ECONOMIC SYSTEMS

Introduction

Every society needs to develop an economic system-a particular set of institutional arrangements and a
coordinating mechanism to respond to the economizing problem. Economic systems differ as to (1) who
owns the factors of production and (2) the method used to coordinate and direct economic systems in the
world today are------

1. Capitalism.
2. Socialism.
3. Mixed economy and
4. Islamic economy.

Capitalizing is also known as Lassie- Faire is the system that has the least among of control from the
authorities and that allows the people the greatest control over it. The term laissez-faire means let it be
that is keep government from interference will disturb the efficient working of the market system. It is also
the system that allows prices to be determined by forces of demand and supply. The best example of a
country with such economic system is the United States of America where its economy is mainly under
the control of its people.

The next from of economic system is called socialism. In that system government owns most property
resources and economic decision making occurs through a central economic plan. In socialist countries
economic activities are guided by co-operation instead of competition as in capitalist countries. In
socialism the capital used for production in owned collectively rather than by individuals. Socialism comes
in various forms. Some form of socialism allows some private ownership all together. The examples of
countries with socialism are Burma, Vietnam, Lasos, Cuba, North Korea, and Peoples Republic of
China.

A mixed economy is a form of economy that mixes capitalism with socialism. Under such economic
system, the government owns and controls the supplies of important necessities which water, electricity,
and gas while allowing private ownership of other items. Some governments in mixed economy systems
may also be the sole operator of the public transportation system and the telecommunication system.
Examples of countries with a mixed economy system are Brazil, Indonesia, and Bangladesh.

Islamic economic is followed by Muslims. In Islamic economics, economic activities are conducted by
obeying Koran and Sunnah. The followers of Islam are required to lead a material life in such a way that it
becomes a source of happiness and prosperity in the existing world. We now define Islamic economic
system in line with the technical definitions given for other system, (1) Islamic economic system consists
of institutions, organizations, (2) And the social values by which natural, human and manmade, (3)
Resources are used to produce, exchange, distribute and consume, (4) Wealth/goods and services under
the guiding principles of Islam, (5) To achieve FALAH in this world and also after it. Example of Country
with Islamic economy is Saudi Arabia.

Capitalism
Capitalism is an economic system the emphasize private ownership of the means of production or a
privately controlled economy. In a capitalist society you have a free production and the distribution of
goods is determined by competition in a free market .A capitalist system is also called a market economy.
There is a limited regulatory framework. Legislation is supposed to define and enforce the basic rules of
the free market .The government does provide some public goods and services as well as support.

Definition of capitalism

Capitalism is a society ruled by the profit motive. The wealthy hold disproportion power within capitalism
and use it to preserve their interests, especially the ability to make more money. Example of the
Countries Use Capitalism: United State, Japan, England, Canada, and Mexico.

Evolution of Capitalism: History offers various types of capitalism over time. In 17th century, capitalism
refers to the total freedom of enterprises or we can call it a Free Market Economy. Government only
focused on defense and law and order. Capitalism began in seventeenth century Europe and is
associated with the European Enlightenment. The European Enlightenment focused on the idea of
individual freedom to pursue ones own economic interests in order to make a profit capitalism realizes a
profit thought the means of production together whit labor to produce the goods .

Features of capitalism

Main features of Capitalism are as follows:

1. Private Property: Under capitalism, people have full right to use their own or private property in any
manner they like and this right is protected by government. They can use the means of production like
machine, tools, lands etc. in any manner. In case of death of owner of the property, his property passes to
his successors.

2. Price Mechanism: Price mechanism is the guiding principle of capitalism. In Capitalism, price is
determined by the forces of demand and supply. Government does not interfere in the fixation of price.
Equilibrium between price and demand is brought through the process of price mechanism.

3. Freedom of Enterprise: In capitalism, every enterprise is free to choose any kind of business. He can
take independent decisions with regard to what, where, how and when to produce.

4. Competition: In capitalism, freedom of enterprises leads to more and more competition, which
ultimately results in efficiency of industrial units and production of goods at low costs.

5. Profit Motive: The only aim to start the business is to earn and maximize the profit in capitalism.

6. Sovereignty of the Consumer: Under this economic system, consumer is sovereign. Consumer buys
only those things which give maximum satisfaction to them.

7. Labor as a commodity: In capitalism, labor acts as a commodity and can be bought and sold like any
other commodity in the labor market. In some cases, exploitation of labor also takes place.

