Critical Analysis of HTs Economic Policy

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Revision 0.3 Revision History 2013-06 Z

Table of Contents
1. Introduction ....................................................................................................................................... 2 1.1. Capitalism vs. Western Economics ....................................................................................... 3 1.2. Economic Science .................................................................................................................. 6 1.3. Tautological Reasoning ......................................................................................................... 7 1.4. Distribution as The Economic Problem ................................................................................ 8 1.5. The Political Attraction of Policy ........................................................................................ 11 1.6. Existence of the State .......................................................................................................... 12 2. Economic Systems of the World .................................................................................................... 15 2.1. Capitalism ............................................................................................................................ 15 2.2. Socialism .............................................................................................................................. 37 Bibliography ........................................................................................................................................ 40 This article analyzes Hizb-ut-Tahrirs (HT) opinions on economics and economic polices, collects my critical analysis of said policies, and proposes solutions wherever possible. Please enter any comments on the scribd page.

Note
This copy is an incomplete version. It may contain mistakes, omissions and misquotes. The references and bibliography may not be complete or accurate. Economics is the science of human action.1 Every human being acts in a purposeful way. We work for money, so we can buy food to sustain ourselves. Our ancestors spent their time hunting animals, and growing plants to feed themselves. Men have needs. And the study of how man fulfils those needs is economics.2 It is therefore, extremely important to study this subject, but unfortunately this is not recognized as much as it should. We imagine economics to be the domain of smartly suited and neck-tied university graduates, who speak in a weird language we dont seem to understand, about things that seem to have no connection to our daily lives. Besides a few brushes with them on the news or in the annual state budget, we barely recognize them. We imagine ourselves to be far more concerned with active matters. We give attention to things like war and peace, foreign policy, internal politics and drama and dont really care what economists end up doing. Yet economics is the number one thing that can make or break a nation. The Greeks reached their cultural heights due to their mastery of trade. The Arabs were instrumental in spreading Islam because
1

Ludwig von Mises,Human Action Economics, as a branch of the more general theory of human action, deals with all human action, i.e., with mans purposive aiming at the attainment of ends chosen, whatever these ends may be. 2 The concept of purposeful human action is further elaborated by Murray N. Rothbard, in Man Economy and State

Critical Analysis of HTs Economic Policy of the immense network of trade relations they had built up. The United States and Britain, during the industrial revolution owe all their progress to economic activity. On the opposite side, it was economics that finally pulled the carpet from under the Soviet Unions feet. War was a catalyst, but the lack of economic understanding and an unreal economic policy was the basis of the Unions demise. But we are content, more often than not, in relegating these matters to those who know better. We leave all of these essentials to other people, corrupt or otherwise, and wash our hands clean of the issue. Yet, ignorance is not an excuse. Lethargy even less so. We should know better. We should study economics, and more importantly, economic policy as enforced by states. We are much more likely to push ourselves down the pit of oblivion if we cannot see where we are going. Would we leave our personal finances, our daily expenditures, the management of our own wallets to our neighbours, acquaintances, or colleagues? No, this is a very personal issue. Yet we continue to hand these essential matters over to total strangers. In my conversations with HT activists (not members), most of them have exhibited very little knowledge of this important issue. Practically all of them are content with whatever the senior policy makers of HT decide. This blind support of policies which one does not understand is dangerous. The example of the Soviet Union should serve as a strong enough warning. If we do not analyze HTs economic policies and cannot correct the flaws in them, we are headed for disaster. We have all discovered HT because we have found the present system lacking and are looking for a solution that works. It falls on all of us to seriously scrutinize every possible policy matter forwarded by HT. While there are a lot of sources on HT websites, videos, books and articles some of them are unauthenticated. The book under scrutiny is published by Al-Khilafah publications, bears the name of Hizb-ut-Tahrir on the front cover and an information page at the beginning. Therefore, I will treat this book as mirroring official HT policy or at least mirroring genuine sentiment among HT workers. This compilation of comments therefore, seeks to identify the problems in HTs economic policy, and suggest solutions wherever possible. I hope it will serve to start a healthy debate in HT circles.

1. Introduction
The contents of this article cover the HT publication The Economic System in Islam by Taqiuddinan-Nabhani. This is an exhaustive book, in which Sheikh Nabhani has explained how an Islamic economic system works. In my reading, I divide the book into four sections; 1. Definition of Capitalism, Socialism and the Islamic system. 2. Property, Private Ownership, Trade, Industry and Companies. 3. Public and State Property. 4. Money. The book starts with a categorization of the worlds economic systems into three types; Capitalism, Socialism, and an Islamic system. After explaining the substance of each of these, it submits arguments to discredit both Capitalism and Socialism. I will discuss this section in detail and point out the flaws inherent in the books analyses. Next comes a detailed analysis of the Islamic system as envisioned by HT. The book defines ownership, means of ownership, as well as what can and cannot be owned, disposal of property, trade 2

Critical Analysis of HTs Economic Policy and industry. It also dedicates a large section to companies, both Islamic and Western. Due to my limited related knowledge, I will comment only on selected topics. Following this are chapters that detail what can be owned by the state as well as what is specified as public property. This includes public necessities, utilities, natural monopolies, and welfare services. I will discuss these matters in detail. Finally, the book discusses money and fiscal matters. This will also be discussed. During my talks with HT workers and members, in addition to reading the literature, I have discovered certain fallacies that are rampant in common parlance.3 It is the duty of HT and its workers to identify and remove these incorrect perceptions so that they are not propagated. The rest of this section is dedicated to explaining some of these common issues, so that readers do not fall in the same trap.

1.1. Capitalism vs. Western Economics

A good deal of the antagonism hurled towards Capitalism in HT (and Muslims in general), is due to the lack of understanding of the Western economic model. In point of fact, this vitriol should be directed towards Western economics and not Capitalism. We should realize that the current economic system imposed on the world, the one forcing every country to run a central bank, that issues money on interest (riba), overseen by the Worlds ber banks the IMF and the World Bank is a flawed system that has more to do with Socialism than Capitalism.4 Many capitalists throughout history, have vehemently opposed any step that brought them closer to centralization. Throughout the history of the US, numerous presidents have opposed having a central bank at all. In fact, historians now believe that the imposition of the Bank of England was one of the reasons for the American War of Independence. On numerous occasions, the Americans resisted the establishment of a central bank. It was only much later, in the early 20th century that the Federal Reserve was established in the US. Contrary to what is taught in HTs books 5, Capitalism is not a system. It is, in fact, the lack of an (imposed) system. Capitalists do not hold one ideology and develop their system from it. You can hold any ideology you want in a purely capitalist country one that does not exist today, or has ever done so and continue to function productively. Capitalism is the expression of the basic needs of man. When you walk to a store, hand over some money and buy a soft drink, you are a capitalist. When you work for eight hours a day and get paid at the end of the day, week or month, you are a capitalist. When you save some of your money to be used later, to buy a car, or perhaps start a small business, you are a capitalist. As you can see from these examples, there is as much wrong in being a capitalist as there is in being human. As far as we know, man has always been a capitalist, a storer up of labor, and we cannot conceive of a time when he was not making such tools. Thus, the stone axe which he made to subdue an edible beast became, after centuries of reflection and
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These are mostly general fallacies held by most of the world, and so HT should not be held solely to blame for holding them. Relevant material is present in Mises, Economic Policy, Lecture 3; Mises, Planned Chaos Section 2; Hazlitt, The Failure of the New Economics, Section XXIV. An excerpt from Hazlitt: Through its socialized investment the State would decide which firms or industries to expand and which to freeze or contract. Even though the State did not technically own the instruments of production, this would lead to a de facto Socialism. 5 The System of Islam

Critical Analysis of HTs Economic Policy trial-and-error, a cleaving knife and the Chicago stockyards. Capital accumulation has always been mans career. We do not know of a noncapitalistic man or a noncapitalistic Society. In any distinction between primitive man and civilized man we use as a yardstick their relative accumulations and use of capital.6 Capitalism; the spirit of entrepreurship coupled with technological advancement and saved capital, has been the engine of the rapid progress the industrial age has brought. The terms Capitalism, capital, and capitalists were employed by Marx and are today employed by most people also by the official propaganda agencies of the United States government with an opprobrious connotation. Yet these words pertinently point toward the main factor whose Operation produced all the marvelous achievements of the last two hundred years: the unprecedented improvement of the average standard of living for a continually increasing population. What distinguishes modern industrial conditions in the capitalistic countries from those of the precapitalistic ages as well as from those prevailing today in the so-called under-developed countries is the amount of the supply of capital. No technological improvement can be put to work if the capital required has not previously been accumulated by saving.7 People have come to associate Capitalism with greed and hunger for profits. But the profit motive is the single most rational reason for a man to do anything. If man did not believe that his efforts would yield him a benefit,8 he would not take any action. If man did not believe that his spear would pierce the flesh of an animal and bring him meat to fill his stomach, he would not go through the bother of carving a spear in the first place. If an industrialist did not believe that his new enterprise would yield him a profit on which he could perhaps build new ventures, he would not invest. But this profit need not always be monetary. People do things for reasons above and beyond mere monetary gain. This is how one can explain the pains a parent goes through to rear their child. What other incentive is there than the feeling of happiness, accomplishment and satisfaction? This is why a person makes Salah five times a day. He believes that he will get Allahs pleasure. This is also by definition, profit, pure and simple. Perhaps not the kind of profit we are accustomed to thinking of, but by definition, it is increasing a mans income of something he wants. Yet, it is not only the capitalist who benefits from a new enterprise. Trade is always a two-way game. It is the consumers, the buyers of the capitalists products that are the real winners. When we purchase something, we make a choice between different products. That is, we choose between different manufacturers. The product that the public likes and enjoys, will ultimately end up making the most sales and the most money. But even as the capitalist enjoyed the fruits of his labour, so did the public, who fulfilled their needs by the use of the better product. Profit is amoral. That is, it does not differentiate between right and wrong. Capitalism pure Capitalism does not differentiate between right and wrong either. It is human beings, the actors in the great play, that determine the good and the bad. It is people who choose to do something that others might think morally reprehensible. Capitalism has nothing to say about it. This is because
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Frank Chodorov, The Rise and Fall of Society, p.26. Ludwig von Mises, The Anti-Capitalistic Mentality, pp.38-39. 8 It is important to note that just the belief in making a profit is enough to make people act. They may not be completely certain of profits, or they may be certain but may suffer a loss. But just the belief that it was possible to profit from an endeavour makes people work.

Critical Analysis of HTs Economic Policy Capitalism is not a system, policy, rule or piece of legislation. It is a force of nature. Just like nature does not decide right or wrong, Capitalism does not either. It is our own human imposition on Capitalism, our own moral ideals imposed on something that is inherently neutral, that makes Capitalism bad. Our imaginations make something amoral, immoral. Capitalism does not decide that it is okay for people to sell alcohol. Capitalism merely states that it may be profitable for people to do so, and this is nothing more than stating facts. Can anyone claim that this is false? But Capitalism does not force anyone to either sell alcohol, or buy it, or refrain from doing so. This is all up to human beings. Like the famous saying guns dont kill people, people kill people Capitalism does not sell alcohol, people sell alcohol. And just like denying the fact that alcohol sale may be profitable, exposes us to disaster;9 closing our eyes to the facts that Capitalism uncovers, seals the nails on our coffins. Since Capitalism cannot follow any moral rules, or stem from a particular ideology, we cannot criticize it in the same way that we can Socialism.10 What HT is really criticizing is the economic system as implemented in Western democracies.11 HT criticizes the system of banking (based on interest), fractional reserves, paper money, systems of taxation, subsidy and excise. All of these elements are non-capitalist and have been developed as a result of democratic (or otherwise) meddling in the market place. Centralization is a basic tenet of Socialism and is abhorred by most all free market capitalists.12 Western economics is the complex interconnected system of taxes, subsidies, levies, duties and regulations that characterizes todays world landscape. This brand of economic thinking has been pioneered by the likes of John Maynard Keynes, with his fantastic idea of consumption not production being the driving force behind economic progress. He is credited with introducing macroeconomic ideas that are very useful for economic planners and politicians, yet have a lot of problems with real economic activities. For example, one of the most classic criticisms of Keynesianism is its failure to correctly explain periods of depression and rapid progress.13 This system is now propagated by Nobel laureates like Paul Krugman,14 and US Federal Reserve Chairman Ben Bernanke, who continuously churn out disastrous policies based on a disproven form of economics (and get rewarded for doing so). These people have sentenced the world to recurring business cycles, booms and busts, severe economic depressions and inflation to the extent that
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Sellers and buyers will keep on trading, while we slap the label of smuggling on their actions. Because of the illegal nature of such a trade, it becomes more dangerous for the people involved, ultimately leading to the deaths of fellow human beings. It is often that we hear news of someone dying because of poisoned alcohol, manufactured by sub-standard methods in unhealthy locations. All caused due to the illegal nature of the trade. A recent example of how illegalizing alcohol went horribly wrong is the Eighteenth Amendment prohibition in the United States that lasted from 1920 to 1933. 10 I find that most of HTs criticisms of Capitalism are similar to the arguments of socialists. HT uses the same greed argument that socialists rely on. HT proposes state intervention in matters of distribution of produce among the populace, and decries existing structures of price and markets, which is very near to socialist thought. More discussion in the appropriate sections. 11 Democracy is in itself a hugely in-efficient system. HT, as well as numerous religious groups have produced literature on democracy. A recently released HT booklet on democracy, Jumhuriyet Masail Ki Jur, tries to expose the inherent fallacies. While I am critical of the mode of argument used by HT, I do still criticize democracy. Although I believe that most of the arguments presented in said booklet are lacking and easily refutable. For a critical western view of democracy, refer to Hoppe, Democracy: The God That Failed. 12 The term free market is used here in the sense of pure capitalist markets without intervention. This term has been misused by democracies to cover up their interventionist policies which go against the spirit of true free market Capitalism. 13 Austrian theory on the other hand has not only successfully explained why these so called business cycles occur, but Austrians have also accurately predicted all the boom-bust cycles in recent history. The current economic depression that started in 2007/8, had been predicted by Austrians much earlier than it hit. 14 Technically speaking it is the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel and is awarded by a separate committee than the official Nobel prize, which is administered by the Estate of Alfred Nobel.

