What is Islamic Economics?

What Is Islamic Economics?

INTRODUCTION
In Islam man is khalifatullah fil ardh or the `vicegerent of Allah on earth’. What this means is that man as a representative of Allah is required to utilize the resources bestowed upon him as a trust by Allah in the most effective and efficient manner in accordance with the Islamic laws and regulations. In other words in Islam man’s existence comes with a purpose namely to serve and worship his Creator as depicted in the verse of the Quran ma khalaqtul jinnawalinsan illa liya`budun or `We do not create jin and man except to worship Me’ (Surah Al-Jatsiyyah, verse 57). Allah has provided man with the religion of Islam to guide him in performing his role as khalifatullah fi ardh. Islam is adeenul kamil wa syamil or a `complete and comprehensive system’ that provides the specific pattern of social and economic behavior for all individuals. As a vicegerent of Allah, homo Islamicus or the `Islamic man’ should do good to his own self and family, develop a good society and lead the society towards a peaceful and harmonious world based on the Quran and the Traditions of the Holy Prophet Muhammad S.A.W. His aim is to achieve falah which means `to attain bliss and happiness in this world and the hereafter’. In Islam there is no separation between the material and the spiritual, the soul and the physical aspects of man.

In a godless secular society, man has no purpose except to accumulate wealth and satisfy his lust and desire. He is not guided by any religious law but solely his own reason to maximize his satisfaction. Morality is not an integral part of the society and the life of man. In this society man is an economic agent or homo economicus with the aim of maximizing his own self-interest. He may be guided by customs or traditions of his ancestors or the secular law established in the society or state in which he is part of it but other than that he is free to make his own decisions or in the best he will do is to act in accordance with what his rational mind or conscience says. In the secular view, economics is defined as the social science that deals with the effective and efficient allocation of scarce or limited resources to satisfy unlimited needs and wants of man. Since man in the secular society wants to gain happiness only in this life, they will try to gain satisfaction, maximize profit and their self-interest utilizing what they believe to be limited resources acquiring them using whatever ways and means possible. What this means is that in achieving this worldly happiness, ethics and moral values are not necessary.

In Islam, economics is defined as the application of the rules of the syariah in a way to prevent injustice in obtaining and distributing the abundance of resources to provide satisfaction to man and enable them to perform their obligations to Allah, society and the environment. In Islam, there are no limited resources as Allah has stated in one of the Surah in the Quran, which means;
“It is Allah who hath created the heavens and the earth and sendth down rain from the skies, and with it bringeth out fruits wherewith to feed you; it is He Who hath made the ships subject to you, that they may sail through the sea by His command; and the rivers (also) hath He made subject to you.” (Ibrahim 14:32)
HOMO ISLAMICUS
Islam offers a balanced and realistic picture of human nature. The homo Islamicus has four characteristics.
First, man has been created as the best living beings and given responsibilities towards everything on this earth. The notion of divine vicegerency not only bestows an exalted status on man but also entails certain obligations. As God’s vicegerent on earth, man is responsible to Him for all his actions and deeds. The Prophet is reported to have said: “All of you are (like) shepherds; and all of you are accountable for your sheep”. Man has a moral responsibility to safeguard God’s bounties, including the planet’s resources, its biodiversity and its climate. Men are created by Allah with a purpose and they are all equal in God’s sight. There should be no notion that one man or race is superior to others. Secondly, men have been created with the potentiality of being impatient, ungrateful, niggardly and contentious. They also tend to act in an unjust manner and often surrender to his desires. However, with the guidance from God through his revelation, men are believed to be able overcome those tendencies and act towards the achievement of common good. Third, men have been given the freedom to choose between good and evil but they are aware that the freedom of choice comes along with it responsibilities and consequences will affect their life in this world and the hereafter. Indeed, Quran tells us that Allah has offered the responsibilities in this world to heavens, the earth and the mountains but they refused but men accepted it. Since men have been given the faculty of reason or ‘aql, they have the capacity of self- reasoning, self-reflection and moral choice which enable them to hold the responsibilities on this earth. Lastly, man is born free from sin and is a Muslim by nature. They promised to God that their life and death are only for Allah but their Islamic nature changes once they are born and exposed to the culture, traditions and religious beliefs of their parents, society and the environment.

