A Young Muslim's Book of Money

by Abdassamad Clarke

Some people work all their lives for it. Some people have huge amounts of it, and some have almost none. Some steal it, some kill for it. Some men and women marry for it. Some people gamble everything they can, hoping to win more of it and some actually do win, but most lose. Some lie for it, some die for it. Many nations go to war for it. Most of the films we see and a great many of the stories we read are about people who do many of the above things for it. But what is money?

I am not going to try and answer this question with the help of famous economists. You will not find Adam Smith mentioned. Nor will you find Marx, Ricardo, or Milton Friedman. We will not talk a lot about inflation, gross national product or index-linked bonds. We will miss out many things that are supposed to go into a book on economics. We will also miss out many things that people now think ought to go into a book on Islamic Economics. However, we will write many things that economists and 'Islamic' eocnomists do not talk about and which you really ought to know. If that disappoints you, this is not the book for you. Otherwise, read on.

Where Does Money Come From?

In England, money is printed and minted by the Bank of England. In America it comes out of the Federal Reserve Bank. There are similar banks in every country.

In America it costs approximately 4 cents to print a $1 note. Presumably, it also costs about 4 cents to print a $100 note. The people who print these notes pay 4 cents and for very little expense they get lots of dollars. That is a very good business.

You can understand why other people want to get into that business. Some people use colour photocopiers to make their own money. We are not saying that they are right to do that, but that the people who own banks are wrong to do what they are doing. They are also forging money.

It is actually illegal in many countries, including Britain, to use gold and silver coins to buy and sell. They are not 'legal tender'. We have to use paper money and the coins that everyone uses. To do that we are supposed to have jobs and earn money, or start businesses. If people want more paper money than they can earn in those ways, they have to go to the bank and ask them very politely if they can have some. People then have to agree to pay extra for the use of the bank's dollars or pounds.

Let us take a look at one of the institutions that make money.

The Bank of England

The Bank of England was founded in 1694 and it issued its first paper money in 1696. Before that time there had only once before been any kind of official paper money in Europe. During wartime, the Swedish government had printed paper money. Really, that paper money was an IOU, ie "I owe you the amount of money that is written on this note and I will pay you back after the war." The Swedish king and his government had run out of gold and silver and they had to use this trick to keep running.

Everybody in Europe used gold and silver coins to pay each other. Why then did the English create the Bank of England? Why did they make those first banknotes? The reason again is like the story from Sweden: there was a war.

The merchants and businessmen had become very important in Britain. They kicked out the old British king, James the Second. They invited in a new king from Holland, William of Orange. The people didn't really like that very much. They felt that the old king was the right king, and they couldn't just kick him out because they didn't like him.

James went to France where the French king gave him some support. He wanted an army to return and fight William. William too had to raise an army. Armies cost money, a lot of money. Kings used to borrow money from someone, pay for the war, win the battles if they could and then tax everybody to pay back the loan.

But William had a problem. If he taxed everybody to pay for this army and this war, he would have to increase taxes a lot. People already did not like him. If he taxed them a lot, they would like him even less and perhaps they would fight against him.

William's problem was also a problem for the businessmen who had invited him to come. If he was defeated they would be in trouble and so they came up with a plan.

The National Debt

That plan resulted in the Bank of England and the National Debt. Neither a national bank nor a national debt had ever been seen or heard of before. There had been banks before, in Italy, Germy and Holland, but they were not national banks. Kings had debts before, but they paid them off.

The deal was that the businessmen lent William £1,200,000 in real money, gold and silver, not paper money. They charged him 6% interest per year on the loan, but the idea was that he would never repay the loan. If William had to repay the loan, as we saw, he would have had to put taxes up too much in order to repay more than a million pounds. Remember that was an enormous sum of money at that time.

With just a small increase in taxes, he could pay 6% every year without too much bother. Of course, after some years he had repaid much more money than the original debt, but that was concealed. It is very similar to the situation when people today buy houses through mortgages. In some countries they are paying as much as three times the price of their house. Because they do that over many years it doesn't seem so much to them. That is why it is called a 'mortgage' Ð 'a death pledge'.

William's not repaying the loan was a part of their plan. Then the question arose as to who would be responsible for the debt. The nation became responsible and so it is called the National Debt, and as far as I know it was the first ever in history. This is the real beginning of modern democracy: the nation are responsible for the national debt. Very quickly the debt grew to be much larger than that £1,200,000 and now, of course, it is enormous.

Paper money

That wasn't all of their plan. The businessmen knew that William wasn't in a good position to make bargains. They got as much out of him as they could. They got the right to make paper money. They were allowed to make exactly the same amount of paper money Ð £1,200,000 Ð as they had lent the king. They lent that paper money to people at exactly the same rate of interest, 6%, so they lent the same sum of money twice and charged interest for it both times.

This strange behaviour is now regular practice. Whenever a government takes a loan from the banking system, the banks call it an 'asset'. They then lend the same amount of money to people at interest. I told you that this would be one of the strangest stories.

This first paper money was not printed. They wrote out the banknotes by hand and the Governor of the Bank signed each one by hand. A few years later, they printed all the notes but the Governor still signed each one by hand.

Now, this is a book by a Muslim published by an Islamic publishing company. Our books are largely read by Muslims or people drawn to or interested in Islam. You might well ask why we are writing this book. It is because every country in the world, including every single Muslim country, has followed the same road that these people did. Every country now has a national bank, a national paper currency, a national debt and enormous taxation. It is very interesting for us to see how it all started.

We are so used to money and banks that we almost assume that they were always there. But the Native American peoples and the Celts didn't have banks, nor did they have paper money. Neither did the Arabs nor the people of the sub-continent of India. Neither did the Messenger of Allah, may Allah bless him and grant him peace, establish a national debt, massive loans at interest, or paper money, so where did all this come from? Obviously banks weren't always there. Let us go a little further back in European history.