4. ECONOMICS

 

Though the Quran does not describe a complete economic system, several features of its teaching are relevant to Economics, and allow the construction of such a system. The Hadith, containing the traditions of the Prophet, show how he did this in his day, and this guidance was used by others likewise after him. Though circumstances have changed greatly since those days, the nature and needs of human beings remain fundamentally the same as does the world they live in. It should, therefore, be possible to do so again.

There are several good reasons for the need to do this:- (a) that all present day economic systems ignore the spiritual and psychological dimension of man, (b) that they have disrupted the environment (c) that they have created a great amount of social injustice, inequality and misery throughout the world (d) that they are uncontrollable and, therefore, constantly malfunctioning.

We are not concerned with the specific methods of production and technology which obviously will continue to change, though the fundamental economic ideas will affect these. Nor shall we study Economics in the Western sense. No in depth study will be made in this chapter, but some of the features unique to Islam will be discussed.

The relevant features include the notions of :- (1) Unity (2) Vicegerency (3) Property as a Trust (4) The notions of Community and Brotherhood (5) Personal, Public and Ecological responsibility (6) Consultation, agreements and Contracts (7) The ban on Usury (8) Zakah, Charity and distribution of wealth (9) Encouragement of spending and the discouragement of hoarding, ostentation, greed and waste (10) Freedom of responsible enterprise, individual initiative, independence and self-reliance (11) Competition and cooperation in only that which is beneficial (12) Discouragement of speculation and gambling (13) The pursuit of knowledge and its application (14) Equitable Laws regulating trade and transactions, accurate weighing and measuring and the discouragement of package deals (15) Distribution of wealth through the Laws on Inheritance.

 

Some of the Principles governing Islamic Economics are as follows:-

The aim of life:-

“O you who believe! Be mindful of your duty to Allah, and seek a way of approach unto Him, and strive in His way in order that you may succeed.” 5: 35

Ownership:-

“Unto Him belongs whatsoever is in the heavens and whatsoever is in earth, and whatsoever is between them, and whatsoever is between the sod.” 20:6

 

Property is a trust:-

“Believe in Allah and His Messenger, and spend of that whereof He has made you trustees; and such of you as believe and spend aright, theirs will be a great reward.” 57:7

Responsibility and Differences in status:-

“It is He who has appointed you vicegerents in the earth, and has raised some of you in rank above others, that He may try you in what He has given you. Lo! Thy Lord is swift in prosecution, and lo! He is forgiving, merciful” 7:166

Uncertainty:-

“No soul knows what it will earn tomorrow..” 31:34

“Had I knowledge of the unseen, I should have abundance of wealth and adversity would not touch me.” 7:188

Over indulgence and excessive wealth create economic turmoil:-

“And if Allah were to enlarge the provisions for His servants they would surely rebel in the earth. “ 42:27

Man is not independent:-

“Nay, but verily man is rebellious that he thinks himself to be independent.” 96:6-7

Man creates his own disasters, though there is some tolerance in nature:-

“Whatever misfortune strikes you , it is what your own right hand have earned . And Allah forgives much.” 42:30

Variety:-

“Verily! Your strivings are towards diverse ends.” (92:4)

Striving for wealth is legitimate:-

“Beautiful for mankind is love of the joys from women and offsprings and stored up heaps of gold and silver and horses of quality and cattle and land. That is comfort of the life of the world. Allah! With Him is a more excellent abode.” 3:14

“O you who believe! Forbid not the good things which Allah has made lawful for you, and transgress not.” 5:87

“Allah desires for you ease. He desires not hardship.” 2:18

Waste and extortion:-

“O ye who believe! Squander not your wealth among yourselves in vanity, except in trade by mutual consent, and kill not one another.....” 4:29

Differences in wealth and ability:-

“..... and covet not the things in which Allah hath made some of you excel others.” 4:32

Circulation of wealth:-

“O ye who believe! Lo! Many of the rabbis and monks devour the wealth of mankind wantonly and debar men from the way of Allah. They who hoard up gold and silver and spend it not in the way of Allah unto them give tidings of a painful doom.” 9:34

 

Transactions must be equitable and recorded:-

“When ye contract a debt for a fixed period, record it in writing. Let a scribe record it in writing between you in equity. ... let him who incurs the debt dictate, and let him observe his duty to Allah his Lord and diminish naught thereof... but if he who owns the debt is of low understanding or weak or unable himself to dictate, then let the guardian of his interest dictate in equity...” 2:182

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It is necessary that we do not confuse Islamic Economics with Economics as understood in the West for the following reasons:-

1. Man is taken in the West as an Absolute, the source as well as the goal of the Economic System. He has no significance with respect to anything greater than himself. Neither the ecological system nor the spiritual aspect of man have any significance for Western economics except as a means. Islam, on the other hand sees man as having significance with respect to Allah. That is, (a) he interacts with the rest of the Cosmos, Allah’s creation (b) he contains the spirit of Allah (c) he must act on behalf of Allah.

2. Western Economics claims to be a science. It, therefore, (a) abides by the principle of objectivity which attends to external objects and considers things in isolation, (b) tries to avoid value judgements which are regarded as subjective, (c) sees things in a mechanistic deterministic way. This being the case it explains human behaviour as being driven by pain and pleasure, the one repelling him from certain actions and the other attracting him. The Islamic system, on the other hand, sees all things (a) as having a function with respect to the greater system to which they belong, and ultimately, with respect to Allah. (b) as being motivated by the need to adapt and adjust to the greater system. and, therefore sees certain values as being objective with respect to which alone facts can be properly interpreted. (c) It recognises several levels of functioning, namely mechanical, intelligent and conscious.

It sees man as being motivated by needs, desires and strivings, and these have three properties:-

(a) They depend on (i) inherent factors, created by Allah, modified by (ii) experience and (iii) knowledge.

(b) They exist at several levels. There are (i) physical, (ii) social and (iii) psychological needs, desires and strivings.

(c) They are value Judgements which depend on (i) the nature of man, (ii) social interactions, (iii) awareness.

 

Islam takes its values from the Quran. These are regarded as objective because they are presented to us as principles of behaviour which will benefit (a) the individual, (b) the community as well as (c) the environment on which they depend. If then these values are recognised, accepted and applied, then, and only then, will it be possible to treat human affairs, including the economy in a rigorous scientific manner.

3. The Social aim of the Western economic system is expansion, often referred to as progress. The purpose of the Islamic economic system is to produce social welfare, human development and the management of the environment. These aims are implicit in the notion of vicegerency.

4. The purpose of the Western economic activity is to make a profit. The aim of Islamic economic activity is variously defined as:- to serve or please Allah, to return and enter into the presence of Allah, to be saved on the Day of Judgement, to attain Paradise. The ultimate aim is to benefit the individual, the society and the environment. This has several consequences:-

(a) That life is not confined to this world. A much longer life span has to be catered for.

(b) That the desires and strivings are not exclusively material.

(c) That success is not measured in wealth but in attaining merit for which material sacrifices may well be made. Success, in Islam, is defined as overcoming greed, lust and pride and facilitating the growth of the soul. (91:9-10, 59:9) while greed, lust and pride are the sources of success in western economies. Thus, a number of the things striven for in Islamic societies have no value whatever in either capitalist or communist economic systems.

 

5. The Western view is that (a) man is a self-consistent system independent of his environment (b) that each person is a separate independent individual (b) that the economic activities of people may be separated from other activities.

The Islamic view is:- (a) Comprehensive - His economic activities affect, are affected by, and are part of, the whole ecological system and the world processes. (b) Unitarian - That man is a social being. He is interdependent and interacts with others genetically, through the work they do, through cultural and ideological influences, through the circulation of materials, energy and information, and through direct interaction. (c) Holistic - All aspects of man interact and are inter-dependent. We cannot, therefore, separate his spiritual, intellectual, emotional, and physical aspects from each other.

6. The Western economic system is based on the idea that (a) all desires or demands are equally valid, (b) that human beings are able to make rational choices between alternative utilities, (c) that human beings do make such choices (d) that this a good thing. (e) It also assumes that utility always means something material.

The Islamic attitude is (a) that a utility is something which brings true benefits, physically, socially or psychologically. (b) Ultimately, things are judged by the experience of the satisfaction they give and this is a psychological condition. Since death comes to all, every temporal benefit is neutralised. Therefore, the benefits which are more lasting are better than those which do not. To sacrifice the long term benefits for short term ones constitutes a loss. (c) that people make choices through impulse, habit, ignorance or perversion, and that only increased awareness and knowledge will produce correct choices (d) that choice depends not on reason but on motives and values. (e) That there are levels, priorities and distinctions between needs, desires and whims

Firstly, we have to distinguish between (a) built-in, inherent needs, (b) the channelling of these needs through experience, and (c) awareness of needs. Inherent needs are derived from the self-preservative, the socio-sexual impulse and the self-expansive. The last refers to the need for growth, knowledge, control over ones life and affairs, to make sense of the world we live in, adjust to it and have a purpose. These are primary goals. In order to achieve these in a particular environment we need knowledge as well as skill and action in which we expend energy. We achieve them through secondary goals or purposes. We have to gather food and cook it, for instance, before we can eat it. There are tertiary goals when we have to do the things by which we earn the money to buy the food. The fourth level consists of the organization and technology required for agriculture for instance. Thus a distinction of level arises.

Experience produces associations and conditioning. These suppress, exaggerate or distort them in specific directions through pain and pleasure. The means may themselves become the ends, while the real ends are lost. Habits are formed which cause loss of adaptability. Attachments create greed and lust. We want more than we require in certain directions and less in other directions. But human actions depend on what they are aware of. A person who misinterprets his needs will pursue goals which do not provide benefits. This not merely causes deprivation, but also malfunctions and by creating frustration leads him into destructive behaviour. Aggression, envy, fear, anxiety, hate, despair and confusion arise and prejudices, illusions and delusions, sadism may result. Thus a distinction in motives arises

A distinction in priorities is made between (a) Necessities (b) Conveniences (c) Refinements.

(a) The Necessities have been classified by past authorities as consisting of fundamentals:- Religion, Mind, Life, Family, Property. Religion consists of the five pillars of Islam. Mind refers to educational needs and the conditions for mental health. Life requires security and the means for life and health. Family refers to the conditions which facilitate the existence, security, love and welfare of family life and the bringing up of children. It includes prevention of fornication, rape, adultery. The term Property includes the provision and protection of the basics needed for life, e.g. clothes, housing, cooking utensils.

 We may, however, revise these into three as follows:- Religion and Mind can be seen as a single system since each includes the other. Religion exists for Spiritual and Mental health. Life and Family may also be included in a single category since these are inter-dependant. Property should also include the condition of the environment, the character of the water, air and land. It will then be possible to divide each category into similar sub-divisions. The economic system should provide the Necessities for all.

(b) Conveniences are not essential to life, but make life more pleasant. This may consist of carpets, extra clothing, a greater number of rooms in the house and so on. These should only be provided after the necessities have been fulfilled. Those who have more than their necessities will pay tax (Zakah) on it.

(c) Refinements may consist of art works and luxuries. These can only be provided after conveniences. Those who have sufficient wealth beyond conveniences are required to distribute their wealth freely.

Different times, places and conditions may cause a shift of things from one category to another.

 

7. Existing economic systems control the Law. There is, therefore, no notion of Justice. In Islam, the Law controls the economic system. Justice in work, exchange, contracts and agreements are, therefore required.

Some kinds of agreements between people even if freely entered into without duress, pressure, unequal knowledge, circumstance or physical and mental capabilities are not allowed, while others are required.

Work and Reward are related. Gains without appropriate work, or work without equivalent payments, and unequal exchanges are not tolerated. Therefore gambling, usury, theft, swindling etc are forbidden

Hoarding of goods or money, monopolies, waste and destruction are forbidden. All money should be spent, and that in useful directions.

