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Book: The Economic System of Islam

The study of the economic system of Islam could help Muslim countries to solve their economic problems and lead to development and flourishing.

When we talk of the economic system of Islam, we point to a particular plan that Islam has for organizing the economy in the best manner. The economic teachings of Islam are not restricted to some normative restrictions on the inquiry of wealth. Instead, Islam develops a particular economic system, which differs from other available economic systems such as capitalism and socialism.

The study of the economic system of Islam could help Muslim countries to solve their economic problems and lead to development and flourishing. Nowadays, many Muslim countries followed the prescriptions of Capitalistic and Socialistic economic systems. Not being compatible with the institutional setting of Muslim countries, the adopted economic policies were not successful.

We could analyses the Islamic economic system in both theoretical and practical levels. A theoretical concern is to illustrate the particular plan of Islam for solving economic problems and building a prosperous economy. The practical aspect of the economic system of Islam is related to the performance of this system and its ability in solving economic problems. In this book, I mainly elaborate the economic system of Islam theoretically. I also take practical considerations into account when I consider issues like the Islamic banking and finance.

In this book I used a vide notion of the term “economic system of Islam”. The term does not only refer to the institutional aspects of the Islamic economy or its normative aspects. It also refers to what we could call the science of Islamic economics, which deals with economic regularities and laws. Moreover, I used the term to cover also discussions on the philosophical aspects of Islamic economic to which we refer as the “philosophy of Islamic Economics”.

The book contains 32 lessons. The first five lessons are devoted to the introduction and evaluation of three rival economic systems, namely, capitalism, socialism and mixed economies. In lessons 6 to 13, the economic system of Islami is introduced by reference to the Islamic viewpoints on property rights, resource allocation mechanism, distribution mechanism, production and consumption. There is also a reference to the performance the economic system of Islam. Lessons 14 to 18 are mostly related to some philosophical and methodological aspects of Islamic economics. From lesson 19 to 21, some discussions on Islamic microeconomics are presented including theories of consumer and producer behavior from an Islamic viewpoint. The following three lessons, namely, lesson 22 to 24, are related to Islamic macroeconomics, including the ideal of Tayyib Gross Domestic Product.

Lessons 25 and 26 are related to the theory of Islamic development to which I referred as flourishing. Lesson 27 is about the theory of international economic from an Islamic perspective. Finally Lessons 28 t0 32 are devoted to different aspects of Islamic banking and finance.

I would like to thank all who helped me in writing this book. I particularly appreciate the helps of authorities of Al-Mustafa Virtual University, who facilitated the publication of the book. It is my pleasure that the readers of the book help me to improve it by sending their remarks and suggestions.

Table of Contents

Lesson 1: An Introduction to the Economic System of Islam

Introduction

Economic Systems

Rival Economic Systems

Basic questions

Does Islam Have an Economic System?

The Islamic Economic System as a Part of a Whole

Characteristics of the economic system of Islam

Distinctive Features of the Islamic Economic System

Summary and Conclusions

Questions for Discussion

Lesson 2: Rival Economic Systems

Introduction

Criteria for Classifying Economic Systems

Three Basic Metrics for Differentiating Economic Systems

Rival Economic Systems

The Evolution of Economic Systems

Basic Claims of Economic Systems

Summary and Conclusions

Questions for Discussion

Lesson 3: Capitalism or the Free Market Economic System

Introduction

Background of Capitalism

Philosophical Foundations of Capitalism

Basic Claims

Features of Capitalism

Pros and cons of Capitalism

Summary and Conclusions

Questions for Discussion

Lesson 4: Socialism or Planned Economic System

Introduction

Historical Background

Philosophical Foundations

Features of socialism

Socialism in comparison with Capitalism

Breakdown of Socialism

Summary and Conclusions

Questions for Discussion

Lesson 5: Mixed Economies

Introduction

Historical Background

Two Types of Mixed Economies

Main features of mixed economies

Property rights

Resource allocation mechanism

Redistribution of Income

Strategies of welfare states

(a) Regulation

(b) Nationalization

(c) Labor Movement

(d) Fiscal Policy

(e) High Growth

(f) Full Employment

Decays of welfare states

The logical flaws

Increasing budget deficits

Persistent Inequalities

High Tax Levels and Deficits

Summary and Conclusions

Questions for Discussion

Lesson 6: The Economic System of Islam

Introduction

Historical Background

Underlying Assumptions

Basic Claims of the Economic System of Islam

Characteristics of the Islamic Economic System

  1. i) Three forms of ownership (Property Relations)
  2. ii) Resource Allocation Mechanisms