Critical Analysis of HTs Economic Policy people imagine these things to be natural. And not just the common man, professors and professionals alike, with decades of experience in economics fall for the mathematical mumbo jumbo propounded by Keynesians. The reason for peoples acceptance of Keynesianism is simple. Keynes tells people what they want to hear. His theories gained approval in British politics because he gave politicians a job to do. He created this fantasy where politicians are actually able to generate jobs, drive innovation and grow the economy. Unfortunately, HT has also fallen into this train of thought where it assumes that policy can somehow create economic opportunities.15 This is also why most university professors are quite comfortable with teaching Keynes' flawed theories their appointments, their grants and their advancement in university ranks being proportional to how eagerly they tow the party line. You should now understand that there is a difference between what has become mainstream economics and what is Capitalism. Perhaps you do not completely understand the difference, but it should be perfectly clear that mainstream economics and Capitalism are not the same thing, and the ire directed towards Capitalism, should instead be directed towards this skewed interventionist model that political busybodies have imposed on the world. Capitalism is a study, and not a system of policies. If we block ourselves from capitalistic thought and reasoning, we stand to lose.

1.2. Economic Science

In the course of human thought, man has discovered the distinctions between different branches of science. He has discovered the methodology needed to study physics, chemistry, and biology; noting that each has its own nuances and uses. Economics is also a science in the fact that it aims to understand how societies come together, how individuals act in those societies and how complex market relationships are formed. Before economics was accepted as a science, people thought that it would be fairly easy to impose upon society any rules that they might think up. Throughout the ages philosophers have put forwards numerous utopian ideas of how society ought to be organized. Since Platos Republic there have been countless attempts to structure a harmonious and prosperous society. The list includes not only western philosophers but also Al-Farabis Al-Madina Al-Fadilla, and the Chinese Tao Hua Yuan. Some of these utopias were based on science, others on religion. It was believed that if these policies failed, it was due only to the lack of piety in the individuals themselves. The idea that there was something inherently wrong in the policies was not acceptable. Today, due to economic science we are able to understand that the failure of these policies was due to the imposition of unrealistic ideas, and was inevitable. Socialism can perhaps be labelled as the most recent practical experiment in utopia. At least the aim of Socialism was to create a utopia where every mans needs were completely fulfilled. Why did Socialism fail? Because the policies it forced upon the economic system were not based on reality. Economic science is just as much of a science as physics, chemistry, or biology. Imposing economic policies on the fabric of social organization is just as foolhardy as trying to force gravity to be more or less than what it already is. Historically, people who develop these policies have very little grounding
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For a refutation of Keynesian thought, as well as most other fantasies of central planning, refer to Hazlitts Economics in one Lesson. In the interest of having well-learned public that understands economics, I urge you to read this book from start to finish. Hazlitt has in fact, written profusely on the subject of Keynes' flawed theories. His book The Failure of the New Economics is a comprehensive critique. He also collected a large quantity of essays against Keynesianism in his The Critics of Keynesian Economics. Also see Rothbards Making Economic Sense Chapter 12.

Critical Analysis of HTs Economic Policy in economic science, or the policies themselves are based on fantasy and idealism. Because they choose to ignore the underlying society, all economic policies, no matter how well intentioned, are bound to fail. The present idea of HTs Khilafah could be considered as a promise of utopia. At least the economic policies in the view of HT state sponsored welfare are not new, but have been the object of utopian thought for ages.

1.3. Tautological Reasoning

During my reading of HTs books, in particular places which call for refutation of long held beliefs, I find the logical reasonings weak and easily refutable. This is not to say that the conclusions reached are necessarily wrong, just that the logical statements used to reach the results are flawed. This can be observed in the book under scrutiny, The Economic System in Islam. For example in Section 1, where the author is refuting the systems of Socialism and Capitalism, I find the line of reasoning to be lacking. I discuss this in more detail in the relevant section of this article. For another example, one can see the arguments against democracy presented in the Urdu book Jumhuriyet Masail Ki Jur. While there are many ways in which one can refute democracy and many thinkers already have the statements adopted by Mr Butt, again fall short of the ideal. One can find a much more impressive and convincing refutation in Democracy: The God That Failed. The reason, I believe, is that the authors have used circumstantial evidence to support their claims. This may prove the statement in a certain context, but they can be easily disproved under other situations. In order to develop a lasting logical proof, one needs to use much more solid evidence. The term tautology means something that is inherently true. In logic, a tautology is something that cannot be disproved under any conditions. For example, the statement; man needs oxygen to live. is a tautology. No amount of wrangling the facts will prove otherwise. It will be seen that in all eras of history and using any set of facts or statistics, this statement cannot be disproved. Now we can use the statement; the moon does not have gaseous oxygen. 16 and combine it with the earlier one to conclude; man cannot live on the moon without artificial help. Since we came to this conclusion with the support of tautologies, the result is also a tautology. It will be true in all situations, and circumstances. It is not subject to public opinion or legislation. Nothing can change this reality. This is the root of the value of a tautological argument. It cannot be disproved and has to be accepted as fact. As you can see, a tautological argument is much more useful in both disproving a falsely held belief, and in convincing the public. As a counter example of a statement that is not a tautology consider;
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Note, this is also a tautology.

Critical Analysis of HTs Economic Policy It will rain today. To quote a passage from The Economic System in Islam. (T)he needs which must be met are the basic needs of the individual as a human (food, shelter and clothing), and not the luxuries, although they too are sought. The basic needs of humans are limited, and the resources and the efforts which they call the commodities and services existent in the world are certainly sufficient to satisfy the basic human needs; it is possible to satisfy all of the basic needs of mankind completely.17 The assumption for the conclusion sufficient resources are present to satisfy the basic human needs, is that the basic needs are food, shelter and clothing. However, basic needs are not well defined and are itself subject to the whims of the populace. While it may be true for a very poor country to consider food, shelter and clothing as basic needs, the people of a much more developed country may have a different idea. Indeed we see in modern times, the list expands to include sanitation, education and healthcare, in addition to the guarantee of a minimum level of the former provisions. Some even go as far as to include marriage and the right to procreate! As each of these needs increases, so does the infrastructure, and the industry required to provide for them. Since the basic statement in this reasoning is not a tautology, therefore the conclusion can also not be true for all time and circumstances. In this case, this statement cannot be considered as conclusive proof against Capitalism. I hope I have made it clear how counter-productive it is to reason with circumstantial statements. Wherever possible we should try to reason with universally true statements so that our arguments can stand against criticism.

1.4. Distribution as The Economic Problem

Truly Allah is He Who bestows the best provision. (22:58) Translation of the Holy Quran For Allah is He Who gives (all) Sustenance, Lord of Power, Steadfast (for ever). (51:58) Translation of the Holy Quran There is no moving creature on earth but its sustenance dependeth on Allah. (11:6) Translation of the Holy Quran And in heaven is your sustenance, as (also) that which ye are promised. (51:22) Translation of the Holy Quran How many are the creatures that carry not their own sustenance? It is Allah who feeds (both) them and you: for He hears and knows (all things). (29:60) Translation of the Holy Quran Say: "Verily my Lord enlarges and restricts the Sustenance to such of his servants as He pleases: and nothing do ye spend in the least (in His cause) but He replaces it: for He is the Best of those who grant Sustenance.
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The Economic System in Islam, p.26.

Critical Analysis of HTs Economic Policy (34:39) Translation of the Holy Quran Allah is the provider for all creatures, men and animals, plants and insects. He has promised sustenance for all. It is our duty, to work to the best of our abilities, in striving for provision. Laziness is not favorable in the eyes of Islam. And when the Prayer is finished, then may ye disperse through the land, and seek of the Bounty of Allah: and celebrate the Praises of Allah often (and without stint): that ye may prosper. (62:10) Translation of the Holy Quran Ibn Kathir explains the above ayah as follows. After Allah forbade Muslims from working after hearing the Adhan and ordered them to gather for the Friday prayer, He allowed them to spread throughout the earth and seek bounty after the prayer is finished. Ibn Abi Hatim recorded that when the Friday prayer finished, Irak bin Malik would stand by the gate of the Masjid and invoke Allah, saying, O Allah! I have accepted and complied with Your Call, performed the prayer You ordered and dispersed as You ordered me. Therefore, grant me of Your favor and You are the best of those who grant provisions. Ibn Kathir Tafsir Ibn Kathir So the Bounty of Allah is to be sought by spreading through the earth and working hard. Human experience informs us that the means of our sustenance are scarce. It is evident that nothing can be gained without hard work. In order to feed ourselves man must either grow or trap and kill his own food. This requires hard work, time, and knowledge. Allah has granted all these abilities to man so that he may provide for himself and for those who are under his care. Man must however, understand that the increases or decreases in his provisions are due solely to the grace of Allah, and his efforts are merely the means through which Allah provides for him. HT defines the economic problem as being based on ownership,18 and the distribution (or maldistribution) 19 of wealth. the book states that; The problem doesnt stem from any other matter, and therefore addressing this aspect is the basis of the economic system.20 In another HT publication, simply titled Hizb ut-Tahrir [HTbklet00], it is stated; The economic problem in the view of Islam (it) is the distribution of capital and services amongst all the people. In other words, it is the distribution of wealth and not the production of wealth. 21 Also;
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The Economic System in Islam, p.47; This results from the subject of mans ownership of these means. This is the basis of the economic problem, which must be treated. 19 Ibid., p.48; The economic problem results from the viewpoint towards ownership, from the ill disposition of this ownership and from the maldistribution of the wealth amongst the people. The problem doesnt stem from any other matter, and therefore addressing this aspect is the basis of the economic system. Earlier, on p.22; The economic system is that which determines how to distribute the wealth, how to possess it, and how to spend or dispose of it. 20 Ibid. 21 [HTbklet00] p.55

Critical Analysis of HTs Economic Policy Therefore, the economic problem is focused on distributing the means of satisfaction for individuals i.e. the distribution of the funds and benefits to the members of the nation or people, not on the needs which the nation or the people require without regard to every individual within the nation.22 This limited view of the economic problem as mere distribution without regards to the actual production or the means of production, greatly narrows the scope of economics. In contrast, the classical idea of the economic problem is stated It is the universal fact of scarcity that gives rise to what people have termed the economic problem: As a society, how should we decide which goods and services to produce, with the limited resources at our disposal? 23 This definition of the economic problem is sufficiently vast to include in itself the problem of distribution of wealth. After all, the wealth that is produced by industrious hands has to find its way to the market and hence to the general population in order to provide for its own worth. On the other hand, focusing on distribution alone, without having anything to distribute is futile. Mises goes one step further, and places the economic problem within the larger realm of all human action. According to him, the economic problem is a special case of purposeful action. It concerns those actions that deal with scarcity of means and resources, and how men act to gain possession of the scarce resources that they need.24 It is completely in the grasp of men, to make use of scarce resources, and distribute those resources to people who need them. With developments in knowledge, tools and methodology, a man who cultivates the land, can grow food to feed himself and his family, with some quantity left over. This extra commodity is of no use to him and would rot away if left untouched.25 The next step is of course, the distribution of this left over produce, through the market, which allows the farmer to trade it for something that he needs rather more urgently. In this way, the distribution problem is handled by the market itself. What remains is the idea of state enforced distribution, invoked on humanitarian grounds. After all, feeding the poor, helping the needy, and charity in general are encouraged in numerous places in the Quran and the Sunnah. If this is done by individuals of their own volition, or even by voluntary contribution to a charitable organization (like the Edhi Foundation in Pakistan), this is commendable and in line with Quranic injunctions. However, when the states infrastructure is used to forcefully confiscate property whatever the excuse may be it is wrong. This violates a persons private property, something that Islam has forcefully denounced. How is a tax collector who comes to forcefully confiscate ones property any different from a thief or a robber? Abu Huraira reported: A person came to the Messenger of Allah (SAWS) and said Messenger of Allah, what do you think if a man comes to me in order to appropriate my possession? He (the Holy Prophet) said Dont surrender your possession to him.
22 23

