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Room : FEM, level 2
 Please take out a piece of paper;

Write down your own opinion / ideas in one

“ What is Economy and what is Islamic
 LO
 End of this class students are able to;

 Explain the key concepts and theories of Islamic

economic system
 Akram Khan (1984) : “Islamic Economics aims at
the study of human falah achieved by organizing
the resources of earth on the basis of
cooperation and participation”

 Hassanuzzaman (1984) : “ Islamic economic is

the knowledge and application of injunctions and
rules of the Shari’ah that prevent injustice in
the acquisition and disposal of material
resources in order to provide satisfaction to
human beings and enable them to perform their
obligations to Allah and the society
 In context of economic; 2 widely known
paradigms are 1) the marxian paradigm of
socialism and 2) the market economy
paradigm of capitalism.
 The paradigm of Islamic economic system is
the Syari’ah which is fundamentally different
from the above 2.

 Everyparadigm in economics is based on

certain philosophic foundations and it’s a
system of belief (Edwards, Reich and
Weiskopf, 1978 )

Social Natural
Sciences Sciences

A B C Economics



Basis of the

Source : Muhammad Arif, 1984 Foundations
 The charts shows that an economic system is
the outcome of the paradigm that it follows.
 The choice of the paradigm is reflected by
the behavioural pattern of the individual
units in the society.
 The behaviour of the individual units : is the
basic of the micro foundations of the system.
 The philosophy in which the individual unit
believes is crystallized by its behaviour.

Economic Systems

Socialsm Islamic Econs Sys Capitalism

Paradigm : Paradigm :
Marxian Paradigm : Shari’ah
Market Economy

Basis of the Micro Foundations : No Private Basis of the Micro Foundations : Basis of the Micro Foundations :
ownership of the factors of Production “Economic Man”
“Muslim Man”

Philosophic Foundations :
Individualism in the role of vicegerent of God Philosophic Foundations :
Philosophic Foundations : on earth with no objection to Utilitarian Individualism
Dialectical Materialism Achieve Falah in based on the “Laissez
This world and in the hereafter. Faire” philosophy
Accountable for performance

Source : Muhammad Arif, 1985

 A society whose members adopt Islam as their
way of life will dev. the Islamic econ. sys.
 Like the other economic systems, the econ sys of
Islam is also rooted in certain philosophic
foundations such as;
 Tawhid : God Unity and Sovereignty
 Rububiyyah : Devine arrangements for nourishment
and directing things towards their perfection
 Khilafah : Man’s role as God’s vicegerent on the earth
 Tazkiyyah : Purification plus growth
 Accountability : Belief in accountability on the day of
judgement and its implications for the life in this
world and in the hereafter, (Khurshid Ahmad, 1980,
and Arif, 1983).
 As a result of these philosophic foundations
the behaviour of the representative
economic agent in an Islamic society can best
be characterised as the “Muslim” (…one who
submits to Allah)…
 The behaviour of the Muslim man is very
different from the “Economic Man”…
 The definition of Economy and Islamic
Economic suggested to be formulated
according to the three similarities of
scientific requirement (Muhammad Ariff,
1985 : 82-84).
 The scientific requirements are;
 First, defining the statement of the basic
economic problem.
 Second, use of the appropriate terminology and
 third, Identify the behavioral of the
representative or the unit of economy.
 Lionel
Robins (1935) defined economics
according to science of scarcity and choice

"The science which studies human behavior as

a relationship between ends and scarce
means which have alternative uses".
 The condition in which human wants are
forever greater than the available supply of
time, goods and resources.

The Problem of Scarcity

 Scarcity in economy is the condition in which
human wants are forever greater than the
available supply of time, goods and
resources. Because of scarcity, it is
impossible to satisfy every desire (Tucker,
2010 : 3).
 The needs of Economic Knowledge in
conventional view, is due to the problem of
relative scarcity faced by individuals and
country as economic resources they have
insufficient to satisfy the unlimited wants.
 So, economic knowledge teaches on how
individual or country to make choice so that
the limited recourses will be allocated and
distributed efficiently without waste.
(Radiah Abdul Kader, 2001)
Muhammad Arif (1985) defined Islamic
Economic according to the comparative
aspect of scientific consideration as;

“Islamic economics is the study of Muslim's

behaviour who organizes the resources,
which are a trust, to achieve al-Falah”.
Scientific Category Conventional Islamic
Economic Economics

