שמע ישראל ה' אלהינו ה' אחד
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Jan 8, 2014

What Is Money

Posted By Snow at 1/08/2014
I thought about gold as money after reading a king buys something with 10,000 gold coins in an ancient tale. So, is that what money was? If so, since no gold metal = no gold coins - the money must have been limited to the amount of gold metal. The amount of money that can be made is limited.


 1  Free Flow Of Money

Since the money is limited, the way for the financial system to work is to have the money free flow around in society. E.g.: when you get money, you either pay, buy or donate.  So the money goes to someone else, but you get services, goods or charities in return. These services, goods or charities - are what fulfills your needs - NOT the money.

You may save a bit. But as long as people do not hoard the money, the free flow may reach everyone. والذين إذا أنفقوا لم يسرفوا ولم يقتروا وكان بين ذلك قواما [Q25:67] الحمد لله


 2  Fair Lending

Say you lend 1 gold coin. You cannot account 2 gold coins in your book (1 debt, 1 usury) - as that adds an extra gold coin that does not exist. Simply put - imagine, if the nation has 100,000 gold coins owned by just one person, & he lent it all to you to be returned 200,000 - where are you going to get another 100,000 coins?

That extra coins DOES NOT EXIST.
So no usury. لا تأكلوا الربا [Q3:130 | Q 2:278-279 | QA Debt]


 3  Price By Demand

In the modern system, prices are set by demand. Say, less wheat harvest causes higher demand for it. So the ones who can pay more money gets the bread. The ones who can't, have nothing. But is this fair? The rich will have bread, and the poor will be hungry. ألهاكم التكاثر... ثم لتسألن يومئذ عن النعيم [Q102 | 90:6-20]

So remain the price & share the bread. وفي أموالهم حق للسائل والمحروم [Q51:19 | Q30:39] This way, burdens will be held collectively, and it is not grieving a section of society.

Maybe Allah SWT will open other ways - more corn, potato, rice harvest? ماشاء الله

& traders can't reduce supplies to increase demand & price as well.
لا يحتكر إلا خاطئ [AD23.3440, AN44.57]


 4  Price Inflation By Time

In the modern system, prices increase by time. Say:
Then: 1 loaf of bread = $0.10
Now: 1 loaf of bread = $1.00

Why is that? See how with $1, you can buy 10 loaves back then, but now you can only buy 1. Even if you have $9 now, you still buy less bread than before. So even with more money, YOU ARE POORER. If this goes on, one day you may need $100 to buy a loaf of bread. The money devalues so much, $1 can't buy anything it is worthless.

Increasing prices may seem to increase wealth. But the reality is, it devalues money. The less money you need to buy goods, the more powerful the money. ما أحد أكثر من الربا إلا كان عاقبة أمره إلى قلة [IM3.12.2279]


 5  Investment & Share Price

OK now you wanna invest in business. The nature is - it can profit, it can lose - there is simply no guarantee, so a rate of return cannot be promised. Just work & pray the business prospers! If you expect a full return (no more no less), that money is a loan. If you expect a rate of return like a loan interest - that could be usury.

OK now lets invest. I'm a beginner... The way I think of it is - when a company offers 1,000 unit of shares at $1 each - they get $1,000 capital & investors get shares in the company.

Only when the company profits, say $200, can it reinvest in growth & give dividends:
. $10 to Mr A who owns 100 units (10% shares)
. $30 to Ms B who owns 300 units (30% shares)
. $60 to you who owns 600 units (60% shares)

Then, the great mystery to me is, why does share prices go up & down in the stock market? Imagine if  the share price skyrocket from $1 to $10,000 per unit - if you sell 100 units which you paid for only $100, you are a millionaire. Do I even get this right? So, what drives that - is it the share trading? But who sets the numbers & pay so exorbitantly?

Since money is not a commodity - we cannot trade money, we trade goods using money. Money is a tool. So if share units represent money (capital), should trading it be forbidden?


I'm still learning! Wishing for the best monetary system.

I seek refuge in Allah SWT from errors.
Only Allah SWT Knows Best والله أعلم

بسم الله الرحمن الرحيم
وكأين من دابة لا تحمل رزقها الله يرزقها وإياكم وهو السميع العليم

And how many a creature carries not its (own) provision.
Allah provides for it and for you. And He is the Hearing, the Knowing.

[Holy Quran 29:60]
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The water is from the rain, fruits are from trees, milk are from lambs, bricks from the earth - all given free. الحمد لله It's only how we cultivate it. وابتغوا من فضل الله [Q62:10]
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4 comments on "What Is Money"

Snow on Mar 3, 2015, 9:14:00 AM said...

People should understand that, even with a billion dollar, but without goods, that billion is worthless coins & paper, the nation will die as there is no food to eat. But with a billion goods & services, with or without money, life is fine. These - services, goods or charities - are what's important, NOT the money.

The simplest way to learn this is, read King Midas.

You don't eat money. You eat bread → Plant wheat.
You don't drink money. You drink milk → Milk sheep.
You don't wear money. You wear clothes → Spin cotton.
You don't live in money. You live in a house → Stack clay bricks, tiles.
You don't build fiber optic cables from money → Make glass.
You don't make vaccine from money. → Use chemical elements.

In the first place, everything is free. الحمد لله

If only mankind distribute these resources efficiently, volunteer workmanship & walla. ماشاء الله Yes I believe if there is an efficient system to distribute resources & workmanship, mankind can achieve a high tech civilization even without money. Maybe it will be like an ant colony, ha ha the ants did it first, no wonder King Solomon (PBUH) laughed in amusement. ماشاء الله

Maybe if one is greedy, it can say "that's so human!" (>v<)

Snow on Mar 3, 2015, 9:14:00 AM said...

Destiny is amazing! ماشاء الله

I switched on the TV & saw luxury dining show about expensive truffles. The truffles are kept in a fancy case like jewelry & it's so expensive they barely experiment recipes with it. Then, I saw how they get truffles - from the ground. Yeah the truffles are free in the first place. ماشاء الله

Snow on Mar 3, 2015, 9:15:00 AM said...

Yahya related to me from Malik that he had heard that Umar ibn al-Khattab said, "There is no hoarding in our market, and men who have excess gold in their hands should not buy up one of Allah's provisions which he has sent to our courtyard and then hoard it up against us. Someone who brings imported goods through great fatigue to himself in the summer and winter, that person is the guest of Umar. Let him sell what Allah wills and keep what Allah wills." [Muwatta Malik 31.56]

Snow on Mar 8, 2015, 11:34:00 AM said...

I once saw an interesting way to raise money for an infrastructure project - its by offering citizens to buy shares in it. E.g: to build a highway, citizens bought shares in the project - when the highway is completed & profits, they get dividends. Hope it can be done with commercial buildings etc. الحمد لله

There's also waqf (وقف), where citizens can contribute to a charitable trust that run projects. E.g.: a public library, medical facility run & sustained by citizens. الحمد لله


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