Fall Of Capitalism and Rise of Islam by Mohammad Malkawi

The price (the monetary exchange value of a product) plays an important role in the process of production, consumption, and distribution of products and services through what capitalists call “the price mechanism.” This is another fundamental principle of capitalism. Adam Smith was the first to refer to the price mechanism when he wrote of the “invisible hand of the price mechanism”34. He described how the invisible or hidden hand of the market operates in a competitive market through the pursuit of self-interest to allocate resources in society’s best interest. This remains the central view of all free-market economists, i.e., those who believe in the virtues of a free-market economy with minimal government intervention. This is the essence of the political economics of capitalism.

The price mechanism decides which of the producers will enter the production race and which will be excluded. In the same manner, it decides which of the consumers will satisfy their needs and which consumers will not be able to do so. The production cost of a commodity is the principal factor which controls its supply to the market. The benefit of the commodity is the principal factor which controls the market demand for the product. Both values are measured by the price. The supply and demand concept thus becomes a cornerstone in the study of capitalism. Supply refers to the supply of the market, and demand refers to the demand of the market. Both supply and demand are tightly coupled with “price”; hence, the price mechanism is fundamental to the economy of capitalism. Demand changes inversely proportional to the change in price. If price increases, then demand decreases; if price decreases, then demand increases. This is contrary to supply which changes directly proportional to the price. The level of supply increases as the price increases and it drops as price decreases. In both cases, price has the greatest effect on supply and demand; consequently, it has the greatest effect on production and consumption.

The price mechanism under capitalism plays a major role as well in the distribution of commodities and services amongst individuals in a society. According to the “price mechanism,” the ideal method to distribute commodities and services in a society is that which guarantees the highest possible level of production, which also guarantees the highest level of compensation for the efforts of production. When this relationship between production (supply) and consumption (demand) is violated, an imbalance occurs in the system; this could be a dormant fault of the capitalist political economy.

Capitalism claims that the price mechanism produces economic equilibrium automatically. It gives the consumers the choice to decide for themselves the distribution of the resources owned by the society over the various economic activities. This is accomplished when the consumers demand some commodities and turn away from others. The consumers spend their income (which they obtained by means of exchanging their goods or efforts) by buying what they need or what they desire. Thus, the consumer who dislikes wine will abstain from buying it and spends his income on other things. If the number of consumers who dislike wine increases, or if all consumers come to dislike it, then the production of wine becomes unprofitable due to decrease in the demand. Thus, production of wine would stop in a natural way. The same rule applies to other commodities and services. By deciding what to buy and what to leave, the consumers define the level and kind of production.

The price mechanism is one of the main pillars of capitalism; it is considered to be the incentive for production, the regulator of distribution, and the link between the producer and the consumer; in essence it is the means for achieving equilibrium between production and consumption.

It is maintained that the principal motive for man to undertake any productive effort or sacrifice is his material reward. Capitalism excludes the possibility that man expends effort for a moral or spiritual motive. The moral motive, if it exists at all, is attributed to a materialist compensation (think of tax incentives).

Man expends his efforts to satisfy his materialistic needs and wishes only. This satisfaction is either through the consumption of commodities which he produces directly or through receiving a monetary reward that enables him to obtain the commodities and services produced by others. Since man depends in satisfying most of his needs, if not all of them, on exchanging his efforts with others, then the satisfaction of needs is focused on obtaining a monetary reward for his efforts. This monetary reward allows him to obtain commodities and services, and accordingly man does not have to focus entirely on the commodities which he produces. Therefore, the monetary reward, which is the price, is the motive for man to produce. This is how “the price” is considered the incentive for production.

Besides being an incentive for production, the price also regulates distribution. In the normal case, man likes to satisfy all of his needs completely and he strives to obtain the commodities and services which satisfy these needs. If man is left free to satisfy his needs, he would not stop short of possessing and consuming whatever commodity he likes. Because of the limitation of man’s capabilities and the scarcity of resources, man has to stop satisfying his needs at a certain limit. This is the limit at which he can afford to exchange his efforts with others efforts, that is, at the limit of the monetary compensation which he receives for expending his effort; this is the limit of the price.

