The Economic Principles of Islam

Islam has laid down certain principles and limits for the economic activity of man so that the entire pattern of production, exchange and distribution of wealth may conform to the Islamic standard of justice and equity. Islam does not concern itself with time-bound methods and techniques of economic production or with the details of organizational patterns and mechanisms. Such methods are specific to every age and are evolved in accordance with the needs and requirements of the community and the exigencies of the economic situation. Islam’s concern is that whatever the particular form of economic activity in operation, its underlying principles should always be the same.

According to the Islamic point of view, Allah has created for mankind the earth and all that it contains. It is, therefore, the birthright of every human being o try to secure his share of the world’s wealth and sustenance. Islam does not allow a particular person, class, race or group of people to create a monopoly in certain economic activities: equal opportunities for all is its watchword.

This is a new and revised translation of a talk given by the author on Radio Pakistan, Lahore, on 2nd March, 1948.

Right of Property

Resources which are provided by nature and which can be used directly by man may be utilised freely, and everyone is entitled to benefit from them according to his needs. Water in the rivers and springs, timber in the forests, fruits of wild plants, wild grass and fodder, air, animals of the jungle, minerals under the surface of the earth and similar other resources cannot be monopolised by anyone nor can restrictions of any sort be imposed on their free use by Allah’s creatures to fulfil their own needs. Of course, people who want to use any of these things for commercial purposes can be required to pay taxes to the state. Or, if there is misuse of the resources, the Government may intervene. But there is nothing to prevent individuals availing themselves of Allah’s earth as long as they do not interfere with the rights of others or of the state.

It is not right that things created by Allah for the benefit of mankind should be taken possession of, and then kept idle and useless. One should either benefit from them oneself, or make them available to others. On the basis of this principle Islam holds that no one can keep his land unused for more than three years. If, during this period, he does not himself use it for cultivation or for construction of buildings or for some other purpose, such lands shall be treated as ‘vacated’, and anyone else who makes use of it shall not be liable to be proceeded against in law, nor shall the Government have any authority to hand it over to someone else (including the previous owner).

Anyone who takes possession of the earth’s natural resources and puts them to good use acquires a rightful title over them. For instance, if somebody takes possession of an uncultivated piece of land, on which nobody has a prior right of ownership, and makes productive use of it, he cannot be arbitrarily dispossessed of that piece of land.

This is how every right of ownership originated in the world. When man first appeared, everything was available to everyone, and whoever took possession of anything and made it useful in any manner became its owner; that is to say, he acquired the right to use it specifically for his own purpose and to obtain compensation from others if they wanted to use it. This is the natural basis of all the economic activity of mankind.

The rights of ownership are to be honoured, though it is always open to ascertain if a particular ownership is legally valid or not. Islam cannot approve of economic policies which destroy the rights conferred by the Shari‘ah, however attractive their names may be and whatever welfare pretensions they may make. Social justice and collective good are very dear to Islam, but in their name the rights given by the Shari‘ah cannot be trampled. It is as unjust to reduce or remove the restrictions placed by the Shari‘ah, for the sake of the good of the community as a whole, on the rights of individual ownership as it is to add restrictions and limitations on them which do not fit into the Shari‘ah. It is one of the duties of an Islamic state to protect the legal rights of individuals and, at the same time to compel them to fulfil their obligations to the community as enjoined by law. That is how Islam strikes a balance between individualism and collectivism.

The Problem of Equality

Allah has not distributed His gifts and favour equally among mankind but, in His infinite wisdom, has given some individuals more than others. Just as this is true of pleasantness of voice, excellence of physique and intellectual power and so on, so, too, is it the case with the material conditions of life. Human existence has been so ordained that divergence, variety and inequality among men in their ways and standards variety and inequality among men in their ways and standards of living seems to be natural. Variety is the spice of life, and the driving spirit of behind human endeavour and excellence.

Consequently, all those ideologies which want to force an artificial economic equality on mankind are mistaken, unrealistic and impossible to realise. The equality which Islam believes in is equality of opportunity to secure a livelihood and to climb the ladder of success and prosperity. Islam desires that no obstacles should exist in society to prevent an individual from striving for a living according to his capacity and talents; nor should any social distinctions exist with the object of safeguarding the privileges of a certain class, race, dynasty or group of people.

All those ideologies which serve vested interests, or which seek to perpetuate the power of a certain group, are also repugnant to Islam and can have no place in its scheme of things. Such movements seek to establish, through force if necessary, an unnatural inequality in place of the natural limited inequality which provides incentive to effort in society. At the same time, Islam does not agree with those who want to enforce complete equality in respect of the means of production and the fruits of economic endeavour, as they aim at replacing limited natural inequality by an artificial equality.

Only that system can be the nearest to human nature in which everyone joins the economic struggle at his own level and in the circumstances in which Allah has created him. He who has inherited an aeroplane should make use of it; while he who has only a pair of legs should stand on his feet and try to improve his lot. The laws of society should neither be such as would establish a permanent monopoly for the aeroplane-owner (over his aeroplane) and make it impossible for the bare-footed to acquire an aeroplane nor such that the race for everyone should compulsorily begin from the same point and under the same conditions so that they would all be tied to each other right till the end of the race. On the contrary, economic laws should be such as to make it possible for the bare-footed, who started his race under adverse conditions, to possess an aeroplane, if he can do so by dint of his effort and ability, and for he who inherited the aeroplane to be left behind in the race and to lose it, if he does not have the ability or efficiency to keep it. Effort should be rewarded and laziness penalised.

