Chapter 8: Fundamentals of Islamic Economic System by Dr. Muhammad Sharif Chaudhry



  Next Chapter Previous Chapter PDF Version

All Books

Fundamentals of Islamic Economic System

By Dr. Muhammad Sharif Chaudhry



  1. Meaning and Importance as Factor of Production

  2. Dignity of Labour

  3. Lawful and Unlawful Wages

  4. Rights of Labour

  5. Obligations of Labour

  6. Determination of Wages

  7. Contract of Service

I- Meaning and Importance as Factor of Production

The term labour in Economics is used in a very wide sense. Any work whether manual or mental which is undertaken for a monetary consideration is called labour. Any work done for the sake of pleasure and pastime only having no consideration of any reward or compensation is not labour. According to Marshall, “any exertion of mind and body undergone partly or wholly with a view to some good other than the pleasure derived directly from work, is called labour. Labour in this sense includes the very highest professional skill of all kinds as well as the labour of a mass of unskilled workers. Thus it includes labour of highly educated professionals like scientists, engineers, doctors, economists, professors, lawyers, judges, accountants, diplomats, administrators, as well as that of ordinary workers in factories, agricultural farms, government departments, private sector, etc.

Some economists divide the labour into productive and non-productive labour. It is productive if it adds some material value like labour in the agricultural sector and manufacture. If it does not result in some material value then it is unproductive. According to Adam Smith, labour of menial servants as well as of the most respectable orders in society such as sovereign with all its officers in civil administration, justice and armed forces, is unproductive. However, according to modern conception all labour is called productive provided it is done to earn an income.

Labour is synonymous with man and is by far the most important factor of production. Even the natural wealth of a country is of no use if it is not properly exploited by its men. Nature may be very generous to a country in providing unlimited natural resources but without human endeavour, they remain unused. “Pakistan”, it is said, “is a rich country inhabited by poor people.” On the other hand, Japan is a country blessed with little natural wealth but it is an economic power of the first order because of its hard working, diligent and intelligent people. Thus human resource comprising committed, hardworking and patriotic labour, manual as well as intellectual, is a must for economic development of a nation.

In view of its importance in the production of wealth, Islam has laid great emphasis on human labour. Al-Qur’an, the revealed book of Islam, promulgates the fundamental principle regarding role of labour when it says: “There is nothing for man but what he strives for”- (53:39). According to this verse, there is no royal road or easy way to success. The way to progress and success in the world is through struggle and effort. The harder a man or a people work., the higher reward they are likely to get. According to Prophet Muhammad (PBUH), “God loves those who work and strive for their livelihood” and “to search lawful earning is obligatory after the compulsory things (like prayer, fasting, belief in God).

Both physical and intellectual labour have been emphasised in Islam. The Qur’an refers to manual labour when it talks of construction of boat by Prophet Noah, manufacture of coats of mail by Prophet David, tending of sheep by Prophet Moses and building of wall by Zul-Qarnain. The Holy Book also refers to intellectual labour when it relates the story of Prophet Joseph who was appointed incharge of treasures of Egypt by its king.

[Back to the start of this chapter]

II- Dignity of Labour

Dignity and honour is attached to labour and work in Islam while the sources of unearned income and easy gains like usury, games of chance, etc. are despised and forbidden. Work is so much dignified and honourable that the Prophets who are the noblest of the human beings had engaged themselves in labour and hard work for earning their livelihood. The Qur’an mentions the example of Prophet David and Prophet Moses who respectively worked as ironsmith and shepherd. Prophet of Islam himself pastured sheep. He did not consider any work as menial or below dignity. In Ghazwah Ahzab (Battle of Allies), the Prophet was seen working and lifting stones alongwith his companions to dig a ditch to defend Madinah from the enemy. Let us glance through some verses of the Qur’an and Ahadith of Prophet Muhammad (PBUH) to highlight the honour in which labour, both manual and intellectual, is held by Islam.

Verses of Holy Qur’an :

1.        And he was building the ship and every time the chieftains of his people passed him, they made mock of him. He said: Though ye make mock of us, yet we mock at you even as ye mock.


2.       So they twain journeyed on till, when they came unto the folk of a certain township, they asked its folk for food, but they refused to make them guests. And they found therein a wall upon the point of falling into ruin, and he repaired it. (Moses) said: If thou hadst wished, thou couldst have taken payment for it.


3.       One of the two women said: O my father! Hire him! For the best (man) that thou canst hire is the strong, the trustworthy. He said: Lo! I fain would marry thee to one of these two daughters of mine on condition that thou hirest thyself to me for (the term of) eight pilgrimages. Then if thou completest ten it will be of thine own accord, for I would not make it hard for thee. Allah willing, thou will find me of the righteous.


4.       And assuredly We gave David grace from us, (saying) : O ye hills and birds, echo his psalms of praise! And We made the iron supple unto him. Saying: Make thou long coats of mail and measure the links (thereof). And do ye right. Lo! I am Seer of what ye do.


Ahadith of Muhammad (PBUH) :

1. Abu Hurairah reported from the Holy Prophet who said: Allah did not raise up any Prophet who did not graze goats. His companions asked: you too? ‘yes’ said he, I used to tend goats for the inhabitants of Makkah for some qirats.


2.       Ayesha reported that the Holy Prophet used to mend his shoes, sew his clothes and work in his household just as one of you works in his own house. She also reported that he was a man among men who used to patch his clothes, milk his goats and engage himself in work.


3.       Zubari-b-Awam reported that the Messenger of Allah said: That one of you takes his rope and then comes with a load of wood upon his back and sells it, and that thereby Allah guards his face, is better for him than that he should beg of men whether they give him or refuse him.


4.       Meqdam-b-Ma’de Yakrab reported that the Messenger of Allah said: Never has any one eaten a better food than what he has eaten out of the labour of his own hands; and David, the Prophet of Allah, used to eat out of the labour of his own hands.


5.       Utbah-b-Munzir reported. We were near the Messenger of Allah when he recited – ‘Twa, Sin, Mim’, till he reached the story of Moses. He said: verily Moses engaged himself as a labourer for nine or ten years on condition of keeping his private parts chaste and of food for his belly.

-(Ahmad, Ibn Majah)

6.       Ayesha reported that the Holy Prophet said: The purest of what you eat come from your own earnings, and your children come from your own earnings.

-(Trimizi, Nisai, Ibn Majah)

7.       Abu Zarr reported that the Messenger of Allah said; O Abu Zarr! There is no wisdom like efforts, no piety like self-denial and no goodness like good conduct.


8.       Refe-b-Khudaiz reported that it was questioned: O Messenger of Allah, which earning is purest? He said: The earning of a man with his own hand, and every honest transaction.


9.       Abdullah-b-Masud reported that the Messenger of Allah said: To search after lawful earning is compulsory after the compulsory things.


10.   Once the hands of a companion of the Holy Prophet became black by working with a hammer. The Holy Prophet, seeing his hands, enquired as to what had happened? He replied that it was because he had worked with a hammer on a very hard ground to earn livelihood for his family. Hearing this the Holy Prophet kissed his hands (and was pleased to know that he was earning an honest living by hard work).

11.   Ali the fourth Caliph, used to say (with pride) that one day he came to know that the Holy Prophet was hungry. He went in search of work so that he might earn something for the Holy Prophet. He saw a Jew in a garden outside Madinah who had a heap of mud and wanted some-one to put water into it. He struck a bargain with him at one date for a bucket of water and earned seventeen dates in wages for seventeen buckets of water and came home. Then he went to the Holy Prophet and informed him about the bargain and then both ate them.

12.   Abu Hurairah reported : “Once the Ansars asked the Holy Prophet to divide the date trees between the Muhajirin and themselves. The Holy Prophet did not allow this. But when the Ansars asked the Muhajirin to work in the gardens and share the produce with them, they readily accepted the offer (and the Holy Prophet was very pleased with this arrangement).”

13.   Abdur Rahman bin Auf said: “When we came to Madinah, the Holy Prophet (created brotherly relations between the Ansar and Muhajirin and) created this relationship between Saad bin Rabee and myself. Saad was the richest of all the Ansar and wanted to give me half of his wealth and one of his two wives. I refused to accept his offer but asked him to tell me of a trade centre. He told me of a Qainuqa bazar, I went there next morning and bought some curd and ghee (for sale) and then I went there every day (to do this kind of business).”

14.   It is reported that once an unemployed Ansar asked the Holy Prophet for some charity. The Holy Prophet enquired from him if he had any property. He replied that he had a blanket to cover his body and a cup to drink. The Holy Prophet asked him to bring these things. When he brought them, the Holy   

Traditions No 10 to 14 quoted by Afzal-ur-Rahman in Economic Doctrines of Islam.

Prophet took them in his hand and auctioned them among the people. One of the present offered one dirham. The Holy Prophet requested him to raise the bid. Another man offered two dirhams and bought these things. The Holy Prophet gave two dirhams to that man and advised him to purchase an axe with one dirham. When he bought the axe, the Holy Prophet fixed the handle in it with his own hands and, giving it over to that man, said, “go to the jungle and cut wood and don’t see me before fifteen days”. After a fortnight, when he came back, the Holy Prophet enquired how he was. He replied that he earned twelve dirhams during that period and purchased some cloth and grain. The Holy Prophet remarked, “this is better than begging and disgracing yourself on the Day of Judgement”.

Above mentioned verses of the Holy Qur’an and traditions of the Prophet of Islam establish beyond any doubt that work is to be honoured and respected and the worker who earns his livelihood by his own hands is very much respectable. In Islam there is no work which is lowly or menial. Lowly or mean is the person who divides the work into high or low.

[Back to the start of this chapter]

III- Lawful and Unlawful Wages

Wages are lawful when the work to be done is lawful. But when the work to be done is unlawful, then its wages would be unlawful. For example, if one is employed to commit theft or murder, wages received for the work shall be unlawful because the work is abinitio unlawful. Similarly wages are unlawful when the work to be done is your religious or social obligation (farz) for example, wages cannot be received for offering prayer or visiting sick. But wages for medically treating a person are lawful. Work which is done to please Allah, e.g. recitation of Holy Qur’an or teaching Qur’an to children, is not entitled for wages. However, a person engaged in the profession of teaching Qur’an as a source of his livelihood can charge wages for teaching the Qur’an. According to opinion of jurists, wages can be charged for washing dead, burying dead, digging graves, leading tarawih prayers and for guiding the pilgrims by those who are engaged in such professions. Wages for participation in Jehad or wages for preaching of Islam are not lawful unless the persons participating in these activities are professional soldiers and preachers.

Ibn Abbas reported that a party of the Prophet’s companions passed by a place of water. There was man among them who was beaten by a scorpion or snake. A man from among the owners of the place of water came before them and said: Is there any charmer among you? Verily in the place of water there is a man bitten by a scorpion or snake. A man from them advanced and read the Opening of the Book for wages of a goat and then he was cured. He came with the goat to his companions who disliked that and said: “You have taken wages for the Book of Allah!” Then they came to Madinah and enquired: O Messenger of Allah, he has taken wages for the Book of Allah. The Messenger of Allah said: The book of Allah has got more right for wages than what you have taken for. Bukhari narrated it. And in a narration: You have done well! Divide it and set up a share for me with you.

[Back to the start of this chapter]

IV- Rights of Labour

Islam recognises the fact that wealth is jointly produced by labour and capital. Since labour is in a comparatively weaker position, Islam has taken many measure to protect its rights. Rights of labour are in fact duties of the employer and vice versa. In this section we shall study rights of labour while in the next section we shall discuss the obligations of labour.

