Allow me to posit to you that the implicit goal of any economic system is to maximize happiness in society.

While the overall goal of maximizing happiness may be the same, different economic systems differ in their approach to achieving it.

This article will focus on the different approaches of different economic systems and how these approaches are viewed from an Islamic lens.

Communism:

German philosopher Karl Marx in his 1848 book, The Communist Manifesto,” advocates for an economic system called Communism that would later become a scourge upon the Earth that impoverished and ended the lives of hundreds of millions of people. 

In his Manifesto, Marx advocates for a Communist society wherein there is no need for money or the accumulation of individual wealth. 

How do you get to this state of Communism according to Marx?

You know how people work harder and smarter in order to achieve better results? 

Well, Marx didn’t think that the “in order to achieve better results” was a necessary part of this equation. 

In other words, no matter how hard you worked or how brilliant you were at your work, you were going to receive the same compensation as everyone else. Even if that other person was a much less effective producer than you.

The ability to earn more than other workers in a pure communist system is almost nonexistent.

This glitch in Marx’s logic was summarized eloquently with the statement:

“From each according to his ability, to each according to his needs.”

Theoretically, Communist governments provide most or all food, clothing, housing and other necessities based on what it considers is the needs of the people.

By forcing equality of outcome, and not making a person’s quality of life at all a function of their effort, Communism disincentivizes people from doing their best. 

After all, regardless of their effort, everyone ends up eating the same crappy government cheese.

Aside from disincentivizing people to work, providing everyone with the same result isn’t fair either.

If you produced 10 high-quality shirts that covered the backs of 10 people, shouldn’t you find yourself better off than someone else that only produced 1 shirt with a hole in it?

How is it fair that both of you are equally compensated?

Equality of outcome is bad for productivity, bad for the morale of people and is the antithesis of fairness. 

Now you may be thinking, Communism sounds both moronic and hellish. 

You’re right. It does and it is.

Rule of thumb alert: never base an economic system on the thoughts of a dude (Karl Marx) with zero experience in business. It’s possible that if Marx had a lick of business experience he would have wised up to his foolishness.

Summary:

Communism attempts to maximize happiness by forcing equality of outcome.

How Communism compares to Islam:

Islam considers equality of outcome an affront on justice.

Allah SWT, who has given himself the name of “The Just” (العادل), says about the day of resurrection:

بسم الله الرحمن الرحيم

فَمَنْ يَعْمَلْ مِثْقَالَ ذَرَّةٍ خَيْرًا يَرَهُ * وَمَنْ يَعْمَلْ مِثْقَالَ ذَرَّةٍ شَرًّا يَرَهُ

“So whoever does an atom’s weight of good will see it, and whoever does an atom’s weight of evil will see it.”

The Generous Quran

This dynamic is the ultimate incentive for people to do good and avoid evil since whatever they choose to do, no matter how small, will be accounted for.

Even within heaven and hell, Muslims believe there are levels. This is consistent with the concept of fairness since not having levels means that different levels of good deeds or bad deeds would be rewarded with the same outcome.

Differences between people is the natural state of humanity Allah SWT says:

بسم الله الرحمن الرحيم

وَهُوَ الَّذِي جَعَلَكُمْ خَلَائِفَ الْأَرْضِ وَرَفَعَ بَعْضَكُمْ فَوْقَ بَعْضٍ دَرَجَاتٍ لِّيَبْلُوَكُمْ فِي مَا آتَاكُمْ إِنَّ رَبَّكَ سَرِيعُ الْعِقَابِ وَإِنَّهُ لَغَفُورٌ رَّحِيمٌ

And He (is) the One Who (has) made you successors (of) the earth and raised some of you above others (in ability, wealth, circumstance, etc.), so that He may test you in what He has given you. Indeed, your Lord (is) swift (in) the punishment, and indeed, He (is) [certainly], Forgiving, Most Merciful.

The Generous Quran

Rather than focus on forcing equality of outcome, Islam advocates for equality of opportunity.

بسم الله الرحمن الرحيم

يَا أَيُّهَا النَّاسُ إِنَّا خَلَقْنَاكُم مِّن ذَكَرٍ وَأُنثَىٰ وَجَعَلْنَاكُمْ شُعُوبًا وَقَبَائِلَ لِتَعَارَفُوا ۚ إِنَّ أَكْرَمَكُمْ عِندَ اللَّهِ أَتْقَاكُمْ ۚ إِنَّ اللَّهَ عَلِيمٌ خَبِيرٌ

O humanity, indeed We have created you from male and female and made you peoples and tribes so that you may know one another. Indeed, the most noble of you in the sight of Allah is the most pious of you. Indeed, Allah is All Knowing and Acquainted.

The Generous Quran

Socialism:

In Socialism, the means of production are owned by the state but private ownership is not abolished completely as is the case in Communism.

Karl Marx envisioned socialism as a stepping stone that societies would go through on their way to pure communism. 

The central government in a Socialist society is responsible for economic planning.

Individuals own personal property but all industrial and production capacity is communally owned and managed by a democratically elected government.

Truth is, no country in human history has been purely communist or purely socialist. 

