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‬7. Money‭: ‬from Fiat to the Gold Dinar

بسم اللَّه الرحمن الرحيم وصلى الله على سيدنا محمد وعلى ءاله وصحبه أجمعين وسلّم

Title: Money: from Fiat to the Gold Dīnār

Author: Abdassamad Clarke

Publication date: 7/12/2014

Assalamu alaykum. Welcome to the Civilisation and Society Programme of the MFAS. This is the seventh of 12 sessions which make up the Question Concerning Econcomics module. The lecture will last approximately 40 minutes during which time you should make a written note of any questions that may occur to you for clarification after the lecture. 


Money: from Fiat to the Gold Dīnār

In Antonioni’s 60’s classic Blowup, the bewildered protagonist, pursuing the photographic evidence of his own camera, is confronted by an experience that calls  into question everything he had thought was happening. In a dazed state in the final scenes of the film, he encounters a troop of mimers enacting a tennis match without rackets or ball. There is no ball and there are no rackets, and yet the game goes on.


In approaching money, we are clearly approaching something that pertains to a society for the hermit does not need it. And yet we unconsciously approach economics in general as if it is about the individual. That is because we still do not have the scientific tools to deal with a market let alone a society.

This is similar to the Newtonian predicament of having splendid equations to deal with the two-body problem but nothing for three bodies, let alone the uncountable number of bodies that make up our universe. Where once, in the era of ‘classical physics’, we were inclined to make rough approximations and dismiss small values as ‘negligible’, chaos theory has told us that the negligible values can add up to a hurricane. And if it had not told us that, history long ago brought that home to us.

This is all the more challenging since historical developments have arguably dismantled society, by challenging and overthrowing the old order, the ancien régime of monarchies and aristocracies, but prior to that in a much more fundamental way by permitting usury which, as Professor Benjamin Nelson wrote, transformed a society of tribal brotherhood into one of universal otherhood. If that seems abstract to you, then next time a dear friend tries to borrow money from you, try and charge him 10% annual interest on the loan and see what that does to your friendship.

In parallel with that a change in the conceptualisation of the physical universe took place that conceived of it as separate atoms. They were called building blocks, and the race was on to find them in every level. Once found, there was a genuine fear, as expressed most evocatively by Mary Shelley, that scientists would themselves try to build using those building blocks.

Note that as we look at economics, that since man has been redefined entirely as an economic being and as a selfish being, merely seeking to optimise his pleasure and minimise his pain, that economics has become the theory of society.

Neo-classical economics, as shown by Prof. Steven Keen, has suffered from the atomistic approach.

“…economics has been wedded to the vision of society as simply a sum of utility-maximizing individuals since the inception of neoclassical economics in the 1870s. When the proof came, one century later, that this vision was internally inconsistent, the commitment to the vision was too strong to break.”

And he also wrote:

“Clearly, the Benthamite ambition to portray society as simply an aggregate of its individual members is a failure. The whole is more than the sum of the parts.”

(Steve Keen. Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned?)

Simple as that insight may seem, it is really one of the paradigmatic frontiers that science faces: “the ambition to portray society as simply an aggregate of its individual members is a failure”. Society is not composed of a great many individuals. “The whole is more than the sum of the parts.”

Economics as a Scientific Discipline

We must make a proviso at the beginning that strikes at the very core of the science of economics: economics is a scientific discipline and thus a mathematical one. It grew out of the fascination of philosopher-scientists with Euclid and his rigorous system of definition of terms, axioms, hypotheses, proofs and theorems. Mathematics itself was entirely remodelled on this basis until it suffered a couple of serious collapses, the first of which was the discovery that Euclid himself had not been as exact and rigorous in his statement of some of his axioms as had been thought. 

A key axiom of economics is that man can be considered to be a ‘utility-maximising’ entity, driven by his selfish interests. But this axiom has never been properly tested, because an axiom ought not to need testing since it is ‘self-evident’. But this axiom fails most tests of intellectual rigour and is refuted by many real-world examples. So the science of economics stands on extremely rickety foundations indeed.

The second crisis of axiomatically based knowledge was even more devastating when Gödel showed that a system based on axioms could not be complete and consistent at the same time.

But let us start with the parts, bearing the whole in mind.


We take to heart the words of the Messenger of Allah a:

حسن السؤال نصف العلم. (الطبراني) في مكارم الأخلاق هب عن ابن عمر.

