Historical and Ideological Peculiarity of the Monetary Institutions: Islamic and Austrian School’s Perspectives

Abstract

Study of history suggests that every civilization creates monetary institutions based on its political and economic objectives which are grounded in the meta-normative position of the civilization. History also tells that importing political, economic and social institutions from one civilization to another leads to undesirable results. In this context, this chapter reviews the perspectives of Austrian School of Economics on the subject, which reveals that capitalist monetary system – bred over past few centuries in a modern western civilization to accomplish capitalist objectives – cannot achieve the objectives of Islamic economics, as it is not designed to do so. The deductive analysis in this chapter infers that the objectives of equitable distribution of wealth, security of purchasing power or value of money, price stability, facilitation of the lower segments of the society, prevention of flight of capital and preservation of a collectivist spirit of the Islamic society are not meant to be achieved by the monetary system designed in the capitalist society. The paper argues that the capitalist monetary system is rather meant to facilitate the accumulation of capital often leading to negative externalities, as per Austrian school’s perspective, which Islam does not approve. The paper also debates some community level alternatives in the end.