10. Money, Debt, Interest, and Real Economy

Choudhury, Pratiwi, and Hossain (2019).

A prominent example is the debt-equity trade-off. See Modigliani and Miller (1958).

Tobin (1947).

Ventelou (2005).

Usmani (2004).

Shakespeare (2019).

Shari’ah scholars recommend acceptance of ‘all choices’ that the shari’ah does not explicitly forbid. On the contrary, there are many examples of human concocted decisions following this perspective of shari’ah that do not qualify according to Tawhid as law. Yet the choices and perspectives are accepted under the shari’ah dictum. The sharees (shari’ah practitioners) say, “Whatever Allah has legislated through the shari’ah is lawful for all human beings and whatever He has prohibited is prohibited to all human beings until the Day of Resurrection.” (Al-Qaradawi, p. 34).

Far from this enunciation, mathematical theory states that the complementation of the universal set, \(\Omega\) is the null set, \(\Phi\). Thereby, for ‘every’ set \(\text{S}\,\in\,\Omega\) as topology, there are complementation sets \(\text{S}^{\sim}\,\in\,\Omega\). The inference is that there are denumerable as many do’s as do-not’s in the universal scale of ‘everything’. ‘Everything’ that shari’ah is silent about has opposite complementation in reality that it does not include in its enunciation. The shari’ah judgment thus descends into an illogical statement.

This is the forgotten area of AAOIFI, OIC Fiqh Council, Malaysian Shari’ah Council, and the contemporary shari’ah scholars and ulemas induced by sectarian beliefs (madhabs). See also the same intellectual problem of absence of Tawhidi methodological foundation of Islamic law in Ashur (2013), Attia (2008), Auda (2008).

The clear explanation regarding the ultimate primal ontological beginning of Islamic law of ‘everything’ is that if ‘shariatan’ (Qur’an 45:18) is the way to Tawhid as law, then the methodology of Tawhidi unity of knowledge concerning generality and details of the world-system means the following universality of the Tawhidi law: (Ω, S) → θ → {(World-System)[θ] \(\in \) (Ω, S)} → (Ω, S). In this Tawhidi String Relation (TSR) shari'ah as the Way is denoted by {{θ → {(World-System)[θ] \(\in \) (Ω, S)}. Yet the primal ontological basis of this portion of TSR is derived from the primal Tawhidi ontology, (Ω, S) in the beginning and tends to (Ω, S) in the end in Akhira, te two unbounded closures of unity of knowledge (Tawhid) in ‘everything’. The Qur’an (45:18) thereby declares: “Then We put you, [O Muhammad], on an ordained way concerning the matter [of religion]; so follow it and do not follow the inclinations of those who do not know.”

Kaku (2015).

The Qur’an (18:19) declares: “And similarly, We awakened them that they might question one another. Said a speaker from among them, “How long have you remained [here]?” They said, “We have remained a day or part of a day.” They said, “Your Lord is most knowing of how long you remained. So send one of you with this silver coin of yours to the city and let him look to which is the best of food and bring you provision from it and let him be cautious. And let no one be aware of you.”

Qur’an (57:11): “Who is it that would loan Allah a goodly loan so He will multiply it for him and he will have a noble reward?”.

Keunne (1993), Romer (1994), Turnovsky (1997), Colander (2006), Stehr (2002).

Gafford (2009).

Laidler (1989).

The analytical problem of trade versus riba is unresolved in the intertemporal context in Islamic economics and finance. Consequently the planning of pricing and sustainability of assets for economic and social futures does not have an analytical theory for economy-wide moral-material embedded valuation. Myrdal referred to this comprehensive conception of valuation as the ‘wider field of valuation’. See Myrdal (1968). The injunction of the Qur’an (2:275) overarches all vestiges of meaning of trade versus riba. Also in the intertemporal sense the Qur’an declares (3:130), “O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper.”