iii) Distribution and Redistribution Regimes

Summary and Conclusions

Questions for Discussion

Lesson 7: Property Rights in an Islamic Economic System

Introduction The Philosophy of Ownership

Three Forms of Ownership

Respected Private Ownership

Public Ownership

State Ownership

Regulation on Private Ownership

Summary and Conclusions

Questions for Discussion

Lesson 8: Resource Allocation Mechanism in the Economic System of Islam

Introduction

From the invisible hand of the market to the visible hand of the state

Resource Allocation Mechanism in Islamic Economics

A Regulated Market

A Responsible State

Moral Filter (Morality Mechanism)

The Functioning of the Islamic Allocation System

Summary and Conclusions

Questions for Discussion

Lesson 9: Pre-production Distribution in the Economic System of Islam

Introduction

Fair Distribution of Natural resources

Categorization of Natural Resources

Land

Raw Materials and Waters

Other Natural Resources

Summary and Conclusions

Questions for Discussion

Lesson 10: Islamic Post-production Distribution System

Introduction

Principles of Distribution

Bases of Distribution

Economic Work

Need

Other Factors

Diversity of Payment Contracts

Return to the Factors of Production

Summary and Conclusions

Questions for Discussion

Lesson 11: Redistribution of Income in Islamic Economics

Introduction

The Philosophy of Income Redistribution

The Islamic Income Redistribution System

Characteristics of the Islamic Redistribution System

Summary and Conclusions Questions for Discussion

Lesson 12: Production and Consumption in an Islamic Economic System

Introduction

Doctrinal and Technical Aspects of Production

Doctrinal/Intellectual Strategy

Legislative Strategy

From Consumer Sovereignty to Consumerism

Summary and Conclusions

Questions for Discussion

Lesson 13: The Performance of the Islamic Economic System

Introduction

Two Views about the Performance of the Islamic Economic System

The Functioning of the Islamic Economic System

The Economic Performance of Early Islamic States

The Economic Performance of Contemporary Muslim Countries

Summary and Conclusions

Questions for Discussion

Lesson 14: Islamic Economics as a Discipline

Introduction

Doctrinal Aspects of Islamic Economics

Scientific Claims in Islamic Economics

Reinterpreting Sadr

Summary and Conclusions

Questions for Discussion

Lesson 15: Early Islamic Economic Thoughts

Introduction

The Fallacy of the ‘Great Gap’ Theory

Multidisciplinary Development Approach

Division of Labor, Specialization, Trade, Exchange and Money and Banking

Demand and Supply

Public Finance

Stages of Development

Muslim Intellectual Decline

Summary and Conclusions

Questions for Discussion

Lesson 16: The New Islamic Economics

Introduction

Islamic Economics as a Discipline

Islamic Economics before Sadr

Contributions of Sadr to Islamic Economics

Islamic Economics after Sadr

Summary and Conclusions

Questions for Discussion

Lesson 17: Philosophical Foundations of Islamic Economics

Introduction

Philosophical Foundations of Economics

Philosophical Foundations of Islamic Economics (IE)