Rights of a labourer and a worker include: that a labourer should be treated as a human being and not as a beast of burden; that dignity and respect should be attached to labour and work; that reasonable wages should be fixed at the time of employment, and that wages should be promptly paid. All these rights were given by Islam to the labour some fourteen hundred years ago when there was no concept of such rights, there were no labour unions, there were no charters of demand, there was no labour movement and there was no concept of collective bargaining.

1.       In the sight of Islam all men and women are equal. Islam has established brotherhood, fraternity and equality among the Muslims and has abolished all distinctions between man and man based on race, colour, language, nationality or wealth. In Islam rich or poor, white or black, employer or employee, Arab or non – Arab, wealthy or worker, are all equal as all the human beings hail from the same stock and belong to the same parents.

The Prophet of Islam treated his servants as members of his family. It has been reported by Anas that he served the Prophet (PBUH) for a long time and the Prophet treated him well and never said ‘oof’ (an expression of condemnation) to him.

2.        Before the times of Prophet of Islam, labour was mainly provided by the slaves. The slaves worked in commerce, agricultural sector and in household while the fruits of their labour were enjoyed by their masters. The treatment given to the slaves was very inhuman and cruel. They were ill-clad, ill-fed and mal-treated. The Prophet of Islam not only restored their human dignity but also raised their status to the level of brothers and colleagues. The Holy Qur’an says: “And serve Allah and ascribe nothing as partner unto Him. (Show) kindness unto parents, and unto near kindred, and orphans, and the needy, and unto the neighbour who is of kin and the neighbour who is not of kin, and the fellow traveller and the wayfarer and (the slaves) whom your right hands possess”. (4:36). It is reported on the authority of Abu Zarr that the Messenger of Allah instructed his followers regarding slaves as follows: “Your brethren – Allah has placed them under your hands; whosoever’s brother Allah has placed under his hands, let him feed him out of what he himself eats, let him clothe him out of what he clothes himself with; and let him not be entrusted with a work which will overcome him. If he entrusts him with what will overcome him, let him assist him therein.”

-(Bukhari and Muslim)

3.       Besides ensuring human treatment and dignity and respect to labour, Islam provided for fixation and prompt payment of wages. Following measures were recommended by Prophet Muhammad (PBUH) in this behalf :-

(a)     The employers are required to fix the wages before the workers are employed. It was declared unlawful to employ any labourer at work without fixing his wages. It is reported by Abu Saeed Khudri that the Holy Prophet had forbidden to employ any labourer or worker without first fixing his wages.

(b)     Following traditions of the Prophet enjoin the believers to pay the wages without any delay:-

Abu Hurairah reported that the Messenger of Allah said: The Almighty Allah said : There will be three persons whose opponent I shall become on the Resurrection Day: A man who gave in My name and then broke trust, and a man who sold a free man and enjoyed his price, and a man who engaged a labourer and enjoyed full labour from him but did not pay him his wages.


Abdullah-b-Umar reported that the Messenger of Allah said: Pay the labourer his wages before his sweat dries up.

-(Ibn Majah)

4.       About the prompt payment of wages, the Holy Qur’an in the following verse refers to the story of Moses when he fled from Egypt and went to Madain where he helped two women in watering their fleet of sheep and was paid his wages promptly by their father. The verse reads:

Then there came unto him one of the two women, walking shyly. She said: Lo! my father biddeth thee, that he may reward thee with a payment for that thou didst water (the flock) for us. Then, when he came unto him and told him the (whole) story, he said: Fear not! Thou hast escaped from the wrong folk. -(28:25)

5.       The Prophet of Islam also enjoined upon his followers not to burden their employees with heavy work which is beyond the physical strength of the latter to do. If the work is heavy and the employee cannot do it, the employer should help him in doing that. Hadith reported by Abu Zarr in Bukhari and Muslim which has been reproduced at serial No. 2 above can be cited in this connection.

6.       The Holy Prophet was so kind to his servants that if any of them was sick, he would visit him and enquire about his health. Caliph Umar is reported to have made it one of the duties of government officers to look after the sick particularly slaves and servants. From this it has been deduced by the jurists that employers should make adequate provision for medical treatment of their employees.