“Good questioning is a half of knowledge.” (Aṭ-Ṭabarānī in Makārim al-akhlāq and al-Bayhaqī, from Ibn ‘Umar)

Here the important term su’āl is a verbal noun meaning ‘questioning’ as opposed to merely asking a question. It is a verbal noun denoting a continuing activity rather than a discrete question with a discrete answer, because that is an activity which stops once it has received an answer. Questioning, in English, is also related to ‘a quest’ just as much as it denotes ‘asking’ someone about something.

Ordinarily people proceed immediately to the question of the function of money as a store of value, a unit of account and a medium of exchange, but logically the first question must be “what is money?” after which we can ask “what does it do?” or “what function does it serve?” Our scientific attitude predisposes us to think of things having their own realities independently of how they are observed, a view that is, however, no longer scientifically tenable since the quantum discoveries and even more since the results of the science of neuro-physiology. Thus, we need new formulations. We would posit that a thing is whatever it ‘means’ to us. Its meaning does not exist without someone who sees that meaning. We saw in Ibrahim Lawson’s lecture that ‘community’ shares its origin with the verb ‘to commune’, the act of sharing meanings. Perhaps meanings do not exist if they are not recognised by the being who exists for meanings and if they are not shared with other creatures of meaning. Ibrahim Lawson said:

To live in a community is to exchange not only commercial goods but all forms of value, including semantic value, i.e. language. What makes a community a community is not only these exchanges but the very sharing of the process of evaluation itself: moral, linguistic, commercial and so on. (Ibrahim Lawson, “The Question concerning Money”)

Professor Keen strikes a more pragmatic note:

“An economic theory that ignores the role of money and debt in a market economy cannot possibly make sense of the complex, monetary, credit-based economy in which we live. Yet that is the theory that has dominated economics for the last half-century.” (Steve Keen. ibid)

In looking seriously at the money and debt, we are thus looking at the one issue the scientific economists ignore.

Linguistic meaning of ‘money’

To begin the question on the nature of money we must first ask what does money mean linguistically?

Money comes from ‘moneta’, originally an epithet of Juno in whose temple coins were minted.

From the same root comes ‘mint’, i.e. ‘money’ is something that is ‘minted’. Moneta itself is the word for a coin in a number of Latin-based languages. Not only was money a coin that was minted but that was done in a temple, and thus was connected to matters that are divine. Indeed not only are these matters connected to the divine but to the spouse of the highest Roman god, Jupiter. If you feel uncomfortable with Roman polytheism then listen to what Shaykh Dr. Abdalqadir as-Sufi said about this:

…before abstract thinking came upon him like a kind of cellular cancer, man thought differently; he thought in a pictorial way, a narrative way. So it is understandable that you would have a tawhid that spoke about Allah in His acts by a story and by His attributes by separating them into divine identities and by His essence by putting one above them all who was absolute.

Clearly, this understanding in later times degenerated into a plain polytheism, but as usual the primal situation was an origin in tawḥīd.

If we follow the origins back further in European history, we find that the Greeks called money nomisma (Greek: νόμισμα), “current coin” – which many of you will realise derives from nomos (νόμος) – "anything assigned, a usage, custom, law, ordinance". In earlier times, nomos was a name for the deity or spirit of law and may possibly have denoted an aspect of Zeus (Ancient Greek: Ζεύς, Zeús). The Greek Zeus is regarded as cognate with the Latin Jupiter. The word Zeus means Deus, God, denotes the ‘sky’ and derives from meanings that include ‘shining’.

Thus classically, money is connected intimately to the Divine and to law. Of course, all things are related to the Divine, they issue from Him, are created by Him and thus reflect something of Him, each in its own way. A life-transaction that stems from such a view regards life and all its elements as sacred. A life-transaction devoid of this view, regards nothing as sacred, including human life itself. Nevertheless, in naming money as they did, and in the minting of coins in the temple and in connecting them to law itself rather than to mere economic technique, the Romans and Greeks showed the significance they attached to them.