1. Defining the Relationship Organizes the

statement of the between ends resources which
basic economic and scarce are a trust
problem means (Amanah)
2. Use of the Limited resources Trust (al-
appropriate vs unlimited Amanah) to gain
terminology wants al-Falah
3. Identify the Human Muslim
behavioral of the (Economic man)
representative or
the unit of economy
 Science of Economy, associate between
limited resources versus unlimited wants in
response to the problem of scarcity. W
 Islamic Economics from : all resourses are
trust or al-Amanah,
 humans are being created to be earth’s manager
or leader namely “Trustee Vicegerent (Khalifah)”
of Allah.
 although individual may own assets, but the
main responsible is as a trustee.
 The ownership and utilization of economic
resources are subject to the law of Syariah that
being guides through al-Quran and al-Sunnah and
Allah is the creator of human being and resources
on the earth.
 Therefore, wealth is not necessarily achieving the
success (al-Falah) if the method to obtain the
resources is not permitted under Shariah rules.
 Cont’
The behavioral of the unit of economic man is
different with Muslim. This is because as a
Muslim its represent and to implement the
Islamic economic way of life as whole.
The behavioural has to consistent to the rules
and the principles of shariah.
Thus, behaviour of utility, consuming,
production, distribution made by the
Muslim’s individual has to align with Islamic
framework / measurement.
This is contrast with the behavioral of
economic man , as the economic man is the
agent of the capitalist economic system.
In conclusion, the Islamic Economic shows that
the fundamental of the Islamic economic
problem is a part of the Islamic way of life as
whole and the solution to the problem is has
to be based on the ethical values and the
rules of Islam its self.
 We can conclude that there is no problem of
scarcity would be arising if we associate that
resource is a trust.
 While conventional economic definition when
relating scarce resources with alternatives
uses, so we can wrap up with comparable
and find similarities in the both philosophy as
concept of relative scarcity.
 The relative scarcity here means that
resources are not absolute scarcity, but it’s
happen because of the greediness and
stinginess of human in exploiting the
available resources.
 Ontop of that, human are restrictive in
efforts and ideas to find the alternatives
resources created by Allah to be use and
complement a more ideal life according to
the Islamic guidance and rules.
 For example, early in the history, machine is generated
by coal, there still many coal in the earth, but people at
the present using petroleum to move the machine.
 And now, with knowledge and current information
founds that this resources are comes with some pollution
and bad effect, so it is not impossible in near future
there are bigger prospect of using solar energy,
electricity and biodiesel to replace petroleum oil as
alternatives and more friendly to environment.
Relative scarcity VS Absolute Scarcity.

In Islam, relative scarcity been has been

indicated in the Quran centuries before
conventional economics as we can interpret
from the extraction of the meaning from the
Surah al-Hijr : verses 19-21 as follows;
ٍ ‫ي ٍء َم ْو ُزو‬
}19{‫ن‬ َ ‫ل‬
ْ ‫ش‬ ُ ْ ‫ي وَأَ ْنبَ ْتنَا فِيهَا ِم‬
ِ ‫نك‬ ِ ‫ها وَأَ ْل َق ْينَا فِيهَا َروَا‬
َ ‫س‬ َ ‫وَاألَرْضَ َم َد ْدنَا‬
 And the earth We have spread out (like a carpet); set thereon mountains
firm and immovable; and produced therein all kinds of things in due
ِ ‫م لَ ُه بِ َر‬
}20{ َ‫ازِِين‬ ْ َ‫َن ل‬
ْ ‫س ُت‬ ْ ‫ج َع ْلنَا لَ ُك‬
ْ ‫م فِيهَا َم َعايِشَ َوم‬ َ ‫َو‬
 And We have provided therein means of subsistence,- for you and for
those for whose sustenance ye are not responsible.