[Back to the start of this chapter]

V- Obligations of Labour

The obligations of labour are in fact the rights ofthe employer. It is the basic obligation of the worker to fulfil the terms of his part of the contract of service. He should discharge all of his duties in accordance with terms and conditions of his service efficiently and honestly. He should be devoted and committed to his job. If he is provided some in-service training to improve his skills and qualifications, he should whole heartedly benefit from the training facility and should leave no stone unturned to improve his knowledge and skill. He is morally bound to remain loyal and sincere to his employer and no temptation or bribe should induce him to work against the interest of his master. In case he is entrusted with the property of his employer, he should prove trustworthy and should neither embezzle nor damage such property.

Traditions of the Prophet of Islam which highlight the responsibilities and duties of an employee are related below:

1.       ‘Abdullah reported that the Apostle of Allah (may peace be upon him) said: “When a slave sincerely works for his master, and worships (his God) well there is for him double reward.”


2.       Abu Huraira (may Allah be pleased with him) reported that the Apostle of Allah (may peace be upon him) said: “How excellent is (the slave) which one of you has? He worships his Lord well and is a well-wisher of his master.”


Physical fitness is very essential for efficiency of labour. A strong and healthy worker would be more productive and efficient than a weak and sickly one. Similarly a trustworthy and honest worker who realised his duties will be more committed and responsible than a dishonest one. These qualities have been prescribed by the Qur’an for an ordinary labour in the story of Moses in the following verse: One of the two women said: O my father ! Hire him! For the best (man) that thou canst hire is the strong, the trustworthy. -(28:26)

Thus a worker should be both physically strong and trustworthy and should serve his employer diligently, efficiently and honestly.

For a mental worker, it is essential that he should have knowledge and skill and thus he should be able to serve in a position of responsibility to the satisfaction of his employer. These qualities have been stressed when the Qur’an relates the story of Joseph who was appointed incharge of storehouses of Egyptian empire. The relevant verse of the Holy Book reads : “He said: Set me over the storehouses of the land. Lo! I am a skilled custodian.” -(12:55)

Thus qualifications of skill and trustworthiness would enable the worker to discharge the duties of his office with professional competence and integrity.

[Back to the start of this chapter]

VI- Determination of Wages

Labour, as we have already submitted, is very important factor of production and its remuneration is called wages. The term ‘wages’ may be used in a narrow or a wide sense. In the wide sense, it means payment made for the services of labour. In the narrow sense, “a wage may be defined as a sum of money paid under contract by an employer to a worker for services rendered.” But generally in Economics the term ‘wage’ is used in a wide sense and it means the share of the national dividend which goes to those who work with their hands or brains, whether independently or for an employer.

The problem of wages is very important as it effects the whole society. If the workers do not get fair and reasonable wages, it will not only affect their subsistence but also their purchasing power. And if a large portion of population like labourers have no purchasing power, it would adversely effect all those industries which are supplying consumer goods to the working class. Moreover, injustice to working class would lead to discontentment, frustration, agitation and strikes. Thus if the labourers are deprived of their just share from the national income, it would be in the long run an economic suicide’ for a country.

Various theories have been propounded by modern economists for determination of wages. According to Subsistence Theory, wages tend to settle a level just sufficient to maintain the worker and his family at minimum subsistence. ‘Wages Fund Theory’ explains that ‘wages’ depend upon the demand and supply of labour. Residual Claimant Theory states that wages are the residue left over after the other factors of production have been paid. According to Marginal Productivity Theory, under condition of perfect competition every worker of same skill and efficiency in a given category will receive a wage equal to the value of the marginal product of that type of labour. Thus there is no agreement among the economists about the problem how the wages are to be determined.

Islam offers a very reasonable solution of wage problem which is based on justice and fairness and protects the interests of both the employer and the employee. Wages, according to Islam, are to be determined in equitable manner, without harming the interests of any party, keeping in view the following Islamic teachings:

(1)     Wrong not, and ye shall not be wronged.

