Step 1: We have identified three basic economic functions - consumption, production and distribution common to all economic systems irrespective of their differences in ideologies.
Step 2: Some of the fundamental principles governing these basic functions seen from the timeless Islamic perspectives rooted in the Shari'ah. Take the example of "moderation" in consumption. This principle of "moderation" is to be reflected in the consumption behavior of Muslims both at micro and macro level. This principle has, no time dimension: it is essentially based on the Islamic worldview in economic matters (i.e., normative values).
Step 3: Now there is a need to identify the method of its operation (i.e., process); this "knowledge" needs to be formulated or conceptualized. This is where the development of the theory starts and Islamic economic science begins. Thus the choice of variables or the use of ethically-based economic reasoning is to be directed to infer behavior patterns appropriate for the achievement of pre-selected objectives (i.e., moderation). Thus in explaining consumption function in an Islamic economy it should be possible to identify variables rooted in the Shari'ah. This theoretical formulation has time dimension. It can be replaced or modified by a superior theoretical formulation. They are value-loaded indeed.
Step 4: It follows that once this concept of "moderation" is formulated, we need to prescribe a definite basket of goods and services to achieve the goal of "moderation" either at individual or at aggregate levels. Its contents and composition are changeable; it depends on the level of social and economic conditions of the society concerned.
Step 5: This step refers to implementation of the policy chosen in step (4). This implementation can be done either by exchange through price mechanism or by transfer payments. This is where we need the development of institutions for the implementation of policy.
Step 6: This step indicates the need of evaluation in terms of predetermined or perceived goals or targets, which aim at maximizing our welfare within the over-all framework of principles set out in step (2) as well as dual notion of return, economic and non-economic thereby making positive and normative considerations relatively indistinguishable and unimportant.
Step 7: This step gives the results of evaluation. This feedback is needed to determine the gap between actual implementation of policy step (5) and perceived achievement. This is where the interpretation of principles (as indicated in step 2) on which the Islamic economic system is based begins. This is where the reconstruction of Islamic economic theory on which development of the policy and institution is based starts (as stated in steps 3, 4 and 5).
References from : Shafey, Erfan, M.A. Mannan, Islamic Economics as a Social Science: Some Methodological Issues (1984). Journal of King Abdulaziz University: Islamic Economics, Vol. 1, No. 2, 1984. Available at SSRN: https://ssrn.com/abstract=3127496
