The Islamic View of CaPitalism

K'NM gSfuANRRil

VSMW ilNF=

ilAtrKKAK-,KNR/K
M. Llmer Chapra
Instittrte (rRTI)
Research Aclvisor at the Islarnic Researrch ancl Training
(lDB)'
Jeddah
Bank
l)evelopurent
Islalric
of the

T'Eae CBaaBEersge

The challenge that mankitrd l'aces is to ellstlre

t6e rvell-being of all people irr spite ol'the scarcity
clairns
oJ- resolu ce s at its clisposarl relati'e to the

on them. The success of ally economic systetlr, irrespeotive of whether it is capitalisrn or some other
,yui.,,',, slotrld tlerefure be tleasured against its

otitity to help meet this challerlge. The system r'vill

be able to succeecJ in this task only if it can help
'eqr:itaensure tlre rnost 'efficient' and tl're rnost
certairt
actualizi'g
lor
ble, Llse of sca'ce resources

goals that are generally cotrsidered necessary for

iealizing the r,vell-beipg of all. ll'lese goals rnay be

classified, for the sake of conveniettce, into ecoancl social, evsn though it is sor'eti*es dif-

'ornicto clistinguish thern clearly fronr each other.

fic*lt
Sonre of the most irnportant ecotlolnic goals
generally recogn rzecl by the E,conotnics plofession as necessaly for prornoting ltunran well-being
are: al1 optimum non-inflationary rate ol'grorvth,
tle eliprination of poverty and the need ftrlfillment
of all, lull employmerlt, the equitable distribution
of incorne and wealth, ancl econonric ancl financial stability. some o1' the rnost important social
goals which are also corrsidered to be equally, if
not more, necessary for humatl well-bei1g are:
family and social sblidarity, and freedorn lrotn
tension, crime and anomie. Even though these social goals are clesired in their own right because
social
of, their impact on individual happipess atrd
harmony, they are also desirecl becattse of their
impact on economic perfortllallce. All aspects of
(d.
human society are, accordi'g to Ib' Khaldun
realtzation
the
B0BAI-I ll4a6c?), interrelated and

of even econouric goals rnay be diffrcult to

sr"rstain

in the long-tenrr without the simultatreous real rzation of social goals (Ibn Khaldttn, n'cl).
Holvever, the stark reality is that' while capi-

talisrl has generally perlbrrned u'ell in ternrs of

prolnoting ecotrouric efficiency and gror'vth, and
contributed to the nraterial prosperity of societies
r,vhiclr have aclopted it, its perfot'mance in realiz
ing other socio-economic goals has generally been
poor. It has failecl to enable these societies to ful
ltl the treecls o1' all inclividuals and to realize ftrll

ernploynrelt, the equitable distribution of income

and wealth, and stability in financial markets. This
lailure is macle all the more conspictrous by a rise
in all the syrnptoms of anomie, sttclt as crinre, tension, clivot'Ce, juvelile delilqtlellcy, and nrental
illness, all ildicatilg lacl< of ipner happiless in
inclividuals' lives

The StrategY axrd its n ogic

This raises the qurestion of what the reason

is for this failure. The answer lies perhaps in tfie
strategy pursuecl by capitalisrn. This leads us to the

related question of what is it that is peculiar about

the strategy of capitalisrn that has led to failure?

Coulcl it be its recogpition of private ownership of

property and ft'eedom of enterprise? This cannot
be the answer because these are also embedded

in the value systern of other societies, including

Islamic, ancl have proved to be irrdispensable for
pl'omoting effrciency and growth. If private property is pot necessarily the cause of failures, tlten,
could it be i1 the lack of recogpition of a role for
the state in the econorny? This is also not t|e case
because, while capitalisrn stood for laissez.faire, or
governtnent non-intervention, durir-rg a long phase