The Economic System in Islam, p.25. Murphy, Lessons for the Young Economist, p.6 24 Human Action Part One: Human Action. 25 Waste of any commodity is prohibited in Islam, as the following saying of the Prophet Mohammad (SAWS) explains in the light of food; ``When a morsel of any of you falls, he should pick it up and remove whatever may be harmful on it and then eat it. He should not leave it for Shaitaan nor should wipe his hand with a napkin until he has licked his fingers, for he does not know in what portion of the food the blessing lies. (Sahih Muslim)

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Critical Analysis of HTs Economic Policy He (the inquirer) said If he fights me? He (the Holy Prophet) remarked Then fight with him. He (the inquirer) again said What do you think if I am killed? He (the Holy Prophet) observed You would be a martyr. He (the inquirer) said What do you think of him, Messenger of Allah, If I kill him. He (the Holy Prophet) said He would be in the Fire. Sahih Muslim Book 1 No. 0259 Thus we see that not only should a person fight to protect their own property, but if in the act of fighting they die, then their status would be the same as a martyr! There is only one obligatory tax allowed in Islam (on Muslims), and that is the Zakat. Anything else, even in times of Jihad, was collected voluntarily. No one was forced by anyone to give up their property. Even this collection is spent on war expenditures, not on any re-distribution of wealth. The idea, that it is the States duty to provide for its citizens' basic needs,26 is flawed in not recognizing the source of the distributed wealth. This is a practical problem and one that will stop any such endeavour dead in its tracks if it did not include the threat of violence. Do note that such ideas are much closer to the democratic 27 welfare state and the philosophies of communism than they are to Islam. In conclusion, the economic problem is much more clearly stated in terms of the scarcity of resources; encompassing the distribution problem within itself. Any State enforced distribution scheme, sponsored by forced appropriation of funds, is not allowed in the light of the Quran and Sunnah. Therefore, the only way that wealth distribution can occur is through the free market, and through private charity. HTs assertion that the economic problem is based solely on distribution of wealth is clearly not true to reality. Note. The book also discusses distribution with regards to Socialism. This is studied in Section 2.2.1, Distribution.

1.5. The Political Attraction of Policy

Politicians and government employed economists are the most adamant proponents of market intervention. Even though political intervention never helps an economy, and at best serves to hobble it, government mouths keep pushing interventionist agenda. This is because politically, doing something is much better than not doing anything at all. Austrian economic theory explains that the boom-bust cycles common in the World economy today are caused by government intervention.28 The solution to the cycle is to completely stop intervening.
26

It should be pointed out that even the definition of basic needs changes regularly according to the thoughts prevalent at the time. Today people might argue that basic needs include, three square meals, a roof over ones head and clothing. Perhaps in olden times, when quality of life was not as advanced, people would have considered just a meal a day as enough. Perhaps on a future date, things such as electricity and a car would be considered basic needs. 27 For an explanation of how democracy inevitably leads to a welfare state, see Democracy: The God That Failed. 28 For the theory see Mises, Human Action; Rothbard Man Economy and State; and Schiff, How an Economy Grows and Why It Crashes.

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Critical Analysis of HTs Economic Policy The economy will run its course, corrections will ensue, and things will straighten themselves out through market forces. There is no need for the government to intervene and bailout failing institutions. Granted there will be a period of extreme despair, but this is payback for what the interventionists put the economy through in the past. Like a fever, it must be left to run its course. But this is a very dangerous course of action for any government or politician to pursue. A politician who stands idly by and seems to not be doing anything, while people starve on the streets as the economy goes through its correction, faces brutal judgement at the hands of the public. Even if this is the correct line of action, it will be a very brave politician who will attempt it. It is much more useful to do something, even if it means worse economic problems further down the line. Politicians will thus usually choose intervention over idleness. This is why Keynes is so popular within political circles. Keynes provides government economists a reason to exist. Even if a politicians manipulations lead to further despair down the line, which they do, Keynesians are unable to make the connection. The politician thus gets away scot free. Policy has very poor efficiency in solving economic problems. In contrast, the free market brings out the best solutions without fail. The use of policy to control an economy can be very lucrative for the wrong reasons. Before we start deriving and enforcing policy, we must very carefully answer to our conscience; whether we are enforcing for justice or for building our public image. When one is in doubt however, the best course of action is no action at all.

1.6. Existence of the State

HT is intimately involved in the study of the Khilafah State and its implementation. This is their stated goal. But before we are able to identify what makes a state better or less corrupt than others, we need to answer the question: why should a state exist? The usual response to this question is puzzled amusement. We have been living under someone or the others rule for too long and our minds find it difficult to imagine a situation without a state. We think that we do not have any historical precedent for such a situation. But such periods have existed. In fact, a very recent, and well-documented case is the colonization of western north America.29 During the colonization of North-Western America, the reach of the federal government was very limited, if at all. This state-less society anarchy is considered equivalent to chaos in normal parlance. However, this has not been the observed case. Peoples rights were clearly defined and demarcated. Their lives and properties were respected. The proof is the rapid development that this region experienced during its stateless period. People took it upon themselves to define their rights and protect them. Initially this manifested in individuals using weapons to defend themselves. But they soon realized that the provision of defence cut into what valuable little time they had for economic activity. Later, society appointed a welltrained individual as sherrif of a particular locality to maintain the rule of law. Thus we see that law can exist even if the state doesnt. There is no causal link between a state and the observance of law, protection of life and property. A state does not have to exist for society to function. 30
29 30

Terry L. Anderson and P.J. Hill, The Not So Wild Wild West. We see a limited version of this in Pakistans tribal areas where the rule of the state does not exist. While there are tribal grievances, mostly people go about their business under a rigid system of tribal alliances and protections. Disputes are settled in tribal jirgas expediently.

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Critical Analysis of HTs Economic Policy Since we have historical proof that a society, and thus people, can exist in safety and prosperity without the existence of a state, why then should a state exist? In fact, what leads to the current course of history where the entire globe is under the control of one or the other state? Chodorov explains that the usual answer to this question is to compare a nation to a family. The logic goes that since every family has a head, a nation needs a head as well. Chodorov identifies that this is an analogy, and an analogy is not proof. As everyone knows, an analogy is neither evidence nor proof. And yet, since Aristotle it has been common practice among political scientists to call upon an analogy to support a theory of the origin of Government; namely, that Government grew out of the organization of the family. There is, of course, no historical evidence of a cause-and-effect relationship between the two institutions; all that we have is an unproven hypothesis, resting on an assumed similarity between parental authority and Government authority. The hypothesis disproves itself, however, when the biological factor in parental authority is taken into consideration. The child looks to the parent for guidance simply because of the inadequacies and insecurity of childhood, and seeks or accepts authority as a matter of necessity. Government has no such claim on its citizenry, nor is loyalty to it in any way analogous to filial devotion. Even the father-son relationship alters in character as the offspring reaches maturity and attains self-sufficiency, a relationship in which authority diminishes and disappears; the citizens allegiance to Government is un-related to his age or to his ability to take care of himself.31 Frank Chodorov The question can be answeed by understanding the services that a state renders. Stripping it to its bare bones, a state is created on the promise of protection of the life, property and businesses of the citizens of the state. Some would extend this to include judicial services as well. This is also the definition that HT uses; The task of al-imarah is to avert injustice and to settle disputes that may arise.32 This is the simple reason why people suffer a dominating institution in the first place. With the passage of time, the role of the state is expanded to include more and more services. This in turn increases the tax burden on the population. Even as the state takes over these services, people forget that the private sector was already doing or could have done a much better job at them. We can see this happening even within HT literature, where the activities of the state are expanded beyond the two tasks stated above. HTs state takes over welfare activities, ostensibly to provide for all its citizens. The statements above still dont make a states existence necessary. Private entreprenuers can provide all these services. We see this happening in Pakistan, where the state increasingly disowns its real purpose and limits itself to merely taxing the public and lavishing riches on itself. We see in Pakistan, the emergence of private security firms, proving that private enterprise can provide defence services. But now people have to not only pay taxes to the state (for the unfulfilled promise of protection), but also pay bills to private security firms.33 This increases the cost of doing business and stunts economic progress. On the judicial level, we see local jirgas emerge to quickly settle cases for a public hungry
31

Frank Chodorov, The Rise and Fall of Society, p.66. Chodorov goes on to give a very detailed historical view of how government came into existence. 32 The Ruling System in Islam, p.12. 33 Not to mention rents paid to violent political factions and mafias which thrive in the lawlessness caused by state apathy.

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Critical Analysis of HTs Economic Policy for justice (however that justice may be defined). In effect, the state, which had come in existence to offer protection and settle disputes, after expanding its powers to increasingly intervene in all aspects of human civilization, now retreats from its stated purpose and retires to a life of stolen luxury. Occasionally it crawls out of the shadows to slap some new fines or impose some new regulations on the already helpless populace. The worst thing that a state can do is use its immense powers of coercion to impose its monopoly. It will use its police force to impose the monopoly of its justice system, its monetary and economic systems, its taxation system, etc. This is worse because not only are the people denied good services, but the private sector is not allowed to enter these markets and provide for the people efficiently.34 So we have seen that people can not only progress in a state of anarchy, but also that state institutions can be highly inefficient, while being protected by their monopoly status. Not only is a state not necessary, but it is usually a hindrance to normal civilization and progress. Proudhon explains government as; To be GOVERNED is to be kept in sight, inspected, spied upon, directed, lawdriven, numbered, enrolled, indoctrinated, preached at, controlled, estimated, valued, censured, commanded, by creatures who have neither the right, nor the wisdom, nor the virtue to do so. To be GOVERNED is to be at every operation, at every transaction, noted, registered, enrolled, taxed, stamped, measured, numbered, assessed, licensed, authorized, admonished, forbidden, reformed, corrected, punished. It is, under pretext of public utility, and in the name of the general interest, to be placed under contribution, trained, ransomed, exploited, monopolized, extorted, squeezed, mystified, robbed; then, at the slightest resistance, the first word of complaint, to be repressed, fined, despised, harassed, tracked, abused, clubbed, disarmed, choked, imprisoned, judged, condemned, shot, deported, sacrificed, sold, betrayed; and, to crown all, mocked, ridiculed, outraged, dishonored. That is government; that is its justice; that is its morality.35 Any man, Muslim or non-Muslim can instantly pick out the problems with the above picture. The very fact that we grant a monopoly on force to a state enables it to commit such crimes. Not only does government spy, but also steal, cheat, lie, bully, torture and imprison, on a whim. For a man who values his freedom personal, religious, economic it makes ample sense to understand what it means to have an overbearing government. Since HT is involved in introducing a type of state, with its own rules, regulations, structure, etc., we need to study the effects of this state. If we must suffer a state, it is wiser to evaluate different forms of it, identify the advantages of each over the other and make an informed decision as to which to support (if at all). Our discussion in this article
34

We saw this in the Swat area of Pakistan, during the Taliban takeover debacle. The Taliban had established jirgas and people would very easily get their grievances settled there. The government of Pakistan was quick to act, and one of the things it did after re-claiming Swat, was the dismantling of the jirga system. Even today, reports from Swat say that people seem to favor jirgas more than the state sponsored courts. Please note that the example of jirgas I use here is not to highlight the private sector provision of justice. A jirga is usually a political institution enforced by an influential tribe etc. What is important to note is that there can be alternatives to state sponsored systems and those alternatives can be more efficient. 35 General Idea of the Revolution in the Nineteenth Century, p.294. Brought to my attention by Robert Higgs' piece on the Independant Institutes Beacon blog, June 1, 2010. Higgs goes on to add Nowadays, of course, we would have to supplement Proudhons admirably precise account by noting that our being governed also entails our being electronically monitored, tracked by orbiting satellites, tased more or less at random, and invaded in our premises by SWAT teams of police, often under the pretext of their overriding our natural right to decide what substances we will ingest, inject, or inhale into what used to be known as our own bodies.

