Chapter 3

Mohd Fauzwadi Mat Ali/FPP 1

CHAPTER 3CHAPTER 3

THE FOUNDATIONS OF ISLAMIC ECONOMIC SYSTEM


OBJECTIVES OF THIS CHAPTEROBJECTIVES OF THIS CHAPTER

To identify the types of economic systems

To compare the types of economic systems

To describe the philosophy and principles of Islamic economy


INTRODUCTIONINTRODUCTION

There are many terms that are used to describe the types of economies that exist in the world

In reality there are no pure capitalism economies, nor are there any pure central planning economies

For example, even in the United States, where free enterprise reigns, the government plays a major role in the economy. Minimum wages, social security, and regulatory policies are examples of government involvement.


Cont’Cont’

In China, for example, some private ownership of businesses is allowed, however the government still maintains tight control over the factors of production and prices.

While we could say that both the United States and China are mixed economies because they contain both capitalism and central planning economic features, to do so would be misleading because the role that the respective governments play in the economy are quite different.


Cont’Cont’

It’s can be say that a differences countries have differences of economic systems

The economic system of a country determines how things are produced, distributed and sold


DEFINITION OF ECONOMICSDEFINITION OF ECONOMICS

Economics is the study of how people choose to use their scarce resources (land, labor, capital, entrepreneur) in an attempt to satisfy unlimited wants


DEFINITION OF ECONOMICS SYSTEMDEFINITION OF ECONOMICS SYSTEM

An economic system is a set of mechanisms and institutions that resolve the what, how and for whom questions

Economic systems determine how people produce and consume goods and how wealth is distributed and evolves


Cont’Cont’

An economic system is a mechanism (social institution) which deals with the production, distribution and consumption of goods and services in a particular society


TYPES OF ECONOMIC SYSTEMTYPES OF ECONOMIC SYSTEM

Traditional economyCapitalism economyCentral planning economyMixed economyIslamic economy


CAPITALISM ECONOMYCAPITALISM ECONOMY

Capitalism economy is an economic system in which individuals own and operate the factors of production

It’s a private ownership of resources and the use of prices to coordinate economic activity

It’s also known as market economy


Cont’Cont’

Based on the free trade and market A limited control by government


PRINCIPLES OF CAPITALISM PRINCIPLES OF CAPITALISM ECONOMYECONOMY

High competitivenessIndividual have a their own propertiesProfitability incentiveFree trade economyConsumer powerLimited control by government


PROBLEMS OF CAPITALISM PROBLEMS OF CAPITALISM ECONOMY ECONOMY

Rational Socio-economy are not stableHigh competitivenessMonopolyThe prices in the marketplace reflect

consumer preferences The distribution of property and

income could be very unequal


CENTRAL PLANNING ECONOMYCENTRAL PLANNING ECONOMY

Central planning economy is a economic system in which the government owns and operates the factors of production

It’s a centralized economic planning and public ownership of resources

Example in practice of this system are Cuba, China & Laos


PRINCIPLES OF CENTRAL PLANNING PRINCIPLES OF CENTRAL PLANNING ECONOMYECONOMY

The government own all wealth or properties

The stability of socio economyControlled by government


PROBLEMS OF CENTRAL PLANNING PROBLEMS OF CENTRAL PLANNING ECONOMYECONOMY

Rational A limited of individual freedom Contrast with the human character Stereotype Lack of moral education and religious Increase a racism or group among societies


Cont’Cont’

In this system, the government makes decisions about how products and services are distributed

It’s also same with the socialism economy and communism economy


SOCIALISM ECONOMYSOCIALISM ECONOMY

Socialism is a political system that denies the validity of property rights.

It claims that all property is communally owned

Instead of being a variant of property rights, this is an invalidation of those rights. It destroys the concept of rights by invalidating their base in human life.


COMMUNISM ECONOMYCOMMUNISM ECONOMY

Communism is a form of government where almost all factors of production are owned by the government, which also makes all decisions.


