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Science Does Not Think

Introduction to Statistics for Muslims

International Islamic University of Islamabad

Lecture:

“Science does not think” 

By Shaykh Umar Ibrahim Vadillo

 

Summary 

Bismillah irrahman irraheem

In 1926 when Martin Heidegger (1889–1976) the German philosopher, published his book “Being and Time” he revolutionized thinking with a new radical approach to individual freedom that irreversibly tore down the foundations of philosophy. Eventually he will call this “the end of philosophy”, the end of a 2,500 years old “fashion of thinking” which is the exclusive product of the West and was founded upon the writings of Plato. He consequently declared that “science does not think”. Such statement still puzzles people today. Heidegger’s analysis pointed out that science is incapable of thinking what is more important to thinking: the Truth. We will take a walk alongside the path of Heideggers’ thinking into the nature of scientific enquiry and why it cannot think the Truth. Then we will take a leap –as he suggested- reaching to the other side of philosophy, beyond philosophy, in order to arrive to a concluding statement that has a direct relevance to us: “marifatullah is thinking”.

 

The Statement “science does not think”

Let us start with a statement much easier to grasp “a calculator does not think”. Here our western educated mind does not feel repelled. We can easily understand that a machine does not think. Numbers are inert. They are deprived of judgement upon whatever they count or calculate. What results problematic is how our ability to calculate numerically determines the way we look at the world, and how we then interpret and evaluate the data we obtained.

The problem is that in order to use our science we need to reduce nature in advance into data that science can use. This reduction or “enframing” of nature, into numbers for example, makes us see a representation of nature like a screen that comes between us and nature. It is obvious that numbers are not nature, but it can become blurring when we give our calculations an absolute validity. And this is the problem.

Useful data is that data that we can use in our calculations and what it cannot be reduced to data is simply dismissed and in practical terms it “does not exist”. And here starts the danger. While the calculator is inert, looking at the world with the calculator demands extracting data in numerical form: it reveals the world in numerical form. The danger of this outlook consists in this reduction which is necessary to activate the calculator but it is incapable of describing reality in its complex relationships and infinite features. When data (numerical or information based) assumes the quality of a fact then further calculations are assumed also to be a fact.

Since Immanuel Kant (1724-1804) invented “the objective” modern science was born. He wrote:

“Up to now it has been assumed that all our cognition must conform to the objects; but … let us once try whether we do not get farther with the problems of metaphysics by assuming that the objects must conform to our cognition”

To record data is not sufficiently reliable, to be objective, data must be subject to further scrutiny (preconditions of the construction of objects) that must satisfy and conform to our cognition. It is necessary to synthesize with laws (such as cause and effect) the random data of the sensory manifold into intelligible objects. Reality does not matter, what matters is what we understand of reality; therefore, reality becomes what we understand reality is. That is why Heidegger wrote that with Kant we learned “to think our own thoughts”. The danger and its madness have now been given a universal ontological approval.

Instead of recognizing the limitations of our cognition, Kant limits nature to our cognition. Now, if we are not aware of our cognitive limitations we plunge directly into a zone of pure superstition and fallacy. The fallacy is to give to the objective data an absolute validity and therefore replace reality with it, and it is even more fallacious to use that data to further elaborate judgements that affect nature or people. To do this is to make nature into a concept.

From the naked eye, the sun appears to go around the Earth which is inferred by the means of observation. But from Galileo’s telescope it is clear that it is the Earth that goes around the Sun, which is also determined by the means of observation. Later we discovered that the sun is not static either. Reality does not change, only our cognition changes. Understanding that “reality does not change” is understanding our limitations. Newtonian physics gave us a description of velocity and space derived from his famous formulas, later quantum mechanics offered a complete different paradigm based on statistical mechanics. What is common to all these descriptions is what Heidegger defined as “nature has in advance to set itself for the entrapping securing that science, as theory accomplishes”. Science projects an interpretive framework in which nature appears as “a coherence of forces calculable in advance”. We see what we can calculate. We see what we want to see.

Furthermore, he argues that what is distinctive of modern physics is that it is mathematical and indeed quantum theory, chaos theory, string theory or supersymmetry cannot renounce this one thing: that nature reports itself in some way or other that is identifiable through calculation and it remains orderable as a system of information. Chaos theory is linked to the capacity of computer systems and their massive calculations and the string theory entails extra dimensions of which we do not even have empirical evidence.

The idea that the nature is written in the language of mathematics is as old as Pythagoras. Yet as Goethe said:

“nature is not system, so if we are to think nature we cannot think it like a system.”

If fascinated by our ability to deal with numbers we insist in reducing nature to numbers then we must be aware of that we are dealing with a partial representation of nature and not nature itself. This is a problem not because we may commit an error in our calculations, this is problem because we place nature under the danger of our accurate calculations. This is what Heidegger called “Enframing”. Enframing is the essence of technology as the mechanical ordering by man of the real according to a self-interpreted project of “organized conquest of the earth”.  This is not to suggest that we have to do without using data or technology, this is to say that reality lies beyond our ability to know and act. The world as we know it and the world that comes “at hand” of our technical abilities must recognize that we are not detached from reality, but in fact we “care” (Heidegger’s “Sorge” in German). Here we should recognize a fundamental shift: that we are not the “observers”, but the ones “being observed” and we will come to this later. In conclusion, to assign science with absolute validity is scientism, and that is a superstition and it is dangerous.

When science places its focus on man and human society this danger is even more clear, because we are the victims. The destruction of nature, the devastation of ecosystems and the systemic pollution and poisoning of air, earth and water, in the last two centuries of scientism was rationally justified. Reason did what is supposed to do: to justify anything it wishes. Without knowledge (of Allah) reason can justified anything including human genocide, Riba (which is more than usury), National Debt or State taxation. When science is applied to people in the form of human sciences, such as sociology, anthropology, psychology, human biology, economics or political sciences, the danger is directed to ourselves. The reduction of man to a thing, the reification (making into a thing) of man, is the result of reducing man to calculable data that we can process. Here we do not attack nature, but we attack ourselves. Man is reduced to calculable data. Statisticians do this without any prior understanding of what is at stake, but simply under the obligation to fulfil a task within a rational structure. Economists sitting down in a desk can then use the facts provided by the statistician to legislate or order society. Human sciences are a systematic failure to comprehend man. For this reason Heidegger refuses to use the word man and uses the word Dasein (literally means being-there) in order to eliminate its reification or reduction to a concept. To resist the reification of man is simply a cry for freedom. It follows that the idea of Islamic sociology, Islamic economics, Islamic psychology, etc. are nothing but a complete contradiction made in the fantastic head of modernist scholars.

The victim of this reification is freedom and also Islam. The fact that modern systems of statistics  using already existing data, can “project” the needs of the nation, it does offer an insight which might be of great usefulness to the government but it does not give the government unlimited authority to trample on individual freedom.  Man is not data neither is he limited to his particular needs. There are fundamental matters that cannot be expressed in statistical information, such as individual freedom. The important thing here is not the data but the disappearance of what is not data. The imposition of taxes by the government is considered an act of violence in Islam (only zakat is acceptable, which is collected and distributed to its given beneficiaries in 24h or as soon as possible), yet it is taken as absolute truth following the sociological fantasies of the West. If taxes are not enough the government can indebt itself on behalf of the people (National Debt) as a matter of absolute truth. These absolute truths are legitimized into Laws. Legislation is absolute. Yet, it is Islamically absurd. Nobody can be made liable to a debt incurred by somebody else. Constitutionalism, which is the foundation of post WWII capitalist world order, and which has validated this practice, is socio-logical but utterly irrational and furthermore, repulsive to Islamic injunctions. Allah has given us His Legislation and any attempt to rule by other than the Laws of Allah is considered kufr. Not a mistake, but kufr. Legislation is not a light matter. State Taxation and National Debt is scientism.

Sociology has also “proven” that “the opinion of the majority” is to be considered absolute truth. They can declare for example that riba is halal in the country and create a Central Bank. Every country in the world has one. The justification is solid (given the amount of literature that supports it), but only if you have no knowledge of Allah. Man is not a biological unit with needs which can be calculated. Man is a worshipper of Allah which is above any analytical enframing. Central Bank is scientism.

What currency the people of the country must have, is today decided by State Law. The capacity of every individual to choose in conjunction with others their own currency, as we did when we had Dinar and Dirham, has been eliminated because the economists say so. Freedom to choose your currency which is granted by Allah, when He says: “trade with mutual consent”. Yet this is ignored. We should notice that our Islamic governments in the past minted Dinar and Dirham, but they did not impose its usage, because this is not allowed. Money imposed by government is scientism.

 

Science cannot think the Truth 

Science, which is the child of philosophy, cannot think the Truth. Yet, when we refer to the description of something and that description corresponds with what we observe, we express ourselves with sentences such as “this statement is true”. We should not say “this statement (in Ancient Greek, statement is called logos) is true”, we should simply say “this statement corresponds” or “it is in accordance”. Truth in Arabic is al-Haqq and is one of the Names of Allah. Al-Haqq cannot be grasped as observable data. We say Allah cannot be described by what, where and how. The form of enquiring of what, where or how and its answer in the form of a logos (statement) is the grounding in which philosophy is founded.

When Heidegger says that science “does not think”, obviously, the type of thinking that he is referring to is not the thinking to which we are accustomed to. The way of thinking that we are accustomed to, from school and University, is the thinking of science. He is saying that the type of thinking that we are used to is blind to a fundamental matter, a matter that escapes us because of the way we enquire. That which “our thinking” is blind to, is the actual purpose of thinking: Truth. The right purpose of thinking is Truth. Yet scientific thinking, which takes its roots in philosophy, is blind to Truth. It can only enquire about the essence of Truth, but not Truth. And what is the essence of Truth in philosophy, is the result of enquiring through what, where and how. This is what Heidegger calls essential thinking (essentialism), which “has to do with thinking” but is not thinking.

The problem is the “fashion of thinking” we use. That way of thinking turns “what must be thought” away from it. But that which withdraws from this way of enquiry is in fact the most important: Truth.

Heidegger wrote:

“What must be thought about, turns away from man. It withdraws from him. But how can we have the least knowledge of something that withdraws from the beginning, how can we even give it a name? Whatever withdraws refuses arrival.”

When we attempt to find the Truth by asking what where or how, the Truth withdraws. What comes forward from enquiring in that way is not the Truth but only our own thoughts about the Truth.

At this point, I am going to take a “leap” forward. We cannot define Allah by what, where or how. Allah is beyond measure. He is not comparable to anything. The same is applicable to Truth. Truth cannot be understood by asking what, where or how. We reach Allah, not by the inquisitive mind but through another approach altogether. We are not the observers, we are the observed. We are not questioning, we are the ones questioned. This is what in Islam is called Ihsan. The difference between these two approaches is the basis of “the leap”.

This understanding produces a complete change in our relation to Truth, and also to thinking. We cannot create the Truth by any rational approach. Man is simply not capable of such accomplishment. Whoever tries to reach the Truth enquiring with what, where or how, it will only encounter something else: himself. Truth withdraws from essentialist questioning. If the enquirer is not aware (of the limitation), he will think that what comes forward as the answer of his enquiry is the Truth, but it is not. If persuaded that he is right, the enquirer will live in a fantasy. Any essentialist enquiry of God will produce a concept of God, but Allah is not a concept. Such effort is theology. Theology does not think.

The result of such theological thoughtless process are concepts such as the “ideology of Islam”, “spirit of Islam” or the “principles of Islam”. Islam is not an ideology; and principles or spirit when derived from a rationalist enquiry are nothing but attempts to “enframe” Islam.

Heidegger wrote:

“What do we ordinarily understand by truth? This elevated yet at the same time worn and almost dull word “truth” means what makes a true thing true. What is a true thing? We say, for example, “It is a true joy to cooperate in the accomplishment of this task.” We mean that it is purely and actually a joy. The true is the actual. Accordingly, we speak of true gold in distinction from false. False gold is not actually what it appears to be. It is merely a “semblance” and thus it is not actual. What is not actual is taken to be the opposite of the actual. But what merely seems to be gold is nevertheless something actual. Accordingly, we say more precisely: actual gold is genuine gold. Yet both are “actual”, the circulating counterfeit no less than the genuine gold. What is true about genuine gold thus cannot be demonstrated merely by its actuality. The question recurs: what do “genuine” and “true” mean here? Genuine gold is that actual gold the actuality of which is in accordance with what, always and in advance, we “properly” mean by “gold”. Conversely, wherever we suspect false gold, we say. “Here something is not in accord”. On the other hand, we say of whatever is “as it should be”: “It is in accord.” The matter is in accord.”

Before we continue let me recall what we have advanced so far on this topic. Heidegger points out that the word “truth” has become trivialised in our language. Let us take some advantage here because of the fact that we are Muslims. We say Allahul Haqq. Truth in that sentence dwells in another realm than when we use the word truth in ordinary language. This common use of the word truth is already betraying any access to Truth. What we mean when we use the word “true” in ordinary language already points to something very different than in the sentence Allahul Haqq. Al-Haqq in Islam refers to the One, which is hidden from us by our own veiling. The “truth” in ordinary language is a code in a “game of accordance”. This is the accordance between a proposition or statement (logos) and the actuality of the thing spoken about. This means that not only our thinking betray us also our language betray us in our quest for true thinking. It leads to confusion.

“However, we call true not only an actual joy, genuine gold, and all beings of such kind, but also and above all we call true or false our statements about beings, which can themselves be genuine or not with regard to their kind, which can be thus or otherwise in their actuality. A statement is true if what it means and says is in accordance with the matter about which the statement is made. Here too we say, “It is in accord” Now, though, it is not the matter that is in accord but rather the proposition.”

Access to the Truth has changed its meaning. In pre-socratic or pre-philosophical thinking access to the Truth is known as “unveiling” or “unconcealment” (aletheia in Greek). The meaning of unveiling is that the one who enquires needs to be unveiled, so that the Truth can manifest to him. In our common language “truth” has different meaning: a theory of correspondence between a statement and the actuality of the entity itself. The first approach, “unveiling”, is familiar to us in the wisdom of Tasawwuf and through Tasawwuf we have a precise indication of what it means and how it happens. The second, “a theory of correspondence” is philosophy. Throughout the history of philosophy (Plato, Aristotle, Descartes, Kant, Leibniz, Hegel, Schopenhauer, Nietzsche –amongst others) the meaning of what we understand by the “entity” itself has had different definitions but the basic formulation of “correspondence” has not changed at all. This leads Heidegger to make a History of Philosophy, a history of Metaphysics, based on the development of the understanding of that entity against which the statement is compared in search of accordance. We leave all this for another day. At this stage what we want to simply understand is that this theory of correspondence in which modern thinking dwells does not reach the Truth. The Truth withdraws from this way of enquiry and it is never reached. Therefore the very purpose of thinking is never obtained. A thinking that cannot think the Truth is not thinking.

 

We reach the Truth through Unveiling

We have said that logos is at the birth of philosophy. The word logos transport us to the world of the Ancient Greeks. The Ancient Greeks discovered a very powerful and exciting “idea”. They discovered a new way of thinking. This way of thinking started with Plato’s fascination of “theory”. The “idea” that one could understand the universe in a detached way, by discovering the principles that underlie the profusion of phenomena. It was, indeed exciting. But Plato and the tradition that followed after him got off track by thinking that one could have a theory of everything -even human beings in the world. The way human beings relate to things is to have an implicit theory about them. Plato gave to his way of thinking a universal validity.

Heidegger was not against this “theory” of the Greeks per se. He thought it was powerful and important -but limited. The way of thinking which evolved from this fascination of theory, and the methodology with which it was accomplished are the themes here before us. This radical thinking of the Greeks which was initiated with Plato became the ground of the way of thinking of the West which has reached us today. This way of thinking is called Philosophy.

This investigation takes us now to that point in history in which this event took place. The turning point was Plato. Yet, we refer to the time before Plato as the pre-socratic time. Socrates did not write, we know of him through Plato. So, we use Plato as the starting point of philosophy. What happened at this juncture that had such a profound consequence in thinking? What is the nature of this single event that was going to be carried forward for the next 2,500 years? What was before this way of thinking, from which this way of thinking represents a departure? How did it depart?

We speak of the early Greeks as the thinking before Socrates and the later Greeks after Socrates. The later Greeks is the thinking of Philosophy as elaborated by Plato and Aristotle, the philosophers.

For the early Greeks, man stands in an intimate relation with Truth, deriving his own nature from that bond and existing as “the locus of the self-disclosure of Truth”. At the same time he seeks to struggle with himself to allow Truth shine through what prevents its disclosure. The Early Greek word for truth was aletheia which is compounded by the privative prefix “a-” (not) and the verbal stem “-leth-” which means “to escape notice”, “to be concealed”. The truth may thus be looked upon as that which is un-concealed, that which gets discovered or uncovered.

We can easily relate to this way of thinking before Socrates, because we have the advantage of Tasawwuf. The Shuyukh of Tasawwuf have spoken of man as “the locus in which Light manifests” and that particular locus is not placed in the brain, but in the heart. In the heart of man the lights manifest. Man is engaged in this relationship: he cannot escape from it. Man is created with this feature: the capacity with which man can reach his Creator. The process by which man comes closer to Allah, is in the language of Tasawwuf, “unveiling”. Unveiling is the removing of the veils which the nafs (the self) creates. The self has no business in the knowing. In that sense, the self is not the instrument of knowledge, the self cannot think Allah. Allah manifests to him, in the process of his submission to Him: when you submit to Allah, Allah gives you knowledge of Him. Submission of our will is knowledge. Our will does not produce knowledge, except the will of he who desires the Will of Allah. The self is purified by the replacement of his will with the Will of Allah. Covering the Truth, is clearly expressed by the term Kufr. Uncovering what covers the Truth is in itself knowledge.

Naturally, we are not saying the pre-Socratic poets (they were not philosophers as some people suggest) were Sufis. They did not know Islam, they could not be Sufis. Their thinking is not Tasawwuf. What we are saying is that we are better prepared to understand the language which they used. This is important in order to understand what happened during and after the Birth of Philosophy. It will help us to understand the gap that was created and the departure that took place. This is what matters to us. We have no further need to explore the pre-Socratics.

Heidegger focuses on two poets: Parmenides and Heraclitus. He wrote lengthy works on their way of thinking. For us this has only a scholarly interest. It is enough for us to know their names, their place in the chronological history and to understand their way of looking at truth. That’s all.

 

Marifatullah

If reason cannot allow us to know Allah then how can we know Allah? This is subject of Tassawuf, and Tassawuf is about marifatullah. “If all the trees where pens and all the oceans were ink we could not end writing about the Greatness of Allah.” This statement means that Allah’s Greatness cannot be contained by reason. In a Hadith-e-Qudsi, Allah Ta’ala says : “Neither My Earth nor My Heavens can contain Me, but the heart of a muminun, contains Me.” Here there is an indication that knowledge can be acquired not with reason but with the heart.

The heart is dominated by two dynamics, fear and love. Love and fear are higher than reason. When someone is in love passionately we often say “that person is behaving irrationally” or “he is mad in love”. Fear also determines reason; people think differently when they are under fear. Failure to understand these two forces is a failure to understand how reason works.

Tassawuf is about marifatullah and this is expressed by love of Allah and fear of Allah. This is how we relate to Him. Love of Allah means to abandon the love of everything other-than Allah. And to fear Him means to abandon fear of everything other-than Allah. To be free of love of this world and fear of this world is considered by us freedom. Total freedom is total slavery to Allah. Freedom/slavery is the condition of knowledge of Him.

Love of Allah and Fear of Allah is what makes us describe Him in the manner that He has described Himself. That is sufficient. That is where reason rests and then the heart starts through unveiling. Unveiling is the removal of the veils. The veils are our own nature. Knowing is the removal of them. Training the heart for this affair is the task of Tassawuf. This is marifa.

Marifatullah is the mother of all knowledge. We understand Allah by following His commands in particular those aspects that are more difficult. The difficulties are ours, they are our veils. Trust in Allah is the way to remove the veils and the fulfilling of the obligations of the Shariah is the path to find those obstacles (our own veils).

Doing statistical analysis is not contrary to marifa. Who do you do the statistical analysis for, might be an issue though. Taqwa is the guidance for anything we do. Knowledge of Allah must precede the pursue of any other knowledge.

 

Conclusion

Science cannot think the Truth. In their form of enquiring the Truth withdraws. Science reduces nature to calculable data. That calculable data that statistics produces is not nature. Man is also a victim of this approach through the human sciences. This fashion of thinking is defective and deceiving. Thinking must be able to think the Truth or is not thinking at all. Thinking the Truth (the Haqq), is for us knowledge of Allah. Allah cannot be reduced into a theory of correspondence (which is theology) because He has no comparison. Allah can only be understood by His own descriptions and by the heart of the muminun. Training the heart to know Allah is the process of unveiling, the process is the removal of veils. This is at the heart of Islam. Science is useful if its limitations are understood, if not science becomes scientism which is a danger to nature and mankind.

And Allah knows best and Victory belongs to Him.

Questionaire for Jurisconsults, subject specialists and general public in connection with re-examination of Riba/Interest based laws by Federal Shariah Court

Answers by Shaykh Umar Ibrahim Vadillo

Answers from the perspective of the classical most respected texts of Islamic Law and the practice of Muamalat as the socio and economic model of Muslim societies under the Khalifate

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Muamalaat: The Alternative to the Riba system exists

An Evidence of that to eradicate Riba is POSSIBLE and the alternative has ALWAYS existed.

by Shaykh Umar Ibrahim Vadillo

(This document was presented to the Federal Shariah Court, Pakistan as an alternative to the Riba Based System)

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1 Preamble

1.1 Allah says in the Qur’an: “Allah has permitted trade and forbidden riba”. In trading there is the cure to Riba. Seen as a system trade is Muamalaat.

1.2 We contend that any attempt to eradicate Riba must focus on what is the alternative to Riba, that is to say, understanding what is halal must precede understanding what is haram. This is because we cannot eliminate what is forbidden without providing an alternative from within what is permitted.

1.3 We contend that Riba is a system, not just merely a contract. This is because Riba has developed and evolved over the centuries into a complex system that affects all aspects of the economy and therefore it is crucial to understand Riba in the context of those instruments and institutions that make Riba possible such as banks, credit/paper money, central banks, financial markets and other financial institutions and instruments.

1.4 We contend that it is impossible to eradicate Riba without considering how credit/paper money and banks has transformed Riba. This is because the introduction of credit/paper money allowed banks to lend money in excess of what they possess through the principle of fractional reserve banking. The effect of this extra creation of credit is to transfer part of the burden of Riba to a third party (other than the lender and the borrower) unaware of its involvement. That third party is the community of paper/credit money users who are unfairly taxed with the loss of value of the paper money they possess. That loss of value is related to the increase of credit/paper money in circulation which every act of lending creates. Therefore this “transformed Riba” has now three parties:

  • The lender which benefits from lending credit money in excess of what they have.
  • The borrower which benefits from a reduction on the burden of repayment due to the loss of value of the money he has to repay.
  • The community of users of paper/credit money which suffers the unfair burden of losing part of the value of the money they possess.

1.5 We contend that it is impossible to eradicate Riba without considering how central banks have transformed money from being a freely chosen commodity to a legally compulsive credit/paper money or fiat money.

1.6 We contend that the model of what is halal exists and it can be implemented within the frame of the Islamic Law and the Constitution of Pakistan. This model is the socio-economic model of all Islamic societies from the beginning of Islam until the fall of the Khalifate. This model is surprisingly more or less common to all pre-capitalist societies (including some non-Islamic societies) and it was perfected during the time of the Messenger of Allah, salallahu alaihi wa salam, in the city of Madina al-Munawara. This model of Madina is known in the fiqh as the ‘amal of the ahl al-Madina, and in its legal form is known as Muamalaat.