8. The existing economic systems are based on either individual enterprise and control or central, government enterprise and control, or a combination of these to various degrees. The Islamic system is based on the community.

“Hold fast, all of you together, to the cable of Allah, and do not separate. And remember Allah’s favour unto you: how ye were enemies and He made friendship between your hearts so that ye became brothers by His Grace; and how ye were on the brink of an abyss of fire, and He did save you from it. Thus Allah makes clear His revelations unto you that haply ye may be guided, and that there may spring from you a community who invite to goodness, and enjoin right conduct and forbid indecency. Such are they who are successful.” 3:103-104

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The foundations of the Islamic Economics can be described as follows:-

1. Allah is Supreme. This is the Principle of Objectivity and has the following significance:-

(a) Allah is the creator, owner and provider of the materials, energies, processes, forces and the laws on which the Universe and everything in it, including man and his environment, is based. He, not man, provides the heat and light of the sun, the atmosphere and its weather and the climate, the rain and the nutrition by which crops grow, the sea and its fish, the land and its resources. He also creates human needs and talents, and the conditions which give rise to organizations. The economic system is, therefore, dependant on Natural Laws and Processes. These Laws cannot be invented by man, but must be discovered and understood. Human activity must be conducted within their framework. In other words, humanity depends on something greater than itself. It is now well known that humanity is not independent of the rest of the ecological system, its social system, and its own biology and psychology. Its fate depends on its interactions. Even the atheist must recognize this.

(b) These Natural Laws and processes, have a particular nature, proportionality, measure, duration and limits. All things are inter-dependent, forming a unity. There are rhythms and cycles in nature as the Quran points out. Apart from the cycles of day and night and the changes of the seasons, individual human beings undergo various kinds of biorhythms which sometimes collectively lead to a low point and at other times to a high point. There are all kinds of rhythms within the collective community, the whole of humanity, the biosphere, the planet, the solar system and beyond. There are several business cycles, fashion cycles, weather cycles and so on. But human beings are able to see only parts of the whole picture.

(c) The greater Reality controls us in three ways:- It provides (a) stimulation (b) limitations (c) possibilities. That is, it provides us with the motives, incentives, desires, instincts etc; it makes certain things impossible; and it provides conditions, situations and opportunities in which other things are possible. These categories work at three levels:- Externally, man finds himself in an environment where certain things exist as given. Internally, an individual has certain abilities, desires and characteristics which he must apply. He also lives in various kinds of interaction with other people with whom he must cooperate.

(d) Normally, human beings are neither aware of nor have control over their affairs, and their motivations are relatively unreal. They often misinterpret their own needs and interests as well as the data of experience. If human beings are to benefit, then the relationship between people and between man and the environment must be regulated by certain rules. Certain kinds of actions will, for instance produce certain results beneficial or harmful to us. Knowledge must be sought and applied. We have to search for these in nature, within ourselves, and in the revealed scriptures, just as we search for the laws of nature and for resources. We are required to abide by the guiding rules revealed by Allah through His Messengers. That is, by those who are more conscious of reality.

 

2. Allah has created all human beings from a single soul, though he has made them diverse in character. They are a single family. This implies:-

(a) That all men and women are related as brothers and sisters. They should cooperate and help each other and also act collectively as a single organized body.

(b) They have equal significance, rights and responsibilities; that everyone has an equal right to make a living and to opportunities to use the resources of the earth, according to their diverse needs and abilities. That monopolies which reserve resources exclusively for the few, or the control of these resources by the few or by states, cannot be allowed.

(c) That Justice should prevail. Everyone should be able to receive his rewards according to his abilities and efforts. ‘From each according to ability to each according to need’ is not an Islamic principle. Neither should opportunities be restricted, nor their efforts and rewards. These rewards should depend on natural laws and the social good.

(d) That no one may make a living or benefit by methods forbidden by the moral law, by means which harm him, others or the common environment on which all depend.

 

3. Man is a Vicegerent. This implies:-

(a) That there is a purpose for his existence. He has a function with respect to the world he lives in.                          

(b) That his welfare and fate depends on the fulfilment of this function.

(c) That he has the powers given by Allah, which he can use to modify his environment and himself within the limits set by Allah. That he has not only the right but the duty to use these.

(d) That he must use these powers on Allah’s behalf. He has responsibilities towards himself, others and the environment.

(e) That all things can be used by him for this purposes. They can be used as resources or as sources of knowledge or they can be rearranged to suit a purpose.

(f) That, as the agency rests on all human beings, they are both individually and collectively responsible. This responsibility cannot be taken away.

(g) That individuals, groups or States do not have the right to restrict the abilities, talents and potentialities given by Allah, to create either artificial inequality or equality, though they have the duty to develop these. Disaster will follow if they do.

(h) That ultimately the individual but also the community is accountable to Allah alone, not to a state or some dictator. He should not, therefore, subordinate himself to some man made economic, political or ideological system . But rather, he should be its master.

 

Certain consequences follow from this:-

4. The ultimate ownership rests with Allah. Man is given property, as well as his talents, position, circumstances, opportunities as a Trust. He will be held accountable for what he does with it. This makes Islam incompatible with both Capitalism and Communism. Islam is not against differences of wealth and rank, but requires that there should be a direct proportionality between privileges, responsibilities and abilities. Without this both the individual and the society will suffer.

A human being enters this world with nothing, and leaves it with nothing. That which he acquires never becomes part of his nature. The word, property, in the scientific sense, means characteristic or quality. This is its only real sense. The other meaning is purely a legal device. The result of this attitude is that though individual ownership is recognised, this right is not absolute but relative to what he does with it. History shows that peoples who had land and resources but did not do anything constructive with it, were then invaded by more vigorous peoples and dispossessed. This is not only a historical fact, but from the Islamic point of view, just as it should be.

 

5. Consider the following verse:-

“And surely We shall try you with something of fear and hunger, and loss of wealth and lives and crops; but give glad tidings to the steadfast who say, when a misfortune strikes them: Lo! We are Allah’s. And lo! Unto Him are we returning.” 2:154-155

Several things can be said about this verse:-

(a) Islam does not see the economy as being stable and homogenous, and does not predict that it will ever be so. Indeed, change and development is part of nature, and stability produces stagnation. There are always ups and downs.

(b) Man is to be tried and tested. It is a matter of observation that those who suffer from adversity come out of it stronger and tougher, while those who are used to ease and comfort are at a relative disadvantage since they become soft and degenerate, never having exercised their faculties.

(c) This is, however, not always the case. Some people have been so badly beaten by deprivation and lack of opportunities that they are physically, mentally and spiritually thoroughly disabled. The verse offers hope to them as well as encouragement. It does not speak about continuous deprivation and misery. A certain amount of success and fortune is also required to encourage people. Problems exist in order to encourage man to solve them. Islam requires that those who are more prosperous will help those who are less so, thereby evening out fluctuations in prosperity. Adversity, therefore, is also a test for social responsibility. In contrast Capitalism tolerates the loss of useful employment, wastage of talents and suffering, while communists have discovered that if employment is guaranteed then there is a loss of incentives to efficiency and development. This produces economic stagnation, leading to disaster. Both, therefore, provide no solutions to the economic problems.

 

6. The purpose of the Economic system is to facilitate:-

 (a) The fulfillment of the basic needs of life.

 (b) The integration of the community.

 (c) Psychological and spiritual development.

The purpose is not the maintenance of a particular economic system or its expansion.

 

7. The human economic system is part of the Ecology of the world. It must not disrupt it, but exist in harmony with it. The term vicegerent implies responsibility for the planet.

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Several important features of Islam, which distinguish it from both Capitalism and Communism, can be listed as follows:-

1. The Principle of Unity, Tawhid, arises from the concept of Allah. This implies that there is absolute unity underlying all things. All things are inter-dependent parts of a single system, and each part is also a whole. Man is a unity and all aspects of his life will affect all others. The world is a whole and all things in it will affect all other things. Economics cannot be separated from other aspects of life. Nor can it be separated from the Ecological System. Each organism has a function with respect to the system it belongs to. It has an input from the environment, transforms this and produces an output into the environment which is used as an input by other creatures which transform this and produce an output. Economics can, therefore, be defined as the methods adopted to utilise that which is available for a beneficial purpose. In more general terms, it is a bridge between ‘what is’ and ‘what should be’, between facts and values, between science and ethics. Something can be said to be economical when maximum benefit or real satisfaction is obtained from the minimum sacrifice. The purpose of the Economy is to maximise benefits and minimise sacrifices. As this is part of the function of human beings, it is, therefore, integral to the notion of the vicegerent. This is certainly not the Western view in which only the satisfaction of demands is required, irrespective of whether they are beneficial, and even these refer to only material ones. It is not difficult to see that this will lead to harmful consequences by default.

2. Thus, there are three aspects to it - to continually increase the benefits, decrease the sacrifices (in work, time, efforts, benefits etc.), and increase the utility of things (the balance between the benefits and sacrifices involved in their manufacture and use). The word ‘benefit’ should be understood in an objective sense. It does not mean the satisfaction of some illusion or whim. If no real satisfaction is obtained, then frustration merely leads to constant efforts to obtain the illusory satisfaction. Since both the dissatisfied state and the pursuit of the illusory goal may cause problems of their own, it also diverts and wastes more efforts unnecessarily. The total sacrifice becomes greater than the benefits. This is counter-economic.

3. Islam bases itself on the Umma, the Community rather than on individuals or the State. Actions are taken by, on behalf of, and for the benefit of the community. The individual, since he depends on and benefits from the community, has social responsibilities. In so far as all are vicegerents, the relationship between people is one of brotherhood. The western idea that people can be used like other commodities by a person for his own personal profit and advantages is certainly inconsistent with ethics. Thus partnership, contracts and mutual consultation and agreement should replace such relationships. Islam does not recognise class, race or national distinctions.

4. The Principle of equitable transactions. In all exchanges between people the benefits and sacrifices should be equal. The exploitation of the ignorant or stupid by the clever is not morally justifiable. In contrast the Western idea of business is that each individual tries to maximise the benefits he obtains while minimising his sacrifices even at the expense of others. The seller is expected to sell his products as expensively as he can and the buyer is expected to purchase them as cheaply as he can. Effort is directed by each to get into a more advantageous position with respect to the other. Thus a struggle arises which also leads to class distinctions. It divides the community and even the person into two conflicting interests. The Communist solution to this is the introduction of a third factor, namely State agencies which determine the production, distribution and prices. But this produces a conflict between State and people. Even in Capitalist countries the State intervenes to regulate the relationship between workers and owners. Thus, though Capitalism is polarised, it produces a Trinitarian system, while Communism tries to be Unitarian but produces polarisation, Islam is Unitarian.

5. The individual is regarded as responsible for his own actions, not that of others. He cannot impose his will on others, or excuse his actions on the grounds that he is under orders by someone else. The manufacturer, the seller, the distributor and the buyer are all responsible for what they do. Neither the maker nor the seller or the distributor can be excused for dealing in a harmful product on the grounds that he is only providing what the buyer wants. Both the person who gives the orders and those who transmit them and obey them are to be held responsible for their actions. Each person has responsibility for everything which comes under the sphere of his influence, people as well animals and the material environment. Everything that is good and beneficial to himself or others is allowed. This freedom is only circumscribed by that which is expressly forbidden. The reverse is not true i.e. that a person is forbidden everything except the permitted.

