Islamic Economics vs. Capitalism & Communism

What is the economic philosophy of Islam? How is it different to capitalism and communism? Economic historian Ahmed Danyal Arif explains.

Capitalism and communism are most often viewed as polar opposite philosophies. This conception permeates through much of economic theory, from the founders of these respective schools of thought, to their contemporaries. Undeniably, there are stark differences. With regards to capitalism for instance, owners of the factors of production (capital goods, natural resources, labour, etc.) are mostly private entities, whereas in the case of communism, the owner is the State.

Another essential difference is that capitalism is can be more beneficial for an individual while neglecting the collective good, resulting in massive inequalities. Conversely, communism’s mantra is to cater for everyone without truly rewarding the amount of one’s labour. In other words, capitalism is based on ‘survival of the fittest’, but communism neglects the concept of fitness completely. Both are therefore are imbalanced.

There is, however, a more essential crisis at the heart of both systems. Neither of them have understood the human being as a whole. Humans have physical, moral and spiritual needs. Historically, theology has sought to provide for all needs, but since its widespread abandonment, no field of study has sought to understand the human condition in its entirety.

Modern economics has rejected many of these aspects and, slowly but surely, has constructed its own theology, one where the worship of the Market has taken precedence over the worship of God. As religious movements seek to spread their teachings, both capitalism and communism have historically had a global and totalising character. But rather than spreading a spiritual message, they have sought to subject the whole of human existence to the domain of commodification and private ownership.

In the case of the Soviets, private ownership was concentrated in the hands of Soviet Union elites, with an illusion of collective ownership lurking beneath. They sought to colonise the world with a ferocity only matched by their rivals. As for the capitalists, the Holy War of Capital and its conquering momentum consists precisely in the idea that everything can and must become a market object. Through this process, the logic of capitalism tends to generalize the laws of the market to all sections of society. As a result of this, therefore, cultural diversity, religious worldviews, and the ‘spiritual’ self are disintegrated, or viewed as unnecessary to the overriding principle of materialism and consumerism.

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Capitalism is an individualistic philosophy which centres itself around the accumulation of private profit

This market logic of modern economics can be seen plainly in its metrics. One of the most powerful and fundamentally materialistic metrics today is the Gross Domestic Product. GDP is supposed to be a measure of the size and health and a country’s economy over a period of time. But it is profoundly problematic. It completely obscures the human experience behind the numbers, giving no sense of the underlying inequalities and injustices. It includes vice sectors such as the illegal drug trade and prostitution, both being inextricably tied with the destruction of lives, human trafficking, and the debasement of the spiritual self. The risk-taking of the financial sector is included in this figure too, despite its parasitic and destabilising effect on the real economy.

This is all symptomatic of a society that only cares about the ‘bottom line’ and not the human being above that line. It cares not about the Creator, and therefore neglects the creation. Without a belief in God, a deep concern for the welfare of others is admirable, but optional. With a real belief in God, it is inevitable, in the same way that is natural to see other children of your parents as kith and kin.

This is not just theory. Religion, unlike contemporary economics, seeks to cater for all of mankind’s physical and spiritual needs. Its economic principles are built upon such considerations. Morality, spirituality, and economics have been integrated into one framework.

A few examples may illuminate this. One religious critique of communism was that it did not allow for people to earn a fair income after putting in their hard work. Thus, they were curtailed from collecting profit, and instead lived on subsistence wages.

However, without such extra profit, they were unable to spend their extra money on charitable causes. This naturally harmed their spirituality, for it cut off their ability to sacrifice their wealth for the sake of others. This is an essential part of spirituality, as it allows one to withdraw their heart from the world and attach it instead to God. Thus, a religious outlook contradicts communism’s focus on subsistence wages. It rewards more valuable work with a higher income, and a freedom for one to spend as they like.

Other issues which are often seen as ‘economic issues’ are, in reality, moral and spiritual issues. Greed is noted particularly in the financial world, with countless talking heads talking about the need for ‘more regulation.’ However, the greedy will always be able to skirt around rules, for no legislation can regulate every intricacy of human behaviour. In religion however, pride in wealth, gluttony and avarice are classed among the worst of sins. Envy and greed are desires not regulated not by government intervention, but by a sense of God-consciousness.

Thus, a religious framework provides a balanced approach that encourages economic progress within a moral economic framework. This is in stark contrast to the prevailing capitalist paradigm, which seeks commodification at any cost. If an economic system considers morality to be essential in human behaviour, and adds accountability to a Supreme Being into the economic equation, the features of a real and true alternative to capitalism and communism begins to emerge.

So far we have discussed religion in the abstract. Now, we will compare capitalism and communism to Islamic principles specifically.

God is “Ar-Rahman” and “Ar-Rahim”

Remembrance of God is the alpha and the omega of the Islamic faith. Among God’s myriad attributes, two are particularly important to understand in order to appreciate the philosophy of its economic teachings. These are the attributes ‘Ar-Rahman’ and ‘Ar-Rahim’. Generally translated as ‘The Gracious’ and ‘The Merciful’, it should be noted that one peculiarity of the Arabic language is the way that its words convey not only the definitional meaning, but also an underlying philosophy.

