Tools and Instruments

Do Islamic economists find the existing kit of tools sufficient for the study of the new scenario presented by the characteristically Islamic institutions and behavior patterns? Not quite. For one thing, there are new rates and ratios with which to play. There is the array of the zakat rates applicable to various kinds of assets. Then there are the profit-sharing ratios among the savers, the financial intermediaries, and the entrepreneur-producers. There are new instruments of central bank policy to control the supply of money and channel investible finds in desired directions. There are refinance ratio and the lending ratio.

There is the minimum level of consumption to be guaranteed to all. Then there is the whole range of qualitative arguments to be introduced into the various functions in order to capture the social objectives. The conventional kit of tools is fine so far as geometry and algebra are concerned. But these tools are being increasingly harnessed to unravel the mysteries of phenomena unknown in the world of conventional economics. This has become more noticeable in the writings of the last few years. We have macro-models of consumption, income determination, and income distribution incorporating care for others with a utility function to be maximized; while zakat and profit-sharing influence the decisions to save and to invest, the demand for money and the distribution of income. We have studies on monetary and fiscal policies incorporating new instruments of control and new ways of effecting transfers from the rich to the poor. Guarantee of a minimum level of income and moderation in consumption have also been incorporated into a macro-model of the economy. At the microeconomic level, multiplicity of objectives on the part of producers is being explored with a view to discovering what happens if the firm cares not only for profits but also for creating and maintaining job opportunities and ensuring adequate supplies of essential goods and services, for example. The impact of a cooperative spirit and mutual consultation on worker-employer and consumer-producer relationships is also being explored.

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