Micro-money, finance and real economy interrelationship in the framework of Islamic ontology of unity of knowledge and the world-system of social economy

• Main Author: Choudhury, Masudul Alam
• Format: Article
• Published: Emerald 2018
• Subjects: BP Islam. Bahaism. Theosophy, etc; HG Finance
• Online Access: http://eprints.um.edu.my/22192/; https://doi.org/10.1108/IJSE-11-2016-0340

Purpose – The purpose of this paper is to explain the structure of Islamic monetary transformation into 100 percent reserve requirement monetary system in terms of the foundational epistemology of the unity of divine knowledge (tawhid). This approach is a scholarly originality in the field of epistemological formalism concerning Islamic theory and perspectives in economic reasoning in comparative perspectives. Design/methodology/approach – The role of micro-money pursuing projects and real economic exchange relations is shown to arise by a natural causality in the ethical social economy (SE). This results in a microeconomic perspective of the quantity theory of money with ethical and social implications. A comparative study of endogenous money in the quantity theory of money points out significant differences between the theory of endogenous money in Islam and mainstream methodologies. A formal model of micro-money and its organismic endogenous relationship with the real economy is formulated with the goal of realizing social well-being, economic stabilization, and sustainability of development regimes. Findings – This is a conceptual paper, though with the potential for continued work in applying the theory of micro-money in the Islamic methodological perspective of unity of knowledge. This is an original contribution of this paper. Islamic economists have not been able to produce a rigorous theory of micro-money. They have also not been able to situate the study of Islamic economics with its specific contribution to the field of the nature of money in project-specific financing of Islamic projects by the money-finance-real economy inter-causal relations. Thus, the findings of this paper, though of the conceptual nature, open doors to a vast field of methodological development and its application to the problem of micro-money modeling. Such a conceptual finding arising from the methodological theory of unity of knowledge and applied to the topic of micro-money along with some examples of potentiality of these approaches constitutes a vastly original field of findings as contribution. Thereby, an analytical model is established in the Islamic social economy (ISE) perspective. The model is used to explain monetary transmission and functioning of monetary policy with instruments that avoid interest rate and comply with Islamic financing requirements. The resulting model of money, finance, and real economy (MFE) systemic interrelationship in reference to the epistemology of unity of knowledge leads into the construction of a 100 percent reserve requirement monetary system with the gold-backed micro-money as currency complementing real economic transactions. Research limitations/implications – The present paper is of a conceptual type based on the essential ontological and epistemological foundation of Islamic social and economic thought and bearing a deeply scientific implication. The conceptual part of this paper becomes a study in the foundations. The second part follows into the study of application in the real world of micro-money in terms of financing projects. Micro-money pursues projects in the Islamic economy due to its very nature of ethical and social choices. The paper shows that such a micro-money transmission is realized by the money-finance-real economy integrated model. Thereby, some real-world examples of such transformations are given. All these together substantiate the conceptual-analytical-empirical nature of the study conducted. Practical implications – The development of the micro-money transmission system of generalized circular causation interrelations between MFE activities as a return to 100 percent reserve requirement monetary system with the gold standard is the profound theory that has been propounded. Its applied perspectives are implied through the MFE-model wherein micro-money pursues social projects. Furthermore, the possibility and practicality of such a conceptual model of micro-money and its transmission mechanism in the real economy are established by real-world examples of kinds of micro-money that are found to circulate or are recommended by some studies in the literature. Social implications – The conceptual part of the paper presents a model of generalized epistemological model of unity of knowledge characterizing the MFE circular causal interrelations as the organismic meaning of social ethics and evolutionary learning. The social implications are the epistemic foundations of the derived model in the midst of choices of life-fulfillment projects that micro-money finances and the economy sustain. Originality/value – This is an original paper premised on the general and the specific Islamic epistemological criterion of unity of knowledge as a generalized system theory. It is now particularized to the case of money and real economy by using the Islamic perspective of creating conditions to regenerate resources continuously in SE with ethical implications. The paper is equally informative to all who like to understand the social and ethical nature of endogenous relations between money and the real economy as two great institutions of the national economy. These together bestow well-being to the society at large in the construction of SE. Specific attention in this regard is given to ISE.