There should be a balance between the interests of the individual and that of the community. The one cannot be sacrificed to the other. When the individual is subordinated to the community, as in the case of communism, then his development is hampered. The ability to fulfil his needs suffers. The enterprise, creativity, initiative and responsibility on which the welfare and progress of the nation depends is stifled. If, on the other hand, the emphasis is placed on the individual at the expense of the community, as in Capitalism, then we get the domination and exploitation by some over the many. It leads to injustice and extremes of inequalities in wealth and opportunity. In fact it negates and destroys communal life. It produces stratification into classes. Economic slavery becomes inevitable. The individual must have sufficient freedom to earn his living, develop his own intellectual, moral and spiritual faculties, and satisfy his own needs and aptitude. The managers and directors of a firm cannot impose their policies on the workers. the workers must be consulted. This would avoid all industrial disputes. Such disputes take place in the West because of the arrogance of the Management and the need to satisfy shareholders on the one hand and the stupidity of narrow self-interest in the workers who have no relevant information or control over their destinies. But when such consultation becomes a legal necessity the managers will have to educate their workers.

6. The ownership of property is not absolute but conditional. It is a trust given to man to utilise in the best way he can. It is, in effect, a right to use, not to own. If land, or by analogy, other kinds of property such as buildings and machinery which have public or social significance, is left unused for a certain period then any other person can claim it by using it. No property rights of States, governments, corporations, companies or religious organizations are recognised since these are human creations and no vicegerency exists in them. This does not apply to partnerships in which each retains agreed rights. Nor are there any property rights on other human beings, their time, talents, works, thoughts, conscience or products. Each person has responsibility for himself. It is not, therefore, possible that the inventions or research made by someone can be owned by the firm or person who employs him. This, too, requires some kind of contract.

This attitude may also, by analogy, extend to partial or under usage and miss-usage. That is, in so far as it is not fully used or employed to a high degree of usefulness by a person, its use could be shared. If harmfully used it could be confiscated. There are, clearly, a number of legal difficulties in extending the principle in this way. Anyone could, for instance, borrow without permission or steal something from another person claiming that it was not being beneficially used. However, this can be overcome by the requirement that this cannot be done without permission or through legal means. A person would have to bring his claim to court and show that it was inadequately or harmfully used, and that he would use it to better advantage. A fair recompense to the owner will also be necessary. Compulsory Purchases by the State are common in the West, but there the State appears to have absolute power to do this. This principle may not apply to purely personal property. The main value of this principle, however, is the attitude a person has towards property. He does not object to sharing it, or he sees that he has no right to object. Indeed, he considers it his duty to share or relinquish his rights. He is more than willing to give away something he does not use, or cannot use adequately, to someone who can do so better. He does not acquire unnecessary products.

 

7. Ethics regulates the economy. As the purpose of the economy is to produce maximum benefits, all those means of making a livelihood or profit which are injurious to the community are forbidden. This includes the manufacture and sale of alcohol and other drugs, prostitution, perversions, professional dancing, gambling, speculation on stock markets, racing and lotteries, all fraudulent transactions in which the exchanges are unequal, price manipulation by hoarding necessities of life, package deals in which a needed product is sold on condition that some other product is also bought, all unfair methods of trading including adulteration, false description, pressure salesmanship, built-in obsolescence, dishonesty in weights and measures and so on. The manufacturer or merchant is responsible for all the harmful side effects which his business entails and must bear the cost of preventing such effects. No contracts, promises or undertakings which involve something injurious or morally dubious can be valid in law.

Gambling on the Stock exchange and fluctuations on interest rates is probably the biggest cause of economic instability in the West. It causes (a) thousands of millions to be locked up unproductively in buying and selling rather than production, (b) it increases the cost of some goods, but also causes prices not to correspond to resources or supply to demand, (c) it often wipes out at a stroke great fortunes among the few, or the invested pensions of thousands of people, or it creates vast undeserved fortunes. (d) It removes the control which governments have over the economy.

Since the rights of ownership are qualified in Islam, it also regulates how earnings may be spent. Clearly, what is spent by one person is the earnings of another. The two are opposite aspects of the same transaction. Wealth cannot be spent in illegitimate directions, those which produce harm, wastage or no benefit at all, but in directions which are beneficial to the person, his family, other persons, the whole community and the environment. Wealth should not be squandered in ostentation, excessive luxury and futilities. However, a person should not attempt to hide or hoard his wealth by appearing poor and dishevelled. There is a ban on the wearing of silks, gold and silver and precious jewels under certain circumstances.

It should be obvious that if the rich spend their wealth in wasting resources, then they will create shortages for others. An item costing one money unit (mu) has less value to someone having 1000 mu than it has to one having 100 mu. But the former can afford to purchase much more and waste it. He increases the demand for that item so that its price goes up. Suppose it goes up from 1 mu to 2 mu. The poorer people cannot then purchase much of it and may suffer from deprivation while the rich waste it. The demand for luxury goods also diverts production from essential goods to luxury goods. It is, therefore, evident that both these produce negative economy, diseconomies. Whereas it is not always evident what is good or bad, some things are obviously so. As for the others it is necessary to discover this as far as possible.

 

8. Both Hoarding and Squandering are forbidden while Spending is encouraged. This ensures the circulation of money. Money is like the blood stream of the economic system. It has to circulate. If it is hoarded and accumulates then it is not available for the purchase of goods, This prevents manufacture and leads to unemployment. The unemployed have no money to spend and this leads to further reduction in production and loss of employment. There is then a downward spiral. The restriction on how a person spends would cause an accumulation of wealth in the hands of the few and deprivation for others. This is the main cause of the dysfunctions in Western Economies.

These requirements, plus the control on what may be produced and what money can be spent on, plus the limits on property rights can be taken together as parts of a single principle, namely the maximisation of the utility of resources. No such principle is found in any existing economic system and yet it is becoming ever more important. 

 The distribution of wealth is controlled by the Zakah. The Zakah is an integral part of the Islamic Economic system. Since wealth is a trust, the Zakah justifies wealth seeking. It has three effects:-.

(a) It redistributes wealth, thereby creating demand and stimulating production which employs people.

(b) As it has to be paid out of the savings, it encourages the payer to top up these savings by making investments. This also creates wages.

(c) It has a stabilizing effect by removing great fluctuations and differences of wealth. Usury, being the opposite since it takes away rather than gives, has exactly the opposite effect.

 

Zakah may be regarded as a combination of obligatory charity, welfare insurance and wealth tax. It ensures a certain minimum standard of living. It is levied at 2.5 % of the total accumulated wealth, including investments, of everyone living above the minimum standard of living; 5% to 10% on agricultural products; and 20% on some mineral products. This is distributed as a right to those who live at below the minimum standard.

The cause of such poverty may be illness, injury, and disabilities of various kinds, unemployment, natural disasters or other adverse circumstances. It should be used not merely to relieve needs and suffering but to provide the means whereby the individual can once again stand on his own feet. Thus the same beneficial results attributed to usury, namely investment and expansion can be obtained without the harmful ones.

Some Muslims insist on adherence to these rules to the letter. However, if we follow the spirit rather than the specifics, the percentages can be altered to suit changing conditions. It can also be imposed on a much wider number of items such as shares. It can be invested to create the means for social welfare. The Prophet brought a guidance not a straight-jacket. On the other hand the Zakah does not prevent the raising of other taxes for other purposes. What it does ensure is that no developing Muslim country can be tempted to divert its funds into development projects at the expense of social welfare.

Excess wealth should also be given away in voluntary charity. Charity usually means giving people work or the means whereby they can earn their own living. The distribution of wealth should be ensured without destroying personal incentives and ambitions. It can be lent to others without interest. It may also be invested in legitimate business. A person can enter this business himself or go into partnership with others on a profit and loss basis. There is a distinction between the owner of capital and the user of capital and they too can form partnerships based on agreements to share profit and loss. It is perfectly possible for people to become millionaires, and it may even be a social advantage, given the Zakah, that they should. The power which wealth gives them also bestows greater responsibility on them. They have the resources which they could invest usefully in new developments rather than in consumption. Industrial progress depends on such Capital.

Islam recognises the right of inheritance, but restricts it so that wealth is redistributed among children and relatives in well defined proportions. As it is not permissible to bestow the whole or a major portion of a person’s wealth on only one child, this prevents its accumulation. 

 

9. Whereas the individual in the West tends to identify himself with a profession and a nation and sometimes with some religious sect, in that or a different order, the Muslim is required to identify himself firstly with Allah, secondly with his family and only thirdly with a professional function. The need to identify a person with a profession arises from seeing him as an object to be used. He is a human being first whatever other function he may carry out. The implication is that his education and training should not be directed towards making him a cog in the machine, as it were, but a vicegerent, There should be no professional jealousies and disputes about who does what, and the loss of a particular employment should not become a psychological disaster for him. He should be versatile enough to undertake a variety of professions as changing circumstances demand.

 

10. Usury, the lending of money for interest is forbidden. Usury flouts the principle of charity, brotherhood and fellowship and causes social disintegration. This is the main objection of the Quran to it.

“Those who swallow usury cannot rise up save as he arises whom the devil hath prostrated by his touch. That is because they say: Trade is just like usury; whereas Allah permits trading and forbids usury... Allah hath blighted usury and made alms giving fruitful. Allah loves not the impious and guilty.” 2:275,276

 

Though, this is a simple idea, it has far reaching consequences.

(i) It creates a difference in values. The one relates to social and psychological or spiritual success, benefits or profit and the other to a worldly one. Unlike Capitalism, the economy is to be based not on self-seeking but on social responsibility. The one creates a greedy, grasping, selfish, exploiting society and the other creates a compassionate, giving, caring and responsible one. No Islamic community can possibly be built where usury is practiced and every true Muslim is bound to oppose it. The combination of Zakah, the ban on Usury and the maximization of utility, are three factors which produce a complete reversal of the Capitalist system.

(ii) Usury transfers wealth from those who produce it to those who do not, dividing the mainly consumers from the mainly producers; and earned money (wages, salaries and profits) from money not earned. This divides the society, diminishes its productivity and creates the injustices which generate resentment and conflict.

(iii) Trade is completely distinguished from usury, since the former is more personal and depends on exchange for mutual benefit, while the latter is more like extortion.

(iv) Unlike communism or socialism, the responsibility is not vested in the State but in individuals and the community.

(v) Usury causes money to be pursued for its own sake. It becomes a goal and this disrupts its function as a means of exchange.

(vi) It gives the lender power and control over the borrower. This causes enslavement.

(vii) It sells the present to an unpredictable future.

(viii) Whereas a person may be respected and admired because he earns his money by dint of his abilities and efforts, this cannot be said about money obtained through usury. This income does not stand for or encourage ability or effort. It has a negative evolutionary value.

(ix) The fluctuations in the interest rate destroy predictability and, therefore, control over the economy.

Money is a medium of exchange, a means by which we measure economic usefulness. It should not be mistaken for a commodity. Where this happens, money loses its value and disrupts judgment and control. It becomes an end in itself. The interest paid stands for no product. It, therefore, creates inflation by increasing the price of things or decreasing the relative value of wages. It is parasitic in nature. The borrower is one who has a need, and the lender is one who has an unused surplus. The borrower is less able to pay the extra, and the lender is in less need of it. Thus money is constantly being transferred from the needy to the rich, and this is the cause of the malfunction of Capitalism. Since borrowing involves paying back more than is borrowed, the borrower often needs to borrow even more to make the repayments. Thus a vicious spiral downwards traps many people for all their lives and even whole nations are trapped in it. Charity is the reverse of this. The one takes advantages of the needs of others to extract something from them and the other gives voluntarily to those who have needs. A distinction arises between taking and giving, and between compulsion and freedom. Usury is a plot whereby the rich get richer and obtain control over everyone else. Both Capitalism and Socialism produce a kind of slavery, controlled either by the Money-lenders or the State. The purpose, in the one case, is to increase personal wealth rather than to supply needs, and in the other it is to control enterprise. Both are incompatible with an efficient Economic system.