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Encyclolraedia ol' Isltttnic Ecortonrics

of its history. it no longer upholds this extremist

view. The rnisery of the r,r,orking classes, rising inequalities of income and rvealth, the Great Depressiorr of the 1930s, and the Keynesian revolution as
u'ell as the socialist onslatrght have all led to the
lecognition of a role for the state in the econoluy.
Horvever, the stagflation of the 1970s and the rational expectations theory have led to a recognition of the limitations of government intervention.
So what is peculiar about the strategy of capitalisrn lvhich could be considered as the cause of
its failure? It is essentially its secular worldvier.l'.
Capitalism has been greatly inf'luenced by the Enlightenment rvorldview, which arose in the seventeenth century as "a l'epudiation, arrcl in solne respects an antithesis, of much of, Christian belief'
(Brirrton, 1967: p. 521). This gave rise to positivism, which reftised to accept any idea that could
not be established by observation and experiment,
and led, in turn, to a weakening of all metaphysical precepts, including faith in God, revelation,
hurnan brotherhood, life after death, and all other
religious beliefs, and created an anathema to value
juclgeme nts

Utilitarianisnr took the place of moral values

and 'right' and 'wt'ong', 'desirable' ancl 'undesir
able', and'just' and'unjust' began to be determined by the hedorrist criteria ol 'pleasure' and
'pain'. This provided sanctity to rnaterialism and
social Darwinism in the capitalist worldvieu,' and
gave rise to the concept ol"rational econorlic lnan'
whose main objective in life was to serve his selfinterest and maxinize his wealth and want satisfaction. The sel'ving of self-interest became "the
moral equivalent of the florce of gravity in tlatllre"
(Myers, l9B3: p. 4). Within this framervork, society came to be conceptualized as a lnere collectiorr
of individuals united through ties o{'selFinterest.
It was not uecessary to wony about 'social interest' because the 'invisible' hand ol nrarket lorces
would automaticalll, protect it by rneans of colxpetition. Competition would keep self-interest under
constraint and thereby automatically serve social
interest as an "unintended consequence of uncoordinated selfishness" (Rosenberg, 1992: p. 2l 9; see
also Blackhouse, 1994: p.l3). There is, therefore,
no need for the intervention of either govemment
or society.
The crucial feature in the entire logic of capitalisrn was, thus, its secularist worldview, which
led to an undue emphasis on the serving of self-

274

interest, a neglect of the role of rnoral vzrlues in

the realization of socio-economic goals, and the
claimed syurmetry between public and private interests. It began to be argued that the f}ee interaction of 'sovereign' collsumers trying to maxin-rize
their utility, and passive producers trying to maximize their profit, will, under perfectly competitive
market conditions, deterrnine the market clearing

prices for goods and services. These prices r,vill

serve as an impartial and value-neutral filter nrechanism and lead to the production of that configuration of goods and services which is in rnaxinrum
harmony ''uvith consumer preferences. These prices
will also automatically deter:mine the transf,er of
resources fi om one use to another, thus contributing to their most efficient utihzation r,vithout anyone's conscious effort or intervention.
Since the resultant configuration of goods and

services is a reflection of consumer preferences,

it is the urost'efficierrt'; it is not possible to irnprove upon it. Since this configuration also determines the incomes earned by the respective f'actors
of production on the basis of their contribution to
outplrt and revenue, the resultant income clistribution is also 'equitable'. At the point of equilibriurn,
consuffler satisfactions (utilities) are maximi,zed,
supplier costs are minimized, ancl factor earnings
(including wages and profits) are maximized.
Capitalism, it \,vas thus concluded, helped
deterrnine not only the rnost 'efficient' use of resources but also the most 'equitable' distribution
of income in a rational and impartial rnanner without value judgernents or govenlnent intervention.
It, thus, automatically brought about, harmony between private and public interests. Questions about
whether this configuration satisfiecl basic hunran
needs and whether the distribution was equitable
were irnproper becallse such questions cannot be

answered without collective value juclgements

which, unlike market clearing prices, cannot be
established irnpartially. Questions about differentials in wealth holdings were similarly irnproper
because the wealth of individuals represerrted the

savings resulting fi'orn the market value of their

contributions to output and their abstinence fiom
collsulnption, Hence there was no need for governrurent intervention except to the extent to which it
was necess aty to ensllre competition ancl orderly
rnarkets and to offset market failure in the supply
of public goods.

