Author: Abdul Hameed Nowrozi
Economy and Its Role in Islam (Part 6)
The Causes of Inflation
Inflation can be caused by various reasons, one of which is the pressure of living expenses. Under certain conditions, the general level of prices rises as a result of increasing wages and salaries. Governments may also contribute to rising prices by intervening in the market; for example, by increasing taxes on goods or elevating production costs, which subsequently increases the prices of those goods.
Ways to Curb Inflation
Inflationary pressures on society must be curbed and controlled in the early stages, as it becomes very difficult to manage once the inflationary trend intensifies. Effective control methods generally depend on policy choices that lead to a reduction in demand for goods and services. Therefore, a successful fight against inflation requires identifying its root causes and utilizing the appropriate tools to address them. Anti-inflation methods can typically be classified into four groups:
1. Contractionary Monetary Policy: The implementation of contractionary monetary policy by the central bank, including adjustments to interest rates, open market operations, and direct credit control, helps to mitigate inflation.
2. Taxation and Government Spending: Imposing heavy taxes and reducing government spending can alleviate inflationary pressures.
3. Price Controls: Direct price control by the government—including price fixing and rationing—along with determining and stabilizing wage rates, particularly during critical situations such as wartime, are methods used to control inflation, especially cost-induced inflation.
4. Increasing Supply: Other methods to control inflation include enhancing production or increasing imports to boost supply.
Moderation in Economic Affairs
Islam emphasizes moderation in economic affairs. As Allah Almighty says in the Holy Qur’an: «وَلَا تَجْعَلْ يَدَكَ مَغْلُولَةً إِلَى عُنُقِكَ وَلَا تَبْسُطْهَا كُلَّ الْبَسْطِ فَتَقْعُدَ مَلُومًا مَحْسُورًا» Translation: “And do not let your hand be tied to your neck, nor extend it completely, or you will sit there blamed and bankrupt.”
Additionally, the Messenger of Allah, (PBUH), states: «الإقْتِصَادُ فِي النَّفَقَةِ نِصْفُ المَعِیْشَةِ» Translation: “Moderation in spending provides half of a person’s livelihood.”
Justice: The Source of Increasing Blessings and Reducing Poverty
Justice involves delivering every right to its rightful owner or placing everything in its proper order.
According to this definition, if each factor of production receives its fair share, then economic justice has been achieved. As per traditions, a fair society where everyone obtains their rights will generate numerous economic benefits, including increased blessings, reduced needs, and wealth growth.
Causes of Economic Problems and Solutions
Some main causes of economic weakness include unemployment, recession, embargoes, inflation, and market instability.
A proven solution for fostering economic growth is to value the nation’s products. It is well-understood that increasing national production will lead to the flourishing of factories, farms, and other industries. This, in turn, equates to creating job opportunities, increasing employment, providing quality goods in the market, reducing inflation, and benefiting all stakeholders, including consumers, producers, workers, and employers. For this to occur, the following seven factors should be considered:
1. Consumption Market: A necessary condition for the sustainability of production.
2. Capital: Availability of financial investment.
3. Financial Resources: Sufficient funding and resources.
4. Skilled Workforce: Enhancing skills and workforce quality.
5. Raw Materials: Access to necessary materials for production.
6. Knowledge and Technology: Improving product quality and increasing production efficiency through innovation.
7. Cultural Support for National Products: Encouraging the community to show support for and consume national products.
Continues…
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