Because of the emphasis on justice (ăadl), fair exchange (mumāthalah, tasāwī), and mutual consent (tarāḍin), a lot of attention was given to the precept of 'sound money' and the avoidance and preemption of anything that would compromise or dilute that precept.3 Since money is a medium of exchange as well as a measure of value (and thereby, a store of value), the notion of money (naqd) is tight closely to the notion of measure (miqdār, miăyar) and to the notion of value (qīmah, thaman). Here, I think it is pertinent to cite in full the view of Jaʿfar al-Dimashqī (a merchant-scholar of the 6 /12 century) on money, which is representative of the classical Islamic view4 on the nature and role of money in relation to economic exchange:
Now human beings are dependent on one another as mentioned earlier, but the time of need of a person does not often coincide with the time of need of another person, as in the case of a carpenter who may be in need of an ironsmith but could not find one (at that particular time). It may also happen that there is no equivalence between the respective quantities (maqādīr mutasāwiyah) of what each need from the other, and there is no way of knowing the (relative) value of each item of each kind of goods, and of knowing the rate of exchange (miqdār al-ăiwaḍ) between one item and another item of a part of the merchandise among all the parts of the rest of the merchandise, nor the relative value of each of the different crafts. Hence there is a need for something by which all goods can be priced (yuthamman bihī), and by which the value of each thing can be defined (yuăarraf bihi) in relation to every other thing.5 So when a person requires something which is for sale or for use, he pays the value of that thing with that substance (al-jawhar) by which all things are priced.6 If such a convention was not adopted, then it would not be possible for the exchange of one thing for another to take place, as in the case of a person who has something such as olive oil (al-zayt), wheat (al-qamḥ) or other similar goods, whereas his counterpart has other goods such that the need of each party for what the other possesses does not concur at the same time.7 It can also happen that although the mutual need of each party for what the other possesses coincides, there may not be mutual agreement (ittifāq) on the equitable value of the amount each should give in exchange for what the other owns, such that there occurs neither excess nor deficiency (lā yazīdu wa lā yanquṣu) in what each exchanges with the other.8 For example, the owner of wheat may require a riṭl of olive oil, whereas the owner of cooking oil may require a two camel-loads (ḥimlay) of wheat, or the wheat seller may require a large quantity of oil whereas the oil seller a small quantity of wheat, in which case disagreement (al-ikhtilāf) may occur between the two parties (on an equitable way to exchange one quantity for the other). (To solve such a problem) the ancients (al-awāĂil) searched for something by which to price all things.9
They looked into all the things in the possession of man, whether plants, animals or minerals. They excluded both plants and animals from this function (rutbah, of pricing) due to their being transformable (mustaḥīl) and quickly perishable (yusriău ilayhi al-fasādu)10. As for the minerals, they chose from among them those metallic ores which are hard and can be melted (al-aḥjār al-dhāĂibah al-jāmidah). They then excluded from these iron, copper and lead. As for iron, it was rejected due to its susceptibility to rust (al-ṣadaĂ), and copper too was rejected for the same reason. As for lead, it was rejected due to its dullness (taswīd) and its excessive softness (līn) which leads to transformation in the shapes of its form (ashkāl ṣūratihī). Likewise some people rejected copper due to its susceptibility to verdigris (al-zinjār). However, some people mint (ṭabaăa) coins out of it like dirhams (al-dirham), for they use them (copper coins) as small change (fulūsan) in their transactions. All people are agreed on the preferment (tafḍīl) of gold (dhahab) and silver (al-fiḍḍah) due to their being readily suited (surăat al-muwātā) for casting (al-sabk), forging (al-ṭarq), combining (al-jamă), separating (al-tafriqah) and shaping (al-tashkīl) into any form required.11 Gold and silver also have a beautiful luster (ḥusnu al-rawnaq), with no unpleasant odor (al-rawāĂiḥ) or taste ( al- ṭuăūm), and they endure when buried.12 They are both also receptive to being marked with marks (al-ăalamāt) that preserve them; and the permanence of their features (thabāt al-simāt) protects them from debasement (al-ghashsh) and counterfeiting (al-tadlīs).13 Therefore the ancients minted coins from gold and silver, and by these coins they priced all things. They saw that gold was greater in value (ajallu qadran) with respect to its beautiful luster, the compactness of its parts (talazzuz al-ajzāĂ), its durability when buried for a long period of time, and its conduciveness to repeated castings in fire. They then determined