The price provides a constraint which acts naturally to restrict man’s possession and consumption to a level which is proportional to his income. The price regulates man’s choice between competing needs; he proceeds to satisfy what he finds necessary and leaves what he finds of less importance. Thus, the price forces the individual to settle for partial satisfaction of some of his needs at the expense of others. This is how the price regulates the consumption of utilities by individuals. Indebtedness within capitalism has been used to expand the consumers’ abilities to consume more products than they could afford without borrowing money. Indebtedness within capitalism has grown to be a dominant phenomenon after the widespread use of the credit system.

The price also regulates the distribution of limited utilities amongst the consumers who demand these utilities. The disparity between the incomes of the consumers leads to a variation in the level of consumption by people based on their incomes. More pricy commodities will be available only to those who can afford them; less pricy commodities would be consumed by people who can afford the lower prices. The price, thus, becomes the regulator in distributing utilities amongst consumers by setting a high price for some commodities and services and a low price for others.

The price mechanism is also responsible for achieving equilibrium between production and consumption by establishing a link between the producer and the consumer. The producer makes products to fulfill the desires of the consumers; he is rewarded through profits. The producer would lose if the products are not accepted by the consumers. The producer detects the desires of the consumers through the price. If the price of a commodity increases as a result of increased demand, the production increases as well.

Conversely, production decreases if the price drops due to a decrease in the market demand. The response of the market to the price increase and decrease due to variations in the demand makes the price mechanism a tool which achieves equilibrium between production and consumption and a link between the producer and the consumer; this process occurs automatically without the need of external intervention. This is the essence of the price mechanism in the political economy of capitalism. It constitutes a cornerstone of the economy. The failure of the price mechanism to achieve the desired objectives of equilibrium, wealth distribution, and balanced economy is detrimental to the foundation of capitalism.

Based on the price mechanism theory, the capitalist economists conclude that the ideal method to distribute the wealth among the members of society is that which guarantees the highest possible level of production; the products will naturally be distributed through the price of products. The production increases when the reward for the efforts exerted by the producer increases. The underlying assumption here is that the benefit of products is the result of man’s efforts only. But this is not always true. Benefits initially are found in products in their most basic and raw form as created by God. The effort and labor of man help transfer the raw materials after certain types of processing to a form and shape usable or desirable by the consumer. It is not accurate to say that the benefit of a product is entirely created by man. In fact, there are certain raw materials which carry benefit without the least amount of efforts from man. The best and simplest examples are the air, water, meadows, forests, and many others. So, considering the benefit as a result of human efforts only is inaccurate; it neglects the raw material and other readily available resources. Then, it is not accurate to claim that the price (which is the compensation for man’s efforts) is the parameter which controls the level of production.

Similarly, the decline in the level of production does not result solely from a decrease in the reward for work. Production can decline as a result of the depletion of natural resources, decline in the wealth of the country, wars, natural disasters, or other reasons.

As an example, the decline of production in both Britain and France after the Second World War did not result from a reduction of the work reward; it resulted from the shrinkage in their influence over their rich colonies. It also resulted from their involvement in the war and their loss of strategic resources. Production decline in the United States during the Second World War did not result from a reduction in rewards for work done by producers; it resulted from its involvement in the war against Germany. The decline in production in the Islamic World today did not result from a reduction in the reward to work; it is the result of the intellectual decline into which the whole Muslim nation fell. Production decline in the United States in recent years is mainly due to outsourcing of manufacturing to India and China, and so on.

Therefore, the inadequacy of the reward to work is not the only reason for decline in production; it is, therefore, incorrect to assume (based on this premise) that the ideal method of distribution is to secure a rising level of production.

The claim that the primary motive for the person to expend his effort is the material monetary reward (price) is also incorrect. Man often expends effort in return for a moral reward such as the attainment of a reward from God, or for the sake of achieving ethical merit such as returning a favor. The needs of man can be materialistic such as material profit; they can be spiritual such as sanctification or moralistic such as praise. So taking into consideration materialistic needs only is incorrect.

It has become customary, even in capitalist societies, to motivate people for innovations through means other than the material rewards of bonuses and salary increases. Carly Fiorina, former CEO of Hewlett-Packard, used historical examples from the Islamic civilization to motivate HP engineers and scientists for inventions when she noted that the Islamic civilization was driven more than anything by invention48.