1.7 We contend that Muamalaat is the right alternative to the question of how to eraditate Riba. The proof of this is that the present petition challenges Government saving banks, negotiable instruments, cooperative societies, insurance companies, State bank of Pakistan, moneylenders and banking companies. All these institutions will not be able to operate without Riba –as they have themselves stated. Therefore the question of eradicating Riba is transformed into how to create an alternative all those institutions that live with Riba. If Riba is seen as a system the question is therefore how to transform the system of Riba with the system of Muamalaat.

1.8 Muamalaat is the system of human interactions in Islam. It encompasses all economic, political and social interactions. It has been practiced from the beginning of Islam until the fall of Caliphate. It is a system in as much that not only involves contractual matters but also institutions and instruments that support and promulgate what is halal such as Gold dinar, silver dirham, Wadi’ahs (safe keeping institutions), Suqs (open markets), Caravans (open trading institutions), Guilds (Open production institutions), Waqf (welfare institutions), Bai Salam (agricultural trading system), Bait ul maal etc.

1.9 We contend that the introduction of the gold Dinar and silver Dirham, known as Shariah currency, is fundamental to the matter of introducing Muamalaat and therefore the eradication of Riba.

1.10 We contend that introduction of gold Dinar and silver Dirham must be done gradually and progressively within a reasonable frame of time in which society as a whole can initiate a process of transformation from Riba to Muamalaat.

1.11 We contend that at the same time the Shariah currency is introduced other elements of Muamalaat should be introduced simultaneously. The most important of these other elements is the introduction of the Suqs or Public Markets. Markets or suqs in Muamalaat are public institutions and cannot be privatized, just like the mosques cannot be privatized. The public market is an institution that belongs to human history. We find it among the ancient Romans, the ancient Greeks, in old Mesopotamia, etc. The public market must be accessible to all and there cannot be taxes or fees imposed to its users; just like there are no taxes or fees to those who wish to pray in a mosque.

1.12 We contend that after the introduction of public markets into our cities the restoration of the caravans and the guilds must follow. Caravans and guilds, like the markets, are public infrastructure. They do not belong to an elite of people, but they are awqaf for the benefit of anyone who wishes to become a member.

  • The caravan system is the model of export trading in Islamic societies, whereby all the logistical and warehousing means required for the trade are commonly owned by the members of the caravan, which by virtue of the caravan being a public institution means they are publically owned (awqaf, like the markets).
  • The guild system is the model of production of all pre-capitalist societies and Muslim societies in particular, whereby the means of production are commonly own by the members of the guild, which by virtue of the guild being a public institution means they are publically owned (awqaf, like the markets).

1.13 We contend that the introduction of business contracts in Islam: shirkat or sharika and qirad or mudharaba will become enormously easier (than it is at present) to implement. The reason of this easing is that qirad is in the model of Muamalaat the contract of the caravans: 99% of those qirad contracts happened within the context of the caravans. It follows that if there were no caravans in Madina it would have been more difficult to implement qirad. The same is applicable to the contract of shirkat in the context of the guilds.

1.14 We contend that the idea of Islamization of capitalist institutions and instruments is a deception which instead of eradicating Riba it has made “Riba halal”. Islamic banks are deceptive, and the furthermore the islamization of paper money is deceptive. From Islamic banks it has followed the islamization of insurance companies, central banks, state debt bonds, future contracts, credit cards, Dow Jones, etc. This is only further evidence of their deception. Islamic banks are the central piece of this deception. Their deception is deceptive on three accounts:

  • It does not alter the system of Riba it only makes superficial or cosmetic changes: it mantains the model of central banks, banks and credit money. Tacitly endorses the model of credit money and the present world monetary system dominated by the US dollar.
  • It ignores and implicitly denies the existence of our own socio-economic model or Muamalaat. Ardently denies the existence of a Shariah currency because banks cannot operate with non-credit commodity currency.
  • It has altered the nature of business contracts in order to make them fit into alien institutions and practices, as it is the case with shirkat, qirad. And it has added alien practices forbidden in Islamic law, such as “two sales in one”, as part of their business practices all under the deception of using Arabic names: murabaha.

1.15 We contend that Islamic banks are haram. The contract of Murabaha has become one of the major instruments of Islamic banks to disguise Riba under a facade of Islamic contracting. Murabaha is a sale contract and not a financial contract. The mark-up in Murabaha is only a way of stating the price of the goods sold and cannot be conditional to a prior agreement as in the forbidden case of “two sales in one”.

Yahya related to me from Malik that he had heard that the Messenger of Allah, may Allah bless him and grant him peace, forbade two sales in one sale. [In at-Tirmidhi and an-Nasa’i]

Yahya related to me from Malik that he had heard that a man said to another, “Buy this camel for me immediately so that I can buy him from you on credit.” ‘Abdullah ibn ‘Umar was asked about that and he disapproved of it and forbade it.

(Al-Muwatta of Imam Malik, Chapter 31, 72-73)

1.16 Murabahah is a particular kind of sale, where the seller expressly mentions the cost he has incurred on the commodities for sale and sells it to another person by adding some profit or mark-up thereon which is known to the buyer. The mark-up in murabaha is nothing but an “honest declaration of cost” and it does not imply any prior agreement with the seller. Murabahah is one of three types of bayu-al-amanah which are tawliyah (sale at cost) and wadiah (sale at specified loss). None of them imply any prior agreement. Making a prior agreement with the buyer means to transform the contract into “two sales in one”.

1.17 We contend that the eradication of Riba in Pakistan is the most important political and economic world event of our times. The repercussion of the introduction of Muamalaat will have an echo into the entire Muslim Nation providing a model for eradicating Riba. In particular the introduction of the gold Dinar and silver Dirham will be the most important event for the desired unification of the Muslim Nation by the creation of a common bimetallic currency and it will trigger the final demise the of US dollar dominium.

2 The Problem: Riba

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2.1 What is Riba? A Classical Definition from Early sources.

2.1.1 The reason to define Riba in this petition is to emphasize that Riba is not merely interest as it is often referred to but it is more than that. Therefore the definition of interest-free is not identical to Riba-free.

2.1.2 Riba literally means ‘excess’ in Arabic. Qadi Abu Bakr ibn al-Arabi, in his ‘Ahkamul Qur’an’, defines it as: ‘Any excess between the value of the goods given and their counter-value (the value of the goods received).’ This excess refers to two matters:

  1. An extra benefit arising from unjustified increase in the weight or measure, and
  2. An extra benefit arising from unjustified delay.

2.1.3 These two aspects have led our scholars to define two types of Riba. Ibn Rushd said: “The jurists unanimously agreed about Riba in buyu’ (trade) that it is of two kinds: deferment (nasiah) and stipulated disparity (tafadul).”

2.1.4 That is to say, there are two types of Riba:

  1. Riba al-Fadl (excess of disparity)
  2. Riba al-Nasiah (excess of deferment)

2.2 Riba Al-Fadl

2.2.1 Riba al-fadl refers to quantities. Riba an-nasiah refers to time delay.

2.2.2 Riba al-fadl is very easy to understand. In a loan, Riba al-fadl is the interest that is overcharged. But in general it represents when one party demands an additional increase to the counter-value. One party gives something worth 100 in exchange for something worth 110. Riba al-fadl also refers to the forbidden case in which two sales transactions are linked by a single contract (known as ‘two transactions in one’), in which one party is obliged to sell something at one price and to resell it after a time to the original seller for a decreased value. As a matter of fact, this is only a subterfuge to disguise a loan with interest under the pretence of a sale. Nobody needs this subterfuge today because you can get the loan directly from the bank. But the Islamic Banks have resorted to this old trick to deceive their customers under the misinterpreted name of ‘Murabaha’.

2.3 Riba An-Nasiah

2.3.1 Understanding Riba an-nasiah is more subtle. It is an excess in time (delay) artificially added to the transaction. It is an unjustified delay. This refers to the possession (‘ayn) and its non-possession (dayn) of the medium of payment (gold, silver and foodstuff – which was used as money). ‘Ayn is tangible merchandise, often referred to as cash. Dayn is a promise of payment or a debt, or anything whose delivery or payment is delayed. To exchange (safr) dayn for ‘ayn of the same genus is Riba an-nasiah. To exchange dayn for dayn is also forbidden. In an exchange it is only allowed to exchange ‘ayn for ‘ayn.

2.3.2 This is supported by many hadith on the issue. Imam Malik related: “Yahya related to me from Malik that he had heard that al-Qasim ibn Muhammad said, ‘Umar ibn al-Khattab said, “A dinar for a dinar, and a dirham for a dirham, and a sa’ for a sa’. Something to be collected later is not to be sold for something at hand.” “Yahya related to me from Malik that Abu’z-Zinad heard Sa’id al Musayyab say, ‘There is usury only in gold or silver or what is weighed and measured of what is eaten and drunk.’”

2.3.3 The Hanafi scholar Abu Bakr al-Kasani (d. 587H) wrote: “As for Riba al-nasa’ it is the difference (excess) between the termination of delay and the period of delay and the difference (excess) between the possession (‘ayn) and non-possession in things measured and weighed with different genera as well as in things measured and weighed with a uniformity of genera. This is according to ash-Shafi’i (Allah bless him), it is the difference between the termination of the period and the delay in foodstuff and precious metals (with currency-value) specifically.”

2.3.4 Riba an-nasiah refers particularly to the use of dayn in the exchange (sarf) of the same genera. But the prohibition is extended to sales in general when the dayn representing money overpasses its private nature and replaces the ‘ayn as medium of payment.

2.3.5 Imam Malik, may Allah be merciful to him, illustrates this point in his ‘Al-Muwatta’: “Yahya related to me from Malik that he had heard that receipts (sukukun) were given to people in the time of Marwan ibn al-Hakam for the produce of the market of al-Jar. People bought and sold the receipts among themselves before they took delivery of the goods. Zayd ibn Thabit, one of the Companions of the Messenger of Allah, may Allah bless him and grant him peace, went to Marwan ibn Hakam and said, ‘Marwan! Do you make usury Halal?’ He said, ‘I seek refuge with Allah! What is that?’ He said, ‘These receipts which people buy and sell before they take delivery of the goods.’ Marwan therefore sent guards to follow them and take them from people’s hands and return them to their owners.”

2.3.6 Zayd ibn Thabit specifically calls Riba those receipts (dayn) ‘which people buy and sell before taking delivery of the goods.’ It is allowed to use the gold and silver or food to make the payment, but you cannot USE the promise of payment. In it there is an excess that is not allowed. If you have dayn, you have to take possession of the ‘ayn it represents and then you can transact. You cannot used the dayn as money.

2.3.7 In general the rule is that you should not sell something which is there, for something which is not. This practice is called Rama’ and it is Riba.

Imam Malik: “Yahya related to me from Malik from ‘Abdullah ibn Dinar from ‘Abdullah ibn ‘Umar that ‘Umar ibn al-Khattab said: ‘Do not sell gold for gold except like for like. Do not increase part of it over another part. Do not sell silver for silver except for like, and do not increase part of it over another part. Do not sell some of it which is there for some of it which is not. If someone asks you to wait for payment until he has been to his house, do not leave him. I fear rama’ for you. Rama’ is usury.’”

Rama’ is today the common practice in all our markets. Dayn currency (paper money, receipts) has replaced the use of ‘ayn currency (Gold Dinar, Silver Dirham). This practice is what Umar ibn al-Khattab meant when he said “I fear rama’ for you.” Selling with deferment is not restricted to metals, it also includes food. Malik said, “The Messenger of Allah, may Allah bless him and grant him peace, forbade selling food before getting delivery of it.”

2.4 Therefore, what is prohibited in Riba an-nasiah, is the addition of an artificial delay that does not belong to the nature of the transaction. What does ‘artificial’ and ‘the nature of the transaction’ mean? It means that every transaction has its own natural conditions of timing and price.

2.5 Deferment and Disparity According to Contracts

2.5.1 Contracts in Which Goods Are of the Same Genus.

2.5.1.1 Riba al-fadl refers to quantities. Riba an-nasiah refers to time delay. To understand what is justified and what is not justified, one has to understand the different nature of each transaction, in particular those transactions that involve the same genus (the same goods are given and received), such as loans, exchange and rental:

2.5.1.2 A loan involves deferment but not quantity disparity. One person gives an amount of money, and after a period of time (deferment) the person returns the money without increase. The excess in time is justified and is Halal, but disparity is unjustified and is Haram. That type of unjustified excess would be Riba al-fadl.

2.5.1.3 An exchange involves no deferment and no disparity. One person gives an amount of money and without deferment the equivalent is given. Deferment is unjustified in an exchange. If you want to delay the payment, you have to make a loan, you cannot obtain a loan disguised as a ‘delayed exchange’. That type of unjustified excess would be Riba an-nasiah.

2.5.1.4 A rental involves both deferment and disparity and it is Halal. When you rent a house, you take possession of the house and you return it after a time (deferment) and in addition you must make an extra payment, the rent (disparity). These two excesses both in time and quantity are justified and they are Halal. You can only rent merchandise that can be hired. You can hire a car, a house or a horse. But you cannot hire money or food stuff (fungible goods). To pretend to hire money is to corrupt the nature of the transaction and it becomes Riba. What type of Riba is renting money? Riba al-fadl, because the renting of money is the same as adding a disparity in a loan deferment is Halal, and disparity is accounted for in a different manner.

2.5.2 Contracts in Which the Goods Are of Different Genus.

2.5.2.1 How do you determine disparity in a sale of goods of different genus? The disparity is determined by the difference between the price offered on spot sales and delayed sales. This is called in the Fiqh the stipulation of two prices or ‘two sales in one’. The spot price is considered the price; and the excess occurs when there is an increase (in relation to the spot price) in the price offered in delayed terms. This can happen in the following cases: offering an increased price if the good are purchased on delayed terms; or offering a discount if the buyer pays on the spot; or selling only on delayed terms and denying the possibility of purchasing on the spot (thus hiding that there is an increase – as it happens in many of the 0% finance offers that we see today). A complete discussion of this topic follows later. We will simply outline two cases:

  1. When the seller says “I sell at this price if you pay in cash, and at this other one (higher) if you pay in delayed terms.”
  2. When the seller makes a salam (a sale with delayed payment, which is Halal) and at the time when the money is due he says to the buyer (who might not be able to pay): “You can delay it further if you pay an excess (disparity);” and also when the seller says to the buyer: “If you pay before the end of the terms, I will offer you a discount (disparity).” This is the type of Riba known as Riba al-jahiliyah. What type of Riba is applicable here? Riba al-fadl – because in sales the source of unjustified excess is disparity.

2.5.2.2 Ibn Rushd wrote: “As for usury in sales, the ulama are in agreement that it is of two types: deferred payment (nasiah) and disparity (tafadul) – except what has been transmitted from Ibn ‘Abbas, who reported that the Prophet, may the peace and blessing of Allah be upon him, said: “There is no usury except in deferred payment.” The majority of the fuqaha, however, have concluded that usury does exist in these two types because this has been affirmed in other statements from him, may the peace and blessings of Allah be upon him.”

2.5.2.3 “The four sections to which the law of usury may be reduced are (1) things in which neither disparity nor deferment is permitted; (2) things in which disparity is permitted but deferment is not; (3) things in which both are permitted; and (4) what constitutes a single genus.”

2.5.3 Thus every transaction has its conditions relating to its nature. You cannot take the conditions of one type of transaction and try to apply them to the other, without corrupting the transaction. To add unjustified conditions (also excess) to a transaction is Riba.

2.6 The Prohibition to use Dayn to pay zakat

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2.6.1 Zakat in Islam must be paid in ‘ayn, that is tangible merchandise and cannot be paid in dayn, that is, a debt, a liability or a promisory note. This important matter has been ignored for many years appealing to darurah (exceptionality), since the Dinar and Dirham were not available. The fact that the Dinar and Dirham are available again bring this matter forward once again.

2.6.2 Property (mal) is owned (milk) as either ‘ayn or dayn. ‘Ayn is a specific existing thing, considered as unique object and not merely as a member of a category (“this horse”, not “a thoroughbred mare”). Dayn is any property, no an ‘ayn, that a debtor owes, either now or in the future; or it can refer to such property ony when due in the future. Property owned as dayn is usually fungible, such as gold or wheat. Sometimes non-fungible manufactured goods defined by specification are treated as dayn. Although dayn, literally means “debt”, in fiqh it refers not to the “obligation” per se, but rather to the property the subject of the obligation, which is considered to be already owned by the creditor. Clearly, since such property is not yet identified and may not even exist (it is not an ‘ayn), referring to dayn as present property is fictive.

2.6.3 Dayn means wealth, the payment of which attaches as a liability to a legal person (dhimmah), as the result of a transaction (‘aqd) or a loan, or as damages for property destroyed (istihlak). Dayn by extension means the class of goods called mithli (fungible); that is , goods whose price (thaman) in sale is determined on the basis of weight (wazn), or volume (kayl), or number (‘adad), and among the various units of which there is no difference of value due to human art. The definition of dayn given in the Majallah in a way combines these two meanings. According to it, a stated portion of a heap of wheat is dayn before it has been set off. ‘Ayn is the opposite of dayn in the last sense, meaning that is definite and has a bodily existence. Thus, in the above example, the said portion becomes ‘ayn by being set off.

2.6.4 It follows a text of the Great Scholar Imam Abu Bakr al-Kasani (d. 587H) wrote:

“If the property on which zakat fell due is dayn, as distinguished from ‘ayn, its zakat may be settled in terms of ‘ayn wealth. Thus a person having a claim of two hundred dirhams on which zakat is due, may give, in settlement of the same, five dirhams in cash, because dayn as compared with ‘ayn is defective (naqis) and the ‘ayn is complete (kamil), and a settlement of the defective in terms of the complete is valid. On the contrary, the settlement of the complete ‘ayn in terms of the defective is not valid, and therefore, the zakat debt is not discharged if a person wants to pay the zakat of two hundred dirhams which he possesses (i.e. ‘ayn) in terms of the five dirhams which a poor person owes him (i.e. dayn); namely, by absolving him from the debt intending it for his own zakat debt on the two hundred dirhams. Finally, as regards the settlement of the zakat of dayn wealth in terms of dayn wealth, if the wealth on which zakat is due of the kind of dayn which becomes ‘ayn is not valid; otherwise is valid. Thus if a person has five dirhams owed to him by a person and two hundred dirhams by another person, he cannot settle the zakat of the two hundred by making a present of five to the debtor as alms, because the two hundred dirhams will become ‘ayn when collected, and the settlement of the zakat of ‘ayn wealth in terms of dayn is not valid.

An example of the opposite case would be that a person who wanted to settle the zakat of two hundred dirhams owed him by another by making a present of those dirhams to the debtor and intending it for his zakat debt. However, this is allowed only in case of the debtor is a poor person, although there is also a view to the contrary. It goes without saying that the zakat of ‘ayn wealth is discharged if paid in terms of ‘ayn wealth; if, for instance, one pays the zakat of two hundred dirhams he posseses by paying five out of those two hundred.”

Kasani, pp. 42-3. Quoted in Islamic Theories of Finance by Nicolas Aghnides, New York : Columbia University, 1916; pp 334-335.

2.7 The Usage of Dayn as Means of Payment

2.7.1 Since dayn is in itself a deferment, the use of dayn is restricted to private transactions and it is prohibited as a general means of payment (money). While dayn per se is Halal, it is not Halal to use it as money. Dayn is a private contract between two individuals and must remain private and between them. The transfer of dayn from one person to another can be done Islamically, but only by the elimination of the first dayn and the creation of a new one. The dayn cannot circulate independently from what it represents. The owner must take possession of the goods and liquidate the dayn. Dayn cannot be used in an exchange and it cannot be used as a means of payment.

3 The Solution: Muamalaat

3.1 The General Idea of Muamalaat

3.1.1 Muamalaat Negates the “Mission Civilicatrice”

3.1.1.1 Muslims societies had a social and economic model before colonialism and before modern capitalism or financial capitalism arrived. That model existed and was successful and was known as Muamalaat having its roots in Islamic Law. To deny this is accepting the colonialist principle of “mission civilicatrice”, that is the idea of “civilizing mission” to the backward natives. This is in line with the evolutionist principle of modernization theorists who declared that traditional customs had to be destroyed and traditional societies had to adapt or to disappear. The European colonial powers felt it was their duty to bring Western civilization to what they perceived as backwards peoples.

3.1.1.2 Muamalaat was destroyed by the colonial powers. We find ourselves in the awckward position of having to prove its validity against a legal frame that still today persists and derives from the civilizing mission of the British. Our view is to reject that we belong to the category of backwards people. Our view is that we need to restore our own social and economic model. That model is Muamalaat.

3.1.1.3 It is important to understand how our present legal and economic system originated. British education in India created an ideological hegemony through the establishment of an educated Indian elite implicitly receptive to British order by performing local administrative functions. An education in English was intended to “deposit” Western values into the “soul of the educated”, and at the same time detach from Western-educated individuals discourses of traditional scholarship, thereby alienating them from their traditional way of life. A sense of “Britishness” went along hand in hand with the empire and native administration that was in the making. This evoked a “civilising” belief that England should assist in advancing “backward peoples” towards greater refinement, just as the early Romans were believed to have brought civility to England. The mission originated with the conquest of Ireland, and the desire to become the “new Romans” of Europe, which justified the Irish conquest and the subjugation of foreign peoples from America to India.

3.1.1.4 As the local educated elite assimilated further into the Western values of liberty, democracy and nationalism, they not only sought to occupy their lower administrative posts but they tried to acquire those higher positions once exclusively reserved for Europeans. Although they wanted to acquire power they did not renounce to the values and the system under which they sought that power.

3.1.1.5 The concept of private property over common land was introduced by the British in 1793, which differed significantly from pre-colonial days, during which land was held communally and a percentage of the produce remitted to the state. The introduction of private property over large quantities of land was fundamental to secure and maintain by the Western law system, despite altering the traditional modes of land tenure, which were the heart of traditional Indian society. Accompanying these policy shifts were the socioeconomic changes that resulted in the modifications in the class structure. These policies transformed former revenue-collecting officials and prominent individuals who collaborated with the colonial regime into landowning gentry. The property laws affected profoundly India’s power distribution, as whoever controlled the land could now control those who had no land. Consequently, the British could now rely on the new landed class to perform domestic administrative duties such as the collection of revenue. The new ownership was not changed and the elimination of common land was never restored after independence.

3.1.1.6 Banking was introduced in India in 1770 with the creation of the Bank of Hindustan. In 1786 the General Bank of India was created. In 1806 the Bank of Calcutta, immediately after know as Bank of Bengal which later became the State Bank of India. There were no banks in Hindustan before the 18th century, yet this model which is repugnant to the injunctions of Islam, remained with us up until today.

3.1.2 Muamalaat is not Islamic Economics

3.1.2.1 The “Islamisation” of Capitalism does not result in Muamalaat.

3.1.2.2 Over the last fifty years a group of Muslims under the banner of “reform” has been engaged in what they call the “islamisation of knowledge”, the heart of which has been the “islamisation” of Economics. Under the banner, the “islamisation of knowledge”, some scholars, taking knowledge for Western human sciences, undertook the ludicrous task of “Islamise” all human sciences: sociology, psychology, politics, anthropology and most important economics.

3.1.2.3 Islamic Economics produced Islamic banks, Islamic Stock Exchange, Islamic insurance, Islamic mortgages, and Islamic credit cards. The system remains the same.

3.1.2.4 Their methodology was simple. First, a rejection of the madhhab system, seen as medieval scholarship. Second, the transformation of the Shariah from its existential jurisprudence base into a normative set of abstract moral principles and values, that could be accessed at random. For example, the principles of equality and justice, seen as Islamic values, if assigned to any institution or financial procedure can serve to Islamise them.

3.1.2.5 Islamising the banks in order to eliminate Riba is as absurd as Islamising the brothels in order to eliminate prostitution.

