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Historical and Ideological Peculiarity of the Monetary Institutions: Islamic and Austrian School’s Perspectives

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Abstract

Study of history suggests that every civilization creates monetary institutions based on its political and economic objectives which are grounded in the meta-normative position of the civilization. History also tells that importing political, economic and social institutions from one civilization to another leads to undesirable results. In this context, this chapter reviews the perspectives of Austrian School of Economics on the subject, which reveals that capitalist monetary system – bred over past few centuries in a modern western civilization to accomplish capitalist objectives – cannot achieve the objectives of Islamic economics, as it is not designed to do so. The deductive analysis in this chapter infers that the objectives of equitable distribution of wealth, security of purchasing power or value of money, price stability, facilitation of the lower segments of the society, prevention of flight of capital and preservation of a collectivist spirit of the Islamic society are not meant to be achieved by the monetary system designed in the capitalist society. The paper argues that the capitalist monetary system is rather meant to facilitate the accumulation of capital often leading to negative externalities, as per Austrian school’s perspective, which Islam does not approve. The paper also debates some community level alternatives in the end.

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Notes

  1. 1.

    Alfred Marshall, “Memoranda and Evidence before the Gold and Silver Commission,” December 19, 1887, in Official Papers by Alfred Marshall [London: Royal Economic Society, Macmillan, 1926], p. 37

  2. 2.

    M2 is the sum of all private, public sector deposits and M0.

  3. 3.

    ‘Real Bills Doctrine’ assumes that “inflationary over issue [of credit] is impossible provided money is issued on loans made to finance real transactions” (Humphrey 1982, p. 4).

  4. 4.

    Other causes could include influx of gold and silver coins from outside like in war booty or shortage caused due to export to other areas where a higher price of product was offered, etc.

  5. 5.

    See index entry ‘Property Rights’ in the cited book.

  6. 6.

    Zakat is equivalent to 2.5% of total savings which is above the prescribed limit and is in the form of cash, gold, silver or any other tradable commodity which a Muslim male or female has in his or her ownership; it is mandatory for him or her to pay to a poor who qualifies to receive Zakat. Zakat cannot be paid via an IOU.

  7. 7.

    Prophet Muhammad (peace be upon him) has sought refuge from debt (Sunan Nisai, p. 264, vol. 8, Maktaba Al-Matboot Al-Islamia: Halb), termed the indebted person as a prisoner (Sunan Abi Dawood p. 119, vol. 2, Al-Maktaba Al-Asriya, Syeda: Beirut), has refused to lead namaz-e-janazah (funeral prayer) of the indebted person (Sunan Nisai p. 315, vol. 7, Maktaba Al-Matboot Al-Islamia: Halb), has informed that the soul of indebted person is suspended in his grave and his soul would not enter paradise unless his debt is paid off even if he is a martyr in a holy war (Sunan Nisai p. 314, vol. 7, Maktaba Al-Matboot Al-Islamia: Halb; Sahih Muslim 1501-2/3, Darul-Ahya Al-Taras Al-Arabi: Beirut). Prophet (pbuh) has even informed that a person who takes a debt unnecessarily or to fulfill any desire beyond his very basic need deserves the wrath of Allah (Mashkah Al-Masabiyh p. 579, vol. 1, Maktaba Al-Islami: Beirut).

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Authors and Affiliations

  1. Institute of Business Management, Karachi, Pakistan

    Omar Javaid

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  1. Omar Javaid
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Editors and Affiliations

  1. Islamic Development Bank, Islamic Research and Training Institute, Jeddah, Saudi Arabia

    Muhamed Zulkhibri

  2. Islamic Development Bank, Islamic Research and Training Institute, Jeddah, Saudi Arabia

    Turkhan Ali Abdul Manap

  3. Maldives Centre for Islamic Finance, Haveeree Hingu, Maldives

    Aishath Muneeza

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Javaid, O. (2019). Historical and Ideological Peculiarity of the Monetary Institutions: Islamic and Austrian School’s Perspectives. In: Zulkhibri, M., Abdul Manap, T., Muneeza, A. (eds) Islamic Monetary Economics and Institutions. Springer, Cham. https://doi.org/10.1007/978-3-030-24005-9_5

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