02 Capitalism and Socialism As Economic System

Economic Ideology of Islam
Economic Ideology
of Islam
Capitalism & Socialism as Economic System
Introduction to
Capitalism (I)
Introduction to
Capitalism (I)
• Capitalism, as
defined by the
Collin’s Dictionary
“is an economic
system based on the
private ownership of
the means of
production,
distribution and
exchange”
Introduction to
Capitalism (I)
• It’s a system in
which the principal
means of production,
distribution and
exchange are in
private (individual
or corporate)hands
Introduction to
Capitalism (I)
• The profit motive
constitutes the prime
stimulus to
productive exertion
and the price
mechanism
determines what
things shall be made
in what quantities
and what conditions
Introduction to
Capitalism (I)
• The economic system
in capitalism is based
on three things.
 Wage Labor
(Working for a wage)
 Private ownership of
the means of
production
 Production for
exchange and profit
Introduction to
Capitalism (I)
• There are two main
groups in capitalism
 Capitalist Class
(Owners of means of
Production)
END
 Working Class
(Wage laborers and
benefit claimants)
Introduction to
Capitalism (II)
Introduction to
Capitalism (II)
• It’s a type of
economy in which
capital is privately
owned and may be
freely used by the
owners as they wish
in attempting to
make profits from
their economic
enterprises
Introduction to
Capitalism (II)
• To understand
capitalism is very
simple that it is a
system where money
is invested in any
business to generate
more money and
when money
functions like this it
functions as capital
Introduction to
Capitalism (II)
• In capitalism money
is the driving force of
economy
• Climate change and
wide spread poverty
are the signs of
capitalism
Introduction to
Capitalism (II)
• Making money out
of money does not
just happen by
magic but it happens
in the workplace
• People put far more
value into the system
than what they get in
return for their
working
sustainability
Introduction to
Capitalism (II)
• The difference
between the wages
we are paid and the
value we create is for
the accumulation of
capital which is also
known as surplus
value
• Capitalism is a
system which is
based on the
exploitation of the
Introduction to
Capitalism (II)
• In this system of
economy production
and trade are
organized on
individualistic basis.
END
• This system allows to
have unlimited
ownership of means
of production and
distribution.
Basic
Characteristics of
Capitalism (I)
Basic
Characteristics of
Capitalism (I)
Followings are the basic
characteristics:
1. Two-Class System
2. Competition
3. Profit Motive
4. Minimal Govt.
Intervention
5. Willingness to
Change
Basic
Characteristics of
Capitalism (I):
Two-Class System:
• A Capitalists society
is characterized by
the split between two
classes of individuals
• The capitalists class
which owns the
means of producing
and distributing
goods
Basic
Characteristics of
Capitalism (I):
Two-Class System:
• The working class
who sell their labor
to the capitalists
class in exchange for
wages
Basic
Characteristics of
Capitalism (I):
Two-Class System:
• The economy is run
by the individual or
corporations who
own and operates
companies and make
decision as to use of
the resources
Basic
Characteristics of
Capitalism (I):
Profit Motive:
• Companies exist to
make a profit
• The motive for all
companies is to make
and sell goods and
services only for
profit
Basic
Characteristics of
Capitalism (I):
Profit Motive:
• Companies do not
solely exist to satisfy
people’s needs
• Although some goods
or services may
satisfy people’s needs
automatically
Basic
Characteristics of
Capitalism (I):
Profit Motive:
• The goods and
services will only be
available if the
people have the
resources to pay for
them
Basic
Characteristics of
Capitalism (I):
Minimal Govt.
intervention:
• Capitalists societies
believe that markets
should be left alone
to operate without
government
intervention
Basic
Characteristics of
Capitalism (I):
Minimal Govt.
intervention:
• However a complete
government-free
capitalist society
exist in theory but
not practically
Basic
Characteristics of
Capitalism (I):
Minimal Govt.
intervention:
• Capitalist society
allows the market to
set prices based on
demand and supply
for the purpose of
making profits
Basic
Characteristics of
Capitalism (I):
Minimal Govt.
intervention:
• The role of the state
is to provide
protection for the
property of
capitalists
Basic
Characteristics of
Capitalism (I):
Competition:
• True capitalism
needs competitive
market
• Without competition
monopolies exist in
the market
Basic
Characteristics of
Capitalism (I):
Competition:
• In monopolies the
prices of goods and
services are set by
the seller instead of
consumer which is
against the condition
of capitalism
Basic
Characteristics of
Capitalism (I):
Willingness to
Change:
• Another
characteristic of
capitalism is the
ability to adapt and
change
Basic
Characteristics of
Capitalism (I):
Willingness to
Change:
• Technology has been
END a game changer in
every society and the
willingness to adapt
change is quite
natural and true
characteristic of
capitalism
Basic
Characteristics of
Capitalism (II)
Basic
Characteristics of
Capitalism (II)
• The key features of