And there is the key word that shows the framework within which we inevitably are inclined to locate these matters: technique, or as Ibrahim Lawson said:

Today, I would prefer to locate a philosophical understanding of usury within a wider perspective which includes the global slide into technik (or ‘technology’ in the broadest sense) as informing a proposed metanarrative encompassing every aspect of human existence. Once the essence of technik (which is nothing technical, as we will see) is revealed, we begin to realise how every part of life is now a product of the grasp it has on our cultures and civilisation, on our hearts and minds. It would not be inaccurate to say that technik has covered the world – nowhere are we free from it – it is the spirit of the age, the Zeitgeist

Functions of money

Jevons gives us a good first definition:

In its first form money is simply any commodity esteemed by all persons, any article of food, clothing, or ornament which any person will readily receive, and which, therefore, every person desires to have by him in greater or less quantity, in order that he may have the means of procuring necessaries of life at any time. Although many commodities may be capable of performing this function of a medium more or less perfectly, some one article will usually be selected, as money par excellence, by custom or the force of circumstances. (William Stanley Jevons, Money and the Mechanism of Exchange [1875], The Online Library Of Liberty, p.20)

It is important to catch one word here, which is the word ‘commodity’. Economists count gold and silver, the most common and universal forms of money throughout history,  as commodities. Mawlana Taqi Usmani mistakenly, in my view, denied this important point in his exposition of a passage by Imām al-Ghazali, may Allah be merciful to him. The valuable point the Mufti tried to make was that money itself cannot be a product to be bought and sold. Nevertheless, we contend with Jevons that it is the very fact of money being a commodity that facilitates its use.

Jevons defines its functions as, first:

(1) A medium of exchange.
(2) A common measure of value. 

To these he adds:

(3) A standard of value
(4) A store of value.

Today it is common to sum these up as:

“The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, perhaps, a standard of deferred payment. Any item or verifiable record that fulfills these functions can be considered money.”

It is a common fallacy to imagine that people had weighed up the uses of different types of money rationally and found the case for paper and credit cards to be as strong as that for gold and silver or indeed even stronger. But that was not how we arrived at the position we are in historically. Rather we entered through the door of technik into the vortex in which the gold and silver were hoovered up with increasing velocity into vaults and we were left with notes to remind us of their existence. That was the era of the ‘gold standard’. I would only add, almost in parentheses, that money at that time constituted a debt or an I.O.U. and as such was invalid for many transactions and invalid for payment of zakāh on ‘ayn – cash.

Islamic Economics as Legal Discipline

It is appropriate at this point to consider some issues pertaining to the view of the sharī‘ah on money. Rather than treating the entire issue thoroughly, for which we have neither space nor time, I want to have a look at some matters that are peripheral but which have been the central plank of an argument on behalf of paper and fiat money by some people.

The default position is that money, and remember that it meant ‘coin’, always consisted of gold, silver and copper or nickel. Lacking those, other things were certainly deployed at various times, anything from salt to stones. Indeed, ‘Umar g seriously considered issuing money based on camel hides:

ولقد كان عمر بن الخطاب قال‏:‏ هممت أن أجعل الدراهم من جلود الإبل‏.‏  فقيل له إذًا لا بعير‏.‏  فأمسك‏.‏

‘Umar ibn al-Khaṭṭāb had said, “I wanted to make dirhams from camel hides,” but someone said to him, “Then there would be no camels” and so he dropped the idea. (Al-Balādhurī, Futūḥ al-Buldān)

Similarly, Imām Mālik is cited in the Mudawwana as saying:

 ولو أن الناس أجازوا بينهم الجلود حتى يكون لها سكة وعين لكرهتها أن تباع بالذهب والورق نظرة.

“Even if people had regarded the use of leather hides among them to be permissible to the extent that they [the hides] had a mint and [were] cash, I would have deplored that they should be sold for gold and silver on delayed terms.” (Mālik ibn Anas, al-Mudawwana, “Delay in exchange for fulūs.”

This widely misunderstood phrase, along with the statement of ‘Umar, has been misinterpreted to justify fiat currency by saying that anything is acceptable as a currency as long as people accept it. Our first problem is that we actually do not really know what either ‘Umar or Mālik meant, since both of them raised the matter as a hypothetical one. 

  1. 1. Did they mean to exchange full hides of camels or usable sheets of leather or merely small tokens marked with the name of the sulṭān? The first two options would clearly constitute items that were in themselves commodities, but the third option could only mean a kind of fiat currency. 
  1. 2. Did they mean that the value of these leathers would merely consist in the stamp of the sulṭān upon them, thus innovating the idea of the state as the issuer of currency, something not to be found in the dīn?

Since, minting was simply a service provided by the sulṭān to the possessors of gold and silver for a charge, and since he was not the ‘issuer’ of the currency but the verifier of the purity of the metal and the weights of the coins, then it seems unlikely that ‘Umar considering innovating a fiat currency by simply writing his name on small leather tokens, or that Mālik would have sanctioned such an idea, averse as he was to innovation in the dīn.

No one actually knows, and yet on the basis of these two texts people have raised huge edifices of speculation justifying quiet submission to paper money and the state’s role as the issuer of currency.


