Factors of Production and Factor Markets in Islamic Framework

Dr. Fahim Khan's paper critically examines the conventional method of classifying the factors of production into land, labour, capital and entrepreneurship. It offers an alternative method of classifying the factors of production into two main categories, viz., Hired Factors of Production (HFP) and Entrepreneurial Factors of Production (EFP). The criterion for classification is whether a factor will get consumed in the process of production or not. If it will not be consumed, then it can be hired for a fixed, pre-determined rent which can be called ujrat. But if it gets consumed in the process like raw material, or money, then it cannot be hired for a fixed return. It can only receive a return by assuming risk. Thus finance cannot get a fixed return as it gets consumed in the production process. This is the reason Islam does not accept interest on capital as a legitimate return. The paper also analyses how these two factors of production will get their shares and how the factor markets will operate. To the extent the paper discusses the rationale for not allowing interest on capital and the reason for not treating it as rent of capital, it is a valuable contribution to the literature. But the paper also suffers from a number of ambiguities and contradictions which need to be resolved