Crisis free economic justice - economy in the Khilafah Part 4

Part 4 - Covering the 5th and 6th principles: Distribution of wealth and ownership of public, state and private property. Together with Islam's view of trading in the Stock market.


Fifth: Distribution of Wealth and Ownership in Islam
The rules of wealth distribution in Islam comprise a unique aspect referred to as the public property. The wealth under the Khilafah state is owned under three headings: Private property, Public property and State property. It is the state that maintains and protects these in accordance with the laws of Shar’ia.

Public Property: This category does not merely comprise the highways and roads etc. but also includes what was explained by the Prophet (saw) in two noble and authentic narrations:
First Narration: The Prophet (saw) said:
The Muslims are partners in three (resources): Water, Pastures and Fire.

The term ‘fire’ here includes all forms of energy used as fuel in industry, machines and plants as well as the gas plants which use gas as fuel and coal etc. All of these are under the public ownership category.

Second Narration: The saying of the Prophet (saw) to Abyadh ibn Hammal who was refused ownership of a salt-laden land on the ground that this land contained an uncountable quantity of water as has been reported in the hadeeth. Here the uncountable means a source that replenishes in time. This category includes all minerals whether they are solids like copper, iron or gold etc. Or liquid like petrol or gaseous like the natural gas. It also comprises such categories which are obvious and hence easily discovered antimony, sapphire and so on or is found in the depths of earth and not easily discovered like underground mines, they are all under the category of public property and the Khilafah state alone manages and supervises their extraction, sale and distribution. Also it is the state that ensures that every Muslim gets his rightful share in the public properties. So the petroleum crude oilfields and the mineral mines in the Khilafah state are not owned by the state as was the case in the communist system where the state exercised its will over such resources as it wished, nor is it owned by individuals or corporations, as is the case in the prevalent capitalist system which makes it rightful for the big capitalists to own the enormous resources and who boast of such personal wealth which exceeds that of certain countries!

Public property is not similar to statoe property which the ruler dispenses for the interests of the state, it is for the Ummah (nation) and the revenues generated by public property are to be disbursed among them after the incurred costs are adjusted. These revenues are to be distributed to the citizens and they have rights over it from their birth. It also has to be spent on their protection and making them a force to be reckoned with. This can be done by spending on military capabilities and ammunition. One can also imagine the huge amounts generated from crude oil and minerals in the Islamic lands and how they would be spent on alleviation and elimination of poverty when the Khilafah state disburses these revenues and services to its citizens.

This shar’i understanding along with other concepts goes well to consolidate the economic lives of the Muslims and prevent their rulers from falling for the deception and intrigue of the non-Muslim colonialists who have managed to transfer the petroleum revenues from the Islamic lands through the so-called sovereign funds of the Gulf states for the development of Europe and America, and denied the same funds to this Ummah. These revenues now count in the trillions of gold dinars and they are enjoying them to the cost of this Ummah while the Ummah is condemned to suffer further from the financial crises of their making!

As for the state property which is different from public and private property. State property can be spent by the Khaleefah as per his discretion and ijtihad and it includes the Fai, Kharaj and the inheritance of those who leave behind no successor. This is on the condition that Sharee’ah does not specify where such revenues may be spent, in cases where the Sharee’ah does lay down such conditions, then it has to be spent for that which it was specified, this is similar to zakat which can only be spent on the 8 specified categories given in the Quran.

The state property may be spent by the Khaleefah per his discretion and ijtihad in matters of state and citizenship, for instance he may spend to create balance in the society so that the money transactions are not confined to the rich alone, Allah (swt) says:

“in order that it may not become a fortune used by the rich among you.” [TMQ 59: 07]

Therefore the Khaleefah may grant these to the poor and destitute as the Prophet (saw) did with Fai from the Banu Nadheer tribe which he (saw) distributed only amongst the immigrants from Makkah and not among the Ansar (supporters) of Madeenah except for two of the poor Ansar who were as destitute as the immigrants, they were: Abu Dujanah and Sahl ibn Hunaif. This was in compliance with the Ayah so that the money circulation does not remain confined among the rich.

As for the private property, it is dispensed by the individual and is different from public property and the state prevents any violation of it. It is not allowed for a person to usurp this forcibly, not even by the state. Consequently, the so-called nationalisation actually amounts to exploitation of individual property by the state and this is a grave crime.