3.1.2.6 Islamisation has reached a point of evident absurdity, a nihilistic conclusion, that is to say, “their” Islamic values have been diluted into a hollow pragmatism. The ironic result of islamisation is a full assimilation to capitalism, a kind of “reverse secularism”. How can Islamising result is the same institutions, tools and procedures as capitalism but with different words? This farce must end, because not only is a non-sensical exercise but it prevents the real Islamic model from ever returning.

3.1.2.7 We do not want to islamise capitalism, we want to create an alternative to it: The End of Economics

3.1.2.8 Economics is not neutral, it is an ideology based on presumptions quite opposite to Allah’s injuction “Allah has permitted trade and has forbidden usury”. Economics reveals a different one, “Economics has forbidden trade and has permitted usury”.

3.1.2.9 The aim and methodology of Economics are not acceptable. We do not need to make them acceptable either, because we have a superior way of thinking emanating from the Sunna of the Messenger (May Allah bless him and grant him peace). We need to overcome this pseudo-science and create our own understanding outside their parameters. This is not Islamising Economics, but “ending” Economics.

3.1.3 Muamalaat as a Model: The Model of Madina

3.1.3.1 The Shariah is based on the “Kitab wa Sunna”. The Sunna is the complete record of what Rasulullah, salallahu alaihi wa salam said and did. This has been transmitted to us by the written texts of the Hadith and the actions of the first three communities, this is known as the ‘amal of the ahl al-Madina.

3.1.3.2 What matters to us is that the Madina was a city of people that is to say it was a “living model”. In a living model we have all the complexity of social relations and institutions in operation. If we examine the economic model we find all the elements required to understand how these relations must be articulated. When we look at Madina we are looking at the “perfect city”. We believe that human history had never reached that perfection before and will never reach it again after. Madina is the zenith of human history.

3.1.4 Mutual Consent in Muamalaat

3.1.4.1 Mutual Consent is the foundation of trading. Against of the modern tendency of monopolization

3.1.5 Sharing Infrastructure in Muamalaat

3.1.5.1 Waqf is foundational to understand Muamalaat. It is said that up to 60% of all real estate in Ottoman Istanbul were waqf. The waqf is present in mosques, markets, caravans and guilds. The waqf is not private not public property, it is the property of Allah. Only the usufruct of the assets in waqf is given to the use of its given beneficiaries.

3.1.5.2 Property is theft when we refer to mosques, because mosques are awqaf. Only Allah has property over the mosques. But so is with the physical markets, with the logistical infrastructure of caravans and the major means of production of the guilds in Muslim societies. They were all awqaf.

3.1.5.3 Sharing is the outcome of the extensive establishment of awqaf.

3.2 The Elements of Muamalaat

3.2.1 Shariah currency

3.2.1.1 The gold Dinar and silver Dirham are mentioned in Qur’an and they are known as the Shariah currency. The weight of the Dinar was the mithqal which is equal to 4.25gr of gold and the weight of the Dirham was 7/10 of the mithqal. This is known as the standard of Umar ibn al Khattab, radhiallahu anhu. Together with the Dinar and Dirham, people in Madina used fulus, typically made of copper. Fulus is not money but only has a limited use a small change, and its value is dependent to the value of the dirham such as: 100 fulus equals 1 dirham.

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3.2.1.2 In Madina money was a commodity and it was freely chosen without any government imposition, under the general ruling that oversees all trading relations, which is what Allah ta’ala says in the Qur’an: “trade with mutual consent”. Then we say to ourselves money must be also chosen with mutual consent. We know that gold and silver have the most common media of exchange for over 5,000 years of human history at the time in which the idea of imposing a currency to the people was alien to society. We believe that if freedom is restored people will chose gold and silver. This is not backwards, but this is the way of the best society in history.

3.2.1.3 To introduce the Dinar and the Dirham among the Muslims will transform the world monetary system. Since gold and silver are the same it does not matter where we are in the world, the Dinar and Dirham have the potential to unify the Muslim nation under a bimetallic monetary system.

3.2.1.4 One chicken at the time of Rasulullah, salallahu alaihi wa salam, cost one dirham. We can buy one chicken today in Pakistan for approximately one dirham or even less. What it means it that there is no loss of value in gold or silver over long period of times. Unlike paper money commodities cannot be artificially inflated.

3.2.1.5 The Return of the Shariah currency, the Dinar and Dirham, poses a new understanding of wealth and prosperity that differs from conventional Economics: a new paradigm. This paradigm can only be understood in the context of Muamalaat. Only through Muamalaat can we realise the full potential of the return of the Shariah currency. The full implementation of Muamalaat proposes a completely replacement capitalism as the Riba system.

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3.2.1.6 Shariah Currency versus Legal Tender

3.2.1.6.1 The Gold Dinar and Silver Dirham known as Shariah currency or Shariah coins in the Fiqh are not legal tender. The Shariah currency has no relation to present fiat currencies on many accounts and should not be legally or practically be compared or treated as the same. The Gold Dinar and Silver Dirham relates to religious matters, most important of which is the matter of payment of Zakat, rather than constitutional matters. Its introduction can only occurred on voluntary basis since freedom is a command from Allah in all commercial transactions including the acceptance of money. Its usage has been throughout history open to Muslim and non-Muslims alike.

3.2.1.6.2 The Gold Dinar and Silver Dirham are not legal tender. Legal tender or forced tender is an offered payment that, by law, cannot be refused in settlement of a debt, and have the debt remain in force. Personal cheques, credit cards, debit cards and similar non-cash methods of payment are not legal tender only the notes and coins of the Central Banks are Legal Tender.

3.2.1.6.3 The Dinar and the Dirham are known in the fiqh as the “Shariah currency”or “Shariah coins”. The term “Shariah coins” is specific to the Dinar and Dirham and is not applicable to any other coin made in gold, silver or any other material. Any other coin is known as “non-shari’i” (ibn Khaldun).

Imam Abu Zayd Ibn Khaldun (d. 1406)

“The Revelation undertook to mention them and attached many judgments to them, for example zakat, marriage, and hudud. Therefore within the Revelation they have to have a reality and specific measure for assessment (of zakat, etc.) upon which its judgments may be based rather than on the non-shari’i (other coins).

Know that there is a consensus (ijma) since the beginning of Islam and the age of the Companions and the Followers that the dirham of the shari’ah is that of which ten weigh seven mithqals (weight of the dinar) of gold… The weight of a mithqal is seventy-two grains of barley, so that the dirham which is seven tenths of it is fifty and two fifths grains. All these measurements are firmly established by consensus.”

“Al-Muqaddimah”

3.2.1.6.4 Properly speaking the term “alternative currency” is not applicable to the Shariah coins or currency because the term “Shariah coins” is specific to the Dinar and Dirham and therefore is not alternative to any other coins or currency (non shari’i). It stands on its own without alternative. The use of the expression “alternative currency” can only be used if proper explanation is given in regards to the fundamental differences that exist in relation to the legal tender currencies such as the Malaysian Ringgit. The Malaysian Ringgit is an entirely different legal concept and has different functions. The Malaysian Ringgit is not based on a commodity (in Arabic ‘ayn, meaning tangible merchandise) like the Dinar and Dirham, the Malaysian Ringgit a promissory note (in Arabic dayn, meaning debt or liability) with no intrinsic value (its value as ‘ayn/tangible merchandise is the value of the paper close to zero) but with a fiat value which established by the compulsion law of the Federal Government through the Law of Legal Tender and it can change from time to time. On the other hand, the value of the Dinar and Dirham depends entirely on the market value of the commodity (gold and silver) on which it is manufactured, just like a kilo of rice depends on the value of rice. This difference in important in religious terms, for example, zakat which is a legal obligation of the Shariah has to be paid in ‘ayn but cannot be paid in dayn. Muslims should, if having the choice (if no choice is given or no ‘ayn is available then darurah, that is exceptionality, is temporarily applicable), pay with ‘ayn rather than dayn.

Imam Abu Bakr al-Kasani ( d.1191)

“If the property on which zakat fell due is dayn, as distinguished from ‘ayn, its zakat may be settled in terms of ‘ayn wealth. Thus a person having a claim of two hundred dirhams on which zakat is due, may give, in settlement of the same, five dirhams in cash, because dayn as compared with ‘ayn is defective (naqis) and the ‘ayn is complete (kamil), and a settlement of the defective in terms of the complete is valid. On the contrary, the settlement of the complete ‘ayn in terms of the defective (dayn) is not valid, and therefore, the zakat debt is not discharged if a person wants to pay the zakat of two hundred dirhams which he possesses (i.e. ‘ayn) in terms of the five dirhams which a poor person owes him (i.e. dayn); namely, by absolving him from the debt intending it for his own zakat debt on the two hundred dirhams.”

“Bada’i` al-Sana’i”

3.2.1.6.5 In linguistic sense, the Dinar and Dirham are not face values, but names that indicate specific weights. The Dinar is a specific weight of 4.25 grams and it is also known as mithqal in Arabic. The Dirham is a specific weight of 2.975 grams or 7/10 of the mithqal. In a way they are legally the same as saying “1kg of rice”. Therefore they are specific weights of commodity (gold and silver) which are mentioned in Qur’an and in many aspects of the Shariah regarding zakat and legal judgments; and thus they cannot be altered in their weight.

3.2.1.6.6 In history, the Shariah coins has never been legal tender. In the practice of the early Muslim community the Shariah coins were not only currency used as means of payment. Barley, dates or salt were also used as means of payment and therefore no exclusive right was given to the Shariah coins. The reason for this “freedom to choose the medium of exchange” is that money is considered a part of trading it is regulated under the same Qur’anic injunction that regulates trade: “tijaratun ‘aan taradim minkum”, the meaning of which is “trade according to mutual consent”. “Mutual consent” excludes the idea of compulsion or monopoly in regards to trading. This is another reason why the Dinar and Dirham are not legal tender and have never been legal tender. Freedom to choose the medium of exchange is a fundamental right granted by Allah to Muslims and non-Muslims alike. The use of the Shariah currency is therefore inclusive of non-Muslims.

Shaykh Jalaluddin al-Mahalli & Shaykh Jalaluddin al-Suyuti

Tafsir of Qur’an (4, 29):

“O you who believe, consume not your goods between you wrongly, unlawfully according to the Law, through usury or usurpation, except it be trading (tijāratan, also read tijāratun), so that the goods be from trade effected, through mutual agreement, through mutual good-will: such [goods] you may consume. And kill not yourselves, by committing what leads towards destruction on account of some affiliation, be it in this world or the Hereafter. Surely God is ever Merciful to you, when He forbids you such things.”

“Tafsir al-Jalalayn”

3.2.1.7 The term “currency” is commonly understood as legal tender or as fiat money that carries a face value. Since the “Shariah coins” are not legal tender and do not have a face value the” Shariah coins” should be better understood as a commodity rather than as “currency” in the common use of the term. Regarding current common practices, the use of the “Shariah coins” belongs to the category of barter, that is, the mutual exchange of products and services. It is arguable that in the past, before the introduction of legal tender laws, transactions made with gold and silver were consider normal transactions and the term barter was applicable to all other transactions. Therefore the use of the term “Shariah currency” should be understood with the limitations explained above and in consideration to the historical practice of the Muslims as it is relevant in the Islamic Jurisprudence.

3.2.1.8 Until very recently in history “paper currencies” were defined as promissory notes in terms of gold and silver. In that sense they represented an ‘amanah’ (trusting wealth to someone who will keep it for you until you demand it) that is an obligation to pay on demand a certain amount of gold and silver. We know from history that this obligation was often not fulfilled and eventually the governments of the world decided gradually to eliminate the obligation to pay in specie altogether. The closest case of the default is the US dollar and its unilateral decision to break their “Bretton Woods Agreement”. This concept of ‘broken amanah’ is known in the Qur’an and carries legal implications as to the prohibition to accept amanah from non-Muslims unless they live under Muslim rule so that they can be obliged to pay their contractual obligations. This legal injunction, which in theory implies the prohibition to accept British pounds, US dollars, etc. ( or any other currency backed by them), has been abrogated long ago since the colonial days by new laws that consider that this legal injunction is no longer applicable. Under the inspiration of the colonial legal systems, the constitutional Law of all Muslim countries including Pakistan grants the right to accept foreign promissory notes from non-Muslim countries (such as USD) to their own Central Bank as a reserve value for their own fiat currency. Because of this many Muslims (and non-Muslims) still mistakenly belief that their own fiat currency is backed by gold and silver when in fact no legal tender in the world is fully backed by specie anymore. The gold dinar and silver dirham are commodities and therefore they are not an ‘amanah: they are a tangible commodity (‘ayn), that is, when you pay with them, you hand over a certain amount of gold and silver and therefore they do not require to be backed by any other asset or authority other than itself. This is another reason why the Shariah currency cannot be compared or considered an alternative to “paper currencies”.

Qadi Abu Bakr Ibn al Arabi (d. 1148)

Allah says in the Qur’an (3:75):

“And amongst the People of the Book there are those who, if you were to entrust them with a treasure (qintar), he would return it to you. And amongst them is he who, if you were to entrust him with a dinar would not return it to you, unless you kept standing over him. “

Tafsir:

“the benefit that can be taken from this is the prohibition of entrusting (amanah) the People of the Book with goods. The question concerning entrusting property is legislated by the text of Qur’an.”

“Ahkam al-Qur’an”

3.2.1.9 Legal Tender is often a misunderstood concept. Coins and banknotes do not need to be ‘legal tender’ in order to be used as money to buy and perform other transactions for which money is intended. Legal tender must be accepted to settle a money debt. For example, US federal law does not restrict private businesses, persons or organisations in what methods of payment they choose to accept or refuse. Businesses are therefore free to insist on payment by credit card, for example, or to refuse larger denomination banknotes. In Canada for example, only Canadian dollar banknotes issued by the Bank of Canada are legal tender; however, commercial transactions may legally be settled in any manner agreed by the parties involved. A significant amount of business in Canada is transacted in United States dollars, despite United States currency not being legal tender. Legal tender can be refused unless or until a person is in debt, therefore vending machines and transport staff do not have to accept the largest denomination of banknote for a single bus fare or bar of chocolate, and even shopkeepers can reject large banknotes. However, restaurants that do not collect money until after a meal is served (a debt has been created) would have to accept any legal tender. The right of a trader to refuse to do business with any person means a purchaser cannot demand to make a purchase, and so declaring a legal tender other than for debts would be redundant.

3.2.1.10 The minting of the Dinar and Dirham is a known practice of the Muslims from the early days of Islam. The first dated coins that can be assigned to the Muslims are copies of silver dirhams of the Sasanian Yezdigird III, struck during the Khalifate of Uthman, radiallahu anhu. These coins differ from the original ones in that an Arabic inscription is found in the obverse margins, normally reading “in the name of Allah”. Since then the writing in Arabic of the name of Allah and parts of Qur’an on the coins became a custom in all minting made by Muslims. In the year 75 (695) the Khalif Abdalmalik ordered Al-Haddjadj to mint the first dirhams, officially establishing the standard of Umar ibn al-Khattab, radiallahu anhu: 7/10 of the mithqal. The next year he ordered the dirhams to be minted in all the regions of the Dar al-Islam. He ordered the coins to be stamped with the sentence: “Allahu Ahad, Allahu Samad”. The minting of the coins is considered an obligation of the Sultan that needs to be followed.

Imam Abu Abdallah Al-Qurtubi (d. 1273)

Allah says in the Qur’an (4:59):

“O you who believe! Obey Allah and obey the Messenger and those in command among you..”

Tafsir:

“The ayat is an order to obey the Sultan in respect to seven obligations: the minting of the dinar and the dirham, fixing weights and measure, legal judgments, Hajj, Jumu’ah, the two Eids and Jihad.”

“Al-Jami’ li-Ahkam al-Qur’an”

3.2.2 Markets

3.2.2.1 Markets in Madina were public institutions (awqaf). The Islamic cities were, above all, a market-city. The importance of the Suq in the formation and development of the Muslim city cannot be underestimated. Muslim cities were founded on the combination of a Great Market and a Great Mosque. This combination was the heart of every city. Ottoman developers called this combination the Imaret. The Imaret is the distinctive feature of every Islamic city.

3.2.2.2 Soon after his arrival in Madina al-Munawwarah, the Prophet of Islam, salla’llahu ‘alaihi wa sallam, created two institutions, a mosque and a market. He made clear by his statements and explicit injunctions that the marketplace was to be a space freely accessible to everybody, with no divisions (such as shops) and where no taxes, levies or rents could be charged.

3.2.2.3 The Market is like a Mosque: …

The Messenger of Allah, salla’llahu ‘alaihi wa sallam, said: “Markets should follow the same sunnah as the mosques: whoever gets his place first has a right to it until he gets up and goes back to his house or finishes his selling. (suq al-muslimin ka-musalla l-muslimin, man sabaqa ila shay’in fa-huwa lahu yawmahu hatta yada‘ahu.)”.

(Al-Hindi, Kanz al-’Ummal, V, 488, no. 2688)

3.2.2.4 it is a sadaqa, with no private ownership …

Ibrahim ibn al-Mundhir al Hizami relates from Abdallah ibn Ja’far, that Muhammad ibn Abdallah ibn Hasan said, “The Messenger of Allah, salla’llahu ‘alaihi wa sallam, gave the Muslims their markets as a charitable gift (tasaddaqa ‘ala l-muslimina bi-aswaqihim).”

(Ibn Shabba, K. Tarikh al-Madinah al-Munawwarah, 304)

3.2.2.5 with no rent charged …

Ibn Zabala relates that Khalid ibn Ilyas al-’Adawi said, “The letter of Umar ibn Abd al-Aziz was read out to us in Madinah, saying that the market was a sadaqa and that no rent (kira’) should be charged on anyone for it.”

(As-Samhudi, Wafa al-Wafa, 749)

3.2.2.6 with no taxes levied on it …

Ibrahim ibn al-Mundhir relates from Ishaq ibn Ja’far ibn Muhammad, from Abdallah ibn Ja’far ibn al-Miswar, from Shurayh ibn Abdallah ibn Abi Namir, that Ata’ ibn Yasar said, “When the Messenger of Allah, salla’llahu ‘alaihi wa sallam, wanted to set up a market in Madinah, he went to the market of Bani Qaynuqa’ and then came to the market of Madinah, stamped his foot on the ground and said, ‘This is your market. Do not let it be lessened (la yudayyaq), and do not let any tax (kharaj) be levied on it.’”

(Ibn Shabba, K. Tarikh al-Madinah al-Munawwarah, 304)

3.2.2.7 where no reservations or claims can be made …

Ibn Zabala relates from Hatim ibn Isma’il that Habib said that Umar ibn al-Khattab [once] passed by the Gate of Ma’mar in the market and [saw that] a jar had been placed by the gate and he ordered that it be taken away. … Umar forbade him to put any stones on the place or lay claim to it [in any way] (an yuhajjir ‘alayha aw yahuzaha).

(As-Samhudi, Wafa al-Wafa, 749)

3.2.2.8 and where no shops can be constructed.

Ibn Shabba relates from Salih ibn Kaysan …that …The Messenger of Allah, salla’llahu ‘alaihi wa sallam, …said: ‘This is your market. Do not build anything with stone (la tatahajjaru) [on it], and do not let any tax (kharaj) be levied on it’”

(As-Samhudi, Wafa al-Wafa, 747-8)

Abu r-Rijal relates from Isra’il, from Ziyad ibn Fayyad, from one of the shaykhs of Madinah that Umar ibn al Khattab, radiya’llahu ‘anhu, saw a shop (dukkan) which someone had newly put up in the market and he destroyed it.

(Ibn Shabba, K. Tarikh al-Madinah al-Munawwarah, 750)

3.2.2.9 Open Markets versus Supermarkets

Openness and competition can only be granted not only if the legal conditions permit them to exist, but also if the infrastructural and practical conditions support them too.

For example, we cannot speak of full and fair competition in Britain when 80% of all retailing is controlled by 4 supermarkets. These supermarkets have driven out tens of thousands of small shops and small manufacturers throughout Britain. The same phenomenon is taken place across Europe. All sectors of industry are consolidating in fewer and fewer hands. The number of players is diminishing and the SME’s are suffering. The key concern behind the national protectionist measures that resist further integration in the EU single market is the effect that it will have in their small business. Carrefour is now the second largest retailer in the world, just behind Walmart.

3.2.2.10 Suqs in the Muslim City

3.2.2.11 Suqs were an integral part of every city. The number of suqs varied considerably from one city to another. Cairo had 145, Aleppo 77, Baghdad, Damascus and Algiers only around 50. Within the central zone the markets were located, broadly, in decreasing order of importance: the markets for goldsmiths and money changers (sagha), for spices (‘attarin), and for the cloths (suq al-qumash) normally occupied the area closest to the center. The division of activities in Tunis around the Zaytuna, is specially significant in this regard.

3.2.2.12 The basic element of these central quarters was the shop (dukkan). In the large covered markets, the space of the dukkan was divided into two parts:

• the selling area which belonged to the suq and was free. It was the visible frontal part of the dukkan that connected to the passages of the suq;

• the storage area which belonged to the services of the suq which had to pay a rent. It was located in the back or on the top of the selling area.

3.2.2.13 An Example: The Grand Bazaar of Istanbul

The construction of the future Grand Bazaar’s core started during the winter of 1455/56, shortly after the Ottoman conquest of Constantinople. The construction of the initial Bedesten ended in the winter of 1460/61, and the building was endowed to the waqf of the Aya Sofya Mosque. Over the centuries the market was made bigger and new sections were added.

According to a 1890 survey, in the Bazaar were active 4,399 shops, 2 Bedesten, 2195 rooms, 1 Hamam, one mosque, 10 Medrese, 19 fountains (among them two Şadırvan and one Sebil), one Mausoleum and 24 Han.

The full extension of the market complex is 30.7 hectares, protected by 18 gates, there are 3,000 shops along 61 streets, the 2 Bedesten, 13 Han or caravanserais (plus several more outside).

Bazaar’s merchants were organized in guilds. In order to establish a new one, it was only necessary to have enough traders of the same good.

The ethics of trade in the Market until the Tanzimat age (half of the 19th century) was quite different from the modern one: indifference to profit, absence of envy in the successes of other traders and a single and correct price were peculiar traits of the Ottoman bazaar during its golden age. The reason for such behavior lies partly in the ethics of Islam, and partly in the guild system which provided a strong social security net to the merchants. Afterward, the westernization of the Ottoman society and the elimination of the waqf and the guilds caused the introduction of the new practices that we see today.

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3.2.3 Caravans and Guilds

3.2.3.1 Caravans

3.2.3.2 From an historical perspective there are two other institutions organically linked to the open market place: the caravans and the guilds. These last two share the same philosophy of openness with the market place. The caravans were open distribution networks (everyone could participate in export trading sharing logistic infrastructure) and the guilds were open production systems (there was no employer/employee relationship, but master/apprentice; the apprentice was being incubated to become independent within the guild).

3.2.3.3 It is important to understand the role of the caravans in the market places from a purely infrastructural level. In it impossible to explain the international commercial network created by the caravans which stretched from China to the depth of Africa without considering the commercial infrastructure with which the Muslims cities were endowed: caravanserais and suqs. Without a place to arrive at the caravans could not exist. The caravan traders were installed in funduqs or khans (caravanserais) reserved for them.

3.2.3.4 Caravans were open distribution networks. The caravans were as open as the market place. Small producers could participate in exporting activities that they could not afford or organize on their own. The caravan was an essential infrastructure of open trading, and could only exist together with the infrastructure of the physical market place. If there was not market place to go, the caravans would cease to exist. If the market ceases to be open, then the distribution ceases to be open. And consequently production ceases to be open. The monopolization of the market infrastructure brings about monopolization trends in the distribution and the production. That is why the infrastructure has to support the idea of the open market. The effect of monopolizing the infrastructure is perfectly illustrated with the present practices of companies like Carrefour. No caravan can arrive to Carrefour, because the “market” is owned by Carrefour. Trading ceases to exist. Instead of trading there is only monopolistic distribution.

