A Non-Technical Primer on Private Ownership in Islam

By: *Amir Kia
72 Journal of Business Inquiry 2007
Utah Valley State College

Islamic economics does not explain production, consumption or investment relationships. Islamic economics is
only a school of thought. In Islamic economics, in contrast with other schools of thought, resources are not
limited. Private ownership in Islam is absolutely respected, but the more an individual owns, the more
responsibility he has to the society. In Islam, everything belongs to God and so the accumulation of wealth is
not a goal, but a source of pleasing God. What individuals consume or give away to charity is what they own.
Keywords: Private ownership, Wealth, Responsibility, Distribution of income
Introduction
This paper is intended for readers with no
background in economic theory, and so no attempt is
made to provide any theoretical or empirical proof
for ideas raised in this paper. In a world where all
countries have open borders and operate under
international economic interdependence, private
ownership is one of the most important issues for a
country wishing to have independent and effective
monetary and fiscal policies. For example, if
monetary authorities of a country believe that a low
interest rate policy is an optimum way to achieve its
economic objectives, the country cannot implement
this low-interest policy if interest rates in the rest of
the world, everything else being constant, are above
what the country wishes to have. This is because the
capital of the country will be moved out as its interest
rate is below the rest of the world’s interest rate,
resulting in a shortage of capital in the country that
will put upward pressure on interest rates, and,
consequently, the economic objectives of the country
will not be achieved.
However, this problem does not exist under the Islamic
concept of private ownership because the rate of
interest is not pre-determined. The rate of return
(interest rate) on an investment is based on the profits
made and it is only known after the end of the period.
Such a rate is not comparable
with a predetermined rate of interest. Furthermore, all
other economic problems which arise from non-Islamic
private ownership, e.g., externality (diseconomy) in
consumption and production are nil or at their
minimum under private ownership in the Islamic
concept. The purpose of this paper is to explain the
theory of private ownership in Islam and its
implications in practice. The following section provides
a brief explanation about principles of Islamic
economics and is followed by a section on private
ownership in Islam. Finally, the last section is devoted
to some concluding remarks.
Brief Explanation of Islamic Economics
At the outset, we should mention that Islamic
economics is a school of thought. Islam does not talk of
production, consumption or other economic
relationships. Islam covers what is right or wrong
(Halal or Haram) in distribution, in relationships
between employers and employees, between buyers and
sellers, between landlords and tenants, among members
of a family, between the governments and individuals,
etc. Furthermore, Islam recommends a type of
government, principles of heritage, economic
relationship between parents and children, husband and
wife, etc. (Sader, 1349, pp. 9-17).
In comparison, human beings have complete freedom
in a capitalistic system while in a Marxist system,
society, not the individual, is important. The selfishness
of individuals is fully respected in the former system,
but not in the latter. Capitalism is
2007 Journal of Business Inquiry 73
based on logic while marxism is based on ideology.
Private ownership is permitted in an unlimited form in a
capitalistic system while everything belongs to the
government (society) in a socialistic system. Capital or
a commodity can be used any way the owner wishes,
both in production and consumption in a capitalistic
system.
Islamic economics is based on three principles (Sader,
1350, pp. 354-367):
1. Principle of Mixed Ownership
In both capitalistic and Islamic systems we have three
kinds of ownership: (a) private, (b) public and (c)
government ownerships. Public and government
ownership are the same in both the capitalist and
Islamic systems.
2. Principle of Economic Freedom within a Limiting
Framework
There are two limitations to economic freedom in
Islamic ideology:
(i) Intrinsic (internal) limitations. These limitations are
based on Islamic beliefs, but there is no force imposed
on individuals. Individuals, according to their Islamic
belief, impose the limitations on themselves by choice.
For example, the individual pays zakat which is a tax
on individual’s savings (wealth). There is no
government control on the payment of zakat. The
calculation and payment are done by the individuals.
The time of payment, the amount of zakat, the receiving
persons and/or institutions, etc., are only known by God
and the individual.