Certainly, categorising these into just one category under the state’s management will invariably result in crisis leading to failure and breakdown. This is how the concept of communism failed in economics because all properties were owned by the state. Even under communism, certain sectors were immensely successful like the heavy industry and petroleum sectors. While those that must be managed by individuals, like agriculture and medium sized industries, failed miserably under communism and under the weight of these failures, communism came to be extinct. Similarly, the capitalist system failed and is now nearly on the threshold of collapse. This is because on the grounds of free market economy, privatisation and globalisation it allowed individuals, enterprises and companies to own what should be public property, like petrol, gas, energy forms and so on. The result of this has been the recurring upheavals and rapid crashes in the financial markets and companies one after another. This is how socialist communism collapsed and this is why the capitalist system is on the verge of collapse.

Sixth: The Stock Exchanges and the Islamic Perspective
In the capitalist system, the stock exchanges play the same role as the interest system which confines and concentrates wealth within a small circle of people. The stock exchanges are even more severe because they turn the economy from trading in real goods and services to mere numbers and papers from which people profit and incur losses. In this system, wealth is inflated multifold without any real production of good or services. When the markets reach a high, the people get the illusion that economic growth is high and similarly, when the markets plunge, people are shocked because their wealth which they possessed or thought they possessed, is blown away, while the financial speculators take away the real wealth. An ordinary investor makes a profit by buying shares and selling them off when the prices increase, while a speculator earns his profits through the so called “short selling” wherein he sells shares (which are borrowed) at high volume in order to bring down the prices.

Indeed, the stock exchanges and financial markets are the cradles of capitalist crises which leave behind scores of people poorer having exposed them and their wealth to severe losses.
However, under Islam the buying and selling markets are regulated by the laws of Sharee’ah which are a guarantee against conflicts and ensure that no one usurps the wealth of others by invalid and wrongful means, some of these regulations are:

A: Any goods not owned and possessed by the seller is not allowed to be sold. Therefore any good that has been bought but not taken possession of, is prohibited to be sold. The practice of the stock exchanges is that shares and goods are bought and sold many times over while they remain in their place, neither in the possession of the seller nor of the buyer.

B: These rules forbid speculation whereby the prices surge, not because of an actual demand or selling of the goods, but because speculation in high volume and often without possession causes an increase in price. This is the practice in the stock markets currently. The increase in the prices of crude oil in the last year bears proof of this.

C: These rules also prohibit the purchase and sale of the six commodities unless it is with immediate effect, hand to hand transfer, while if it is for the same commodity, the sale will be invalid without the quantities being equal and without immediate transfer of possession. These commodities are: Gold, Silver, Wheat, Barley, Dates and Salt.

Therefore the selling of these commodities against each other is not valid unless it is done with immediate transfer of possession, and selling of these commodities (the same commodity) is not valid if done without taking possession and with equivalent quantities. For instance in selling of gold for gold or wheat for wheat. Differences in quantity and deferred delivery is not allowed.

But the practice in the commodities exchanges is in contravention to this and hence invalid. Any delay is taking possession in these commodities especially during exchange leads to problems. The crises emerge as a result of high volatility, price differentials and deferred possession, driven falsely as possession is not required for initiating the trade. Consequently it becomes similar to gambling and its adverse affects like losses and crises are obvious.

D: The Sharee’ah rules prohibit transactions of shares because the public limited companies and as a result, their shares are invalid. These shares are certificates which comprise mixed amounts of permitted (Halal) capital and prohibited (Haram) profits in the invalid contract and transaction where the principal amount and profit are mixed. Each share certificate represents an equity share in the assets of the invalid company and such assets have been amassed as a result of invalid transactions prohibited by Sharee’ah. This becomes prohibited (Haram) money and the shares of the company would include Haram assets. This renders the shares Haram whose sale, purchase and transaction is prohibited. This applies both to the ordinary shares as well as to preferential shares which accrue profits under all circumstances and which have access to priority payments in case of the winding up of the company and disbursement of profits.

Similarly, it is also not allowed to purchase shares on interest based loans offered by the share broker or others to the buyer against mortgage of the shares itself. This is because it is akin to interest and shares are mortgaged. These actions are prohibited by text on the one who eats interest, the one who pays interest, the one who records the transaction and the one who bears witness to the transaction.

It is also not permitted to sell shares that are not owned by the seller and are ‘acquired’ by way of the promise of the broker that a loan would be given at the time of delivery of shares. This amounts to selling what is not in possession of the seller (the broker in this case). This prohibition becomes all the more severe when a condition is stipulated that the price is to be paid to the broker so that he gains profits from it through deposit with usury interest so he gains money for his lending of the shares.

It is also not permitted to sell or transact shares because the shares are a debt to the company which invests this money for interest and also because it is prohibited to sell debt with debt.

Thus the sale & purchase markets in Islam achieve Halal and secure trade free from the threats of crises, disputes, speculation, gambling and cheating. They are clean markets with clean hands which comply with the rules of Sharee’ah in all transactions.