Scribd
Upload
38 views20 pages

Lec.2 Factor of Production

Uploaded by

jamshaidbusiness1
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
38 views20 pages

Lec.2 Factor of Production

Uploaded by

jamshaidbusiness1
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 20

FACTORS OF

PRODUCTION IN
ISLAM
FACTORS OF PRODUCTION IN
ISLAM
 To better understand the Factors of Production in
Islam,
 we now compare the factors of production in other

economic systems
 including Capitalism and Socialism.
The Capitalist View
 “Wealth should be distributed only among
those who have taken part in producing it, and
who are described in the terminology of
economics as the factors of production.”
According to the Capitalistic
economy, these factors are four:
 Capital :which has been defined as "the produced
means of production" - In other words, a
commodity which has already undergone one
process of human production, and is again being
used as a means of another process of
production.
 Labor :It is defined as, any exertion on the part of

man.
 Land: which has been defined as ‘‘natural
resources’’ (i.e. those things which are being used
as means of production without having previously
undergone any process of human production).
Entrepreneur, or
Organization
 The fourth factor that brings together the other
three factors, exploits them and bears the risk of
profit and loss in production. Under the Capitalist
economy, the wealth produced by the cooperation
of these four factors is distributed over these very
four factors as: one share is given to Capital in the
form of interest, the second share to Labor in the
shape of wages, the third share to Land in the
shape of rent (or revenue), and the fourth share
(or the residue) is reserved for the Entrepreneur in
the form of profit.
The Socialist View
 On the other hand, under the Socialist economy,
capital and land instead of being private property, are
considered to be national or collective property. So,
the question of interest or rent (or revenue) does not
arise at all under the philosophy of this system. Under
the Socialist system, the entrepreneur too is not an
individual but the state itself. So profit as well is out of
the question here - at least in theory. Now, there
remains only one factor namely labor. And labor alone
is considered to have a right to wealth under the
Socialist system, which it gets in the shape of
"Wages".
The Islamic View
 The Islamic system of the distribution of wealth is
different from both the Capitalist and Socialist
economic system. From the Islamic point of view,
there are two kinds of people who have right to
wealth
 1) Primary Right to Wealth
 2) Secondary Right to Wealth
Primary Right to Wealth
 The Primary right denotes the right to wealth
which is directly in consequence of participation in
the process of production. In other words, primary
right is for those factors of production that have
contributed in the process of producing some kind
of wealth.
Secondary Right to Wealth
 The Secondary right holders are those who have
not directly contributed in the process of
production, but it has been made obligation upon
the producers to make them co-sharers in their
wealth. e.g. Beneficiaries of Sadaqat-ul-Wajibaat.
Islamic Theory
 The primary right to wealth is enjoyed by the
factors of production, but the factors of production
as per Islamic theory are not specified or
technically defined, nor is their share in wealth
determined in exactly the same way as is done
under the Capitalist system of economy. In fact,
the two ways are quite distinct. From the Islamic
point of view, the actual factors of production are
three instead of four i.e.
 Capital
 Land
 Labor
Capital
 It is defined as the means of production that
cannot be used in the process of production until
and unless during this process, it is either wholly
consumed or completely altered in form and
which, therefore, cannot be let or leased (for
example, liquid money or food stuff etc.) The
share of capital is in the form of profit and not
interest
Land
 That is, those means of production, that are used
in the process of production in a way that their
original and external form remains unaltered, and
which can hence be let or leased (for example,
land houses, machines etc.). Its share is in the
form of rent.
Labor
 That is, human exertion, whether of the bodily
organs or mind or heart. This exertion thus
includes organization and planning too. The share
of labor comes in the form of wages. As in the
case of Mudarabah (Islamic mode of partnership),
the compensation of labor is in the form of profit.
Whatever "wealth" is produced by the combined
action of these three factors would be primarily
distributed over these three factors.
Ways of Capital
Investment
 Private business
 Partnership
 Co-operation of Capital and Organization

(Mudarabah)
 Money Lending Business
Private business
 The man who invests Capital may himself run the
business without the help of any partners or
shareholders. In this case, the return which he
gets may be called "profit" from the legal or
popular point of view;
 but, in economic terms, this "reward" would be

made up of (i) "profit", in as much as Capital has


been invested, and (ii) "wages", as earnings of
management.
Partnership
 The second form of investment is that several
persons may jointly invest capital, jointly manage
the business of the Fiqh, such a venture is called
"Shirkat-ul-Aqd" or Partnership in contract.
Co-operation of Capital and
Organization (Mudarabah)
 The third form of investment is that one person may invest
Capital while another may manage the business, and each
may have a share in the profit. In the terminology of Fiqh, it
is called "Mudarabah". According to the terminology of
Islamic economics, in this case, the person who invests his
capital ("Rabb-ul-Mal") will get his share in the form of
"profit", while the person who has actually managed the
business will get it in the form of "wages". But if the person
who has been managing the business ("Mudarib")
eventually suffers a loss in the business, his labor will go
wasted just as the capital of the investor would go wasted.
Money Lending Business
 The fourth form of investing Capital, which has
ever since been practiced in non-Islamic societies
is the money-lending business. As per this
business, one person lends out capital in the form
of a debt, and a second person puts in his labor; if
there is a loss, it has to be borne by labor, but
regardless of profit or loss, interest does accrue to
Capital in any case. Islam has interdicted this form
of investment.
 "O you who believe, fear Allah and give up what

still remains of riba, if you are believers." (2:278)


Thank you

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy