INTRODUCTION:-

DEFIN ITION:-

TABLE OF CONTENT:-

1- Public Ownership;-

One of the primary components of a socialist economy is that it has public

property entirely on the production facilities. Along with production, public
ownership also extends to distribution as well. It is agreed that in a socialist
economy, all the forms factories, mines distributing agencies, and financial
agencies, along with transportation and communication, are controlled and
owned by the state and government departments as the case may be.

2. Self-managed economy
The primary goal of self-management is to reduce or eliminate worker
exploitation and alienation that happens in the office and at workplaces. Guild
socialism originated in the United Kingdom and is a movement that
propagates the controls of workers on the industry by way of trade-related
guilds.

PRINCIPLES OF SOCIALISM
Some of the principles of socialism include:

1--Public Ownership
This is the core tenet of socialism. In a socialist economy, the means of production and
distribution are owned, controlled and regulated by the public, either through the state or
through cooperatives.

The basic motive is not to use the means of production for profit, but rather for the
interest of social welfare.

2--Economic Planning
a socialist economy is not driven by the laws of supply and demand. Instead, all
economic activities – production, distribution, exchange and consumption – are planned
and coordinated by a central planning authority, which is usually the government.
A socialist economy relies on the central planning authority for distribution of wealth,
instead of relying on market forces.

TYPES OF SOCIALISM
Market Socialism
This is a type of socialism where the means of production is owned by workers. Goods
produced are distributed among the workers, while any excess production is sold on the
free market.

In this kind of socialism, production and consumption are controlled and regulated by
market forces instead of the state.

Democratic Socialism
This type of socialism results from the merging of the democratic system with socialist
goals. A government that is chosen through popular election manages the means of
production.

BENEFITS OF SOCIALISM

1Egalitarian Distribution Of Wealth And Income

Socialist economies are dedicated to providing equal opportunities for all. There is no
exploitation. Wealth is distributed to workers based on their input to the economy. This
prevents situations where a few members of society piggyback on the efforts of workers
to create and amass wealth for themselves

Rapid Economic Development

Under a socialist economy, there is a central authority in charge of planning for the use
of resources and making quick decisions. Resources are used fully and there is minimal
wastage. This leads to fast economic growth of socialist states. A good example of this
is the development that was made by the USSR in its early years.

DISADVANTAGES OF SOCIALISM
Lack Of Economic Freedom
Through social ownership, socialism takes away people’s freedom to enterprise, which
in turn takes away people’s free choice of occupation.

Lack Of Consumer Freedom

Under a socialist economy, you don’t have such choice. The planning authority
determines the products that will be produced as well as the prices for this products. If
you don’t like a product or its price, there is not much you can do. It’s a take-it-or-leave-
it situation.

PROHIBITION OF RIBA:-

Introduction
This article explains about the consequences and rationale of the
prohibition of riba in an Islamic economic system. Any transaction
in Islamic economic system is based on justice (‘adl) and remove all
1
form of exploitation through unfair exchange such as riba. Riba is
defined as an increase (fadl) of capital whether in loans or in an
exchange of a commodity, accrues to the owner (lender) without
giving in return any equivalent countervalue or recompense (‘iwad)
2
to the other party. ‘Iwad is the basic trait or the condition of a halal
or lawful sale because sale or exchange is necessary an exchange of
value against an equivalent value, an equitable return and compen-
sation for the goods or services exchanged. Riba occurs either in the
thing or commodity and money, as the loan of a sum of money or
commodity to be returned with an increase, or in a sale or exchange
when exchange of one commodity against another brings with it an
3
increase in the commodity. Riba can be divided into two kinds, i.e.
riba al-nasi’ah (also known as riba al-duyun or riba al-jahiliyyah) and
riba al-fadl. Riba al-nasi’ah refers to the “premium” that must be paid
by the borrower to the lender along with the principal amount as a
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condition for the loan or for an extension in its maturity. Riba al-
nasi’ah has the same meaning as interest in accordance with the
consensus of all fuqaha’ (jurists) without any exception. Whereas riba
al-fadl refers to an exchange of ribawi commoditiy without the same
reciprocal transactions. In other words, the exchange or transaction
of the six ribawi commodities that if gold, silver, wheat, barley, dates
and salt are exchanged against themselves they should be exchanged
in spot and be equal, and alike. The hadith related to this case is among
others, as follows:

The Prohibition of Riba

The prohibition of riba appears in the Qur’an in many verses such
as;
Those who benefit from interest shall be raised like those who have
been driven to madness by the touch of the Devil; this is because they
say: “Trade is like interest” while Allah has permitted trade and
forbidden interest. Hence those who have received the admonition
from their Lord and desist, may have what has already passed, their
case being entrusted to Allah; but those who revert shall be the
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inhabitants of the fire and abide therein for ever.
There are many hadiths of Prophet Muhammad SAW relating
to this case condemned in the most unambiguous words not only
those who take riba, but also those who give riba and those who
7
record the transaction or act as witnesses to it. The Prophet Muham-
mad SAW also equated the taking of riba to committing adultery
8
thirty-six times and The Prophet SAW also said that “There will
certainly come a time for mankind when everyone will take riba
9
and if he does not do so, its dust will reach him.” In another wor
in trade an entrepreneur has the prospect of making a profit, he
also faces the risk of incurring a loss. Whereas, riba is predetermined
to be positive irrespective of the ultimate outcome of the business
which may be positive or negative depending to a great extent on
10
factors beyond control of the entrepreneur.
Hence, riba is essentially in conflict with the clear and unequi-
vocal Islamic emphasis on socio-economic justice. The owners of
the capital who do not wish to take the risk are entitled to only the
principal and no more. Those who insist on charging riba in spite of
its prohibition are declared by the Qur’an to be at war with Allah
SWT and His Prophet Muhammad SAW.
The nature of the prohibition is strict, absolute and unambi-
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guous. There is no room for arguing that riba refers to usury and
not interest, because the Prophet SAW prohibited the taking of even
a small gift, service or favour as a condition for the loan, in addition
to the principal. The Prophet Muhammad SAW said: “When one of
you grants a loan and the borrower offers him a dish, he should
not accept it; and if the borrower offers a ride on an animal, he
should not ride, unless the two of them have been previously
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accustomed to exchanging such favours mutually”. The prohibition
of riba al-nasi’ah essentially implies that the fixing in advance of a
positive return on a loan as reward for waiting is not permitted by
the Shari`ah. It makes no difference whether the return is a fixed or
a variable per cent of the principal, or an absolute amount to be
paid in advance or on maturity, or a gift or service to be received as
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a condition for the loan. On the other hand, if the return on prin
pal can be either positive or negative depending on the outcome
of the business, which is not known in advance, it is allowed on
condition that it is shared in accordance with the principle of justice
(al-`adl) laid down in Islamic economics through the contracts of
profit sharing such as al-mudarabah, al-musharakah, or contracts of
exchanges such as bay` al-istisna`, bay` al-dayn, bay` al-salam or
contract
of al-ijarah, etc.
Riba al-fadl is prohibited in order to ensure justice and remove
all forms of exploitation in economic transactions through unfair
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exchanges. In this sense, of the six commodities specified in the
ahadith about riba al-fadl, two represent commodity money, whereas
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the other four represent staple food items. The question is why is
exactly the same reciprocal transactions required, for example, if
gold is exchanged for gold, it must be exchanged in spot, like for
like and yadan bi-yadin is because what is essentially being required
is justice and fair play in spot transactions; the price and the
countervalue should be just in all transactions where cash payment
(irrespective of what constitutes money) is made by one party and
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the commodity or service is delivered reciprocally by the other.
Anything that is received as “extra” by one of the two parties to
the transactions is riba al-fadl, which could be defined in the world
of Ibn al-`Arabi as “all excess over what is justified by the counter-
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value”. Justice can be rendered only if the two scales of the balance
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carry the same value of goods. To ensure justice, the Prophet SAW
even discouraged barter transactions and asked that a commodity
for sale be exchanged against cash and the cash proceeds be used to
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buy the needed commodity. Hence, the use of money in a transac-
tion, could establish the equivalent and justice to the other party,
and therefore reduce the possibility of an unfair exchange
Rationality Aspects
The rationale of the prohibition of interest (riba) in the economy,
among others, can be seen from the questions of savings and capital
formation, profitability and productivity,
Savings and Investment
Savings and investment are two of the most important determinants
of economic growth and development in an economy. There is an
apprehension that prohibition of interest and replace it with profit-
sharing system may reduce the levels of savings and may retard
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economic growth and development. This apprehension is misfo-
unded because empirical evidence does not indicate a significant
positive correlation between interest and savings even in industrial
21
countries. The impact of interest rate on savings in developing
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countries has been found to be negligible in most studies. The
classical economists such as Keynes belief that savings are deter-
mined by interest refuted. According to him, aggregate saving is
governed by aggregate income. A rise in the interest rate diminishes
investment and income. This leads to a decrease in both saving and
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spending. Further, individuals and business firms save for different
purposes irrespective of the level of interest rate, and the bulk of
saving in many countries is largely done by firms in the form of
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retained profits independent of interest rate.
Moreover, even on theoretical grounds, the assumption of a
positive time preference in the theory of interest used by Bohm-
Bawerk has been rejected by a number of prominent economists.
For example, Graaf has doubted its very existence. It has, however
been generally argued that a rational consumer may have a positive,
zero or negative time preference