Resource allocation, investment decision and economic welfare: capitalism, socialism and Islam

Abstract

Discusses how resources are allocated in capitalist and socialist economies comparing the concept of interest (e.g. for present value calculations) with the use of capital charges (e.g. for calculating opportunity cost). Contrasts the Islamic economic system, which rejects interest but considers moral factors and the will of Allah when measuring welfare. Explains how these ideas can be expressed in the accounting price of capital (for objective factors) and by Islamic welfare criteria; and how they differ from the Pareto Criterion and capitalist concepts of utility. Lists four principles and 12 welfare criteria for an Islamic allocation of resources; and some hints on their practical application before summarizing the conclusions.

Citation

Abdul Mannan Chowdhury, M. (1999), "Resource allocation, investment decision and economic welfare: capitalism, socialism and Islam", Managerial Finance, Vol. 25 No. 5, pp. 34-51. https://doi.org/10.1108/03074359910765948