Capitalism is now clearly broken and the game is up. The current cost-of-living crisis is truly global and is afflicting people not only in the poorest parts of the world but also those in the developed world, including the West. This is not the first time that capitalist economies have been shown to be deficient. In the decades since this system has been adopted by almost all states, including Muslim countries, the history of these economies has been one of boom and bust, recession, depression, inflation, devaluation of currencies, gruelling taxation and debt traps. We may be also on the brink of yet another global financial crisis if there is no multilateral cooperation and global coordination on fiscal and monetary policies.

In looking for a solution to these problems, it would be foolhardy to think that a “sticking-plaster” approach can be taken. Commenting on the situation in the US, Roger Terry writes:

“The people know that something in America is broken, but they don’t quite know what, they don’t know why, and, most important, they don’t know how to fix it. All they can point to are the symptoms.

The symptoms, of course, are evident everywhere. It is the illness itself we can’t seem to put our finger on. And so all our solutions…are symptom-orientated, which means that they are by definition inadequate. Indeed, so many of our so-called solutions create more problems than they cure. They attempt to alter the results of the system without changing the system that produces those results…

Our economic system, we must acknowledge, is much more than just a free market, a collection of businesses and bureaucracies, exchanges and transactions. At a more fundamental level, it is a common pattern of thought, a way of looking at the world around us, and it manifests itself in our financial dealings, our ownership practices, and our consumer-producer relationships. This pattern of thought pervades all we do…

[It] is the economic system, and not just the way we implement it that is flawed. If we are to solve the monumental problems that face us, we must change the way we think about things, because our problems are systemic in nature, and all our attempts to solve them are as effective as straightening deck chairs on the Titanic.”

[Roger Terry, Economic Insanity: How Growth-Driven Capitalism is Devouring the American Dream, Berret-Koehler, San Francisco, 1995, pp. 1-3]

As Muslims, it should be obvious to us that adopting a system other than that prescribed by Allah will lead to abject failure. The system expounded by Allah is best. He Himself tells us:

أَلَا يَعْلَمُ مَنْ خَلَقَ وَهُوَ ٱللَّطِيفُ ٱلْخَبِيرُ

 “Does He Who created not then know? He is the All-Pervading, the All-Aware.” [67:14]

We only need to take a cursory glance at the state of Muslim nations and the poverty that subsumes the majority of the populace in those lands to conclude that capitalism has simply failed to solve our problems.

The adoption of the Islamic economic system under the shade of the Caliphate is long overdue. The material progress that would ensue would not only benefit Muslims but rather, benefit all of humanity. This is because we do not only want to limit the implementation of the systems of Islam to Muslim lands, but to convey the message of Islam until its authority encapsulates the globe:

هُوَ ٱلَّذِىٓ أَرْسَلَ رَسُولَهُۥ بِٱلْهُدَىٰ وَدِينِ ٱلْحَقِّ لِيُظْهِرَهُۥ عَلَى ٱلدِّينِ كُلِّهِۦ وَلَوْ كَرِهَ ٱلْمُشْرِكُونَ

 “It is He who sent His Messenger with guidance and the Deen of Truth to exalt it over every other deen, even though those who ascribe Him partners detest it.” [9:33]

By the will of Allah, we will be successful in re-instituting the Caliphate and this will lead to a situation similar to that under the rule of ‘Umar ibn ‘Abdul ‘Aziz, who, famously, could not find a poor person to give zakat to. In his biography of this Caliph, Imam Abu Muhammad ‘Abdullah ibn ‘Abdul Hakam (a student of Imam Malik) relates:

‘Yahya ibn Sa‘id said: “‘Umar ibn ‘Abdul ‘Aziz (r) sent me to Africa to collect the zakat. I collected it and went to look for the poor people upon whom the zakat could be utilized, but could not find a single person who was ready to accept it. ‘Umar ibn ‘Abdul ‘Aziz made the people wealthy…”’

[Cf. English translation of Sirah ‘Umar ibn ‘Abdul ‘Aziz by Mufti ‘Abdullah Moolla, Madrassah Arabia Islamia, Azaadville, 2012, p. 171]

The economic problem as defined by Islam

The way Islam views the “economic problem” is very different to the way it is viewed by capitalism. Capitalists assert that there is relative scarcity of resources available in the world, and hence, people’s demand for these resources are unlimited. Therefore, each nation should concentrate on ever increasing production.