Usury is justified, in the West, on the grounds that it encourages the rich to part with their excess wealth which can then be invested for the development of industry. It is an incentive, and interest is the reward for postponing consumption. It is, therefore, also the penalty for advancing consumption. In effect, it consists of trading in time. This cannot be done without dire consequences. since the future is unpredictable. It is in hands of God not man. Usury corrupts the entire society. Investment, it is claimed, cannot happen if wealth was more evenly distributed and there were no rich people who had a surplus. Therefore, Capitalist governments encourage differences in wealth. But there is no guarantee that they will invest this surplus money in industry and job-creation rather than on buying property or gambling on the stock or finance markets or merely hoarding it. To ensure this requires other measures based on a different ideology. Socialist governments, on the other hand, have to tax the people to extract such wealth for the same purpose. The initiative and control is then passed not to free individuals but to States and governments. This may result in dictatorship, tyranny and oppression. To prevent this again requires other measures based on a different ideology. These, however, are not the only alternatives. Every individual or partnership running a business has to re-invest his income in tools and materials and these are part of the costs of future production. But they do not, thereby, enslave themselves or their future. Islam provides this third set of measures and ideology.

Governments manipulate interest rates, often causing distress by increasing debts. They do so in order to control inflation, investment or the exchange rate when the balance between production and consumption, import and export, is disturbed. But how can this happen? It happens because of interest itself. Borrowing allows consumers to consume more than they have produced at one time and even less in the future when they have to repay with interest. Producers, on the other hand borrow to make the machinery with which they will produce in the future when they will also have to recover the money to pay the interest. There is a contradiction between these two tendencies. Since there is no coordination between the two processes, there will be a constant unpredictable shift to and fro.

Rent paid to landlords for the use of their land can also be regarded as interest. People are certainly dependant on land and the amount of land is limited. Land by itself has no value. it acquires value by the fact that it contains resources which people want, but they have to work to extract them. If by means of the legal concept of ownership people take control of land, then these resources become available to people only when rent is paid. This rent is proportional to the relative productivity of the land compared to others, and this depends on the total amount of land available, the resources it contains, and the amount, quality and organization of the work done on it, and the size of the demand which is proportional to the population and its values. The landlord does nothing to earn this rent, but extracts it from the tenants or those who hire it. It is merely a payment for the right of ownership. Thus land acquires value and causes people to hoard it far beyond their needs. Most of the large land holdings can be traced to conquests in the past. This acquisition, in turn causes scarcity, particularly as the population rises, and this causes rents to rise. The landlord benefits from this fact without doing anything. He also benefits from the advances in science and technology which increase the value of raw materials and labour. When all the land is in the hands of the few, the rest of the population cannot make a living without paying rent. The user will have to pay this out of what he earns by his work. In fact, if we denote these earnings by I and rent by R, then what he is left with can be regarded as wages W= I-R. The landlord employs the worker and pays him these wages. Since the landlord has full control, he will rent out this land at the highest rent which he can get, which is the same as paying the least wages. The minimum acceptable wage would be an amount which just makes a profit, the difference between what a worker has and what he would earn by that work, which may be just enough to keep the worker off starvation to death. However, since the landlord is producing nothing but also has needs, he will modify his demand by an amount which will provide him with his needs. It is not difficult to see that as population grows or more and more land falls into fewer and fewer hands, or land is degraded by neglect, overuse or pollution, relative poverty will increase until a crisis is reached. We say relative poverty, because general prosperity may still increase owing to advances in technology.

This condition is relieved only when migrations can take place to newly discovered or conquered lands or war and epidemics reduce the population. The crises reduces the society to such a low level that even landlords cannot obtain their needs and have to reduce rents to a point where things can pick up again.

Thus we see that rents are similar to interest. In the latter case money itself has been made valuable by a law which allows the possessor to hire it out for rent. In fact, the only real Law that exists is that people work as much as will provide their needs and wants. Justice demands that every one should receive according to his work. This in effect is the message of Islam and all religions.

One of the causes of the collapse of economies is as follows:- Resources are used to produce products by the use of energy. But all products wear out with use in time. The material is less easily recoverable. There is, therefore, a continuous increase in entropy or disorder. Though order increases due to the radiations of the sun onto the earth, human wastage of it may be greater than the recovery of the environment. This difference may be regarded as natural usury - future resources are being used up. The development and health of the economy depends on (a) new constructions, (b) destruction of old forms which might otherwise clutter up and choke the economy and (c) on maintenance of what has already been constructed. All this costs time, effort and energy measured in money. There must be a balance between these. If greater effort is spent on new constructions, then the number of things requiring maintenance increases. A time will come when the rate of degeneration becomes greater than the rate of maintenance. This decline will continue despite new construction. Eventually, by eroding the infra-structure, it will necessitate that all constructive energy is also absorbed in the endeavour to maintain existing structures. This process can only be overcome by one community if it acts parasitically on others. This involves further wastage. The state of the planet as whole continues to decline.

Another form of usury consists of speculation in shares on the stock market. Shares represent ownership which, in Islam is the right to use, a natural right for all living things. But these shares are used, in the West, like usury, to create an income without production. The price of shares varies with demand and supply, and this allows people to make a profit by buying when they are cheap and selling when they are expensive. The money so made obviously stands for no product or service. When demand increases, prices rise, which create even more demand causing prices to rise. This creates an illusory boom. When this reaches a certain height the opposite process takes place. Prices drop and the losses so made create panic which causes people to sell even more. The supply rises, causing prices to drop even further, until a low point is reached. Though this has nothing whatever to do with the real performance of industry, the profit generated is first invested in industry and then withdrawn when losses are made, thereby affecting the whole economic system.    

 

According to Karl Marx, Profit, Interest and Rent are regarded as ‘surplus value’, since this money does not represent the wages which are both the payment for the work and the means of purchasing its products. It accumulates. This, being taken out of circulation, is unable to pay wages, creates unemployment, deprivation and suffering. The loss of purchasing power, however, leads to a fall in prices and profits, bankruptcy of firms, further loss of production and unemployment. The downward spiral continues until the surplus value is wiped out. The surplus of labour created by unemployment depresses wages, which reduces the cost of production and, therefore, prices. This allows people to purchase the goods. Then the whole process of accumulation begins again. We get booms and slumps. The need to maintain profits also leads to the amalgamation of firms into ever larger powerful units, creating a tendency towards monopolies and enslaving the individual. It also causes aggressive international competition and war. To prevent this the economy should, therefore, be controlled by the State. This has led to State Monopoly and oppression.

 The Capitalist answer is that the justification for both Profit and Interest is that they are incentives. The use of incentives is both morally better and more efficient than the use of compulsion. It leaves the initiative and creativity of people intact. Interest encourages people to save, and for those with surplus money, to make it available for useful purposes. Industrial progress depends on the accumulation of capital. Both profit and interest are included in the cost of production. The money obtained from interest is available for purchases just as wages are, and also for investment in new industries. thereby creating wages. The problem is, therefore, only one of balancing the total income and the total expenditure in a nation.

The view expressed here differs from both. It can be pointed out that the wages paid through investment only buys the previously created products whose prices had been increased by interest payments, rather than the new products created by investment. The new products can only be purchased if further investments are made. But investment are made not in order to supply a need, but in the hope of making a profit in future from the work of others. As this is mere speculation, the future being unknown, profit tends to rise and fall erratically, mostly the latter because of the reduction of purchasing power. The communists were in no better position. They too found time and again that there was constant over or under production, and, therefore, both waste and deprivation.

The word ‘profit’ can be used in four senses:-

(a) A person works in order to gain some kind of benefit. This benefit is the profit. It may be material, social or psychological. This benefit provides him with the incentive or motive to work.

(b) One kind of work using certain instruments in certain situations may produce certain benefits. But by doing it differently with other instruments in other situations may increase the benefits. This increase is a profit. This kind of profit ensures progress and development.

(c) Profit made by exploiting the labour of others. This cannot be ethical, and this is the main communist objection to Capitalism. The right of the Capitalist to profit from the labour of workers, however, is justified by the fact that he provides the conditions such as the machinery and organization without which the worker could not produce his products. For this service he must be paid and this provides the incentive. It is part of the cost of production. Though there is an element of usury in this in so far as he could just as well have lent the money to buy the machinery, there is a difference. The investor takes the risk of losses as well. This is not the case with usury. Profits are, therefore, like wages and salaries and should not be included in surplus value.

(d) The notion of Profit in Capitalism arises in juxtaposition to Wages, which divides the owners from the workers. The one takes all the risks and controls the livelihood of the other, who either gets a fixed income or is dismissed in accordance with the interest of the first. His initiative, creativity and responsibilities are entirely discounted and discouraged. He is a limb of the Investors or of the managers who work on their behalf. Human beings are reduced to machines which can be discarded. The relationship between investors and workers is usually mediated through persons who are paid a salary. A salary is a payment for a responsibility and may or may not vary with productivity. It is usually fixed for a period of time no matter how the fortunes of the industry vary. This introduces an element of inflexibility and maladaptation into the system. Thus we have a trinity, of wages, profits and salaries. Islam speaks about trade which is an exchange between equals. It allows bargaining and the adjustment of demand and supply. Profit is not an exchange between equals and does not allow a smooth adjustment of supply and demand. It is much more rigid and mechanistic and moves by its own momentum. The Trinitarian distinction between profit, salaries and wages should, therefore, be discarded, and replaced by a Unity..

Islam is not against legitimate profit, one that has a purpose, but only against usury.

The difference between profit and interest is that while profit and loss depends on economic conditions such as crop failures, changes in demand, efficiency, and the sagacity with which investment is made to supply demands, this does not apply to interest. There can be negative profit, but no negative interest. It must be paid whether or not the borrower makes a profit or loss. When money is invested to buy machinery, machinery wears out, thereby reducing the returns. But this does not apply to interest. Without interest the cost of production is equal to the wages and profits. The Income, I can be spent on goods and services, the expenditure, E, or saved for the future, S, or in investment as capital, C. They are related thus:- I = E+S+C. The Capital re-appears as wages for those who are employed by it. The income is gained from work, W and Profits on Investment, P. These are related thus:- I=W+P. Profits are made from the difference between cost of production which is equal to the wages paid and the price of the goods or services sold, V. Thus P=W-V. The total price of goods is equal to the expenditure. Interest has very little connection with real economic circumstances, but it upsets it. This is because by introducing another factor into the disposal of Income, Usury destroys the coordination between saving and investment, and creates fluctuations, the booms and depressions.

If money is lent out for investment, then the rate of profit must be higher than the interest rate. But this is unpredictable. Nor is the amount of money which is offered for interest predictable. It is offered to the Banks, for instance, irrespective of whether it is needed for investment. There may be more or less. This is not the case with direct investment. Usury refers, not to products, but to money which has no value apart from products. No such difference is perceived in either Capitalism or Communism. In the modern world people borrow money in order to purchase goods they could not otherwise afford. They sell their future, which is unpredictable, for present gratification. This constitutes the loss of control over future situations. It produces enslavement. It creates the illusion of present plenty, and therefore, waste, while producing future scarcity. The increase in demand so created also raises present prices, but must depress demand in future when the Capital plus interest is paid back. This need not, of course happen if the level of borrowing is the same in future as in the present. But this cannot be the case because the interest adds to surplus capital, accumulates, and is taken out of the system. The need to continually increase demand, therefore, leads to the stimulation of greed through elaborate and deceptive advertisement, the production of goods which will not last and have to be replaced, pressure salesmanship, and the creation of situations such as artificial scarcities through hoarding, exploitation of foreign countries and peoples, and provoking wars. The removal of usury would encourage people to live within their means, invest surpluses, remove fluctuations in the economy and facilitate control and planning.