The Islamic Vier,v of Capitalisnr

Yet history and experience have belied the

claimed symrnetry between private and social interest. The systern failed to realize equity. The'ittvisible hand'of market forces, guided primarily by
'self-interest' led, in tlre r.vords of Dalton, to "all
inhumane, squalid and unjust society of rampant
cornmercialisrut, social division, and conflict between ernployer and emploYee, landlord and tenant, ancl ruler and ruled" (Dalton, 1974: p.6B). It
also yielcled another sotlr fi-uit ip the fornr ol what
Fukr-ryalna (1997) calls "the grezrt clisr-uptiot't", fef-ering thereby to the breakdown of the fanrily-

Flaws inr the Logic

The prinrary reasoll for these soLlr fruits was
the existence of a.trumber of t'larrys irr the logic o[
capitalisrn. One o1'these was that evely conrpetitive equilibrium was consiclered to be Pareto op-

timurn. It was not possible to tnake anyolle better

off without making someone else worse off- The
tenns 'efficiency' attd equity', as defiled wit|in
the fi amework discussecl above, did not have a di-

rect relationship with the objectives of retnoving

poverty, ftrlfilling needs, ancl reducing inequalities of income and wealth or o{'realizing the other

It was asstlmed

that these
result
indirect
objectives will also be real tzed as all
oF 'effrciency' and 'equity' brotrght about by the
competitive equilibrintn. Any otttside interventiotl
to change the status qllo would necessarily leacl to
results r,vhish were less 'efficient' and less 'equita-

socio-econornic goals.

ble'. The only acceptable way to chatrge the stattts

quo woulcl be within tlre fratnework of Pareto optirnality - to make some people 'better off' without rnaking anyone 'worse off'. ThiS was the o1ly
way to avoid a sacrifice on the part olsome lor tfie
well-being of others. Howevsl', sitlce there was no
policy which would not make at least some people
worse off, Pareto optimutn virtually granted a veto
power to anyone opposed to change' It, thus, led
to near-paralysis of policy rnakilg, "t? inactiott,

to non-choice, to drifting" (Solo, l981: p. 38;

see

also Sen ,1987: P- 32).

Another flaw in the logic of capitalisrn \'vas

that it ignored the role of institutiotts other tlran the
rnarket in tlte realization of hurnanitarian goals' It
\,vas uot appreciatecl that the tnarket was only one
of a nurnber of institutions leeded for org anrzing
economic and social life and realizing human well-

family is perhaps the t"nost irnportaut of these because it provicles the hutttalt input for the tnarket,
society, and the state. It is the prirnary breedirtg
place and training grouncl lior all individuals. It is
here that a substantial part of individtttrl tastes atrd
preferences, personalities, and behavioural patterns are forured. The farnily's health and solidarity is, hence, of crucial irnportance. If the tamily
disintegrates, would it be possible to provide the
ftrture generation with the kind of upbringing that
it neecls? If the quality of upbringing declines, is
it then possible fbr a society to sustain its development and suprelttacy fbr long in the econolnic,
tecltnological or military fields? Because esonomic growth is also one of the objectives of capitalism, wor.rld it then be realistic oll its part to ignore
the integrity and stability of the farnily?
TEae

