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[Distribution of Wealth in Islam][ Back ] [ Next ]

Those who have a Primary Right to Wealth

As indicated above the primary right to wealth is enjoyed by “the factors of production”. But “the factors of production” are not specified or technically defined, nor is their share in wealth determined in exactly the same way as is done under the Capitalist system of economy. In fact, the two ways are quite distinct. From the Islâmic point of view, the actual factors are three, instead of being four: -

1- Capital- that is, those means of production which cannot be used in the process of production until and unless during this process they are either wholly consumed or completely altered in form, and which, therefore, cannot be let or leased (for example, liquid money or food stuffs etc.).

2- Land- that is, those means of production which are so used in the process of production that their original and external form remains unaltered, and which can hence be let or leased (for example, lands, houses, machines etc.).

3- Labor- that is, human exertion, whether of the bodily organs or of the mind or of the heart. This exertion thus includes organization and planning too. Whatever “wealth” is produced by the combined action of these three factors would be primarily distributed over these three in this manner: one share of it would go to capital in the form of profit (and not in the form of interest); the second share would go to land in the form of rent, and the third share would be given to labor in the form of wages.

Socialism and Islâm

As we have said, the Islâmic system of the distribution of wealth is different from Socialism and Capitalism both. The distinction between the Islâmic economy and the Socialist economy is quite clear. Since Socialism does not admit the idea of private property, wealth under the Socialist system is distributed only in the form of wages. On the contrary, according to the Islâmic principles of the distribution of wealth which we have outlined above, all the things that exist in the universe are the property of Allâh Himself. Then, the larger part of these things is that which He has given equally to all men as a common trust. It includes fire, water, earth, air, light, wild grass, hunting, fishing, mines, un-owned and un-cultivated lands etc., which are not the property of any individual, but a common trust. Every human being is the beneficiary of this trust, and is equally entitled to its use.

On the other hand, there are certain things where the right to private property must be recognized if only for the simple reason that without such a recognition it would not be possible to establish the practicable and natural system of economy to which we have alluded while discussing the first object of the distribution of wealth. If the Socialist system is adopted and all capital and all land are totally surrendered to the state, the ultimate result can only be this- we would be liquidating a large number of smaller Capitalists, and putting the huge resources of national wealth at the disposal of a single big Capitalist- the State- which can deal with this reservoir of wealth quite arbitrarily. Socialism, thus, leads to the worst form of the concentration of wealth. Moreover, it produces another great evil. Since Socialism deprives human labor of its natural right to individual choice and control, compulsion and force becomes indispensable in order to make use of this labor, which has a detrimental effect on its efficiency as well as on its mental health. All this goes to show that the Socialist system injures two out of the three objects of the Islâmic theory of the distribution of wealth- namely, the establishment of a natural system of economy, and securing for everyone what rightfully belongs to him.

These being the manifold evils inherent in the unnatural system of the Socialist economy, Islâm has not chosen to put an end to private property altogether, but has rather recognized the right to private property in those things of the physical universe which are not held as a common trust. Islâm has, thus, given a separate status to Capital and to Land, and has at the same time made use of the natural law of “supply and demand” too in healthy form. Hence, Islâm does not distribute wealth merely in the form of wages, as does Socialism, but in the form of profit and rent as well. But, along with it, Islâm has also put an interdiction on the category of “interest”, and prescribed a long list of the people who have a secondary right to wealth. It has thus eradicated the great evil of the concentration of wealth which is an essential characteristic inherent in Capitalism, an evil which Socialism claims to remedy.

Islâm and Capitalism

This is the fundamental distinction of the Islâmic view of the distribution of wealth which sets it apart from Socialism. It is equally essential to understand fully the difference that exists between the Islâmic view of the distribution of wealth and the Capitalist point of view. This distinction being rather subtle and complicated, we will have to discuss it in greater detail.

By comparing and contrasting the brief outlines of the Islâmic and the Capitalist systems of the distribution of wealth, we arrive at the following differences between the two: -

(1) The entrepreneur, as a regular factor, has been excluded from the list of the factors of production, and only three factors have been recognized instead of four. But this does not imply that the very existence of the entrepreneur has been denied. What it does mean is just this- the entrepreneur is not an independent factor, but is included in any one of the three factors.

(2) It is not interest but profit which has been considered as the “reward” for Capital.

(3) The factors of production have been defined in a different manner. Capitalism defines “capital” as “ the produced means of production.” Hence, capital is supposed to include machinery etc. as well, beside money and food stuffs. But the definition of “capital” that we have presented while discussing the Islâmic view of the distribution of wealth, includes only those things which cannot be utilized without their being wholly consumed, or, in other words, which cannot be let or leased- for example, money. Machinery is to be excluded from “capital”, according to this definition.

(4) In the same way, “land” has been defined in a more general way. That is to say, all those things have been brought under this head which do not have to be wholly consumed in order to be used. Hence, machinery too falls under this category.

(5) The definition of “labor” too has been generalized so as to include mental labor and planning.

Let us now go into the details of this discussion. Under the Capitalist system, the most important characteristic of the entrepreneur (which entitles him to profit) is supposed to be that he bears the risk of profit and loss in his business. That is to say, from the Capitalist point of view, “profit” is a kind of reward for his courage to enter into a commercial venture where he alone will have to bear the burden of a possible loss, while the other three factors of production will remain immune from loss, for Capital would get the stipulated interest, Land the stipulated rent, and Labor the stipulated wages.

