Salman Ahmed Shaikh
Muslim economists have employed the mainstream economics tools to explicate consumption in the Islamic framework. Kahf (1980) uses indifference curves and budget lines. Ahmed (2002) uses utility framework to incorporate Islamic injunctions in the model assumptions as well as parameters. Some economists in the Islamic economics literature argue that the utility function itself should include social caring spending utility (El Ashker and Wilson 2006; El Ashker 1985; Khan 1986). The problem with that approach is that if one introduces self-less spending in the utility function as a choice variable, then it is imperative to include its price as well. Price comes from the market and which requires a supply side too. Therefore, such an approach would not lead to the general equilibrium theory or interaction with other markets. Moreover, due to the fact that Islam encourages pure altruism alone, it is better to understand altruistic behaviour in a non-utilitarian, non-commercial and non-market context. This approach can help in modelling the market and economic behaviour of Muslim households with suitable modifications in the mainstream framework. Secondly, this approach would also help in understanding the nature, dynamics and characteristic features of altruistic behaviour and choices inductively through primary data without imposing the neoclassical deductive framework to pure pro-social and altruistic choices by the Muslim households.
In another attempt to discuss consumption behaviour in the Islamic framework, Zarqa (1992) presents a diagrammatic representation of Islamic worldview using indifference curves. In the diagrammatic model, the consumption is analysed from the moral perspective. However, the model is inadequate for applied analytical analysis as it leaves out any economic determinant of consumption including wealth, income and income distribution from the analysis. The use of subjective concepts like sufficiency threshold and prodigality frontier is suitable for conceptual mapping; however, this alone does not provide a solid analytical framework for empirical analysis.
Hassan (2017) emphasizes that the consumer can decide how and how much to spend on permissible goods the amount he/she eventually decides to spend on self. The mainstream economics framework can be employed as a tool with suitable modifications to understand Muslims’ economic consumption behaviour. Khan et al. (2012) use this approach by taking altruistic and religiously motivated social spending in the budget constraint rather than bringing it in the utility function.
Hasan (2005) provides a review of early studies on consumption in Islamic economics literature. Hasan (2005) notes that some initial efforts employed basic macroeconomic models in the Keynesian tradition and they incorporated some key Islamic variables into the models, such as the works by Khan (1986) and Iqbal (1985). Khan (1986) argues that Islamic injunctions of moderation in consumption and constrained consumption choices due to moral filters would raise overall savings, especially in the long run. Iqbal (1985) concludes that the injunctions on moderation might restrain consumption. On the other hand, transfer of resources from low-MPC rich households to high-MPC poor households might increase consumption (Ghassan, 2016). Iqbal (1985) argues that the net effect would be an empirical question which will depend on several parameters. As against the prevalent opinions, Iqbal (1985) reasons that the net effect of Islamic injunctions on the marginal propensity to consume will be neutral i.e. MPC will not be significantly different from a comparable secular economy. This conclusion by Iqbal (1985) highlights the importance of further empirical studies and for taking a flexible approach in attempting to understand Muslim consumption behaviour with regards to the methodological choice in the descriptive studies.
Hasan (2005) appraising these efforts concludes that there are conceptual mistakes and overdrawn conclusions in these pioneer research efforts in theoretical models. Hasan (2005) raises a pertinent point that monetary value of consumption basket in certain cases can be higher than the value of consumption basket without any moral filters. For instance, if prohibited food and financial services are cheaper than Halāl alternatives, then the value of consumption expenditure can be higher for the Muslim consumer who prefers Halāl goods. Nonetheless, he/she would still be more satisfied since Harām goods despite having lower prices may provide no or negative utility to him considering all the physical, spiritual and psychic effects. Hasan (2005) emphasizes that income distribution and proportion of poor people in the population would also determine the net aggregate outcomes. Two of the key limitations of these early works are that they used the Keynesian framework without building micro foundations and they did not model the behaviour in an intertemporal context.
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Categories: Articles on Islamic Economics