each piece of gold to be equivalent to several pieces of silver, and they made both the price (thamanan) for all other things. Thus they came to an accord on this arrangement (iṣṭalaḥū ăalā dhālika) in order that people might purchase their needs at the time they wanted them, and so that whosoever obtained these two metals (al-jawharān) it would be as if all kinds of goods were brought together in his presence whenever he desired.14 Therefore the need in livelihood for inarticulate wealth (al-māl al-ṣāmit)15 became imperative. Some men of letters (al-udabāĂ) have said: "al-ăaynu li al-ăayni qurratun wa li al-ẓahri quwwatun wa man malaka al-ṣafrāĂa ibyabḍa wajhuhū wa ikhḍarra ăayshahū (gold is a delight to the eyes, and a support for the spine; and whosoever owns the yellow thing luminous becomes his countenance and verdant the pasture of his life)."16
By doing a deep-reading to discern the underlying axio-economic logic implicate in Dimashqi's take on the genesis, nature and role of money in livelihood and exchange, we can find that he is actually saying (in effect) that money was created to serve as an instrument of justice and equity in exchange. In other words, people were having big trouble in ensuring justice and equity (tasāwī) in barter exchange because of the lack of a common measure (and thereby a common medium) to preempt one party wittingly or unwittingly taking too much and giving too little at the expense of the other party in the exchange, and so they created money as a commonly reliable and equitable measure of value to ensure and promote what we would now call fair trade, fair value, and fair price.
As a pivotal instrument of fair trade, money becomes also by extension an instrument of trustworthy trade. The upshot here is that money grew out of a moral and pragmatic concern for justice, fairness, equity and mutual trust.17 So, how come now we have a monetary structure that is instead an instrument of systemic oppression, exploitation and distrust? Hence we need to question the current narrative that money grew out of mistrust of trading with strangers, or that the money and the gift economies are incompatible. I personally keep tabs (keeping accounts and records of transactions) with both friends and foes (or strangers) alike precisely because I believe in being, and want to be, fair to them, which is quite independent of whether I trust them or not. Not trusting someone is no excuse for defrauding or shortchanging them in any way, and, likewise, trusting or being trusted by someone is no excuse for taking them for granted. So, one big test of any financial system in order to see if its money is true or false or good or bad is to analyse it to see whether it serves as an instrument of justice orinjustice in exchange. In fact, when a money system is intrinsically sound and fair, it serves to engenders trust and cooperation amongst people, be they friends or strangers.18
In short, money is a measure by which the values of tangible goods and intangible services can be compared and brought into a balanced relationship with one another in order to facilitate fair, equitable exchange and preempt witting or unwitting exploitation by one party of another in the transaction. Hence, a measure must be objectively well-defined in physical and quantitative terms, and once well-defined it must remain so, in order that it can thereby serve as a common, objective, durable and reliable measure of relative values. This also means that the form of money chosen has to be one that provides for its own backing by virtue of its intrinsic physical or quantitative (as opposed to purely numerical, nominal, notional or face) value without the need for it to be backed by, or pegged to some other, external forms of money.
In fact, the role of money as a medium of exchange is an integral function of its more foundational role as a measure of value.19 For example, the dīnār has been defined since classical times as equivalent to one mithqāl of gold, and a mithqāl was equivalent to 24 qirāṭ or carats of gold.20 As noted by the economic historian, Gene W. Heck in regard to gold and silver coin (dīnār and dirham) production in early Islamic history, "All mint operations were precisely regulated, and a very elaborate system of glass weights soon evolved to maintain precise standards in coinage production as well.21''
From al-Dimashqī's remarkably sophisticated elaboration22 (if we do a deep-reading of it) of the role of money in community exchange systems, we may come to both a functional and purposive definition of money, and then take a good look at the various forms, tangible or intangible, money may take so as to best realise its function and purpose. As for the functional definition, money is actually comprised of three distinct but overlapping and mutually entailing functions which should ideally be perfectly integrated in any properly structured monetary system, namely:
(a) money as a medium of exchange.(b) money as a measure of value (or unit of account).(c) money as a store of value.
Function (a) shows that money is a medium, meaning a means or instrument, not the end nor the subject matter23 of exchange; and from ethico-moral considerations (or rational axiology), we know that this exchange cannot be just any exchange, but one that is fair and equitable such that all parties gain equitably from the exchange, and none really lose out. If this fairness fails to obtain, then what we have is not a true exchange by mutual consent, but a form of tacit coercion or exploitation in the transfer of value from one party to the other. In short, money is an instrument of fair exchange of goods and services based on mutual consent24 without any element of tacit or indirect coercion25 (explicit coercion would of course be extortion or even outright seizure or ghasb).
Function (b) shows that money serves as a common denominator of value in terms of which the relative values of goods and services can be more or less equitably compared and evaluated quantitatively, and thereby, measured and expressed in objective terms, that is, priced.
Function (c) shows that money serves to retain the stability of its absolute or intrinsic physical value as well as its relative or extrinsic exchange value in relation to the value of the goods or services that can be bought or traded for it. This means that money has to be physically durable over time (like gold and silver) as well as commanding a stable demand (or purchasing power) as payment for goods and services, as well as debts in general. This means also that to effectively be a store or preserver of value, money has to be (more or less) inflation proof.26 This also means that the form of money chosen has to be one that provides for its own backing by virtue of (i) its intrinsic physical value without the need for it to be backed by or pegged to some other, external27 forms of money, or (ii) by virtue of it being pegged to some well-defined physical or quantitative (but not merely numerical, nomimal or notional) value, without being something physical in itself.28
In addition, the form should also have the following features (mentioned or alluded to by al-Dimashqī), namely, (i) durability, (ii) fungibility, (iii) divisibility, (iv) intrinsic value, (v) recognisability or well-definedness, (vi) transportability, (vii) common acceptability.
We may describe the interconnections and relative importance of these three functions of money as follows: money serving as stable, well-defined measure of value allows it to serve as a reliable medium of fair exchange (or unit of account), which, in turn, allows it to serve as a store of value (preservator of wealth = ḥifẓ al-māl), and thereby, as a standard of deferred payment for the settlement of debts. So here, the notion of measure of value is pivotal and most essential to any meaningful conception of money, for it is at the crux of the critique of the current monetary and financial system (please see Section 4 below).
Contrary to the view of Patricia Crone29 and other like-minded orientalists, the Ḥijāz30 before and at the advent of Islam was a locus of active intra-regional and inter-regional trade between Syria in the north and Yemen in the south,31 and through them areas beyond the immediate confines of the Arabian peninsular. When the Prophet, Allāh's peace and blessings be on him, arrived and settled in Madīnaḥ, the Muhājirūn (fellow emigrants from Makkah) who emigrated with him were generally merchants and traders while the indigenous Anṣār (or Helpers who welcomed them in Madīnah) were primarily agriculturists. As for the Jewish tribes of Madīnah, they were engaged in both farming and trading, and they basically controlled or dominated Madīnan economy, but that status quo quickly changed when the market (sūq) of the Muslims was established by the Prophet, Allāh's blessings and peace be on him, in order to ensure the operative realisation of the Islamic ethico-moral precepts and legal rules of market and monetary exchange.32 What follows is a brief sketch of some salient aspect of the early Islamic monetary economy, mostly based on the meticulous research of Gene W. Heck.
