230821P - MONEY AS A CHALLENGE TO ISLAMIC ECONOMIC THINKERS

Opening remarks by Professor Omar Hasan Kasule MB ChB (MUK), MPH (Harvard), DrPH (Harvard) at the Islamic Economics Training Camp held in Aceh on August 21, 2023.

 

CHALLENGES TO MUSLIM ECONOMISTS

• The basic economic principles of Islam are clear and would be implementable if we started from a tabula rasa.
• Unfortunately, we operate in an international economic system that has different principles. We need to critique these principles vis a vis those of Islam.
• We also need to solve the problems of Muslims as individuals, families, communities, and governments who want to follow Islamic principles in a non-Islamic environment.
• At the moment we have many questions and few solutions. Muslim economists must undertake research to solve the conceptual/theoretical issues while building practical functioning models.
• The issue of money is foremost among the problems facing Muslim economists. I will mention some of these problems with the admission that personally I have no ideas about the practical solutions.

 

THE FUNCTION OF MONEY AS THE DEFINING FACTOR

• Islamic economics differs from modern economics in treating money as a medium of exchange and not a commodity to be sold or bought.
• Modern economics has dual functions for money as a ‘medium of exchange’ and as a ‘commodity’ that can be sold, bought, or lent.
• Money as a commodity with the accompanying riba will lead to the injustice of some people with money getting more money without earning it by selling goods or services.
• Those who have money to lend with riba become richer while those who borrow become poorer.
• There are also more complications of money as a commodity in modern economic practice that require the attention of Muslim economists.

 

MONEY AS A MEDIUM OF EXCHANGE AND STORE OF VALUE

• Money was discovered when early humans realized that barter exchange of goods and services was not efficient.
• A farmer may want to barter rice in exchange for a piece of furniture from a carpenter. The carpenter does not agree to the barter transaction because he has no immediate need for rice.
• If money is used as a medium the transaction may be possible because the carpenter will sell the furniture for a price and keep the money until he needs to buy the rice from this farmer or another farmer.
• Money is therefore a store of value to enable efficient exchange of goods and services.

 

MONEY AS A COMMODITY TO BE TRADED IS REJECTED BY THE SHARIAH

• It is forbidden to barter or exchange money for money because of fear of unfairness.
• It is forbidden to give or take interest because the borrower is at a disadvantage. This is very obvious today those borrowers have mounting debts they cannot pay whether they are consumers using credit cards or governments borrowing from international banks.
• Interest is also forbidden because the lender is getting wealth, he did not earn by selling goods or services.

 

THE PROBLEM OF THE FUTURE VALUE OF MONEY NEEDS INNOVATIVE THINKING

• Going back to the example of the farmer and the carpenter. If the carpenter sells furniture and keeps the money which he tries to use at a future date to buy rice. He will find that the money has less purchasing power and it buys less rice than before because of inflation.
• Can we develop an economic model that can keep the value of money constant by zero inflation?
• To avoid losses due to inflation the carpenter may decide to invest his money in a fishing business. If the investment is successful, he will be assured that his money will not lose its purchasing power. If the business loses, he may lose even his capital.
• The Shariah does not allow investments that guarantee a fixed profit in advance because that is riba.

 

THE PROBLEM OF THE GOVERNMENT BORROWING FROM CITIZENS NEEDS INNOVATIVE THINKING BY MUSLIM ECONOMISTS

• Governments have to spend money on infrastructure projects that have long-term economic and social benefits for the country. The taxes collected today are not sufficient. They borrow from citizens in the form of bonds planning to pay them back from future taxes.
• In this case, the lender is the citizen and the borrower is the government that represents the same citizens.