Missing

E im!<s

If the market, tlre f. tnily, society, and the state

all have a role to play in hunlan well-being, then
the question is how to make them play their roles
in a manner that complentents and does not hinder
the eflbctive perforlrlance of their role by others?
Althouglr the tnat'kct rnay operate efficiently if
every inclividual tries to serve his or lter self:intelest, would it also be possible for fanrilies, society,
and the state to opct'ate effectively and harmoniously if everyolte were to behave in the salne selfinterested rnanuer?
These are not new questions. They have been
acldressed by social philosophers for centuriesThe majority seetns to hold the view that tlre serv-

ing of self-interest is only one of the tnotivating

forces in hunran society, and maximization of
wealth ancl consurtption is only one of the goals.
The social goals statecl above are of equal, if not
greater, importance. lndividuals in any society
cannot be glued together and social solidarity so
inclispensable lor prol'noting mutttal cooperation
cannot be attainecl without the realization of social
goals. This necessitates rules of behaviour' r'vhich
Institutional E,conotnics calls instittttions and religions call nroral values. These valttes or rules of
behaviour are, howel,er, nreaningless ttnless they
are enforced, Their enforcement entails sacrifice
on the part of those v,'ho ale aclversely affected'
Would it be possible to etrforce these rules if every
incliviclual sets the set'ving of self-interest and the

being. Some of the tnost inpoltant otfier institgtions were the farnily, society, and t|e state. The
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Ilncyclopaeclia

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l' Islarnic Econornics

lltzlxirnization of rvealtlr and consuurption as his/

hcr primary goal. and is not rvilling to sacrifice his/
her interest fbr rearlizing social rvell-being'7

Sacrifice is of' particular importance in the

case ol'the lanrily ancl society. Experience shou,s
that the more the parents adopt an attitude oi'lnutr-ral sacriflce ancJ coopel'ation, the more they u'ill
be arttached to each other ancl the greater hannony
and stability there is lil<ely to be in the farlily. The
upbringirrg of chilclren also requires a substantial
clegree of nrutual cooperation and sacrifice o{'selfinterest on the parl o{' parents. Sirnilarly, social
Itannony nray also recluire nrembers to cooperate
with each other and to sacrif-ice lor the cournorl
good aud the r,vell-being of the poor and the vulnerable. Ilven in the case oi the market and tlre
state, sacrifice may not be avoidable. ln spite ol'
colllpetition, which helps safuguard social irrterest.,
it rnay be possible for operators in the market to
make unjusti{Led gains by cheating and obstructing
conlpetition in a rnanner that n'lay be cliflicult to
detect. Sirnilarly" although clenrocracy, public accountability, and a ll'ee press clo he l1r in protccting
tlre public interest, it may nevertheless be possible
lor government ol-licials to use their authority [or'
personal benefit at the ex;rense ol-the taxpayer'.
Therel'ore, there has to be sorne motivating
lbrce that prevents inclividuals fi'onr wlongcloing
cvcn when it is possible lbr them to get away unscathecl. Governnrent coercive power has 1l'ovecl

to be all effective motivating force. I-lor,vever', if

this were the only force in human society to prevent wrongdoing, it would lead to a totalitarian
state and the costs of enlorccment would also tend

to be very high. Is it possible to supplement corxpetition, public accountability, ancl governnrent

cclercive power by some other nrotivating I'orce
that rnight induce members of society to abide
willingly by agreed values or rules cll' beharriour
and to fulfil their contracts ancl social obligations
Ihithf-ully even when this involves a sacrifice of
sell'-interest?

and consurnption is the only goal in the lifb of an

indiviclual, then there is no need to rnal{e any sac-

rii'ice for others. Servins selLinterest rnay be the

best policy. The fanrily may then suflbr, the cluality of the futrlre gerleration may decline, ancl even
the perfbrmance o1-the rnarket and the govemment
may ultirnately be adversely affected.
The cluestion, therefore, is horv to rnotivate
inclividuarls to l'ulfil their contracts and other comnritments honestly and not to undernrine cornpetition or resort to unfair rneans of earning even when
it is possible lbr therl to get a\ ray with it? This is a
question that Islarn and other rnajor religions have
tried to acldress by providing rules of behaviour in
the fonn

