Consumption Function in Islamic Economics

Abstract

M. Fahim Khan, “Macro Consumption Function in an Islamic Framework,” Journal of Research in Islamic Economics (JRIE), Vol. 1, No. 2, Winter 1404/1984, pp. 1-24. Prof. M. Fahim Khan’s paper suffers from a number of deficiencies which may be grouped under the following categories: 1. Inaccuracies in the description of positions relating to modern secular economics. 2. Questionable interpretation of Islamic positions. 3. Technical and logical errors in model construction. I shall take up these points in turn. To begin with, Prof. Khan’s description of the premises of modern economic theory of consumer behavior and its subsequent critique is inaccurate. According to him, “Modern economic theory studies consumer behavior under the following premises: i) It is assumed that a consumer will decide what to consume and how much to consume only to gain the material benefits and satisfaction. ii) It is generally assumed that all his consumption is geared to satisfy his own needs. He is not bothered to satisfy anyone else’s needs. iii) It is assumed that a consumer behaves rationally. This among other things, means: (a) the consumer will neither be a miser nor an unnecesssry spendthrift. (b) he will not hoard his wealth.” (p. 2) Modern economic theory of consumer behavior do&e not assume any of the said premises given by Prof. Khan. What modern theory msumes is that a consumer with given income allocates his spending on different goods and services in such a way that he maximizes his utility or satisfaction. According to modern theory, it does not matter whether a consumer is a miser, spendthrift or a hoarder. Also it does not matter ...