The Epistemological Foundations of IE

The Ontological Foundations of IE

The Axiological Foundations of IE

Summary and Conclusions

Questions for Discussion

Lesson 18: Methodology of Islamic Economics

Introduction

The Nature of Islamic Economics

The Discovery Methodology

Stages of the Discovery methodology

Hypothetical Deductive Method

Summary and Conclusions

Questions for Discussion

Lesson 19: The Theory of Consumer Behavior from an Islamic Point of View

Introduction

Micro- Macro-economic Analytical Tools

The Functioning of Micro-and-Macro-economics in Conventional Economics

Islamic Micro-and-Macro-economics

The Theory of Consumer Behavior

Matured Economic Men

Moderate Consumption

Two Types of Expenditure

Legal and Illegal Consumptions

Four Stages of Decision-making

Summary and Conclusions

Questions for Discussion

Lesson 20: The Theory of Producer Behavior from an Islamic Perspective

Introduction

Normative vs. Positive Theory of Producer Behavior

Different Views about the Theory Producer Behavior from an Islamic Viewpoint

The Culture of Halāl and Ṭayyib Production

Summary and Conclusions

Questions for Discussion

Lesson 21: Fair Prices and Adequate Production

Introduction

Free Market Failures

The Problem of Overproduction

Filtering Needs in Islamic Economics

Tayyib (Pure) production

Fair Prices

Summary and Conclusions Questions for Discussion

Lesson 22: The Islamic Economic System at an Aggregate Level; the Demand Side

Introduction

Properties of a Macroeconomic Approach

Islamic Macroeconomic Analyses

Aggregate Demand and Supply

The Performance of an Islamic Economy at an Aggregate level

The Allocation of Income in an Islamic economy

Summary and Conclusions

Questions for Discussion

Lesson 23: Ṭayyib Gross Domestic Product (TGDP)

Introduction

From the Demand Side to the Supply Side of an Islamic Economy

The Supply Side of an Islamic Economy

Green GDP

Ṭayyib GDP

Measuring Ṭayyib GDP

Summary and Conclusions

Questions for Discussion

Lesson 24: The Islamic Economy and Business Cycles

Introduction

Business Cycles

Islamic Economics and the Business Cycle

The Functioning of a PLS Model

A self-regulating System

Practical Problems of PLS

Summary and Conclusions

Questions for Discussion

Lesson 25: The Theory of Development and Flourishing

Introduction

The concept of development

Flourishing as an Islamic Concept

Causes of Development

The Theory of Trigger Mechanism

Summary and Conclusions

Questions for Discussion

Lesson 26: Flourishing Strategies

Introduction

Development Strategies

Flourishing strategies

A Multidimensional Strategy for Flourishing

Summary and Conclusions

Questions for Discussion

Lesson 27: The Theory of International Trade from an Islamic Perspective

Introduction Early Theories of Free International Trade

New Theories of International Trade

Evaluation of the Free Trade Theory

Towards an Islamic Theory of international Trade

Summary and Conclusions

Questions for Discussion

Lesson 28: The Foundations of Islamic Banking and Finance

Introduction

The Need for Islamic Banking and Finance

The Foundations of Islamic Finance

Sharia Regulations on Islamic Banking and Finance

Sharia Goals in Islamic Finance

Summary and Conclusions

Questions for Discussion

Lesson 29: Mobilization of Resources in the Islamic Banking

Introduction

Investment and Non-investment Accounts

Non-investment Accounts in Islamic Banks

Three Arrangements in the Mobilization of Investment Accounts

Summary and Conclusions

Questions for Discussion

Lesson 30: Facilities in Islamic Banking

Introduction

Three Types of Facilities

Qard al-Hassan

Exchange Facilities

Joint-venture Facilities

Summary and Conclusions

Questions for Discussion

Lesson 31: The Islamic Banking in Practice

Introduction

Islamic banking as the fastest growing segment of the Islamic Economy

Development of Islamic Windows of Conventional Banks

Challenges and Opportunities for Islamic Banking

Summary and Conclusions

Questions for Discussion

Lesson 32: Islamic Finance and Financial Crises

Introduction

Financial Crises

Causes of Financial Crises

Causes of Financial Crises from an Islamic Perspective

Islamic Policy Recommendations

The performance of Islamic Banks during the financial crisis of 2008

Summary and Conclusions

Questions for Discussion

Bibliography

Bibliographic Information

Title: The Economic System of Islam

Author (s): Mohammad Javad Tavakoli

Publisher: Al-Mustafa International Publication and Translation Center

Length: 208 Pages

ISBN:‎ 978-1627798556

Pub. Date: 2022

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