3.2.3.5 Caravanserais contained warehouses and rooms for the traders. Larger caravanserais had as many as 100 warehouses and 200 rooms. The number of caravanserais in a city provides a good indication of its role as a commercial center: Algiers had 34, 44 in Baghdad, 35 in Mosul, 57 in Damascus, around 100 in Aleppo and 360 in Cairo –eloquent testimony to the economic importance of the metropolis and its paramount position in Arab trading.

Caravanserai of Acre in Palestine

Caravanserai of Acre, Palestine

Caravanserai of Nicosia, cyprus

Caravanserai of Nicosia, Cyprus

3.2.3.6 Guilds

3.2.3.7 Although craft manufacture is found in family-run workshops throughout the countryside, it is in the cities that the specialized production was located, in a highly varied set of fields that catered for the immediate needs not just of the city population but of that of the rural districts, too. As a matter of example of the importance of the guilds, it is estimated that, in the eighteenth century, craftsmen represented half of the active population of Cairo. The guilds were connected to the suqs. An example of this is to be found in Cairo and also in Aleppo and Damascus: the Suq al-Nahhasin (the coppersmith’s bazaar) which were expanded to become true centers of trading activity opened to all the cititzens.

3.2.3.8 The guilds not only had a local character but in some cases they acquired the character of large specialised industries dedicated to global export, such as the production of red caps, during the seventeenth century in Tunis. The guild provided self-employment to 300 masters and 15,000 craftsmen. These caps were exported to every region in the Ottoman Empire. Another example is the textile industry in Cairo which self-employed around 500 masters and 12,000 craftsmen. At the beginning of the nineteenth century in Aleppo, it is estimated that the guild of textile craftmen consisted of about 12,000 looms that provided for export as far as Europe. Soap produced by Palestinian guilds was sold in the soap caravanserai (khan al-sabun) in Cairo.

3.2.3.9 The guilds represent the quintessence of empowerment in action. There were not “employees” in the guilds. Individual enterprising was incubated within the guild. Individual members could share some essential infrastructure to develop and acquire skills “to the maximum”. It offered a levelled playing field for manufacturers and service providers. The theme is so vast that we will develop another paper to cover this issue. At the moment is sufficient that we notice that without the market place the guilds are not possible. Without the market place the guilds degenerate, become rigid and lose their balance efficiency.

3.2.3.10 The guilds stimulate and encourage independent entrepreneurship. An Islamic society, from a purely historical perspective, is not a society of employees. In pre-capitalist societies, Muslims have lived and worked in guilds. Belonging to a guild was the norm in Muslim societies. Businesses relations thrived inside the guild (without the need of banks) enhanced by the existence of a shared productive infrastructure and welfare systems that took the West centuries to develop (and yet has never found the efficiency of the guilds). The individual requirements to establish new enterprises within the guild were all favorable and easy to fulfill.

3.2.3.11 The relationship employer/employee was replaced by master/apprentice. There was not ”working class” in the days of the guilds. Guilds were historically eliminated by legal abolition and by the removing of their rights in favor of a new set of State given privileges and monopolies; and also the accumulation of capital (credit money) in private hands produced by banking. Today free competition and free access to the market do not exist for all. Thus it is not seen as a problem. Islamic trading guarantees equal rights for all. Islamic trading will decisively contribute the re-establishment of the guilds, challenging the system of the modern corporation based on “one owner and 14,000 employees”. It will encourage new models of open production processes (guilds), where production is open to thousands of free small owners associated. This is also part of the wider framework of the Islamic trading Initiative.

3.2.3.12 Concerning this matter, it is important to point out that specially since the beginning of the 1990’s, quite a few corporations have understood partially the benefits of dividing their production processes into smaller units. Instead of one pyramidal structure with one source of decision, they saw the benefit of many autonomous units working in collaboration while competing among each other. Thus, Toyota now claims that there is not one Toyota but two thousand Toyotas. Asea Brown Boveri, the Swedish-Swiss engineering giant, has subdivided itself into 1,300 independent companies and 5,000 autonomous profit centres. Their prosperous success is forcing others to adapt to the same principle. The policies of decentralisation, though they seem a step in the right direction, are limited because they have all been designed by corporate staff. Corporate staff could not suggest the ultimate step which would be to eliminate the corporation all together, or in other words to give total independence to the autonomous workshops. That could only happen if the small workshop could have an identical access to the customer as Toyota itself. To make that step we need open distribution networks and free market-places for all. These are all integral parts of Islamic trading.

3.2.4 Qirad and Shirkat

3.2.4.1 The application of Islamic contracts will change within Muamalaat. The contract of Qirad or Mudharabah is a contract that took place historically in the context of the caravans. The caravan was financed by qirad and qirad was the contract of trading finance of the caravan. Equally Shirkat took place within the context of a different type of production model. Most contracts of shirkat were between members of the same profession. This natural association of traders led to the establishment of the guilds. Shirkat and guilds correspond to each other in the same way that qirad corresponds to caravans.

3.2.4.2 Understanding the contracts is not divorced from understanding other social aspects of the community, thus Muamalaat. In Islamic Law all the attention is on how the exchange of goods takes place, because it is understood that if the exchange of goods is correct, the whole edifice of trading will be correct, but if the exchange of goods is incorrect it does not matter how much we try to remedy the situation, the whole edifice of trading will remain incorrect. In Islamic Law the act of exchange of goods represents the minimal unit of trading. Thus all the regulations are guided to keep justice in every commercial and business exchange. These regulations affect the institutions that support trading and those institutions also affect the contracts. In order to highlight how Muamalaat brings new light into these contracts we will examine some basic principles of qirad and shirkat.

3.2.4.3 How to make a contract and the limitations of the different kinds of contracts is therefore very important in Islamic Law. The contract is only necessary when delayed terms are stipulated between the parties, such as a sale with delayed payment, or a rental. Also all the business transactions, such as partnerships – because they involve delayed terms – have to be written according to Islamic Law. The business contracts or those contracts where the stipulation of a business or profit is involved are two according to classic references (al-Muwatta of Imam Malik): Shirkat and Qirad. All the rest are commercial contracts. Non-commercial contracts are for example the gracious loan (ariya) or the contract of deposit (amana).

3.2.4.4 All business contracts need to be written in a form of a contract specifying the negotiable conditions. The Shirkat is an Islamic partnership, and the Qirad, also called Mudharaba, is an Islamic business loan. The Shirkat and the Qirad have certain predetermined conditions that cannot be altered; other conditions need to be negotiated by the parties.

3.2.4.5 The importance of the correctness of the business and commercial contracts is such that the use of particular types of contracts will affect how society develops. A society where unjust contracts are allowed – i.e. Riba – will produce a kind of society different from the one in which they are not allowed. This is the reason why contractual law is so important in the body of Islamic Fiqh. Almost two thirds of all Islamic Fiqh concerns trade and business.

3.2.4.6 Islamic Law, derived from the Qur’an and the Sunna of Rasulullah, sallallahu alayhi wa sallam, defines the parameters in which contracts of commercial transactions and business should take place.

3.2.4.7 Commercial transactions are based on the exchange of the ownership of goods. If the exchange involves delayed payment, then a contract must be written. But it is not necessary if the transaction takes place ‘hand to hand’.

3.2.4.8 A commercial or business transaction is correct according to Islamic Law if it has equity: the value of the goods given must be equal to the countervalue of the goods received. If these values are not equal, the exchange becomes usurious.

3.2.4.9 A business consists of two or more commercial transactions connected for the purpose of obtaining a profit. When two or more persons associate themselves to execute a business then a contract is required between the parties involved.

3.2.4.10 A primary form of defining the equity of a business according to Islamic Law is that all the transactions that it involves are equitable. In addition, when a business contract is written, there are certain conditions that must be taken into account. We are going to examine the most important of these conditions.

3.2.4.11 The goods that make up the initial investment either belong to one person (no contract is necessary) or they belong to more than one person (a contract must be written). It may also be that the goods belong to one person but that they come from a business loan – then a contract must also be written.

3.2.4.12 Therefore there are two possible basic forms of business contract:

  • a] the investors (everyone) transfer the ownership of the investment to themselves, all of them as a group; or
  • b] the investor/s (everyone) transfer the ownership of the investment to another party.

The first type of business contract is called in Arabic ‘Shirkat’ – we will also call it a partnership – and the second type of business contract is called in Arabic ‘Qirad’ – we will also call it a business loan.

3.2.4.13 Shirkat (Partnership)

3.2.4.14 Partnership is in its general meaning any association of persons who share the ownership of some goods. Therefore partnership requires coownership of some goods. And if these goods are invested in a business then we have the necessity of a business contract.

3.2.4.15 Co-ownership is called in Arabic ‘Shirkat Milk’. A business partnership is called in Arabic ‘Shirkat Akid’.

“Shirkat, in its primitive sense, signifies the conjunction of two or more estates, in such a manner that one of them is not distinguishable from the other. In the language of the Law, it signifies the union of two or more persons in one concern. The term ‘shirkat’, however, is extended to the contracts, although there is no actual conjunction of states, because a contract is the cause of such conjunction.” (The Hedaya , translation by Hamilton, pp 217-31) Quotations from The Hedaya by Burhanuddin Abu Bakr Al-Marginani, written in the eighth century, translated by Charles Hamilton under the patronage of Warren Hastings, Governor of Bengal and published in 1870 in London.

3.2.4.16 Shirkat is lawful. In the time of the Prophet, sallallahu alayhi wa sallam, men were accustomed to practicing partnership. In his Muwatta, Malik said:

“The way of doing things among us is that there is no harm in partnership (ash-shirka), transferring responsibility to a deputy (at-tawliyah) and revocation (al-iqalah) when dealing with food and other things, whether or not possession was taken, when the transaction is with cash, and there is no profit, loss or deferment of its price. If profit, loss or deferment or the price form one of the two enters any of these transactions, it becomes a sale which is made Halal, and made Haram by what make sale Haram, and it is not partnership, transference of responsibility to a deputy, or revocation.”

3.2.4.17 Shirkat is of two kinds depending on how it originates:

  • Shirkat Milk, or partnership by the right of property, and
  • Shirkat Akid, or partnership by a business contract.

The one that we are interested in exploring is the business contract of Shirkat, which is commonly called Shirkat Akid or business partnership

The most significant conditions are:

• The Principle of Takafu’ (Proportionality)

The share of a partnership where all the partners work and put in capital depends on the different amounts of capital invested. If there are differences in capital among the partners but they all work the same amount, then the lesser investor can be compensated for his extra work.

“I have heard from Malik that partnership is not permissible unless there exists a balance (takafu‘) in the capitals.”

(Sahnun, Mudawwana, 12: 41. )

• The Necessity to Participate in the Work

A partnership assumes the participation of all its members in the actual work. An association in which all the work is assigned to one partner, while the other provides some necessary capital or equipment, but no work, is not a valid partnership. The non-working party is not entitled to any share of the income and can claim only the return of his investment and, if it happened to be in a form other than cash, some equitable rental fee for its use.

Surplus capital cannot be used as investment in a partnership without physically participating in the work of the business. So you cannot have a capitalist investing in the production made by other people. The only formula for a silent investor is a business loan or Qirad. In a partnership all the partners have to work, they are all equally owners and therefore equally responsible.

I said: “What is your opinion of an arrangement in which I place a person in a stall and say to him: ‘I will accept the goods and you will do the work on the condition that what ever God grants us will be shared between us equally?’” He said: ”According to Malik, this is not permissible.” (Sahnun, Mudawwana, 12: 41).

I said: “What is your opinion of a partnership between three people in which one provides the millstone, the other the house, and the other the work-animal, on the condition that the owner of the animal does all the work?” He said: “The entire proceeds of the work are to go to the owner of the animal who executes the work, and he is obligated to pay the rental fee for the millstones and house.” I said: “Is this also the case even if he does not earn anything?” He said “Yes, even if he does not earn anything.”(Sahnun, Mudawwana, 12: 45).

Ibn Qasim rejects the validity of a partnership based in cash only which stipulates that all the work be done by only one of the partners. He explains his rejection as follows:

“The basis for this is that according to Malik, a partnership is not permissible unless they combine in its work proportionally to their respective shares in the joint capital.”(Sahnun, Mudawwana, 12: 60).

The results are manifold: The first one is quite obvious which is that there cannot be capitalist investors using “only”their capital to benefit from the manufacturing work of other people without occupying themselves in the work. The second one is the fact that all the owners in a coownership can exercise their ownership with identical status independent of the share that they may have in the business. Both principles show the fallacy of the Stock Exchange.

The establishment of a Stock Exchange is a result of the previous creation of a false concept of ownership. This false concept of ownership is based on what they call “majority ownership”. On this basis you can be the owner of a company by contract despite not having any executive decision over your property. Ownership is declared in a piece of paper, but the same piece of paper guarantees that you cannot decide – therefore you cannot own the property. This is the falsehood of this kind of contract. The contract of shareholding with majority ownership is according to Islamic Law not acceptable and is considered to be a form of cheating.

3.2.4.18 The Essence of Ownership

3.2.4.19 Ownership is not just a document that says you are the owner of something. Ownership means you are entitled to and also capable of deciding how to dispose of your property. Otherwise you are not the owner. Decision over a property is the essence of ownership.

3.2.4.20 Ownership exists every time something is used or consumed, although ownership is legally regulated only when scarcity appears. There were no regulations for fishing in the sea, but as the fleets increased and the fish became scarce, the regulation of ownership became necessary.

3.2.4.21 Everybody disposes freely of air to breath, but the use of the flight paths of planes became regulated. Before regulation there was also ownership, because when a plane used a flight path nobody else could use it. That was effectively ownership.

3.2.4.22 Therefore, explicitly regulated or not, ownership has an existential reality connected to the use of something. Ownership consists of the capacity to use something. To hold the capacity to decide is effectively ownership. Modern commercial legislation allows for a type of ownership disconnected from the capacity to decide. This leads to the idea of an ownership exclusively defined by the title but without decision-making powers. This is not possible in Islam since the title and decision-making powers are bound together.

3.2.4.23 When ownership is exercised individually, there is no difficulty in understanding how the decision is made. But what happens when there is collective ownership? If they are all owners they must all own.

3.2.4.24 Therefore, in Islamic law, the co-owners submit to these two principles.

  1. All the co-owners have the same status of decision, regardless of their participation in the property.
  2. The results of the business are shared among the co-owners in proportion to their participation in the business as established in the contract.

3.2.4.25 If the first condition is not fulfilled, then the co-owners are no longer owners, and someone is usurping the shared ownership. Islamic law demands that every time there is a commercial agreement between two or more parties, a contract must be written. This contract is what constitutes the private decision of the business. The business contract clearly defines in advance the nature of the business: who are the investors, who is the agent (if there is one), the quantity of the investment, the objective of the business, its duration, and the sharing of its results. Therefore, when you sign the contract, you know what you are participating in. When you invest, you know what you are investing in. Now, what you have in modern investment is an agreement which is not considered a contract within Islamic law.

3.2.4.26 Rather, the investor lends the money to an unknown owner, to an unknown business, with no fixed duration, whose profits or dividends are decided by that unknown owner. This is all done under the falsehood of majority ownership.

3.2.4.27 The Deceiving Concept of Majority Ownership

3.2.4.28 This deceiving concept was brought about for the purpose of the creation of a mechanism of control and manipulation which ended up being the establishment of the Stock Exchange. It is based on the principle that whoever has a simple majority of the shares of a company owns the company. This system allows the control of great portions of the market by very few people. For example: Mr Stone who owns 51% of company A has control of the company. If he uses the capital of company A to buy 51% of company B, he will have total control of company B although he owns only approximately 1/4 of its capital. If he then uses the capital of company B to buy 51% of company C, he will have total control of C, although he owns only 1/8 of the capital.

Mr Stone can then buy a company D, E, F … in the same way.

3.2.4.29 The false concept of majority ownership has enabled the usurping of the legal ownership of millions of minority co-owners. Through this procedure, Mr Stone has power over an enormous amount of capital that is not his. He can decide what the results, now called dividends, are. But dividends are not the same as the results of the business. The company must be liquidated in order to know the results of the business. The system of majority ownership makes these companies exist without results, without liquidation. Because the majority owner can decide how much is going to be re-invested and how much will be paid out as dividends, you are tied to the company against your will.

3.2.4.30 In Islamic Law, you cannot force any investor to re-invest without his approval. The results, therefore, must be completely shared, by the liquidation of a company after the period stipulated in the contract as the duration of the company. If they all agree to continue they can continue, if not, the company is liquidated to start again with a new contract. Thus ownership is always protected. The majority ownership system only protects the company ownership of the majority owners, but does not protect the ownership of the rest of the co-owners.

3.2.4.31 Qirad (business loan)

3.2.4.32 Qirad is usually referred to with three different words:

  • Mudharaba (originated in Iraq); this is what the people of Iraq called Qirad; according to al-Sarakhsi, this word is derived from the expression ‘al-darb fi al-ard’ which means ‘making a journey’. This term is used because the agent-manager has the right to claim the profit by virtue of his effort and work. Indeed he is regarded as the investor’s associate in matters relating to the profit and capital used on the journey and for arrangements or ancillary expenses. The investor is entitled to receive a share of the profit on account of investing with his capital.
  • Qirad or Muqaradah (originated in Madinah); this is what it was called in Madinah. The word comes from the Arabic ‘qard’, which means the surrender of rights over capital by the owner to the user of the capital [a loan]. Agent is in Arabic ‘al-‘amil’ and the investor in Arabic is ‘sahibul-mal’ or ‘rabbul-mal’-
  • Commenda (originated in Medieval Europe), from the contract of accomendacio of the jus commune. The investor was called commendator and the agent was called tractator. This contract was introduced into Europe, especially Southern Europe through the Italian seaports of the late tenth and early eleventh centuries of the christian calendar.

3.2.4.33 Ibn Rushd said:

“There is a consensus of opinion among the Muslims with regard to the legality of Qirad. It was in vogue in the pre-Islamic period and Islam adopted it. There is a consensus of opinion that it consists in giving some capital by one person to another for business. The user of capital receives an agreed proportion of the profit, i.e. any proportion they may agree, one-third, one-forth, or even one-half.”

(Ibn Rushd, Bidayat Mujtahid wa Nihayatul-Muqtasid, Cairo, 1329, p. 205)

3.2.4.34 The Prophet, sallallahu alayhi wa sallam, worked as an agent for Khadijah before he married her.

3.2.4.35 All the Muslim jurists agree on its legitimacy as a form of business transaction and they formed this opinion on the basis of its wide practice by the Companions of the Prophet, sallallahu alayhi wa sallam, during his lifetime and after. The Prophet, sallallahu alayhi wa sallam, knew it and approved of it.

3.2.4.36 The main conditions of Qirad are:

  1. The agent of Qirad who is asked to buy credit or make an exchange and then use the funds, has the right to charge for that work with a salary, without losing his rights of a part of the profit of the loan.
  2. The agent cannot be obliged to do a manufacturing work, such as sewing or embroidering. Qirad is not for manufacturing, it is only for trading.
  3. Every mutually consented loan, even in the form of Qirad, in which funds are destined to pay for a merchandise that the lender knows have been already bought, is not a Qirad. It is a ordinary gracious loan.
  4. The agent is free to buy and sell whatever he wants, and in the place and in the time that he wants.
  5. Qirad is not for time. It is not permitted for the agent to stipulate that he use the Qirad for a certain number of years and that it not be taken back from him during that time.
  6. Guarantees in Qirad are void. The stipulation of guarantee in Qirad is null and void. The investor is not permitted to stipulate conditions about his principal other than the conditions on which Qirad is based.

4 Implementation of Muamalaat

4.1 Gradual Transition

4.1.1 The transition from Riba to Muamalaat must be gradual. The gradual diminishing of the Riba activities must be replaced by an equivalent development of Muamalaat. The objective must be to maintain order in society and to preserve wealth.

4.1.2 A first approach in understanding the task of this transition is to understand the evolution of the real economy in relation to the financial economy in the last few decades. Financial Times defines real economy as: The part of the economy that is concerned with actually producing goods and services, as opposed to the part of the economy that is concerned with buying and selling on the financial markets.

4.2 Real Economy vs Speculative Economy

4.2.1 The real economy represents the economy of real people with real money and real products and services. This economy has been in decline. Instead of promoting the real economy governments around the world have attempted to replace the real economy of value produced with a financial model based on credit growth and speculation. They have failed, and their constructs are imploding before our eyes. A slow-growth real economy has been replaced with a credit-based speculative financial economy dependent on low interest rates and systemic fraud to survive. It is now imploding on a global scale.

4.2.2 The chief contradiction of our present growth model is a shortage of profitable investment outlets within production—a problem endemic to the mature, monopolistic economy. Investment-seeking surplus that is unable to find sufficient profitable investment outlets translates into losses in the (real) economy as a whole and hence a slowdown of growth. Corporations and capitalists seek to hold onto and increase their money capital in these circumstances by shifting the surplus at their disposal into speculation in asset prices. The result is a dramatic expansion of FIRE (finance, insurance, and real estate) and the entire financial superstructure of the capitalist economy. The plethora of money capital entering finance creates added opportunities for speculative growth, which banks and other financial institutions accommodate through new financial innovations (today taking the form of such exotic instruments as collateralized debt obligations, credit default swaps, structured investment vehicles, etc.). Various “wealth effects” (whereby increases in asset prices translate into increased consumption and investment) partially compensate for stagnation and temporarily stimulate the real economy, without, however, materially altering the underlying conditions.

4.2.3 Insofar as the financial system is growing not by servicing production, but through a process of money simply begetting more money (which is in essence riba), without the intervening production of commodities, this takes the form of a financial bubble, or an unsustainable explosion of credit/debt. This means that the speculative process depends for its very continuation on the piling up of greater and greater amounts of debt, and in order to do this, it needs to have constant cash infusions from the real economy to provide additional capital that can be “leveraged up.” In the nineteeth century in France, Crédit Mobilier, the prototype of today’s giant banks was leveraging at a rate of 10:1 (debt to capital ratio). In the most recent financial bubble, major banks often leverage at a rate of 30:1; Japanese banks have been leveraging for the last four decades at a rate of 50:1. Financial profits in these circumstances expand rapidly. Non-financial corporations too come to rely more on debt leveraging and create their own financial subsidiaries to take advantage of the bubble. But insofar as the underlying system remains stagnant, the bubble eventually bursts—typically after a speculative mania in which the rapid rise in quantity of debt leads to a marked decline in its quality. The result is a return to the underlying crisis conditions and real world repercussions.

4.2.4 Right now we are being told that the system has once again found its footing—that finance and even production are recovering. But since the stagnation-financialization trap remains operative, we have no doubt that what we are seeing right now is merely a brief pause—if that—in the developing structural crisis of global monopoly-finance capital. The problems of the system are only getting bigger.

4.2.5 The Forex Speculation Madness

4.2.6 In 1975, about 80 percent of foreign exchange transactions (where one national currency is exchanged for another) were to conduct business in the real economy. The remaining 20 percent of transactions in 1975 were speculative, which means that the sole purpose was an expected profit from buying and selling currencies themselves, based on their changing values. Today, the real economy in foreign exchange transactions is down to 1 percent and 99 percent is now speculative. The real economy has become just a small percentage of total financial currency activity.

4.2.7 It is estimated that close on $5 trillion in currencies being traded each day. This is equivalent to the entire annual gross domestic product (GDP) volume of the United States being turned over via currency trading every two days. There are three cumulative causes for this explosive increase in currency speculation.

