Download Topic 6_Consumption and Production In Islam

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Production
Consumption
Economic
functions
Exchange
Distribution
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At the end of the lessons, students should be able:
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To explain capital as accumulated labour.
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To describe what is the price of capital?
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To analyze the right of ownership in Islamic
economics.
To derive goals of production in Islamic economics.
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Land
Capital
Factors of
production
Labour
Entrepreneur
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Capital is stored labor embodied in a commodity and
used in the process of producing other commodities.
Labor is the only factor of production which deals in
economic terms with the gift of Allah, the natural
resources, to create value and equipment.
Islamic economics emphasis on “claim of ownership”
than value as a result of the economic labor applied to
nature.
Economic labor is defined as the labor applied to
nature in order to extract the consumer’s utility or
create a productive opportunity from the natural
resource.
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The claim of ownership is only on the opportunity
created and not on the natural resource itself.
For instance, a person who applies his labor and seeds
to a piece land which is already in economic use has a
claim on the output but not on the land, and he is
required to compensate the owner for the use of the
land.
The claim of ownership on the product is shared
between the labor that created the opportunity of
extracting benefit and the societies that exercises its
right of controlling the natural resources.
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The answer which can be obtained from almost every
intermediate textbook on economics is interest.
However, little reflection on the elementary concepts in
economic theory will change the reply to the above
question.
Capital is defined as “only the accumulated stock of
plant and equipment held by business – it consists of
durable goods which are used in producing other
goods and services.
This definition does not fit with the use of the term in
usual jargon, in which capital is meant to include
money which can be borrowed in the finance market.
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But, the fact that money can buy machinery does not imply
that both are the same because money can also buy any
other goods, whether used in production, such as land and
labor, or in consumption, such as food or clothes.
The price of capital, assuming homogeneity, is the rent per
machine, and the price of loan is the rate of interest per unit
of loan.
Hence, we do not need to downgrade the role of capital
goods in production in order to justify the prohibition of
interest in Islam.
Capital which participates in production has its reward
which is a personal claim on the owner of the material.
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i.
Property is a trust.
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The true owner being Allah s.w.t himself.
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Man’s right to dispose of worldly goods is in the
capacity of a vicegerent and a trustee.
Hence, the property is not absolute but limited and
qualified.
Wealth is means to the end of living a life in accordance
with Allah’s guidance and of earning the reward in the
Hereafter.
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ii.
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Resources should be accessible to all men.
The idea of oneness of mankind requires that the
bounties of nature and worldly goods be accessible to
all men.
It should not become the monopoly of the few.
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iii.
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Opportunity of economic utilization.
The object of the right of property is the opportunity of
economic utlization.
If this opportunity is not attended to or the utilization
is diverted to non-economic purpose, the right will be
reduced to the limit of zero.
As a result, foregoing the entire right in case of losing
the opportunity or the deprivation of control over one’s
property in case of misuse.
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iii.
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Opportunity of economic utilization (ctd).
The owner should not commit any oppression with the
property right granted.
It also implies that there should no excessive penalty
for the violation – “there should be no harm neither
injury”.
It is on this basis that social welfare contributions are
collected by the power of law in Islam.
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iv.
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The right of ownership is limited by the life of the
owner.
The owner does no have any authority over his wealth
after his death.
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Hence, the inheritance law of the Qur’an gives details
concerning the distribution of the estate.
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Death is considers as natural end of one’s property
rights.
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This is echoed the Islamic conception of the right of
property, which is more a limited vicegerency rather
than an absolute claim.
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i.
Three objectives of production in Islamic economic are as
follows:Products which deprive the human being of his moral
values as established in the Qu’ran, are prohibited.
• Also prohibited are all types on industrial activity and
relations which degrade the human being or make him
party to vices for the sake of economic gain.
• Thus, Prophet (PBUH) prohibited curtains forms of
economic activity such as prostitution and the income
generate from it.
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ii.
iii.
The social aspects of production is emphasized and
intimately related to the production process.
• Distribution on the benefits of production among the
greatest number of people and in the most equitable
manner is among the prime objective of production in
Islamic economic.
Extract the full benefits of Allah’s gift in terms of both
human and natural resources.
• In other word, the resources should be used in
efficient manner.
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i.
Distributive Justice in Islam, Mohammad Anas
Zarqa.
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
Read on consumption.
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THANK
YOU…
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At the end of the lessons, students should be able:
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To re-visit the concept of rationalism in western
economics.