 

Usury is connected with ambiguities about the nature of money. It is treated as if it has value in itself. In fact, however, it is the things it buys or the work it is paid for which has value. Money is not a measure of value since its value keeps changing and there is no standard unit. Money has been called a medium of exchange. In fact, however, it is the opposite of this. He who sits on money prevents exchange. Money has divided the work from the benefits, and become a third separate entity. Another trinity has arisen. But this has corrupted all three. Work may be done now for no reason or effect, or people may be paid to stay idle or to destroy crops for instance. There is no guarantee that what a person produces is wanted or is beneficial. There is no guarantee that the goods bought will produce any satisfaction. People are merely persuaded to buy them. If they do not then the economy collapses. Money itself is an illusion since it can be printed by governments or destroyed. It is, therefore, not surprising that it can be used to produce interest. It is, in fact, a source of power in Capitalist systems by which they control others.

A person is paid money for his work (sacrifice), and he pays money for goods (satisfaction). Therefore, it stands for utility. In the Islamic system it has no other purpose. It is a symbol, a measuring device as used in comparing lengths, weights and temperatures. If usury is abolished then it becomes possible to define a unit of money as a unit of utility, a certain amount of satisfaction produced by an hour of work. Less efficient work, or done for a shorter period and producing less benefits could then be assigned a fraction of that unit. Normal trade would establish this. It is only necessary to set a minimum wage per hour and use that as the unit. The total Income of the community or nation would then equal the total amount of utility, and would increase or decrease with it. No coins or paper money would be required and all transactions could be movements of figures in the ledgers of Central Banks. There should then be no inflation or deflation which wipes away savings and creates confusion and uncertainty. Profits would stand for real improvements.

Profits in the Western sense can be protected or increased by increasing prices, or decreasing wages, the work force, the cost of resources and the quality of materials used. However, it also leads to new invention, better organization, and mechanization, search and utilization of new sources of materials and energy, and to the expansion of the market to ever new enterprises and foreign lands. This is because the accumulating money from profits have to be invested in new enterprises, else it leads to depression. Thus the economy has to expand and inter-national competition becomes ever fiercer. The gulf between wealth and poverty in the same country, and between countries, continually increases. But there being no Super-national controlling body, exploitation, injustice and war become inevitable. Large military forces and arsenals have to be maintained. Yet the amount spent on these and on the repairs needed because of the conflicts, could have financed greater general prosperity. Capitalism depends entirely on continuous expansion and the consequent wastage and exhaustion of resources, pollution, the increase in costs and inflation. It is unable to sustain full employment. This is because unemployment is necessary to keep wages down and profits high. If profits fall, production stops causing unemployment. Nor is this mechanistic and haphazard way of organizing affairs compatible with intelligence. There may be times when useful new inventions have been made but no money is available for investment to produce them, other times when there are no inventions for money to be invested in, or money is invested in useless or even harmful enterprises. This system has created the notion of ‘progress’ which is defined entirely in a materialistic rather than biological or psychological sense. Materials, however, are limited and become exhausted, increasing the struggle for them and impoverishing many.

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NOTES

 

There is mutual interaction between man and his environment. A human being (a) receives materials, energy and information from the environment, (b) transforms it, and (c) produces an output. This output is an input into the environment. The environment through its various organisms transforms this input, and produces another output which may become the input for man. There is, therefore, an exchange, and all the organisms together form a system which is more than merely the sum of the parts.. The input, output and the transformation processes are inter-dependant. It is not possible to work in order to satisfy a need without expenditure of energy. This in itself creates a demand. Therefore, demand, supply and work are inter-dependent. Each flows from the others. There is no distinction to be made between Economy and Ecology. There is an overall Unity. If there was no demand there would be no supply or work, and vice versa. The individual, however, is not independent of the rest of the community. He works in cooperation. He is affected by, and affects, others. We must consider the community to be a single organism.

The corollary to this must be that a disruption of the Economy arises only when there is disintegration due to the failure of coordination between these various aspect. In order to calculate the benefits or otherwise of an economic system we have to consider three things - the individual, the environment and the social interaction in and through work. Hence:-   

1. The real satisfaction of the consumer.

2. The effect on the environment.

3. The effect on the society by the work done.

 

It is necessary to take into consideration the total amount of real satisfaction and real sacrifice involved in the consumption, supply and work done.

Consider a person existing in an environment. In order to live three things are necessary - knowledge, work, resources. He has certain needs (an inner factor), and the environment has certain resources (an outer factor). The two are related. In general the needs refer to the resources and things are regarded as resources when they are needed. But there can be no relationship between the two unless some work (an interactive factor) is done, even if it is only gathering food or chewing it. The work done will itself modify the resources as well as the needs, since his energy is being consumed. He will work a certain amount to satisfy his needs. The amount and quality of work will depend both upon his knowledge and the environment. Having satisfied the more urgent needs he will then work to satisfy other less urgent needs. Having satisfied these, he will, if he has leisure, acquire other desires. Demands generally change from material ones to social ones and then to psychological or spiritual ones, though each may involve the others to a greater or lesser extent. We need food, clothing and shelter first, then a satisfactory family and social life, and then we pursue higher values, knowledge, art, philosophy, religion etc. For some people the pursuit of one is connected with the other. The scientist, for instance, makes his living from science.

The self-preservative urge is strongest, the socio-sexual urge follows and the self-extensive urge comes after this. The order of importance, however, is the reverse of this. We eat to live, and live for some higher purpose, to develop or because of some function with respect to the cosmos, not the reverse. It is usually knowledge which changes the social conditions, which change the economic and material conditions. But people develop to various extents. The development of some is arrested at the material level. Some can sacrifice their material welfare for the social or spiritual good. Demand, therefore, becomes ever more sophisticated. It also becomes progressively more diversified, so that the number of alternatives increases. Thus while he may have been satisfied with simple foods before, he will desire more elaborate ones later. Desires increase in three dimensions, in level, diversity and choice. He will try to increase the satisfaction obtained by the use of several methods. The use of these methods diverts work from immediate to delayed satisfaction. It creates a distinction between the end and the means. There may be several stages between the resources and the satisfaction of needs.

The individual, in pursuing his needs, has several alternatives:-

(a) He may migrate to other areas if the needs cannot be satisfied easily where he is. Or he will import materials.

(b) He will try to work more efficiently and organizing his work better. He will try to develop knowledge and skills. His skills will determine not only how much he can satisfy but also which resources can be used.

(c) He will try to concentrate on the production of those goods which he can produce more easily and exchange these for other people’s produce.

(d) He will form organization in cooperation with others to produce what is needed.

(e) He will use other sources of energy, animals, other human beings, or machinery and instruments. Effort will be diverted to produce and control these.

(f) He may spend his time in research and invention of the machines and technologies.

(g) He may spend some of his time and effort in developing his own capacities.

 

It is generally assumed that human beings are rational and aware and possess all relevant knowledge. This is not true. Two other factors affect them:- the sub-rational - they may have attachments to a place - and the supra-rational - they may have more sublime motives.

A person will weigh all the different alternatives against each other, the advantages of moving his residence or staying where he is and how far he can travel backwards and forwards, and how much it will cost, and so on. There are obstructions to each of these. All these have to be considered. Nations create obstructions to free movement.

The same will apply to the whole community collectively, and also to the whole of humanity. But as specialization and exchange proceed things become more complex. The individual can coordinate all these factors within his own mind, but the community will have to set up some centre to do this. Things become even more complex as organization and machinery used for manufacture become bigger and more complex. It also becomes possible to exploit others, to transfer increasing satisfaction of needs to one set of people, the work to another set and the resources to a third set. The separation of the three factors in the economy, the resources, work and satisfaction, become possible and this produces the problem of coordination. The unity is split into a trinity.

(Caution : It is not being suggested that Christianity produced this splitting up, but that there is a general tendency for unities to be split up into trinities; that the two are not the same since the latter produces illusions, loss of coordination and control; and that it is an intelligent thing and part of man’s function to reunify.)

 

The economic system depends on:-

(a) The availability of resources (b) the methods of coordination. (c) the existence of ingenuity.

The third of these factors can be divided into:-

(i) The capacity to utilize materials. Some materials are abundant but no use have been found for them. Some materials are used very inefficiently.

(ii) The capacity for efficient organization.

(iii) The capacity to develop and control the faculties, desires, thought processes, talents etc. Here, too we have specialization and organization is necessary.

 

The economic system has undergone several stages of development:-

1, The individual gathers what he needs from his environment as need arises.

2, There is some cooperation between individuals in the community to obtain their needs. e.g. in hunting.

3, The individuals or communities work in the present to provide their needs in the future. e.g. herding animals and agriculture.

4, The individual work to create things not for personal use but to exchange them for things they want which others, having other talents produce better.

5, The individuals produce things to exchange for money which has no value in itself but is more versatile in that it can be used to exchange for anything they want.

As it is recognized by all it binds the community together as well as allowing all things to be valued with respect to each other.

6, As movement of people increases, aided by the development of transport, we have trade. This means that the resources and products which are more abundant in one place can be transported to another where they are rarer. Trade means that people must spend money to buy the goods in one place so that they can sell them in another for a profit. This profit corresponds not to the amount but to the value of the work they have done in supplying wants.

7, Since trade requires large amount of goods this encourages mass production. This is done by industrialization and requires investment in factory, machines and the employment of labour. This creates the drive for efficiency, since the profit depends on the decrease in costs and increase in prices. The community was divided into labour, those who manage and control it, and owners.

8, The need for efficiency encourages rationalization, standardization and systematization. It encouraged invention, research and organization. Efficiency depends on the increase in repeatability, predictability and control. This is achieved by analyzing not only objects, but also human work and ideas into simple standard parts and then putting them together repeatedly according to a simple plan. This work need only be done by the few and may itself be reduced in the same way. The rest of the population need only to be trained, regimented and organized to carry out these simple tasks repeatedly and to obey the plan. They have to act as parts of the machine with all unpredictable variations, impulsive idiosyncrasies or creative aspects removed. The worker was required only to perform a series of actions while the purpose or goal of these actions were the concern of the management, and the product itself had no meaning in itself but the profit it generated for the investors. Human beings were dehumanized, and distinction arose between work and leisure, professional and private life. We not only have mechanization but also the conveyor belt system of production, time and motion studies of work practices, the design of factories, super markets, public buildings such as airports and road systems, all of which manipulate the behaviour of people. Henry Ford and others who introduced mass production through the conveyer belt system also wanted to control every other aspect of the life of the worker. He established methods of selecting employees not only for their abilities, but also for their temperaments, their religious and political views, the way they conducted their family and social life, who their friends were and where they went for their holidays. Records were kept of their behaviour. Most large companies in the U.S.A and elsewhere control the behaviour of their employees to a greater or lesser extent. Freedom, therefore, is largely an illusion as no one who does not conform can find employment unless they also have the enterprise, opportunity and resources to set themselves up independently and this is becoming increasingly more difficult. There are evolutional implications in these restrictions. This rationalization affects production not consumption, and takes no notice of the availability of resources, environmental effects or the needs or welfare of people. These are regarded as separate issues. Mass production, therefore, necessitates mass consumption which must be maintained through advertisement, propaganda and mass conditioning. And this fuels mass production. We get a vicious circle from which there is no escape. The desire to control negates itself. The unpredictable, having been ignored produces its own side effects.

This systematization also affects the sciences and expertise. Not only is it the case that scientific thinking was modeled on the machine but the direction of research, the selection of topics for attention is largely determined by economic interest and the profit motive or by political and military advantages which are also understood in economic terms. The work of most research laboratories has been reduced to a set of routine procedures. The expertise of the doctor or nurse has been formalized so that diagnosis and decisions about treatment can be done by computer. And so on. Reason and creativity, too are reduced to routines which computers can emulate. Most ideas arise and have to be presented in a set form or else they will not be published. Increasingly fewer people are required to do the specifically human, and, if these tendencies continue, human life like that of ants will assume a rigid and stagnant form.     

 

At first the individual or the community or tribe work in unison without any division in function.