Social Justice

Islam does not want this economic race to take place in an atmosphere of moral neutrality and social apathy. The participants should be just and kind to one another. Islam, through its moral injunctions, aims at creating a feeling of mutual love and affection among people, through which they may help their weak and weary brethren, and at the same time create a permanent institution in society to guarantee assistance to those who lack the necessary means and abilities to succeed. People who are unable to take part in the economic race and those who need help to get started in it should receive their share of the blessings of life from this social institution.

To this end Islam has commanded that Zakat should be levied at the rate of two and a half percent per annum on the total accumulated wealth [of each individual] in the country, as well as on invested capital; five percent or ten percent, depending on the method of watering, should be collected on agricultural produce; and twenty percent on certain mineral products. The annual Zakat should also be levied, at a specified rate, on cattle owned by anyone who has more than a certain minimum number. The amount of Zakat thus collected is to be spent on the poor, the orphans and the needy.

This system provided a means of social insurance where by everyone in an Islamic society is provided with at least the necessities of life. No worker can ever be forced, through fear of starvation, to accept conditions of employment which may be unfairly imposed on him by employer. And nobody’s physical health is allowed to deteriorate for lack of proper medical care and hospitalisation.

Islam aims at striking a balance between the individual and the community, which will promote individual freedom and at the same time ensure that such freedom is positively conducive to the growth and tranquillity of the community as a whole. Islam does not approve of a political or economic organisation which aims at submerging the identity of the individual beneath that of the community, and depriving him of the freedom essential for the proper development of his personality and talent. The inevitable consequence of nationalising a country’s means of production is the annihilation of the individual by the community; in these circumstances the existence and development of his individuality becomes extremely difficult, if not impossible.

Just as political and social freedom is essential for the individual, economic freedom is necessary for a civilized moral existence. Unless we desire to eliminate completely the individuality of man, our social life must have enough freedom for an individual to be able to earn his living, to maintain the integrity of his conscience and to develop his moral and intellectual faculties according to his own inclinations and aptitudes. Living on the dole or on charity at the hands of others cannot be very satisfying, even if the sums involved are generous: the retardation of mental, moral and spiritual development which it ultimately leads to can never be counteracted by mere physical welfare and prosperity.

Nor does Islam favour a system of unbridled economic and social freedom which give individuals a blank cheque to achieve their objectives at the possible cost of the good of the community as a whole, or which enables them to misappropriate the wealth of others. Between these two extremes, Islam has adopted the middle course according to which the individual is first called upon, in the interest of the community, to accept certain restrictions, and is then left free to regulate his own affairs. He has freedom of enterprise and competition within a framework which guarantees the good of both the individual and society. It is not possible to explain all these obligations and restrictions in detail and I shall, therefore, content myself with presenting a bare outline of them.

Obligations and Restrictions

Take first the example of earning a living. The meticulous care with which Islam has distinguished between right and wrong in respect of the means of earning wealth is not to be found in any other legal and social system. It condemns as illegal all those means of livelihood which injure, morally or materially, the interests of another individual or of society as a whole. Islamic law categorically rejects as illegal the manufacture and sale of liquor and other intoxicants, adultery, professional dancing, gambling, transactions of a speculative or fraudulent nature, transactions in which the gain of one party is absolutely guaranteed while that of the other part is left uncertain and doubtful, and price manipulation by withholding the sale of the necessities of life.

If we examine this aspect of the economic laws of Islam, we will find a long list of practices declared illegal, most of which can and are making people millionaires in the capitalist system. Islam forbids all these by law, and allows freedom of earning wealth only by those means through which a person renders some real and useful service to the community and thereby entitles himself to fair and just compensation for it.

Islam accepts the right of ownership of an individual over the wealth earned by him by legitimate means; but these rights are not unrestrained. A man can only spend his legitimate wealth in certain specified ways. he may not waste his riches on idle luxury, nor may he use his wealth to behave arrogantly towards his fellows. Certain forms of wasteful expenditure have been unequivocally prohibited at the discretion of an Islamic Government.

One is permitted to accumulate wealth that is left over after meeting one’s legitimate and reasonable commitments and these savings can also be used to produce more wealth; there are, however, restrictions on both these activities. A rich man will, of course, have to pay Zak~ t at the rate of two and a half percent a year on the accumulation exceeding the specified minimum. He can only invest it in a business which has been declared legitimate. In this connection, he may own the legitimate business himself or he may make his capital available to others on a profit-loss sharing basis.

It is not at all objectionable in Islam if, working within these limits, a man becomes a millionaire; rather, this will constitute a Divine favour. But in the interests of the community as a whole, Islam imposes two conditions on the individual: first, that he should pay Zak~ t on his commercial goods and ‘Ushr (one tenth) on the value of agricultural produce; second, that he should deal fairly and honestly with those he does business with in trade, industry or agriculture, with those he employs and with the Government and the community at large. If he does not voluntarily act justly to others, particularly his employees, the Islamic state will compel him to do so.

Even wealth that is accumulated within these legal limits is not allowed by Islam to be concentrated at one point or in one place for a long time. Through its law of inheritance Islam spreads it among a large number of people from generation to generation. In this respect the Islamic law is different from that of other inheritance laws; most of them attempt to keep the wealth once accumulated by a person concentrated in the hands of one main beneficiary from generation to generation. In Islam, wealth accumulated by a person in his lifetime is distributed among all of his near relatives soon after his death. If there are no near relatives, distant relatives benefit from it in the proportions laid down by the law for each one of them. And if no distant relative is forthcoming, then the entire Muslim society is entitled to share in the inheritance. Under this law the creation or continuance of any big family of capitalists or landlords becomes impossible.