of moral obligations fbr individuals

to-

r,r,ards other' human beings, animals, and the envi-

ronntent, and trying to rnotivate their frollowers to

abide by these rules even when doing so hurts their
self-interest in this rvorld. The motivation cornes
from belief in accoLnltability for all our cleecls in
this r,vorld before a Just and All-Knorving God
who sees everything ancl who will rer,l'ard and
punish everyone according to his or her cleeds. A
person ntay be able to get arvay unscathed in this
r,vorld for the injustices he has inflictecl on others,
but he cannot escape retribution li'orn Gocl in the
I-lereafter. Whether or not thesc religions have succeeded adequately in rnotivating tlreir followers is
a dill'erent matter'. HoweveL capitalisnr rnay not be

able to ignore religious values and tlre associated

nrotivating force if its goal is the realization of human r,vell-being

A sclciety may have attainecl tlre pinnacle of

glory in the material sense, but it rnay not be able to
sustain it for long if the moral fibre of indivich.rals
and society is r,veakening, the farnily is clisintegrat-

ing, the new generation is unable to get the kincl

of attention ancl upbringing that are necessary for
an achieving civilization, and social tensions and
anomie are rising. The econornic and the social aspects of well-being are not, therefore, independent
of each other. They are closely interrelatecl. Greater

family harmony may help raise better inclividuals

The Question of I??b:ivatLon

This brings us to the cluestion ol'vrhy should
any person sacrifice his or her self-interest to serve
social interest in the market place, the farnily, society, or the state? If capitalisrn concentrates only
oll self-interest and has no place for a rnotivating
force other than self-interest, then

it rnay not be

able to answer this question. I1'rnaxirnizirrg r,vealth

to operate in the market, and better social harmony

lnay create a more conducive environment for effective governurent and accelerated development.
If this is true, then the undue ernphasis on serving
self'-irrterest ancl rnaxi mizingwealth and conslrrnption lnay have to be toned down at least to some
extent to serve social interest and optinrize hurnan
rvell-being. Soffre uses of resources that serve self-

t
"H1

276

#
$i

Ttre Islarriic Vicri' o1' Capitalism

interest ancl flt rvell into the hedonist fi'atneu,ot'l<

may have to be reducecl to fllfil the neecls of all
individuals in society and thereby prolttote famill,
and social hamrony.

The

R'EecFraxlispms

This raises the questiotr of horv to bring about

the allocation artd distribution of resollrces in a
\,vay that helps realize all socio-econotnic goals?
There are three inrportattt nrechanislns that determine the usc of resoLlrces in any society or econornic systenr. Thesc are filterirrg, tnotir,'ation,
and socio-econornic attd political restructuring
(Clrapra, 1992: pp. 213-233).
First, it is necessary to ct'eate an equilibriurl
between all the clairns on resources atrd their sLtpply. For this purpose, the clairns need to be passed
thror-rglr a filter. The filtering, howcver, ueecls to be
done in a way that ensures tlre realization of goals.
Thlee of the urost importatlt rnrays o1't-rltering are
central plzrnnitrg, tlarket tlechanisms, and moral
values (Chapra, 1992: pp. 7l-112). Experience of
socialist countries has shorvn that central planning
has not becn a11 el'l'ectivc tnecltatrisrn for frlterirlg
even in the ruaterial settse, aitcl alrnost all of them
have now abanclonecl it. Flor,vcver, capitalisrn has
perfonled ,,vell with the help of tnarket tnechanisrns. Price s detennined thror-rgh the interactiorr of
supply artcl cletnattcl in perl'ectly corupetitive tnarkets help l'ilter out tlte vat'ious Llses of t'esources in
a way that alt eqllilibriurl is established. But the

problem rvith the Ltse of the marl<e t nrechanism fbr

filtering is that it is possible to ltave several rnarket
equilibria depending olt which tastes and prefererrces of individuals and firms interact r,vith eaclt
otltcl in t[e tnat'l<et place. Any ancl etter)' nrarket
equilibriLlln lltay not lead to the realization of socio-ecoltontic goals. It ntay, therefot'e, be desirable
to cornplement the market systetl by solne other
mechanisnr that helps change irldividual tastes and
preftrences in a way that leads to the desired kind
of equilibriunt. Experience has indicated that moral values calt be the urost cost-effective complernent to the price tnecltanisnt for reducing r,vasteful
and unprodr-rctive spending and ensuring the realization of socio-ecoltornic goals.

