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Islamic economics aims at the study of human falah achieved by organizing the resources of earth on the basis of cooperation and participation.
Islamic economics is the study of Muslim behavior who organizes the resources, which are
Activities
Property Ownership
Mal Milkiyyah = to possess, control, have power/ authority over. Usually referring to God. Islamic vision on property ownership: i. Absolute ownership belongs to Allah ii. Man as trustee, relative and conditional owner. iii. We are accountable for all our possession
iv. Labor and need are both legitimate bases of ownership. v. Private and public property ownership are both allowed by Islam.
b. Subject can be individual, state or society c. Contract rights to own, to possess, to use,
to prioritize, to exclude, to derive income, to secure and to dispose.
In
private ownership is emphasized while in socialism, public ownership is dominant. and public ownerships are crucial to ensure just allocation or resources and just distribution of wealth and income.
capitalism,
Ownership
Private
Public
Natural resources
Common
State
Both private and public ownership can be divided into complete and incomplete ownership.
Public property
a. access or control is determined by reference to public interest. b. State has complete right and can decide the use for the interest of the public i.e. privatization c. Common property must be accessible to all equally i.e. public park, beach
Private property
There is no ruling in the Quran and hadith that prohibit private property ownership. Therefore, this type of ownership is permissible. Condition to maintain ownership: permissibility, proper utilization, constant utilization, meet obligation.
Role of Government
These are some verses that emphasize on the importance of leader (state) in Islamic system. O you who believe! Obey God and obey the Messenger and those from among you who are in charge of your affairs; and if your differ over any matter, refer it to God and the Messenger, if you do believe in God and the last day (4:59)
And consult them (o Prophet) in matters (of public concern) (3:159) (Believers are those) who run their affairs by consultation among themselves (42:38) And let there among you be a group of people who invite to all is good, who enjoin what is right and forbid what is wrong (3:104).
In Islamic economics system, government is part of the integrated economic system of Islam. Islam prefers market as a mean to allocate resources. However market alone is insufficient to achieve efficiently.
Role of state in the form of shura and alhisbah are therefore important to complement the market system.
Shura
Al Hisbah
Incentive
Incentive is anything that provides a motive
for a particular course of action to be taken. Can be divided into three broad classes: a. Material/ remunerative - rewards in exchange for acting in a certain particular way. b. Moral incentive regarded the right thing to do; or admirable, or the failure to act in a certain way is condemned as indecent.
A sense on self esteem, and approval or admiration from the community. c. Coercive incentive exists when a person can expect failure to act in certain course of conducts will results in physical force being used against him/her e.g. imprisonment, confiscating property. Capitalism rewards on the basis of contributions in the economic activities (functional distribution). Material factor.
In socialism, state ownership of all factors of production and equality in the distribution of wealth and income requires proper moral incentive towards desirable behavior by appealing to the peoples responsibility to the society. Coercive incentive was used. In Islam, the incentive mechanism among others are driven by these motives: a. Heaven and hell b. Paradise is the ultimate successful
c. All good deeds in this world are considered as a form of worshipping if they are done correctly with sincere intention for Allah. d. There are a lot of verses and hadith that encourage Muslim to strive for excellence (alMulk: 2; Ali-Imran: 110) e. Islam never prohibits material pursuit f. Muslims also work to fulfill the obligation which require health financial position (hajj and zakat)
Activities
Consumption, production, distribution and exchange Market plays the primary role in addressing all the above activities so that the allocation of resources is done efficiently. However, productive and allocative efficiencies only can be attained when perfectly competitive market which in real world case is not achievable.
The central planning unit decides on how resources are allocated in socialism.
In Islamic economic system, all the activities are guided by the shariah which outlines the limit of human activities.
Questions
1. Economic choice and freedom in Islam. 2. Discuss briefly the four characteristics of an Islamic economic system. 3. In an Islamic economic system, the market mechanism is sufficient in allocating resources efficiently. Critically discuss.