these all are for man to use and conquer it. “The door of provision open wide up to sky”
3).These sources are for the benefit of human beings.
4). these sources of provision only utilized according to will of god.
5). Economic problems only one part of life.
6). It creates a sense of responsibility. Man should perform all action in the economic struggle and make all efforts to utilized resources.

Fundamental features of the economic system of Islam :

1).Use of lawful means for earning livelihood:
It provides all lawful means for earning of wealth and discourages wealth with outwork."Wealth without work is a deadly sin". According to the Holy Quran,
That man can have nothing but what he strives for; which is usually translated as gambling, but includes anyform of 'easy money', has been forbidden in the Quran (see Al-Quran, Chapter 2 verse 219and chapter 5 verse 90-91).

2). Prohibition of amassing wealth:
The Arabic word " Suht" as it appears in 5:42, 5:62, 5:63, has the following meanings: A thing that is prohibited, forbidden or unlawful. Any money or property that is forbidden, not lawful to be gained or devoured “Suht" in all the above meanings is strictly forbidden by the Quran. In 5:41-42, Allah says that for those who make money by illegal, unlawful, forbidden or prohibited means or trade or by taking bribes, there is disgrace in this world and a great torment in the hereafter. In 5:62, Allah has described it as superlatively evil and bad deed.
"Why do not the rabbis and the priests forbid their evil-speaking and their devouring of illicit gain? Verily evil is their handiwork." [5:63]

3). Circulation of wealth:
As in Quran Allah says:
Do not be a spendthrift but feed the indigent, instead [17:26]
Allah commands you to give alms [sadaqa] to the indigent [9:60]
Do good to the indigent till their economic imbalance is no more [2:83, 2:215, 4:36]

4). Morale value and the role of state:
Every society has a diversity of jobs to be done. It needs sweepers as much as shopkeepers, book-keepers, as well as leaders and so on. Quran alludes to this diversity of endeavors or jobs in 92:4. But in virtually every society today, those who have amassed some wealth are always at a vantage point to be able to earn more than the deprived, either through investments or interest. Also those who are sharp-minded, shrewd or more intelligent than others are more likely to earn more than those who are less so. But isn't it injustice. Shouldn't man be rewarded by measure of his endeavors and not by measure of his intelligence or capital? Quran suggests a system in which people are rewarded by the measure of their endeavors [20:15], whereby no one can have more than what he strives for [53:39].

Other important features of Islamic economic system are economic freedom, flexibility andprice mechanism of goods

Critical Analysis of Islamic Economic System:
Nevertheless, much of criticism on interest, capitalism and its ideals has been made without reference to developments in contemporary systems and institutions. In proposing alternative to Capitalism, an idealistic approach is adopted.
Pal (2006) thus criticized the traditional approach of comparing Islamic ideals with practiced capitalism. He stated that systems cannot be analyzed judicially with taking ideals of one and the practice of the other.

CHAPTER 7

COMPARISON BETWEEN THE ISLAMIC ECONOMIC AND OTHER ECONOMIC SYSTEM

COMPARISON BETWEEN THE ISLAMIC ECONOMIC SYSTEM AND OTHER ECONOMIC SYSTEMS:

Capitalism, communism and mixed is that the latter systems study analyses and try to solve the economic problem of man by isolating it from the total framework of human life. They donor give much consideration to the effect that their solution of the economic problems might have no other spheres of collective life. In contrast Islam studies the economic problem of man in the total perspective of individual and collective life and adopts a solution which not only tackles the problem in the best possible manner but also does not have any adverse effect in other departments of collective life.

DIIFFERENCE BETWEEN ISLAM AND CAPITALISTM:
Both recognize the right of private ownership of necessaries of life and the means of production. There is difference between concept of ownership given by Islam and Capitalism. According to Islam All kind of property are Allah’s trust with the individuals this interest can only be obtained with Allah’s will. Islam does not recognize the right of the individual to own a property which he has gained by those means which shariat declares unlawful. Capitalism recognizes absolute right of the individual to own and utilize his property. This opens the door to all the evils like economic inequality, injustice distribution of wealth and class conflicts.