Islam, however, views the “economic problem” as one that concerns distribution and not production. Allah has provided us collectively with more than enough, so the issue is one of distributing all of those resources to all citizens.

ٱللَّهُ ٱلَّذِى خَلَقَ ٱلسَّمَٰوَٰتِ وَٱلْأَرْضَ وَأَنزَلَ مِنَ ٱلسَّمَآءِ مَآءً فَأَخْرَجَ بِهِۦ مِنَ ٱلثَّمَرَٰتِ رِزْقًا لَّكُمْ ۖ وَسَخَّرَ لَكُمُ ٱلْفُلْكَ لِتَجْرِىَ فِى ٱلْبَحْرِ بِأَمْرِهِۦ ۖ وَسَخَّرَ لَكُمُ ٱلْأَنْهَٰرَ

وَسَخَّرَ لَكُمُ ٱلشَّمْسَ وَٱلْقَمَرَ دَآئِبَيْنِ ۖ وَسَخَّرَ لَكُمُ ٱلَّيْلَ وَٱلنَّهَارَ

وَءَاتَىٰكُم مِّن كُلِّ مَا سَأَلْتُمُوهُ ۚ وَإِن تَعُدُّوا۟ نِعْمَتَ ٱللَّهِ لَا تُحْصُوهَآ ۗ إِنَّ ٱلْإِنسَٰنَ لَظَلُومٌ كَفَّارٌ

“Allah is He who created the heavens and the earth  and sent down water from the sky and by it brings forth fruits as provision for you. He has made the ships subservient to you to run upon the sea by His command, and has He has made the rivers subservient to you, and He has made the sun and the moon subservient to you holding steady to their courses, and He has made the night and day subservient to you. He has given you everything you have asked Him for. If you tried to number Allah’s blessings, you could never count them. Man is indeed wrongdoing, ungrateful.” [14:32-34]

إِنَّ رَبَّكَ يَبْسُطُ ٱلرِّزْقَ لِمَن يَشَآءُ وَيَقْدِرُ ۚ إِنَّهُۥ كَانَ بِعِبَادِهِۦ خَبِيرًۢا بَصِيرًا

“Verily your Lord lavishes provision on whom He wills, and withholds in exact due measure: Verliy He was ever of His servants all-aware, all-seeing.” [17:30]

Islam also distinguishes between basic needs and luxuries. Food, shelter and clothing is guaranteed to all citizens who are unable to provide for themselves through work or being looked after by their close relatives:

عَنْ عُثْمَانَ بْنِ عَفَّانَ أَنَّ النَّبِيَّ صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ قَالَ لَيْسَ لِابْنِ آدَمَ حَقٌّ فِي سِوَى هَذِهِ الْخِصَالِ بَيْتٌ يَسْكُنُهُ وَثَوْبٌ يُوَارِي عَوْرَتَهُ وَجِلْفُ الْخُبْزِ وَالْمَاءِ

‘Uthman ibn Affan reported: The Prophet ﷺ said, “There is no right for the son of Adam other than these things: a house in which he lives, a garment to cover his nakedness, a piece of bread, and water.” [Sunan al-Tirmidhi #2342. Graded sahih by al-Suyuti in al-Jami‘ al-Saghir #7642]

Scholars also mention that intangible needs such as security, health and education are also guaranteed to citizens of the Caliphate. At the same time, Islam allows us to engage in economic activity in order to increase our wealth, as long as it is by lawful means:

وَٱبْتَغِ فِيمَآ ءَاتَىٰكَ ٱللَّهُ ٱلدَّارَ ٱلْـَٔاخِرَةَ ۖ وَلَا تَنسَ نَصِيبَكَ مِنَ ٱلدُّنْيَا ۖ

“Seek the abode of the Next World with what Allah has given you, without forgetting your portion of this world…” [28:77]

The Prophet ﷺ insisted that earning a living was laudible as opposed to begging for one’s sustenance, as indicated  by the following hadith:

عَنْ أَنَسِ بْنِ مَالِكٍ أَنَّ رَجُلًا مِنْ الْأَنْصَارِ أَتَى النَّبِيَّ صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ يَسْأَلُهُ فَقَالَ أَمَا فِي بَيْتِكَ شَيْءٌ قَالَ بَلَى حِلْسٌ نَلْبَسُ بَعْضَهُ وَنَبْسُطُ بَعْضَهُ وَقَعْبٌ نَشْرَبُ فِيهِ مِنْ الْمَاءِ قَالَ ائْتِنِي بِهِمَا قَالَ فَأَتَاهُ بِهِمَا فَأَخَذَهُمَا رَسُولُ اللَّهِ صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ بِيَدِهِ وَقَالَ مَنْ يَشْتَرِي هَذَيْنِ قَالَ رَجُلٌ أَنَا آخُذُهُمَا بِدِرْهَمٍ قَالَ مَنْ يَزِيدُ عَلَى دِرْهَمٍ مَرَّتَيْنِ أَوْ ثَلَاثًا قَالَ رَجُلٌ أَنَا آخُذُهُمَا بِدِرْهَمَيْنِ فَأَعْطَاهُمَا إِيَّاهُ وَأَخَذَ الدِّرْهَمَيْنِ وَأَعْطَاهُمَا الْأَنْصَارِيَّ وَقَالَ اشْتَرِ بِأَحَدِهِمَا طَعَامًا فَانْبِذْهُ إِلَى أَهْلِكَ وَاشْتَرِ بِالْآخَرِ قَدُومًا فَأْتِنِي بِهِ فَأَتَاهُ بِهِ فَشَدَّ فِيهِ رَسُولُ اللَّهِ صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ عُودًا بِيَدِهِ ثُمَّ قَالَ لَهُ اذْهَبْ فَاحْتَطِبْ وَبِعْ وَلَا أَرَيَنَّكَ خَمْسَةَ عَشَرَ يَوْمًا فَذَهَبَ الرَّجُلُ يَحْتَطِبُ وَيَبِيعُ فَجَاءَ وَقَدْ أَصَابَ عَشْرَةَ دَرَاهِمَ فَاشْتَرَى بِبَعْضِهَا ثَوْبًا وَبِبَعْضِهَا طَعَامًا فَقَالَ رَسُولُ اللَّهِ صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ هَذَا خَيْرٌ لَكَ مِنْ أَنْ تَجِيءَ الْمَسْأَلَةُ نُكْتَةً فِي وَجْهِكَ يَوْمَ الْقِيَامَةِ 

Anas ibn Malik reported: A man from the Ansar came to the Prophet ﷺ and begged from him. The Prophet said, “Have you nothing in your house?” The man said, “Yes, a piece of cloth, a part of which we wear and a part of which we spread on the ground, and a wooden bowl from which we drink water.” The Prophet said, “Bring them to me.” The man brought these articles to him and the Prophet ﷺ took them in his hands and he said, “Who will buy these?” Someone said, “I will buy them for one coin.” The Prophet said twice or thrice, “Who will offer more than one coin?” Someone said, “I will buy them for two coins.” He sold them for two coins and the Prophet said, “Buy food with one of them and give it to your family. Buy an axe and bring it to me.” The man brought it to him. The Prophet ﷺ fixed a handle on it with his own hands and he said, “Go gather firewood and sell it, and do not let me see you for a fortnight.” The man went away and gathered firewood and sold it. When he had earned ten coins, he came and bought a garment and food. The Prophet ﷺ said, “This is better for you than for begging to come as a blemish on your face on the Day of Resurrection…”

[Sunan Abi Dawud #164, graded sahih li ghayrihi]

The best type of work

حَدَّثَنَا إِبْرَاهِيمُ بْنُ مُوسَى، أَخْبَرَنَا عِيسَى، عَنْ ثَوْرٍ، عَنْ خَالِدِ بْنِ مَعْدَانَ، عَنِ الْمِقْدَامِ ـ رضى الله عنه ـ عَنْ رَسُولِ اللَّهِ صلى الله عليه وسلم قَالَ ‏ “‏ مَا أَكَلَ أَحَدٌ طَعَامًا قَطُّ خَيْرًا مِنْ أَنْ يَأْكُلَ مِنْ عَمَلِ يَدِهِ، وَإِنَّ نَبِيَّ اللَّهِ دَاوُدَ ـ عَلَيْهِ السَّلاَمُ ـ كَانَ يَأْكُلُ مِنْ عَمَلِ يَدِهِ ‏”‏‏.‏