capitalism includes:
 Profit motive as
incentive for
productive activity
 Free Market and
competition
Basic
Characteristics of
Capitalism (II)
 Existence of
unrestricted private
ownership of means
of production,
exchange and
distribution
 Economic Freedom
Basic
Characteristics of
Capitalism (II)
 Existence of
monopolies
 Banking and
institution of interest
Basic
Characteristics of
Capitalism (II)

 Wide disparities in
distribution of
wealth
 Economic
exploitation of the
weak by the strong
Basic
Characteristics of
Capitalism (II)

 In Capitalism the
state role is confined
to protection of the
institution of private
property through
law
Basic
Characteristics of
Capitalism (II)
 Under capitalist
END economy the
consumer is the king
which means that
freedom of choice by
the consumers
Basic
Characteristics of
Capitalism (III)
Basic
Characteristics of
Capitalism (III)
 The existence of
large number of
buyers and sellers in
the market who are
self motivated but
can not influence the
market decision by
their individual
Basic
Characteristics of
Capitalism (III)
 Twin freedom of
consumption and
production are
essential for the
smooth functioning
of capitalist system
Basic
Characteristics of
Capitalism (III)
 Under capitalism,
END the price mechanism
operates
automatically
without any
direction and control
by the central
authorities
Properties of
Capitalism
Properties of
Capitalism:
Increase in
Production:
• The Magic of
property turns sand
into gold.
• The investor brings
improvement in the
production because
the property belongs
to him.
Properties of
Capitalism:
Quality product at
low cost:
• The twin freedom of
consumer and
producer lead to the
production of quality
products and
lowering of cost and
price
Properties of
Capitalism:
Progress and
Prosperity:
• Competition under
capitalism leads to
increase in efficiency,
encourages
producers to
innovate which
brings progress and
prosperity in the
country.
Properties of
Capitalism:
Maximizes welfare:
• It brings efficiency in
the production and
distribution of goods
END and services without
any central plan and
promotes the
maximum welfare of
the community
Role of Prices
Under Capitalism
(I)
Role of Prices under

Capitalism (I):
• Consumers express
their preferences
with the help of price
which they are ready
to pay for any
commodity
• Producers produce
those goods where
they reap greater
profits

Capitalism (I):
• Labors are ready to
sell their services
wherefrom they get
higher wages
• So the prices of
goods, costs of goods,
interest of capital,
wages of labor and
the rent of land all
represent prices

Capitalism (I):
• Under price
mechanism the
resources allocation
takes place on the
ground of rewards
given over to the
resources

Capitalism (I):
• The owner of the
capital will sell their
resources which pays
them more price
• The resource
END
allocation is made
under self-interest
which ignores the
production of social
goods
Role of Prices
Under Capitalism
(II)

Capitalism (II):
• A lot of goods which
are concerned with
social goods are
ignored like
educational
institutions,
hospitals, roads,
social welfare
organizations, old-
age institutes, parks,
lakes etc.

Capitalism (II):
• Because the
resources are
allocated just on the
ground of more
profits so no body
will be prepared to
make investments in
the public goods.

Capitalism (II):
• The price
mechanism in
capitalism also
affects the
investment direction.
• To make
expenditures on
those goods which
produce further
goods or which
produce income is

Capitalism (II):
• Most of investors
borrow from the
banks while
investing so they will
invest in the projects
END
where the rate of
profit will be high as
compare to the rate
of interest which
they will pay to the
bank
Introduction to
Socialism (I)
Introduction to
Socialism (I)
• According to the
Collin's dictionary
“Socialism is an
economic theory or
system in which the
distribution and
exchange are owned
by the community
collectively through
the State”
Introduction to
Socialism (I)
• Socialism is a
transitional stage in
the development of a
society from
capitalism to
communism.
• It is characterized by
the distribution of
income according to
work rather than
need.
Introduction to Socialism (I):
“It is an economic system in which the means