“Ar-Rahman” means that for every type of creation, God has already provided the necessary resources that they need to make progress. It is a general attribute which comprises every type of bounty, and it operates according to the needs of all living things completely gratuitously. This grace is unconditional and is shown even unto those who are undeserving. It is God’s Rahmaniyyat (Graciousness) that has provided the surface of the earth for residence, the sun and the moon for light, air for breathing, water for drinking, all varieties of food for eating, and so on. 

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According to Islam, God provides the necessary conditions for our existence before we come into being

Similarly, God, according to the Islamic view, has created the universe for the benefit of all mankind. God has made the resources of this earth available to man, who has the great responsibility to make use of them according to his needs, and to ensure they are tended to. In this regard, the Holy Quran says:

And He has subjected to you whatsoever is in the heaven and whatsoever is in the earth; all this is from Him. In that surely are Signs for a people who reflect.

The Holy Quran, 45:14

The Islamic viewpoint, which forms the root of all Islamic economic principles, is that the ultimate ownership of one’s wealth belongs to God. All wealth and natural resources rest under God’s command, being granted to human beings only as a trust. Human beings are answerable before God as to whether they rightfully discharge to society the trust reposed in them. Under no circumstances were all these resources created for the benefit of a specific group of people, to the exclusion of others. Whether rich or poor, no one can claim to be the sole heir of Earth’s bounties, and proclaim that everything was created for him alone.

Therefore, the wealth of a nation should be used to ensure that every member of society has, and future generations will continue to have, access to certain essential facilities:

It is provided for thee that thou wilt not hunger therein, nor wilt thou be naked. And that thou wilt not thirst therein, nor wilt thou be exposed to the sun.

The Holy Quran, 20:119-120

And in their wealth was a share for one who asked for help and for one who could not.

The Holy Quran, 51:20

Islam does not advise that the minimum requirements of life alone, (food, water, shelter, clothing), should be made available to man; it says that whatever is requisite for the full growth and perfect development of the talents and capacities of each individual should be provided to him in the maximum available measure.

On closer scrutiny, we can see some similarity between God’s Rahmaniyyat and some elements of communism. Under communism, all wealth and all means of production must be nationalised. The individual’s property should become collective possessions. Wealth produced under collective organisation, out of collective resources, should be distributed under collective supervision among individuals according to their needs on the basis of a so-called equitable system. All are to work according to their abilities, but the distribution depends upon the needs of the individual, and thus, does not correlate with the amount of his labour. Whether a human’s needs are met by ‘bread alone’ is of course a separate issue.

The second attribute is that of Rahimiyyat, coming from God’s attribute “Ar-Rahim”. This refers to the grace that is repeated intensely, and is related to someone’s effort. It is awarded when some kind of striving has been made—when work has been done. Thus, for the one who deserves grace by virtue of their effort, God bestows ample reward and continually sends down His Mercy, far beyond what they technically deserve. Even the Arabic form of the word indicates a type of grace that is focused and repeated.

When any of God’s creation complies fully with their obligations, He rewards this act of theirs and bestows upon them success greater than what they deserved. This special favour creates in them the desire to progress indefinitely.

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Islam does not teach that God disregards hard work. Rather, this hard work is rewarded, on the material and spiritual worlds.

Indeed, Islam does not completely reject differences on the social plane. It only visualizes a society where the relative differences in socio-economic conditions will be less than what we observe in capitalist societies, and are more reflective of actual differences in capacity and effort. While on a human level, individuals have been created unequal in various respects (in terms of physical attractiveness, intelligence, or acquired wealth, etc.), these differences exist only to foster mutual cooperation. In this regard, the Holy Quran says:

And Allah has favoured some of you above others in the matter of worldly provision; but those more favoured will by no means restore a portion of their provision to those under their control, so that they may be equal sharers therein. Will they then deny the favour of Allah?

The Holy Quran, 16:72

It is We who distribute among them their livelihood in this life, and We exalt some of them above others in rank, so that they may serve each other mutually. The mercy of thy Lord is better than that which they amass.

The Holy Quran, 43:33

The first verse has succinctly laid down the Islamic teaching regarding private ownership. The verse criticises those who are wealthy on account of their stinginess, reminding them that their wealth is from God, and that they should seek to distribute it. Whereas on the one hand, the right of ownership has been recognized, the principle of collective ownership of wealth by all human beings is also stressed. Man is by nature and temperament inclined to be social and cannot achieve much without cooperating with his peers.

The second verse stresses that those with greater worldly advantages should not take pride in their comforts, for they were provided for by a chain of events over which they had little control. This chain ultimately terminates in the Hand of God. Through such inequalities man is put to trial: either a trial of abundance or a trial of deprivation, and our actions in both prosperity and adversity determines our divine reward; a reward ‘better than that which they amass.’