}21{ ‫خزَائِ ُن ُه َومَا نُن َِزلُ ُه إِ اَّل بِ َقد ٍَر َم ْعلُو ٍم‬ ِ ‫ي ٍء إِ اَّل‬
َ ‫ع ْن َدنَا‬ ْ ‫وَإِ ْن ِم‬
َ ‫ن‬
ْ ‫ش‬ 

 And there is not a thing but its (sources and) treasures (inexhaustible)
are with Us; but We only send down thereof in due and ascertainable

Yusuf Ali : Surah al-Hijr : 19-21

 The verses 19 and 20 : Allah has created
every things in sufficient amounts to sustain
all living things, including mankind.
 Thus no body can talk about scarcity as such,
i.e. ‘absolute scarcity’. However the
meaning entailed in verse 21 is quite
important as it entails the philosophical base
of ‘relative scarcity’. :
 There two interpretation,
 first, all possible and potential means of living can only be
realized by the Will and the Power of Allah. What Allah has
destined for mankind to live on this earth is infinite which is
consistent with Him but what creatures on the earth get at any
period of time is finite or limited to be consistent with the nature
of our world and limited span of life (Imam al-Razi and Ibn

 Second interpretation for verses 21, all the wonderful gifts and
energies we see in the world around us have their sources and
fountainheads with Allah, the Creator and Sustainer of the
worlds. And what we see or perceive or imagine is just a small
portion of what exists. That portion is sent out (made available)
to us and to our world according to our needs or its needs from
time to time as the occasion arises. It is strictly limited according
to rule and plan (of Allah). Its source is unlimited and
 The essence : relative scarcity in Islam, as
the best possible use of all available
economic resources, within the framework of
1. Only halal good and services will be produced.
2. All economics activities will take place through
contracts and transactions that are permitted by
3. The distribution of the output among Muslims will
be in accordance with the requirements of ‘justice’
in shariah and its intents.
4. Satisfaction or future needs, example growth of
output, will take place within the limits of best
exploitation, maintenance and development of all
kinds of resources.
According to (Yousuf Kamal, 1996 : 158-159),
Allah predetermined adequate resources to
all mankind but conditioned its prevalence
with the following;
1. To make use of grace and favors from Allah,
discovering rules and laws.
2. To behave righteously on earth (not to corrupt
it) through the obedience to what Allah
As a reflection of the understanding the basic views of
Islamic Economic, it is everyone’s responsibilities
(especially Muslims) to organize efficiently the relative
scarcity resources as a trust to achieve al-Falah as a way
of life.
 Land
 Labor or Effort of Work
 Capital
 The old saying “Looking at the forest rather than the
trees” describes macroeconomics. Macroeconomics is
the branch of economics that studies decision making for
the economy as a whole. Macroeconomics applies an
overviews perspectives to an growth of the economy, the
money supply, and the national incomes of developing
countries. Macroeconomic decision making considers
such “big pictures” policies as the effect that federal tax
cuts will have on unemployment and the effect that
changing the money supply will have on prices.

Examining individual trees, leaves, and pieces of bark, rather

than surveying the forest, illustrates microeconomics.

The basic of microeconomics are referring to the behavior of

every unit in the micro-level decision makers, such as an
individual user, a unit of a household, a producer or a firm.
By studying the behavior of an individual application, we can
create the expectation of changes in market demand.
Similarly, we can understand what a manufacturer can
make the right expectations about changes in the market
 Cont’

Therefore, to analyze the individual user and a

producer in the Islamic Economics , its becomes a
necessity to conduct each of the micro level decisions
in accordance with the principles of law of Muamalat
that being guides through al-Quran and al-Sunnah (al-
Tauhid) and “Trustee Vicegerent (Khalifah)” as the
manager of the trust (al-Amanah) .
And these two principles are the main core in the basic
of philosophy of Islamic Economics (Radiah, 2001 :
 CeterisParibu is a Latin Phrase that means
while certain variables change, “all other
things remain unchanged”. In short, the
ceteris paribus assumption allows us to
isolate or focus attention on selected
variables (Tucker, 2010 : 8)
Cont’ : Example
 Demand for mobiles phones for example, if other
factors are constant, reducing the prices of mobile
phones will cause of higher consumers interested in
buying the mobile phone.
 It assumes that only the price of a that mobile phone
will be changed, while other factors such
as consumers income or the price of prepaid or
postpaid charge are unchanged or do not occur and
complicate the analysis.
 The ceteris paribus assumption holds everything else
constant and therefore allows us to concentrate on
the relationship between two key variables : changes
in the price of mobile phone and the quantity of
mobile phone purchased per month.
 What are the elements and implication that develop the
theories of economic system

 Explain the key concepts in defining Islamic Economics

and what are the different with conventional Economics