According to Al-Shawkani:
“Linguistically, Zakat means growth; one says Zaka az-Zar meaning the plant grew up. It can also mean ‘purification.’ In Shari’ah, it implies both meanings. The first meaning is construed as to cause growth in wealth, or as to cause more reward or as to pertain to increasing wealth, such as is the case in commerce and agriculture. This first meaning is supported by the Tradition. ‘No wealth decreases because of Sadaqat (Zakat);’ owing to the fact that its reward is multiple. There is also the Tradition: ‘God increases the reward of Sadaqat.’ The second meaning is construed to imply that Zakat purifies the human soul from the vice of avarice as well as sins.”
For the production to grow without check in an economy, the funds must circulate. In the modern economy hoarding of funds is a prime reason for the slow downs in the economy as people save more and spend less, resulting in businesses losing sales and having to layoff employees (those employees then can’t spend as much once laid off, resulting in further slow downs in the economy).
Zakat ensures that wealth is distributed and circulated in the system, resulting in an ever-growing economy.
We will further discuss the various functions of Zakat in the economy as well as the role it plays in shaping consumer behaviour in later posts.
Source: Abu Saud, Mahmud. “Money, Interest and Qirad.” Studies in Islamic Economics. Ed. Khurshid Ahmad. Leicester: The Islamic Foundation, 1980. 79.