ISLAMIC ECONOMIC SYSTEM

Islamic economic system is an economic science implemented in

practice (the application of economics) daily for individuals, families,
community groups, and government / authorities in order to
organize the factors of production, distribution and use of goods and
services produced subject to the rules / regulations Islamic laws
(sunnatullah).
Islamic economic system is an economic system independent of the
other economic systems. The Islamic economic system differentiates
with other economic systems are as disclosed by Suroso imam
Ahmad Ramzy zadjuli in Tadjoedin (1992: 39)
MONEY THEORY AND SYSTEM VIEWS IN ISLAM.
In the Islamic economic system no barter terms transakasinya done
by exchanging goods with the goods. The barter system is
because at that time it was not known at all medium of exchange
called money. According to the Islamic view, possession of money is
not prohibited. Is prohibited is to accumulate money for the benefit
of others (Surat At-Tawbah: 34). However, Islam does not allow
anyone subjugate and oppress or exploit others to collect or
menimbum money and lend it to others by charging interest (riba).
It can block and stab the economy and production, depriving the
economic rights that are blocking the creation of the social welfare
(Mahmoud Abu Saud, 1991:41) because the accumulation of money
will reduce the speed of circulation can even block the flow
distribution in the community, which means it has close the
opportunity for others to meet their needs. Thus, the distribution of
cash flow stability will be maintained and improved so that the
market price would be normal in the end boils down to supply and
demand balance.
The economic system is based on religion and based on the values
of monotheism
Islamic economic principles:
1. individual freedom: to optimize individual
2. right to property
3. economic inequalities within reasonable limits
4. social security
5. feasibility distribution
6. prohibition to accumulate wealth

Economic objectives are divided into two

The general economic objectives:
1. To get the optimum use of resources rather than for the welfare
tercapinya
2. To get the maximum benefit with the smallest capital
Economic objectives according to Islam
1. ingratitude and the grace of God Almighty
2. for the welfare of mankind
3. for facilities for religious
The shape of todays economy is forbidden in Islam such as forgery
and cheating, bribery, hoarding and monopoly to raise prices and
others. Shape the spread of Islam has provided a wealth of
container-holder as inheritance, donation, charity, infaq, sadakah,
and so on.
2. CONVENTIONAL ECONOMIC SYSTEM
The system is known as the free enterprise system. Under this
system, an individual has the right to use and oversee economic
goods obtained. Prevent others from using the stuff and decide how
the items be handled after his death. In this case the individual is
free to do anything with his property so long as their activities do
not interfere with the rights of others. By because they have
property rights justified by the public, the whole of these rights may
be restricted through community action. Competition is considered
as the driving force to generate sufficient operating. In general,
competition in the conventional system is strong and justifiable
power runs freer system compared with other economic systems.
Special properties of this system are:
1. He rejected the values of faith, Sharia and noble spirit
2. Taking usury namely borrowing money through kewangan
institutions (banks and credit industry) who wore riba (utility)
3. Economic factors controlled by certain individuals continuously or
controlled by a bunch of people who are not recognized by the
system shares
4. Financier big-bank investors have excessive power over country
economic and political onwards. Authorization for determining the
system of capitalism and Western democracy are mostly similar to
the owners of capital
5. Settled some of the goods and perkhidmatan produced under the
system of capitalism has been charged with other features not availprofit usury, but also a fee-paid advertising overload

6. Capitalism has mengasas monopoly elements, his deep desire is

to be any investor to take control of everything and eliminate all
competition with

ECONOMIC SYSTEM OF ISLAM VS

CONVENTIONAL ECONOMIC SYSTEM
Some of the limitations that will be used in this study are:
Islamic Economic System is an economic schools of Islam, which is
manifested in Islamic dilemma how to organize economic life, with
what is owned and shown by these schools about the thoroughness
way of thinking consisting of Islamic moral values and economic
values, or values history are associated with the history of the
community (M.Baqir As.Shadr, 1968)
Capitalist Economic System (liberals): An economic system based on
the principle of
Lisses Faire, Laisses Aller, common prosperity will be achieved by
itself if every person, every individual is left free without
government interference; driven by personal interests, then the
production will continue to be refined and improved by itself (Adam
Smith, 1775. Translation).
Later in the practice of Islamic economics, showed a novelty than
classical systems, such as the emphasis is not merely on the
approach of the results (output), but also emphasizes how the
process. Approach this process becomes important in determining
the success of the Islamic economic system, because if the
emphasis on outcomes or outputs only, then it will give birth to a
pattern that tends to exploitative because the purpose of
determining how, or what is commonly known, the end justifies any
means.
Selari Islamic economic system emerged with the development of
Islam itself. It is characterized by the establishment of Islamic
financial institutions which practice the free system of usury /
interest. Realitinya, most people still are not familiar with the system
properly. Some people even the professional and economic experts
still believe that the economic system of Islam will face difficulty in
competing with the conventional financial system. He (the
conventional economic system) tend to be faster growing and
moving forward in the era of globalization. Because most of the