Because of the intimate connection between banking and war, since bankers’ first and most important clients were kings and then the nation-states who went to war or had war forced on them, this hoovering-up of gold and silver was most pronounced during times of war. For instance, Spain’s many European wars swallowed up all her gains of physical gold from the New World and left her a third-world country. More germane to our story were the two world wars, whose main result was the transfer of Europe’s gold to American vaults. That necessitated the Bretton Woods Agreement of 1944:

The Bretton Woods Agreement established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group. The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to the U.S. dollar and the ability of the IMF to bridge temporary imbalances of payments. This means that the banknote was no longer redeemable in gold and silver; it was no longer a receipt. But all banknotes were exchangeable for dollars and the dollar was redeemable in gold and silver. This created the fantastic worldwide desire for dollars that subsequent decades saw. Contrary to agreement, the Americans did use the opportunity to manufacture as many dollars as possible and use them.

That era endured up until:

1965 – De Gaulle sought a return to the use of gold for repayment of loans between states.

Perhaps unsurprisingly, De Gaulle was removed from power, but, surprisingly, by student riots.

1971 – On 15 August 1971, the United States unilaterally terminated convertibility of the US$ to gold. This brought the Bretton Woods system to an end and saw the dollar  [and all other currencies] become fiat currency. This action is referred to as the ‘Nixon Shock’. Along with the oil shock of 1973, and OPEC’s decision in the 70’s to sell oil for dollars, even if not selling to the US, it created the situation in which the United States dollar became a reserve currency used by many states. At the same time, many fixed currencies (such as GBP, for example) also became free floating and traded against each other, bought and sold as commodities and speculated in.

Arguably we are on the ‘oil standard’ now except that our money is not redeemable with oil as paper money had been with gold at the time of the ‘gold standard’. Gold has vanished almost entirely into the vaults of the banks and we are left holding bits of paper and then credit cards. No one, however, had thought it through rationally or planned it. Thus the defence of fiat money rationally is merely apologetics.

Fractional Reserve Banking

The most conservative account of how banks create money is called Fractional Reserve Banking: when a customer makes a deposit, the bank retains a percentage as reserve, from 20% down to 3% or even less, and lends out the bulk of the deposit to someone else who also deposits it. The next bank retains some of that deposit but lends out the majority of it. This cycle continues until, with a reserve requirement of 10%, £100,000 deposited in a bank becomes £1 million in the banking system. Similarly, with a reserve requirement of 3%, £100,000 deposited in a bank becomes £3,333,333 in the banking system. Note that when the loans are repaid, the extra sums of money created vanish, but in the meanwhile the banks have earned on the interest charged on the loans. If we consider a modest 10% interest on the loans, then the first case yields £100,000 interest from a deposit of the same value, in other words 100% profit for the banking system, while in the latter case, it yields £333,333 on a deposit of £100,000, in other words 333% interest for the banking system as a whole. You can imagine the results obtained with larger real-world interest rates.

All of this is based on transacting in debts, which is ḥarām in the dīn.

This is something that can only happen when money ceases to be a tangible thing and becomes a mathematical entity, a number. It is, of course, a matter that long predates money becoming entirely a matter of fiat.

Fiat Money

Quickly money moved in a number of steps until it became fiat money. Fiat means ‘let it be done’. It is true that this can also be the imperial command ‘let it be done’, reflecting its Roman origins, but both usages ought to alert us to danger: the claim to divinity or the claim to empire and arbitrary despotic power.

Imperial Fiat

If we conceive of the issuance of fiat money as imperial edict, we cannot help but see that the edict does not issue from the traditional centres of power. Here are three barefaced admissions of the nature of money creation from the highest echelons of the banking industry:

The Bank of England published an extraordinary document in its quarterly bulletin of March 2014. It laid bare the actual mechanisms behind the creation of money today. Ordinarily this matter is only talked about by alternative economists or conspiracy theorists. The authors of this document wrote: 

Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. 
…The reality of how money is created today differs from the description found in some economics textbooks: 
• Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. 

But more astonishing than that admission is that Alan Holmes, then Vice-President of the New York Federal Reserve, had already admitted the same thing in 1969, when he said, “In the real world, banks extend credit, creating deposits in the process, and look for the reserves later.” That was confirmed yet again by another officer of the Federal Reserve when he said, ““In the real world, banks extend credit … and look for reserves later. In one way or another, the Federal Reserve will accommodate them”.