Benefits o f capitalism
1. Rich Variety of Goods and Services: In Capitalism, different demands of the consumers are met
through diversifying production. Different types of goods and services are produced in order to meet the
demands of the consumers.

2. Proper use of Resources: The only aim is to earn profit and it is achieved through the optimum and
proper use of resources.
3. Inducement to Work: Private ownership and law of succession induces the people to work more, under
the capitalism so as to earn more income.

4. Efficient Production: In Capitalism, every firm tries to compete with one another by producing better
quality products and lower prices. Modern and advanced techniques of production are adopted to achieve
this aim. It results in efficient production.

5. Increase in the Standard of Living: More and more quality goods are produced at lower prices through
different techniques of production. So this enables the poor people to purchase them at lower prices and
consequently they can improve their standard of living.

6. Automatic: In capitalism, the balance between demand and supply is maintained automatically. If in
any case, demand increases the supply, the new producers will enter the market and start producing that
product and existing producers will increase its production.

7. Growth of Entrepreneurship: Various features of capitalism economy like private ownership,

8. Economic Freedom: In capitalism, everyone enjoys complete economic

freedom. Everyone is free to use his property in any manner he likes.

Disadvantages of capitalism

Inequality: There tend to be rise in inequality as benefits of capitalism are not equitably distributed.

Irrational behavior: People tend to get caught up in hepatica bubbles but ignore economic fundamentals,
leading tan irrational behavior.

Monopoly behavior: Another disadvantage of capitalism is that firms gain monopoly power in a free
market allows and exploit customer by changing higher price.

Socialism

Socialism refers to a broad array of ideologies and political movements with the goal of a socio
economic system in which property and the distribution of wealth are subject to increasing social and
economic freedom, equality and cooperation. . Hence the socialism is also called as planned economy or
command economy.

The government plays an active role. Social welfare is given importance; hence equal opportunity is given
to all. All such advantages have delivered high level of human development. Some of the most successful
socialism economies are China, Cuba, Vietnam and North Korea.

Definition of socialism

Socialism is an economic system characterized by public ownership and centralized planning of all major
industries (manufacturing, services and energy) banks and insurance companies, agribusiness,
transportation, the media and medical facilities.

Example of the Countries Use Socialism: Burma, Vietnam, Laos, Cuba, North Korea, People's Republic
of China, Denmark, Venezuela, Bolivia etc.

Evolution of Socialism: Socialism originally involved the replacement of private property with a market
exchange, but history has proven this ineffective. Socialism cannot prevent people from competing for
what is scarce. Socialism as we know it today, most commonly refers to "market socialism," which
involves individual market exchanges organized by collective planning.

People often confuse "socialism" with the concept of "communism." While the two ideologies share much
in common -- in fact communism encompasses socialism -- the primary difference between the two is that
"socialism" applies to economic systems, whereas "communism" applies to both economic and political
systems.

Another difference between socialism and communism is that communists directly oppose the concept of
capitalism, an economic system in which production is controlled by private interests. Socialists, on the
other hand, believe socialism can exist within a capitalist society.

Features of socialism

The following are the basic factures of socialism

1. Social Welfare Motive: In socialism, social or collective welfare will be the prime motive. Unlike
capitalism, profit will not be the aim of policy making. The decisions will be taken keeping the maximum
welfare of the people in mind. Thus social well-being of people will be the purpose of development.

2. Limited Right to Private Property: The right to private property is limited. All properties of the country
will be owned by the state. That is, the ownership is collective in nature. Hence no individual can
accumulate too much property as in the case of capitalism.

3. Central Planning: Most of the economic policy decisions will be taken by a centralized planning
authority. Each and every sector of the economy will be directed by well designed planning. No Market
Forces: In a centralized planned system of development, market forces have only a limited role to play.
Production, commodity and factor prices, consumption and distribution will be governed by development
planning with welfare motive.

4. Ownership of Properties: In socialism land, capital, industries and other wealth are owned by state. The
revenue from these properties is spending for the development of society.

Benefits of socialism

Benefits of socialism are the following:

1. Efficient use of Resources: The resources are utilized efficiently to produce socially useful goods
without taking the profit margin into account. Production is increased by avoiding wastes of competition.

2. Economic Stability: Economy is free from business fluctuations. Government plans well and everything
is well coordinated to avoid over-production or unemployment. There is stability because the production
and consumption of goods and services are well regulated.

3. Maximization of Social Welfare: All citizens work for the welfare of the state. Everybody receives his or
her remuneration. The state concentrates on the production of basic necessaries instead of luxury goods.
The sate provides free education, cheap and congenial housing, public health amenities and social
security for the people.

