Islamic Economic System

Neither capitalist systems nor scientific socialist systems work in the long run. 

Problems with Capitalist Sytem:

– High interest rates enslave the masses economically. Ie. when buying a mortgage and interest rates are high, the cost of borrowing money is the interest rate, and you are unable to pay the banks back due to increasing interest rates. Also, the value of your house goes down, so you can’t even sell your house. YOU CAN’T PAY ‘EM BACK, AND YOU CAN’T SELL YOUR HOUSE. That’s just one example. I’m sure students struggling to pay back OSAP loans feel me on this.

– Low interest rates result in government usually to borrow more money and spend more. While this is economic growth and funds many social services, there is a crowding out effect by the government, and demand for a larger money supply/interest rates increase. This, although increasing GDP, also increases the rate of inflation, which is a persistent rise in prices over time. It means…A CHOCOLATE BAR WILL BE WORTH 20 DOLLARS, AND DON’T EVEN GET ME STARTED ON GASOLINE FOR YO’ CAR.


Problems with Communist/Socialist System:

– Lack of interest rates means no incentive for people to go to work and earn profit higher than the interest rate. Also, no incentive because everyone gets the same amount of money in an ideal communist state, meaning a Ph.D professor, doctor, engineer, astrophysicist, and chartered accountant all get the same money as a…factory worker. So what’s the point of higher education then? Therefore interventionist supply-side policies also become futile.

– In past communist states, what really happened is that the government just owned all the money and lived lavish lives of luxury while everyone else suffered. Kind of like Ghadafi, Hosni Mubarak, Bashar al-Assad, Zardari, and others.



1.) Environmentally sustainable (ALL natural resources are collectively owned by humanity, and there is no price on them, similar to the Native Americans’ view).

2.) Eliminates interest completely from the economy. However even with a 0-interest economy, hyperinflation and loss of the value of the currency does NOT occur (as it did in Zimbabwe under Robert Mugabe). This is because the banks (acting as firms) offset inflationary pressures, and there is no inflationary spiral. The banks also mitigate the effects of the tax of Zakat if it is increased due to a person’s income and if the economy is experiencing a boom in the business cycle. 

3.) Decreases inflation rate to low and steady (because of increased aggregate supply)

4.) Levies a tax on accumulated capital (that is not used as expenditure) based on one’s income and how the economy’s doing called Zakat, which is used for social welfare. This money is given to: the poor, those employed as Zakat collectors, those whose hearts need to be comforted, for the freeing of slaves (economic slaves ones too), those burdened with debt, orphans, people in need of housing, people in need of bursaries for education, travellers, and those striving in the way of God (this includes but is not limited to missionaries, Imams, priests, rabbis, and other religious teachers). This is neither a direct (on income) nor indirect (on goods/services) tax, but on accumulated unused capital after 1 year.

5.) Increases employment, as the banks act as firms which have gains/losses in the money you put in them because they do business (kind of like stocks but with no regulation by the government or stock market; free-market).

6.) Eliminates need for wars for natural resources (ie. Iraq, Afghanistan, Libya).

7.) Reduces corruption, due to auditing board.

8.) Eliminates mortgages and replaces them with leases. Zakat also ensures everyone has a house, so homelessness is history.


P.S. This was only ever implemented in history by the 4 Caliphs after the Prophet Muhammad (sallAllahu ‘alayhi wa sallam), namely Abu Bakr, ‘Umar, ‘Uthman, and ‘Ali (radiAllahu ‘anhum). The current so-called ‘Islamic’ nations of the world have completely different economic systems. For example, Pakistan takes money from NGO’s and puts it in the coffers of politicians.

And, the Father of Modern Economics was Ibn Khaldun, an ancient Islamic sociologist/economist/historian, and not Adam Smith as is widely believed.



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