(ii) External limitations. These limitations (constraints)
are imposed by the government. For example, the
production and the transaction of alcoholic beverages
are prohibited. No individual can produce or trade
alcoholic beverages even if the individual does not
believe in the law. However, non-Muslims are
allowed to produce, trade among themselves, and
consume alcoholic beverages in Islamic societies.
3. Principle of Social Justice in the Society
The principle of social justice in Islam includes the
following: (a) The principle of cooperation among all
members of the society, and (b) the principle of social
balance. As Sader (1349, pp. 366-367) states, there is
no unrealistic concept in Islamic economics. For
instance, in Islamic economics, workers must have at
least an average standard of living (the principle of
social balance). However, such a standard of living is
not achieved by the market forces or cyclical variations,
etc. Such a state, according to Islam, is a requirement
for the economy and its achievement is a moral
responsibility for each member of the society (the
principle of cooperation among all members of the
society).
In an Islamic system, individuals try to please God and
only God. Note that when we consider any Islamic
economic principle, we should consider it in a
framework of a complete Islamic environment. An
individual by nature may be selfish and tend to
maximise his utility and/or profit subject to goods or
resources available to him. However, if the individual is
religious, he also attempts to incorporate awareness of
the responsibility to society in his decisions in the
process of utility or profit maximisation. This is
because all aspects of life have a religious connotation
for a practicing Muslim. Consequently, his economic
decision also has a religious connotation. In the absence
of religion, the utility or profit maximisation is purely
due to selfishness and does not necessarily consider the
society at all. In fact, to Muslims only religion can
make human beings aware of the society so that the
individual will consider the welfare of the society in his
utility/profit maximisation (Sader, 1350, pp. 383-396).
In Islam, a practicing Muslim, in his economic decision,
while maximising his utility or profit, tries to please
God. This Islamic economic concept is believed to lead
to a higher efficiency in the society.
For example, competition in a non-Islamic economic
system leads to an efficient production. However, in an
Islamic economic system, competition among
individuals is allowed, but this competition is toward
pleasing God while maximising utility and/or profit.
This kind of competition leads to super efficiency since
not only the utility/profit of one individual is
maximised but at the same time the social welfare
improves. Note that in a non-Islamic system, starting
from an efficient point, a higher utility of one leads to
74 Journal of Business Inquiry 2007
a reduction of the utility of another individual. In an
Islamic system, the individual’s utility is a function of
“God’s pleasure.” Since individuals are God’s
representatives (khalefeh) on earth, they please God
through helping (making happy) other individuals. In
this way, starting from an efficient point, a higher
satisfaction of one individual results in a higher
satisfaction for other members of the society and,
therefore, the welfare of society generally will improve.
As Sader (1350, p. 415) mentions, the relation between
individuals and society in Islam is not a force of
production. In other words, hiring, employing
connection, employer-employee relationship, etc., are
not the forces of production, but are based on welfare
maximisation and are assigned by God. For example, in
traditional economics, the demand for labour is derived
from a profit maximisation decision. Workers are hired
until their marginal product is equal to the real wage
rate they are paid. In supplying their services, workers
try to maximise their satisfaction and not the interest of
the employers or the society. The less they offer for a
given wage rate, the happier they are. In an Islamic
system, in supplying their services, workers incorporate
the interest (profit) of their employers as they constantly
witness God’s presence in their activities. Clearly, one
can see that society can operate more efficiently in an
Islamic system since cheating, shirking, etc., and,
consequently, policing, do not need to exist.
In general, there is no limitation of resources according
to Islamic economics. According to the capitalistic
system, each society maximises its welfare subject to
given resources. In Islamic economics, the resources are
unlimited since the limitation is believed to be created
by man. According to the Qur-an [ch. xiv (Abraham),
v. 32-34], “It is God Who has created the heavens and
the earth and sends down rain from the skies, and with
it brings out fruits wherewith to feed you; it is He who
has made the ships subject to you, that they may sail
through the sea by His Command; And the rivers (also)
has He made subject to you. And He has made subject
to you the sun and the moon, both diligently pursuing
their courses; and the Night and the Day has He (also)
made subject to you. And He gives you of all that you
ask for. But if you count the favours of God, never will
you be able to number them. Verily, man is given up to
injustice and ingratitude.”