4. Absence of Monopoly: The elements of corporation and monopoly are eliminated since there is
absence of private ownership. The state is a monopoly but produces quality goods at reasonable price.

5. Basic needs are met: In socialist economies, basic human needs like water, food, education, health,
social security etc. are provided. Human development is more in socialist countries.

6. No Extreme Inequality: As social welfare is the ultimate goal, there no concentration of wealth. Extreme
inequality is prevented in socialism.

Disadvantages of socialism

Disadvantages of socialism are the following:

1. Absence of Technology: Work is monotonous and no freedom is given. Any change in the production
process will alter the entire plan. Hence any innovation cannot be easily enforced. Everything is rigid and
technological changes are limited.

2. Absence of competition: There is no competition in production in socialism.

3. No Freedom: There is no freedom of occupation. Allocation of factors of production is not done

Therefore under socialism all wealth and resources are owned by the government. Production of goods
and services are selected by the government in this system. Its goal is to provide human right or basic
human right among the all classes people equally. Socialism has both positive and negative side. We
expect that system when positive sides are more than negative sides.

Mixed economy

A "mixed" economy is a mix between socialism and capitalism. It is a hodgepodge of freedoms and
regulations, constantly changing because of the lack of principles involved. A mixed-economy is a sign of
intellectual chaos. It is the attempt to gain the advantages of freedom without government having to give
up its power.

A mixed-economy is always in flux. The regulations never produce positive results, because they always
force people to act against their own interests. When a particular policy fails, it is propped up by other
regulations in the hopes that more control will produce better results. Sometimes the results are so
destructive they must either be removed, or the people must be violently oppressed to make them accept
it.

Definition of mixed economy

Mixed economy is a combination of both capitalist and socialist economies. There is a mixture of private
and public mechanism and economic planning. Few decisions are taken by the households and firms ad
few others by the planning power.

Example of the Countries Use Mixed Economy: Bangladesh, India, Brazil, Russia, France, Spain,
Indonesia etc.

Features of mixed economy

Main features of capitalism are as follows:

Public Sector: The state controls the public sector organizations and is operated for the welfare of the
public instead of profit maximization. But they earn profits like private industries which are utilized for
capital formation.
Private sector: The production and distribution of goods are done by private enterprises. This sector
functions under state regulations in the interest of consumer goods and some capital goods. Public and
private sector operate in competitive spirit in the interest of the society.
Joint Sector: A mixed economy has semi sector which comprises both of public and private sectors and
their majority of holdings are with the state.
Cooperative Sector: A sector is formed on the cooperative principles. The state takes care of monetary
assistance and runs on the interest of the public.
Freedom and Control: Mixed economy has the liberty to hold private properties to earn profit, to consume
and manufacture and distribute. The control is in the hands of the state.
Economic Planning: The central planning authority is there in a mixed economy and it operates few of the
economic plans. All sectors of the economy function according to the objectives, priorities and targets laid
down in the plan.
Making Profit: In mixed economic system, private sectors have full freedom to make profit but government
controls this profit in some case for the welfare of general people.

Benefits of mixed economy

Mixed economic systems offer a variety of benefits, including free enterprise and private ownership, as
well as a social safety net and the capacity for government intervention when needed, etc. These benefits
are described below.

1. Increasing National Production: The mixed economy is helpful in increasing national production in the
country. Both public and private sector work hard to bring about more production. The problem created by
free enterprise and too much public control are solved through mixed economy. It provides freedom of
enterprise ownership profit earning as well as social welfare and political freedom and all the national
resources are utilized under mixed economy.

2. Best allocation of resources: Since mixed economy incorporate the goods features of both capitalism
and socialism; the resources of the economy are utilized in best possible manner.
3. General balance: Mixed economy maintains a general balance between the public and private sectors.
There is competition as well as co-operation between the two sectors which is conducive atmosphere for
achieving a high rate of capital accumulation and economic growth.

4. Free Enterprise: Free enterprise and private ownership are two essential characteristics of a free-
market economy remain part of a mixed economic system. Under such a system, individuals are free to
own property and operate for-profit businesses. The specific level and extent of free enterprise varies
across countries. Some nations, such as the United States, emphasize free enterprise and private
ownership of industry, while other countries' systems involve state ownership of some industries, such as
transportation, energy and utilities. In addition, privately owned industries may be subject to a variety of
government regulations.