In the divine scheme of things, all living beings are organs of the same body. If one organ suffers discomfort, the whole body feels pain. Thus, to generate a true sense of compassion in the heart of humanity, the Islamic worldview requires that those blessed with some wealth should voluntarily forego some of their comforts and help others to improve their economic lot:

“Never shall you attain to righteousness unless you spend out of that which you love; and whatever you spend, Allah surely knows it well.”

The Holy Quran, 3:93

Thus, after analysing God’s Rahimiyyat, some features of capitalism are visible. Indeed, capitalism supports the principle that every person has the right to make individual effort in the production of wealth, to earn reward, and consequently spend the profits earned.

In Islam too, the most powerful motive which induces man to give his best to the work in hand lies in the reward for individual initiative and personal effort. Hard work permits us to reap the fruit of one’s labour without being dependent upon others. But of course, capitalism often rewards some abundantly and others not at all. Societies are left increasingly polarised, with social and spiritual unrest the inevitable result.

The Golden Islamic ‘Via Media’

Contrary to the two systems of communism and capitalism, one excessively collectivistic and the other excessively individualistic, Islam chalks out a golden via media promote the human ideals of brotherhood, progress and civilization. This middle course taken by Islam permeates all its philosophy and teachings, not in the sense of a grudging compromise between two extremes, but as the excellent and optimal balance that allows mankind to flourish:

And thus We have made an exalted nation, that you may be guardians over men (…)

The Holy Quran, 2:144

The Arabic word used in this verse is “Al-Wassat.” This means “exalted”, but also indicates “occupying the middle position”. This reference may give the impression that a “happy medium” is a normative concept, that is a forced and coercive injunction. However, the Islamic faith argues that this concept is related to the very nature of man. Maintaining a balance in the different dimensions of one’s life is therefore presented as a beneficial attitude rather than a normative one.

The Islamic economic philosophy allows private enterprise but at the same time requires a share to be given to the poor, so as to ensure greater equity and the curbing of greed. It has wisely devised mechanisms by which wealth cannot accumulate in a few hands, such as the prohibition of interest, the implementation of a marginal wealth tax, and the exhortation to give charity. It has taken steps to ensure not only that the rich do not grow richer and richer irresponsibly, but that they part with some of their wealth in order to uplift the poor. It always adopts a middle course in order to maintain a balance between the haves and the have-nots.

The State, as a reflection of “Ar-Rahman”, must ensure that everyone has at least the necessary resources they need to flourish, in whatever form needed. As a reflection of “Ar-Rahim”, it must allow individuals to keep and make fruitful what they earn from the sweat of their brows. The flaw of communism is that it wants to be Rahman without being Rahim, and capitalism wants to be Rahim without Rahman. Communism thus ends up stifling human effort and with it the human spirit, while capitalism results in spiralling inequalities.

The golden principle of economic justice can only be established if both sides work together for the greater good. The poor must fulfil their own responsibilities and work hard in order to benefit from their resources and wealth. On the other hand, the rich should happily display a true spirit of sacrifice in order to help their fellow human beings. They should understand that their wealth and resources have all been bestowed by God, and thus must be utilised to fulfil the rights of His Creation.

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Islam finds a middle way between the extremes of Capitalism & Communism

Where Economics & Spirituality Meet

In summary, Islam neither fully accepts capitalism nor totally rejects communism. Rather, it embodies the good points and attitudes of both systems, while discarding their evils. It gives specific mechanisms to safeguard society from these flaws, and to push society towards the general good. While both conventional economic systems have distinctive qualities, the situation of the recent past has shown the failure of the socialist economic experiment, and capitalism, despite long strides in the field of economic growth, is in the throes of an ever-deepening crisis.

The matter here is not to deny the phenomenal achievements of the 20th and the 21st centuries, but to recognise that in the final analysis, they have masked the persistent erosion of the moral bases of human culture. What capitalism and communism ultimately achieve is not just the ‘death’ of one God. Rather, they bring to life a multitude of gods: each individual becomes enthralled in the total commitment to serve their own ends at any cost. Ultimately, these desires grow stronger, become all-pervasive, and consume society.

In order to ameliorate our lot, we must implement a solution with two faces – one working from the top-down, and the other from the bottom-up.

From the top-down, we need an economic system that is well designed to tend towards equity rather than inequity. But since every economic system is implemented by people, people who must act honestly and selflessly, we need a moral revolution too, to work from the inside the heart of man. This is not possible without a belief in a beneficent God, who is the only binding and meeting point of all forms of creation. This belief in a Supreme Being introduces a real sense of accountability, where one serves God’s creation out of love for Him.

Through a belief in God, man is unfettered from worldly chains, and the existential loneliness of our capitalist world is finally relieved.

Read more in ‘Islam and Communism‘ by Hazrat Mirza Bashir Ahmadra, who emphasised this middle way of Islam many decades ago. You can also read Ahmad Danyal Arif’s other articles for Rational Religion here.

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