4.2.7.1 Systematic redefinition. The first important act was former President Richard Nixon’s unleashing of the dollar standard in 1973. “Floating” the dollar allowed currency values to be determined by traders in currency exchange markets. Currencies from countries with strong economies and sound monetary and fiscal policies were given more value than currencies from weak countries.

4.2.7.2 Legal deregulation. In the 1980’s both Ronald Reagan and Margaret Thatcher introduced deregulation strategies. The Baker Plan, implemented by the World Bank and the International Monetary Fund (IMF), applied those changes to a dozen key Third World countries. This created a lot more leeway for movement of capital internationally, and for corporations that previously would not have participated in speculation.

4.2.7.3 Technology. The structural, deep-lying phenomenon behind the whole system, is the technological shift: the electronification of money and the computerization of market systems.

4.2.8 Economic textbooks say that corporations and individuals compete for markets and resources. This is not true. Corporations and individuals compete for money, by using markets and resources.

4.2.9 The opening of the stets which led to “floating exchanges,” also created a new asset class. Traditional asset classes are real estate, bonds, stocks, and commodities. Today we also have currencies. This means that money, the medium of exchange, has itself become an asset to be played into investment portfolios. This shift has different implications for businesses, depending on whether you’re an investor or a “real” business.

4.2.10 From an investors viewpoint, this new asset class–currencies–has some significant advantages over the old ones.

  • Extraordinarily low transaction costs. Placing a few billion dollars in foreign exchange costs very little, as much as ten or twenty times cheaper than a stock transaction.
  • Twenty-four hour market environment; one can actually play around the clock.
  • The foreign currency market is the largest and deepest market around by a long shot. If you have a few billion dollars to place, bringing them to the stock market is going to move the stock’s value and tip-off other traders as to what you are doing. this is true in most bond markets (except for the US and some European markets because of their large size). In foreign exchange, even five or ten billion won’t make a blip.

4.2.11 So if you have a substantial amount of money to move around, this is the place to do it. You can get in and out without affecting the market. Because of these three advantages, the act of lending money to people (to buy houses, cars, expand businesses, or whatever) is no longer the best way to make money. The foreign currency market is the place to do it.

4.2.12 Banks are no longer the big players in terms of supplying credit. In the last twenty five years, banks as a source of financing in America, have dropped from 75 percent of the total supply of credit to less than 10 percent. For the major international banks, like Chase Manhattan, Citicorp, Bank of America, Barclays or Sumimoto, currency trading typically accounts for at least 20 percent of total earnings. In a good year, it will be more than 50 percent.

4.2.13 In considering the viewpoint of so-called real business (those that make cars, mine, produce electronics etc.), the “foreign exchange risk” has by far become the largest risk in international business today, often larger than political or market risk. For example, if a German chemical company invests in a plant in India, it makes the investment in deutschmarks. The chemical products sold locally from the plant are paid in rupees, India’s currency. If the value of the rupee then drops in terms of the deutschmark, the return on the original investment will drop as well. In short, the biggest risk of such investment is not whether Indians will buy the chemicals (market risk), but the changes in the values of the currencies involved (foreign exchange risk).

4.2.14 Corporations have followed two major strategies to deal with this risk:

4.2.15 The first strategy is the reorganization of the corporate conglomerate. Production and marketing sectors are decentralizing because the risk doesn’t lie there, and because adaptation to local circumstances can best be handled on a local level. This also leads to the dispersal of production facilities to other countries. But while marketing and production are decentralizing, the corporation’s financial and treasury functions are being centralized. Twenty or thirty years ago, when an American company had a big plant in Germany, the plant would handle its own finances. Not any more. Now this is all done centrally at corporate headquarters.

4.2.16 The second strategy that large corporations pursue is an adjustment of their executive officers. In the 1940’s and 1950’s, anybody who could manufacture any product could sell it. So a manager with a background in production or engineering would typically become the CEO. In the 1960s and 1970s, that shifted. Suddenly marketing was the key background necessary for people at the top. However in the 1980s and 1990s, finance specialists are in charge. They are the ones who call the shots. That shift in career paths has also changed the corporations outlook, and is a reaction to the new risk that we are talking about.

4.2.16.1 Two interesting revealing facts:

  • Who is largest private financial institution in the US today? It is General Electric (GE). The largest profit sector in GE is not defence, not light bulbs, not power stations. It’s GE’s treasury department, because of its many financial transactions.
  • Who is taking the largest foreign exchange risk? It’s everybody who holds only one currency. That is most people. Anyone who owns their own house, which sits in one currency and who has their savings and income in the same currency, is at the greatest risk. By holding only one currency, they risk all their assets being devalued in the event of their currency crashing. In a world of floating exchanges, not being diversified in currencies is like having a stock portfolio with only one stock.

4.2.16.2 The first consequence of this state of affairs is that national governments are in the process of losing power. The nation-state is the one entity that cannot manage in this new climate. It has no way to gain power against global capital and information technology.

4.2.16.3 Currency traders are effectively “policing” governments by selling off a nation’s currency when they are dissatisfied with the government’s policies. If enough traders act together, the value of a currency can plummet, creating a “currency crisis”. These suddenly large sell-offs are viewed by governments as “attacks” on the value of their currencies.

4.2.16.4 Currency devaluation can happen in a very short time, days or even hours, because of the new global communications system. There are no negotiations, there’s no talking, there’s nobody sitting around a table saying “This is what we are going to do”, or “How about renegotiating this part?” That’s not the way it happens. You just suddenly end up with a crisis in a particular country’s currency. Such was the case with the collapse of the British pound sterling in 1991, the Scandinavian currencies in 1992 and 1993, and Mexico in 1994.

4.2.16.5 Central banks can often intervene when a currency is under attack by either buying or selling to counter speculators. But the volumes of money now being traded are so vast that even central banks may not have an impact. All the reserves of all the central banks together amount to 5 trillion USD, so all their reserves could be depleted in a normal trading day.

4.2.16.6 This points directly to a second consequence: a growing interest in market instability because that is where one finds the opportunity for windfall profits. Big fluctuations in the values of currencies allow for big profits to be made by trading them. Consider the following statements by leaders at opposite ends of the spectrum.

“The biggest concern today is the growing constituency for instability” — Paul Volker, ex-governor of the Federal Reserve, in Changing Fortunes.

“Instability is cumulative, so the breakdown of freely floating exchanges is ensured” — George Soros, the largest currency speculator today, in The Alchemy of Finance.

4.2.16.7 They both agree that there are many people now who have an interest in profiting from instability; previously they had an interest in stability. If you have an unstable system, it is just a question of when will it fly off the handle. It will blow apart at the moment when the US dollar experiences a crisis. When the dollar crisis occurs, the world will have no system left.

4.2.16.8 The only precedent I know is the collapse of the Roman monetary system. In the 1920 crash, the monetary system held. We had all kinds of other problems–unemployment, stock market crashes, currency inflation in Germany–but there was a gold standard which held. Today, we have no gold standard to fall back on. So there is no precedent for a collapse of this nature. And this would be a truly global phenomenon. All currencies in the world are based on the dollar. So if you have a crisis on the dollar, you pull out the base and….boom.

4.2.17 The third consequence is something with which we are very familiar. As a great portion of the national currencies–about $5 trillion per day–is being turned around in the financial cyber-economy, there is just no satisfactory medium of exchange available to people at the bottom. National currencies are not widely available to the poorer parts of the population. The age of labour as a key component of production is gone. If you don’t have a job, you don’t have “money” (i.e. national currency).

4.2.18 Even despite the fact that structural unemployment is increasing, the economy can continue to “grow” very well. Technology will shift us still further in that direction.

4.2.19 What is beginning to happen in the Muslim word is a new phenomenon: the return to the Gold Dinar –the Shariah coin used in Madina and now being used by millions of individual Muslims. We haven’t seen since the Fall of the Khalifate such a vigorous interest in our currency. The reason is the increasing number of people who believe that their national currencies are no longer a means of securing their wealth. Forex has become such an issue among traders that the prospect of a universal currency has now gained interest once more. As a result more and more people throughout the Muslim world are trying to purchase Dinar and Dirham and also they are minting their own. The natural evolution of this is the return to the Gold Dinar as the currency of the Muslim Nation. This is just only a matter of time which it will surely be accelerated with the imminent collapse of the US dollar.

4.3 The idea of Transition to an Islamic Real Economy

4.3.1 The idea of Real Economy in Islam is an economy of trading which essence of mutual consent. Trading seen as a model includes all the aspects of the economy. This model opposes both monopoly formation, by virtue of mutual consent contemplated in our regulations, and riba. When we read: “Allah has permitted trade and forbidden riba”, we read the placing of the solution before the problem. Our affair is to expand this title into a comprehensive understanding of trading as in our classical literature.

4.3.2 The idea of transition is based on how to gradually replace the speculative economy with the real economy, which is like saying, riba with trading.

4.3.3 The transition must be gradual is the result of understanding that we are dependent on the speculative economy. We are dependent on banks, insurance, paper money, stock exchange, etc.

4.3.4 But transition should not mean in any sense a compromise from our objective, which is the restoration of Muamalaat in its full development. The use of adjectives such as “Islamic” or “Shariah compliant” should be reserved to those instruments and institutions that they have fully subscribed to the model. By fully we mean that they do not represent a partial application of the Shariah but they are fully built from within. Any contract that is no fully part of Muamalaat should be deemed as non-Islamic or non-complaint until it is part of Muamalaat in its entirety. We denounce the use of false justifications as “it is nearly halal” or “it is not too haram” or “it is less haram”.

4.3.5 Under this understanding a bank can only be called Haram Bank. And paper currency should be called Haram money. These two institutions do not have any space inside Muamalaat. They should be replaced by the appropriate institutions in Muamalaat.

4.3.6 Banks should be replaced by Wadi’ahs, which are safekeeping institutions which do not lend money neither do they borrow money. Wadi’ahs could provide money accounts and with adequate legal contracts they can become the basis to introduce electronic payment systems.

4.3.7 Paper money should be replaced by Dinar and Dirham. These coins should be minted by the authorities and be freely traded by the people without any imposition upon them. The Muslim government does not have authority to impose the medium of exchange even if the currency is the Dinar and Dirham.

4.3.8 Naturally banks cannot disappear overnight. Wadiahs and real money must first grow within society and gradually replace banks.

4.3.9 The Nationalisation of Banks

4.3.10 A first step towards the elimination of banking should be first their nationalization followed by the gradual consolidation into a single Haram Bank of Pakistan that will handle all Haram practices.

4.3.11 A Changed Discourse in the West. In September 2012, the British Trade Union Congress (TUC), at it’s annual meeting of delegates from the whole trade union movement, passed Resolution 27. For the first time in its history the TUC voted a resolution which called for the full public ownership of the banks and financial institutions. Motion B14 stated that “the capitalist system caused the crisis” and that “banks and finance houses are not fit for purpose and should be taken into public ownership under democratic control.”

4.3.12 “It’s time to take over the banks”. The TUC Congress Resolution 27 was moved by the General Secretary of the Fire Brigades Union (FBU), Matt Wrack. The FBU produced a pamphlet entitled “It’s time to take over the Banks”. The pamphlet exposed the rottenness of the banking and finance sector and justified the need for public ownership. The introduction, written by Mr Wrack, sets the tone. Working people everywhere are facing “horrific attacks on living standards” and these attacks are supported by governments, employers and international bodies such as the IMF, ECB and the World Bank. The policies of austerity have been held up as the solution to the crisis but they have failed. We need to set a different agenda.

4.3.13 In 2009 the US government announced that may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit. In an interview the same year, Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers. ”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”

4.3.14 Within the single decade 1935-1945 the legal position of the French banking shifted from extreme laissez faire to complete government ownership of the four largest commercial banks, with widespread controls over all other banks.

4.3.15 Within the single decade 1935-1945 the legal position of the French banking shifted from extreme laissez faire to complete government ownership of the four largest commercial banks, with widespread controls over all other banks.

4.3.16 During 1991 and 1992, a housing bubble in Sweden deflated, resulting in a severe credit crunch and widespread bank insolvency. In response, the government took the largest nationalization of banks in the West with the following actions:

  • The government announced the state would guarantee all bank deposits and creditors of the nation’s 114 banks.
  • Sweden’s government assumed bad bank debts, but banks had to write down losses and issue an ownership interest (common stock) to the government. Shareholders at the remaining large banks were diluted by private recapitalizations (meaning that they sold equity to new investors). Bondholders at all banks were protected.
  • Nordbanken and Götabanken were granted financial support and nationalized at a cost of 64 billion kronor. The firms’ bad debts were transferred to the asset-management companies Securum and Retriva which sold off the assets, mainly real estate, that the banks held as collateral for these debts.
  • When distressed assets were later sold, the proceeds flowed to the state, and the government was able to recoup more money later by selling its shares in the nationalized banks in public offerings.
  • Sweden formed the Bank Support Authority to supervise institutions that needed recapitalization.

4.3.17 Our philosophy of nationalization of the banking industry. Muslims have a command to eradicate riba. Nationalizing banks does not to eradicate riba, but it is an intermediary towards their elimination and therefore to eradicate riba. We believe that banks have benefited unfairly from fractional reserve banking. An examination of the relation between Money Supply 1 (MS1) and Money Supply 3 (MS3) shows that in most developed economies more than 95% of the currency in circulation originates not from the State bills and coins (MS1) but from bank deposits. It is not acceptable that private institution can benefit from lending money they do not have and originates from credit which draws its value from people (people pay the credit by losing part of the value of the currency they possess). Only people can benefit from money that originates from people. We belief that banks can only operate in the hands of society, regardless of the fact that usury makes them ultimately illegal. Thus our argument for nationalization.

4.3.18 Consolidation of all Banks into a Single State Bank

The principle behind this is to facilitate and coordinate the gradual disappearance of its lending abilities and to promote during the transition period with lending towards the establishment of social trading infrastructure in particular three areas: building public markets; establishing caravan infrastructure and constructing manufacturing facilities for guilds.

4.4 Introduction of Dinar and Dirhams

4.4.1 Six Steps to Introduce the coins:

  1. Minting the coins under global standards at proportional value relative to their weight and the market price of gold and silver material.
  2. Distribution and sale of the coins at common and publically advertised retail prices.
  3. Creation of a network of shops which accepts the coins and digital payment systems linked to a global network.
  4. Introduction of Wadiahs which hold accounts in Dinar and Dirham for any individual who wishes to.
  5. Creation of payment systems based on physical Dinar and Dirham accounts linked to debit cards and 100% backed by the coins.
  6. Establishment of other online and mobile payment systems linked to the accounts.

4.4.2 Payment of zakat using Dinar and Dirham

The ultimate purpose of the introduction of the Dinar and Dirham must be the payment of zakat according to the way of Madina. Zakat must be paid in ‘ayn and not in dayn.

4.4.3 World Islamic Mint

4.4.4 Created in 1993, it is the institution that maintains, promotes and enhances the global standard of the Shariah coins. Since then, around a dozen projects of minting have started stretching from South Africa to Malaysia and the USA. All the coins follow the same standards and they are mutually exchanged without a fee. In 1997 the first digital payment system based on the gold Dinar was induced by WIM called e-dinar based in United Arab Emirates. Today more than 5 million people can trade with each other using gold digital currencies.

4.4.5 In their website. WIM defines What is the World Islamic MInt?

WIM verifies compliance with legal standards in accordance with Islamic law during the manufacture of coins and medallions. Correctly manufactured products receive a corresponding licence from the WIM.

We continually monitor the minting activity of all Islamic Mint Offices that mint the coins on a local basis. The dies of all the Islamic Mints maintain a certain standard incorporating key characteristics that allow people to recognise the coins.

WIM supports scientific research of the monetary system in general and the manufacturing process of coins and medallions according to Islamic law.

WIM examines the legal requirements and standards for the distribution of coins in the whole world. In addition we support the activities of lawyers regarding the introduction of these products as legal tender

4.4.6 WIM Standards

The standards of the coins refer to the denominations accepted in the shops and their weights, alloy composition and diameter.

Here it follows the Dinar and Dirham Standards of 2010:

Dinar Standards

Dinar Standards

Dirham standards

Dirham Standards

WIM examines the legal requirements and standards for the distribution of coins in the whole world. In addition we support the activities of lawyers regarding the introduction of these products as legal tender

4.4.7 The Gold Dinar Network

4.4.7.1 The currency is created not only by the availability of coins but most important by the existence of a community of users. The development of such network is foundational to the success of the Shariah currency.

4.4.7.2 Over 20,000 shops accept dinar and dirham, predominantly in South East Asia are already in operation. The shops are trained to recognize the coins and their security features and they are rewarded with a WIM sticker that identifies the shops that accept Dinar and Dirham.

4.4.7.3 The system has been recently extended into a global directory which is now in a single data base in http://www.dinarshops.com.

4.4.7.4 The sticker.

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4.4.8 WIM launched e-dinar in 1997 as the first digital payment system based on the gold Dinar. The system allows making payments in Dinar and Dirham units. It operates in Dubai under the website: http://www.e-dinar.com

4.4.8.1 What is e-dinar?

e-dinar is the name of an internet based electronic payment and exchange system that facilitates online transactions 100% backed by physical gold and silver.

The physical gold and silver bullion backing e-dinar and e-dirham units are always equivalent or larger than all electronic e-dinar and e-dirham in circulation. The physical gold and silver bullion is held securely in internationally renowned bullion repositories.

Account holders always have the option to exchange their gold and silver into any major national currency or redeem them and take physical possession of an equivalent amount of gold dinar and silver dirham.

4.4.8.2 Characteristics

  • Halal exchange and payment system
  • 100% physical gold and silver backing of all e-dinar/e-dirham in circulation
  • Universal currency – no inflation or exchange losses
  • Free account creation in real-time
  • Spend fee is 1% of transaction amount but max. 0.015 e-dinar (for e-dinar transactions) / max. 0.5 e-dirham (for e-dirham transactions)
  • Instant payments (no delays) – occur in real-time – are private (encrypted transactions) – no bank as intermediary
  • Although there are many benefits of using e-dinar, perhaps the most important benefit is that you can be rest assured your assets and transactions are as solid and secure as gold.
  • e-dinar provides instant settlement. This means that in the split second it takes to complete a transaction, cleared funds are transferred from the payers account into the payees account.
  • Because e-dinar transactions are instantaneous and can only take place with cleared funds (there is no credit anywhere in the system), the payee can make immediate use of these funds.
  • e-dinar is the most flexible and secure way to make and receive payments for goods or services over the internet.
  • e-dinar transactions are executed directly between the two parties involved without requiring third-party intermediaries.

4.4.9 The Gold Dinar in Malaysia

4.4.10 The Asian monetary crisis of 1997 marked another phase in the gold dinar movement in Malaysia. It opened the opportunity to the then gold dinar activist to reach out to more people on their understanding of the banking and finance system and the ills of Western capitalism and also to raise again the issue of usury for public debate.

4.4.11 Since the third quarter of 1997 until the year 2001, many writings on the gold dinar and critique on Western capitalism were published mainly by the two major national language newspapers, Utusan Malaysia and Berita Harian. There were also writings on it published by magazines like Al-Islam and Massa.

4.4.12 During those years Shaykh Umar Vadillo provided documentation to the then Prime Minister of Malaysia, Dato’ Seri Dr. Mahathir Mohamad through books, papers and gold dinar coins, given to him as gifts. One important document was the White Paper on the Gold Economy prepared by Shaykh Umar Vadillo.

4.4.13 After a visit to Dr. Mahathir by Shaykh Umar Vadillo, the Prime Minister proposed that the gold dinar be the alternative currency for international trade and national reserve, especially with Muslim countries and those countries of where Malaysia had already Bilateral Payment Arrangements (BPA), many were caught by surprise but for the dinar activist, it was exciting times.

4.4.14 The proposal by Dr. Mahathir marked the recognition of the gold dinar being an alternative currency but there was yet acceptance by the banking and finance fraternity and the public at large.

4.4.15 Of the two Malay Muslim political parties, members of the Islamic Party of Malaysia (Pas) had showed more interest in the gold dinar and silver dirham and had given it much support in comparison to members of UMNO even though the ruling party’s president was the Prime Minister at that time.

4.4.16 Lead by its youth wing, during its annual general meeting, held in Kuala Krai, Kelantan on Mei 3, 1998, the wing publicly supported the gold dinar and at the AGM made a sale of RM8,000.00 worth of gold dinars. It also introduced the gold dinar to the Kelantan people at a mass gathering later that day.26

4.4.17 This commitment was cemented on the 20th of September 2006 when the Kelantan Chief Minister, Nik Aziz Nik Mat launched Dinar Emas Kelantan (DEK), the state’s own gold dinar. Although the gold coin had its own designs but its weight, measure and purity were according to the Standard of Umar al-Khattab.

4.4.18 DEK is now being marketed by Permodalan Kelantan Berhad (PKB) through the Ar-Rahnu chain of pawn shops to enable the public to buy and sell the gold coin which is being promoted presently as savings, as dowry (mahar or mas kahwin), as a gift and also as a medium to pay zakat.

4.4.19 In 2007, PKB and Marslio International jointly organised an international seminar on the gold dinar and at this particular event, one of the speakers, Dr. Aziuddin Ahmad introduced and made popular the term dinarist to describe the many dinar activists present.

4.4.20 The Dinar in Kelantan

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4.4.21 In 2008 the Government of Kelantan in Malaysia decided to introduce the Dinar and Dirham as a means of payment in the whole State and offer all State workers to pay up to 25% of their salaries using Dinar and Dirham. To this effect the company Kelantan Golden Trade was created and Shaykh Umar Vadillo became the CEO of the company. The ultimate objective was to pay zakat according to the Sunna in ‘ayn. This objective was achieved and 2009 the first payment of zakat using Dinar and Dirham was officiated in the capital Kota Bharu by the Chief Minister of Kelantan. In 2012 the company started to sell coins in Thailand, Philippines and Indonesia, thus starting their international sales.

4.5 The Core Mechanism and the Islamic Trade Bloc

4.5.1 The idea of a core mechanism is to identify the minimum infrastructure that would allow a full sustainability of the model and trigger further development of all the other elements of Muamalaat.

4.5.2 There are three elements that we consider obligatory in order for the model to sustain itself: Money, Markets and Qirad.

4.5.3 Once these three elements are in place an Islamic Trade Bloc can be called for. A single bimetallic currency with Open Market places connected by caravans and financed by qirad will become the foundation of an Islamic Trade Bloc: the first real step towards the return of the Khalifate.

the core mechanismThe Core Mechanism of the Islamic Trading Bloc

ANSWERS

by Shaykh Umar Ibrahim Vadillo

 

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1. You are connecting political colonization to economic colonization: could you please explain how the fall of the Islamic Khalifate had a huge economic impact?

 

When the colonial powers granted independence to the new Muslim States they left a gift behind: the constitutions. Every constitution guaranteed the preservation of capitalism through the Central Banks, the National Debt and the Law of legal tender. This model ensured the hegemony of the West by means of their financial supremacy. This could have never been possible without the tacit support of the modernist Islamic groups who altered the definition of Riba and diminished the gravity of its prohibition; they turned an ultra-liberal approach to Riba and in some cases the attempt was purely criminal through the Islamization of capitalism, while they obsessively focused their puritan fervour on the personal morality which centred around women, and their dress code in particular.

 

2. One of the consequences of the colonization is the worldwide coercive secularization: how the influence of the Constitutions placed above the Divine Law can have an economic impact?

 

All the groups in the late part of the XIX century opposed the Khalifate were constitutionalists. From an historical perspective constitutionalism was anti-Khalifate and anti-Islam. Modernist groups subscribed the idea up until today. How do you recognize a modernist? Every alim and Islamic group who explicitly or tacitly does not want to eliminate the constitutions. The ones who do not recognize the constitutions as being haram; are the same who do not say the Central Banks are haram, National Debt is haram or fiat money is haram. This omission of the modernists explains the state of our affairs.