5. Social Safety Net: One of the primary benefits of a mixed economy is the existence of a government-
funded social safety net, which exists to provide at least a minimal level of subsistence for citizens.
Sometimes referred to as a "welfare state," the benefits under this safety net include, but are not limited
to, a publicly funded healthcare system for all citizens or at least some segments of the population,
minimum wage laws, unemployment insurance and a publicly funded pension system. A pure market
system with private ownership of industry and only minimal state intervention in the economy would, in
theory at least, leave such social benefits to private charities. The United States' mixed economic system
includes the Social Security system, a federal minimum wage law and healthcare benefits for the elderly
under Medicare. Other nations, such as Canada, have universal healthcare systems.

6. Ability to Intervene: The mixed economic system is based on the idea that government can improve
economic outcomes through fiscal or monetary policy action. A mixed system gives government the
flexibility to intervene in the economy in times of emergency. The best example of this was in 2008, when
a global financial crisis threatened to plunge the economy into a global depression. The United States
and other nations moved to stabilize their financial systems. The U.S. government, for its part, provided
more than $700 billion in "bailout" funds to enable the nation's banks to clear toxic assets, backed by
troubled mortgages, from their books.
7. Getting benefit both of Capitalism & Socialism: Since mixed economy involves both government and
private enterprises it has the advantage of taking the benefits of capitalist nature of private companies
and socialist nature of government.

8. Reduce Inequality in Income: There is less inequality of income because intent of government is to
have a balanced economic growth of an economy. Government tries to distribute the income and wealth
equally among the all classes people in a society.

9. Governments Regulation on Private Firms: In mixed economy government always regulates private
firms of businesses for the welfare of general people. Sometimes government decreases the price level of
the products and services of private firms.

10. Welfare state: Mixed economy contains all the features of the welfare state that provides social
services such as health care, unemployment pay etc. to people who need them. Therefore, there is no
exploitation either by the capitalist under free enterprise economy or by the state under centrally planned
economy.

11. Stability: It ensures stability by reducing high unemployment and income inequality associated with
capitalist economy.
Disadvantages of mixed economy

Disadvantages of mixed economy system are the follows:

1. Economic fluctuation: The experience of the working of mixed economic system in developed countries
also reveals that they have not been able to remove economic fluctuation.

2. Inefficient public sector: Public sector of mixed economy is a bit burden on economy because it works
inefficiently. The bottlenecks, which militate against efficiency of public sector, are bureaucratic control,
over staffing of personnel, corruption, and nepotism among others. These bring about decline in
production and huge loss.

3. Non-cooperation between the two sectors: Experience has shown that in mixed economy private and
public sector do not see eye to eye with one another. They are at loggerhead because of their disparity in
motives and as such they are not cooperative with one another.

As one can see that mixed economy like socialist and capitalist economies has both advantages and
disadvantages and therefore it will be always debatable whether a country should follow mixed economy
structure or not.

Islamic economic system

Islam views life as a compact whole and does not divide it into many separate and conflicting parts. The
economic aspect is one of the most impotent part of our life, while not being the whole of it. The Islamic
system is balanced and places everything in its right place. Islam has given detailed regulations for the
conduct of our economic life which concerns mainly the earning and use of wealth. Muslims are to
recognize that wealth, earnings, and material goods are the property of God, and that we are merely His
trustees. The principles of Islam aim at establishing a just society wherein everyone will behave
responsibly and honestly.

Definition of Islamic economics

Islamic economics is a system of economics in which people earn their living means and conduct their all
economic or business activities by following Koran and Sunnah. Everything is Islam is for the benefit and
welfare of mankind

Example of the Country Use Islamic Economy: Saudi Arabia.

Features of Islamic economic system

The features of Islamic economic system are the followings:

1. Concept of wealth: In Islamic System uses of luxuries are not allowed because it against the concept of
"TAQWA" should have distinguished between "HALAL" and "HARAM". Islam always supports leading a
simple life. Making mountain of wealth is totally forbidden in Islamic economics.

2. The concept of private property: In Islamic economy property is related to Halal and Haram. Halal
means lawful and Haram means unlawful. People should get and earn their property in Halal way. They
should span their property for welfare of people. People cannot span their property for that work which
are forbidden by Koran and Sunnah or treated as inhumanity or unsocial. In a simple sentence- in Islamic
economy, a property cannot be used against public interest.

