Economics, or finance, can be defined as the branch of social science that deals with production, distribution and consumption of wealth. Every country or doctrine has their own form of economic system, with the two main forms being capitalism and socialism.

Capitalism is an economic situation where private ownership holds the key. It is the adherence to the concept of private ownership in an unlimited form which signifies that the capitalist is the one who is the owner of the capital. Capitalism entertains the ownership of the natural resources (for example land) and capital goods (for example raw materials for any industry) but ignores the ownership of the labor. Thus the bridge between the rich and the poor widens as it is very visible in most of economic systems that follow capitalism. Socialism or communism on the other hand constitutes the principle of ownership of the state or public. It centralizes the public ownership through production and distribution of the wealth, which is exactly the opposite of capitalism. In socialism, there is lack of incentive for people to gain financial advantage and the finance system becomes depreciated, unstable, non competitive and without any common goal.

More extensive analysis of capitalism, socialism or Marxism can be found in the highly acclaimed book Iqtisaduna (Our Economics) by Martyr Ayatollah Baqir al-Sadr.

What does Islam say about Economics?

Islam is a comprehensive school that offers both social and spiritual teachings in life. Islamic economy is not a separate study but rather a part of the general Islamic system of organizing different aspects of life in the society. The economic structure of Islam preserves the rights of the individual and instructs social behavior. As other economic systems boast about social equality, the feature of social justice in Islam differs from all other systems in the core of its concepts.

That everything which exists belongs to Allah, is the essence of the Islamic economic system. As the Qur'an states, "To Allah belongs whatever is in the heavens and whatever is in the earth." (2:284) Nevertheless, Allah has allowed us to own the wealth of this world and be a private owner. The Qur'an states, "He has created for you whatever that is in the earth." (2:29) Islam recognizes the rights of the private owner but it has also limited the ways of acquiring and collecting excessive wealth, thereby regulating finance in the society and constituting a variety of forms of ownership. Allah says, "And the man shall gain nothing but what he strives for" (53:39), indicating that man should only seek what he deserves from his hard work. Islam seeks to decrease the gap between the rich and the poor, and while it is not pragmatic to get rid of poverty completely, an overall equilibrium can be reached between the poor and the rich. This is why Islam has its complete way of economic life and principles.

Martyr Baqir al-Sadr writes in Iqtisaduna that the variety of the forms of ownership in Islam is only an expression of an original religious planning which is based on certain ideological basis and which lies in a special framework of values and meanings, contrary to the bases, values and meanings on which are based free Capitalism and Socialism. He critically explains each of the two economic systems and in contrast, describes the perfect economic laws in Islam.

In a journal of Islamic studies, Message of the Thaqalayn, the various Islamic economic ideologies are discussed by Ayatollah Muhammad Ali Taskhiri. He discussed the flexibility of the economic system in Islam by explaining that the existence of different leading jurists (Mujtahids) and their constant openness represents one of the flexibility elements, without which one cannot know the effect of the development on the nature of the rules.

The Wonders of Islamic Economic Principles

Islam has laid down some exquisite principles about handling wealth in a society or individually. A few of the exceptional principles follow:

Real ownership belongs to Allah.
Islamic law (Shari'ah) has banned certain economic and social acts which are against Islamic values, such as usury and monopolization.
The legal power of the head of the Islamic government (Waliy al-Amr) to supervise and control the flow of the wealth in the country is with a view to maintain the public interests. The head of the government can restrict the freedom of certain individuals to perform or not to perform certain activities within the Islamic law. The Qur'an states, "O you who have believed, obey Allah and obey the Messenger and those vested with authority among you." (4:59)
Elimination of the basic needs (hajat) of individuals and uplifting the needy people to the stage of being free from want (ghani).
Financial punishments and methods that are developed by Islam to transfer private properties to the public ownership as with respect to mawqufat (endowments), or the lands the inhabitants of which perished, or the dead without heirs and so forth.
Prohibition of wasting and squandering (israf).
Prohibition of every action that leads to the misuse of any property, and to amusement (lahw).
Constant remembrance of Islamic ethical concepts such as honesty, wisdom, piety and self-sacrifice during any financial transaction.
Preserving the rights and money of the people. Once Abdullah ibn Zamaah came to Imam Ali (peace be upon him) during the time of his caliphate and asked for some money from the treasury. Imam Ali said, "This money is neither for me nor for you, but it is the collective property of the Muslims and the acquisition of their swords. If you had taken part with them in their fighting you would have a share equal to theirs, otherwise the earning of their hands cannot be for other than their mouths." (Sermon 232, Nahj al-Balagha)
Implementation of various taxes in various conditions such Khums, Zakat, Fitrah, Khiraj etc.
Thanking Allah for the blessings and all kinds of resources (natural or man-made).
Remaining humble in charity. Allah says: "O you who have believed, do not invalidate your charities with reminders or injury as does one who spends his wealth (only) to be seen by the people and does not believe in Allah and the Last Day." (2:264)
Justifying economic equality, Islam believes in the concept of charity (sadaqa and infaq). There are a number of verses in the Qur'an on charity: "…and spend (in charity) out of what We have provided for them." (2:3)

Concept of Islamic Taxes

The main taxes that are obligatory for capable individuals in Islam are Zakat and Khums. Zakat is not a commonly used tax as it is imposed on only nine items; gold and silver coins, camels, cows and sheep, wheat, barley, dates and raisins. Khums, however, is the obligatory tax which applies to most Muslims. In his book Khums: the Islamic Tax, the renowned scholar Sayyid Muhammad Rizvi explains the philosophy and rulings about Khums. It literally means one-fifth of certain items which a person acquires as wealth, which should be paid as an Islamic tax. About Khums, the Qur'an states: "Know that whatever of a thing you acquire, a fifth of it is for Allah, for the Messenger, for the near relatives, and the orphans, the needy, and the wayfarer..." (8:41)

From the Qur'anic verse, Khums is divided into two equal shares. The first half is for Allah, His Messenger (peace be upon him and his progeny) and our Living Imam (may Allah hasted his reappearance) while the second half is for the orphans, the needy and the travellers from the family of the Prophet. The first is known as the share of the Imam (Sahm al-Imam) and the second the share of the Sayyids (Sahm al-Saada) who descend from Lady Fatima (peace be upon her). The share of the present Imam goes to the Religious Authorities (Maraja Taqleed) and is used in propagating the religion of Islam, establishing schools, academic and household expenses of religious scholars etc.

What is the Cause of Global Economic Problems?

As all economic systems of the world have faced several problems, Marxist is of the view that the problem lies between the variation in production and distribution relations, whereas capitalists believe that the major economic problem lies in nature and scarcity in natural resources. In Our Economics, Ayatollah Baqir al-Sadr condemns this variation and magnificently explains how Islam has the solution. He states that Islam disagrees with both of the beliefs above as it is of the view that nature, being self-sufficient, can ensure all the necessities of life. The problem lies in man himself.

It is Allah who created the heavens and the earth and sent down rain from the sky and produced thereby some fruits as provision for you and subjected for you the ships to sail through the sea by His command and subjected for you the rivers.And He subjected for you the sun and the moon, continuous (in orbit), and subjected for you the night and the day. And He gave you from all you asked of Him. And if you should count the favors of Allah, you could not enumerate them. Indeed, mankind is (generally) most unjust and ungrateful.(14:32-34)

With these holy verses, it is clearly visible that Allah has provided all the necessities and resources to man and it is man himself that has created troubles in the society. Man's thanklessness and unjust, selfish behavior towards himself and the society are the real causes of the economic problems present in the world. Financial problems can indeed be solved by properly following the Islamic laws concerning economics and finance, which incorporates every necessary aspect of production and distribution of wealth.

Islamic Insights