of production are owned and regulated by
the state. The production and distribution of
goods and factors of production are done by
the state under the direction of planning
commission”
Introduction to
Socialism (I)
• The decision as to
how much to
produce which
method of
production to
employ and for
whom to produce are
taken by the
planning authority.
That is why a
socialists economy is
called a planned
Introduction to
Socialism (I)
• So under socialism,
the means of
production are
owned by the state,
community or the
END workers
Introduction to
Socialism (II)
Introduction to Socialism (II):
• Socialism is essentially a doctrine and a

movement aiming at the collective
organization of the community in the
interests of the mass of the people by
means of the common ownership and
collective control of the means of
production and exchange
Introduction to
Socialism (II)
• It has been aptly
remarked that there
are as many types of
socialism as there are
socialists.
END • Socialism is therefore
compared to a hat
which has lost its
shape because
everybody wears it.
Basic
Characteristics of
Socialism (I)
Basic Characteristics of
Socialism (I)
 Public Ownership
 Central Planning
 Freedom of
Consumption
 Definite Objectives
 Equality of Income
Distribution
 Planning and The
Pricing Process
Socialism (I)
Public Ownership:
 This type of economy
is characterized by
public ownership of
the means of
production and
distribution
Socialism (I)
Public Ownership:
 There is a collective
ownership whereby
all mines, farms,
factories, financial
institutions,
distributing agencies,
internal and external
trade, shop, stores,
means of transport
and communications
are owned by
Socialism (I)
Central Planning:
 A Socialists economy
is centrally planned
which functions
under the direction
of central planning
authority
Socialism (I)
Central Planning:
 It lays down the
various targets and
objectives to be
achieved during the
planning period.
Socialism (I)
Central Planning:
 Central economic
planning means the
making of major
economic decision-
what and how much
to produced, How,
when and where is to
be produced, and to
whom it is to be
allocated.
Socialism (I)
Central Planning:
 The central planning
authority organizes
and utilizes the
economic resources
for the purpose of
achieving definite
objectives and target
laid down in the plan
during a specified
period of time.
Socialism (I)
Freedom of
Consumption:
 Production in state is
generally governed
by the preferences of
consumers, and the
available
commodities are
distributed to the
consumers at fixed
prices through the
state-run
Socialism (I)
Freedom of
Consumption:
 So the consumers’
sovereignty under
socialism is confined
to the choice of
socially useful
commodities.
Socialism (I)
Definite Objectives:
 A Socialist economy
operates within
definite socio-
economic objectives.
Socialism (I)
Definite Objectives:
 These objectives may
concern;
1. Aggregate demand
2. Full employment
3. Consumer
Satisfaction
4. Distribution of
National Income
5. Economic
Development etc.
Socialism (I)
Equal Distribution of
Income:
 There is a great
equality of income
distribution as
compared with a free
market economy
Socialism (I)
Income:
 The elimination of
private ownership,
accumulation and
profit motives under
socialism prevent the
centralization of
wealth in the hands
of few rich people.
Socialism (I)
Income:
 The unearned
income in the form
of rent, interest and
profit go to the state
which utilizes then in
providing free
education, public
health and social
security to the
masses.
Socialism (I)
Planning and the
pricing Process:
 The price process
under socialism does
not operate freely
but works under the
control and
regulation of the
central planning
authority.
Socialism (I)
Planning and the
pricing Process:
 There are
administered prices
which are fixed by
the central planning
authority.
Socialism (I)
Planning and the
pricing Process:
 There are also
accounting prices on
the basis of which
END the manager decide
about the production
of consumer and
investment goods,
and also about the
choice of production
method.
Basic
Characteristics of
Socialism (II)
Socialism (II)
• Distinctive features
of socialism, briefly
speaking includes:
 Socialism teaches
about the equal
distribution of
wealth which is
against the teachings
of Islam
Socialism (II)
speaking includes:
 It ensures the
provision of basic
necessities of life for
every citizen of the
state
Socialism (II)
speaking includes:
 Private ownership of
property and of all
the means of
production,
distribution and
exchange is totally
abolished
Socialism (II)
speaking includes:
 The system leads to

management of these
means of production
by the bureaucracy
Socialism (II)
speaking includes:
 Bureaucratic
running of economic
END machinery results
into inefficiency, low
production and
collapse since their
lack of initiative
Basic
Characteristics of
Socialism (III)
Socialism (III)
speaking includes:
 Bureaucrats follow
rigid rules and they
are not trained to
run the business
Socialism (III)
speaking includes:
 Totalitarian state
and dictatorship of
END proletariat
suppresses the civil
liberties while
material problems
remains the same.
Comparison
between Capitalism
& Socialism at a
Glance (I)
Comparison between Capitalism &