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Critical Analysis of HTs Economic Policy will only look at the economic results of HTs suggested state. But in analyzing the economics we will invariably touch most every other policy. After all, the state will need to tax (or print money) in order to survive, for a state does not produce any profit.

2. Economic Systems of the World

Section 1 of The Economic System in Islam identifies three major economic systems prevalent in the world: Capitalism, communism, and the Islamic system. As explained before in Capitalism vs. Western Economics, what this book really targets is fascism the Western economic system as practiced today and not Capitalism proper. I will look at all the objections by the book in turn.

2.1. Capitalism
Capitalism is a concept that has faced a large amount of criticism on a number of fronts throughout history. As Ayn Rand says; No politico-economic system in history has ever proved its value so eloquently or has benefited mankind so greatly as Capitalismand none has ever been attacked so savagely, viciously, and blindly. The flood of misinformation, misrepresentation, distortion, and outright falsehood about Capitalism is such that the young people of today have no idea (and virtually no way of discovering any idea) of its actual nature. This section of HTs book is detailed and contains a number of objections on Capitalism. The discussion is scattered throughout the text, however. At one point, the book does divide its arguments into two points. But the rest of the text contains even more and varied objections. I will try to discuss each of these here, but due to the nature of the source text, there might be overlaps between sections.

2.1.1. Capitalism And Recognition Of Needs

The book implies that Capitalism is based solely on materialistic ends and means. It asserts that spiritual and moral needs are not attended to by Capitalism. To quote; [Capitalists] say man has needs that require satisfaction, so there must exist the means to satisfy them. These needs are purely materialistic; they are either tangible, such as the need for food and clothing, or they are needs which are sensed by man but are intangible, such as the need for the services of, for example, doctors and teachers. As for the moral needs such as pride and honour, or spiritual needs such as the sanctification of the Creator, they are not recognised economically, and are therefore disregarded and have no place in economic studies.36 And further; The Capitalist economists exclude the possibility that man expends effort for a moral or spiritual motive. The moral motive, when they do recognise it, is attributed to a materialist compensation. They consider that man expends his efforts to satisfy his materialistic needs and wishes only. 37
36 37

The Economic System in Islam, p.15. The Economic System in Islam, p.20.

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Critical Analysis of HTs Economic Policy And in his final arguments against Capitalism, his point number 2; The reference to the needs which require satisfaction as being purely materialistic is an error, and contradictory to the reality of needs. In addition to material needs there are moral and spiritual needs, each requiring satisfaction, and each requiring commodities and services for their satisfaction.38 This is basically a straw man. Capitalism does not reject spiritual needs. The basic idea of a market economy is that if there is a need, someone will come in to fulfill it. Even if the needs are moral or spiritual. Rothbard states; This consumers good may be a material object like bread or an immaterial one like friendship. Its important quality is not whether it is material or not, but whether it is valued by man as a means of satisfying his wants. This function of a consumers good is called its service in ministering to human wants. Thus, the material bread is valued not for itself, but for its service in satisfying wants; just as an immaterial thing, such as music or medical care, is obviously valued for such service. All these services are consumed to satisfy wants. Economic is by no means equivalent to material.39 This is why we can see things like national symbols for sale in (capitalistic) markets. The national flag, badges, banners, recordings of the national anthem all cater to mans need for pride and honor. The same market provides sports team merchandise (like T-shirts) for sale to fans of their teams. Whole shops are dedicated to the sale of team mascots and brand-emblazoned paraphernalia. Even the right to print the team logo on ones merchandise is bought and sold for high premiums. The very existence of sports teams, symbols, stadiums and an entire industry that does nothing but instil the sense of pride, honor and enmity between rival fans, is proof that Capitalism is not blind to intangible needs. One can similarly see examples of the market fulfilling spiritual or religious needs. We see outside the masaajid, entrepreneurs selling their religious themed wares. They can be seen selling atar, kufis, sticks of miswaak, prayer beads or similar items. These are all material goods needed to perform religious duties. The act of sanctification of the Creator is a personal effort. This action does not have the same quality as the above material scarce goods do and hence are not tradable in the physical market. However, the actions of a man use up one ultimate scarce resource; time. Therefore in order for a person to sanctify his Creator, he must first economize the scarce resource of time that he has available to him. He must make choices and take paths that will leave him enough time to perform his religious duties. The same economic principles that work with commodities can be applied to the resource of time. Religious duties are personal, and so the market where this act is exchanged is also a personal one. It is inherent in certain religious acts, like sanctification, that they are personal. This is also true for acts like contemplation. Where there is no possibility of satisfaction from an external agent, a market cannot exist. However, sometimes the rules get bent, and it becomes possible for someone to help out. In these cases entrepreneurs will identify the possible avenues of profit and will form a market. Since our Creator has ordained that every man is responsible for his own salvation, it is not possible for anyone else to offer sanctification services for him. However, certain religious duties that must be performed with material goods do become part of the market.40 Some branches of the faith believe
38 39

The Economic System in Islam, p.23. Man Economy and State, p.12 40 For example, burial services.

16

Critical Analysis of HTs Economic Policy that the reward of acts such as the recitation of the Quran can be given to someone else. This has in turn created the market for selling of read portions of the Quran.41 The personal act of sanctification is similar to the personal act of thinking. Since thinking does not involve external material it is not a scarce resource. Which means that there can be no possibility of a market dedicated to thinking. There is however, a market dedicated to the accessories of thought; books, journals, papers, education etc., are all tradable on the market because they are inherently external to the individual. Even acts of charity can be considered a part of the market. The good being bought in these cases is personal satisfaction, tranquility and the belief in a reward in the hereafter. Beyond this the differences between charity and any other trade on the market, end. People give their money to charitable organizations in exchange for this feeling of satisfaction. And this is an entirely moralistic or spiritual good. It is neither tangible, nor does it have any worldly use. However, it is a need and the market provides its fulfillment. The proof that charity indeed provides personal satisfaction and tranquility is evident from the advertisements of charitable organizations. In order to attract peoples contributions, they inform people of their activities in helping the poor, or orphans, or the disabled or people suffering from debilitating disease. This is designed to evoke an emotional response from the public. In the end, peace of mind can be obtained by a simple donation to the charitable organization, endorsing and encouraging their work. Anything that man needs, and someone can provide in the belief of a profit, can be bought and sold, and this is the basis of Capitalism. Since mans needs can be both spiritual and physical, and since some of the spiritual needs can be fulfilled using physical means, there will always be a way for the market to satisfy these needs. They will have a place in economic studies as long as man has the need for them. Capitalism therefore does not reject these intangible needs unlike what the book claims.

2.1.2. Capitalism And Morality

The book seems to consider Capitalism as more than it is. It implies that Capitalism is more than an economic system and therefore it should have certain characteristics that are by nature not present in economic systems. The economist looks upon the means of satisfaction, that is, the commodities and services, from the viewpoint that they satisfy a need, without taking any other factor into consideration. Thus, he looks at the needs and the benefits as they are, not as they should be i.e. he looks at benefit as satisfying a need, without taking anything else into consideration. So he would look at wine in its capacity of having an economic value because it satisfies the needs of some people, and he perceives the wine maker as a person who provides a service, considering this service as having an economic value, because it satisfies the need of some individuals.42 It is not the duty of an economist, or the purpose of Capitalism to pass moral judgement on anything society tends to do. This is the job of society itself. If someone in society uses alcohol, then there is a
41

I am not passing any judgement on this action, I am merely stating it as an example of how the market discovers a need and fulfills it. The judicial ruling over this act is left to the scholars. 42 The Economic System in Islam, pp.15-16.

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Critical Analysis of HTs Economic Policy market for alcohol. This is a simple statement of facts. There is no moral judgement passed here. Even if we were to try and hide it, the fact that alcohol has a market will not go away. The use of force in reducing the market share of alcohol, or at least the legal market share of alcohol, is the domain of political intervention.43 Economics and hence Capitalism has nothing to say on the matter. Positive or negative. Forcing morals upon Capitalism something that is not capitalisms domain and then stating that Capitalism does a poor job about it, is similar to forcing water through a sieve and then stating that the sieve is bad because it doesnt hold any water. This is not Capitalisms job. On the other hand, if we consider Western economic systems as a whole (including policies), we do find moralistic statements and actions. The Prohibition was a period from 1919 to 1933, when the sale and manufacture of alcoholic beverages was outlawed within the United States. The Prohibition Movement, which affected this action, was a reform movement sponsored by Protestant churches. It is interesting to note that during Prohibition, alcohol smuggling became a lucrative career, and people who wanted to drink, could find alcohol in the black market. Popular media, often made light of this enforced piety. Legislation cannot change demand. This is similar to what is happening today in the case of the prohibition of drugs. Since the demand for an item does not disappear if the market is forcefully outlawed, people will continue to run an underground industry. The market is not destroyed, it is merely routed into different avenues. The economic fact still remains and cannot be rejected. This is why economists consider everything in terms of their benefit and their demand from the point of view of the public. Closing ones eyes to the facts does not change them. You can ignore the market. But you cant avoid the consequences of ignoring the market. Later, the book says; From the aspect of resources and efforts, which are called commodities and services, the individual strives for them to obtain them, so as to gain benefit from them. The exchange of resources and efforts among people creates relationships among them, according to which the structure of the society is formed. So it is necessary to look at what the structure of the society should be, both in general and in detail, when evaluating the resources and the efforts. So caring for the economic commodity with respect to its fulfilling a need, without caring for what the society should be, is a detachment of the economic commodity from the relationship, which is unnatural.44 The book correctly identifies economic activity as being the creator of relationships within society. However, it goes on to state that we should in some way try to mould our relationships to some predefined, planned structure. Such a forced structure on society is hardly natural, as is implied in the last statement. In fact, the most natural thing would be to let these relationships fall where they may.
43

It should be noted, even outlawing a certain market does not eliminate it. We tend to call such things the black market. Simply put, anything that men want, they will get, sometimes by hook sometimes by crook. This can be seen in the case of the drug war in the Western world. Even though governments spend billions of dollars to stop the sale of drugs within their borders, smugglers find new ways to bring their wares in and sell them. The only thing that legislation against drugs has achieved is that drugs have become more expensive (it is riskier to bring them into the country), and it has become more dangerous for the customer to purchase them. A market can only really be stopped if individuals stop buying the particular product on their own. 44 Ibid., p.24.

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Critical Analysis of HTs Economic Policy

2.1.3. Mixing the Needs and the Means of Satisfaction or Distribution

The books point number 1 against Capitalism states; Economy in Capitalism means to address mans needs and the means of their satisfaction. Hence the production of commodities and services, which are the means of satisfying the needs, together with the distribution of these commodities and services are considered in their view, one subject However, there is a difference between the economic system and economic science.45 Indeed there is a difference between economic science and an economic system. Economic science like Capitalism is a science of facts and observations, and is universal. An economic system like the Western system is a political machine. But the assumed difference between production and distribution of goods as the book states is very much forced. If by distribution the book means distribution of goods among all people according to their needs, then this is Socialism. I have explained in Capitalism vs. Western Economics how this is present in all Western democracies. Otherwise, distribution of goods (transport of goods to markets, between cities or countries etc.,) can be handled quite efficiently by private enterprise (as it has been for centuries). Yet the book does not explain exactly why it is important to separate distribution from production. Also; By including the subject of satisfying the needs within the subject of the means of satisfying needs, and by viewing the means of satisfaction only as satisfying a need, and not by any other consideration, economists concentrate on production of wealth more than distribution of wealth.46 Again the book is talking about the superiority of the distribution of wealth, but gives us no indication of why this is so important. The book forgets that there are two sides to the producer-consumer picture. One is the consumer and the other is the producer, whose incentive to produce is the remuneration he will get in return, so he too can feed his family. In fact, every day we are all both consumers and producers. What we produce, we trade for what others produce. If a producer is to distribute his goods freely, who will distribute their goods to feed the producer? And how shall this distribution take place? Will it be voluntary, or will the state jump in and confiscate all production?47 Will that not violate private property laws? In presenting a solution the book states; Therefore, the economic problem is focused on distributing the means of satisfaction for individuals i.e. the distribution of the funds and benefits to the members of the nation or people, not on the needs which the nation or the people require without regard to every individual within the nation.48 The problem with distribution is that you need to have something to distribute. Therefore, policies of distribution inevitably lead to confiscation. And unless the confiscation is strictly in relation to Zakat,
45 46

Ibid., p.22. Ibid., p.25. 47 Much like Socialism. 48 Ibid.

