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Behavioral and Institutional Setting

Islamic economists have noted a number of behavioral characteristics specific to Islamic individuals. These are:

  1. Economic agents care for others and serve social objectives in all economic activities such as consumption and saving, investment and production, employment and work.
  2. The social objectives recognized and served by economic agents are (a) fulfillment of basic needs of all human beings, (b) balance and equity in the distribution of income and wealth, (c) stability, and (d) economic development.
  3. Economic agents are motivated by self-interest and personal gain within the framework of social objectives and care for others.
  4. Individuals exercise moderation in consumption and abstain from wasteful and luxurious living.
  5. Individuals are inclined toward cooperation and mutual consultation with a view to realizing social objectives. This is especially relevant to the relation between labor and management, consumer and producer, and government and business.
  6. The individual income-earner's decision to save is closely linked with his decision to invest.

Islamic economists have also identified the institutional arrangements unique to the Islamic system. These are:


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  1. Replacement of interest by profit sharing. (Of the several consequences of this departure from the capitalist system, the one to be noted is that reward for financial investment is determined in the real market rather than in the money market.)
  2. Creation of money through a process of investment (rather than through a process of lending, as in a capitalist system), effecting a firm linkage between the expansion of the money supply and the expansion of production.
  3. Social institutions, especially the state, play an active role in the economic process in order to ensure the realization of the social objectives.
  4. Zakat serves as an effective instrument of transferring some resources from the rich to the poor, thus contributing to the realization of the social objectives.
  5. A minimum level of income is guaranteed to all members of society who are, however, expected to work for it, to the extent that they are able.

What is the source of this knowledge? Did Islamic economists discover these behavior patterns and institutional arrangements through empirical studies? No. They discovered these characteristics in the Islamic society as envisioned by the Qur’an and Sunnah. The source of their knowledge, is, first, ideational not empirical. It is the Islamic description of, and prescription for, the good life. There is also a secondary source, that of Islamic history, especially in its authentic period, namely, the first forty years. The history of this early period of Islam confirms these findings. Though the later periods waver, they too confirm the long-term trends. Contemporary Muslim societies are no exception. Despite the strong influence of materialism, it is more instructive to understand contemporary Muslim economic behavior and institutions as deviations from these norms rather than as expressions of conventional economics. Even though some of the existing institutional arrangements in Muslim societies are very different from those in the early period of Islam, the latter remain the proper points of reference for an Islamizing people.

 

Source: Dr. Muhammad Nejatullah Siddiqi, Economics An Islamic Approach. Republished with permission.