Man or insan is derived from the term nasiya which means forgetfulness and they tend to forget who they really are, their true identity and nature. They will return to their true nature when they submit wholeheartedly to Allah SWT and become the true servants of his Creator. This is the `ibaadur al rahman’ stated in Quran or the homo islamicus deliberated earlier. Man’s level of nafs is divided into three; al-nafs-al ammarah which leads them to cruelty and evil; al-nafs al lawwamah which influences them to either doing good or evil and al nafs al mutmainnah, the highest rank of nafs which leads men to peacefulness and tranquility. Even though men are given freedom to choose to do good or evil, they are responsible for their choice. Men have a moral responsibility towards God’s bounties including the resources on this earth, its biodiversity and its climate.
As Prophet have said: “All of you are (like) shepherds; and all of you are accountable for your sheep”.
As a consumer, the homo islamicus seeks to satisfy his needs and wants and also the needs of his fellow human beings. In order to maximize his satisfaction, he will spend some of his wealth and income for the satisfaction of others. In other words his satisfaction is derived not only from his own consumption of goods and services but also from altruism or spending part of his wealth for the satisfaction of others. As a producer, the homo islamicus seeks to maximize his profit but within the ethical and moral constraints of Islam. As a producer he has a moral responsibility to produce sufficient goods and services for his needs and the society which are permissible and not harmful.
HOMO ECONOMICUS
In the secular capitalist economics, man is motivated to act in accordance with his self-interest. In other words, economics is based on homo economicus or the economic man. Man is rational if he seeks to maximize his self-interest. This term is used for secular men who acts for themselves to achieve their predetermined goal with the available knowledge that they have regardless of any constraints. Homo economicus is seen as a rational well-being who strives to attain a specific and predetermined goal with maximum satisfaction but with least possible cost without taking into account the ethical and social factors into consideration. As a consumer, the homo economicus will maximize his utility or satisfaction through the purchase of goods and services even though may result in harmful consequences to the mental, spiritual and physical development of man and society. To the homo economicus a good gives utility as long as there is a demand for it and provides satisfaction. He is not concerned about the welfare of others and morality is not considered in his spending behavior.

As a producer, the homo economicus aims to maximize his profit even though it has detrimental effects on the consumers, employees, society and the environment. He will minimize costs to maximize profit even though it results in lower wages and welfare for the employees. His concern for profit outweighs his concern for the environment and due to his lack of social responsibility it results in environmental degradation and poor quality of life.
COMPARISON BETWEEN HOMO ISLAMICUS AND HOMO ECONOMICUS.
Based on the above discussion of what khalifatullah fi lard or what has been termed by Islamic economists as homo Islamicus and homo economicus are we can make a comparison between them. Firstly, man in Islam who is considered as the vice gerent of Allah on earth differs from homo economicus in the concept of selflessness. Homo Islamicus is concerned with the welfare of the society in which man behaves without selfishness and follows the religious norms. He balances between private and public interest, between altruism and his own interest, and between profit and social responsibility. On the other hand homo economicus’s sole goal is to achieve maximum economic satisfaction in which the motivation in achieving those goals is the sense of money. Homo economicus is guided by his own self-interest and to maximize his own satisfaction or profit. Homo economicus bases his choices on a consideration of his own personal "utility function". Secondly, homo economicus view success in terms of material aspects alone and it is restricted only to the life in this world. However, the concept of success in homo Islamicus or khalifatullah is always related with moral values which imply good and positive attitudes towards life and society. His decision takes into consideration not only the material aspects but also spiritual, mental and physical dimensions as well as it extend beyond this temporary world to the world hereafter. This extends man's horizon of time beyond death.This has two effects as far as consumer behavior is concerned. First, the outcome of a choice of action is composed of two parts, its immediate effect in this life and its later effect in the life-to-come. Therefore, the utility derived from such a choice is the total of the present values of these two effects. Second, the number of alternative uses of one's income is increased by the inclusion of all the benefits that will be gained only in the Hereafter. He is aware that whatever choices that he makes will result in two outcomes; life in this world and hereafter. For example, the positive uses of one’s income are increased by the inclusion of all the benefits that will be gained in the hereafter.
Even though Islam regards self-interest as part of human nature, it does not mean greediness and being materialistic. Rather, it is just man’s consciousness about his own interest. Men can try to achieve his utility maximization as a consumer or profit maximization as a firm. They also can accumulate wealth as much as they want but they should consider the effects of their decisions not only in terms of economics consequences but also the potential consequences in the life hereafter. For example, while gaining profit through a business activity, man should not disregard his obligations to pay zakat as it is a commandment of Allah to help the have-nots and the poor. For homo economicus, maximizing profit is the purpose of a firm’s existence. As paying taxes will reduce their profit, they will use whatever possible ways to avoid taxes such as announcing different amounts of profit by adjusting the financial statement of the company.

