Assignment NO (1): Islamic Economic System

Submitted By: Muhammad Mustafa Nazimi

Submitted To: Sir Zameen Khan Class: MBA 2nd (A)

Roll No: (38)

Subject: Economics

ECONOMIC SYSTEM:
An economic system is the combination of the various agencies, entities (or even sectors as described by some authors) that provide the economic structure that defines the social community. These agencies are joined by lines of trade and exchange along which goods, money etc. are continuously flowing. The economics system involves Production, allocation of economic inputs, distribution of economic outputs, Landlords and land availability, households earnings and expenditure consumption of goods and services in an economy. Capitalists, Banks (finance institutions) and Government: It is a set of institutions and their various social. Alternatively, it is the set of principles by which problems of economics are addressed, such as the economic problem of scarcity through allocation of finite productive resources. An economic system is composed of people, institutions, rules, and relationships. For example, the convention of property, the institution of government, or the employee-employer relationship: Examples of contemporary economic systems include capitalist systems, socialist systems, and mixed economies. Today the world largely operates under a global economic system based on the capitalist mode of production. "Economic systems" is the economics category that includes the study of such systems.

CAPITALISM:
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category. There is general agreement that elements of capitalism include private ownership of the means of production, creation of goods or services for profit, the accumulation of capital, competitive markets and wage labor. The designation is applied to a variety of historical cases, varying in time, geography, politics and culture. Economists, political economists and historians have taken different perspectives on the analysis of capitalism. Economists usually emphasize the degree that government does not have control over markets (laissez faire), and on property rights. Most political economists emphasize private property, power relations, wage labour, class and emphasize capitalism as a unique historical formation. Capitalism is generally viewed as

encouraging economic growth. The extent to which different markets are free, as well as the rules defining private property, is a matter of politics and policy, and many states have what are termed mixed economies. Capitalism gradually spread throughout Europe, and in the 19th and 20th centuries, it provided the main means of industrialization throughout much of the world.

SOCIALISM:
Socialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises, common ownership, autonomous public ownership or state ownership. As a form of social organization, socialism is based on co-operative social relations and self-management; relatively equal power-relations and the reduction or elimination of hierarchy in the management of economic and political affairs. Socialist economies are based upon production for use and the direct allocation of economic inputs to satisfy economic demands and human needs (use value);As a political movement, socialism includes a diverse array of political philosophies, ranging from reformism to revolutionary socialism. Proponents of state socialism advocate for the nationalization of the means of production, distribution and exchange as a strategy for implementing socialism; while social advocate public control of capital within the framework of a economy. Libertarian and anarchists reject using the state to build socialism, arguing that socialism will, and must, either arise spontaneously or be built from the bottom up utilizing the strategy of dual power. They promote direct worker-ownership of the means of production alternatively through independent syndicates, workplace democracies, or worker cooperatives.

MIXED ECONOMY:
Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described

as market economies with strong regulatory oversight, in addition to having a variety of government-sponsored aspects. The basic plan of the mixed economy is that the means of production are mainly under private ownership; that markets remain the dominant form of economic coordination; and that profit-seeking enterprises and the accumulation of capital would remain the fundamental driving force behind economic activity. Additionally, the government would wield considerable influence over the economy through fiscal and monetary policies designed to counteract economic downturns and capitalism's tendency toward financial crises and unemployment, along with playing a role in social welfare interventions. Subsequently, some mixed economies have expanded to include indicative economic planning or large public enterprise sectors. .As an economic ideal, mixed economies are supported by people of various political persuasions, typically centre-left and centre-right, such as social democrats or Christian democrats. Supporters view mixed economies as a compromise between socialism and laissez-faire capitalism that is superior in net effect to either of those.

ISLAMIC ECONOMIC SYSTEM:

Capitalism, Communism and Mixed Economics system has purely a materialistic approach in which human social life has no importance. But in Islamic System the followers of Islam are required to lead a material life in such way that it becomes a source of happiness and respect of others in this world for making secure himself for next world. Islamic Economic System consist of institutions, organizations and the

social values by which natural, human and man made resources are used to produce, exchange, redistribute and consume wealth & goods and services under the guiding principles of Islam to achieve "FALAH" in this world and also other it. Main characteristics of Economic System of Islam:
1. The Concept of Private Property Basic Principles in Islam for Consumption or Investment of private property are

* Concept of "HALAL" and "HARAM" for earning or in production and consumption of wealth. * A property cannot be used against public interest. * Show much as you have something. * Real/money Capital cannot be used for gain. * Payment of Zakat is compulsory. 2. Consumption of Wealth In Islamic System uses of luxuries are not allowed because it against the concept of "TAQWA" should have distinguished between "HALAL" and "HARAM"."BUKHAL" and "ISRAF" are to be avoided. 3. Production of Wealth Price mechanism plays a key role in carrying out the production process in an Islamic Society. As Price system results in the expectations of workers and consumers the Govt. Interferences with the price mechanism to overcome the problem. These things are not allowed in Islamic System. * Production of drugs, gambling, lottery, music, dance etc. * Lending and borrowing on interest * Black marketing, Smuggling etc 4. Distribution of Wealth Islamic Economics System favor fair (not equal) distribution of wealth in the sense that it should not be confined to any particular section of the society, For fair distribution of wealth Islam gives following steps * "BUKHAL" and "ISRAF" are to be avoided. * Payment of Zakat * Interest not allowed * Monopoly of Private firm not allowed * Earning from Black Market. 5. The Concept of Zakat Zakat is a major source of revenue the government in an Islamic state. It levy on all goods and money or on wealth if have to pay yearly on the month of RAJAB or RAMADAN.

6. Interest free Economy The whole financial system the bank structure in particular is run on the basis "SHARAKAT" and "MUZARABAT" in Islamic state. Therefore, Islamic economics is an interest free economy.

7. Responsibility of the Government Responsibility of the Islamic Government is 1. Should Check un Islamic activity like gambling, smuggling, black marketing etc. 2. Should secure poor people by giving them necessity of life i.e. food, clothing, health... 3. Should provide equal employment opportunity 4.Social and Economic Security is required to guarantee by the Govt.

REFERENCES:
http://en.wikipedia.org/wiki/Economic_system http://en.wikipedia.org/wiki/Islamic_economic_jurisprudence http://www.muslimtents.com/shaufi/b16/b16_14.htm http://www.friendsmania.net/forum/b-com-part-1-economics-notes/27028.htm http://www.umsl.edu/~wolfordj/courses/a11ws02/ch7notes.html