The first credit crisis : Roman Edition

In such an extensively monetised economy, it is hardly surprising that the Romans were also well acquainted with another familiar feature of modern finance: the credit crisis. Occasionally, the similarities with the modern age are nothing short of eerie. In AD 33, the Emperor Tiberius’ financial officials were persuaded that the recent boom in private lending had become excessive. It was decided that regulation must be tightened in order to extinguish this irrational exuberance. After a brief review of the statutes, it was discovered that none other than the father of the dynasty, Julius Caesar, had in his wisdom instituted a law many decades before specifying strict limits on how much of their patrimony wealthy aristocrats could farm out in loans.9 He had, in other words, introduced a rigorous capital adequacy requirement for lenders. The law was clear enough: but not for the first time in history, industrious lenders had proved remarkably skilled at circumventing it. Their ingenious evasions, the historian Tacitus reported, ‘though continually put down by new regulations, still, through strange artifices, reappeared’.10 Now the emperor decreed the game was up: the letter of the old dictator’s law would be enforced. The consequences were chaotic. As soon as the first ruling was made, it was realised with some embarrassment that most of the Senate was in breach of it. All the familiar features of a modern banking crisis followed. There was a mad scramble to call in loans in order to comply. Seeing the danger, the authorities attempted to soften the edict by relaxing its terms and announcing a generous transitional period. But the measure came too late. The property market collapsed as mortgaged land was fire-sold to fund repayments. Mass bankruptcy threatened to engulf the financial system. With Rome in the grip of a credit crunch, the emperor was forced to implement a massive bailout. The Imperial treasury refinanced the overextended lenders with a 100-million sesterces programme of three-year, interest-free loans against security of deliberately overvalued real estate. To the Senate’s relief, it all ended happily: ‘Credit was thus restored, and gradually private lending resumed.’

Excerpted from “Money: an unauthorized biography” by Felix Martin

What is money?

MONEY IN AN ECONOMY WITHOUT BANKS

On 4 May 1970, a prominent notice appeared in Ireland’s leading daily newspaper, the Irish Independent, with a simple but alarming title: ‘CLOSURE OF BANKS’. The announcement – placed by the Irish Banks’ Standing Committee, a group representing all of Ireland’s main banks – informed the public that as a result of the severe breakdown in industrial relations between the banks and their employees, ‘a position has now been reached where it is impossible for the undermentioned banks to provide even the recent restricted service in the Republic of Ireland’. ‘In these circumstances it is with regret,’ the notice continued, ‘that these banks must announce the closure of all their offices in the Republic of Ireland on and from Friday, 1st May, until further notice.’

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It may come as a shock to learn that virtually the entire banking system in an advanced economy could have shut down overnight as recently as in 1970. At the time, however, this development was widely expected – not least because it had happened once before, in 1966. The matter of dispute between the banks and their employees was a familiar one in the Europe of the late 1960s: the extent to which pay was keeping up with prices. High inflation throughout 1969 – by the autumn, the cost of living had risen by more than 10 per cent over the previous fifteen months – had prompted a demand by the employees’ union for a new pay settlement. The banks had refused, and the Irish Bank Officials’ Association had voted to strike.

From the beginning, it was expected that the banks’ closure would not be short-lived, so preparations were made. The first reaction of businesses was to stockpile notes and coins. The Irish Independent reported that:

There were massive withdrawals of cash throughout the country as firms built up their reserves in anticipation of a shutdown. Insurance companies, safe dealers, and security firms are expected to do brisk business while banks remain closed. Factories and other concerns with large payrolls have arranged to obtain ready cash from large retailers such as supermarkets and department stores to meet wage bills.31

But in the first month of the crisis, it became apparent that things might not turn out quite as badly as feared. The Central Bank of Ireland had deliberately accommodated the additional demand for cash in March and April, so there were about £10 million more notes and coins in circulation in May than usual. There was an inevitable tendency for the stream of payments to give rise to gluts of small change in some places – generally shops and other retail operations – and dearths in others – usually wholesalers and public institutions which had no reason to take in cash in the course of their daily business. The Central Bank even made a vain plea to the state-owned bus company to have it distribute cash to passengers. But these blockages in the circulation of coins and notes proved a relatively minor inconvenience.