What Is Islamic Economics?

INTRODUCTION
In Islam man is khalifatullah fil ardh or the `vicegerent of Allah on earth’. What this means is that man as a representative of Allah is required to utilize the resources bestowed upon him as a trust by Allah in the most effective and efficient manner in accordance with the Islamic laws and regulations. In other words in Islam man’s existence comes with a purpose namely to serve and worship his Creator as depicted in the verse of the Quran ma khalaqtul jinnawalinsan illa liya`budun or `We do not create jin and man except to worship Me’ (Surah Al-Jatsiyyah, verse 57). Allah has provided man with the religion of Islam to guide him in performing his role as khalifatullah fi ardh. Islam is adeenul kamil wa syamil or a `complete and comprehensive system’ that provides the specific pattern of social and economic behavior for all individuals. As a vicegerent of Allah, homo Islamicus or the `Islamic man’ should do good to his own self and family, develop a good society and lead the society towards a peaceful and harmonious world based on the Quran and the Traditions of the Holy Prophet Muhammad S.A.W. His aim is to achieve falah which means `to attain bliss and happiness in this world and the hereafter’. In Islam there is no separation between the material and the spiritual, the soul and the physical aspects of man.

In a godless secular society, man has no purpose except to accumulate wealth and satisfy his lust and desire. He is not guided by any religious law but solely his own reason to maximize his satisfaction. Morality is not an integral part of the society and the life of man. In this society man is an economic agent or homo economicus with the aim of maximizing his own self-interest. He may be guided by customs or traditions of his ancestors or the secular law established in the society or state in which he is part of it but other than that he is free to make his own decisions or in the best he will do is to act in accordance with what his rational mind or conscience says. In the secular view, economics is defined as the social science that deals with the effective and efficient allocation of scarce or limited resources to satisfy unlimited needs and wants of man. Since man in the secular society wants to gain happiness only in this life, they will try to gain satisfaction, maximize profit and their self-interest utilizing what they believe to be limited resources acquiring them using whatever ways and means possible. What this means is that in achieving this worldly happiness, ethics and moral values are not necessary.

In Islam, economics is defined as the application of the rules of the syariah in a way to prevent injustice in obtaining and distributing the abundance of resources to provide satisfaction to man and enable them to perform their obligations to Allah, society and the environment. In Islam, there are no limited resources as Allah has stated in one of the Surah in the Quran, which means;
“It is Allah who hath created the heavens and the earth and sendth down rain from the skies, and with it bringeth out fruits wherewith to feed you; it is He Who hath made the ships subject to you, that they may sail through the sea by His command; and the rivers (also) hath He made subject to you.” (Ibrahim 14:32)
HOMO ISLAMICUS
Islam offers a balanced and realistic picture of human nature. The homo Islamicus has four characteristics.
First, man has been created as the best living beings and given responsibilities towards everything on this earth. The notion of divine vicegerency not only bestows an exalted status on man but also entails certain obligations. As God’s vicegerent on earth, man is responsible to Him for all his actions and deeds. The Prophet is reported to have said: “All of you are (like) shepherds; and all of you are accountable for your sheep”. Man has a moral responsibility to safeguard God’s bounties, including the planet’s resources, its biodiversity and its climate. Men are created by Allah with a purpose and they are all equal in God’s sight. There should be no notion that one man or race is superior to others. Secondly, men have been created with the potentiality of being impatient, ungrateful, niggardly and contentious. They also tend to act in an unjust manner and often surrender to his desires. However, with the guidance from God through his revelation, men are believed to be able overcome those tendencies and act towards the achievement of common good. Third, men have been given the freedom to choose between good and evil but they are aware that the freedom of choice comes along with it responsibilities and consequences will affect their life in this world and the hereafter. Indeed, Quran tells us that Allah has offered the responsibilities in this world to heavens, the earth and the mountains but they refused but men accepted it. Since men have been given the faculty of reason or ‘aql, they have the capacity of self- reasoning, self-reflection and moral choice which enable them to hold the responsibilities on this earth. Lastly, man is born free from sin and is a Muslim by nature. They promised to God that their life and death are only for Allah but their Islamic nature changes once they are born and exposed to the culture, traditions and religious beliefs of their parents, society and the environment.