Narrated al-Miqdam: The Prophet ﷺ said: “Nobody has ever eaten a better meal than that which one has earned by working with one’s own hands. The Prophet of Allah, Dawud (عَلَيْهِ السَّلاَمُ) used to eat from the earnings of his manual labour. ” [Sahih al-Bukhari #2072]

Al-Nahlawi has mentioned the view of the Hanafi jurists on the best type of work:

“On the best type of work: the best work to be engaged in is jihad because it combines work and making the deen supreme. Then it is  trade (tijara) because the Prophet encouraged it saying, ‘An honest trader will be with the Angels’. Then it is agriculture (hiratha) and the first to do this was Sayidduna Adam (عَلَيْهِ السَّلاَمُ) and then industry because he (ﷺ) highly encouraged it saying, ‘craft protects one from poverty’. However, in Khulasat al-Fatawa it states that the position of all the scholars and jurists is that all types of earning and jobs are equally permitted and this is the soundest position…”

[al-Nahlawi, Durar al-Mubaha, cf. translation in Introducing the Fiqh of Employment, Dr. Safaruk Z. Chowdhury, Ad-Duha, London, 2009, p. 15]

And according to Ibn Hajar al-‘Asqalani:

“The scholars have differed over the best type of work (afdal al-makasib), al-Mawardi said: ‘The basic types of earning a living are: agriculture, trade and manufacturing. The most likely view of al-Shafi‘i is that the best of them is trade (al-tijara). He said: The most correct in my view is that the best of them is agriculture, because it is the closest to tawakkul (putting one’s utter trust in Allah), al-Nawawi followed it with the hadith of al-Miqdam (quoted previously) and said that the correct view is that the best way of earning a living is by working with one’s hands (ma kana bi-‘amal al-yad). If it is also in agriculture, then that is the best way of earning a living because it involves both working with one’s hands and having tawakkul in Allah and it benefits both humans and animals and because usually some of it is given for free (bi-ghayri ‘iwad). I say: Superior to that in things that are done using one’s hands is the wealth one acquires from non-Muslims through jihad. This is how the Prophet (ﷺ) and the companions earned wealth and it is the noblest way of acquiring wealth because it is making the word of Allah Most High supreme (i‘la’ kalimat Allah), suppressing the word of His enemies and bringing benefit in the Hereafter.”

[Ibn Hajar al-‘Asqalani, Fath al Bari Sharh Sahih al-Bukhari, 4:304. Translated by Chowdhury, op. cit., pp. 15-17]

The Principles of the Islamic Economic System

Allah has laid out the four principles of the Islamic economic system in the Qur’an:

(1) All wealth belongs to Allah

وَءَاتُوهُم مِّن مَّالِ ٱللَّهِ ٱلَّذِىٓ ءَاتَىٰكُمْ

“…and give them some of the wealth Allah has given you…” [24:33]

It is vital to always refer exclusively to our beliefs (‘aqeedah) when considering our actions and the systems of Islam. It is part of the Islamic creed that it is Allah who provides for us and that all rizq (provision) is from Him, as is mentioned many times in the Qur’an.

Rich Muslims in the Caliphate remembered this and, as a result, did not evade paying their taxes (unlike the rich in capitalist countries today). Together with a successful economy based on lawful trade and other sources of income, this meant that the Bayt al-Mal (State Treasury) was able to maintain a high standard of living for many.

(2) The Community is the trustee of wealth

ءَامِنُوا۟ بِٱللَّهِ وَرَسُولِهِۦ وَأَنفِقُوا۟ مِمَّا جَعَلَكُم مُّسْتَخْلَفِينَ فِيهِ

“Believe in Allah and His Messenger and give of that which He has made you trustees…” [57:7]

In Islam, the owner of wealth and property is not the absolute owner. All wealth belongs to Allah and humans hold it as a trust from Him. They can, however, benefit from this wealth and property as long as this is in accordance with the Shar‘iah. Therefore, as an example, there is no lawful right to engage in gambling.