To explain the concept of Islamic rationalism
based on the following discussion:i. The concept of success.
ii. The time scale of consumer behavior.
iii. The concept of wealth.
iv. The Islamic concept of goods.
To describe ethics of consumption in Islam.
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Consumer behaviour theory is a capitalist economic
theory.
It aims to explain consumer behaviour in maximizing
utility with the constraint in income.
Basic assumption:“Consumers choose to use or distribute based on
rationality to maximize utility”.
Consumers have to choose because of limited
resources and unlimited wants (concept of scarcity).
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The theory of consumer behaviour developed in the
West after the rise of capitalism is the offspring of a
duality namely, economic rationalism and
utilitarianism.
Economic rationalism:“The acquisition of wealth whether in terms of money
or commodities, is the ultimate goal of life and at the
same time the yardstick of economic success”
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Utilitarianism:“An action is ethical if it results in the greatest benefit
for the largest number of people”
 Utilitarianism is the source of moral values and
attitudes of man in pursuing wealth
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From this dual origin emerged the theory of consumer
behaviour which considers the maximization of utility
as a postulated objective of the consumer.
Hence, the consumer goal is to achieve the highest
level of economic satisfaction and whose only stimulus
is the “sense of money”.
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Islamic economics emphasis that rationalism should be
consistent with Islamic views which further discuss
from the following aspects:i. The concept of success.
ii. The time scale of consumer behavior.
iii. The concept of wealth.
iv. The Islamic concept of goods.
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The concept of success
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The concepts of success in Islam is always associated
with moral values as pointed by M. Nejatullah Siddiqi: Success lies in being virtuous.
 The more ethical one is the more successful he is.
 A well provided life ensures peace of mind,
contentment and sense of security.
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Islam does not restrict efforts towards material
progress.
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The concept of success
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Moral and spiritual encourages and stimulates the
entrepreneur’s ambition by: Call or claim to establish enterprise
 Satisfy his own ambition regarding life in the world
and hereafter (Surah Ibrahim:7)
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Thus, in Islam material and spiritual are neither
separated nor cut off from life.
The pursue of economic progress is not a vice
according to Islam.
In fact, it becomes one of the virtues if it is balanced
and intended for a good cause.
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The time scale of consumer behavior
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Islam associates belief in Day of Judgment and the life
in the Hereafter inextricably with belief in Allah.
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Life before death and life after death are closely
interrelated in a sequential manner.
This has two effects on consumer behaviour:i. Each choice of action is subject to immediate effect
and later effect.
ii. One’s income is increased by the inclusion of all
alternative uses that will be gained only in the
Hereafter.
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The time scale of consumer behavior
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In Islam, income has alternative uses such as qardhul
hasan, waqf, care of animals, spending for the welfare
of future generations, and improvement of community
life even when it has no immediate benefit for the
individual, promotion of goodness and etc.
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Such uses of income are excluded from Max Weber’s
rationalism unless they have some immediate utility.
Life of a Muslim is not merely strive of materials (Surah
Nuh:10-12).
Hence, Muslim must spend some time in the
remembrance of God.
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The concept of wealth
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Islam sees wealth is a bounty from God.
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Al-Siba’i argues that Islam disapproves of poverty,
referring to the saying of the Prophet PBUH:“Poverty is almost equivalent to denying Islam”
Indeed, the Prophet PBUH used to pray to avoid poverty
and give richness.
Nonetheless, Muslim should not be extravagant and
miserly in spending of wealth.
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The Islamic concept of goods
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In Islam, goods are bounties bestowed by God on
mankind.
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Qurans always refer consumable goods by using terms
that give moral values and appreciation such as: Al-tayibat which is defined as good things, good
and pure things, clean and pure things, good and
wholesome, sustenance of the best.
 Al-rizq which is defined as Godly sustenance, divine
bestowed, heavenly gifts as God is the provider for
all creatures.
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The Islamic concept of goods
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These terminologies implies consumer goods are the
useful, beneficial consumable materials whose
utilization brings about the material, moral and
spiritual betterment of the consumer.
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Goods must be morally useful and exchangeable in the
market in order to possess economic utility.
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Consumption of good things is a virtue in Islam.
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Consumption should not involve any harmful things.
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Over consumption is condemned in Islam.
(Surah Al-An’am:141).
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Extravagant is condemned in Islam (overspending is
condemned even for lawful matters).
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Muslims should spend moderately between miserliness
and extravagant (Surah Al-Isra:29).
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Islam recommend a moderate and balanced pattern of
consumption and spending.
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i.
The theory of consumption.
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
Read on Islamic economic institutions.
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THANK
YOU…
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