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Critical Analysis of HTs Economic Policy it is forbidden for a Muslim ruler. In light of this, it is difficult to see how a state is supposed to collect funds, which it would then be able to distribute. Further, by not providing a sufficient explanation of why distribution is so important to a society, the book fails to make a convincing argument. Even if the state were to impose taxation and confiscate some part of a producers property in order to distribute to others, the rest of the produce will still need to be sold in the market. Therefore the aspect of distribution is still going to be a part of economic science. If however, the state were to remove this burden of distrubution from the hapless citizens by confiscating 100% of what they produce, then this would be socialism. Something this book is already rejecting. The book goes on to state; The Capitalist economists look to the needs and benefits as they are, not as the society should be, which means that they look at man as a purely materialistic creature, empty of spiritual needs, ethical thoughts, and moral objectives.49 Here the book defines the essence of economic science one that does not consider morals and names it Capitalism. Yet it expects capitalism to work like an economic system.50 How can an apple be an orange? This moving between Capitalism as economic system and economic science is quite confusing, and makes for very weak arguments. Further, the second statement in this paragraph does not logically follow from the first one. Capitalism, as I have pointed out in Capitalism And Recognition Of Needs, does not pass judgements on how society should be, yet it still considers man as a whole, physical and spiritual. The first statement in the books sentence does not support its conclusion.

2.1.4. Commodities and Services are not related to the structure of the society
This is the title of the books third argument.51 In this very thesis the book is mistaken. If capitalists were to ignore societys needs, they would be quickly driven out of the market to be replaced with entreprenuers who were more capable of fulfilling those needs. Ultimately market power rests in the hands of the consumer. If the consumer wants to buy so and so, the market will have to adapt, otherwise producers will lose. If the consumer no longer wishes to buy something, any manufacturers and sellers of said items will be driven out of the market, simply because they would not make any profit. In this discussion, there is no invisible hand of a beneficent state tinkering with the market. It is society itself which forces markets to adapt. Thus we see that in Muslim lands there is virtually no market for pork, and no farmers raise pigs. The fact that there is no black market in pork is proof that this state of affairs is due to consumer preference and not due to legal impositions. In contrast we see in some Muslims societies, a thriving underground alcohol market, even in the presence of harsh legislation. Society does not bend to Capitalisms will, capitalism bends to societys. The book writes; ... [I]f man does not cheat in selling it is because he believes his trade will profit, while if he were to profit by cheating, then cheating would be legal for him.52
49 50

Ibid., p.23. One should point out that Western economics does indeed have moralistic legislation imprinted upon it. Only those morals do not match the ones that Muslims cherish. 51 The second argument against Capitalism has already been discussed in Capitalism and Morality. 52 Ibid., pp.23-24

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Critical Analysis of HTs Economic Policy The entire system of Capitalism rests on private property and the protection of that private property. Someone who steals in a capitalist society is considered a criminal and the society takes punitive action against such a man. Cheating therefore, is considered wrong in Capitalism and a cheater is bound to be prosecuted by societal law. If on the other hand, the motivation of a cheater is that it is difficult for him to get caught, then this is equally possible in an Islamic system. Further; He does not feed poor people in response to the order from God for him to give charity, rather he feeds them so that they do not steal from him. If, however, their starvation increases his wealth then he would leave them to starve.53 First, this does not characterize all the people in a capitalist system, just like piety does not characterize all the people in an Islamic system. Second the reason given, that a person should feed others so they do not steal from him, is quite illogical. Historically, there is no such precedent. On the contrary, if a person fears someone would steal from him, he will invest in guns, locks and safes to protect himself and his property. Avoiding someones thievery by giving them the thing that they want to steal seems antithetical. Second, a persons starvation has never increased anyones wealth. This is a fallacy. Production increases wealth. Trading increases wealth on both sides of the exchange. Depriving someone of what they need has never increased anyones wealth. For a capitalist it would be much more productive to feed someone to health, then hand them a job, so that not only is the capitalists production increased, but also the starving man is able to stand on his own two feet. We see this same sentiment when the Prophet Mohammad (SAWS) instructed a beggar to buy an axe and gather firewood. A capitalist minded entrepreneur would see this relationship, identify the productive qualities in the starving man, and lead him to the right path. The book continues; Thus, the main concern of the Capitalist is to look for the benefit which satisfies a materialistic need only. The individual that looks at others based on his own benefit, and establishes economic life on this basis, is the most dangerous person to society and people.54 The person who looks at his own benefit, and establishes economic life on this basis, ultimately has to understand that his own benefit is tied to that of others. He can only sell what others desire to purchase. He cannot force people to buy things they dont need. Thus he becomes a provider of service to the people, working to produce items of use. This not only increases his own wealth but also that of the society. Perhaps the society is richer by a load of firewood, or a clay pot, or a mobile phone. In the end it is this exact same self-serving that results in the developed world we see today. Far from being the most dangerous person, an economic minded, benefit seeking man is of great service to human civilization.

2.1.5. Capitalism and Prosperity

The book states;
53 54

Ibid., p.24 Ibid., p.24

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Critical Analysis of HTs Economic Policy This is the political economy i.e. the capitalist economy. This is manifestly wrong, and contradicts reality; it does not lead to an improvement in the level of livelihood for all individuals, and does not fulfil the basic welfare of every individual.55 I find the above quite interesting, because here the book is stating that Capitalism is not only unnatural, but it is not the way to prosperity. As we have seen above however, a free system, unbound by the shackles of interventionism, is the most natural economic system that can exist. We have also seen in the last few centuries of human history that not only has Capitalism succeeded in improving the standard of living of every single human being, it has also managed to alleviate poverty, hunger, disease and all the other scourges of the pre-modern world.

2.1.6. Basic Needs And Welfare

The book says; The Capitalists claim that the economic problem which faces any society is the scarcity of commodities and services. They also claim that the steadily increasing needs, and the inability to satisfy all of them i.e. the insufficiency of commodities and services to satisfy all of mans needs completely, is the basis of the economic problem. This view is erroneous and in fact contradicts with reality. This is because the needs which must be met are the basic needs of the individual as a human (food, shelter and clothing), and not the luxuries, although they too are sought. The basic needs of humans are limited, and the resources and the efforts which they call the commodities and services existent in the world are certainly sufficient to satisfy the basic human needs; it is possible to satisfy all of the basic needs of mankind completely.56 We will ignore the fact that the term basic needs is constantly under revision.57 While it is true that Allah is the provider for all and he has provided provisions for every living thing, it must be noted that these provisions are to be sought. They will neither fall into the hands of the individual, nor of the state. Allah informs us of this when he orders us to strive for our living. If they are to be sought, it means that mans efforts are to be expended in their procurement. Procurement of a good affords ownership. This is the basis of private property. So if a mans labour grants him more provisions than he needs, will the state then appropriate these extra provisions for public benefit or distribution? That man can have nothing but what he strives for; That (the fruit of) his striving will soon come in sight: Then will he be rewarded with a reward complete. (53:39-41) Translation of the Holy Quran Imam Al-Ghazali quotes Umar ibn Al-Khattab as saying; Never should anyone of you think that duaa (supplication) for sustenance without work will avail him, for heaven never rains gold nor silver. The Book of Provisions Chapter 1 Goods are limited, simply because this world is finite. Drinking water alone has been the source of numerous conflicts throughout history, not least of which are what we see between Pakistan and
55 56

Ibid., p.25 Ibid., p.26 57 I have mentioned basic needs in Section 1.3, Tautological Reasoning. In short, the real problem is who determines the definition of these basic needs. Are these limited to whatever man needs for bare survival? Or does it imply needs which afford a man a certain level of comfort? Who sets the criteria here?

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Critical Analysis of HTs Economic Policy India today. What the book does not clarify is that someone has to draw the water from the well and purify it for drinking. Someone has to sow the field and tend the crops. Someone has to bake the bricks and mix the mortar. Even if manna did fall from the sky, someone would have to collect it, package it, store it and deliver it. Basic needs are not free. The idea of distribution is too similar to communism; workers labour in the fields and factories while their produce is stolen from them and distributed according to the whims of the masters. The Prophet said, No doubt, one had better take a rope (and cut) and tie a bundle of wood and sell it whereby Allah will keep his face away (from Hell-fire) rather than ask others who may give him or not. Sahih Bukhari Volume 3 Book 40 Number 561 The above saying of Prophet Mohammad (SAWS) informs us that not only is it better to earn a living than beg for it, it also makes an interesting point about private labour. The Prophet does not instruct the state to come and chop the wood and provide for a starving man. Rather the Prophet puts the responsibility squarely on the shoulders of the man himself. The man, in expending his labour is not only feeding himself, but is also providing a service to society. By chopping wood (a resource which is arguably quite abundant), packaging it, and delivering it to the market, he is serving his fellow human beings. Someone else who has need of firewood simply buys the bundle the work of the noble laborer from the market. The book further says; With reference to the steadily increasing needs, it is not a subject related to increasing basic needs, because the basic needs of man as a human do not increase, whereas, it is his luxuries which increase and vary. 58 Let us assume for a moment that basic needs are fixed and do not increase. This brings us to another problem. While every mans basic needs may be limited, all men have different needs. In food, different people need different amounts of calories per day to remain healthy. People need different mixes of nutrients.59 In clothing too, some peoples bodies require cooler clothes, while others prefer warmer ones. Some can live with coarse clothing, while others may not be able to stand them. The question is, who is going to keep track of all these differences in basic needs? The state? How many workers will it hire? How often will it interview the people to ask them about their needs? How much will all this cost? Where will the fund to run this administration come from? The market method of taking care of this problem is quite simple. Everyone works to their abilities and exchanges their labour with what they want. So while one person may purchase chicken, another may buy some fish. Someone may eat rice while another person may eat bread. Distribution of basic needs is taken care of by everyone themselves. There is no need for complex bureaucracy to figure out what everyone wants to eat for breakfast. The book continues; The increase in needs which occurs due to the progress of a human in his urbanised life is related to the luxuries rather than to the basic needs. Man works to satisfy his luxuries, but their non-satisfaction does not cause a problem; what does cause a problem is the non-satisfaction of the basic needs. 60
58 59

Ibid., p.27 Perhaps they suffer from ailments such as diabetes. 60 Ibid., p.27

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Critical Analysis of HTs Economic Policy Unfortunately, the definition of luxuries is left to the imagination of the reader. It is unclear for example, if a car would be a luxury or a basic need. If we considered a car a luxury, then in todays urbanized environment, where cars are increasingly important, a man would find it considerably difficult to fulfill even the simplest desires. In fact, he would be at a severe disadvantage in terms of employment because of his limited mobility. Would the label of luxury also extend to mobile phones? However luxurious it might seem, a mobile phone is practically a necessity in todays economic environment. Even a street hawker owns at least one phone, without which he would not be able to keep in touch with customers or suppliers.61 Now if we make a car or a mobile phone a basic need, and place the burden of provision on the state, we open a whole new can of worms. Because these are very complex industries as compared to the (relatively) simple industries of growing food. An automobile plant needs a whole network of support industries in order to work at all. The same situation exists with mobile phones. Not only is the main plant a huge investment, but the support industries themselves can reach enormous sizes.62 The non-satisfaction of luxuries does cause a problem. Man is not so simple as to only require basic necessities. As Chodorov states; ... [This is an] unreal definition of economic man which describes his life purpose as the mere acquisition of food, raiment, and shelter. Such a man does not exist, or exists only under the compulsion of necessity. To man, unlike other living creatures, the making of a living only begins with providing the necessaries, for he is so constituted that once that problem is solved, or even before it is fully solved, his imagination gives rise to other desires which, when gratified, give rise to still other desires and so on ad infinitum. His job of living has no fixed perimeter.63 Frank Chodorov The book further states; Besides all of this, the question of the increasing luxuries is a question which is only related to some people who live in a certain country and not to all individuals of that country.64 And yet economies of scale put luxuries increasingly in the hands of first the middle classes and then the lower classes. In the developed world we therefore see even the lowest of labourers driving cars, owning homes with televisions and refrigerators. Even in the developing world we see the ubiquity of mobile phones. Note it was industry and not the state that put these items into everyones hands. Meanwhile, the line between basic needs and luxuries becomes fuzzier and fuzzier. Basic needs assumes that the state can distribute to everyone according to their needs, yet does not mention how things are going to be produced. Who is going to pay the people manufacturing these basic needs? Who is going to pay the farmer? Who is going to pay the government worker, someone whose job did not exist prior to the basic needs doctrine, and who is an extra burden on the economy. He is an inefficiency over and above what a free market is able to produce and therefore an increase in the cost of production.
61

Note that it is precisely the (relatively) free market access provided to the automobile and electronics industries that has allowed these items to be cheap enough to be affordable to the masses. What started off as a heavily expensive item (the cell phone), has through economies of scale, achieved full distribution throughout the world, without the intervention of any state. 62 Integrated Circuit plants for example, cost in the upwards of the billions of dollars. In addition they have to be continuously updated to keep up with the fast pace of technology. 63 Frank Chodorov, The Rise and Fall of Society, p.21. 64 The Economic System in Islam, p.27