Man or insan is derived from the term nasiya which means forgetfulness and they tend to forget who they really are, their true identity and nature. They will return to their true nature when they submit wholeheartedly to Allah SWT and become the true servants of his Creator. This is the `ibaadur al rahman’ stated in Quran or the homo islamicus deliberated earlier. Man’s level of nafs is divided into three; al-nafs-al ammarah which leads them to cruelty and evil; al-nafs al lawwamah which influences them to either doing good or evil and al nafs al mutmainnah, the highest rank of nafs which leads men to peacefulness and tranquility. Even though men are given freedom to choose to do good or evil, they are responsible for their choice. Men have a moral responsibility towards God’s bounties including the resources on this earth, its biodiversity and its climate.
As Prophet have said: “All of you are (like) shepherds; and all of you are accountable for your sheep”.
As a consumer, the homo islamicus seeks to satisfy his needs and wants and also the needs of his fellow human beings. In order to maximize his satisfaction, he will spend some of his wealth and income for the satisfaction of others. In other words his satisfaction is derived not only from his own consumption of goods and services but also from altruism or spending part of his wealth for the satisfaction of others. As a producer, the homo islamicus seeks to maximize his profit but within the ethical and moral constraints of Islam. As a producer he has a moral responsibility to produce sufficient goods and services for his needs and the society which are permissible and not harmful.
HOMO ECONOMICUS
In the secular capitalist economics, man is motivated to act in accordance with his self-interest. In other words, economics is based on homo economicus or the economic man. Man is rational if he seeks to maximize his self-interest. This term is used for secular men who acts for themselves to achieve their predetermined goal with the available knowledge that they have regardless of any constraints. Homo economicus is seen as a rational well-being who strives to attain a specific and predetermined goal with maximum satisfaction but with least possible cost without taking into account the ethical and social factors into consideration. As a consumer, the homo economicus will maximize his utility or satisfaction through the purchase of goods and services even though may result in harmful consequences to the mental, spiritual and physical development of man and society. To the homo economicus a good gives utility as long as there is a demand for it and provides satisfaction. He is not concerned about the welfare of others and morality is not considered in his spending behavior.

As a producer, the homo economicus aims to maximize his profit even though it has detrimental effects on the consumers, employees, society and the environment. He will minimize costs to maximize profit even though it results in lower wages and welfare for the employees. His concern for profit outweighs his concern for the environment and due to his lack of social responsibility it results in environmental degradation and poor quality of life.
COMPARISON BETWEEN HOMO ISLAMICUS AND HOMO ECONOMICUS.
Based on the above discussion of what khalifatullah fi lard or what has been termed by Islamic economists as homo Islamicus and homo economicus are we can make a comparison between them. Firstly, man in Islam who is considered as the vice gerent of Allah on earth differs from homo economicus in the concept of selflessness. Homo Islamicus is concerned with the welfare of the society in which man behaves without selfishness and follows the religious norms. He balances between private and public interest, between altruism and his own interest, and between profit and social responsibility. On the other hand homo economicus’s sole goal is to achieve maximum economic satisfaction in which the motivation in achieving those goals is the sense of money. Homo economicus is guided by his own self-interest and to maximize his own satisfaction or profit. Homo economicus bases his choices on a consideration of his own personal "utility function". Secondly, homo economicus view success in terms of material aspects alone and it is restricted only to the life in this world. However, the concept of success in homo Islamicus or khalifatullah is always related with moral values which imply good and positive attitudes towards life and society. His decision takes into consideration not only the material aspects but also spiritual, mental and physical dimensions as well as it extend beyond this temporary world to the world hereafter. This extends man's horizon of time beyond death.This has two effects as far as consumer behavior is concerned. First, the outcome of a choice of action is composed of two parts, its immediate effect in this life and its later effect in the life-to-come. Therefore, the utility derived from such a choice is the total of the present values of these two effects. Second, the number of alternative uses of one's income is increased by the inclusion of all the benefits that will be gained only in the Hereafter. He is aware that whatever choices that he makes will result in two outcomes; life in this world and hereafter. For example, the positive uses of one’s income are increased by the inclusion of all the benefits that will be gained in the hereafter.
Even though Islam regards self-interest as part of human nature, it does not mean greediness and being materialistic. Rather, it is just man’s consciousness about his own interest. Men can try to achieve his utility maximization as a consumer or profit maximization as a firm. They also can accumulate wealth as much as they want but they should consider the effects of their decisions not only in terms of economics consequences but also the potential consequences in the life hereafter. For example, while gaining profit through a business activity, man should not disregard his obligations to pay zakat as it is a commandment of Allah to help the have-nots and the poor. For homo economicus, maximizing profit is the purpose of a firm’s existence. As paying taxes will reduce their profit, they will use whatever possible ways to avoid taxes such as announcing different amounts of profit by adjusting the financial statement of the company.