3. Production of wealth: Price mechanism plays a key role in carrying out the production process in an
Islamic economic system. As Price system results in the expectations of workers and consumers to the
Government. Interferences with the price mechanism to overcome the problem. These things are not
allowed in Islamic System. Production of drugs, gambling, lottery, music, dance etc. are not allowed in
Islamic economics. Producing drugs, gambling, heroin and lottery are Haram in Islam.

4. Landing and Borrowing Interest: Giving and taking lawn and interest is totally forbidden in Islamic
economy. Lawn and interest are declared as Haram in Islam.

5. Black marketing and Smuggling: Hiding faults of the products and making over profit, creating artificial
scarceness, price hiking etc. are called black marketing. Any work against public welfare or society is
called smuggling. Making black money, black marketing and smuggling are great guilty in Islam.

6. Distribution of Wealth: Islamic Economics System favors fair distribution of wealth in the sense that it
should not be confined to any particular section of the society. For fair distribution of wealth Islam gives
following steps

"BUKHAL" and "ISRAF" are to be avoided.

Payment of Zakat.

Interest not allowed.

Monopoly of Private firm not allowed.

Disallow earning from Black Market.

7. The Concept of Zakat: Zakat is a major source of revenue the government in an Islamic state. It levy on
all goods and money or on wealth if have to pay yearly on the month of RAJAB or RAMADAN. By giving
Zakat the wealth of a country distributed to all class people in the country.

8. Interest free Economy: The whole financial system the bank structure in particular is run on the basis
"SHARAKAT" and "MUZARABAT" in Islamic state. Therefore, Islamic economics is an interest free
economy.

9. Responsibility of the Government: Responsibilities of the Islamic Government are as follows .

Should check unashamed activity like gambling, smuggling, black marketing etc.

Should secure poor people by giving them necessities of life i.e. food, clothing, health etc.

Should provide equal employment opportunity.

Social and Economic Security is required to guaranteed by the Government.

An Islamic Setup provides a graceful economic and social life. It distributes the wealth in all family.
The principles of the Islamic economic system:

The fundamental principles of the Islamic economic system are as follows:

Muslims are not to deal in interest. "Those who devour usury will not stand....Allah has permitted trade
and forbidden usury Allah will deprive usury of all blessing, but will give increase for deeds of charity..."
(Qur'an 2:275-6). "O you who believe! Devour not usury, doubled and multiplied. But fear Allah that you
may really prosper" (Qur'an 3:130) This prohibition is for all interest-based transactions, whether giving or
receiving, whether dealing with Muslims or non-Muslims. It is reported that the Prophet Muhammad
(peace be upon him) cursed those who pay interest, those who receive it, those who write a contract
based on it, and those who witness such a contract.

Forbidden are earnings from gambling, lotteries, and the production, sale, and distribution of alcohol. "O
you who believe! Intoxicants and gambling, sacrificing to stones, and divination by arrows are an
abomination of Satan's handiwork. Eschew such abomination, that you may prosper" (Qur'an 5:90).

It is forbidden to gain property or wealth by fraud, deceit, theft, or other falsehoods. "...Give just
measure and weight, and do not withhold from people the things that are their due. And do not do
mischief on the earth after it has been set in order. That will be best for you, if you have faith" (Qur'an
7:85).

It is particularly hateful for a guardian to take from an orphan's property. "To orphans restore their
property (when they reach their age). Do not substitute your worthless things for their good ones, and do
not devour their property by mixing it up with your own. For this is indeed a great sin" (Qur'an 4:2).

It is unlawful to hoard food and other basic necessities. Everyone should take what they need and no
more. "And let those who covetously withhold of the gifts which Allah has given them of His Grace, think
that it is good for them. No, it will be the worse for them. Soon it will tie to their necks like a twisted collar,
on the Day of Judgment. To Allah belongs the heritage of the heavens and the earth, and Allah is well-
acquainted with all that you do" (Qur'an 3:180).

A Muslim should be responsible in spending money. Extravagance and waste are strongly discouraged.
"[The Servants of Allah are] Those who, when they spend, are not extravagant and not stingy, but hold a
just balance between those extremes" (Qur'an 25:67). "O Children of Adam! Wear your beautiful apparel
at every time and place of prayer. Eat and drink, but waste not by excess, for Allah loves not the wasters"
(Qur'an 7:31)

Muslims must pay Zakat. "And they have been commanded no more than this: to worship Allah, offering
Him sincere devotion, being true in faith. To establish regular prayer, and to give Zakat. And that is the
religion right and straight" (Qur'an 98:5). Every Muslim who owns wealth, more than a certain amount to
meet his or her needs, must pay a fixed rate of Zakat to those in need. Zakat is a means of narrowing the
gap between the rich and the poor, and to make sure that everyone's needs are met.