Then there is differentiation of function and barter, an exchange of goods. The exchange depends on the amount of satisfaction expected and the amount of sacrifice made and the relative scarcity of resources. The sacrifice may consist of firstly, the goods given in exchange, secondly, the amount of work involved in making the goods, and thirdly, the relationship of the goods with other goods. Some things, for instance, acquire value only with respect to other things with which they form a more viable whole. They may be part of a machine. The deprivation may consist of physical, sentimental or social value and so on. The fundamental fact about human interaction with the environment is that there is a curve such that the greater the amount of something we have above a certain threshold the less value does each item possess, and vice versa. Below the threshold the case is reversed. Addictions, habit and other psychological factors, however change the picture. People may want more and more of something. We need a certain amount of food, for instance. The greater the amount above this level the less its value, and the smaller the amount below this level the less is its value because the system is too depleted to digest it. But greed or addiction may lead people, for example, to demand more and more sweets. But this will create problems of health. The drop in value may be such that the effort required in increased production is greater than the total satisfaction obtained. The work involved consists of not only the amount in time and exertion, but also the skill, knowledge, and techniques required.

In the hunter-gatherer or nomadic stage of human social development there is no notion of land ownership since people had to go where the food, for themselves or their animals, could be found. It is only when agriculture began and later when industries were set up that land ownership became important. The site and the products of a person’s labour had to be protected. More could be produced by a person than he himself needed and this could be exchanged for the extra products someone else created. Thus Land and its resources became property though they are something given to man. It is a legal not a natural concept. It can only be maintained by force. The only natural law is that human beings must work to produce something and that they work to do so. The idea that everyone is entitled to the products of his work is a moral one and arises from the recognition by each person that others also work on the same principles, that this right cannot be maintained without the duty to recognize the right of others. As land and its resources acquired value people became eager to acquire it, thereby depriving others of its use and obtaining control over them because of their dependence on it. They could obtain it by personal or organized force or through the force of those over whom they had obtained control. Or they could raid the produce of other people. Since land by itself has no value and some work has to be done to extract its products, the owner could and did force others to work while he enjoyed the fruits of their labour. Thus slavery, serfdom, servitude and employment came into existence.  

Later the exchange is affected through the medium of money. This gives greater freedom. The individual does not have to wait until he can make a specific exchange to mutual advantage. He can buy anything he likes with the money he gets. Money is a symbol, like the letters in Algebra, which stand for any goods, services or conditions. It stands for their relative utility. That is, for the relationship between the amount of sacrifice made and the satisfaction expected. A person is willing to pay a price in accordance with his judgment as to how much work is required to earn the money and how much advantage or satisfaction he will get from buying it. But also what proportion of his total income it is. What is more, it becomes a measure of the relative value of all goods and services, and because it is a medium of exchange between people, its value is determined by the community as a whole, by the market. It stands for the average judgment of utility. However, money became an independent factor because coins and notes had to be produced to represent it. It divided production from consumption because two separate transactions were required, payment for work and purchase of goods. It cost money to produce the coins and notes and extra work was involved in banking, administration, and shopping around, all of which has to be paid for. The money economy itself costs money. Apart from work and consumption, space and time were also involved in money. Time, it is said, is money. We need space and we have needs at a particular time. We cannot, for instance, postpone eating indefinitely. Thus interest charges were made for the time over which money was lent for use. The speed with which things could be produced, and the space this occupied also had a value. Everything, including production takes (i) materials, (ii) energy, (iii) information, (iv) time (v) space (vi) skill (vii) enterprise. All these acquire value. Money may, therefore, be said to stand for organization and coordination between all these factors.

The price of things depends directly on the demand and inversely on the supply. The price of things also controls the supply directly and the demand inversely. These so called laws depend on the assumption that human beings will always try to obtain the maximum or give the minimum in exchange, and this, indeed, is the definition of Economics in the narrow sense. People do not, however, always behave in this way and, indeed, there are good moral reasons why they should not. We should, therefore, consider the whole of their value system.

Economics does not depend on human actions alone, but also on material conditions (availability of resources) and ideological factors (how things are valued). Each of these affects the other. Their value systems often change. Morality does not approve of people taking advantage of scarcity in times of famine or war, for instance, in order to exploit the needs of others for their own benefit. Rationing is often instituted by governments to overcome this. There appears to be a conflict between morality and economics which has not been resolved by secular systems, and accounts for the difference between capitalism and socialism. Indeed, even the value of each money unit gained by the profiteer is diminished, the greater his profit. Profit is not necessarily proportional to efficiency or to the benefits produced. There may well be needs which apply to the community but not to individuals. The supply of these is not profitable to individuals or has been overlooked by them. There may be an excess of workers in one field and a scarcity in another. Both demand and supply may be artificially controlled through tempting advertisement, hoarding, supply of inferior goods, causing new problems unforeseen or neglected by individuals, disorganization and monopolies. From the capitalist point of view prices reflect the relationship between Demand and Supply; from the Communist point of view prices reflect Work, the wages of the workers involved; from the present point of view prices measure Utility which depends on the way things are organized. This depends partly on cosmic processes, partly on human nature and partly on how well man adjusts to cosmic processes. Economics is not a science but consists of the methods adopted to facilitate this adjustment.

 

For an economic system to work efficiently people ought to maximize profits, the difference between the real sacrifice made and the real satisfaction obtained. Scarcity increases the prices. This encourages production, thereby increasing supply. It also ensures wiser and more economical use of things. Abundance depresses prices, creates wastage and discourages production. The supply will then tend to settle down to where they just satisfy needs. But there is generally a swing like that of a pendulum between the two extremes in non-coordinated economic systems. Changes in the environment, the weather, political, cultural and other events, new invention, and changes in fashions and quality of goods would produce chaotic, unpredictable and uncontrollable economic conditions. But the market smoothes these out by making the prices of all things inter-dependent, creating greater uniformity and stability.

A reading of the Hadith shows that Islam is in favour of individual and cooperative enterprise. It is also in favour of determining the price of goods in the market place rather than through secret private deals (e.g. cartels) or through a Controlled Economy (by individuals, groups or States). The human mind is limited and cannot see or control all the facets of a situation. But it places the individual under communal obligation through the moral law. To ensure this requires education and a certain amount of control by Law. There are, therefore, three factors involved in an economic system:- Individual enterprise, Communal interactions and interests, Control by the Law. In modern countries the Law is administered by the State. The State also controls the economy through its various departments and organizations. The difference between the community and the State has been eroded, and there is a dichotomy and often a conflict between the individual and the State without an arbiter. The Islamic nation, however, has not required a State since the Law is accepted by the community as the Will of Allah. In other words, it is not a man made institution but objective reality itself which is supreme. The community is then seen as a third reconciling factor between the individual and the Law. There should be a balance between them. These three factors, however, are involved in all economic systems. It is only the difference of emphasis which distinguishes them. Capitalism favours individual enterprise because it was developed in pioneering days especially in the U.S.A which had new frontiers to conquer. Socialism emphasizes State control which developed out of necessity in the older, more congested nations. Each of these produces problems because it neglects the other factors. The State, it should be remembered is a man-made machine and should be controlled by man, not the other way round which is Idolatry. Islam differs from the others in recognizing the community as a separate factor and placing relatively more emphasis on it.

 

 The Industrial stage of economic development is driven by capitalism. Money was diverted to the production of machinery, organizations and research, that is, on the means rather than the ends. This money came from the relatively rich who had surpluses, and they owned and controlled this capital. The cost of this was distributed in the price of the final goods. Thus Capitalism requires the existence of wealthy people and ensures that they do.

If a new machines, technique or organization is invented which increases the number of goods produced per unit of work, or reduces the amount of work per item, then this will not disrupt the economy. Supposing production increases from 10 to 100 items per worker. If the payment for this work, the wages, remains the same then the total price of the goods also remains the same, and the price per item is reduced to one tenth of what it was. The wages still remain sufficient to buy the goods. If the work force is reduced to one tenth while keeping production the same, then the prices will be one tenth. Nine tenth of the money will be available to find alternative employment for the redundant nine tenth of the work force. This should encourage the creation of other industries.

Things appear, therefore, to be so arranged as to work perfectly. But they do not.

The fact is that it is not merely a question of work, but also a question of available resources, the level of demand, and the ingenuity which produces invention and this depends on the whole state of the science and other ideologies of which it is a part. There is a triad of ingredients.

The cause of economic malfunctions can be regarded as the failure to recognize and conform to Unity. It is a disruption of harmony. Disintegration occurs, separation between individuals, between man and his environment, and between man and his own nature. This reflects itself in the loss of coordination between three factors - needs, resources and work, and between labour, money and goods. An economic slump, for instance consists of the accumulation of money in banks, goods in the shops and labour in the unemployment heap. The main characteristic of Capitalism is that ownership has been separated from work on the one hand and from management on the other, and that money has been separated from demand and supply. It has become a separate entity, has its own separate products which can be produced, bought and sold, and has its own institutions and markets. Unity disintegrates into a trinity. The owners are interested only in the profits, in money. The Industry produces money which is reinvested in further industry. Therefore, money or profit becomes an independent self-perpetuating force like an organism, though it works like an uncontrolled machine. There are a great number of cases of millionaires who continue to accumulate money because their investments continue to produce money, and they have run out of projects into which this can be invested.

 

An Economy may be described as being the result of 7 variables:- A certain amount of resources, R (land, materials and energy sources); level of technology, T; level of organization, O (investment, distribution of functions, division of labour, management, administration, adjustment of supply to demand); an average level of work, W; these can only sustain a certain population size, P; having a certain average ability, A (skills, talents, potentialities); to a certain average standard of life, S. - (STOWPAR)

This applies globally to the whole earth, as well as to nations or sections of the population. If no attempt is made to coordinate these factors, and there are divisions and obstructions then there will be no over all equilibrium and the balance between these factors will be different in each place. There will be too many resources in one place, specially when imported from other places and too great a population in another specially when its movement is obstructed. And so on.

 

Some of the causes of the malfunction of the economy are as follows:-

1. The economic theory itself, the concepts used and methods of calculation applied are inadequate and faulty. If this were not the case there could not have been so many differences of opinion between different Economists about the same situation. As they also advise governments, the selection of economists as advisers is quite arbitrary and there are conflicts between political parties and even within the same political party. The one which gets to power and applies the economic policy depends on factors which have nothing to do with economics, or any other rational or objective considerations.

2. Much depended on the accuracy of prediction. The increase in wealth increases alternatives, and this makes prediction and catering for future demands increasingly more difficult. The increase in technology and organization has increased the time required between investing, planning, collecting the means and materials, production and distribution. All basic needs are predictable. The problem increases the further away a community gets from the basic needs.

3. An individual distributes his money and work according to need. Having done a job to fulfill a need, he moves on to another job. On the national scale this is not possible since each job is done by experts and people cannot develop a different expertise so easily. The money does not move easily from one place to another since quite different decision makers are involved. If in one place a new factory is set up to make better and cheaper goods it will take away business from another place where these goods are not made so well or cheaply. The workers cannot easily move to where the new factory is. However, the new factory can obtain its workers only (a) if there is already a pool of unemployment in the area so that unemployment is merely shifted, (b) or the people who work in the new factory come from elsewhere reducing the production of other goods, (c) or people having jobs take on extra work and the increase in wages for these people means decrease of work and wages elsewhere. Since the goods are produced by fewer workers, they are cheaper, and more are bought. But the more resources that are needed the higher their cost and the demand for goods does not rise in proportion to fall in prices because each extra item has less utility. There is no coordination within a nation between all these factors. There is even less coordination on the international scale where the increase in production in one country will produce unemployment in another.