On the other hand, the Islâmic point of view insists that the ability to take the risk of a loss should, in reality, inhere with capital itself, and that no other factor should be made to bear the burden of this risk- in other words, the man who wants to invest his money in a certain business venture must take this risk. Consequently, the Capitalist, in so far as he takes the risk, is an entrepreneur too, and the man who is an entrepreneur is a Capitalist as well.

Now, there are three ways in which capital can be invested in a business venture: -

(1) Private business: the man who invests capital may himself run the business without the help of any partners or shareholders. In this case, the return which he gets may be called “profit” from the legal or popular point of view; but in economic terms, this “reward” would be made up of (1) “profit”, in as much as capital has been invested, and (2) “wages”, as earnings of management.

(2) Partnership ( ): The second form of investment is that several persons may jointly invest capital, jointly manage the business, and jointly bear the risk of profit and loss. In the terminology of the Fiqh, such a venture is called “Shirkat-ul-‘Uqûd” ( ) or “Partnership in contract”.

According to the terminology of economics, in this case too all the partners will be entitled to “profit” in so far as they have invested capital, and also entitled to “wages” in so far as they have taken part in the management of the business. Islâm has sanctioned this form of business organization too. This form was common before the time of the Holy Prophet ( ). He permitted people to retain it, and since then there has been a consensus of opinion on its permissibility.[1]

(3) Cooperation of Capital and Organization ( ): The third form of investment is that one person may invest Capital while another may manage the business, and each may have a share of the profit. In the terminology of the Fiqh, it is called “Mudârabat” ( ). According to the terminology of economics, in this case, the person who invests his capital (“Rabb-ul-Mal”- ) will get his share in the form of “profit”, while the person who has actually managed the business will get it in the form of “wages”. But if the person who has been managing the business (“Mudârib”- ) eventually suffers a loss in the business, his labor will have gone to waste just as the capital of the investor has gone to waste.

This form of business organization too is permissible in Islâm. The Holy Prophet ( ) himself had made such an agreement with Hazrat Khadijah ( ) before their marriage.[2] Since then there has been a complete consensus of opinion on this too among the jurists of Islâm.[3]

Beyond these three forms, Islâm does not allow any other way of investing capital in a business.

Money Lending Business

The fourth form of investing Capital which has since ever been practised in non-Islâmic societies is the money lending business. That is to say, one person lends out capital in the form of a debt, and a second person puts in his labor; if there is a loss, it has to be borne by labor, but, profit or loss, interest does accrue to capital in any case. Islâm has interdicted this form of investment.

“O, believers, fear your Allâh, and give up what is still due to you from the interest (usury), if you are true believers. But if you do not do so, then take notice that Allâh and His Messenger shall war with you.”

(2:279)

The Holy Qur’ân also says:

“Yet if you repent (of usury) you shall have your principal. Do not be unjust to any one, nor should any one be unjust to you.”

(2:278)

In these two verses, the phrases “what is still due to you from the interest” and “you shall have the principal” make it quite explicit that Allâh does not condone the least quantity of interest, that “giving up the interest” implies that the creditor should get back only the principal. Thus, one can clearly see that Islâm considers every rate of interest (except zero %) to be totally inadmissible.

In the pre-Islâmic period, certain Arab tribes used to carry on their trade with the help of money borrowed on the basis of interest from other tribes. Islâm put an end to such transactions altogether. Ibn Juraij ( ) says:

“In the pre-Islâmic period, the tribe of Banu Amr bin Auf used to take interest from the tribe of Banu-al-Mughira, and the Banu-al-Mughira used to pay this interest. When Islâm came, the latter owed a considerable amount of money to the former.”[4]

And further on:

“The Banu-al-Mughira used to pay interest to the Banu Thaqif.”

Let it be understood that the position of every Arab tribe was like that of a joint company, carrying on trade with the joint Capital of its individual members. So, when a tribe would borrow collectively from another tribe, it would usually be for the purposes of trade. The Holy Qur’ân prohibited even this practice.

Thus, under the Islâmic system of economy, if a man wants to lend his money to a businessman for being invested in business, he will have first to decide clearly whether he wishes to lend this money in order to have a share in the profit, or simply to help the businessman with his money. If he means to earn the right to a share in the profit by lending his money, he will have to adopt the mode of “partnership” ( ) or that of “cooperation” ( ). That is to say, he too will have to bear the responsibility of profit or loss- if there is eventually a profit in the enterprise, he shall have a share in the profit; but if there is a loss, he shall have to share the loss too.

On the other hand, if he is lending this money to another person by way of help, then he must necessarily regard this help as no more than help, and must forgo all demand for a “profit”. He will be entitled to get back only as much money as he has lent out. Islâm considers it not only unjust but also meaningless that he should fix a rate of “interest” and thus place all the burden of a possible loss on the debtor.

This discussion makes it clear that Islâm places the responsibility of “taking the risk of loss” on Capital. The man who invests capital in a risk-bearing business enterprise shall have to take this risk.[5] Thus while, according to most economists, the essential characteristic of an “entrepreneur” is that he takes a risk, Islâm considers it to be in principle the characteristic of “Capital”. Thus, under the Islâmic system of economy, Capital and Entrepreneur become one and the same, and their share in the distribution of wealth is profit, not interest.

But if one were to regard (as some economists do) the essential characteristic of an entrepreneur to be management and planning, then this activity falls under the head of “labor” and to consider it as a separate factor is unnecessary elaboration.