Muslims are encouraged to give constantly in charity. "Your riches and your children may be but a trial.
Whereas Allah, with Him is the highest reward. So fear Allah as much as you can, listen and obey, and
spend in charity for the benefit of your own souls. And those saved from the selfishness of their own
souls, they are the ones that achieve prosperity" (Qur'an 64:15-16). The Prophet Muhammad once said
that "nobody's assets are reduced by charity."
 Muslims must pay Zakat. "And they have been commanded no more than this: to worship Allah, offering
Him sincere devotion, being true in faith. To establish regular prayer, and to give Zakat. And that is the
religion right and straight" (Qur'an 98:5). Every Muslim who owns wealth, more than a certain amount to
meet his or her needs, must pay a fixed rate of Zakat to those in need. Zakat is a means of narrowing the
gap between the rich and the poor, and to make sure that everyone's needs are met.

Comparison

Comparison between capitalism and Islamic economic system:

There are both similarity and dissimilarity between capitalist economy and Islamic economic system.
Islam does not totally reject the capitalism, again does not approve the unlimited capitalism.

Similarity between capitalism and Islamic economic system:

1. In both economic systems private ownership is approved. Individual can be wealthy by his or her own
effort and work and can use that wealth from generation.

2. In both economic system, central economic problem are solved by automatic price mechanism. What
types of product will be produced, how will be it produced and for whim it will be produced that problem
are solved by the price mechanism.

Difference between capitalism and Islamic economic system:

The differences between capitalism and Islamic economic system are the following.

In capitalism production of goods is selected by following the unlimited demand of consumers. But in
Islamic economic system that demands is not unlimited. Only Halal products are produced following the
demand of consumers.
There is no control over the private ownership in the capitalism. Few people indulge the most of the
wealth of a country and a large number of people pass their life very hardly in capitalism. But it is
declared in Koran that the poor have right on the wealth of riches. In Islamic economy riches should pay
Zakat to poor as tax.
Taking and giving interest is legal in capitalistic economics. But in Islamic economic system interest is
totally forbidden.
There is no intention to provide a minimum standard of life to the general public in capitalism. But in
Islamic economic system, to provide a minimum standard of life to general people is the duty of the
government.

From the discussion it is proved that in Islamic economy, private ownership, private decision,
entrepreneurs freedom etc. are approved as capitalism.

Comparison between socialism and Islamic economic system:

If we compare Islamic economy and socialism, no any fundamental similarity will be found. But there is a
little similarity that in both economic system there is a promise to provide a minimal standard of life to the
general people.
The differences between socialism and Islamic economy are the following ..

In socialism private ownership is absent. But in Islamic economic system private ownership is approved.
Anyone can earn wealth honestly by his or her ability.
In socialism economic problem are solved by the government decision. On the other side, in Islamic
economic system economic problems are solved by the price mechanism. Islamic economy applies some
polices to control the price.
In socialism the main conducting power of economics is central decision. On the other hand, in Islamic
economy the main conducting power of economics is ones intention to making profit. But it should be
legal by the Islam.

Comparison between capitalism and socialism:

In capitalism the owner of wealth is person or privet sector. But in socialism the owner of wealth is
government. Namely, all elements like land, capital, labor and entrepreneur are kept under private
ownership in capitalism and those are kept under pubic/ government ownership in socialism.
In capitalism main economic problems are solved by price mechanism. But in socialism those problems
are solved by central planning.
In capitalism production of goods depends on the peoples demand. But in planned economy the
production is selected by the government.
In capitalism if the quantity of product is decreased than the price will increase .

In conclusion it can be said that in capitalism people belie they are free. But in socialism people belie that
they have no freedom. It is a matter of fillings.

Conclusion
Mixed economy is the combination of capitalism and socialism. Some people have likened the mixed
economy tube a combination of capitalism and socialism. The ideals of socialism are completely opposite
to that of capitalism. Socialism asserts that the government should have ownership of all institutions, and
be in charge of production and distribution of goods and services. But capitalism approves only private
ownership, and there is no control of government over production and distribution. Islamic economy has
the all solution of all economic problems. Islam is the perfect way of life. Islamic economy is conducted by
following the Koran and Hades. So Islamic economic system is the best economic system in the world for
leading a peaceful and simple life.