We can see from these verses that it is man who, by
giving in to injustice and by being ungrateful, has made
the resources limited. According to Sader (1350,
p. 425), people, by using natural resources and their
energy in an inefficient way, together with an unjust
distribution of wealth and income, create limitation in
resources. Furthermore, I believe that the external
diseconomy created by economic units, the imposition
of distorting taxes by governments and economic and
non-economic wastes are examples of this injustice of
man.
The value (price) of a commodity in Islam is
determined, similar to capitalism, by its demand and
supply, and not labour embodied in it. However, in
contrast with capitalism, the share of labour from
production is determined by the number of hours
worked (labour embodied) in that production and not
by the market value of the output. The market
determines the price, but not the share of the factors of
production (Sader, 1350, pp. 430-431). In many
instances, in contrast to capitalism, workers and
employers are sharing risk and they are also partners
(Khan, 1989, pp. 63-69).
People are divided into three groups. The first group
includes those with the highest talent and capacity. The
share of this group from national income is according to
their work. This group is the rich class in the society.
The second group includes average or low talent and
capacity/skill people. The share of this group from
national income is determined by their work, but they
are also eligible to “Public Funds” (Principle of
Cooperation and Guarantee). Finally, the third group
includes those people with no or minor talent and
capacity/skill. The share of this group from national
income is also determined by the Principle of
Cooperation and Guarantee (Public Funds), (Sader,
1350, pp. 430-433). In sum, in Islam, techniques of
production and technology do not determine the
distribution of income, but the distribution of income is
determined by the non-secular government (Sader,
1349, pp. 64-65).
Private Ownership in Islam
Private ownership in this paper means the ownership of
whatever one can own, including skills, special ability,
knowledge, etc. Private ownership in Islam is a
2007 Journal of Business Inquiry 75
right for individuals (as is often the case under a
capitalist system), but a right which also includes
responsibility. Namely, it is not an absolute right
without any responsibility (Sader, 1350, p. 374). For
example, the Qur-an [ch. ii (Baqara), v. 188] says
“And do not eat up your property among yourselves for
vanities, nor use it as bait for the judges, with intent that
you may eat up wrongfully and knowingly a little of
(other) people’s property.” We can see from this verse
that there is a broader responsibility toward society for
personal property, and this limits its use. This Islamic
law is the opposite of the capitalistic form of private
property, which is used in any way the owner wishes.
We can also understand from this rule of the Qur-an
that nobody, including authorities, can invade other
people’s property. Furthermore, even authorities are
responsible to God for the public property.
It should be noted that while private ownership in Islam
is absolutely respected, it has its own characteristics
which make it completely different from any other
school of thought. Namely, (i) while individuals have
an absolute right to own property, their ownership is
limited, (ii) they can own a property permanently in this
world and/or benefit from its consumption in this world
and in the next world, (iii) while an individual owns his
property the society relationship with the property is not
disconnected, and finally, (iv) there is a time limitation
on the ownership. Let us discuss each of these
characteristics separately.
(i) The Limited Ownership
As individuals receive their shares of outputs according
to their labour input, they have full control of their
property to consume it, use it as a means of production
or save it. However, the Islamic law (not the
government, i.e., if the individual is a practicing
Muslim) puts some restrictions on the use of an
individual’s property as follows: The individual cannot
consume it wastefully, or use it in the production of
unlawful goods like alcoholic beverages, gambling, etc.
In fact, in Islam, individuals are only the trustee and not
the owner of their property. It should be mentioned that
some economists, e.g., Sader (1349, p. 176), suggest the
regulatory authority should design the regulations in
such a way to enforce this idea. For instance, the
Qur-an (ch. xxxv (Fatir), v. 39) says, “He it is the one
that has made you inheritors on the earth…,” or [ch. X
(Yunus, or Jonah), v. 14], “Then We made you heirs in
the land after them, to see how you would behave.”