MIXED ECONOMYMIXED ECONOMY

It’s an economic system that has features of both market and command economies

Almost all economies are a mixture of command & market types

A "mixed" economy is a mix between socialism and capitalism

Example in practice of this system are United States and China


Cont’Cont’

In a mixed economy, there is a sharing of power between individuals and the government

Individuals own businesses but there is more government regulation in order to protect consumers and workers from unfair practices.

The government associated with such economies may call itself democratic or socialist, or a combination of the two

Example in practice of this system are United States, Great Britain, Japan etc.


PRINCIPLES OF MIXED ECONOMYPRINCIPLES OF MIXED ECONOMY

Private/Company have their own properties

Company can determine a profitability Can manage the company without

controlling by government Rights of individual and employee Government just control a main sources

(e.g. oil, etc.)


PROBLEMS OF MIX ECONOMYPROBLEMS OF MIX ECONOMY

RationalControlled by governmentHigh costMany people are JoblessSocial problem


ISLAMIC ECONOMYISLAMIC ECONOMY

Islamic economics is an integral part of the overall Islamic way of life

Islamic economics differs fundamentally from man-made laws and systems in defining economic problem.

It is based on principles revealed from Islamic sources as norms for human welfare that offer a strikingly alternative set of parameters for economic activity


DEFINITIONS OF ISLAMIC ECONOMYDEFINITIONS OF ISLAMIC ECONOMY

There are various of definition of Islamic economy are define by Muslims scholar

Ahmad (1981) defines as a social discipline whose concern is to reformulate economic principles and propositions in accordance with Islamic values and ideals

Akram (1983) defines as aims at the study of human falah achieved by organizing the resources of earth on the basis of cooperation and participation

SM Hasanuz Zaman (1984) defines as the knowledge and application of injunctions and rules of the Shariah that prevent injustice in the acquisition and disposal of material resources in order to provide satisfaction to human beings and enable them to perform their obligations to Allah and the society


Cont..Cont..

Mannan (1986) defines as studies of a social science in the economic problems of people to fill with the values of Islam

Hailani (1991) defines as all activities for using and managing the natural sources by individual or society to perform their obligations to Allah

Khurshid Ahmad (1992) defines as a systematic effort to try to understand the economic problem and human's behavior from an Islamic perspective


Cont..Cont..

M. Nejatullah Siddiqi (1992), defines as the Muslim thinkers' response to the economic challenges of their times by reason and experience

SM Ghazali Wafa et al. (2002) define all human activities to use the sources with follow the law to perform their obligations to Allah


Cont..Cont..

Ibn al-Qayyim recognizes private ownership and the freedom of economic activities, but within the norms and values of Islam the government may intervene in it for public interest

Similarly, Ibn Taimiyyah recognizes private ownership, which may be curtailed by the government, if necessary. In some circumstances, it may be allowed to intervene up to the point of suspending and abrogating ownership rights altogether


SCOPE OF ISLAMIC ECONOMICS SCOPE OF ISLAMIC ECONOMICS

Most of the Muslim economists have proposed relatively wider scope for Islamic economics on the basis of comprehensive and integrated viewpoint of human life

Ahmad (1981) says that the scope of Islamic economics is wider more than secular economics because it treats cultural factors like attitudes, tastes, motives, and social customs


Cont’Cont’

Akram (1983) also says a wider role of Islamic economics because it’s deals with a wide-ranging set of issues, such as:

property rights, the incentives system, allocation of resources, types of economic freedom, the system of economic decision-making the proper role of government


THE PHILOSOPHY OF ISLAMICS THE PHILOSOPHY OF ISLAMICS ECONOMYECONOMY

SM Ghazali Wafa et al. (2002) are determine the philosophies of Islamic economy. There are comprise:

Unity (Tawhid) Rubiyyah Tazkiyah End of the day Human as a khalifah (leader) Brotherhood Ownerships


Cont’Cont’

Chaudhry (1988) emphasizes on the social aspects of Islamic economics in which individuals interact on the basis of Islamic ethics. He identifies God consciousness (taqwa) and worship (Ibadah) to be the key element influencing the micro-economic behavior of the individuals