What ends up happening is that some services are socialized while others are left to the private sector.

In practicality, countries fall on a spectrum between pure socialization and pure privatization.

How Socialism compares to Islam:

Both private and public ownership of property is recognized in Islam.

As it relates to private ownership the Qur’an extensively discusses taxation, inheritance, prohibition against stealing, legality of ownership, recommendation to give charity and other topics related to private property. Islam also guarantees the protection of private property by imposing stringent punishments on thieves. The prophet Muhammad PBUH said 

 قال صلى الله عليه وسلم: من قتل دون ماله فهو شهيد

رواه أَبو داود، والترمذي وَقالَ: حديثٌ حسنٌ صحيحٌ

whosoever dies defending their property is a martyr.

Hadith from the prophet peace be upon him

As for public property, Islam recognizes the concept of public property as well. The Prophet PBUH said:

يقول الرسول صلى الله عليه وسلم الناس شركاء في ثلاث الماء والكلأ والنار

People are partners in three: water, pasture, and fire

Hadith from the prophet peace be upon him

In other words water, open pastures and sources of energy are owned by partnership by the public.

It is up to these partners through a representative government that they choose to determine the best way to utilize these resources.

Since the hadith mentions that all members of the public are partners in ownership of these resources, it follows then that any government that is not reflective of the will of the people cannot legitimately exercise any control over these public resources. This is because an unrepresentative government controls public property without the consent of its true owners, the public. Basically, such a government would hold the status of thieves in Islam.

If partners have joint ownership over a particular asset then only these partners can make decisions regarding this asset. They may decide to elect a governing body as an agent of theirs to exercise control over the asset in their place. Accordingly, any government that has not been elected by the people has no legitimate authority to make any decisions regarding public property such as water, pasture and energy.

It follows then that an Islamic economic system can only exist within a political system wherein the government is chosen by the people.

So long as the government is an elected one which answers to the people, whatever path is decided in terms of which common resources are managed by the government vs. which are managed privately is up for the people to decide.

However, what is not ok in Islam, is for people’s private property rights to be violated by the state, even if a majority of people decide on this violation. Private ownership must be respected.

Capitalism:

Capitalism is an economic system characterized by private ownership of the means of production, especially in the industrial sector.

While Communism attempts to maximize happiness through forcing equality of outcome, Capitalism attempts to maximize happiness by maximizing the production of goods and services. 

The pillars of Capitalism include:

  • Private investment decisions.
  • Private ownership.
  • Competition/Free market.

These pillars of Capitalism have served the objective of maximizing productivity rather well however they have failed to achieve the primary objective of any economic system which is to maximize the happiness of people.

When you’re in a system that is designed to maximize production, the success of you as an individual is a function of how much goods and services you’ve been able to produce and sell.

This is why stay-at-home mothers in a Capitalist society are valued at zero despite their functions being invaluable to a society’s overall health and happiness. 

Nevertheless, they don’t contribute directly to national GDP so they aren’t valued properly under Capitalism.

Now what is it about Capitalism that causes it to always be pushing for more and more production regardless of the level of happiness achieved?

The answer is: interest-bearing debt.

Money in capitalist societies is created by debt. The government borrows money from the federal reserve bank and has to pay it back with interest.

Banks create money through fractional reserve banking and bank customers have to pay back whatever they borrowed with interest.

In the United States for example, the average American family has $137,063 in debt.

The United States government debt is around $65,000 per person.

So in total the average American household of 2.5 people carries a debt load of around $300,000

This is why American’s have to work 5 days a week, 40, 50, 60 and sometimes 80 hours a week.

Not because production is needed, rather because interest is owed.

The debt has to be serviced. The people come second.

This is the core of the problem with Capitalism.

How it compares to Islam:

While Islam agrees with many of Capitalism’s tenants especially as they relate to respecting private ownership, encouraging entrepreneurship and promoting a free market, there are some key divergences as well.

Rather than attempting to maximize happiness through maximizing output, Islam attempts to maximize happiness by maximizing fairness.

This means a total prohibition on interest-bearing debt.

Interest-bearing debt is considered unfair in Islam because in interest-based debt contracts, all the risk is placed on the borrower. Regardless of what happens with the borrower, they have to pay the lender back their principle with a profit.

This is considered an unconscionable contract in Islam because of its extreme one-sidedness.

Instead, Islam advocates for profit and loss sharing arrangements.

These arrangements have the advantage of offering the financed the financial robustness they need to whether the natural ups and downs of life.

They also serve to align the well-beings of the financed with their financier.

After all, the only way the financier is going to do well is if the financed is doing well and vis-a-versa.

Innovative solutions such as fundmebff.com are examples of practical ways to eliminate society’s dependence on interest-bearing debt (shameless plug of my own company by the way).

As our productivity increases with every major leap in technology, I think it makes alot of sense for us to start asking ourselves questions like:

Why do we work 5 days a week?

In a time where we can produce everything we need with little effort, why are we always working so hard?

Is the economic system we have today truly maximizing our happiness?

I think Islam may have some insights that can prove valuable in answering the aforementioned questions.