(i) Precious metals & moneyBoth the gold denarius of the Romans and the silver drachma of the Persians, as well as indigenously produced gold and silver bullion were already widely used in trading and commerce in the early Islamic period. There were large-scale Ḥijāzī gold and silver mining operations producing liquid capital (gold and silver) by which trade was facilitated. According to the economic historian, Gene W. Heck, "The combination of source documentation and residual onsite physical evidence makes readily apparent that one cannot begin to comprehend the functioning of the e33arly Hijazi economy without first perceiving the indispensable role of precious metals."33
According to the classical historians like al-Balādhurī (d. 279/892) and al-Maqrīzī (766-845/1364-1442),34 there were attempts by the early caliphs (Abū Bakr, ʿUmar, ʿUthmān, ʿAlī) to produce indigenous Islamic currency (coinage) based on Byzantine and Sasanid prototypes. These early Madīnan efforts culminated in the comprehensive monetary reforms of the Umayyad caliph, ʿAbd al-Mālik Marwan, between 73-79/692-698, for he understood very well that the political integrity of the caliphate went hand-in-hand with monetary unity, and his reform in turn laid the fiscal fou3n5 dation for the long term the economic prosperity and resilience of the Islamic empire.35
(ii) Agriculture 36Though the Ḥijāz was generally barren, it was dotted with fertile oases of thriving agricultural production throughout the Madīnan and nearby regions at Ṭāʾif, Nakhlah, Khaybar, Fadak, Yanbuʿ, Wādī al-Qurā, al-Suwarqiyyah, Wādī al-ʿAqīq, and elsewhere. Wheat, barley, sorghum, alfalfa, vegetables, citrus, grapes, olives, dates and pomegranates were cultivated. The Prophet, Allāh's peace and blessings be on him, as well as many of his Companions were known to have interests or invested heavily in these farms and gardens. Livestock were also important. The third caliph, ʿUthmān ibn ʿAffān, was reported to have contributed 950 camels and 50 horses to the Islamic army. Both documentary and archaelogical evidence attests clearly to the commercial importance of farming and agriculture. Clearly it must be recognised that some degree of already existing internal economic prosperity based on both agricultural production and trade, and oiled by bimetallic (gold and silver) currency underpinned the success of the rapid Muslim expansion beyond the Arabian peninsular.37
(iii) Manufacturing and Industrial Production 38As for manufacturing or craft production, we may again cite Heck (who based his very informative and thorough research on early classical sources), "....the non-agricultural industrial base of early medieval Hijaz was quite diverse-ranging from mining to hunting, fishing to construction and manufacturing and other productive undertakings...."39 Important industries included jewelry smithing, blacksmithing, tanning and leather-making, textiles production and weaving, and perfumeries. Many of these industries are mentioned and discussed in some detail by al-Dimashqī (writing in the 6th/12th centu4r0y) in his much studied manual for merchants entitled, al-Ishārah ilā Maḥāsin al-Tijārah.40
(iv) Operative Structures of Madīnan TradeHeck has also highligted some salient structural elements in the flourishing of early Madinan trade, namely: "...capital, labor, fiduciary instruments to meld the two; and a structured operating environment amenable to the conduct of productive business operations."41
Here we would like to draw attention to the important role played by fiduciary instruments or commercial contracts for applying monetary capital toward the mobilization of labor in the production of goods for the market places.
The principal contract of choice for structuring investment was the muḍārabah or qirāḍ contract (what we would now call venture capital or passive partnership), whereby one or a few investors (owners of capital) would capitalize a commercial, production or manufacturing venture undertaken by entrepreneurs (muḍārib) for a predetermined share of the net profit. This is in effect a contract of partnership between capital (gold and/or silver) and work (skill, labour, enterprise). The Prophet, Allāh's peace and blessings be on him, and many of the august Companions were well known to have engaged in various forms of this contractual business partnership arrangement. Large, inter-regional trading caravans were financed by a mixture of macro- and micro-investments in this way. According to Imam al-Sarakhsī (d. 496/1090):
People of al-Madinah called this, contract of muqaradah, and this is based on a certain tradition regarding Uthman who committed a sum of funds to a man in the form of a muqaradah....This derives from al-qard, which means cutting. For in this contract, the investor cuts off disposal of this sum of money from his own use [and thereby put it at the disposal of his business agent = mudarib]....The possessor of capital may not always find it possible to engage in profitable trade activity, and those who can engage in it may not possess the capital. Yet profit cannot be obtained except by both capital and trading. Through this contract, both objectives are attained.42
So, contrary to the current view that business undertakings are not possible except through various forms of usurious debt-financing created by the profit maximization financial intermediation of impersonal banks largely disembedded from the socio-economic realities and needs of communities, the Islamic historical experience has shown that large scale intra- and inter-regional trade can be financed effectively and equitably through profit- and risk-sharing, non-usurious business partnerhip contractual arrangements, as well as other direct people-to-people (P2P) or business-to- business (B2B) investment structures.