4. The market is interfered with by monopolies, cartels, artificial manipulation of prices. This reduces competition, forces prices up and by creating security of profits, removes the incentives to develop new products or techniques. Governments try to control these in order to ensure competition, but this prevents the amalgamations and rationalizations which would create greater efficiency. If, however, all the industries were to form a single firm there would be no advantage in taking profits away from each other. We would get a single monopoly, a Plutocracy or an Oligarchy. The State would have to take control of it on behalf of the people. We would get Socialism. Otherwise, the owners would try to increase profits at the expense of workers. But there is a limit to which this can be done since the poorly paid worker cannot afford the goods. Production would be lowered and unemployment increased, and profits would drop. To maintain the profits the prices would have to go up or wages lowered. There would be a downwards spiral. However, if all the workers were the owners no such spiral could take place. And if all these remained independent there would still be competition. This, however, requires quite a different economic system which is neither capitalistic nor Socialistic.

5. There is a contradiction between nationalistic Politics which prevents the movements of people and tries to control money and Capitalist Economics which requires free trade. People with needs cannot, therefore, migrate to places where the resources are plentiful. And yet, in the past, the Europeans were able to solve the problem of population congestion by migrating to America, Australia and Africa, and exploiting the resources of Asia. But today they do not allow the same rights to anyone else. Nationalism appears to be derived partly from the Roman desire to dominate and the exclusiveness of Christianity. Governments interfere and complicate matters in various ways:-

(a) By creating borders, barriers, national boundaries, controls and other obstructions to the free movement of workers, raw materials, finance and goods. They do this through import and export taxes and subsidies to various industries, and through immigration laws. The natural tendency towards equalization and readjustment is destroyed.

(b) Through income and purchase taxes and the manipulation of interest rates. The complexity of the economic system has been made so great that it is unlikely that those who control the economy have sufficient insight or knowledge about all the side effects of their policies. Governments have proved incapable of controlling the economy.

(c) Governments are required to pay unemployed workers a certain amount to sustain them. Capitalist systems do this in order to prevent revolts and revolutions. They do this through taxes which take money from the employed, thereby reducing their purchasing power. But its transfer to the unemployed recreates the demand without any equivalent production, thereby, raising prices. It also creates dependence and habituation to idleness. In many cases the level of unemployment payments creates a threshold, so that it becomes a disadvantage to work for wages or profits below this level. However, as it also ensures that employers can not offer wages below this level, it prevents employment. Unemployment reduces the government’s finances because of the loss of income tax while increasing its expenses. It has to raise even more tax or borrow money which has to be paid back with interest. It would seem more sensible if it provided work for the unemployed. But Capitalist systems deliberately create unemployment in order to keep wages low in order that sales abroad and profits can be high. Communist systems do guarantee employment, but this usually means that there is no incentive to work, that the same amount of work and wages are distributed over a greater work force, and that wages are low. This militates against economic efficiency. More people are employed and paid than is necessary and the incentive to economic progress is destroyed. People become comfortable and stagnant without competition and challenges. Other, more vigorous people, soon outstrip them.

 

4. The domination of some people over others, in effect, the loss of brotherhood and creation of slavery. A division into classes with conflicting interest arises. Some people, in accordance with their own interests, can employ and dismiss other people irrespective of their needs. They use them for their own needs This creates a distinction between owners and workers, between profit and wages, between sacrifice and satisfaction, between demand and supply, and between those who create the demand and those who create the supply.. The means of production are owned by the few and they are interested not in the supply of needs, but in profits from production.  Profits depend on (a) selling more goods or at a higher price and (b) relatively decreasing costs, that is, the wages per worker, the number of workers, or increasing the work load or efficiency of workers. But the wages paid for work is also the purchasing power. The two tendencies are incompatible.

Mechanization means that the greater the amount which can be produced the more can the cost of the machinery and cost of research and development be distributed, so that the price per item is reduced. Things get cheaper the greater the quantity. Hence the increasing need to persuade and induce people to buy through advertisement, propaganda, pressure salesmanship and mental conditioning. But the greater the number of goods the less the value per item and the less they are willing to pay. Demand, therefore falls. The greater the production, the greater is the demand for the raw materials and this means the greater is its cost particularly as this also depletes the resources available. The cheaper the goods the more Is also the waste. There are, therefore, a number of uncoordinated contradictions.

The society is divided into two or more economic strata. The rich pay each other much more than they pay those in other strata. Thus large amounts of money circulate among the few and there is only a weak connection between the different strata. Consider, for instance, that the pay received by accountants, lawyers, doctors, consultants and other professionals may be 10 to 50 times as great as that paid to a skilled manual worker. It can hardly be said that they are that many times more valuable.

The lower paid can rarely get enough funds to escape their level into another. Some people get paid too much for their work and some too little.

The class distinction also means industrial unrest and a spiral of inflation. It is in the interest of the employers to keep wages low in order to reduce costs and increase profits. But the workers organize to force their wages up, by threats of withdrawing labour. When wages go up, the price of goods go up and the workers have to pay more, reducing the real value of wages. Therefore, they must force their wages up again. And so on. They are no better off and the employers still make their profits. If they do not then the firm closes down and the workers are made redundant. Why then do the workers do this? They do it because they can, for a time, take money away from other workers who have not yet managed to increase their wages! If the employers still make a profit, why do they bother paying the workers low wages? They do it because if their prices are too high they will lose sales to a competitor. Again we see a complete lack of cooperation. Indeed, the government ensures that there should be competition otherwise the monopolistic firm obtains total control in their own interest.

5. Consider a locality where people are fishing for their own use. Along comes a Trawler with the latest technology so that only a few men can catch a great amount of fish. They can sell these cheaply and still make greater profit than the original fishermen. They deplete the fish resources and put others out of work who can no longer earn a living. The cheap fish are used less efficiently and more waste is created.

 Consider an area growing sugar-cane. The workers earn a living growing it and benefit from its nutritional value. Now a large sugar refinery with the latest technology is established. Only a few workers are required. All the sugar cane grown in the area is taken in. The sugar extracted constitutes a small percentage of the sugar-cane, has very little nutritional value, and the rest is discarded. The price of the sugar goes up because of the work done and the local people cannot afford to buy much of it. They lose their resource. The consumption of refined sugar brings malnutrition and disease. The sugar is exported with the cost of transport added. The money so obtained goes into the pocket of the rich who established the factory. They spend this money on luxury goods imported from abroad. Part of it is paid to the Governments in taxes. The Government use it to buy arms in order to control the people who might otherwise revolt because of the deprivation created by the sugar factory. Or they may use it to finance the administration of the new economic conditions created by the factory. Technology is not, therefore, necessarily beneficial, quite apart from the pollution it may create, the accidents. the malfunction of machines and the ecological disaster due to monocultures - that is all the land is given over to just one crop.

Many poor nations are forced to produce cash crops to be sold to the rich nations instead of food for themselves. To do this the small plots have to be collected into large farms by dispossessing the poor who must now become virtual slave labour for these farms. The money earned from exporting this is always less than it could be because of the bulk, the international competition and the need to sell it at any price. It is used by the rich to purchase non-essentials from abroad.

Consider a country which has a great number of small restaurants catering for transport workers. They are owned by single proprietors or families. They have a simple decor and provide simple food cheaply. Along comes a large national or multi-national company, buys up all these little places and constructs, instead, more elaborately decorated restaurants serving sophisticated food at a much higher price. Either the transport workers can no longer go there or they have to pay these prices. Only economic disadvantages have arisen.

Innumerable similar instances may be cited.

There is little doubt that Capitalism consists of buying the produce of people cheaply, selling it back to them much more expensively, growing rich and powerful enough in the process to force the people into the position where they must sell cheaply and buy expensively. On the national scale governments, consisting mainly of the same people, create policies to facilitate and support this state of affairs. The profits and salaries which they gain are justified by them on the grounds that they are doing useful work to increase the wealth and power of the nation. In fact, at best they do no useful work, since all real work is done by paid employees.

6. As the value per unit of money decreases the greater the amount possessed, then greater wastage of resources occur among the rich. Thus increases in efficiency of production changes the balance between demand and supply. The industrialists deal with this by trying to create an artificially high demand through propaganda and advertisement. The materialist attitude is deliberately created. Thus a discrepancy between need and wants arises. Some needs are not met while goods not needed are wanted. A distortion is created because demand is measured in terms of money prices not needs. If the majority of the population is poor and cannot afford certain necessities of life then the demand, in money terms, is low though need is high. Production is reduced despite the need. The great difference of wealth which this system produces means that a proportion of the people are engaged in creating luxury goods which have little real value. They are taken out of industries producing the essentials which others might need. The supply of essentials is reduced and their price increased so that even less can be afforded by the less well off. Their relative poverty increases. On the other hand the increased production of luxury goods reduces their prices, increasing the relative wealth of the well off. People in the Western world would probably be no worse off if their possessions were reduced to 1/4 of what they have. But this would mean that 3/4 of the population is unemployed. If, however, all the work was distributed among the whole working population, their work load would be reduced to a quarter. This cannot, of course, be allowed where leisure leads to increased vandalism and riots!

7. Inflexibility of employment. This is the consequence of the employer/employee relationship. Employment is for a fixed amount of time for fixed wages. The balance between work, resources and needs is upset. Thus some people work and earn more than they need or spend, while others cannot find work or cannot earn enough to satisfy what they need. Some get paid too much per unit of work while others are paid too little. Some waste resources, thereby depriving others. Some desire more than they need while others need more than they desire. People ought to be able to adjust their work to their needs. If 10% of the population was unemployed, then by reducing the average amount of work done by the employed by 10% would create the vacancies required to employ them. But this cannot be done by a Capitalist system which will not employ more people than it needs.

8. There exists no social coordinating body to regulate and balance. There is little consultation between producers and consumers, management and workers, financiers and manufacturers. Factories, Banks and Shops, all form independent units without overall organizations. In particular consumers are not organized. There is no local self-sufficiency. An area should be able to determine its own needs and import needed goods in exchange for needed exports. It should act as a single unit. Instead, all the firms, factories and shops, export and import individually without regard to local needs. The Society is disintegrated.

9, Social inertia. Immobility of the work force is created by reluctance to move or by housing problems. The greater the number of possessions the more are people fixed to a locality. When families or communities break down this interferes with the distribution of money, resources or labour. Marriage and family relationships also bind people. The need to find work often means the breakdown of families. But a family has fewer and different needs than the same individuals living separately. Thus the breakdown of families increases needs. Class and industrial barriers prevent mobility of people from one type of work to another. Patent rights prevent the improved technology from being used elsewhere. When some Industry in another community can produce, because of advances in technology, better or cheaper goods and these are imported, then this destroys local industries and employment. This would not happen if there was greater mobility of information and finance.

Education and training has produced narrow specialization. No longer can the individual turn his hand to whatever is needed. Specialization prevents diversification and adaptation. Work is not adapted to changing demands. There is also a specialization of function, a division of labour. Not only are factories specialized, but so is work in them. Diversification is necessary. Even though some work has been simplified by technology so that it could be done by anyone, employers insist on employing only those who have the qualifications and experience in a particular field, but few are willing to provide such experiences.

10. The frustrations, deprivations, conflicts and tensions created by the industrial system cause a number of physical, social and psychological problems which are also costly. But these costs are not included in the price of the goods produced.

11. Changing demand. These may be due to political events, cultural changes, population changes, changes in weather, changes in fashion, new inventions, fluctuations created by competition. Whereas changes are bound to take place some of these can be taken into consideration by storage. Some changes depend on whims, swings of opinion, illusions, misinformation, propaganda, prejudices and mass hysteria, things which are frivolous such as fashions. They are irrelevant to the real economic needs and can be removed by better education. Market forces also cause fluctuations due to overproduction at one time and under-production at another. It takes time for demand and supply to catch up with one another.

12. Combination deals. This consists of selling one item in combination with another. It causes people to buy thing they do not need with something they do need. Control over consumption is lost. Firms are constantly offering something free if their products are bought. But this is an illusion. It costs money to create them, and this is included in the price.