if

coercion is ruled ottt, then the

desired kind of filtering may ltave to be brought
abor-rt by motivating all individtrals strfficiently to
pnt in their best perfonlaltce and to abstain I'rotn
the use of resollrces in a \\raY that fi-ustrates the
Secondly,

t'ealization of socio-economic goals. J.he scrving ol'self--interest has provecl to bc an etfectivc

motivtrting mec:hanisnr for increasing eltlciency,
r,l'ltereas competition, public accoulttability. ancl
govemment intervention have hcllted 5nfsgLrarcl
social interest. Florvever" it slroulcl be possilrle to
satbguard socierl interest even lnore el'tectively il'
both the market mechanism and govelltment inter-

vention were cornpleurerrted by a sense of

rnorerl

obligation.
Thirdly, the physical, social, and political envirorlments also influence hunran behaviour and the
Llse of scarce resoLrrces. It may hence be necessal'v
to supplement the filter mechanisnr and thc llotivating systern by creating an enabling enviroi'rtneut of- econornic, sociai, and political rralllcs anri
institutions that inflLlence individuals positively in
a manner that would be conducive to the real iz.tttion of human u'ell-being. This brings into focris
the need lor socio-economic and political relbnn.
Carr such relorm be brought about by reliance on
marl<et forces alone rvithor-rt a crr-rcial rolc being
played by the society, tlte state and educational anci
rel i gi otrs i nstitutions?
T'Bee

New *irect'iosr

As a result o1'the various sltocl<s to rvhich

capitalisnl has bcen exposed during the course of
its history, it has charrgecl and is no longer iii ihc
same moulcl in which it rvas bel'orc tlte Great I)epression. The rolc ol' thc state has beconre u,ellrccogrized. Governrnents have been playing a rolc
in reclucing at least to solne cxtcnt the sr-rl'lering

resulting fi'orn unelrploymetrt, sicl<ness, old agc

and natural catastrophes. In spite oI the attatltclna
of capital'isrn to value juclgements, these continued
to play an inrportant role because it was rtoi possible for callitalism to beconre as valuc neuirzrl in
a Christian society as the cot'e of capitalist tlicory
woulcl have clesirecl. Ancl rlow the role o{'institr-rtions or rules ol- behaviour is evcn getting thcoretical recognition as a result of tlre inflLrence of

lnstitutional Economics.
M utual trust of market participants is ltow
consiclered to be indispensable for enabling the
market system to function effectively (Arrow.
1973; Etzioni., l988; Fukuyarrla, 1995; Hollingsrvoth & Boyer, 1998). It is rn'idely recogltized tlrat
tnrst develolrs rvlien there is an assuratrce that the
counterparty rvill faithfully adhere to the rules of'
behavioLlr and fiilfil its obligations even in circlnr-]-

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Encyclopaedia of Islarnic Economics

stances in r,r'hich it rvotild surfl-er. It is also sirnultaneously recogrlized that strong social bonds help
in promoting trust and linriting conflict, (Hollingswoth & Boyer, 1998: p. I l), and that farnily
and social soliclarity are necessary fior this purpose