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Critical Analysis of HTs Economic Policy It need not be mentioned that communism failed in implementing these ideas. There are many theories as to why it failed. An economic point of view is given by Mises.65 In a free market society, producers understand what people want by observing where they spend their money. Lets say people start buying shirts of a particular type more than others. Producers of other types of shirts will start losing profits as their product lies on store shelves unsold. These producers will either have to adapt and produce the popular style or risk going bankrupt. As more and more producers start manufacturing the new styles, the quantity of these shirts will increase and prices will go down. People will have more of what they want. This is how a free market handles public perceptions and needs. In the case of a communistic (or distributive) economic model, there is no easy way to figure out what the public wants. Because goods are distributed and not sold. While it is true that a distributive economy may be producing the popular style of shirts, it will probably be in small quantities. What will happen (and what has been observed in history), is that people will start trading among themselves in order to get what they want. Pretty soon the popular item will be fetching a high price on the informal market. Yet since the distributive system does not get any feedback from this popularity, it will not adjust itself to produce more of the popular styles and will keep churning out its required quota.66 This not only deprives people of what they want, but also wastes a large number of resources manufacturing shirts that people will not use, and which will eventually end up in the trash. Not only is this unfair to people, it is also a waste of wealth. It does not follow therefore that Capitalisms point of view for all goods and commodities is erroneous and in fact contradict[ing] with reality. It is in fact completely in line with reality. The book continues; However, raising the level of production requires scientific research, and its discussion in the economic system does not solve the economic problem, which is the complete satisfaction of the needs of each and every individual. ... The country could be rich in natural resources, as in the case of Iraq and Saudi Arabia, but the basic needs of most of their citizens are not satisfied completely. According to the book, the increase in production does not solve the economic problem. The example it gives is of Saudi Arabia and Iraq oil producing countries which could be classified as rich.67 It is important to note that the increase in production can also apply to basic goods. Not only does an increase in a goods' production capacity increase the supply thereby providing more and more of the good to the populace but it also reduces its price. Another side-effect is increasing quality. While the book would like us to ignore any work towards the improvement of production, it would like us to focus on distribution. But the question is, distribution of what? In order to provide for the increasing populations of the world, an increase in production is necessary, because goods must be produced before they are distributed. The example of Saudi Arabia and Iraq is flawed, because these countries are rich in oil, not in food, shelter and clothing.68 Just like you cannot eat money, you cannot eat oil. If these countries want to distribute something, they will have to purchase food, clothing and shelter from other countries in exchange for their oil. If their oil sits on their land, it does nobody
65 66

Ludwig von Mises, Human Action If it is an efficient distributive system that is, which historically they have never been. 67 Post Iraq war, some people might differ on this point. 68 For this discussion let us assume the definition of basic needs as food, shelter and clothing. Iraq is an exception because it has a large quantity of fertile land. Besides this, Iraq and Saudi Arabia are neither capitalist states, nor are they styled after western democracies.

25

Critical Analysis of HTs Economic Policy any good, and does not constitute wealth. In order to purchase these goods from other countries, those countries in turn will need to improve their production capacities or risk starvation of their own people. The industrial revolution the very recent period of development, accompanied by economic prosperity is characterized by improvements in production. Fossil fuels provide the energy to massively increase production, increasing the amount of wealth around the world. Lowered prices enable the ubiquity of mobile phones, packaged food, refrigerators and cars. All this is thanks to the improvements in production, something which is intimately linked with prosperity. The book continues; [In Capitalism] every individuals share of the wealth of a country is not equal to his basic needs, but is equal to the value of the services in which he has contributed in producing commodities and services i.e. equal to what he owns of land or capital, or equal to what he carried out of work, and projects.69 When a man contributes in producing commodities and services, and subsequently sells these commodities and services, he is serving two parties. One, he serves himself when he exchanges his labour for goods that he needs. Two, he serves society by producing goods that society needs. This mutual exchange is a net generator of wealth. If one man were to provide better services or goods, people would honor his ingenuity by giving him more in exchange. This is how the market repays exceptionalism. Each man is rewarded according to his expertise and efficiency. There is a certain fairness within this human practice. The man who contributes most to societys wealth is the man who ultimately earns more for his labour. If all men were paid according to their basic needs, the incentive to innovate, and hence to improve the wealth of the society, would fade away. An important point to note here is that this reward in proportion to services rendered is the natural expression of a free market. The only way that man will be paid according to his needs and not according to his contributions is if this payment model were enforced. Which of course leads us towards communism. What is also important is that in a free market free as in economic freedom every man is able to choose his own professon. So if someone is not receiving the remuneration that he believes he should be getting, he is free to change employers, locality and even careers. He is free to wander the land in search of his place, where his skills will be appreciated and where his belief in his just wages could be realized. It is completely possible however, that what he believes is not really true he is not as skilled as he thinks he is. And in this case employers are free to fire him, or lower his wages. He is in turn free to quit his job or accept the lowered wage. He has the freedom to try his best, do what he believes in, and even commit mistakes. The book next presents the following corollary; The person who is incapable of contributing, whether he was born with a physical or mental disability, does not deserve life, and does not deserve to take from the wealth that which satisfies his needs. The above passage makes Capitalism look like a heartless and brutal system. The problem with this statement is the part take from the wealth. Take from whos wealth? Societys? Wouldnt that be stealing, even according to Islamic law? Even in Capitalistic societies, various charities operate on a
69

The Economic System in Islam, p.31

26

Critical Analysis of HTs Economic Policy volunteer basis that work for the poor, destitute, mentally or physically disabled. In Islamic societies this is either taken care of by the persons relatives, or society. In the case of Islamic society, a large number of charities exist to take care of these needs. There is really no need for this responsibility to fall on the state, which I assume is where the book is headed from this discussion. But allowing whoever is needy to steal is also wrong and would rend the fabric of society into pieces. The only thing that Capitalism (and Islam) stresses is the sanctity of private property. There is no reason to conclude that life is undeserved for any kind of person. Allah is the provider of all, and Allah finds a way to provide rizq to His people. Further; [The] one whose motivation to seek material gains is stronger will exceed others in possessing wealth whereas, the one whose adherence to spiritual and moral values (which control him during the earning of wealth) is stronger, will have less than others in possessions or wealth. This approach excludes the spiritual and moral elements from life and produces a life built upon a materialistic struggle to gain the means of satisfying materialistic needs. The one who seeks material gain and is more efficient and intelligent serves his society better than those that arent. After all, when he creates some good or service, he serves other people. We need to realize that entreprenuers are not kings, they are the servants of consumers. Consumers have the power to stop buying a particular product because they do not like it. It is the entreprenuers job to cater to the consumers' every need. The consumers are therefore the kings. So whosoever is more capable of serving his fellow men thereby increasing the wealth of the society in a meaningful way, is completely deserving of what he may earn. He does not force people to pay him, people like what he is selling or doing and give him what he deserves willingly and voluntarily. On the other side of this argument lies the spiritual man. A man whose very purpose is to seek spiritual gain and sacrifice his material life. How can he expect to gain materially if he does not work in the material world? The argument fails because there is no causal relationship between spiritual work and material gain.70

2.1.7. Value and Price

The book states; Capitalism considers value as being relative and not real, and so it is treated as a subjective measurement. Hence, the value of a yard of cloth is the marginal benefit of it assuming its availability in the market. Its value is also the quantity of commodities and efforts that could be exchanged for it. The value becomes a price if what is obtained for the yard of cloth is money. These two values, in their view, are separate, and they have two distinct names; benefit and the value of exchange. The meaning of value according to this definition is wrong, because the value of any commodity is the quantity of benefit in it, taking into account the element of scarcity. So the real view towards any commodity is to observe its benefit whilst taking into account its scarcity, whether it is possessed by man from the start like from hunting, or by exchange like selling; and whether this was related to the person or related to the thing. Thus, value
70

We recognize however, that it is completely in Allahs domain to reward the servant within this world as well as the next. However, no chain of causality can be drawn in this case.

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Critical Analysis of HTs Economic Policy is a name for a designated thing which has a specific reality, and not a name for a relative thing, which applies to it in one respect and is not applicable in another. So the value is an objective measurement and not a relative thing. Therefore, the view of the economists towards value is wrong from its basis.71 There has been a lot of confusion about value in economics. Most economics actually recognize and bemoan this. The above statements could be said to stem from a misunderstanding of the theory of value. It must also be pointed out here that the idea of separate value for use and value for exchange is a fallacy proposed by Adam Smith. Many economists, particularly the Austrians, have since then berated Smith for having introduced this wrong concept.72 As correctly identified, we are actually talking about two different things; value and price. We understand that resources (including time) are scarce. A man who is in the possession of scare resources will have to consider how to most effectively utilize them. He will have to consider his requirements, and how the resources at his disposal can fulfill those requirements. Every man will thus create a list of priorities in his mind consciously or sub-consciously in order to sort out which of his needs (or wants) he wishes to fulfill. This list will also take into account the amount he requires to fulfill his needs. For example, a hungry man may imagine food to be the top priority on his list. As he eats however, his preference for food is lowered. He can only fill his stomach so much. At that point he may move food lower on his list, to be replaced by other needs, for example, shelter. It must be noted that every man maintains a different list depending on his personal preferences and prejudices. This list can change with time as mans situation changes, and may not even repeat itself in similar situations. Value is the importance a man applies to a particular item. As we have seen above, this importance is dependant on the particular person. It can also change with his current situation. A man who lives in the middle of a rainforest may not value water as much as a man who lives in a desert because he has a large quantity of it. This does not diminish the benefit in the water. Both the men derive the same benefit from it. But due to its scarcity, the man in the desert values it more. Therefore value is subjective. That is it depends on the person making the valuation. Value is not intrinsic, it is not in things. It is within us; it is the way in which man reacts to the conditions of his environment.73 Ludwig von Mises Price or exchange value on the other hand is a bit different. It involves more than two individuals. In this case, there is a subjective valuation by both parties involved. Obviously for a cloth seller, who owns a large amount of cloth, a single bolt of cloth is not as valuable as to a man with a bare back. Therefore to the seller, parting with one bolt of cloth, in exchange of a negotiated price, is agreeable. And to the buyer, parting with his money, in exchange of a commodity he needs is also agreeable. It is this mutually agreeable voluntary exchnage that sets the price for the transaction.74 All action is an attempt to exchange a less satisfactory state of affairs for a more satisfactory one.75
71 72

The Economic System in Islam, p.28 See Rothbard, History of Economic Thought Vol. I, Chapter 16. 73 Mises, Human Action, p.96 74 It should be noted that the exchange value in this transaction need not necessarily be in the form of money. It can be in the form of some other commodity, and the assessment of values will occur just as it would occur in the case of money. This is usually called barter. 75 Rothbard, Man Economy and State, p.19.

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Critical Analysis of HTs Economic Policy Murray N. Rothbard During this exchange, both the buyer and the seller exchanged a less satisfactory state of affairs for a more satisfactory one. The value for each good in the eyes of the seller and the buyer is different. In going from owning a bolt of cloth to owning some money, the seller exchanges something that he values less than that amount of money. In going from owning some money to owning a bolt of cloth, the buyer gets something he values more than his money. This valuation may be different if either the seller or the buyer were replaced with some other individual. The agreed upon price may also change in this new situation. But in general, [T]here will always be a tendency on the market for one money price to be established for each good.76 Murray N. Rothbard Due to all the transactions taking place on the market, and due to price information being available, prices will tend to converge at some point. It is not necessary however, that this point be static over a period of time, or even space. The price of a good may change from place to place and from time to time. Price is objective in the sense of convergence across the marketplace. It should also be noted that in the process of agreement on a price there is no connection between the price and the items benefit.77 The book is confusing value with intrinsic benefit in the above excerpt. As we can see in this discussion, value is a highly relative attribute that depends on personal preference. Price is merely the exchange manifestation of value and depends on the individual preference scales of a large number of individuals. Intrinsic benefit on the other hand, can be said to be scientifically constant for everyone involved. One could say that a bottle containing 100 ml of water, contains 1 unit of thirst quenching power. That could be called its benefit. But the value of that bottle of water for each individual can be different. This brings us to a related concept; marginal utility. Simply stated, marginal utility identifies the decreasing value of an extra unit of a good. If one is in the possession of x units of good A, an additional unit of good A will be less valuable. And if one is in the possession of x+1 units of good A, an additional unit will be even less valuable. As you can see, marginal utility is all about value, therefore it is highly subjective. We cannot even determine the difference in marginal utility between two units of a good. It all depends on the individual involved, his preferences and his mood at the time. Marginal utility has been dealt with in detail in most economics texts and its descriptions should be easily available. The book seems to continue the confusion between price, benefit and value when it talks about marginal utility; [M]arginal utility theory is a theory for price and not a theory for value, and there is a difference between price and value, even in the view of Capitalist economists. What governs the estimation of price is the abundance of demand together with the shortage of supply or the abundance of supply together with the shortage of demand;
76 77

Rothbard, Man Economy and State, p.235. For more information on value scales, see Mises, Human Action, pp.92-98; Rothbard, Man Economy and State, pp.17-21, and Chapter 4. Murphy gives a well-written account of individual value scales in Lessons for the Young Economist, section 5. A very detailed description can be found in Smart, An Introduction to the Theory of Value.