13. Mechanization and automation have made manufacture relatively easy. The emphasis of industry is now on selling. Hence advertisement, propaganda and other methods of tempting and persuading people to buy. To some extent this is made necessary because there is a minimum amount of production which justifies the outlay in equipping and organizing an industry. The greater the amount produced the cheaper each item will be because the cost of the machines remains the same. However, people would purchase what they need anyway. Advertising is (a) costly; (b) it merely cause the increase of trade by taking it away from some other firm; (c) though sometimes it has educational affect, it usually causes people to buy what they do not, in fact, need. All this is wasteful. It also causes unpredictable and uncontrollable results.

14. Gambling, theft and dishonesty. These deprive some people of what they have while giving others something not earned. It flouts the law of exchange. It prevents earning by production and locks up great amounts of money. This particularly affects the Stock Exchange, which can often be manipulated by unscrupulous people. Huge sums are made or lost without producing or gaining anything whatsoever in exchange. It diverts investment away from productive enterprises.

15. Usury is like theft in that it consists of getting something for nothing by exploiting the needs of others. It is the opposite of redistributing money to where it is needed. The greater the need for money the greater is the Interest rate. But it should be obvious that those who need it most are also those who can least afford to pay it. There is, therefore, a self-contradiction in an economy based on Usury. Many people and even countries have been plunged into poverty and misery because of a downward spiral in which they have to constantly borrow to pay back the interest on debts.

16. When something new is first invented many people want it. To meet this demand production is increased. But as this is progressively satisfied and the market is saturated, demand falls and settles down where it equals the need to replace worn out goods, or it falls to zero when it is replaced by something better. As supply rises resources run out and become more scarce and expensive, until new sources are found. There is a curve which rises and then falls associated with many goods. Combinations of these curves produce an overall high and low point, and even these exist within still greater cycles. The economy requires innovation, but innovation changes the economy. The transitional period between one state and another is a period of turbulence since readjustments take time. But the rate of innovation is now so great that there is almost a continuous period of transition and turbulence. Human organizations and even the human psyche cannot adjust itself with sufficient speed. The intelligent thing to do would be to control the speed of change. But competition between nations prevents this.

 17. At first resources which are easily and cheaply got at are used. As these run out those which are more and more difficult and expensive to extract must be used. Thus resources become scarcer. Little provision is made for recycling, conservation, management or renewal, though the urgency of the problem is now forcing nations to tackle the problem. As resources run out, their cost will probably rise sufficiently to make the cost of recycling more competitive. There is, however, always some wastage in manufacture and the total amount of entropy must continue to increase.

18. It has been suggested that the increase in population makes resources relatively scarce and this disturbs the economy. However, human ingenuity has always been able to solve this problem in the past. The best way of looking at the problem is as follows:-

(a) The total desire (as opposed to Demand which is measured in monetary terms) changes according to (i) the rise and fall of the population, (ii) its social condition and (iii) its value system. Not only has the population risen, but also its organization has created many needs which did not exist before, and the material desires and expectations per person have also increased. But it is perfectly possible for the value system to be diverted from material desires to social or spiritual ones. There is no intelligent management of desires and values. The culture is designed only to increase material desires in order to increase profits, not to discover and supply real needs and benefits. The result is frustration and dissatisfaction and, therefore, renewed efforts to obtain satisfaction.

(b) The resources of the world change because of (i) wastage and pollution, (ii) new technologies, which creates uses for materials not usable before, and (iii) by territorial expansion. This expansion is made necessary due to the pressures created by increasing desires and exhaustion of local resources. It is possible to use the resources of the Sea, Winds and the Sun, and to create new sources of power, materials and foods. Though there is probably no more land to be found, it is possible to build upwards or downwards and to use land more efficiently. It may be possible to recycle materials, obtain resources from outer space or even to migrate to other planets. Organizations can be set up which deal with these problems and develop appropriate technologies.

(c) Work undergoes changes due to the expansion of (i) Ingenuity, abilities and knowledge and these depend on the level of psychological development, education and research, (ii) organization. (iii) The amount, quality and relationship of work done. There may be more people doing one kind of work than is required while less work in directions more important. The amount of work people are willing to do has been diminishing. It has increased because of addition to the labour force by the emancipation of women, and the expansion of the population. The increase of the labour force, due to entry of women, has relatively suppressed wages and the incentive to mechanization while increasing demand. It has created unemployment for men. But the income of a man usually supports an entire family, while that of a woman does not and may even create a surplus. It causes families with two incomes to be richer. Birth control is diminishing the size of families, and, therefore, the labour force. But this creates new problems.  It disturbs the balance between the number of people who do the work and the number of people, the elderly and the young, who have to be supported by this work. When families break down this support has to be provided by Governments through taxation or by Commerce through pension schemes. The difference between these methods of dealing with the problem is that one is based on affection and unity while the other two are impersonal, formal and disintegrated. Changes in the age, professional and income structures of the population affects the work done, as well as the demands. It is possible to establish organizations which assess, plan for, and control these changes.

(d) It also possible to control the population. Birth control exists but is conducted in a haphazard manner without an over all policy as to numbers, quality of people and their upbringing. The more intelligent and capable are reducing their families, while illegitimate births increase among the less intelligent and those who cannot give their children an adequate upbringing or education. The ability to select the genetic make up and characteristics of future children also threatens to create an imbalance.

It is possible to confine ones demands within the limits of abilities and resources; or to cultivate abilities in relation to resources and wants; or to create resources in relation to abilities and wants. Organizations could be set up to coordinate all these factors. None exist.

 

The development of technology, transport, communication and trade made the economic system of the world into a single system so that all local economic systems have become dependent on each other. Let us, therefore, consider the state of the world economy.

1. There is a desire for the constant increase in wealth in all rich nations. The world’s resources, however, are limited. The increase in wealth in one place has impoverished others who, therefore, not only desire but also need and strive for more wealth. Resources from poorer countries are transported to the richer nations because they can pay more..

2. The industrial nations depend for their prosperity on the profits they make by obtaining the resources of the world, turning these into manufactured goods and exporting only a proportion of these to pay for these imports. Their standard of life depends on the size of the balance of trade, that is, the less they pay for the imports and the more they charge for their exports. Since they do not have any means of creating an equitable distribution of wealth and work then, if they do not import and export, they have unemployment which means deprivation and poverty for a section of the people. In a democratic system this means that great pressure is exerted on the government to expand the economy, to increase trade and the trade gap in their favour.

3. In the undeveloped nations the rich who have the same desires as in the West, wish to purchase the manufactured goods produced by the West. In order to pay for these goods they have to supply the West with the raw materials and cash crops required by them. The exploitation of the land for raw materials and cash crops diverts the cash, labour and resources away from all efforts to manage these intelligently for the benefit of the local peoples. It leads to the impoverishment and erosion of the soil, and the denudation of the forests, for instance, because the wood is taken to build furniture in the West. The resources being exported are not available for the local people. The cost of transportation also makes these resources more expensive for the importers than the money the exporting nations gain for it. The rich nations waste more of these resources because each item has less value for the rich than for the poor.

4. The rich nations buy their materials cheaply and sell their goods expensively since their labour costs are high and the worker is organized to keep the wages high. The poor nations depend on exports and must sell them cheaply and their labour costs are low. If one nation were to charge more for its exports, then competition between poor nations ensures that some other nation would take away the trade. Hence the pressure to keep wages low both by the Industrialists and the Government. This keeps the poor nations poor. The imbalance is retained because trade is dominated by Western Businessmen and also by discriminatory taxes by governments. The richer nations are also politically and militarily stronger and can coerce the poorer nations into policies disadvantageous to the latter and advantageous to the former.

5. In order to develop their economies the poorer nations need Capital. Since the people are poor it is not possible for governments to raise sufficient Capital by taxation. They have to borrow money from the Bankers in the Rich nations. The Banks, however, exist to make a Profit. They, therefore, charge interest and make sure that the borrowers pursue policies which will enable them to pay back the loan plus interest. The money lent out, moreover, returns to the lender country from where the technology is purchased. This creates prosperity in the lender nation.

6. In order to pay the loan and interest back these poorer nations have to export their raw materials and grow cash crops with the results already mentioned. They are trapped in a spiral of increasing poverty. As they get poorer they do not have the resources for education or health, and this disables them even further from getting out of their mire.

7. Some richer nations have seen the trap in which the poorer nations are. They see also that if they cannot pay back the interest or loans they will damage the Banks, and the rich and powerful who invest in them will protest. Nor will the Banks lend them money in the future. If the Banks do not lend them money then this money will either accumulate, reducing the profits of the Banks, reducing interest rates and causing the economy to collapse. Or else it must be lent out within the rich nations for investment or to finance the consumers. This will either make them still richer, increasing their demand for the world’s resources. Or, if they cannot find such investments, it will cause their economy to collapse. What is more, when countries become poorer they do not constitute a market to which exports can be made and they become politically unstable. The lender countries have, therefore, in their own self-interest, provided the poorer countries with financial aid. This is usually used to keep a military force strong enough to suppress political unrest and to support regimes which work in western interest. In so far as there are independent charities coming from the West they have little or no effect since they do not tackle the underlying problems mentioned above.

In fact, these economic problems can not be solved either by the poorer nations or by the prosperous nations as long as the economic system remains the same. The rich have the advantages to get ever richer at the expense of the poor who must get poorer.

 

The next step in economic development was socialism, including communism. The underlying causes of economic malfunctions were recognized as the failure to co-ordinate, and the lack of knowledge, social responsibility and control. The individual is perfectly capable of coordinating and planning his own affairs. But the community, as long as it is not an integrated unity, is not. This is precisely why controls are required. Socialism consists of central state control and all nations have had to adopt these methods to varying degrees. But this system has proved a failure owing to the following factors:-

1. It creates trinities of its own and concentrates on only one of the three inter-dependant factors by isolating the economic, from the socio-sexual and the cultural, and the social from the psychological and environmental factors.

2. It creates a dictatorial state which stifles the initiative, creativity, freedom, self-determination and responsibility of the population. But this erosion also affects the leaders. the capacity to solve problems intelligently diminishes and are replaced by machines.

3. Centralized power creates opposition, conflict and tension since it disables independent action.

4. Centralization concentrates collective efforts in certain directions. Though this increases the power to undertake greater enterprises it narrows down the range of possibilities. Mistakes lead to great disasters. It also obstructs evolution which depends on the arising of a variety of new systems on a small scale, which, when found successful, multiply and expand. Most new developments in the evolution of man occurred against the opposition of established powers. If these powers had total control mankind would have stagnated and degenerated. Progress then becomes a matter of overthrowing such systems either from within or by foreign powers.

5. It removes the incentives. and this has to be replaced by coercion. This causes inefficiency. There is great wastage in nationalized industries and institutions because it is no one’s personal interest to make any economies. If employment is guaranteed to all then there is no pressure to reduce over-manning, idleness, failures in planning and coordination.

6. The State is a machine which works by its own momentum. It is inefficient, lacks versatility, adaptability, intelligence, humanity and removes the possibility of human control. Control becomes remote, formal and impersonal and unable to deal with local situations.

7. Those in control have human limitations and do not possess the knowledge, ability, and moral strength to control all aspects of life. The power given to them corrupts them and makes them oppressive.

While a Capitalist economic system has a tendency to expand, a socialist economic system has a tendency to contract. Both are man made constructions and are governed by their own inherent mechanical forces. In so far as human beings subject themselves to these systems they can be said to be in a state of Idolatry. In the far past when human beings had less control over their own nature, the environment and their social affairs, they could be said to have been in a state of surrender. That is they acted in conformity with nature. However, their inherent faculties made it inevitable that they should take increasing control. And this fact is formulated in the word ‘Vicegerency’. They could have done this either objectively or subjectively. Therefore, a divergence of possibilities arose from the very beginning.

These are the considerations which are required if an alternate Economic System is to be developed.

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