 

The constitutions of course they are secular. That means the State and religion are separated. In the West it means the State does not support religion; in the Muslims lands that are dominated by modernist ideology means that Islam is deprived of its political and economic morality. That is to say, the elimination of Muamalat as a legal code and as a model. What is implied is that Islam does not have an economic and political model. Instead the attempt was to Islamise democracy and capitalism. A good example to understand this is to read the constitution of Pakistan.

 

I do not want to forget that Constitutions have installed the power to governments to tax other than Zakat.in Islam there is no tax other than Zakat. And today under the new constitutionalist models Zakat has been eliminated, transformed into welfare charity and given to wrongful recipients.

 

3. You are saying that our world is shaped by Riba: how is this a system that enslaves humans and a system of exploitation of the world’s assets.

 

Riba is haram. Capitalism is the religion of Riba. Capitalism is founded in Riba and has embodied Riba with a logical and technical rationale. The whole world is ruled by capitalism; therefore the world is shaped by Riba. Riba affects everything, what you buy and sell and how you buy and sell. Riba destroys people and societies. Riba is an instrument of theft on two accounts: 1] at a national level with the capitalist economic system installed in the constitutions; 2] at an international level by the outrageous robbery of the US dollar.

 

At a national level, banks create credit out of nothing which they lend at interest, thus they increase the money supply that originates inflation; the citizens unaware of what is right or wrong assume that inflation is natural although they are subsidizing the loans that create the capital accumulation of modern corporations. People are being robbed and the money is concentrated in the hands of a few wealthy beneficiaries.

 

At an international level the USA gives pieces of paper that they can create at will in exchange for the material wealth of the rest of the world. When they want more they print more. You do not need to be very intelligent to understand who wins and who loses.

 

4. Could Muamalat alone represent a model in Islam?

 

Ibadat represents the relation between mankind and Allah. Muamalat is the relationship between people. Is that a model? Of course, to deny it is to pretend that we did not have any model for the last fourteen hundred years of Khalifate history. The colonialist kuffar made us believe that they were civilizing us, the European modernization theorists called “civilisatory mission” or “mission civilisatrice” which declared that traditional customs had to be destroyed; traditional societies had to adapt or to disappear. Their Islamic modernist subservient counterparts adopted the same approach which was later used very effectively to create the thesis of Islamic modernism or revival.

 

It is very important to understand this point if we are to understand the role of Islamic modernist groups enforcing the larger masses of Muslims to accept the constitutions and paper money (necessary to banking).

 

5. How Gold Dinar and Silver Dirham represent the authentic Islamic currency? Why it makes paper money Riba?

 

The Dinar and the Dirham are known as the Shariah coins. We do not have a concept of official money in Islam, because Islam defends FREEDOM of choice. Allah says in the Qur’an : Trade with mutual consent. Money is part of trading, therefore it cannot be imposed. The Amir cannot force the Muslims to accept Dinar and Dirham. He does not have that authority. To do it will be un-Islamic.In the past Muslim societies have used other commodities as means of payment, such as salt, grains, cereals, dates, etc. If the Muslims for example today chose platinum from the legal perspective of Islam it is totally permissible.

 

The Dinar and the Dirham are mentioned in Qur’an and they have been our currency until the fall of the Khalifate. Qadi Abu Bakr ibn al-Arabi in his Ahkamul-Qur’an says that it is obligatory for the Sultan to mint the Dinar and Dirham. Dinar and Dirham must be available, but there is no compulsion to use them. We are free to choose the medium of exchange under Islamic Law.
Paper money is worthless without the legal compulsion of the State. It is also credit which originates from usurious debt. Most people have never thought of this. We must thank the modernist organisations for this.

 

6. Why Zakat should be paid in Gold Dinar? Do not you think that it will shake the habits of the Muslim people.

 

Zakat must be paid in ‘ayn. Zakat cannot be paid in dayn. ‘Ayn is tangible merchandise. Dayn is any debt or liability or promissory note. Dinar and dirham are ‘ayn. But you can also pay zakat with rice if you wish.

 

You cannot pay zakat with paper money. If paper money is a debt, then you cannot pay zakat with dayn. But paper money is not even a debt. If you go with a bill of 5,000 rupees to the State Bank of Pakistan which promises in the note to pay 5,000 rupees what will happen? Will they pay you 5,000 rupees (a rupees is a silver coin)? Of course not.
The Euro is even worse. They do not promise to pay anything. They just have numbers. They already know that the masses are so dumb they will not notice the difference.

 

So, no. You cannot pay zakat with Euros or paper money.

 

It is interesting to read the fatwa of Shaykh Muhammad ‘Illish, (1802-1882) the ‘alim from Moroccan origin and Shaykh of the Maliki Madhab in Al-Azhar (who incidentally fought against Al-Afghani and his modernist mantra of replacing taqlid with ijtihad) on this matter. He was asked whether it is permissible to pay zakat with paper currency and he said, yes, you can but only for the value of the paper (the ‘ayn of paper money), not what is written in it. Shaykh ‘Illish was not a modernist.

 

Al-Afghani was the father of modernism. He explicitly held up the Protestant reformers as examples to follow, arguing that reinterpretation of scriptures was necessary and this led to the whole notion of critical spirit of inquiry that had triggered the scientific and industrial revolutions. Al-Afghani, ‘Abduh, and others called for renewed ijtihad, or the use of independent reasoning in interpreting scriptures. As this idea passed into popular culture, other modernist Muslims began to understand ijtihad as something every individual should do. Thus this “Islamic reformation” had social effects that were similar to those of the Protestant Reformation: a textual criticism of scriptures, reinterpretation for contemporary social circumstances, and multiple and differing interpretations of scripture.

 

The Introduction of payment of zakat using Dinar and Dirham will simply eliminate paper money. This is because paper money cannot compete with gold and silver. Without paper money the banks will disappear and the Central Bank too. Finally the constitution will have to disappear. Yes, the restoration of zakat will change the habit of the Muslims for good.

 

7. What definition gives Islam to Commerce? How it differentiates with the definition given by capitalism?

 

Allah says in the Qur’an: Allah has permitted trade and forbidden riba. Capitalism allows a definition of trading in which riba is part of it. Therefore we differ in how we understand trade. Trading for us excludes riba. Trading also is regulated by Shariah. The full set of regulations about trading is part of Muamalat.

 

Other matters in which we are more clearly different than capitalism in regard to trading is the question of money and the markets. For us markets are public institution and cannot be privatised. Just like a mosque cannot be privatised. We do not have Carrefour in Islam, we have open markets. Our markets are open to all and we consider a right to trade of people to be able to trade in a level playing field.

 

This discussion is very important and brings about the role of the wakfs as a fundamental element is levelling the playing field, that is, to guarantee fairness in trading. The opposite of monopoly is not non-monopoly, but actively working to guarantee fairness and equal opportunities.

 

Associated to the idea of trading is the concept of the caravans and the guilds. They are both part of all pre-capitalist societies, including of course Islamic societies.

 

8. What is the Islamic Market?

 

Markets in Madina were public institutions (awqaf). The Islamic cities were, above all, a market-city. The importance of the Suq in the formation and development of the Muslim city cannot be underestimated. Muslim cities were founded on the combination of a Great Market and a Great Mosque. This combination was the heart of every city. Ottoman developers called this combination the Imaret. The Imaret is the distinctive feature of every Islamic city.

 

Soon after his arrival in Madina al-Munawwarah, the Prophet of Islam, salla’llahu ‘alaihi wa sallam, created two institutions, a mosque and a market. He made clear by his statements and explicit injunctions that the marketplace was to be a space freely accessible to everybody, with no divisions (such as shops) and where no taxes, levies or rents could be charged.

 

The Market is like a Mosque: …

The Messenger of Allah, salla’llahu ‘alaihi wa sallam, said: “Markets should follow the same sunnah as the mosques: whoever gets his place first has a right to it until he gets up and goes back to his house or finishes his selling. (suq al-muslimin ka-musalla l-muslimin, man sabaqa ila shay’in fa-huwa lahu yawmahu hatta yada‘ahu.)”.
(Al-Hindi, Kanz al-’Ummal, V, 488, no. 2688)

it is a sadaqa, with no private ownership …

Ibrahim ibn al-Mundhir al Hizami relates from Abdallah ibn Ja’far, that Muhammad ibn Abdallah ibn Hasan said, “The Messenger of Allah, salla’llahu ‘alaihi wa sallam, gave the Muslims their markets as a charitable gift (tasaddaqa ‘ala l-muslimina bi-aswaqihim).”
(Ibn Shabba, K. Tarikh al-Madinah al-Munawwarah, 304)

with no rent charged …

Ibn Zabala relates that Khalid ibn Ilyas al-’Adawi said, “The letter of Umar ibn Abd al-Aziz was read out to us in Madinah, saying that the market was a sadaqa and that no rent (kira’) should be charged on anyone for it.”
(As-Samhudi, Wafa al-Wafa, 749)

with no taxes levied on it …

Ibrahim ibn al-Mundhir relates from Ishaq ibn Ja’far ibn Muhammad, from Abdallah ibn Ja’far ibn al-Miswar, from Shurayh ibn Abdallah ibn Abi Namir, that Ata’ ibn Yasar said, “When the Messenger of Allah, salla’llahu ‘alaihi wa sallam, wanted to set up a market in Madinah, he went to the market of Bani Qaynuqa’ and then came to the market of Madinah, stamped his foot on the ground and said, ‘This is your market. Do not let it be lessened (la yudayyaq), and do not let any tax (kharaj) be levied on it.’”
(Ibn Shabba, K. Tarikh al-Madinah al-Munawwarah, 304)
where no reservations or claims can be made …
Ibn Zabala relates from Hatim ibn Isma’il that Habib said that Umar ibn al-Khattab [once] passed by the Gate of Ma’mar in the market and [saw that] a jar had been placed by the gate and he ordered that it be taken away. … Umar forbade him to put any stones on the place or lay claim to it [in any way] (an yuhajjir ‘alayha aw yahuzaha).
(As-Samhudi, Wafa al-Wafa, 749)

and where no shops can be constructed.

Ibn Shabba relates from Salih ibn Kaysan …that …The Messenger of Allah, salla’llahu ‘alaihi wa sallam, …said: ‘This is your market. Do not build anything with stone (la tatahajjaru) [on it], and do not let any tax (kharaj) be levied on it’”
(As-Samhudi, Wafa al-Wafa, 747-8)
Abu r-Rijal relates from Isra’il, from Ziyad ibn Fayyad, from one of the shaykhs of Madinah that Umar ibn al Khattab, radiya’llahu ‘anhu, saw a shop (dukkan) which someone had newly put up in the market and he destroyed it.
(Ibn Shabba, K. Tarikh al-Madinah al-Munawwarah, 750)

 

9. Can you explain why the current Islamic banking activities are wrong? Do they jeopardize capitalism? What is the answer to the promoters of Islamic banking when you arise this topic to them?

 

Islamic Banking is a Trojan Horse in the land of Islam. From an Islamic perspective is as absurd as an Islamic brothel. It is the child of Islamic modernism. Islamic banking is haram. They think they are doing ijtihad, what they are doing is bringing capitalism to our lands.

 

The topic has been discussed in many other forums so I remit to them. I will only point out one issue in particular is the contract of murabaha. Murabaha is a sale in Islamic Law, it is not a financial agreement. In practice Islamic bankers have transformed murabaha into a forbidden practice known as “two sales in one” (read in Al-Muwatta). Without murabaha there will be no Islamic banking.

 

When you say this to Islamic bankers, you have two answers:

 

  1. the majority, who after you show them the model of Muamalat and the meaning of fractional reserve banking and fiat currency, say: “yes you are right Islamic banking is not perfect but we are moving in the right direction”. They admit their mistakes but defend their good intentions. This people can be helped and often they come back to the way of Muamalat.
  2. the hard line minority who are entrenched into Islamic banking. They are difficult to cure.

 

10. How concretely do you promote Islamic currency. How to use it in our daily trading. How to pay Zakat with it. How to create markets.

 

Follow us. We speak with our example. If you want to learn the practical side of the Dinar and Dirham use them. If you want to learn about Muamalat do it. You will learn by yourself. The return of the Dinar will trigger the return of Muamalat.

Bismillah irrahman irrahim

Sidi Muhammad Fadli asked me:
Dear Umar. Assalamualaikum w.b.t.

There is an argument about what is the valid specification of a dinar. Some said must use 24K, and some said 22K. Even there is a fatwa from Indonesia that claim the only valid standard is to use 24K gold. However, I found that the document that support the fatwa is highly support one-side point of view.

I will gladly to hear your opinion regarding this issue. Thank you. jazakallahu khairan jaza.

 

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

 

 

Dear Sidi Muhammad Fadli,

 

Wa alaikum salam wa rahmatullah.

 

Allah is the Light the Heavens and the Earth. He is the source of all wisdom. And Muhammad, sallalahu alayhi wa salaam, is His Messenger sent to us as a Mercy to mankind.

 

There is now 19 years since we started to mint the first Dinars in Granada (Al-Andalus). I have looked at this matter of the purity many times during these 19 years. I have personally consulted scholars and metallurgists and made several tries with 24k coins and tested them. My research was every time equally conclusive: ‘we cannot use 24k coins’.
Let me take you through the argument.

 

There are two matters to be considered: one is the ‘amal and another is the practicality (durability) of the coins. In the ‘amal we are in search of what was the original way of making the coins. The issue of durability is not obvious at first only when you use the coins it becomes of critical importance. Here is the issue: 22k coins have a average life span of 15 years, but 24k coins have a durability of just 3. This means that every 3 years we have to recall these coins. This is not only costly and impractical, but renders the whole idea of making coins nearly useless.

 

1. ‘AMAL

 

24k technology did not exist on the early days of Islam. The modern 999.9 was not discovered until the 1874 by Emil Wohlwill, the Wohlwill process. So, when we speak about pure gold as we understand it today, we have to realize that is something new and different to what was called pure gold in the early days. The most common metallurgic process at Roman Times to purify noble metals consisted on treating the ore at high temperatures under a carefully controlled operation in order to separate gold and silver from base metals that might be present in the ore. The noble metals do not easily oxidize while the base metals do. The problem was to separate gold from silver. They used techniques such as ‘salt cementation’ to further separate gold from silver with different degrees of success depending on the mint. Therefore the quality of the coin depended on two major factors: the quality of the original ore and their own technical capabilities. The original Dinars that have been found through archaeological work are between 20k to 23k.

 

This is most likely to be the processes that were used at the time of the first Dinars and Dirhams minted by the Khalif Abdalmalik and throughout the entire Umayyad Period. There is no doubt that their INTENTION was to create a ‘pure gold’ coin but they COULD NOT as we understand it today. Ironically their unintentional impurities gave the coins durability. This leads to our second issue.

 

2. DURABILITY

 

24k is so soft that you can bend a dinar into a fusilli (pasta) with the pressure of your hands. If it falls to a solid floor it will dent badly. If you keep it in your pocket with other (harder) coins for a period of time it will erase the features, markings, edges, etc. All these will happen with a consequent loss of weight. What is the amount of weight loss a coin can bear before is no longer a dinar (weight)? WIM says 1%, that is, when the weight of a dinar falls below 4.20gr is no longer a dinar. At that point, according to WIM, that coin must be recalled and re-minted. This is the responsible thing to do.

 

A bit of metallurgic knowledge. When you add 10% silver to a 24k gold coin you double its strength. When you add 10% copper you increase its strength 20 times. A mixture of 50/50 of silver and copper in a 917 coin gives the coin more than 5 times its original strength.

 

MY JUDGMENT

 

24k coins did not exist in Madina. 24k coins are good to be placed in a vault or a safe deposit box, but not for circulation. A responsible mint is not only responsible for selling coins and ‘that’s it’, but it MUST TAKE responsibility over the life span of the coin. 24k is easier to mint than 22k, so it is normal than some irresponsible people will take advantage of this and do marketing of their 24K coins pretending they have a “better” coin.
24k coins are not better coins, ACTUALLY they are worse coins. In the fiqh of Imam Malik we hear about ‘unpopular coins’ (makruha). Makruha means ‘that people did not want’. This is not a statement on purity, but a statement on acceptance by the people. People choose according to what they find more reliable.

 

“Malik said that it was not good when counterpoising to give good old coins and put along with them unminted gold in exchange for worn Kuffic gold*, which were unpopular (‘makruha’ which people do not like), and to then treat the exchange as like for like.”

 

*The kufias (gold of Kufa) were broken or worn coins with less weight than what they supposed to be and they were unpopular.

 

What is important about this is that Imam Malik in accepting that there cannot be ‘like for like’ considers that non popular coins are no longer ‘standard’ dinar. This is critical to understand our argument.

 

Some people think the answer to this problem of durability and acceptance is to make a coin with adequate gold weight (4.25 gr or mithqal) and then add some strengthening material, therefore the coin will weigh 4.5 or something similar. This is not possible. A Dinar is a measure of weight equal to 1 mithqal. You cannot increase the weight of the dinar to keep the 4.25gr of 24k gold. This will be wrong. The weight cannot be altered.
There is no opinion until here.

 

Now, my personal ijtihad and therefore MY OPINION on this matter is:

 

‘to make the Dinar of gold material as pure as possible while it can guarantee its function as a medium of exchange. And Allah knows best. ‘

 

MY OPINION is that we should have one single standard with the highest degree of security that we can afford bearing in mind the danger of MODERN COUNTERFEITING.

 

Counterfeiting is a big problem for a coin: reduces the value of real coins; increases prices artificially (inflation) due to more money getting circulated in the economy – an unauthorized artificial increase in the money supply; and decreases the acceptability (satisfactoriness) of money amongst the people.

 

In order to improve the acceptance of a coin anti-counterfeiting measures have to be taken involving increasing the fine detail in the minting (increasing the quality of the coin) and milled or reeded (marked with parallel grooves) edges are used to show that none of the valuable metal has been scraped off. This detects the shaving or clipping (paring off) of the rim of the coin. However, it does not detect sweating, or shaking coins in a bag and collecting the resulting dust. To prevent sweating the coins only increasing their strength can help. There are other problems.

 

Counterfeiting coins is now a sophisticated art. Counterfeiters have at their disposal alloys than can pass density test undetected. The only way to prevent them is to increase your anti-counterfeiting measures. And needless to say, these measures have to be taken at the beginning of the minting and not later when the fake coins go undetected in circulation. A mint that does not take this into account is irresponsible.

 

There are many modern anti-counterfeiting measures that can help to give people reliance on their coins. To put it shortly they are divided in two types: visible and non-visible. Visible anti-counterfeiting measures are then ones that matter to us because the non-visible require equipment to be detected and that will not be available for most users. We have studied the best of them. WIM is implementing them as we speak.

 

Introducing security features in the coins changes the way in which we mint. First, it requires a singular standard. It is not logical to ask the traders and consumers to become aware of 20 different kind of dinars. Since the solutions may differ we need a single authority that serves most of the mints. Some people, for example, may argue that the best coin would be an even harder coin made of copper and gold (without silver) and with a 20k purity. Others will say: 21k, 22k, 23k, etc. Only a single standard will allow us to achieve maximum and global functionality of the coin and will help us to prevent modern forgeries. That is why we have WIM.

 

WIM chose 22k. It should be noticed that 99% of the coins ever minted in the world TO BE USED AS MONEY were 22k, even when the technology was available to make 24k (which is cheaper to manufacture). The reason? 24k coins do not last and 22k offers a good balance between purity and strength with a relative low-tech solution.

 

Nevertheless, it is my opinion that no one is wrong in minting a 24k coin (or 23k for that matter) IF they understand what they are doing. But if they do not, they are irresponsible. IN FACT, I will argue that the ideal solution would be to get a 24k coin with the strength of a 22k. If this is ever technically available at a reasonable cost I would think this is the ideal coin. WIM is looking into this. In the meanwhile with our limited knowledge we have resorted to a 917 gold coin with a mix of silver and copper in order to make the coin strong enough to function as money. And Allah knows best.

 

As for the people who have written the fatwa in Indonesia we know who they are. They are led by a man whom we knew very well, Mr Firman from Jakarta, and he is utterly lost. Of their fatwa I only know their conclusions in terms of weight (4.5) and purity (24k) and a little bit of their methodology that has transpired by talking to them. I disagree with regard to “their” weight since we have the uncontroversial fact of authentic well preserved original Umayyad Dinars which clearly establish the commonly accepted 4.25gr. Apparently, now they argue that they ‘cannot accept the standard coins of the Umayyads’ but I find no justification for that. I also disagree with them in respect to their “purity” since it does not solve the critical question of the durability. They also argued that ‘durability is not a matter concerning Islamic Law and therefore taking that into consideration is a “secular” concern’. They are wrong again because public interest (masalah al-mursalah) is a fundamental pillar of our fiqh. Masalah al-mursalah determines that when you have a choice on those matters that because they are new they have not been upheld or nullified by the Shariah, you should choose the one which is better for the people. In answer to them, I would argue that 24k technology is something new and that not taking into consideration the practical issues of 24k coins in circulation (and thus the public interest) is not part of Islamic Law.

 

 

For all those reasons, in my view, that Fatwa of Firman and friends is wrong. But if they insist they should carry on minting their own coins while we remind the people of Indonesia of the issues at hand. That will be enough.

 

 

Allah guides whom He wishes. He demands taqwa from us and we should have it at all times present.  Fearing Him is our part of the deal which shall prevent us from being blind by confusing pride. In search of Guidance we must get closer to Him until there is nothing left of us. Surrendering our will to Him is the way to see. This is the path of success. We care of Him, He will care of us, …and our coins. We ask Allah to be included among those people of taqwa. Amin.

 

Umar Vadillo

Introduction

The wealth of our Muslim nation is our industrious people.

The Ummah is at the centre of the world, “the middle kingdom”, and it owns the world’s most valuable mineral resources, on which the present and future political strategies of the world political powers continue to pivot.

Yet, for over a hundred years an insidious hand has been placed upon this nation in an attempt to cripple its existence. The tools to cripple Dar al-Islam were first economic and then military. These tools are still in use today.

An attempt to “Islamise” capitalism was introduced through a reformist group starting in Egypt, based on a puritanical and modernist reading of the Islamic Law. Our task is to return to the Islamic Model, based on the first community in Madina al-Munawwarah as an alternative to capitalism.

That original model is Muamalat. The full implementation of Muamalat means the establishment of an Islamic trading Bloc, based on our model of Trade and our currency: The Islamic Dinar and Dirham.

An Islamic trading Bloc, is therefore not just Muslims trading with each other using the present capitalist way of trade. An Islamic trading Bloc will consist of everybody, Muslims or non-Muslims, trading in the way in which Islamic Law defines Trade —Islamic trading.

The establishment of Islamic trading is a huge task that will eventually replace capitalism as a practice and Economics as its ideology. This establishment will need a careful planning in which the key infrastructure of Islamic trading will be introduced gradually. The minimum infrastructure that will allow all aspects of Islamic trading to be developed is,

the Core Mechanism of the Islamic Trading Bloc.

The Return of the Islamic Dinar needs Islamic Trading

The Return of the Shariah currency, the Dinar and Dirham, poses a new understanding of wealth and prosperity that differs from conventional Economics. This new understanding is a new paradigm which we call Muamalat a significant part of which is Islamic trading. Islamic trading represents the wider frame in which the Islamic Dinar can operate as intended by Islamic Law. Only through Islamic trading can we realise the full potential of the return of the Shariah currency. The full implementation of Islamic trading proposes a completely replacement capitalism.

The return to Islamic trading is essentially a defence and enhance of trade. Why do we need to defend trade? Who/what is attacking trade? Trade has been abolished under the present legal and monopolistic order. To avoid misunderstanding we must clarify that what the World Trade Organisation (WTO) calls Trade, is not Trade in an Islamic sense, but is from an Islamic perspective what we might call monopoly distribution.