It had been justly stated by a British writer that the power to make a small piece of paper, not worth one cent, by the inscribing of a few names, to be worth a thousand dollars, was a power too high to be entrusted to the hands of mortal man. [John C. Calhoun, speech, U.S. Senate, Dec. 29, 1841]

What would Senator Calhoun have said about the power granted bankers to simply key in a few digits and thus create billions of dollars?

Divine Fiat

More tellingly, fiat means ‘let it exist’. In Genesis, “Fiat lux – let there be light” is the Divine command that began the universe and is the equivalent of the Qur’ānic command كُنْ فَيَكُونُ – “Be! and it is”.

بَدِيعُ ٱلسَّمَٰوَٰتِ وَٱلْأَرْضِ ۖ وَإِذَا قَضَىٰٓ أَمْرًا فَإِنَّمَا يَقُولُ لَهُۥ كُن فَيَكُونُ

The Originator of the heavens and earth. When He decides on something, He just says to it, ‘Be!’ and it is.” (2:117)

Thus, fiat represents something unique to the Divine, the ability to bring something into existence that had not previously existed. This arrogation of a uniquely Divine attribute introduces a troubling element into our theme, but it also introduces a puzzling one, for if we accept my premise, we would have to say that, since man does not Divine creative power, he cannot bring something into existence from nothing and thus we would have to conclude that what we call money simply does not exist. We are confronted with mass schizoid behaviour, as also depicted by Hans Christian Andersen in his metaphor of the Emperor’s New Clothes.


Bitcoin too is a kind of fiat currency but it contains elements that draw one to it and others that repel one. Clearly it appears to emerge from the hacker community and is imbued with the anti-capitalist ethos. Somehow with the failure of the libertarian movement and their various silver Liberty dollar and alternative gold initiatives, the impulse moved further into a quite radical direction. But the key word here is ‘emerge’. 

Gresham’s Law

Paradoxically, postulation of the false axiom that society is composed of selfish utility-maximizing individuals has produced precisely such a society, and it is a globalised one. The inexorable consequence is Gresham’s Law, which in paraphrase is “Bad money drives out good”. If people have the choice between using a bad money and a good money, they will salt away the good money and use and spend the bad money. If, in this setting, we launch gold and silver dinars and dirhams, selfish individuals will save with the gold and silver and spend their dollars, pounds, euros and ringits thus defeating the purpose of minting gold and silver coins in the first place. The only possible alternative to this bleak self-defeating picture is the restoration of the last unstated function of money: to act as a medium for the worship of Allah through acts of zakāh and ṣadaqah.


In 1967, the American Population Geneticist George Robert Price gave perfect mathematical expression to English evolutionary biologist William Donald "Bill" Hamilton’s work showing altruism to be consistent with evolutionary theory, i.e. that altruism is driven by selfishness. So perfect were his equations that Price, hitherto an atheist, became convinced he had been given them by God. He underwent a radical conversion experience to Christian, ultimately devoting himself selflessly to care for the poor and homeless, who repaid him with ingratitude, leading to his suicide in 1975. Such are the swings of the pendulum.

We have come to the end by following the consequences of an economic theory and a money based on the assumption of human selfishness. It is quite clear that this is the core of the issue, and it would be quite futile to erect yet another economic theory that does not acknowledge this matter.

But another theme has woven itself in spite of ourselves throughout this talk. A society is not an aggregate of its individuals; it is more complex than that. Just as the economists’ abstract society is not composed of an aggregate of utility-maximizing individuals, neither is a Muslim society an aggregate of good people, certainly not when ruled by bad people but not even when ruled by good people. A Muslim society with its markets is more complex than that. That is why, the way forward can only lie in going back, back to the model of Madina, which, in the Muwaṭṭa’ of Imām Mālik has also the fullest record of the marketplace and its practices. Within that context, then the restoration of the sane altruism of Islam with its core pillar of a collected zakāh renews the idea of currency utilised as a societal act of worship akin to the jama’ah of the ṣalāh in the mosque, collected by the amir and his collectors and distributed to the  poor and needy and other categories deserving of it. Thus we might live to see a society such as that portrayed by Dr. Riyad Asvat in his lecture on the Awqaf:

Ottoman society during the Orhan Gazi era was at such a level of affluence that there was virtually no one to accept the zakat.

Indeed, Dr. Asvat demonstrated most ably that Ottoman society was one very much given to charitable endeavours with its huge base of Awqaf endowments sustaining welfare, education and kindred matters.


That brings us to the end of my lecture. Thank you for your attention. Assalamu alaykum.