Socialism at a Glance(I):
Factors Capitalism Socialism
Determination • Every • No individual
of Priorities individual has has the right
unconditional to participate
& absolute in any
right to business
participate in independentl
any business y
to maximize
profits


Determination • Concept of • State will
of Priorities Selfish determine
interest the priorities
as per the
overall
planning


Determination • Supply & • Concept of
of Priorities Demand will collective
determine interest
the Priorities
Comparison
between Capitalism
& Socialism at a
Glance (II)

Socialism at a Glance(II):

Allocation of • Market forces • Government
Resources will decide will decide
where to where to
invest allocate the
resources resources
Development • Market forces • Government
will decide will decide

Distribution of • Land – Rent • Land – Rent
Income • Labor – Wages fixed by the
• Capital – Interest government
• Entrepreneur - • Labor – Wages
Profits fixed by the
government
Development • Market forces • Government
will decide will decide

Right to Wealth • Right to wealth is • Right to wealth
with the factors is with the
of production government
only which then
distributes it
among the
factors of
production
Flaws of Capitalism
(I)
Flaws of
Capitalism(I)
 No Bindings
 No Restrictions while
maximizing profits
 No ethical and moral
values and
limitations
 Blindly follows
market forces that
create exploitation of
labor & poor people
Flaws of
Capitalism(I)
 Under capitalist
system people avoid
helping their fellow
human beings
because they are
concentrating on
looking after
themselves
Flaws of
Capitalism(I)
 Many of the wars

fought in recent
years have been over
profits. Afghanistan
and Iraq is the best
examples
 Emphasizes on
individualism and
self interest at the
expense of
Flaws of
Capitalism(I)
 It proposes no or
little solution to the
persistent poverty
END  It exploits the
environment and
natural resources in
the absence of
regulations
Flaws of Capitalism
(II)
Flaws of
Capitalism(II)
 Monopolies are
created that exploit
the poor and society
as a whole
 Government &
Industrialist join
hands for mutual
benefit and make
laws that exploit
common people
Flaws of
Capitalism(II)
 Imbalance in the
distribution of
income due to which
concentration of
wealth takes place
 It produces
inequalities but the
fact is that the riches
do not exist without
poor
Flaws of
Capitalism(II)
 You cannot escape
capitalism, it’s
everywhere. On
every billboard, on
every TV program
including all kinds of
print, electronic and
social Media
convincing you to
buy something
Flaws of
Capitalism(II)
 When this
convincing attitude is
done by governments
in dictatorships we
call it propaganda,
END
when companies do
it, it’s called
advertising.
 They are both forms
of brainwashing
Flaws of Socialism
(I)
Flaws of Socialism(I)
 This is another
extreme of not giving
even the natural
freedom
 Perfect Planning is
assumed to be the
“Cure of all ills”
 The development in
the national economy
is observed very slow
 Places that have a

geographical
advantage lose
chances to develop
better and people
who have intelligence
and wealth lose
chances to make
their businesses
become bigger
 People lose initiative

to work hard and
enthusiasm to study
as doing more isn't
rewarded
END
 Internally
competition does not
matter to the society
Flaws of Capitalism
(II)
Flaws of
Socialism(II)
 Governments are
assumed to be angels
which can’t commit
a deliberate mistake
 Can not work
without forceful
dictatorship
Flaws of
Socialism(II)
 Creates overall
inefficiency in the
society.
END  There is no incentive
to work efficiently as
there is no individual
profit motive

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02 Capitalism and Socialism As Economic System

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Economic Ideology of Islam

• The key features of

• The key features of

• The key features of

Role of Prices under

Role of Prices under

Role of Prices under

Role of Prices under

Role of Prices under

Role of Prices under

Role of Prices under

Role of Prices under

Introduction to Socialism (I):

“It is an economic system in which the means

Introduction to Socialism (II):

• Socialism is essentially a doctrine and a

 The system leads to

Comparison between Capitalism &

Comparison between Capitalism &

Factors Capitalism Socialism

Comparison between Capitalism &

Factors Capitalism Socialism

Comparison between Capitalism &

Factors Capitalism Socialism

Comparison between Capitalism &

Comparison between Capitalism &

 Many of the wars

 Places that have a

 People lose initiative

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