Cont’Cont’

The philosophies of Islamic economy are based on several fundamentals

tawhid, a comprehensive concept, implying complete submission of oneself to the one and unique being, who is the creator, sustainer, owner of everything, all-knowing, all-wise, and the most powerful.

risalah, an institution of prophethood, which brings the revealed guidance in all dimensions of human life from Allah in the form of the Kitab, and demonstrates its application through practice which is recorded in the form of Sunnah.

akhirah, the hereafter for accountability, and for getting the outcome of all deeds including economic activities

economic and non-economic well-being for leading a good life and discharging socio-Islamic obligations in this world and for achieving the home of hereafter.


THE PURPOSES OF ISLAMIC THE PURPOSES OF ISLAMIC ECONOMYECONOMY

The main objectives of Islamic economy are made to contribute richly to the achievement of the major socio-economic goals of Islam

Others objective are: Broad-based economic well-being with full

employment and optimum rate of economic growth Stability in the value of money to enable the medium

of exchange to be a reliable and a stable A return is ensured on investment and development

projects


Cont’Cont’

Socio-economic justice and equitable distribution of income and wealth

to ensure circulation of wealth to make sure that wealth does not

concentrate in a few hands


Cont’Cont’

A. Hamid (2006) describes a goals of Islamic economy to achieve:

Social justice Distributive a justice Prevention of income Redistribution of wealth (charity) Prohibition of wastefulness Welfare Literacy Human development


THE BASIC PRINCIPLES OF ISLAMIC THE BASIC PRINCIPLES OF ISLAMIC ECONOMYECONOMY

According to Afzalur rahman, A basic principles of Islamic economy are:

Determine the level of individual liberty Recognize the right of property Control the economy inequality within natural limits Maintain the equality of social Increase the social security Prohibition a wider circulation of wealth Prohibition of anti-social institutions Recognize of social and individual welfare


Cont’Cont’

Abul Kalam (1991) says that the principles of Islamic business are:

Protect the spiritual norms of Islam Produce a lawful (Halal) of supply and

demand. It was related with three aspects of life: in edible things, in financial matters, and in the daily business of life


Cont’Cont’

Talib Al-Anjari states a principles of Islamic economy is an economy that always puts full employment as the first priority. And, degrades and prohibits unwanted or unnecessary consumption


PERSPECTIVES OF HUMAN PERSPECTIVES OF HUMAN BEHAVIOR IN ISLAMIC ECONOMYBEHAVIOR IN ISLAMIC ECONOMY

It’s consist 6 principles:Rights to create, change, own

somethingSuitable with human charactersOwnershipInjustice are prohibitedConsider a human right among society


BENEFITS OF ISLAMIC ECONOMYBENEFITS OF ISLAMIC ECONOMY

Human are borrow the sources by AllahRecognize a human righthelpfulUse the sources with productiveSafety a rights of community


STRUCTURES OF ISLAMIC ECONOMYSTRUCTURES OF ISLAMIC ECONOMY

According to SM Ghazali Wafa et al. (2002), structure of Islamic economy consist 3 main sectors. It’s:

Public – politics, administration, etc Private – business, commerce, etc Volunteer – foundation, social welfare,

etc


AN IMPLEMENTATIONS OF ISLAMIC AN IMPLEMENTATIONS OF ISLAMIC ECONOMYECONOMY

According to SM Ghazali Wafa et al. (2002), an implementations of Islamic economy should be consider 3 factors:

Unity (Tawhid) Vicegerency/Leadership (Khilafah) Justice (‘Adalah)


Cont’Cont’

According to Choudhury (2000), Islamic economy instruments are a systemically unified knowledge-induced general equilibrium framework.

The 5 major Islamic economic instruments are: abolition of interest profit-sharing under economic cooperation between

labor and capital joint ventures and equity participation the institution of charity avoidance of wasteful use of resources


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Education

Chapter 3