These structures today are called by various names, such as venture capital, community interest companies, crowd funding, impact investment, independent business networks, social enterprises, community supported agriculture, barter trading networks, commerical trade exchanges, community cooperative micro-investment funds43 and so on and so forth, all of which can again be restructured by creative and enterprising Muslims today within the ethico-legal framework of the various muăāmalah contractual forms.44
These critiques logically follow from the classical Islamic normative-positive45 understanding of money (outlined in Section 2), and the manner this understanding has played out in Islamic socio-economic history (overviewed in Section 3), and theyalso entail and extend to the systemic critique of the so-called Islamic Banking and Finance (IBF) industry, insofar as it is grafted onto, embedded in and dependent on the current monetary system.46 Needless to say, these critiques are hence also well-informed and well-documented in reference to normative Islamic religious ethico-moral and legal precepts, Islamic and western socio-economic history, and positive (current, empirical) economic realities, as well as theoretical economic and monetary considerations (or economic rationality).
These rich, multi-perspectival critiques have been compiled and summarized by Ahamed Kameel Mydin Meera in his Real Money: Money and Payment Ssytem from an Islamic Perspective,47Tarek El-Diwany in his The Problem with Interest,48 and Mahmoud el-Gamal (especially in relation to IBF) in his Islamic Finance Law, Economics, and Practice.49 Powerful insider-critiques of the global Islamic finance industry (by former and current practitioners) have also recently arisen in the works of Yusuf Jha,50 Abdul Manap,51 Mehmet Asutay52 and Harris Irfan.53 The well-known scholar of Islamic and western commercial law, Professor Imran Ahsan Khan Nyazee, has also penned and published compelling critiques of IBF.54
All these critiques should be taken seriously into consideration by all those working to revive and making relevant again the economic and financial ethos of Islam. Philosophically, we may view these critiques as resonating, as a whole, with the discursive framework of critical realism, as expounded, for instance, by the prominent Cambridge mathematician and economist, Tony Lawson;55 and economically, with the work of say the UK-based New Economics Foundation,56 as well as a host of other like-minded thinkers, theorists, researchers and experts like Roy W. Jastram,57 Margrit Kennedy,58 Bernard Lietaer,59 Thomas H. Greco Jr.,60 amongst others too many to cite here.
Taken as a whole, the upshot of all their critiques results in the rejection of (i) usury and interest, (ii) the current fiat money system, its resulting seniorage, and the attendant notion of legal tender, and (iii) fractional reserve banking and its attendant multiple credit creation resulting in debt-based money. This rejection is based on the argument that these three main features of the current financial system have resulted in, among others, (i) systemic unethical and immoral transfer of wealth from the poor to the rich, (ii) unfair exchange, (iii) inflation, (iv) asset bubbles, and (v) perpetual increase in the money supply leading to unsustainable economic growth.
To be sure, these critiques are not only negative, in the sense of exposing what is problematic with the current system; but they are also, and more importantly, positive, namely, in the sense of showing the way towards uncovering the solutions to those problems that can bring about a sound, fair and sustainable alternative system or systems. Tangible results of these positive critiques are the various ongoing and largely successful experiments in community economy revival, community markets, non-bank equity-financing, social banking,61 community currencies,62 real money based on gold, silver or a basket of selected commodities; and the articulation of a systemic Islamic counter-economics, called the Islamic Gift Economy (IGE)63, [63] as a comprehensive discursive framework (or new economic science) to revive and rearticulate traditional Islamic economic thought and ethos so as to bring it into a close, critical and constructive engagement with all aspects of modern economics, business and finance.
One major, intangible factor in the flourishing of trade and commerce in early Madīnah and early Islam in general) was the general climate of mutual trust-which was operationalised through objective, well-defined fiduciary instruments-that obtained between participants in commercial transactions. Usury and usurious contracts were prohibited while equitable business partnership contractual forms were encouraged and established in its place.
The market of the Muslims established by the Prophet, Allāh's peace and blessings be on him, was effectively (as Heck calls it) a "free-trade zone" where neither taxes nor price controls were imposed. Monopoly, hoarding, bribery, perjury, fraud, deceit, counterfeiting and so on were all proscribed. Contracts were binding and were to be honored precisely because they were freely entered into out of mutual consent and full informational disclosure.
All these substantive ethical precepts and their formal expression in normative contractual instruments served to "maintain the integrity of market function" so as to ensure a socio-economic exchange that embeds personal interest into the larger context of communal interest, whereby one's personal good is always in the service of the common good, leading to the fulfillment of the "duty of provisioning of what suffices the community" (farḍ al-kifāyah).64
Endnotes
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