Interest:
Interest is the backbone of capitalism. The creation and formation of capital and professional activity depends on it. Islam proscribes interest . So the rise of major and blood- sucking usurious monsters has been stopped forever.
Distribution of wealth:
The capitalism economy by nature tends to concentrate means of livelihood in a few hands. In this system individuals exercise their freedom to rapidly establish their economic monopolies. Taxes can be imposed only up to the limit. Moreover the capitalism class generally resorts to tactics of tax-evasion. Islam discourages all those means of earning wealth which leads to the rise of economic monopolies. Islam ensures the circulation and equitable distribution of wealth among all classes of society by establishing a regular system of Zakat , sadqat and the law of inheritance.

THE DIFFERENCE BETWEEN ISLAMIC AND COMMUNIST SYSTEM OF ECONOMY:

Different viewpoints:
There is the difference between fundamental view points of both systems. The communist system is the child of materialism. It regards material need as the only real needs of man.

Hence man should struggle to satisfy these needs. Islam present the concept of higher world which is above this material world. This higher world is permanent and everlasting.

Collective Ownership:
The basic concept of the communist economy is to abolish private ownership and establish collective ownership of means of production. All means of production are taken under state control. Multitude of capitalists is replaced by only one big capitalist. There is no doubt that collective ownership of means and production and state management of distribution of goods and services ensures the supply of necessities of life to individual citizens but for this gain they loss their natural blessing of free thoughts and actions.

Profit Motive:
Production targets are set in advance and then measures are taken to achieve those targets by force. Islam has kept the natural profit motive alive among the individuals so that they may have full opportunity to exercise their intellectual talent, capacities and energies. Where the profit motive oversteps its lawful bounds, automatic checks are ready to keep it on the right track.
Communism and Capitalism-----Two sides of same coin:
Capitalism and socialism are the two branches of same tree. Hence they take two different directions the fruit they bear are the same. In the capital system, the greed for profit has blinded on individual. In socialism collective ownership has robbed individual of not only their property but also their natural freedom of thoughts. In other words, both systems in their philosophy and action have proved destructive of social justice which guarantees peace and comfort to human beings.

THE DIFFERENCE BETWEEN ISLAMIC AND MIXED SYSTEM OF ECONOMY:
Both recognize the right of private ownership of necessaries of life and the means of production. There is difference between concept of ownership given by Islam and Mixed. According to Islam All kind of property are Allah’s trust with the individuals this interest can only be obtained with Allah’s will. Islam does not recognize the right of the individual to own a property which he has gained by those means which “shariat” declares unlawful. Mixed recognizes absolute right of the individual and Government to own and utilize his property. This opens the door to all the evils like economic inequality, injustice distribution of wealth and class conflicts.

Interest:
Interest is also exits in mixed economic system . The creation and formation of capital and professional activity depends on it. Islam proscribes interest . So the rise of major and blood- sucking usurious monsters has been stopped forever.

Profit Motive:
Production targets are set in advance and then measures are taken to achieve those targets by force. Islam has kept the natural profit motive alive among the individuals so that they may have full opportunity to exercise their intellectual talent, capacities and energies. Where the profit motive oversteps its lawful bounds, automatic checks are ready to keep it on the right track.
Capitalism and socialism are the two branches of same tree. Hence they take two different directions the fruit they bear are the same. In the capital system, the greed for profit has blinded on individual. In socialism collective ownership has robbed individual of not only their property but also their natural freedom of thoughts. In other words, both systems in their philosophy and action have proved destructive of social justice which guarantees peace and comfort to human beings.

CHAPTER 7
CONCLUSION

Conclusion:
This paper evaluated the basic premises of major economic systems i.e. Capitalism, Socialism, Mixed economy (a hybrid of Capitalism and Socialism) and the Islamic economic system. It identified through a review of theoretical economics the structural problems that lie in the current economic order. The research identified that lack of an ethical foundation, unbridled pursuit of self interest in production as well as in consumption, interest based financial and monetary system are the major problematic issues in Capitalism against which mixed economy has also shown limited effectiveness. Socialism takes fundamental human rights and profit motive away and give way for an autocratic or totalitarian regime. Islamic economic system is a blend of natural features present in Capitalism i.e. right to private property, private pursuit of economic interest, use of market forces etc used along with some distinct features derived through Islamic economic teachings i.e. interest free economy, moral check on unbridled self-pursuit and provision of socio-economic justice to achieve the goals of Socialism as far as is naturally possible without denying individual freedom and incentives.