(Fukuyama. 1995; North, 1990; Polanyi, 1957),

sornethirg that Ibn Khaldun had emphasized lnore
then 600 years ago (lbn Khaldun, n.d: p.43). Sr-rch
solidarity helps exercise external constraints on
self-interest. Unless all these constraints operate
in sufficient force, the market system will not be
able to function efficiently. Can these constrairrts
becorne eflective vvithout r,villingness on the part
of participants in the nrarket, farnilies, society and
goverurnent to comntit to sacrifice?
The cost of enforcing the rules of behaviour
may be significantly lolver iI' there is solne effective nrecllanism for self,-enforcement. Selfenfarcernent car] cotre fi'om tr,vo sources. Orre
of these is the inrrate goodness of hurnan beings
theurselves. Within the ji'amework of Islarnic belieft, hurnan beings al'e good by nature because
God has created thern in I-lis owlt image (Qur'an,
Al-R[rn: 30). They do not necessarily always act
in their self-interest. They also act in the interest
of others and even rnake sac,'ifices fbr them uncler
a feeling of moral obligation. Flowever, because
they are also fiee, they lnay not necessarily preserve their innate goodness and may act in ways
that are against their nature. Therefore, it is necessary to provide incentives and deterrents as well
as an enabling environntent. These incentives and
deterrents may be this-worldly as well as otherwoi'lclly. This-worldly rneans rnay be in the forrn
of social prestige and ostracization, monetaty benefits and losses, ol' fines and irnprisontnent. The
problern, however', with a nurnber of this-worlclly
incentives ancl deter rents corning fi orn the society
and state is that they rnay be insr.rfficierrt ancl rnay
be r"rnjustly irnplernented or even evaded. Otherworldly incentives ancl cleterrents do not suffer
fi'orn this r,veakness because, as indicated earlier,
they are rnanaged.by an All-l{rrowing God Who is
Just and has no axe to grincl.

The Islamic Ferspective

Therefore, within the Islamic perspective, the
mistake that capitalisrn made did not lie in upholding the role of private property, freedorl of
enterprise, and the nrarket mechanism, These are
necess ary for the effective operation of an eco-

218

nolnlc system. Any system that does not rer:oglrize

these is bound to tail, rs has been convincingly
shor.l'n by the failure of Communism. The rnistake

of capitalism lay rather in ignoring the role that

the family, society, state, and metaphysic.al belief.s
and moral valnes and institutions play in bringing
about the allocation and distribution of resollrces
that promote human r,vell-being.

All

these together

can help keep self:interest r,vithin the constraints

of- social interest and motivate people to make
the sacrifices that are necessary lor ensuring the
realization ol' socio-economic goals. The market
nrechanisrn alone is unable to do this.
Foffurrately., moral values wsre not eroclecl in

capitalist societies inrmediately. They rernarined

in force and have r,veakened only graclually. In addition, farnilies aud altruistic social groups have
tried to serve a social interest, and the welfare state
has also helped reduce the rnisery of the poor ancl
rniddle classes. If this were not the case, carpitalisnr
r,vould have perpetuated {trr more misery than what
it actually has. Howevel now that rnoral values are

losing their force more rapiclly, families are disintegrating, and even the r,r,elfare state is being rollecl
back as a result of ilre crisis that it is facing. will
capitalism be able to pronrote the well-being of all
mernbers of society?
ln contrast with this lvhat Islam has clone is
not to rely on tlre market rnechanism alone lor
goal realization. It has rather dovetailecl the rnar-ket rvith the family, society and the state as rvell
as rnetaphysical beliefs and moral values, so that
all of these, together, play a role in real izinggoals.
Since all these involve saclifice on the part of individuals, it is crucially irnportant to introduce a
motivating mechanisnr for the voluntary enfbrcernent of moral values by inclividuals. BelieF in tlre
Flereafter has provecl to be very effective for this
puryose. Inclividuals moy be able to sewe their
short-term self-interest in this world by being selfish. They cannot, hor,vevel; serve their long-tenn
self-interest in the l-lereafter except by abstainirrg
from wrongdoing nnd fulfilling their obligations
towards other human beings, animals ancl the environment. The concept of lewarcl and punishment
in tlie Hereafter gives a long-tenx perspective to
self-interest by extencling it beyond a person's life
span in this world.
Belief in accountability before cod thus reinforces competition and government intervention
in nrotivating a person to fblfil his contracts ancl

