Neoclassical Profit Theory and its Comparison with Islamic Perspective

This paper studies the neoclassical profit theory and Islamic perspective on profit and investigates the necessary components required for establishment of an Islamic theory. In this paper, first, we discuss the neoclassical standpoint on the concept, origin, and the issues of ownership of profit. The emphasis is on the distinction between risk and uncertainty. In a dynamic world, when uncertainty is absent from neoclassical models, therefore, no profit exists. We explain that the neoclassical economists are divided on this issue that whether the third factor of production (capital) or the forth factor (such as entrepreneur) should own the profit. Moreover, the general equilibrium approach adopted by neoclassical economics eliminates the profit from the capitalistic system. It is shown that neoclassical economics lacks a coherent and consistent theory of profit. We also explain Islamic perspective in the fields of concept, origin and allocation of profit. We make clear that in Islamic economics there is no need to allocate profit to only one factor of production such as capital or entrepreneur. All factors of production including labor can earn profit in a profit-loss sharing system advocated by Islamic economics. Moreover, the fact that profit is a result of uncertainty is not in contrast with Islamic principles. Finally, we address the limitations and challenges that one should take into consideration when developing an Islamic theory of profit.