subject: What Are The Factors Of Production In Islamic Economic System? [print this page] Islamic Financial system is fundamentally different from that of Capitalism and Socialism. There is no more confusion on this issue, so there is no need to confuse them with each other on the basis of some trivial similarities. It needs good governance for its implementation. The issue of the interest is the main issue between Islamic and capitalists economic system. In addition to it, there are differences in the factors of production and in defining them. Here we will have a brief view of the different interpretations of factors of production between the three economic systems.
We will confine to the theoretical definitions of the factors of production, as the practices present a variety of their versions, and it is not possible to discuss them all in this small treatise.
Capitalistic view:
According to Capitalism there are four factors of production:
1. Capital: the capital is defined as "the produced means of production" which implies that capital is a commodity, which has been used in production and is going to be used again in another process of production.
2. Labor: it has been defined as any effort on the part of man for the sake of monetary or material benefits.
3. Land: land has been defined as "natural resources" that is those things which are used for production and now again going to be used for production.
4. Entrepreneur: This is the fourth factor that brings the above mentioned factors get together to utilize them. Entrepreneur bears the risk of profit and loss in the process of production.
According to capitalist design of economy the wealth produced by the cooperation of these four factors is divided among these factors, that is, a share of this wealth goes to Capital as fixed interest, the second share goes to labor in the form of wages, land takes its share as rent and entrepreneur gets his share as profit.
Socialistic View:
Since in the classical design of socialism, the capital and land are considered to be national or collective property, and responsibility of good governance, there is no room for private property so there arises no question of interest and rent. According to socialism, entrepreneur is the state itself not the individual. Only labor can get its share in the shape of wages.
Islamic View:
Islamic economic system presents a different view to both of these economic systems. According to Islamic model the factors of production are three.
1. Capital: this is defined as such a means of production which is not used in the process of production as it is. It can only be used if it is complete consumed or changes it form. Thus it is not a commodity itself in the Islamic economic system.
2. Land: this is defined as the means of production which is used during the process of production as such that it remains unaltered, it can be leased. Lands, machines and house come under this category.
3. Labor: this includes the human effort of body and mind; according to this definition it includes the planning and organization on the part of entrepreneur.
Thus we see that there is no entrepreneur mentioned separately as the factor of production but he is present in the category of labor, secondly, the capital is supposed to bear the risk of profit and loss instead of taking interest. Thirdly it is but profit, not interest, which is distributed among the three factors.
These are theoretical views of the three system, we see that by excluding interest, Islamic economic system can eliminate the problems caused by interest, but the application needs executive education in Islamic finance. A quality executive education can guarantee the success of this system which carries the remedies for the ills of interest.