For trade to exist we need the need the return of some fundamental institutions now lost. The most important of those is the open/public market —Islamic market or suq— and second in importance, the caravans. The evidence of the return of trade will be the return of the caravans. We will elaborate further on this respect.

The “Islamisation” of Capitalism

Over the last fifty years a group of Muslims under the banner of “reform” has been engaged in what they call the “islamisation of knowledge”, the heart of which has been the “islamisation” of Economics.

Knowledge of Allah is unveiling from illusions of other-than-Allah. Hence knowledge is either Islamic or it is not knowledge at all. Knowledge cannot therefore be Islamised. Under the banner, the “islamisation of knowledge”, some scholars, taking knowledge for Western human sciences, undertook the ludicrous task of “Islamise” all human sciences: sociology, psychology, politics, anthropology and most important economics.

Islamic Economics produced Islamic banks, Islamic Stock Exchange, Islamic insurance, Islamic mortgages, and why not, Islamic credit cards.

Their methodology was simple. First, a rejection of the madhhab system, seen as medieval scholarship. Second, the transformation of the Shariah from its existential jurisprudence base into a normative set of abstract moral principles and values, that could be accessed at random. For example, the principles of equality and justice, seen as Islamic values, if assigned to any institution or financial procedure can serve to Islamise them.

The method resembles the famous statement of Father Ballerini, a leading Catholic on the eve of the christianisation of banks in the mid XIX century, who declared “the crime of usury depends on the intention of the lender”. Thus a 5% loan with good intention was declared faultless. Our modernist/ reformist scholars have used the same “subjective moralising” methodology. The proof is in black and white in the existing Islamic Economics literature.

The problem with this moralising methodology is not just the mistaken tactics. The problem is that the islamisation of capitalism moved the focus away from our Islamic model. Thus, while this reformist ethos remains alive, the idea of the Islamic Dinar and Islamic trading will remain concealed.

Islamisation has reached a point of evident absurdity, a nihilistic conclusion, that is to say, “their” Islamic values have been diluted into a hollow pragmatism. The ironic result of islamisation is a full assimilation to capitalism, a kind of “reverse secularism”. How can Islamising result is the same institutions, tools and procedures as capitalism but with different words? This farce must end, because not only is a non-sensical exercise but it prevents the real Islamic model from ever returning.

We do not want to islamise capitalism, we want to create an alternative to it.

The End of Economics

Economics is not neutral, it is an ideology based on presumptions quite opposite to Allah’s injuction “Allah has permitted trade and has forbidden usury”.  Economics reveals a different one, “Economics has forbidden trade and has permitted usury”.

The aim and methodology of Economics are not acceptable. We do not need to make them acceptable either, because we have a superior way of thinking emanating from the Sunna of the Messenger (May Allah bless him and grant him peace). We need to overcome this pseudo-science and create our own understanding outside their parameters. This is not Islamising Economics, but “ending” Economics.

The Danger of Mishandling the Sharia currency

We do not fear that the Sharia Currency will fail, but we fear people mishandling the Islamic Dinar and then blaming the Islamic currency for their own inadequacies.

What would constitute mishandling? Mishandling is what the Islamic Development Bank (IDB) did with the “Islamic Dinar”. IDB Islamised the special drawing rights (SDR is the currency created by the IMF to prevent gold from becoming a global alternative to the US dollar) and called it Islamic Dinar, now their unit of accounting. The formula: one Islamic Dinar = one SDR finished 14 hundred years of Islamic Currency history.

Mishandling means that the Sharia currency will turn into a marginal reserve of the banking system. Mishandling means that the Dinar is used to give a human face, perhaps an Islamic face to capitalism. Mishandling the Sharia currency  is failing to understand that this is an opportunity to create an alternative to capitalism (being a haram system), and instead reduce the affair to a marginal and unsuccessful gold standard experiment. This will not work. We want to emphasise this point about “gold standard” because it is often presented as the solution to the present problems. We will explain later why this is not a solution.

The development of the Sharia currency relates to and is consistent with trade institutions, but not financial institutions. If the Sharia currency would be placed in the hands of financial institutions it would become, quite predictively, a marginal reserve and would therefore not fulfil its key role of wealth creation and establishment of the Sunna. The Shariah currency can only succeed with the full implementation of Muamalat.

Strategic Development, Not Size, Is The Issue

It is important to understand that the Shariah currency must be accompanied by the creation of an Islamic trading infrastructure in which it can thrive. This is to say that we need simultaneously to establish the architecture of Islamic trading. Coordination and planning is fundamental. More important a proper understanding of what the Sharia currency demands, and what it can do and cannot do for the economy.

The Sharia currency cannot succeed in isolation but it requires the development of all the trade institutions  with which they co-existed and thrived in the past.

Why the Return to the Gold Standard is not Feasible nor Desirable

The Return to the Gold Standard is often mistaken as the Return of the Shariah currency. The mistake has a natural logical appeal: First there were gold coins, then paper that represented in part gold (the gold standard), and now there is only pure paper not backed by any specie of any kind. It is therefore logical but incorrect to imagine that since we came from the gold standard to the present situation we should return to the gold standard on our way to go back to gold.

Regarding the validity of the gold, its greatest strength is the fact that it is and it has been the best international money in history. The difficulty comes when gold is seen as interfering with the needs of management of the present debt economy by State institutions. Gold standard is seen by State instituons as being unfeasible or not practical because it does not allow the expansion of credit which is critical to the survival of the debt economy: unable to solve the problem of “there is no enough money” (which is mathematically an endemic problem of the debt economy), and the impossibility gold poses to “bail-out solutions”.

The problem is -and we will agree with them in this point- that you cannot slim a fat person by simply tightening a belt around his belly. The “solution” would kill him. Monetarists have blamed the “shortage of gold” as being the cause of all the economic crisis in the past. Their argument is that it does not allow for monetary expansion at the time of crisis. Since we are always in an state of crisis, or preventing a crisis, they see gold as a restriction in their primary concern “dealing with the crisis”.

Financial Markets need an occasional fix. It has always happened that way in the past. Earning money in the financial markets is wonderful: I sell you shares for 180, you sell them back to me for 210, I sell them back to you for 240, you sell them back to me for 270, etc. Both of us make money, but we have not added one iota of wealth or services to our community. Nevertheless, the GNP will reflect a growth due to the increase in value of the stock. This is the speculative money economy that drives the econometrics upwards. This speculative economy is more than 100 times bigger than the “formal” real economy. The problem is that when the stock reaches a point when there is no buyer, then the crisis comes. Why should there be a crisis? Why should the prices not simply fall, as with any other commercial item? Because the entire banking system is entangled in a chain of loans and collaterals reaches certain levels of the productive economy. In short, governments cannot afford the disarray, and they have to intervene in the only way they know, by pumping more money into the economy, bailing out the crisis with more paper.

How many times we have seen this scenario? The banking system has come out stronger and stronger after every crisis. Why? Because our politicians, in general, have been trained to think that the solution, always the same, consists of giving more money to the ailing market, relaxing the mode, one way or another, in which banks issue their credit.

In fact, we can say that we have been brought to our present type of economy driven by crisis, rather than by political consensus. The present monetary system, or lack of one –as stated by the Nobel Prize economist Robert Mundell-, came out of the bankruptcy of the US at the time of President Nixon in the early seventies, when he broke the last remaining elements of the old Gold Standard. Earlier, wars and revolutions paved the way to the first national paper currencies. Then it was crisis that widened the gap between physical specie and paper. Further crisis simply meant the gap grew wider, until finally, the leading capitalist nations resorted to this new arrangement of floating currencies, to the delight of speculators, who gave rise to an industry of 3 trillion dollars daily, taking full advantage of the chaos.

We would agree with monetarists that “to prevent the crisis” or “to manage the crisis” gold does not offer solutions. If that were the whole issue there would be nothing more to say, and the argument for gold would be finished –which is what monetarists want. But there is more to say about gold. First, the nature of the crisis is not addressed when we merely try to solve its symptoms. And second, we understand that there are certain sectors of the economy, different from the dominant speculative money economy, that could benefit from the use of the Shariah currency. Those sectors are essentially what are now known as the “real economy”. While gold does not help the speculative money economy, gold can help to activate the real economy which is often seen as a marginal sector, even though they are the lifeblood of the economy and their contribution to employment is overwhelmingly more important than the financial sector. Our argument is that gold does not relate to financial institutions and problems, but it relates to and will enhance the real economy and trading.

The debate between monetarists and gold standard economists is well known. The last time the debate erupted was in the late sixties and early seventies, after the French President De Gaulle announced his desire to see an European currency order based on gold to counteract the “excessive” power of the dollar. The arguments of every side are quite routine. The gold standard supporters say: justice, universality, no inflation, limit the power of banks, etc; the monetarists say: pragmatism in dealing with an economy in permanent crisis, gold is a restriction, it is expensive, it is not necessary for the primary tasks with which governments are more immediately confronted. This debate has been heard, and quite consistently for the last fifty years the monetarist have won it. At the end of the day, no government is going to sacrifice their immediate imperative necessities, and the prospect of loss of industry and jobs, in favour of an intangible –as they see it- ‘future best world’.

Our point is that the unbalancing nature of banking in the economy (usury itself) is amplified with a real non-flexible currency, unless banking is proportionally contracted. We are saying the trying to preserve the speculative economy is not feasible without enhancing the real economy and that is only possible with a parallel contraction of banking, that is creation of credit. I am perfectly aware that I am overstepping conventional thinking, perhaps this picture will allow to understand the new paradigm:

This economy is based 99% on credit, our muamalat is based 1% on credit. The key to understand our paradigm is “we do not need credit”. Here comes the blasphemy to economists: “Credit is actually harmful”. Development must be associated not to credit  and capital accumulation in private hands but to the establishment of common infrastructure in public institutions by means of legitimate forms of contractual agreement: ijarah, Shirkat and Qirad.

What we need, is to be able to create wealth without resorting to banking, without needing the banks. This is the turning point. The argument is that the question of money cannot be seen in isolation, because it is not, in fact, the core of the problem. The core problem is usury to which paper money is intensely attached. To take benefits from a just currency we have to be able to create an economy without usury, and this is the real challenge.

In the beginning of introducing the Sharia currency, we should allow for the co-existence of the two systems: banks will operate normally with their paper money while the Sharia currency is gradually introduced through trading institutions. Yet, it must be understood that the ultimate purpose of introducing the Sharia currency must be the elimination of usury, through a new re-understanding of the role of pure/open/Islamic trading.

The key to the successful introduction of the Sharia currency is the creation of new wealth that will be newly generated through the enhancing and expansion of trade.

The  Case for the Sharia Currency

  1. The introduction SHARIA CURRENCY must be associated with the development of Islamic trading. The SHARIA CURRENCY will be associated with trade institutions which can thrive with it and not left in the hands of banking or financial institutions which will marginalise it.
  2. Islamic trading will generate a new economy, a new wealth from the expansion of trade itself both in quantity and quality. Therefore the introduction of the SHARIA CURRENCY will not be competing with the existing wealth of the economy, but we will be creating a new one.
  3. The SHARIA CURRENCY will be offered to the people as a choice not as a legal compulsion from the State Law. The SHARIA CURRENCY-based payment systems, such as e-dinar, should develop in accordance to a general policy of promoting Islamic Trading (thus avoiding usury), such as it is being done by the World Islamic Trading Initiative, and gaining gradually its place into the market as a practical service to people’s needs rather than being imposed to them through the Law.

The Real Economy

The real economy is the economy without usury. The real economy is the economy of the people who produce and trade honestly, creating wealth to their society in as much as they serve society. The real economy represents wealth generated by real people trading and producing real merchandise and services, sold in real market-places using real money.

The real economy has, in relation to the accounting methods of today, a formal and an informal reality. The informal real economy is the part of the economy where transactions are based on street trading, smallholder farmer production, and the labour of women to sustain households. The dynamism of informal economies sustains significant percentages of national populations, especially in developing countries. Nevertheless, their contribution is ‘invisible’ insofar as it is not counted in GNP or GDP growth. The formal real economy in which goods and services are produced and traded (and registered as part of the GNP), constitutes the visible part of the real economy. Usually ‘the real economy’ is defined as the ‘visible’ part of the real economy, which is the one that ‘counts’.

The Speculative Economy

The other part of the GNP is the powerful “money” or speculative economy, which arises from trading money in rapidly expanding pooled funds (e.g. pension and mutual funds). The volume of flows in the speculative money economy is about a hundred times greater than the volume of flows in the visible “real” economy.

The difference between the real and the speculative economy has also been defined in terms of productiveness as “productive” and “non-productive” economy respectively. This definition is a reflection of the fact that the speculative economy, which makes money out of money, such as the money created by speculative bubbles, is not a true productive force, and therefore it does not add real wealth.

The growing size and power differentials between these economies fuels social injustice and environmental destruction. According to the United Nations Development Program:

  • The gap in per capita income (GNP) between the countries with the richest fifth of the world’s people and those with the poorest fifth widened from 30 to 1 in 1960, to 60 to 1 in 1990, to 74 to 1 in 1995;
  • the fifth of the world’s people living in the highest income countries had 86 percent of world GDP, whereas the bottom fifth received only 1 percent; and
  • half of the world’s population lives on less than $2 a day.

Through the use of computers, managers of the money economy rove the world and prey on national economies. In the series of crises in Asia, Russia and Brazil, we saw tidal waves of capital outflows devastate enterprises and livelihoods throughout entire nations.

With the rise of the speculative money economy, or “casino capitalism”, governments are weakened and marginalised. Through deregulation, governments transfer power to the so-called “market”. Some governments become more accountable to external investors and creditors than to their own citizens. Financier George Soros arrogantly observed how, these days, Presidents and Prime Ministers now court financiers and industrialists, not the other way around. Unelected financiers and industrialists are orchestrating the globalisation process.

The Effects of the Growth of the Speculative Economy

The most clear effect of the extraordinary growth of this speculation is the effect on poverty. This is the World Bank’s Report on Development Effectiveness.

The World Bank’s Annual Review of Development Effectiveness 1999 (p.17) finds increases in world poverty, inequality and instability. Some specific findings follow:

  • In 40 percent of the countries, per capita income  either failed to grow or shrank;
  • In 25 percent, the share of the population in  absolute poverty increased;
  • In 23 percent, life expectancy declined;
  • In 54 percent, the people experienced stagnating per capita income, rising poverty, declining life  expectancy, or a combination of these events;
  • In 85 percent, per capita income grew 1% a year or less in the 1990s; and
  • In 59 percent, gross savings as a percentage of GDP were low (less than 10 percent) or declining.

In 1990, the World Bank adopted the “overarching objective” of poverty reduction. In 1999, the IMF declared that poverty reduction would, henceforth, be the objective of its programs as well. However, hard evidence illustrates that their policies confuse the success of the lending programmes with the reality on the ground.

Far from advancing growth and development of the world economy, so-called “globalisation” has in reality showed itself to be a form of unbridled predator capitalism, which has opened wide the divergence between financial titles and real economy on the one hand, and rich and poor, on the other, in an intolerable manner, both on the national and the international plane.

What is Islamic trading?

Islamic trading is trade conducted under Islamic Law. The most important prerequisite for the existence of trade is the existence of the Islamic Market. A key characteristic of Islamic trading is its openness to everyone. It restores a natural right to the individual, which is, the right to trade: everyone has access to trade for free in an fitting venue, such as the traditional Open/Islamic Markets. This right has rapidly disappeared with the malls, supermarkets and hypermarkets, and has become the privilege of few. For example, the five largest supermarkets in Britain control 2/3 of all retailing.

Trade cannot exist in a regime in which supermarkets control retailing. Our right to trade can only be granted when public markets are in place. Trading requires markets and without them trading becomes monopolistic distribution.

Islamic trading is opened to all: Muslims and non-Muslims.

Usury is the illness and trade is health. To restore health is not enough with suppressing the symptoms, we need to promote health (good eating, exercise), a healthy body. To promote trade is the effective way of eliminating our dependence in usury. Promoting Islamic trading will be a positive way to present Islam to millions of victims of capitalism. Islamic trading will be a way of calling millions of non-Muslims to to see a new face of Islam: muamalat.

Another Aspect of Islamic trading: The Guilds

Islamic trading is a complete recipe to stimulate and encourage independent entrepreneurship. An Islamic society is not a society of employees. In pre-capitalist societies, Muslims have lived and worked organised in guilds. Belonging to a guild was the norm in Muslim societies. Businesses relations thrived inside the guild (without the need of banks) enhanced by the existence of a shared productive infrastructure within the organisation. The individual requirements to establish new enterprises within the guild were all favourable.

The relationship employer/employee was replaced by master/apprentice. There was not ”working class” in the days of the guilds. Guilds were historically eliminated by legal abolition and by the removing of their rights in favour of a new set of State given privileges and monopolies; and also the accumulation of capital (credit money) in private hands produced by banking. Today free competition and free access to the market do not exist for all. Thus it is not seen as a problem. Islamic trading guarantee equal rights for all. Islamic trading will decisively contribute the re-establishment of the guilds, challenging the system of the modern corporation based on “one owner and 14,000 employees”. It will encourage new models of open production processes (guilds), where production is open to thousands of free small owners associated. This is also part of the wider framework of the Islamic trading Initiative.

Concerning this matter, it is important to point out that specially since the beginning of the 1990’s, quite a few corporations have understood partially the benefits of dividing their production processes into smaller units. Instead of one pyramidal structure with one source of decision, they saw the benefit of many autonomous units working in collaboration while competing among each other. Thus, Toyota now claims that there is not one Toyota but two thousand Toyotas. Asea Brown Boveri, the Swedish-Swiss engineering giant, has subdivided itself into 1,300 independent companies and 5,000 autonomous profit centres. Their prosperous success is forcing others to adapt to the same principle. The policies of decentralisation, though they seem a step in the right direction, are limited because they have all been designed by corporate staff. Corporate staff could not suggest the ultimate step which would be to eliminate the corporation all together, or in other words to give total independence to the autonomous workshops. That could only happen if the small workshop could have an identical access to the customer as Toyota itself. To make that step we need open distribution networks and free market-places for all. These is all part of Islamic trading.

Islamic trading can transform money, transform production and distribution, create a new formulation of contractual law and, perhaps the most important, open trading to all in society. Islamic trading consists of new procedures, mechanisms and institutions based on justice. But Islamic trading is not a moral proposition, it is existential reality. It does not judge your inner convictions but only your outward behaviour and the effects of your behaviour.

The Foundations of Islamic trading consists of five main elements:

•     The Open Market-place                     A market place opened to all.

•     The Open Production process        A production accessible to all.

•     The Open Distribution network     A distribution accessible to all.

•     The Free Medium of Exchange     A medium of exchange freely chosen by all.

•     The Islamic Business Contracts    The contracts that guarantee Islamic trading.

What is The Islamic Market?

Soon after his arrival in Madina al-Munawwarah, the Prophet of Islam, salla’llahu ‘alaihi wa sallam, created two institutions, a mosque and a market. He made clear by his statements and explicit injunctions that the marketplace was to be a space freely accessible to everybody, with no divisions (such as shops) and where no taxes, levies or rents could be charged.

The Market is like a Mosque: …

The Messenger of Allah, salla’llahu ‘alaihi wa sallam, said: “Markets should follow the same sunnah as the mosques: whoever gets his place first has a right to it until he gets up and goes back to his house or finishes his selling. (suq al-muslimin ka-musalla l-muslimin, man sabaqa ila shay’in fa-huwa lahu yawmahu hatta yada‘ahu.)”.

(Al-Hindi, Kanz al-’Ummal, V, 488, no. 2688)

it is a sadaqa, with no private ownership …

Ibrahim ibn al-Mundhir al Hizami relates from Abdallah ibn Ja’far, that Muhammad ibn Abdallah ibn Hasan said, “The Messenger of Allah, salla’llahu ‘alaihi wa sallam, gave the Muslims their markets as a charitable gift (tasaddaqa ‘ala l-muslimina bi-aswaqihim).”

(Ibn Shabba, K. Tarikh al-Madinah al-Munawwarah, 304)

with no rent charged …

Ibn Zabala relates that Khalid ibn Ilyas al-’Adawi said, “The letter of Umar ibn Abd al-Aziz was read out to us in Madinah, saying that the market was a sadaqa and that no rent (kira’) should be charged on anyone for it.”

(As-Samhudi, Wafa al-Wafa, 749)

with no taxes levied on it …

Ibrahim ibn al-Mundhir relates from Ishaq ibn Ja’far ibn Muhammad, from Abdallah ibn Ja’far ibn al-Miswar, from Shurayh ibn Abdallah ibn Abi Namir, that Ata’ ibn Yasar said, “When the Messenger of Allah, salla’llahu ‘alaihi wa sallam, wanted to set up a market in Madinah, he went to the market of Bani Qaynuqa’ and then came to the market of Madinah, stamped his foot on the ground and said, ‘This is your market. Do not let it be lessened (la yudayyaq), and do not let any tax (kharaj) be levied on it.’”

(Ibn Shabba, K. Tarikh al-Madinah al-Munawwarah, 304)

where no reservations or claims can be made …

Ibn Zabala relates from Hatim ibn Isma’il that Habib said that Umar ibn al-Khattab [once] passed by the Gate of Ma’mar in the market and [saw that] a jar had been placed by the gate and he ordered that it be taken away. … Umar forbade him to put any stones on the place or lay claim to it [in any way] (an yuhajjir ‘alayha aw yahuzaha).

(As-Samhudi, Wafa al-Wafa, 749)

and where no shops can be constructed.

Ibn Shabba relates from Salih ibn Kaysan …that …The Messenger of Allah, salla’llahu ‘alaihi wa sallam, …said: ‘This is your market. Do not build anything with stone (la tatahajjaru) [on it], and do not let any tax (kharaj) be levied on it’”

(As-Samhudi, Wafa al-Wafa, 747-8)

Abu r-Rijal relates from Isra’il, from Ziyad ibn Fayyad, from one of the shaykhs of Madinah that Umar ibn al Khattab, radiya’llahu ‘anhu, saw a shop (dukkan) which someone had newly put up in the market and he destroyed it.

(Ibn Shabba, K. Tarikh al-Madinah al-Munawwarah, 750)

Without Market Place there is no Trade

The first thing is that we need to distinguish between trade and monopolistic distribution. Supermarkets do not allow trade to happen, no one can go there to trade. The products that arrive at the supermarket have already been bought by the supermarket. The goods come from a warehouse that distributes them to the network of supermarkets throughout the nation. The goods arrive at the warehouse from producers or other warehouses, from where the goods were originally bought. This is not trade, this is monopolistic distribution.

The most clear evidence that trade has disappeared is that there are no caravans any more. Caravans are the institution of trade. There cannot be caravans if there is no where to go to sell. If there are no markets there will be no caravans. Therefore if there are no markets there is no trade.

To recreate trade we need to recreate Islamic or Open Markets.

Islamic trading generates “New Wealth”

Trade is in itself a source of wealth.

Rasulullah, salallahu alayhi wa sallam, said: “9/10 of the provision comes from trade”. That is like saying that 9/10 of the generation of wealth comes from trade. If this is so important to us, it is obvious that its defence is proportionally important. Considering that trade is no longer possible without market places, we can conclude that we have eliminated 9/10 of our provision. To re-establish trade must be considered a priority of every responsible government, and this primarily means the establishment of networks of Islamic Markets.

We are unfortunately living at a time in which people do not regard trade as something important. The result of this is that economists have concluded that traders should be eliminated from the economy in favour of distributors: supermarkets are encouraged while old markets are closed down.