The lslamic Vierv of Capitalisrn

social obligations faithtully. It helps overcome

the limitations of the market, the society and the
state in preventing \,vrongdoing. There are So lllany
clanclestine \,vays of restraining colnpetition and
of cheating attd exploiting others without being
caught that it rnay be clifficult fbr the market, the
state or society to Succeed unless there is an inner
Llrge on the part of operators in the tnarket thernselves to do what is right, to fulfil voluntarily their
contracts and other colnmitmettts faithftrlly, artd
not to try to undennine competition or resort to
unfair rllealts of eartting. In the last analysis, therefore, it rnary not be possible to safeguard social interest efflectively without the help of moral values
ancl without creating an effective lnotivatirrg force
and a proper environment for their enfot'cement.
This shoulcl help'rninirnize the burden on the state
ancl society as also help reduce the transaction
costs. Society and the state ltave, nevertheless, to
be vigilant and effectively perform their roles to
ensure that ultscrllptrlous individuals who have tlo
respect for moral values are not able to get away

rules, and if necessaly, by the use of state coerclve

power.
The remedy does not, therefore, lie in a patchwork of cosnretic changes that have been nrade irt

capitalisrn over time. Rather, tlre renredy lies in

changing its tnisconceived rl,orldvier,v. lt is llecessary to reorganize the lvhole society, polity and
economy in such a \,vay that they operate within

the framework of tnoral values and reinforce

each other in transforming the individtral fioln all
econotnic man to a morally consciotts hurnan being rvho is r,l'illing to live tlp to the demands of
brotherhood and socio-ecollolnic justice . If this is

complenrented by the Several measures adopted

by welfare states to help the vulnerable and to reduce inequalities of income and wealth, then there
would be greater stlccess in realizing hurnanitarian
goals, particularly if these measllles are also SLlpplernentecl by those that have been incorporatecl
by Islam in its worldview (See Iqbal (ed-)' l9BB).
One of these is the rnorally-oriented social self-

the separation of the rnaterial from the spiritual,

Irelp prografflme in the form of zakat and 'saclaclat

to help those who are not adequately covered by
any social security net and stand in need of assistance to alleviate their rnisery. This call help reduce
the burden on the welfare state that it was unable
to bear. A second is the inheritance law of Islatn to
ensrre that the estate of'a deceased person is eq-

and of the economic frorn the social and the political. They are all closely inter-linkecl and any efforl
to separate therl is bound to jeopardizethe realization of hurnan well-being. The moral has to be an
indispensable cornpletnent to the market, the state.

rnajor religions have prohibited interest because of

the great potential this has in helping reduce in-

lvith wrongdoing. lf sorne individuals sttcceed in

doing so, thetr there is a danger that the wrongdoing rnay tencl to becoffle widespread as a result of
the cotrtagion effect.
Flence the Islatnic message of not recogllizing

and society in restraining self-interest and helping

society realize its hurnanitarian goals. It is of even
greater importance in promoting farnily and social
hannony and reclucing tension, crime and anomie'
The matket, the state ancl society catlnot succeed
in helping realize humanitarian goals unless they

operate ip a coordilated tnanner within a moral

framework. It is the task of the governtnetrt and
society to ensure that the rules of behaviollr set by
the religiotrs worldview are observed by all- This
can be done through proper upbringing, education,
social prestige and censure, government regulation and Superuision, creation of an enviroument
which makes it difficult for anyone to violate these

uitably distributed alnong survivors. A third indispensable ureasure is the restructuring of the financial system through the eliminatiorr of interest. All

equalities' of incorne arrd wealth an& instability

in the financial tnarkets (Siddiqi, 1983; Karsten,
lgB2; Khatr, l9B7; Mills arrd Presley, 1999, and
Clrapra. 2000c and 2A02 offer an analysis of how
the prohibition of interest can hetp realize hurnanitarian goals). Unfortunately, Muslirns have gradually drifted away frorn Islarnic teachings over the
centuries during the process of their clecline (See
Chapra,2AA2, pp. 173-252). However, the revival
of Islam that is now taking place in the Muslirn
world is trying to reverse the decline and to bring
the Islanric vision to a reality. Let us pray and hope
that this r,vill succeed.

279

Encyclopaedia of Islarnic Ecotromics

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