Chapter # 3 Consumption

& Production

Chapter`s Outlines• Consumption• Meaning and its Importance• Islamic Principles of consumption• Western and Islamic concept of consumer

behavior• Production• Meaning and Islamic approach of Production• Concept of private Ownership• Tenancy & its types

Meaning and Importance

• In economics, consumption stands for expending of wealth for satisfaction of human wants such as food, clothing, housing, other articles of daily use, education, health, other personal or family needs, etc.

• So, it is absolutely necessary that one should be very careful in the consumption of wealth as wants are unlimited

• Islam, therefore, enjoins moderation, self-control and carefulness in spending of wealth.

Principles of consumption

1 Principle of Lawfulness

2 Principle of cleanliness

3 Principle of moderation

4 Principle of benefit

5 Principle of morality

6 Principle of maximum welfare

7 Principle of trust (we are trustee of money)

Consumer behavior

1 The western concept of Consumer Behavior

2 The Islamic concept of Consumer Behavior

The western concept of consumer behavior

• After the establishment of western capitalist system, the concept of consumer behavior was formulated on two principles

• 1 Economic Rationalism• 2 Utilitarianism

• Economic Rationalism It implies human behavior

which is adopted to achieve Economic success

WHILE Utilitarianism is the basis of

moral values, like honesty is useful because its establishes credibility in the market etc.

Two stages of consumer behavior

1 In the first stage, which is called Cardinal Approach to utility under which utility is measured and consumer achieves equilibrium according to the following formula

Mu1 = Mu2 =……..Mun

P1 P2 Pn

2 The second stage is the modern stage which is called Ordinal Utility approach, according to this view point the consumer attains equilibrium when

Marginal Rate of Substitute= Price Ratio

2 The Islamic concept of Consumer Behavior

• The behavior of a Muslim consumer is determined by Islamic rationalism which is based on three concepts

1 The concept of life hereafter

2 The concept of wealth in Islam

3 The concept of success in Islam

1 The concept of life hereafter

• In concept of life hereafter The utility has two aspects; WORLDLY & ETERNAL, this can be shown in the following equation

U= U1+U2

where U = total utility,

U1= Worldly utility

U2= Eternal utility

The concept of wealth in Islam

• The concept of wealth in Islam is quite different from the concept of wealth in capitalism.

• In Islamic perspective the consumer is a trustee of the wealth given to him by Allah. So he is bound to spend it according to the laws promulgated by Him.

• Believe in Allah and His Messenger (blessings and peace be upon him) and spend (in His cause) out of that (wealth) in which He has made you His vicegerents (and trustees). So those of you who believe and spend (in His Way) for them is mighty reward. [ Al-Hadeed 57 ; 7]

3 The concept of success in Islam

• From the point of view of Islam, success does not lie in amassing the wealth, but in achieving the favor of Allah.

• So Muslim consumer uses his income in two ways

1 Spending for his personal needs

2 Spending in the way of Allah

And (these) are the people who are neither extravagant nor miserly when they spend. And their spending is (based on) a balance between the two extremes (of extravagance and miserliness). [ Al-Furqan 25; 67]

Cont`d…

Islamic rationalism has following effects.

a) Demand for unlawful goods & services will be zero

b) Demand for luxury goods will be limited

c) Due equitable distribution of wealth the demand for comforts goods will increase

d) The decline in the demand of luxury goods will release funds which can be spent on welfare of people, such as education, health, roads, parks etc,,

Equilibrium of Muslim Consumer

• Muslim consumer will reach at an equilibrium where he can gain maximum well being. This concept of well being combines both temporal and eternal utilities.

• We use the term “Final spending” which combines both expenditures.

Graphical Presentation..???

PRODUCTION

Introduction & Meaning

• It is said that just as man cannot destroy matter(ماده), he also cannot create matter. What he can do is to give it utility or value by arranging or re-arranging its particles in a particular way. Production as such may be defined as creation of utilities and adding value to utilities.

• According to Fraser, “if consuming means extracting utility from, production means putting utility into.”

• Allah is real creator. Man can merely change the forms of matter and use it to satisfy his wants.

Islamic concept of Production

• The desire of man for possession of wealth is quite natural. Man is fond of gold and silver and other sources of wealth which he needs perhaps to satisfy his unending wants.

• Islam has not discouraged man to acquire wealth. In fact, we are told by the Qur’an, that everything of this world has been created for the service and use of man

• Man’s struggle for acquiring wealth has also been encouraged. Qur’an says: “And that man hath only that for which he make effort, and that his effort will be seen, And afterward he will be repaid for it with fullest payment; -----(Al-Najam : 39-41)

• The following tradition of Prophet Muhammad (PBUH) also approve man’s struggle for earning of livelihood:

       The Holy Prophet (sws) said, “Acquisition of lawful livelihood is the most important obligation after the obligation of prayer”.

Islamic approach to Production

1 Demand of Nature

2 The demand of the conquest of Nature

3 Abundance of provisions

4 Demand for gratitude (thankfulness)

5 Progress of Arts and Science

RIGHTS & LIMITS OF OWNERSHIP IN ISLAM

The Rights of ownership in Islam

1 The real Nature of ownership a) Trust

b) Demand of vicegerency on Earth

c) Open to General Use

d) Trial

e) Acting upon the commands of Shariah

2 The Right of Individual Ownership

a) Private business

b) Shirkah

c) Limited Partnership

d) Rent

e) The right to transfer ownership1 By sale 2 By Hiba 3 By Will

f) The right to protect property

g) The right to accumulate wealth

Prohibited Means/ Limitation of Production of Wealth

• Interest• Bribery• Usurpation of Orphan’s Property• Trade in Wine and Narcotics• Gambling and Games of Chance• Hoarding of Essential Goods• Embezzlement• Wrong Measuring and Weighing• Prostitution• Begging• Miscellaneous Unfair Means

TENANCY (MUZARAT)

Meaning & Definition of Tenancy• The word Muzarat is derived from “zara”

which means “ to sow the seed”• Technically it is defined as a transaction in

which the owner of agriculture land gives his land to another for cultivation on terms of crops sharing at a fixed rate.

• DefinitionMuzarat is a contract made for the

cultivation of land on the basis of crop sharing at a certain rate

Types of Tenancy • Tenancy is of two types:

1 Share-Tenancy In share tenancy the tenant and

the landlord share the produce of the land in agreed proportions.

2 Cash- Tenancy In cash tenancy the tenant pays

the fixed rent of the land to the land owner in cash.

thx