(3) Hoarding of wealth is prohibited

وَٱلَّذِينَ يَكْنِزُونَ ٱلذَّهَبَ وَٱلْفِضَّةَ وَلَا يُنفِقُونَهَا فِى سَبِيلِ ٱللَّهِ فَبَشِّرْهُم بِعَذَابٍ أَلِيمٍۢ

“…As for those who hoard up gold and silver and do not spend it in the way of Allah, give them the news of a painful punishment.” [9:34]

So the purchase of large quantities of a commodity by a speculator with the intent of benefiting from future price increases is not permissible in Islam.

(4) Circulation of wealth is a duty

كَىْ لَا يَكُونَ دُولَةًۢ بَيْنَ ٱلْأَغْنِيَآءِ مِنكُمْ

“…so that is does not become something which merely revolves between the rich among you…” [59:7]

The circulation of wealth in the Caliphate benefited all of its citizens. A snapshot of the results of a successful economy can be seen from the example of Baghdad in the 7th Hijri  century. Michael Morgan quotes the celebrated scholar, geographer and biographer of Greek Byzantine ancestry Yaqut al-Hamawi (d. 626 H/1229 CE):

“The city of Baghdad formed two vast semi-circles on the right and left banks of the Tigris, twelve miles in diameter. The numerous suburbs, covered with parks, gardens, villas, and beautiful promenades, and plentifully supplied with rich bazaars, and finely built mosques and baths, stretched for a considerable distance on both sides of the river. In the days of its prosperity the population of Baghdad and its suburbs amounted to over two [million]! … Immense streets, none less than forty cubits wide, traversed the city from one end to the other, dividing it into blocks or quarters, each under the control of an overseer or supervisor, who looked after the cleanliness, sanitation and the comfort of the inhabitants.

The water exits both on the north and the south were like the city gates, guarded night and day by relays of soldiers stationed on the watchtowers on both sides of the river. Every household was plentifully supplied with water at all seasons by the numerous aqueducts which intersected the town; and the streets, gardens and parks were regularly swept and watered, and no refuse was allowed to remain within the walls.”

[Michael Hamilton Morgan, Lost History: The Enduring Legacy of Muslim Scientists, Thinkers, and Artists,  National Geographic Society, Washington DC, 2007, pp. 60-61]

Capitalism, in contrast, results in the concentration of wealth among a few.

According to a 2023 report by the charity Oxfam (https://www.oxfam.org.uk/mc/ar8thi/), extreme wealth and extreme poverty increased in the two years upto December 2021 with the richest 1% of the world having “grabbed almost two-thirds (63%) of the $42 trillion (£34 trillion) of new wealth created”. And in the UK, the richest 1% hold more wealth than 70 per cent of other Britons.

The Islamic Caliphate would not allow hoarding and other unlawful means of amassing wealth such as riba (interest) and monopolistic trade. The rich would be encouraged to circulate their wealth by investing in the economy. And Mega-corporations would not be able to exercise the huge power they currently have over politicians because of campaign  contributions, lobbying, and their influence and unfair advantage in the courts through the use of large and powerful legal teams.

According to Jeffrey Garten, the American Undersecretary of Commerce for International Trade in the first Clinton administration:

“Big companies have disproportionate clout on national legislation. Our scandalously porous laws for campaign contributions leave little doubt that megacompanies will exercise huge power over politicians…

For all the talk about free markets, companies such as Citigroup may simply be too big to fail…Megacompanies are almost beyond the law, too, because their deep pockets allow them to stymie prosecutors in ways smaller defendants cannot. Or, if they lose in court, they can pay large fines without much damage to their operations…

Corporate giants will also exert massive pressure on America’s international behavior. Defense contractors such as Lockheed Martin… have successfully pushed for NATO expansion and for related military sales to Poland, the Czech Republic, and others. Combined entities such as Boeing-McDonnell Douglas will tighten their already formidable grip on U.S. trade policy. Companies like ExxonMobil Corp. will deal with oil-producing countries almost as equals, conducting the most powerful private diplomacy since the British East India Company wielded near-sovereign clout throughout Asia.”

[Business Week, 25 January, 1999]

The next post in this 3-part series will examine the ownership of resources and property in Islam. For example, oil, gas and other forms of energy belong to the Ummah and not the sheikhdoms in the Middle East. We will also outline the different types of taxes in the Islamic system (where income tax and VAT would be outlawed) and discuss how inflation will be kept at bay by the adoption of a bimetallic (gold and silver) currency which has intrinsic value.