SHAHEED ZULFIQAR ALI BHUTTO UNIVERSITY OF LAW

ASSIGNMENT
FACTORS OF PRODUCTION IN ISLAM

NAME: MEET SHARMA

ROLL NO: BL - 1259

COURSE: BANKING LAWS

INSTRUCTOR: MR. HAMZA KHALIL

CLASS: LL.B IX - C

SUBMISSION: 10 - 01 - 2023
 ➔ What are Factors of Production?

The concept of factors of production refers to the inputs that are used in the production of goods
and services. These inputs include land, labor, capital, and entrepreneurship.

● Land refers to natural resources, such as raw materials and land, that are used in the
production of goods and services.

● Labor refers to the effort and work put in by people to produce goods and services.

● Capital refers to the produced means of production, such as factories, machinery, and
equipment, that are used to produce goods and services.

● Entrepreneurship refers to the process of organizing and managing the other three factors
of production to produce and sell goods and services. It also involves bearing the risk of
profit or loss.

Together, these factors of production are used to create wealth and generate income. The concept
of factors of production is important in economics because it helps to understand how goods and
services are produced and how resources are allocated in the economy. Different economic
systems have different views on the ownership and control of the factors of production, which
can impact the way in which they are used and the distribution of wealth.

➔ Different viewpoints

Capitalist Viewpoint:

The capitalist view on factors of production is that they are the inputs necessary for the
production of goods and services, and that they should be privately owned and controlled.
According to capitalism, the most efficient way to allocate these factors is through the market,
where their prices are determined by supply and demand. Capitalists believe that private
ownership of the factors of production allows for the most efficient use of resources, as
individuals and companies will use them in a way that maximizes their profits. They argue that
this leads to innovation and progress, as firms have an incentive to develop new and better ways
of producing goods and services.
Under capitalism, the factors of production are typically owned by individuals or businesses,
rather than the government.
 ● Land: is owned by private individuals or companies, who can choose how to use it or sell
it.
● Labor: is also privately owned, as individuals are free to sell their labor to the highest
bidder.
● Capital: such as factories and machinery, is also typically privately owned.
● Entrepreneurship: The process of organizing and managing the other factors of
production, is also typically privately owned.

According to the capitalist view, the distribution of wealth generated through the use of the
factors of production should be based on the contribution of each factor. This means that those
who own and control the factors of production, such as land and capital, should receive a larger
share of the wealth generated. This is because they are considered to be taking on more risk and
contributing more to the production process. The capitalist view on factors of production is that
they should be privately owned and controlled, and that the distribution of wealth generated
through their use should be based on the contribution of each factor. This leads to an efficient
allocation of resources and encourages innovation and progress.

Socialist Viewpoint:

In socialist economic theory, the factors of production are owned collectively, rather than being
owned by individuals or corporations. This means that the means of production, such as
factories, land, and resources, are owned and controlled by the community as a whole, rather
than by a small group of capitalists. According to socialist theory, the goal of the economy is to
meet the needs of the people, rather than to generate profit for a small group of owners. As a
result, the allocation of resources and distribution of wealth is guided by the principle of social
welfare, rather than by the profit motive.
Under socialism, the factors of production are used to produce goods and services for the benefit
of the entire community, rather than for the benefit of a small group of owners. This can be
achieved through a variety of means, such as state ownership of industry, worker cooperatives, or
some combination of both. It is important to note that there are many different variations of
socialist economic theory, and different socialist models place different emphasis on the role of
the state and on the ownership and control of the factors of production.

Islamic Viewpoint:
The Islamic viewpoint on factors of production is based on the belief that wealth is a gift from
God and should be used in a way that is fair and benefits the community as a whole. In Islam,
there are three primary factors of production: capital, land, and labor.

● Capital refers to those means of production that are consumed or altered in the production
process and cannot be leased, such as liquid money or food.
● Land includes means of production that can be leased and retain their external form, such
as land, houses, and machines.
● Labor includes human exertion, including organization and planning.

According to Islam, these primary factors of production have a direct right to a share of the
wealth produced through their involvement in the production process. This is in contrast to the
capitalist system, which often allows for the accumulation of wealth by those who do not directly
contribute to the production process, such as shareholders or owners of capital.
In Islam, the distribution of wealth is not solely based on the contributions of the primary factors
of production. There are also those who have a secondary right to wealth, meaning they have not
directly participated in the production process but are entitled to a share of the wealth according
to Islamic principles. These individuals may include the poor, orphans, and widows, who are
often mentioned in Islamic texts as deserving of support and assistance. It is considered the
responsibility of those who have wealth to ensure that these vulnerable groups are provided for.
The Islamic viewpoint on factors of production emphasizes the importance of fairness and the
responsibility of those who have wealth to use it in a way that benefits the community as a
whole. It seeks to ensure that the wealth produced through the contributions of the primary
factors of production is distributed in a just and equitable manner, while also providing for those
who have a secondary right to wealth.

Socialism & Islam:

The Islamic system of wealth distribution is distinct from both Socialism and Capitalism. Under
Socialism, wealth is distributed only in the form of wages and private property is not recognized.
In contrast, Islamic principles hold that all things in the universe belong to Allah and are given as
a common trust to all people. Private property is recognized in certain things, but not in others,
such as land and capital. The Islamic system also prohibits the use of interest and puts
restrictions on the concentration of wealth. It aims to establish a natural system of economy and
ensure that everyone receives what is rightfully theirs. Thus, Islamic system is distinct from
Socialism and it tries to balance between private property and common property and combining
the laws of supply and demand in a healthy form, it also aims to prevent concentration of wealth
which is a characteristic of Capitalism, and tries to eradicate the negative effects of both
Capitalism and Socialism

Capitalism & Islam:

The main differences between the Islamic and Capitalist systems of wealth distribution are:

● The Islamic system does not consider the entrepreneur as a separate factor of production,
but includes them within one of the three recognized factors (land, capital, and labor).
● The Islamic system regards profit, not interest, as the reward for capital.
● The definition of capital in the Islamic system is narrower, only including things that
cannot be leased or let and are fully consumed when used, while the Capitalist definition
includes things like machinery.
● The Islamic definition of land is broader, including things that do not need to be fully
consumed to be used, such as machinery.
● The Islamic definition of labor is broader, including mental labor and planning.