-(Al-Qur’an 2:279)

(2)     Lo! Allah enjoineth justice and kindness……….

-(Al-Qur’an 16:90)

(3)     Abu Dhar reports that the Holy Prophet said: “They (your slaves or servants) are your brethren, God has placed them under your control; so whoever has his brother under his control should feed him from what he (himself) eats and give him clothes the like of which he (himself) wears; and do not impose on them task which should be too hard for them, and if you impose on them such a task, then help them (in doing it).”

-(Bukhari, Muslim)

Thus the employer and the employee should treat one another as brothers and not as master and servant. They should not wrong each other and show justice and kindness in their relationship. The employer should not forget that contribution of the labour in his produce is considerable. He should, therefore, pay reasonable wages to an employee to enable him to enjoy a reasonably decent living.

The minimum wage rate in an Islamic society will be determined keeping in view the basic human needs which include food, clothing and house. A worker shall be paid adequate wages so that he can meet expenses on his and his family’s food, clothing and house. He should also be provided for his children’s education and medical treatment of his ownself and his family. It is reported that Prophet Muhammad (PBUH) used to prescribe minimum wages of a person engaged for some government job with a view to provide him decent living. He used to say:

“For a Government servant, if he is not married, he should get married; if he has no servant, he may have one; if he has no house to live, he may build one’ and any one who exceeds this limit is either a usurper or a thief.”

This yardstick fixed by the Prophet of Islam should be kept in view while fixing minimum wages in an Islamic state.

[Back to the start of this chapter]

VII- Contract of Service

Employment of labour by a capitalist is a civil contract and it is recommended by Islam that all contracts should be reduced into black and white. Stressing the importance of writing down of contract, al-Qur’an, the revealed book of Islam, states: “………..Be not averse to writing down (the contract) whether it be small or great, with (record of) the term thereof. That is more equitable in the sight of Allah and more sure for testimony, and the best way of avoiding doubt between you……..” (2:282) Although the instructions of the Qur’an in this verse pertain to business transactions and contracts of debt, but in fact they are applicable to every type of contract. Thus it would be most appropriate if contract of service between an employer and an employee is also reduced in writing and all the terms settled between the parties are recorded in this contract. It is equitable in the sight of Allah and it would help resolving differences or disputes which may arise in future between the employer and the employee.

The Holy Qur’an itself talks of a contract of service in the story of Prophet Moses in its chapter 28. After leaving Egypt when Moses reached Midian and helped daughters of Shuaib, Shuaib called him and offered him employment which was accepted by Moses. The relevant verses of the Qur’an throw light on this contract of service and terms thereof as follows:

He said: Lo! I fain would marry thee to one of these two daughters of mine on condition that thou hirest thyself to me for (the term of) eight pilgrimages. Then if thou completest ten it will be of thine own accord, for I would not make it hard for thee. Allah willing, thou will find me of the righteous. He said: That (is settled) between thee and me. Which-ever of the two terms I fulfil, there will be no injustice to me, and Allah is Surety over what we say. -(28:27-28)

In the above mentioned verses the Holy Qur’an not only makes mention of the terms of service settled between two righteous men of God but also points out that both the parties to the contract resolved to fulfil its terms and made God surety over it. The employers and the employee of today should follow this example and should not only write down the terms and conditions of service but should also express their determination to fulfil the same. It would help them in resolving their mutual disputes and thus make their life peaceful and prosperous.

[Back to the start of this chapter]

  Next Chapter Previous Chapter PDF Version

All Books


The pages of this website are optimized to be viewed by Java script enabled Microsoft Internet Explorer® version 6 or later (only), with screen resolution of 800 by 600 pixels.

Copyright ©2003 by the author, Dr. Muhammad Sharif Chaudhry. However, no permission or royalty/fee is required, to reproduce, translate, print, or publish this book or any parts thereof, in any form, without making any change in its matter and its authorship, for a noble Islamic cause. For the purpose of the author's record, it is required/expected that the author will be informed of any republication of the contents of this book, in any form. For more details, please click here.