Enriching the Theory of Factor Pricing and Income Distribution in Islamic Perspective

Atihrohaeti Dariah,Yuhka Sundaya,Zaini Abdul Malik

doi:10.24297/jssr.v5i3.3418

Atihrohaeti Dariah, Yuhka Sundaya + Show 1 more

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https://doi.org/10.24297/jssr.v5i3.3418

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Abstract

The paper aims to elaborate the theory of factor pricing and income distribution in Islamic perspective. We place Sadeqs thought as the benchmark and expand it. Using calculus differential, we construct factor pricing and income distribution under mudharabah scheme, which can describe the behavior of producer (mudhaarib) in making decision on business operation appropriately. The paper can prove mathematically that when Islamic principles are internalized, income distribution becomes more equal. This is expressed in parameters s, 1-s, and 1/1-s, as a share of profit goes to capital owner (shahibulmaal), entrepreneur (mudhaarib) and worker, respectively. The paper also proposes that wage level will be determined not only by perception or the mind set of capital owners and workers on the value of their assets, but also the standing moral of entrepreneurs and capital owners.

Highlights

Manyeconomists wrote about the income distribution problem from various approaches
We try to develop a model in a mathematical term to show how factor pricing and income distribution in business practice, i.e mudharabah
We have developed a theory of factor pricing and income distribution as an expansion of Sadeq’s tentative theory in Islamic perspective

Summary

Introduction

Manyeconomists wrote about the income distribution problem from various approaches. Kaldor (1995) viewed Ricardo’s Principles of the law, which regulates distributive share,as the ‘Principal Problem in Political Economy’. After this finding, Kaldor posed various theories of distributive share and attempted to classify it into four main strands of thought i.e:(1) Ricardian or Classical Theory, (2) Marxian, (3) Neo-Classical orMarginalist Theory, and (4) Keynesian. Kaldor (1955) reviewed the main strands of those thoughts. Kaldor saw that Ricardo’s theory was based on two separate principles, namely marginal principle and surplus principle. The marginal principle serves to explain the share of rent and the ‘surplus principle’the division of the residue between wages and profits

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