worlds financial system is still dependent on the basis of the system

of interest.
There is an assumption that one of the problems faced by the
Islamic economic system is that the system is not able to allocate
resources optimally. This is due to that interest is the price. But
others argue if there is no interest, as in the Islamic economic
system loan will be given to the borrower voluntarily so that the
demand for loans experienced a surge so that no one mechanism
that could develop demand and supply. That is, that interest is only
power, if not, the financial resources will be used inefficiently for the
community.
Different from the conventional economic system, in the Islamic
economic system the funds will be available if there are costs and
fees are included in the concept of profit. Rates of return to be the
criteria to transfer the source as well as to create a balance between
demand and supply. The greater the expected benefits of the
commercial bids, the greater the funds in such commerce. If the
actual profit of a trade is always lower than expected, the trade
would have difficulty raising funds in the future.
The main difference between the system of Islamic economics and
conventional economic system is:
The first is: the epistemological Islamic economy is believed to be an
integral part of the teachings of Islam itself, so that the Islamic
economic thought comes directly from God.
Second, the Islamic economic system is seen as aimed at not only
the lives of people in the world, but also balance the interests of
people in this world and the hereafter. It carries the implication of
the normative aspect: what is good and bad, what should be done or
avoided not merely be seen from the aspect of efficiency as it is
known in conventional economics, but rather how to act
in the worldly life also yield rewards in the afterlife.
Third, as a consequence of the normative basis, a number of
positive aspects or technical in conventional economics can not be
applied because of conflict with the values justified by Islam.
Three different makes proponents of Islamic economics view that
the economic system is superior to other systems. Of course, this
view remains an important question. If true Islamic economic system
is superior, would be better able to address the problems and
challenges of modern human civilization. But the fact is, the current
system is not (or not?) Is the dominant economic system in the
world, nor even in Muslim countries meyoritas. If it is a perfect

system, why is there no reference to the history of where the system

is arguably successful and remain relevant in the present.
http://rahmansyah.students.uii.ac.id/2013/01/20/comparing-conventionaleconomics-islamic-economics/

in Islam there is no conflict between matter and soul, as there is no

separation between economy and religion. Although Islamic economics is
young in comparison with conventional economics, its characteristics, value
and essence are appreciated by Muslims and the non-Muslims. The overarching values of Islamic economics lie in the principle that it is an economic
strategy that can achieve unity and harmony between the material and the
spiritual life of the people.
To ensure the true well-being of all individuals, irrespective of their sex, age,
race, religion and wealth, Islamic economics does not seek to abolish private
property, a practice done by communism, nor does it prevent individuals
from serving their self-interest. It recognizes the role of the market forces in
the efficient allocation of resources. It seeks to promote brotherhood, socioeconomic justice and well-being of all through an integrated role of moral
values, market mechanism and good governance. The differences between
conventional and Islamic economics are as listed below.
1. The Role of Moral Values
While conventional economics generally considers the behavior, tastes and
preferences of individuals as given, Islamic economics does not do so. It
places great emphasis on individual and social reforms through moral uplift.
This is purportedly to be the purpose for which God's messengers have come
to this world. Moral uplift aims at changing the behavior, tastes and
preferences of the individuals, and thereby, it complements the price
mechanism in promoting general well-being. Before even entering into the
market place and being exposed to the price filter, consumers are expected
to pass their claims on resources through the moral filter first, where
conspicuous consumption and wasteful and unnecessary claims will be
filtered out. The price mechanism can then takes over and reduce the claims
on resources even further to lead to market equilibrium. The two filters
enable the optimal use of resources, which is necessary to satisfy the
material as well as the spiritual needs of all human beings. They also reduce