The price is not the only incentive for production as proclaimed. A man could spend his resources in satisfying a spiritual or a moral need more generously than he spends in satisfying a materialistic one. A stonemason could designate himself to work for months in cutting stones for building a mosque or a church; a factory may assign its production for one or more days of the year as charity donation to poor people; a nation could allocate some or all of its efforts on preparing to defend its territories. Such production is not motivated by price. Moreover, the materialistic reward itself is not confined to price; it could come in the form of other commodities or services. Hence, considering the price as the only incentive for production is incorrect.

One of the great anomalies of capitalism is that it considers price as the only regulator for distributing wealth amongst the members of society. Price is considered the only constraint that forces the consumer to limit his possession and consumption based on his income; it is also the price which makes some people consume more or less than others based on their income. Price regulates the distribution of wealth amongst consumers, through the rise in the price of some goods and drop in the price of others, and in the availability of money to some people and its nonavailability to others. Thus, every individual’s share of the wealth of a country is not based or equal to his basic needs; it is equal to the value of the services in which he has contributed in producing commodities and services; it is equal to what he owns of land or capital, or equal to what he carried out of work, and projects.

Based on this principle, which makes price the sole regulator of distribution, capitalism has effectively decreed that man would not be able to satisfy his needs except to the limit of his ability to contribute to the production of commodities and services. A person born with a physical or mental disability will not be able to satisfy his needs simply because he does not produce and does not earn money with which he can buy products to satisfy his basic needs. The purest form of capitalism driven by the price mechanism essentially denies some people the right to live.

On the other hand, a person who was born strong or born in a rather rich environment, and who is more able to create and possess wealth, satisfies his basic and luxurious needs; furthermore, he may practice control and mastery over others with his wealth. In the race to compete for wealth, it is only natural to expect a great disparity between some who acquire much more and others who acquire much less.

The one whose motivation to seek material gains is stronger will exceed others in possessing wealth. The greedy ones will acquire more wealth and try to prevent others from acquiring wealth, thus opening the door for monopoly. The one who adheres to spiritual and moral values (in the process of earning) will acquire less wealth than others. This method of wealth distribution ignores the significance of the spiritual and moral elements from life and produces a life built upon a materialistic struggle to gain the means of satisfying materialistic needs.

Wealth imbalance based on the price mechanism eventually occurs in all countries which adopt and apply capitalism. The domination of monopolies has developed in countries adopting capitalism, where the producers of goods and services exercise control over the consumers. Over the course of years of capitalism domination, the production of goods and service tends to accumulate in the hands of fewer and fewer people. A small group of people, such as the owners of large oil, automotive, and heavy industry corporations, have come to dominate consumers, reigning over them by imposing certain prices for the commodities they produce. In the US, the top 5% of the population owns more than 50% of the total national wealth, and the top 20% owns more than 80% of the total wealth.138.

This major flaw in the origin of the system has called for patches in order to prevent the type of failure that the communist theoreticians predicted or the ones that the old Soviet Union socialists aggravated. The state (government) was given the right to intervene for price regulation and control in special circumstances to protect the national economy, to protect consumers, to reduce consumption of some commodities, and to break monopolies. Welfare programs are temporary patches aimed at supplementing the ability of the poorest segment to satisfy their basic needs. The bailout of failing businesses and consumers is another form of fixes used in capitalist societies. More on this will be discussed later.

These measures contradict the basis of capitalism, which is based on free-market rules driven by the relative scarcity, value, and price mechanism. Several capitalism economists do not adopt this interventionist approach (conservatives) and contend that the price mechanism alone is sufficient to achieve harmony between the interest of the producers and the interest of the consumers, without any need for governmental intervention. These patchwork solutions which are recommended by the interventionists Keynesian economists (liberals) are only applied in certain circumstances and conditions, and even in these circumstances, the distribution of wealth amongst the individuals does not achieve the complete satisfaction of all basic needs for each and every individual.

The poor distribution of commodities and services, which resulted from the concept of freedom of ownership and from the concept of making the price the only mechanism for distributing wealth, will continue to dominate every society that applies capitalism.