Another result of this philosophy is that real traders are thrown into the streets with no infrastructure to support them (street markets), while bankers (usurers) sit in palaces. The reverse of this is the Islamic way. Umar ibn al-Khattab, radiallahu anhu, considered the traders that came to Madina, his guests. Consequently, all Islamic cultures have treated traders with great esteem. They build for them palaces in which to trade. See for example, the markets of Istanbul, Samarkand or Isfahan. In the past our traders were in palaces while the usurers were in the streets chased by the police. Today the reverse is the norm.

Traders are a source of wealth for us and adequate infrastructure should be given to them. This is what the Islamic market provides for them.

The important thing is that the Islamic Dinar associated to Islamic trading can generate new wealth with those people in society that economists reject. The Islamic Dinar can generate a new wealth with the rejects of the present economy, that is, the real economy.

The fate of the Islamic Dinar and the Real Economy are bound together through Islamic trading.

The Islamic Trading Bloc

The implementation of Islamic trading has its maximum political reality in the establishment of an Islamic trading Bloc. The establishment of the Islamic trading Bloc will have three conditions:

  1. It must be based on the use of the SHARIA CURRENCY as currency rather than the creation of yet another paper currency.
  2. It must be introduced gradually and should be offered as a choice to the Muslim community
  3. It must be accompanied by the establishment of a trading infrastructure based on Islamic Markets.

    The Core Mechanism of an Islamic trading Bloc

    The minimum mechanism that can guarantee a sustainable and continuous growth of the use of the Islamic Dinar as currency consisting of three elements i.e. the Payment System, the Market Network and Investment (qirad).

    All three elements enhance trade and synergise one another

    Provides a stable and universal currency

    Introduction

    A highway robber leaps from behind a tree, sword in hand, and confronts a well-dressed gentleman. “Hand over your money,” the robber cries. His intended victim says, “You fool!… I’m the mayor!” The robber lowers his sword and sticks out a hand. “…hand over MY money.”

    Good poetry like humour gives new meaning to words. Poetry should provoke introspection forcing to see issues and problems from a new perspective. This is important, since most of us uncritically and subconsciously absorb our political and moral stands from parents and friends, from schools and media. As such, poetry can be profoundly disorienting and equally threatening to fragile self-concepts. Viewing the world through new lenses requires a period of unsettling adjustment. To be effective, then, a poet must keep his audience off-balance, leave them reeling. Inducing comfort is most emphatically not the goal of a good poet.

    We are simply pointing out that we cannot give validity to a word simply because we are comfortable with it. The value of a word, is that it helps you to discern, to discriminate, to identify. In our case, a good definition of State should give us understanding of this institution and by extension of our society. It should help us to act. And because we are Muslims this implies understanding from an Islamic perspective, and acting means acting fisabilillah. It is in this light that I value the necessity to create a new definition of the State. Whether we like it or not, our cultural and historical values are embedded in language. When we challenge language -this is what a poet does- we are challenging the cultural and historical values of our society. For us this should be done in order to establish our own Islamic understanding of life. This is important. Our language should reflect who we are.

    Words are windows that open “worlds” before us. Which words we use and how we use them determines the way we see the world. I forged this definition of the State out of necessity. I was not happy with the present definitions. They were too vague to create identity or too partisan to recognise a problem. They all seemed to ignore what I call “the event”. This event is the marriage between banking and government that took place somewhere in the past. This event was not nothing. It was a huge evolutionary step in our history and the consequences have been even bigger as they reached our days. As a result of this event the way people interacted with government changed, including how revenues were collected, the creation of debt, the way of accumulation of capital, the meaning of money and investment, and many other collateral issues involving the basis of trading and finance between countries. In short, almost every way in which we relate to each other changed for ever. The world changed for ever after this event. Yet, I realised, no one had named this new institution. This institution was more than government, it was more than banking. But it had no adequate name. This is a danger, because if you cannot name it, you cannot think it.

    The Event

    The event that I am referring to took place in England in the year 1694 with the birth of the Bank of England as the national Bank. The Bank of England was not the first national bank. Two other national banks were created before the Bank of England. The first national bank was the Banco de Spiritus Sanctus or the Bank of the Holy Spirit (amazing name!) which became the first national Bank in 1605 of, which State? None other than the Vatican. The Bank, founded by Pope Paul V, has ceased to perform financial miracles for the Popes -now it is in the hands of the Italian State- but the Vatican possesses its own official bank, piously called the Institute for Religious Works. The second was the Bank of Sweden (Sveriges Riksbank) founded in 1668. The reason why we have chosen the Bank of England as the birth of the State is because only England with the beheading of their King and the creation of the Parliament had the right social chemistry to trigger the unprecedented unfolding of this institution, the State. Only in England, and for the first time, the debt of the Sovereign had the conditions to become what became known as the National Debt. A concept whereby the debt incurred by the Sovereign, no longer belongs to him, but to the entire nation.

    This does not mean that in the year 1694, the State, with all the features with which we know today, suddenly appeared. No, the State gradually developed into its full flesh in the years to come. What took place in this year, was the coming together of two institutions banking and government in a new fashion which created the necessary mixture for the unfolding of the State. We can say that the seed of the State was created. This seed contained the potential for all the features that were to unfold in the years to come. The seed contained the forerunner elements of the Central Bank, fiat money and the national debt. How did it happen? And what happened?

    The Revolution over, and the Dutch William of Orange on the throne of England (1689-1702) a climate of discovery and experimentation with money matters was flourishing in England. It was a time of treasure hunting companies, “quick money making” schemes and new banking designs. It was all further encouraged by the small boom of 1692-5. In this climate the Bank of England was born.

    At the time England was financially exhausted after half a century of war. Unable to increase taxes and unable to borrow, Parliament became desperate for some other way to obtain money. There were two groups of men who saw a unique opportunity arise out of this necessity. The first group consisted of the political scientists within the government. The second was comprised of the monetary scientists from the emerging business of banking.

    The opportunity came in 1694, when the King needed money to raise an army for the war with France. The King went to the rich merchants and goldsmith bankers in London to acquire this money. Several schemes for a public bank were submitted. Finally, William Paterson, a Scotsman, fronted several syndicates and made a proposal in imitation of similar successful ventures in Italy and the Netherlands (especially the Bank of Amsterdam founded in 1609 -seen by many as the father of modern banking). After a few failed attempts, he and his merchant backers eventually proved successful.

    Patterson wrote a brief presentation for the initial stock offering entitled “Brief Account of the Intended Bank of England” [quoted by Prof. Carroll Quigley of Georgetown University, in “Tragedy and Hope: A History of the World in Our Time”, 1966], in which he wrote: “the bank hath benefit of interest on all moneys which it creates out of nothing.” This simple sentence, by the world’s first Central Banker, was going to become the key issue to the unfolding monetary destiny of the world for the next three hundred years.

    The meaning of the sentence is that “under the government’s authority” the Bank of England would issue paper money created “out of nothing”, which would in turn be loaned at interest to various borrowers. The commercial banks had done this before, but this time it was endorsed by the “authority of the people”, the Parliament. The meaning of “out of nothing” is that the notes of the Bank of England were only partially backed by gold or silver, not to the point of complete convertibility. From the very beginning the Bank never professed to make its issues of notes square exactly with its coin and bullion, though, of course, it made its liabilities square with its assets. This issue has remained a mystery for most people even today. How can the liabilities be equal to the assets, and yet there are more notes than specie? The issue is at the heart of banking itself, but we leave this issue of “magical” accounting for another occasion, we will simply refer to it as fractional reserve banking, meaning, the ability of the bank to lend more than what it holds in cash or creating money “out of nothing”.

    By early May 1694 the parliament passed a statute appointing a new tax on ship tonnage expected to raise £140,000 per year. £100,000 of this was earmarked to pay interest (at 8% per annum) on a new £1.2 million loan which the government was going to borrow from the Bank. The loan would “only” cover about ¼ of that year’s expenditures upon the Nine Years War (1689-97) with France.

    The £1.2 million loan was paid into the Exchequer in instalments between August and December. Shareholders received interest of 8% on the full amount of the loan, although they had “only” had to contribute £720,000 in actual cash, the rest had been created “out of nothing”. The loan was paid to the government with the cash of the shareholders, who by November had supplied 60% of the amounts for which they had subscribed. The rest was paid with so-called “sealed bills”: £1000 paper notes stamped with the Bank’s corporate seal. The government used these bills in turn to pay its suppliers. Since they bore interest at about 3% per annum, many were held as investments; those few that were returned to the Bank for cash were reissued and employed in further loans.

    The Bank had a double function: it managed the Government’s accounts and made loans to finance the Government but it also operated as a commercial bank: it took deposits and issued notes to private customers. Much of the cash from the shareholders was used not for the war loan but to circulate additional sealed bills issued out to private borrowers, raising returns even further.

    The authorizing statute had imposed two important limitations: the Bank could lend no more than £1.2 million to the government without parliamentary dispensation and could issue no more than £1.2 million in sealed bills. The first limitation actually proved an asset, since over the next year or two Bank directors often made it an excuse for refusing further loans to the Crown (loans they were reluctant to make in any case). But the ceiling on sealed bills was a real constraint. Bank directors evaded it by issuing what they called “running cash notes”. Instead of being stamped with the Bank’s seal, these small-denomination notes were merely signed by its cashiers and they bear no interest (unlike the sealed bills). The Bank’s numerous critics tried to make an issue of this, but the notes continued in circulation. These “running cash notes” became in fact the forerunners of present-day paper currency.

    By February 1695, the bank had advanced to the Government not only the whole of its original capital of £1,200,000, but also a further sum of £300,000. But there were even bigger remittances to follow within the next eighteen months. The government could not stop borrowing, breaking the limitations that it had imposed on itself. The government had just discovered the possibility of an “almost” endless means of finance. But of course, the problems started to come.

    The new money created by the Bank of England splashed through the economy like rain in April. Consequently, when these plentiful banknotes landed in the other banks’ hands, they quickly put them into the vaults and then issued their own certificates in even greater amounts. As a result, prices doubled in just two years. Then, the inevitable happened: There was a run on the bank, and the Bank of England could not produce the coin. In May of 1696, just two years after the Bank was formed, a law was passed authorizing it to “suspend payment in specie” [suspend payment in gold for the face value of the note being presented]. By force of law, the Bank was now exempted from having to honour its contract to return the gold. Fiat money had been born. With it one of the key features of the modern State had been born.

    With this event two other institutions had been born: the Central Bank and the National Debt. That Central Bank is still with us and has become a dominant institution in today’s economy and that national debt we, the citizens, still carry forward and which in aggregate, is in fact unrepayable. The citizens of Britain still have not been able to repay their debt three hundred years later. Today the national debt of Britain is 1 trillion pounds.

    In 1694, the Bank of England was not yet a central bank in the modern sense but it was the seed for the central bank. The capacity to act as lender of last resort and regulator of financial activity within the economy at large was only developed gradually during the next century as the complexity of the financial system grew.

    As the Government borrowed more and more money, these outstanding loans were called the National Debt. This debt was different from before. Sovereign’s debt had always existed. However, how the king could make his promise to pay trustworthy, was the critical problem. Defaulting had become a common phenomenon in England since the medieval period. In the medieval period, tax collection was a very difficult task; the king often relegated local agents and office holders to collect taxes for the sovereign, a practice curiously called tax farming. Generally, these agents or office holders had tax exemption privilege, narrowing the tax base and reducing tax revenue. Tax was never enough. Borrowing against the taxes was the only choice. For the king the best choice was to default to his creditors. Although cooperation with the creditors seem to be the best choice, this was not always possible. Creditors (later bankers) and Kings had a difficult relationship. Cooperation could not crystallise. This changed for ever with the Bank of England.

    The establishment of the Bank of England altered the sovereign’s (State’s) incentives to accept debt. The debt could be easily distributed to all the people by a new mechanism: the issue of non-redeemable or partly redeemable paper money. Thanks to the Bank the State was capable of making its debt trustworthy. It was not “his” debt it was the “national” debt. The State provided the Law to make the new money legal, the bank could provide almost endless amounts of that money. The two institutions seemed to gain, they could cooperate for the first time. This event altered the sovereign’s (State’s) incentives to accept more debt. From this moment onwards, the raising and raising of debt would reach unprecedented levels in history. This debt fuelled the extraordinary rise of the banking institution and brought it from the fringes of society to the very centre by becoming the new master of the economy.

    The Need of a Name

    From the day of the Caesars to today, we have seen a great variety and many forms of government. The word “form of government” already calls upon certain familiar definitions: anarchy, monarchy, oligarchy and democracy. In this classification the word State stays out. The State is not seen as a form of government, it is rather identified as a higher institution that encompasses government. Nowadays, we vaguely speak of the State as comprising the land, the citizens, its laws, its culture, its economy and the government. For some the word equally encompasses the Egyptian State of Pharaohs, the State of the Caesars, or today’s British State; and encompasses regimes as different as the Soviet Union or German Third Reich. This “all encompassing” meaning of the State does not tell us anything about the crucial event which we want to describe.

    Let us go back to our own Western culture in search of some help. Of all revolutionary movements in Western Europe, the one that resisted more ferociously the advent of the State was the anarchist movement. The anarchists since Proudhon spoke “against the State”. Often, this is mistakenly seen as a proposal for “no-government”. But this is not what they were saying. Since we are not here to study the anarchist movement, but in search of a new meaning, or perhaps, we should say an original meaning, I would explore the “word” of an artist and a poet who sympathized with them. This artist is Richard Wagner, whose great hero was Bakunin (he saw him as Siegfried -the hero born without fear). He wrote in the barricades on Dresden that the new society will be based on “government without State”. What he meant is that government is acceptable, the problem is the State. He was referring to the State as some addition to the government that needed to be removed. With this sentence, although still lacking the substance for a complete definition, sets us on a different path to find a “meaning” for the State.

    The sentence “government without State” points to two possibilities: one is a “government with/within State” -this is seen as a problem-, and then “government without State”, seen as the solution. These two possibilities already point to an event in which from one we move to the other. It already indicates a point of devolution or evolution depending of the direction. The important thing is that it recognises the existence of a critical event, a turning point. This event, even without understanding what it is, points to the originality of its meaning. It is from here that we can ask the following questions: what was that event? What was that event that put government and State together? What is the State that was added to the government? When did it happen?

    Here (when the State is seen as a problem), our proposed definition stands out thriving with answers. Our equation “State = government + banking”, and our solution, “eliminate banking”, acquires a dynamic force. It explains this event that Wagner was pointing out. Our definition gives full meaning to the sentence “government without State”. It now reads, the problem is not government, the problem is that banking (the cause of the problem) was mixed with government. This mixing or marriage created the State. In my reading of Proudhon and Bakunin against the State, this “fine” tuning, this critical discrimination was missing in their undestanding of the State. In my view, this missing element haunted like a dark cloud the revolutionary attempts of the XIX century to eliminate the State and still rob us today of any decisive understanding of this key institution that can lead to a change.

    What happened in Britain at the end of the XVII century has not had a name for too long. It needs one. My proposal to call it the birth of the State, brings forward the possibility to understand this phenomenon and by extension to understand the times we are living in.

    Is the Word “State” the Right Word for This New Institution?

    I believe it is. The word State is in itself in need of definition. The first issue is that it is acknowledged that the State is relatively a new phenomenon in history. Andrew Vincent, in his book “Theories of the State” writes:

    “Many anthropologists and sociologists would argue that there is a rich array of pre-State and Stateless societies. Most scholars now agree that the State is a comparatively recent phenomenon in terms of the history of social existence. If these societies were subject to authority and rules, it is feasible to speak of politics existing but not the State”.

    From a purely historical point of view, the first modern use of the word State is attributed to Machiavelli (lo stato) in his “The Prince”. Machiavelli was fascinated by Cesare Borgia, not just his person, but rather the “the structure of the new state” that had been created by him. Machiavelli was the first thinker who completely realised what this new structure meant. Yet, according to JH Hexter, who examined the 115 uses of “lo stato” in The Prince, Machiavelli relates not to the State in the modern juridical sense, but rather to the medieval idea of “standing” or “condition” as in the term “status regni”. He argues that the modern use of the word, may have been inspired by Machiavelli, but it was only forged by French sixteenth-century thinkers like Du Haillan, Bude, and Bodin and politicians like Richelieu. In England, nevertheless the word came much later and the preferred words in mainstream political thought were still in the sixteenth century, commonwealth, kingdom or realm.

    For Jean Bodin the issue is related to the idea of sovereignty. France was passing rapidly out of feudalism in the French Wars of Religion. Sovereignty was for him a “supreme power over citizens and subjects unrestrained by law”. This attribution was still directed to the King. Only when the figure of the king disappears in the seventeenth and eighteenth century that the word State gains its supremacy. The sovereignty is then expressed in the “personality of the State”. In this idea the attributes of the person, the capacity to perform duties and possess rights, the ability to act and so forth, are attributed to the State. The personality is legal, not physical or psychological. At this point, the State acquires its modern sense as “the abstract person with the authority”, not connected in any way with individuals.

    This historical account of the usage of the word, coincides with the timing of what we call the event, which took place in Britain after their king had been beheaded. In my view, this transferral of sovereignty from the king to the State is critical in giving strength to the modern usage of the word by a recognition that a new entity had been created; although not quite in terms of the event in which I formulate my definition, but yet it is simultaneous to it.

    In relation to government Vincent argues the following:

    “In fact government is a far older term that State or administration. Historically and anthropologically it is clear that both the concept and practice of the State existed before the State. Government can and does without the State.”

    For me this proves that there is an event that needs to be located in history by which the transition takes place. Naturally this birth is owed to be contested by different political and historical opinions, since the political world is already saturated with different ideas and values. Yet we must seek coherence and consistency in order to gain understanding of the past.

    Finally Vicent argues:

    “The State is a good example of such essential contestability. Yet one should be wary of holding to essential contestability as a dogmatic assumption. It is useful in educational terms to acknowledge that there are diverse views of the State which should be explicated. The State is certainty not one thing. It needs to be unpacked. But we do not need to go on from this to the conclusion that there are either in principle no grounds for finally adopting a particular view of the State or that the State must always, in all situations in the future, be subject to dispute. There are certain logical oddities in such a view which link up a dogmatic adoption of essential contestability. There seems to be an implicit claim that all concepts now and in the future must in principle be subject to such dispute. This is an inverted form of essentialism which makes the thesis of essential contestability self-refuting. A more balanced thesis is that at the present moment there are neither completely satisfactory explanations of the State nor ultimate empirical grounds which can be agreed to test theories. We need to pay attention to the way in which the concept has been used. It reflects values and views of human nature and constitutes political reality. Since theories of the State reflect such fundamental values and self-images, it is important that they should be open to discussion, criticism and disagreement. To dispute about the nature of the State is to dispute about the character of social existence. It is doubtful whether endless dispute is either possible or fruitful.”

    Is the word State the right word for the new institution? I believe it is. We, Muslims, need to have our own definition, our own understanding of this “alien” institution in the light of our world view. It is only in this light that my definition has value or not.

    The Political Value of My Definition

    Saying “the State was born out of the marriage of government and banking” calls for a re-evaluation of what political activism means and can do. For centuries, any civic attempt to curve the increasing power of this institution has always knocked at the door of government. Any protest reflecting social anger was always directed at the political agents of the State, namely the Parliamentarians or in their defect the “tyrant”. The problem is that the government has been entrenched in its role out of a basic necessity. Government is necessary. The attempt to remove the State, seen as removing the government is helpless, and even if successful, pointless: the State still remains there even if you “change” (since you cannot truly eliminate) the government.

    Our definition opens a new window, a new door. The political value of our definition is that social protest must have a different focus: not against the government, but against banking. This opens a new reading of revolutionary strategy: the issue is not government and its political agents, the issue is banking. Our definition re-invents the meaning of social protest by indicating that the problem is banking.

    To fight banking is very different from fighting the government. Government is necessary, banking is a newcomer. From the point of view of us, the Muslims, the affair is much clearer. Banking is haram, government is halal. This definition forces Muslim political activity to gain a completely different meaning and consequently to gain a new reputation and standing. We can, for the first time in a hundred years be understood. If Muslim protest is re-directed from the political agents to the banking system we will obtain the favour of society. We can become its leading force. In itself this can create a new tool of da’wa. We can channel the dormant social protest to a new path in which success is guaranteed. Allah has declared war on riba. Allah is the guarantor that this strategy will be successful.

    This is the potential of a “word”. As we said on the beginning: “Words are windows that open “worlds” before you”. The State, as we see it, has been for too long unnamed. Our word “State” brings clarification which we desperately need so that Muslims can re-think and re-design our social strategy. This meaning that we are proposing here, can bring the Muslims to the frontline of political activity in a way in which we can succeed. This new meaning can become a key to our future as the masters of the XIX century. We will be able to channel all trade unions, consumer unions, civil liberty groups and social movements in general into a new possibility of political activism, in which we are the leading force.

    Revolution against government implied violence and terrorism (Bastille, Russian Winter Palace, British Gunpowder plot against Parliament). Fighting banking has a social modality, it entails the abandonment of the key element on which banking continues to exist: paper money. Fighting banking is to return to the true form of money on which society and trading can be constructed without banking.

    Conclusion

    The word State remains vague and misunderstood in our language. We, Muslims need to provide our own definition of this institution. The event that in my view is the determining factor for the creation of this institution is the establishment of the Bank of England in 1694. With this institution the State was born and simultaneously three other elements of the modern State: National Debt, fiat currency and Central Bank. The essence of this new institution is the mixing for the first time in history of two other institutions government and banking. This gives us the equation on which I base my definition: State = government + banking. On the basis of this we can formulate the idea of the problem of the State, namely, banking. Government is halal, but banking is haram. With this understanding, the struggle against the State should be read as the struggle against banking. This clarification is in my view the true value of my definition. In this way, a word is not only a window, but a weapon.

    This definition should also help to eliminate the confusion created by terms such as “Islamic State”. This rejection includes also other terms such as Islamic banking or Islamic constitution or Islamic democracy. These institutions are “alien” to us and they cannot be simply “islamised”. When we have our own terms and models, we do not need to import alien ones. The validity of the term State, should therefore, reflect and explain its alien nature, so that we are capable of thinking and dealing with it.

    Allah is our Guide. There is no power except by Him. There is no victory except by Him. Peace and blessings from Allah on our beloved Prophet, his Family and his Companions. He is our model in this world.

    A highway robber leaps from behind a tree, sword in hand, and confronts a well-dressed gentleman. “Hand over your money,” the robber cries. His intended victim says, “You fool!… I’m the mayor!” The robber lowers his sword and sticks out a hand. “…hand over MY money.”

    With its foundation in twisted and skewed expectations, good humor can be a useful tool in encouraging to question previously unexamined ideas and beliefs.

    Words carry that capacity too. Good poetry is about giving new meaning to the words. Poetry should provoke introspection forcing to see issues and problems from a new perspective. This is important, since most of us uncritically and subconsciously absorb our political and moral stands from parents and friends, from schools and media. As such, poetry can be profoundly disorienting…and equally threatening to fragile self-concepts. Viewing the world through new lenses requires a period of unsettling adjustment. To be effective, then, a poet must keep his audience off-balance; leave them reeling. Inducing comfort is most emphatically not the goal of good poet.

    I am not claiming to be a poet, I simply trying to say, that we cannot give validity to a word simply because we are comfortable with it. For me the value of a word, is that it helps you to discern, to discriminate. In our case, a good definition of State should give us understanding of our society, it should help us to act. And because we are Muslims this implies understanding from an Islamic perspective, and acting means acting fisabilillah. It is in this light that I value my definition. Whether we like it or not, our cultural and historical values are embedded in language. When we challenge language -this is what a poet does- we are challenging our society. For us this should be done from our own Islamic understanding of life. This is important. Our language should reflect who we are.

    What I call the event, defines a before and an after in terms of the nature of government: fiat currency, national debt and central banks, are not just nothing. The institution that emerged in Britain after 1694 was new. And it was destined to change the face of the Earth. Yet it has no name. Without name it cannot be thought.