the concentration of wealth in the hands of a few, and raise savings which
are needed to promote greater investment and employment. Figure 1.1
highlights economic distribution in any system. What makes the Islamic
economic system different is that there is a greater support for the
economically-inactive sector, which becomes the main focus of the
government sector.
2. The Importance of the Hereafter
The Hereafter is a concept which is completely ignored by conventional
economics, but it is one which is greatly emphasized by Islam and other
major religions. Because of their innate goodness, human beings do not
always try to serve their self interest. They are altruistic, and willing to
sacrifice for the wellbeing of others. This behavior is rewarded in the
Hereafter. Whilst conventional economics also seeks optimal allocation of
resources, the fact that it is unable to offer rewards for benevolent acts
means that the humane side of the economy is neglected.
3. Rational Economic Man
While there is hardly anyone who is opposed to the need for rationality in
human behavior, there are differences in opinion when defining rationality
(Sen., 1987). However, once rationality is defined in terms of the overall
individual as well as social wellbeing, then rational behavior can help us to
realize this particular goal. Conventional economics, however, does not
define rationality in this way. It equates rationality with the serving of selfinterest through wealth maximization. The drive for self-interest is
considered to be the "moral equivalent of the force of gravity in nature"
(Myers, 1983, p. 4). Within this framework, society is conceptualized as a
mere collection of individuals united through ties of self-interest.
Conceptualized as a mere collection of individuals united through ties of selfinterest.
However, the concept of the 'rational economic man' in social- Darwinist, and
the utilitarian sense of self-interest cannot find foothold in Islamic economics.
'Rationality' in Islamic economics is not confined to the serving of one's selfinterest in this world alone; it also gets extended to the Hereafter through
the faithful compliance with moral values that help rein self-interest so as to
promote social interest. Al-Mawardi (d. 1058) considered it necessary, like
other Muslim scholars, to rein individual tastes and preferences through
moral values. Ibn Khaldun (d.1406) argued that moral orientation would help
remove mutual rivalry and envy, strengthens social solidarity, and create an
inclination towards righteousness.

4. Positivism
Positivism in the conventional economics sense of being "entirely neutral
between ends" (Robbins) or "independent of any particular ethical position or
normative judgment" (Friedman) cannot find a place in Muslim intellectual
thinking. Since all resources at the disposal of human beings are a trust from
God, and human beings are accountable before Him, there is no other option
but to use them in keeping with the terms of trust. These terms are defined
by beliefs and moral values. Human brotherhood, one of the central
objectives of Islam, would be a meaningless jargon if it is not reinforced by
justice in the allocation and distribution of resources. It is this positive stand,
adopted by conventional economics, which keeps it away from
characteristics such as benevolence and equality; these two being ideals
greatly encouraged in Islamic economics.
5. Pareto Optimum
Without justice, it would be difficult to realize even development. Muslim
scholars have emphasized this throughout history. Development Economics
has also started to emphasize this
need, more so in the last few decades. Abu Yusuf (d. 798) argued that,
"Rendering justice to those wronged and eradicating injustice, raises tax
revenue, accelerates development of the
country, and brings blessings in addition to reward in the Hereafter". Ibn
Taymiyyah (d. 1328) emphasized that "justice towards everything and
everyone is imperative for all, and injustice is prohibited to everything and
everyone. Injustice is absolutely not permissible irrespective of whether it is
to a Muslim or a non- Muslim or even to an unjust person." Justice and the
well-being of all may be difficult to realize without sacrifice on the part of the
well-to-do. The concept of Pareto optimum does not, therefore, fit into the
paradigm of Islamic economics. This is because Pareto optimality does not
recognize any solution as optimum, if it requires a sacrifice on the part of a
few (rich) to raise the well-being of the many (poor). Such a position is in
clear conflict with Islamic moral values, the raison d'tre of which is the wellbeing of all. In fact, Islam makes it a religious obligation for Muslims to
sacrifice for the poor and the needy - by paying zakat. This is in addition to
the taxes that they pay to the government. The above-mentioned points
should not lead one to harbor an impression that the two disciplines
(conventional economics and Islamic economics) are entirely different, as the
subject matter of both disciplines is the same i.e., the allocation and
distribution of scarce resources. It must be noted that conventional

economists too have never been value-neutral. They have made value
judgments in conformity with their own beliefs. As indicated earlier, even the
paradigm of conventional economics is changing for example, the role of
good governance has now become well recognized, and the injection of
moral dimension has been emphasized by a number of prominent
economists. On the other hand, Islamic economics has benefited a great deal
from the tools of analysis developed by neoclassical, Keynesian, socio
humanistic, institutional economics as well as other social sciences. This
symbiotic relationship will, no doubt, continue into the future