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Critical Analysis of HTs Economic Policy these matters are related to the level of production of a commodity, and not related to its distribution. Whereas value is estimated by the quantity of benefit present in the commodity at the time of evaluation, bearing in mind the element of scarcity, without considering it as part of the estimation; so supply and demand do not utterly affect the value.78 First of all, supply is determined by both production and distribution. Here, I use distribution in the classic sense of dispersion of a product throughout the market. Different regions might have different supplies of the same good. This difference in supply, coupled with the regional demand, will affect the price that the good fetches. Second, marginal utility is a theory for value, as has been seen in the above discussion. Additionally, it may also affect the price. Individual valuations in the market are what determine the market price. If the value of something among individuals decreases, people will not part with the same amount of money for that good. The market will have to thus adjust its price, bringing it lower, to attract more customers. A similar argument can be made for increasing value. Because of the confusion between individual valuation and intrinsic benefit, this book is unable to correctly understand the market. The classic supply and demand determination of price rests completely on individual value scales. The book itself uses this method, yet fails to understand the theories on which it stands. Ignoring value, an important part of human nature, is a dangerous precedent for an economic theory. The book continues; Therefore, the subject of value is wrong from its basis, and any subject based on it is definitely wrong since the basic concept is false. However, if the value of the commodity was evaluated in terms of its benefit measured by the benefit of a commodity or an effort, then such an evaluation would be correct and would lead to much greater stability over the short term. If the value was estimated by the price, the evaluation would be relative not real, and it comes closer to changing every time according to the market. In this latter situation, it is false to refer to it as a value, and so the term value would not truly apply to it. It would rather become a means to obtain money according to the market and not according to what it possesses of benefits.79 As discussed above, there is nothing wrong in the theories of value and price as put down by free market economists. They are merely the documentation of human psychology. But here we begin to understand the reason behind the books insistence on benefit as a determinant of price. According to the book, if the price of a good is determined by its benefit, then this is good and leads to stability. If however, the price is determined by the market, it would be bad, and would become a means to obtain money according to the market. Here the book seems to be presenting the speculation argument against Capitalism. Critics, politicians and the general public have long considered Capitalism as being synonymous with greed. So when a trader raises his prices, people usually assume this is unfair to customers. Yet what most people do not consider are the effects on the trader which cause him to raise his prices in the first place. This book joins the chorus in condemning freedom in prices. The solution that the book proposes is that benefit be used to determine the price of a good.
78 79

The Economic System in Islam, p.29 The Economic System in Islam, p.29

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Critical Analysis of HTs Economic Policy The most obvious question is, how do we translate objective benefit into monetary terms? If a thing has a known benefit, for example to alleviate hunger, how does one represent this in terms of money? How do two different things, having different benefits relate to each other in terms of money? These are fundamentally important questions if one is to accept this new benefit theory of prices, yet the book fails to answer them, or even to raise the issue in the discussion. A similar calculation problem led to the demise of the socialist economic model. Parallels can easily be drawn between what the socialists suffered and what this theory proposes.80 The argument against a value based price model profiteering holds little ground. In the absence of monopoly,81 markets tend to move towards reducing prices and increasing quality. The opposing pressures of customers demanding lower prices and more quality, producers demanding higher prices yet more sales, and the competition between multiple producers, tends to reduce prices, and therefore profit margins. In a free market, prices will rise only when supplies are low. This is a very important market indicator. A large profit margin tells entreprenuers that supplies are low and demand is high. Individuals will thus act to increase production, or bring supplies in from places with large amounts of supply, and therefore lower prices. As more and more supplies are brought into the market, prices become lower. This way, not only does the market eventually cater to everyones demands, it also acts as an efficient distribution network. Rising prices may seem like greedy merchants fleecing customers and may invite political action but these are merely the expression of facts. Merchants are acting on the reality of limited supplies. If prices were fixed, as is most often the case of political action, a number of things can go wrong. First, since supplies are limited, goods will quickly disappear from the market. Second, since there is no profit incentive, entreprenuers do not get the right signals, and more supplies needed to balance the demand, will not be brought into the market.82 Price fixing will therefore lead to instability. The benefit theory that the book proposes will eventually end up fixing prices. Because benefit in a particular good is fixed, logic would dictate that the benefit-price should also be fixed. Also, the above excerpt shows contempt for fluctuating market prices. Fixing prices will open the gates for a large number of economic problems. Since price-fixing itself is not allowed in Islam, and the same is accepted in this book, the benefit theory of prices becomes a contradiction. The confusion between value and benefit continues; The Capitalists say that benefits are the result of the efforts which man expends. So, if the reward was not equal to the work then no doubt the level of production declines, and they conclude from this that the ideal method to distribute the wealth among the members of society is that which guarantees to achieve the highest possible level of production. This approach is totally wrong, since in reality the resources, which God has created, are the basis of the benefit in the commodities. And the expenses spent in increasing the benefit of these resources, or initiating a benefit in them together with the work, are that which made them in the form that provides a particular benefit. So considering the benefit as a result of the efforts only is completely wrong and it neglects the raw material and other expenses. For in some cases, these expenses could
80 81

Mises has explained this calculation problem and how it led to the demise of Socialism in Human Action. Monopoly is defined as the absence of restrictions to entry. Which means that any entreprenuer can enter a particular market without having to deal with any roadblocks. 82 Price fixing is forbidden in Islam, as HTs book identifies after quoting a Hadith in The Economic System in Islam, pp.182-184.

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Critical Analysis of HTs Economic Policy be a compensation for a raw material, and not for an effort. Thus, the benefit could be a result of mans efforts or could be a result of the existence of the raw material, or could be a result of both of them, but it is not only as a result of mans efforts.83 What this passage says about benefits being intrinsic in raw materials, and mans labour and capital serving to increase or improve the benefit is not under dispute. This is accepted by all capitalists because this is a fact. But what must be understood is that this benefit is neither useful in determining prices and value, neither is it useful in determining wages. The reward or wages are not related to how long or how strenously one works, but in how productive a worker is. The forces which determine prices of commodities in the market are the same that determine wages. A wage is the price paid for the time and labour of a worker. If the labour market is free, competing employers and competing employees will tend to find their market prices depending upon how useful they are. Thus we see that a factory worker is paid a low wage, while an engineer is paid a larger sum. This is both a result of supply and demand as well as the individual valuation of a persons efforts in the eyes of the employer. [I]f the reward was not equal to the work then no doubt the level of production declines. This statement seems counter-intuitive. Perhaps this is Smiths theory or some other economists. In any case, neither are wages dependant on the amount of work nor are wages related to the level of production. The level of production is dependant on the market demand and the level of capital in a society. With a sufficient amount of capital and sufficient demand, profit margins will soon attract more production. Wages will be determined by the free market. As a corollary, wages not equal to work do not directly reduce production. In light of this, Capitalism is in agreement with the following statement As for the decline in the level of production, it does not result solely from a decrease in the reward for work, since it could also result from the depletion of the wealth of the country, or from war, or for other reasons.84 The reduction in wealth is the same as reduction in capital mentioned above. War has a similar affect; capital is diverted from the private industry towards state spending. However, The decline in the Islamic World today did not result from a reduction in the reward to work, it is as a result of the intellectual decline into which the whole Ummah fell.85 One would have to disagree with the reason quoted here. Intellectual decline in an Islamic sense is usually meant to convey the lack of closeness to religion. However, this cannot be the cause of economic decline because an economically strong country can also be spiritually weak. The real reason is the lack of capital. This has been identified by a number of economists What distinguishes modern industrial conditions in the capitalistic countries from those of the precapitalistic ages as well as from those prevailing today in the so-called underdeveloped countries is the amount of the supply of capital.86
83 84

The Economic System in Islam, p.29 The Economic System in Islam, p.30 85 The Economic System in Islam, p. 30 86 Ludwig von Mises, The Anti-Capitalistic Mentality, pp.38-39.

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Critical Analysis of HTs Economic Policy Ludwig von Mises The problem here is identification of a wrong chain of causality. Since the Islamic world is both in a state of intellectual decline and lacks capital, at the same time being in a state of economic stagnancy, the wrong conclusion is easy to draw.

2.1.8. Profit Incentive

The book states; The Capitalists say that the price is the incentive for production, because the motive for the person to expend any effort is his reward materially. Ths view is incorrect and contradicts reality. Man often expends effort in return for a moral reward such as the attainment of a reward from God, or for the sake of achieving ethical merit such as returning a favour.87 I have discussed spiritual and moral motives in Section 2.1.1, Capitalism And Recognition Of Needs. Briefly, spiritual or moral reward can form the basis of mans actions. This can also be considered a form of profit non-monetary of course. Yet the point at issue here is that such an incentive can form the basis of production. Spiritual acts are personal and therefore help only the individual. They cannot form the basis of production because no goods are produced. Moral acts are also limited in their scope. The profit motive stems from the immutable fact that man needs certain things to survive. This is his nature and is infused in him by Allah. The reason he works to produce goods or services is so that he can fulfill his needs (and wants) in exchange. This is the profit motive. A man can work for moral reasons or spiritual reasons, but only when his human needs have already been fulfilled. Man can, of his own choosing, work on a spiritual level without fulfilling his needs, but this always leads to his physical detriment. More importantly, all men cannot be expected to act this way. Capitalism therefore does not need to consider moralistic or spiritual actors because they are not economically important. Even in a capitalistic society, men can work for these noble causes by working for charity, or building a place of communal worship. Yet these actions do not have a collective economic effect. Profit plays an especially important role in an economy, that of sending important signals to entreprenuers. A large profit in some commodity is usually an indication of a low supply. This attracts more entreprenuers to that particular good, therefore increasing the supply of the good, lowering prices and satisfying more customers. Profit also serves in weeding out the good businessmen from the bad. A person who continously makes mistakes loses profit. By making mistakes he is wasting resources. The limited resources at the disposal of society are being used to produce things which customers do not want. Therefore he loses sales and hence profit. This way he is taken out of the market and is unable to waste more resources. The opposite is true for a good businessman. His increased profits are testament to his ability to satisfy consumers, and therefore to utilize resources in the best possible way. Consumers use profit to control the economy. They reward businessmen by buying things that they want. Let us suppose that businessmen are willing to produce for the market things that would not provide them any profit. Let us say that they are all philanthropists and would like to serve society by
87

The Economic System in Islam, p. 30

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Critical Analysis of HTs Economic Policy producing and then selling at loss-inducing prices. On the surface such an act would seem angelic. But this would have the important effect of depriving the consumer his power of choice. He would no longer have the ability to direct resources towards things that he would like to have. Instead it would be the philanthropist-businessmen who would decide what and in what quantity would be produced. Eventually this would lead to waste, because resources would be used to produce items that people do not want. Such a profit-less society, far from being an idyllic utopia, would be a nightmare. Islam recognizes the profit motive but places certain restrictions on what can and cannot be done. There are certain business practices termed haraam and others that are halaal. But the profit motive is still there. The Prophet Mohammad (SAWS) worked as a trader for a significant portion of his time. He was therefore intimately attached with the profit motive. There is nothing immoral in profit. At the same time, moral or spiritual incentive cannot form the basis of an economic system, even in Islam. Within this discussion the book states the following example; [A] nation could allocate some or focus all of its efforts on preparing to defend its territories. There are a few problems with this example. We should not forget that the word nation used here is an abstract concept. The reality of this example would be citizens forced to work on the preparation of defence.88 This means that the economic activity that the citizens would otherwise be conducting will be lost. This will in turn lead to a loss in productivity, and perhaps shortages of important goods. If the workers do not have a choice this becomes slavery. The workers will also need remuneration, whether they work voluntarily or under threat, they need to be fed and clothed. The state could at this point implement a socialistic distribution of basic needs, or it could pay wages to the workers. In either case, the motive of these workers is now diluted by profit.

2.1.9. Monopoly
The book states; The domination of Capitalist monopolies has developed in countries adopting Capitalism, with producers exercising control over consumers.89 Capitalism abhors monopoly. The principle of economic freedom does not allow it. Capitalists who accept the state as a necessary evil, ascribe the duty of breaking monopolies and cartels to the state, just like Islam does. Like the book points out, what it calls the Conservatives are opposed to interventionary measures by the state. Price control is an interventionary measure that does little to break monopolies. In fact price control supports monopoly. What has been termed Crony Capitalism involves favors by the state towards those parties it considers its friends politically or otherwsise. This is wrong from a pure free-market capitalistic standpoint. This is also a great example of how a state can misuse its power and is a good argument against state intervention. The distinction that the book makes between Conservatives and Liberals exists in the democratic model. It has nothing to do with Capitalism. As stated above, capitalists have always been wary of the state. The history of the United States is one of small, limited government. Their founding fathers formed their constitution to restrict the state and prevent it from intervening in the market. This is the major reason behind their immense economic progress. Only after the 20th Century, and the World
88

Since the organized military is usually already working on defence, we cannot apply this example to it. Military is already paid for its services therefore the profit motive applies. 89 The Economic System in Islam, pp.31-32.

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Critical Analysis of HTs Economic Policy Wars, did their government expand and take on a more powerful role. It is interesting to note, that after this point in time, their economy has been unstable and slowly in decline.

2.1.10. Capitalisms Supposed Failure

The book continues; The poor distribution of commodities and services, which resulted from the concept of freedom of ownership and from the concept of making the price the only mechanism for distributing wealth, will continue to dominate every society that applies Capitalism.90 Unforuntately, the book does not give us any proof of this poor distribution. Historically it will be seen that the champions of free market Capitalism the United States were on top of the world economically while they held on to these principles. When even the simplest of factory workers was able to afford a house, a car and all the amenities of life, it is hard to believe the poor distribution argument. On the contrary, it was the very places of the world that rejected Capitalism Russia, Germany, China, India that suffered in poverty and poor distribution. While their counterparts in the United States were enjoying a prosperous life, these non-capitalistic countries were suffering from poverty, disease, hunger, crime and a number of other ills. As has been discussed elsewhere in immense detail, Socialism because of its lack of freedom of ownership failed to provide people with what they needed to survive. It is entirely because of Capitalisms recognition of economic freedom and private property something that Islam also stresses that the First world is where they are today. Further the book states; With regard to American society, many Americans had a sufficient share of the wealth of the country, to satisfy most of their basic needs completely, and to satisfy even some of their luxuries. This situation occurred due to the immense wealth of that country which had reached a level by which there was an opportunity for every individual to satisfy all of his basic needs and some of his luxuries. However, this was not due to making the share of the individual equal to the value of the services he contributed in production. The book implies that somehow the United States amassed a large amount of wealth and thereafter distributed this to satisfy peoples' desires. First of all, where did this immense wealth come from? It had to have been built up first, before it could have been distributed. There had to have been some system of economic progress while this wealth was built up. Since the independance of the United States in 1776 till the beginning of the 20th Century, it has been dominated by capitalism and the concept of small government. This was the period during which much of the United States' wealth was created and saved. The last statement quoted above is therefore baseless. Second, when did this distribution occur? Nowhere in the capitalistc history of the United States has this distribution ever taken place.91 In fact the idea of the reward being equal to the value of the contribution has always been present. The book continues;
90 91

The Economic System in Islam, pp.31-32. before the World Wars, after which a lot of socialistic practices were introduced

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Critical Analysis of HTs Economic Policy [P]utting the price mechanism as the controller of distribution has caused Capitalist monopolies in the West to look abroad to other countries for new markets, from which to gain raw materials and to sell their products. Again the lack of a chain of causality is glaring. The book does not establish a link between the price mechanism and searching out for new markets. Besides that obvious point, there is one more thing wrong here and that is the idea that Western capitalists can somehow steal resources. As mentioned before in this article, and in most economics books, market interactions help both participants exchange a state of lesser satisfaction with one of higher satisfaction. If a foreign capitalist tries to buy certain resources, he is paying for it. To the extent that this exchange is voluntary, both parties have to agree on the transaction. Why would anyone agree to sell their resources for a price that does not make them happy? Of course there is the chance and historical precedence of forced purchase, or appropriation of resources from the third world. This is exploitation. It is not a free market action and is denounced by Capitalism. There is another danger. In the case when resources are defacto owned by the local government, it is quite easy for public officials to sell off resources for their own private gain. That is, they act as if the property is privately owned by themselves instead of being publicly owned. The losing party is of course the public which has neither a negotiatory voice nor a share in the profits.92

2.1.11. Conclusion
Thus ends the books criticism of the Capitalist system. To recap, HTs book asserts the following. Capitalism does not recognize spiritual needs. Capitalism is immoral. Capitalism does not gurantee the distribution of basic needs. Commodities and Services are not related to the structure of the society. Capitalism does not provide for the welfare of the people. Value, and price as fixed by the market are wrong and should be based on benefit. The price (or profit) incentive is wrong. Capitalism supports monopoly. Capitalism fails to provide for improvement in wealth, or provision of needs of the public. We have discussed each of these points in detail above. Excerpts from the book have been reproduced. Arguments against these points have been stated. Support has been taken from a vast library of economic literature. Most of the arguments placed by HT can be traced back to Socialistic prejudices against Capitalism. Namely, exploitation of the masses, evils of wealthy capitalists, lack of provision of basic needs etc. Most of these arguments are quite old and have been levelled against Capitalism for centuries. The Christian church has often condemned Capitalism of being immoral, and Capitalists as being greedy.
92

Note that this is only possible when the institution of private property is forsaken.

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Critical Analysis of HTs Economic Policy Since these arguments are quite old, there is sufficient literature for their rebuttal. I have tried to compile some of these counter-arguments in this section. A lot of these criticisms against Capitalism are based on mistaken logic and causality. These, after some thought, are disproved by dissecting the chain of causality. Much of the confusion here is caused by the high-handedness of Western democracies in dealing with the Third world which includes large parts of the Islamic World. Since they advertise themselves as Capitalists, it is easy to feel resentment towards Capitalism as a whole. But what we must understand is the dichotomy between Democracy and Capitalism. And we must also understand the distinction between welfare economics and pure free market Capitalism. The reason behind this entire discussion is to show the flaws in the arguments against Capitalism and to pave the way for a genuine understanding of Capitalism. Without this understanding we stand to face a large number of economic challenges, similar to those faced by Socialists. This might even cause the demise of HTs economic system, just like it lead to Socialisms demise. To build a lasting, solid, strong economic base we need to study those systems that have had these properties in history. Capitalism, within the last few centuies, has shown immense resilience and progressive energy. It is thus the most excellent candidate for study. It would be foolish to close this door of understanding due to dogma and mis-directed anger.

2.2. Socialism
The book starts with a general introduction to Socialism and Socialistic thought. It then analyses different aspects of Socialism presenting arguments for or against them.

2.2.1. Distribution
Earlier the book blasted Capitalism for its inequality of wealth. It now seems to turn around and criticize Socialism in its very struggle for equality. Communists, strive to achieve real equality such equality is impossible to achieve, and it is nothing but a hypothetical assumption. It is impractical and therefore impossible.93 One is left wondering how the book can take a stand for distribution in the last section and now argue against it, claiming that equality is impossible. Is the book not contradicting itself? It continues; Even if one distributed equal shares of commodities and services among the people by force, it would be impossible for them to be equal in using this wealth in production or utilisation. If distribution cannot render a useful service to society, then why embrace it in the first place? We have already discussed the books ideas about distribution in Section 1.4, Distribution as The Economic Problem. To requote The problem doesnt stem from any other matter, and therefore addressing this aspect is the basis of the economic system.94 And;
93 94

The Economic System in Islam, pp.39-40. The Economic System in Islam, p.48.

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Critical Analysis of HTs Economic Policy Therefore, the economic problem is focused on distributing the means of satisfaction for individuals i.e. the distribution of the funds and benefits to the members of the nation or people, not on the needs which the nation or the people require without regard to every individual within the nation.95 Additionally, in another publication; The economic problem in the view of Islam (it) is the distribution of capital and services amongst all the people. In other words, it is the distribution of wealth and not the production of wealth.96 If we have just understood distribution to be counterproductive, how can we make it the basis of our economic system. This is a huge contradiction attaking the very basis of all HT economic theory and policy. Yet the reader is left lacking an explanation.

2.2.2. Property
The book makes a point to identify ownership with human nature. Regarding the complete abolition of private property, this contradicts with mans nature, because ownership is a manifestation of the survival instinct Anything that is instinctive in man cannot be eliminated from him as long as he is alive. Any attempt to abolish private property is nothing but a suppression of the human beings natural instincts, and can only lead to anxiety.97 Quickly however, the book devolves into a confusing explanation of private property. With regard to the partial abolition of ownership, it has to be studied. If what is meant by this is to put a ceiling on the magnitude of commodities that can be owned, then this would be a limitation in quantity, which is wrong, since it limits the activity of man, obstructs his efforts, and reduces his production. By preventing people from owning that which exceeds a certain level, this effectively stops them at that limit, interrupting the individuals from their activities, and thereby depriving the community from benefitting from the activities of these individuals. However, if ownership of commodities and services is restricted to a certain manner without restriction in the quantity owned, this would be acceptable, as it does not obstruct the activity of man. This approach organises the ownership of property among individuals, and encourages them to expend more effort and increase activity.98 The above two paragraphs explain the same thing limits on private ownership through different angles. One is the limit on quantity owned, which the book rightly denounces as having a negative effect on economic activity. The second is a limit on items that can be owned. Yet this limit the book claims is somehow conducive to economic prosperity. In reality, both of these limits are restrictive to economic activity. If one is considered a limitation vertically, then the other is a limitation horizontally. Contrary to what the book tries to state, both are
95 96

The Economic System in Islam, p.25. [HTbklet00] p.55 97 The Economic System in Islam, p.40. 98 The Economic System in Islam, pp.40-41.

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Critical Analysis of HTs Economic Policy limitations on human nature. Both will lead to economic stagnation. A horizontal limitation will not organize the ownership of property among individuals, and encourage them to expend more effort. It will have the same effect as the first limitation, causing people to abandon economic activity in the direction of the restricted item. If restricting economic activity is the main purpose of this action then this goal will definitely be achieved. But to paint a rosy picture for something which obviously hamstrings society is misleading and a prevarication. The book actually recognizes the similarity between the two types of limitations further on when it states (in another context), [To limit ownerhsip of certain types of property] would unfairly limit ownership for no reason. This would be like limiting the ownership by quantity which will only result in restricting mans activities, interrupting his efforts, reducing his production, and stopping him from work when he reaches the set limit of ownership.99 If limiting ownership of certain types of items is problematic, how can it be justified in certain situations? Assigning a reason to the restriction does not change the fact that it would have a negative effect on the economy. Similarly, not having a valid reason does not magically make the restriction economically unsound, when it previously was (considered) not. The book does provide a description of property which should be prevented from private ownership. If the beneficial nature of these properties cannot be enjoyed by the individual alone, except by depriving the public of that property, then it is natural to prevent the individual from owning that property individually. And examples of this are (according to the book). ... public roads, town squares, rivers, seas, and the like water and mineral resources. A detailed discussion of public property is presented in ???. Briefly, in order to refute the above definition of public property the following points are relevant. All property deprives others. By its very nature property deprives the use of a certain entity by other people. The institution of private property satisfies the very urge of a human being to be the exclusive owner of an item. My ownership of a car prevents the use of that car by other individuals. My ownership of a factory would prevent other people from operating that factory. Only people I choose will be allowed to use that factory and produce goods. Then according to the book, all property falls into the description of items to be forbidden from private ownership. There is no physical manifestation of a public or a society. These are descriptions of a collecive. In reality it is only individuals who act in a community. Stating that something is owned by the public implies that either it is owned by no one, or that it is owned by the state. In either case, the individuals comprising the society have no stake in the so called public property. The state may choose to allow individuals to keep on using the property designated as public, or it may choose to prevent them from doing so. In this power, the state is no different than a private owner except that it is a monopoly.
99

The Economic System in Islam, p.41.

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Critical Analysis of HTs Economic Policy All public property is victim to a phenomenon that scholars have termed the tragedy of the commons. When a community is designated the shared user of a particular resource, people acting on their own self-interest will quickly deplete the resource without paying attention to sustainability. This is what happens when forests are over-cut, or seas are over-fished. The incentive is to gain as much as possible from the resource, competing with others over it. Replanting or re-populating the resource is actually a dis-incentive, because there is no guarantee that the effort expended will accrue benefits to the same person. In fact, it may be that someone else gains that benefit. Why should anyone plant a tree so that someone else may fell it in the future? If we were to be honest we would use the term state owned property and drop the use of the term public property entirely. The issues with the principle itself make the institution infeasible and actually detrimental to the development of society. On the other hand if resources are under private control, then there is every incentive to further develop and increase output. The consumer is again the one who benefits.

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