Islamic money and banking : integrating money in capital by Iraj Toutounchian

By Iraj Toutounchian

This publication examines how funds, within the absence of curiosity (Riba) and cash industry can turn into an endogenous variable of an financial system. It additional attempts to combine cash in capital idea and to make financial region a part of the true quarter aiming at elimination the issues that come up from separation of the 2

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1 The Keynesian cross Expenditure AS NNP In brief, we can write: AS → M ≡ P × Q The important lesson that can be learned from the above analysis is that in the process of moving from changes in output to changes in the stock of money (that is, Q → M) nothing is gained from considering either the inside money or outside money, through their real balance effects, as a part of a nation’s wealth. By far, the most comprehensive work in the literature defining money based on the medium-of-exchange concept is that of professors Pesek and Saving, who argue that money, including demand deposits in its total, is a net worth to society (Pesek and Saving 1967; Saving 1970).

Thereafter, money was thought to be a ‘‘private good’’ whose price is the interest rate and determined in the money market. As we saw above, it also entered as an argument in the utility function! Whether all these apparent developments are legitimate or not is of concern to us here, especially in the absence of interest (rate). We would do well to remember that money was originally invented to solve certain economic problems, such as increasing efficiency as society developed beyond the barter economy.

In other words, societies essentially started with goods and arrived at money, with the transactions taking the form C–M–C. 7 Here, economy changes its nature from C–M–C to M–C–M, from which the money market and its derivatives emerge. If we consider real commodities, actual labor and other factors of production embodied in them, we can think of money (that is, potential capital) in an Islamic setting as a mediator possessing the capacity to convert potential factors of production, in a specific production function having the form of actual capital, into real commodities.

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