Mv = p · T = p · Y is replaced by [Mv = p · T = p · Y][θ]. The overall induction of consciousness in the formation of knowledge having its central moral and ethical valuation meaning in paired, i.e. participatory and complementary endogenous inter-variable interrelationship reflecting unity of knowledge. This is the primal ontological worldview methodology of Tawhid and unification by organism as symbiotic oneness. We therefore write explicitly, \(\Pi \)_ijM_ij(θ)v_ij(θ) = \(\Pi \)_ijp_ij(θ) * Y_ij(θ) conveying the meaning that, project specific monetary circulation by their respective velocities with the tendency of v_ij → 1 as θ↑; i, j = 1, 2 , …, n denoting interacting and integrating projects as evolutionary learning proceeds on. The abstracto-empirical valuation of moral/ethical elements is done by enumerating such variables as charity, trust, poverty alleviation, happiness etc. in terms of their corresponding choices of variables that enable inter-variable circular causation relations signifying organic unity of knowledge as ontologically driven by Tawhidi unity of knowledge and the generality and particularity of the world-system. In this case the world-system of study is money, real economy, and moral/ethical inclusion. On such ethical configuration of diversities of things that are invoked by moral/ethical values, the Qur’an (6:99) declares: “It is He Who sends down rain from the skies: with it We produce vegetation of all kinds: from some We produce green (crops), out of which We produce grain, heaped up (at harvest); out of the date-palm and its sheaths (or spathes) (come) clusters of dates hanging low and near: and (then there are) gardens of grapes, and olives, and pomegranates, each similar (in kind) yet different (in variety): when they begin to bear fruit, feast your eyes with the fruit and the ripeness thereof.Behold! in these things there are signs for people who believe.”

De Soto, J. H. (01/28/2019). “Mises’s proposals for a 100-percent reserve requirement”. https://​mises.​org/​wire/​misess-proposals-100-percent-reserve-requirement. Ludwig von Mises spearheaded the proposition on 100% RRMS. De Soto points out: “According to Mises, the ideal solution would thus be to establish a system of free banking (i.e., without a central bank) subject to traditional legal principles (and hence, a 100-percent reserve requirement). In this book Mises accompanies his defense of a 100-percent reserve requirement with his objection not only to the central bank, but also to a fractional-reserve free-banking system: although such a system would greatly limit the issuance of fiduciary media, it would be inadequate to completely eliminate credit expansion nor the recurrent booms and economic recessions which inevitably come with it.”

On the contrary understanding of Central Bank operated 100% RRMS here is an explanation rendered by Mitchell, B. (Jan 12, 2010). “100-percent reserve banking and state banks”, https://​bilbo.​economicoutlook.​net/​blog/​?​p=​7299: “a 100-percent reserve banking system would allow the government to control the money supply and hence maintain price stability. This is because all money would be created by the national government in this system. Banks would not be able to create deposits by extending loans.”

These observations are similar to the one we are presenting but having no concern regarding ethical contribution that money circulation makes to the social economy. To circumvent this missing gap we included the substantive epistemological relevance of organic unity of knowledge emanating from Tawhidi primal ontology.

Ventelou (2005).

Modigliani and Miller (1958).

We can prove the market-institutional driven nature of relationship between exchange rate, e, and the terms of trade, t, in terms of the export prices, p(EX), import prices, p(IM), with EX as exports and IM as imports.

e = Currency (national)/Currency (international).

 = value of spending in exports/value of spending in imports.

 = p(EX) · X/p(IM) · IM.

 = p(EX)/p(IM) · (EX/IM).

 = t · (EX/IM).

Finally we obtain, e/t = EX/IM.

The relative price, e/t is driven by market-institution interrelationship in the 100 RRMS. This feature is shown by the presence of EX and IM.

Note for multi-country trade the effective exchange rate, \(\text{e}=\sum_{\text{i}=1}^{\text{n}} \)e_i · (T_i/T), where e_i denotes currency-specific exchange rate for i = 1, 2, …, n; T_i denotes country-specific trade; T is total trade of all countries taken together.

Choudhury (2010).

Billington (2002).