As we can understand from these verses humans are
heirs of the earth, and own goods and skills solely for
the purpose of being tested. While God has created
everything, including knowledge and abilities, for our
uses, He has given to some people more than to others.
These are clear from the following verses in the Quran;
“It is He who has created for you all things that are
on earth…,” [ch. ii (Baqara), v. 29] and “It is He Who
has made you (His) agents, inheritors of the earth: He
has raised you in ranks; some above others: that He
may try you in the gifts He has given you: For the Lord
is quick in punishment: Yet He is indeed oft-forgiving,
most merciful” [ch. vi (An’am), v. 165]. In sum, wealth
is a gift from God, and so, those with more wealth carry
heavier responsibilities to God and society.
(ii) This World and the Next World Ownerships
The accumulation of wealth or the ownership of wealth
in Islam is not a goal, but a means of production and
satisfying needs (Sader, 1349, p. 181). In fact, men are
discouraged in the Qur-an from accumulating wealth
for the sake of accumulation, as the Holy Book foretells
a painful doom for the people who engage themselves
in such vices. The Qur-an [ch. ix (Tauba), v. 34-35]
says, “…And there are those who bury gold and silver
and spend it not in the Way of God: announce unto
them a most grievous penalty - On the Day when heat
will be produced out of that (wealth) in the fire of Hell,
and with it will be branded their foreheads, their flanks,
and their backs. This is the (treasure) which you buried
for yourselves: taste you, then the (treasure) you
buried.” See also Niazi (1977, pp. 12-13).
In Islam, one cannot consider owning a property unless
he uses it for consumption, investment, depreciation
and/or gives it away to charity. To support the idea, we
refer to a hadith (saying) of the Prophet Muhammad
which says “You do not have any right to your
properties, except the part you consume or give to
charity. The charity part remains forever” (Sader, 1349,
p. 182). We can immediately conclude that, (a) an idle
property cannot belong to anybody except the society,
(b) the only thing you really own in
76 Journal of Business Inquiry 2007
this world is what you consume, and, finally, (c) what
you give away as charity remains for you forever (in
this world and in the next world). Furthermore, the
Qur-an [ch. xxxiv (Saba), v. 39] says, “Say: Verily my
Lord enlarges and restricts the Sustenance to such of
His servants as He pleases: and nothing do you spend in
the least (in His cause) but He replaces it: for He is the
best of those who grant Sustenance.”
In another chapter, the Qur-an [ch. ii (Baqara), v. 272]
says, “…Whatever of good you give benefits your own
souls, and you shall only do so seeking the ‘Face’ of
God. Whatever good you give, shall be rendered back
to you, and you shall not be dealt with unjustly.” Even a
non-believer can understand why only what you
consume is truly yours. We may never be able to
consume what we have saved since the next minute of
our life is never guaranteed. Consequently, what we
consume is, in fact, ours. And as we saw earlier from
the words of God, that which is given for God will be
restored to the giver many times here and in the
hereafter.
(iii) The Society and Private Ownership
Another feature of private ownership in Islam is the
existence of a continuous connection between the
society and a privately owned property, human or nonhuman.
That is, the connection of the society and the
property, even if it is not a public good, is not cut as a
result of the individual ownership. The society should
still control or influence the way the property is used
(Sader, 1349, p. 178). Furthermore, certain things like
running water (rivers), lakes, oil, or similar resources,
(e.g., mountains, etc.), cannot be owned by any
individual, or by the state. Instead, every one is equally
entitled to derive benefit from them. These goods
belong to the whole community, and the state may
manage them on behalf of the community, as a trustee,
and be held accountable (Khan, 1989, pp. 7-8).
Furthermore, the society (needy individuals) has a right
to a portion of an individual’s property. The Qur-an
[ch. lxx (Ma’arij) v. 24-25] says, “And those in whose
wealth is a recognized right for the (needy) who asks
and him who is prevented (for some reason from
asking).” Note that here we are talking of “right,” not
charity. This Qur-anic law is unique to Islam. As Niazi
(1977, p. 25) also states, “…in contrast to social
stratification conscious conception of property, where
the beggar and the destitute are entitled only to charity,
the Qur-anic concept of trustee-ownership declares the
share of the poor and the needy in the wealth of others
as their right.” On this subject see also Shafi (1975,
pp. 7-8).
(iv) Time Limitation of Ownership
In Islam, the right to use, own and give away the entire
property of a person is limited to the time the person is
living, since the distribution of the property after death
has been determined in the Qur-an, see ch. ii (Baqara),
v. 180 and 240, ch. iv (Nisaa), v. 7-9, 11-12, 19, 33,
and 176, and ch. v (Maida), v. 109-111. In this way,
private ownership in Islam is different from that of
capitalism in which individuals have an absolute right
to their property before and after death.
It should, of course, be mentioned that individuals have
an absolute right to the distribution of some parts of
their property after their death, provided we define
private property in light of time limitation. For
example, in Islam, if an individual, by his work and
effort, makes an idle natural resource active, he has a
complete right, under the above mentioned limitations,
to use that natural resource. And by the time his action
makes the idle resource active he continues to have the
absolute right of using the property.
However, this right will be terminated immediately
after his death. In this aspect also private ownership in
Islam is different from private ownership in capitalism,
since in the latter the individual can own the natural
resource and determine its ownership(s) after his death
as he wishes. In general, according to many Islamic
scholars, individuals can only determine the ownership
(by writing a will) of one-third of their property after
their death. The rest will be distributed according to the
law of God in the Qur-an (see above verses). For
example, in one instance, the Prophet of Islam
recommended Sa’d b. Abi Waqqas to give away in the
name of God only one-third of his property after his
death (Muwatta’Imam Malik, ch. 58, p. 330). Note that
one of the outcomes of the Islamic law of inheritance is
the elimination of inequality in the distribution of
wealth, and so, income (Shafi, 1975, pp. 33-34).
2007 Journal of Business Inquiry 77
Concluding Remarks
Islamic economics does not explain production,
consumption or investment relationships except as a
school of thought. In Islamic economics, in contrast
with other schools of thought, resources are not limited.
That is, national income is not fixed, so that an
individual can have more of the national income
without other individuals having less. This idea looks
very unrealistic to many economists who are not
familiar with Islamic economic thought. A simple
explanation of this fact is that, in Islamic economics, the
resources are unlimited, and if there are any limitations
they are imposed by the injustice of man and not by
nature.
Furthermore, Islamic private ownership creates a kind
of externality (economy) where an increase of
consumption, e.g., of an individual leads to more
consumption for other individuals in the society. Private
ownership in Islam is absolutely respected, but the more
an individual owns, the more responsibility he has,
through what he owns, towards society. In such a
system, one can readily prove that in a country which
operates under free international trade, the economic
policy of a country can be completely independent of
the rest of the world.
In Islam, everything belongs to God. The accumulation
of wealth is not a goal, and if the wealth is accumulated
it is only to be used for worshipping God. What
individuals, in fact, consume or give away to charity is
what they own. Individuals can only determine up to
one third of their wealth to be given to any person or
source after their death. The rest of their wealth is
distributed as the Qur-an has prescribed. The poor and
destitute have a right to a portion of the property of
fortunate individuals in the society.
Finally, it should be emphasized that despite the fact
that private wealth is not the goal of individuals in
Islam, the sanctity of ownership in Islam is very much
emphasized. The Holy Prophet, in many instances,
recommended paying special attention to ones property,
to the point He said “He who dies in protection of his
property is a martyr,” and “Your blood, your property
and your honour are sacred to you like the sacredness of
this day of yours, in this city of yours and in this month
of yours…” (Khan, 1989, pp. 8-13).
*Amir Kia has a Ph.D. degree in Economics from
Carleton University, Ottawa, Ontario, Canada. He is
an associate professor of Economics in UVSC. He
would like to thank Dr. Greg Berry for his useful
comments on the earlier draft of this paper.
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