The reason was that the vast majority of payments continued to be made by cheque – in other words, by transfer from one individual’s or business’ current account to another’s – despite the fact that the banks at which these accounts were all held were shut. In its review of the whole affair, the Central Bank of Ireland noted that prior to the closure ‘some two-thirds of aggregate money holdings are in the form of credit balances on current accounts, the remainder consisting of notes and coin.’32 The critical question, therefore, was whether this ‘bank money’ would continue to circulate. For individuals in particular, there was really no other option: for any expenses in excess of the cash they had in hand when the banks shut their doors on 1 May, their only hope was to write IOUs in the form of cheques and hope that they would be accepted.

Remarkably, as the summer wore on, transactions continued to take place and cheques to be exchanged almost exactly as usual. The one difference, of course, was that none of the cheques could be submitted to the banks. Normally, this facility is what relieves sellers of most of the risk of accepting credit payments: cheques can be cashed at the end of every business day. With the banking system shut, however, cheques were for the time being just personal or corporate IOUs. Sellers who accepted them were doing so on the basis of their own assessment of buyers’ credit. The main risk, therefore, was of abuse of the improvised system. Since cheques were not being cleared, there was nothing in principle to prevent people writing cheques for amounts that they did not have. For the system to work, payees would have to take it on trust that payers’ cheques were not going to bounce – and all this when they had no clear idea when the banks would reopen and allow them to find out. The Times of London was following events over the Irish Sea with interest – and in July it noted both the extraordinary fact that nothing much seemed to have changed, and the apparent fragility of the situation. ‘Figures and trends which are available indicate that the dispute has not had an adverse effect on the economy so far,’ wrote its correspondent. ‘This has been due to a number of factors, not least of which is the prudence which business has exercised against overspending.’ But could the balancing act continue? ‘There is now, however, a psychological risk that if the dispute drags on, caution will be cast aside, particularly by smaller businesses.’33

Sure enough, cracks did begin to appear here and there. A month into the closure, there was a scare when some livestock markets announced that they would no longer accept private cheques.34 In July, a farmer from Omagh who had been convicted of smuggling seven pigs into the Republic was unable to pay the £309 fine handed down to him, for want of ready cash.35 And over the summer, the business lobby – encouraged by the banks and exasperated by the expenses they were incurring to find ways round the closure – began planting scare stories in the newspapers claiming, for example, that ‘a rapidly growing paralysis is spreading through the economy because of the banks dispute’.36 But the evidence collated by the Central Bank of Ireland once the crisis was finally resolved in November 1970 showed quite the opposite. Their review of the closure concluded not only that ‘the Irish economy continued to function for a reasonably long period of time with its main clearing banks closed for business’, but that ‘the level of economic activity continued to increase’ over the period.37 Both before and after the event, it seemed unbelievable – but somehow, it had worked: for six and a half months, in one of the then thirty wealthiest economies in the world, ‘a highly personalized credit system without any definite time horizon for the eventual clearance of debits and credits substituted for the existing institutionalized banking system’.38

In the end, the main impediment imposed by this highly successful system turned out to be logistical. By the time the banks and their employees finally reached a new pay settlement, and it was announced that the banks would reopen on 17 November 1970, an enormous volume of uncleared cheques had accumulated with individuals and businesses. Advertisements were placed in the newspapers warning customers not to submit all of them at once, and forewarning that it was unlikely that account balances would be reconciled fully for several weeks. It was another three months – until mid-February, 1971 – before matters had returned completely to normal. By then, a total of over £5 billion of uncleared cheques written during the period of the closure had been submitted for clearing. This was the money that the Irish public had made for itself while its banks were on strike.

How had this apparent miracle of spontaneous economic co-operation come to pass? The general consensus after the event was that several features of Irish social life were uniquely conducive to its success: not least, that most famous feature of all, the Irish public house. The basic challenge was that of screening the creditworthiness of those paying by unclearable cheque. Ireland had an advantage in that communities, both in the countryside and in the cities, were close-knit. Individuals had personal knowledge of most of the people they transacted with, and so were comfortable forming judgements as to their creditworthiness. But by 1970 Ireland was nevertheless a diverse and developed economy, so this could not always be the case. It was here that the Republic’s pubs and small shops came into their own, by serving as nodes in the system, collecting, endorsing, and clearing cheques like an ersatz banking system. ‘It appears,’ concluded the Irish economist Antoin Murphy, with admirable circumspection, ‘that the managers of these retail outlets and public houses had a high degree of information about their customers – one does not after all serve drink to someone for years without discovering something of his liquid resources.’39

THE HEART OF THE MATTER

The case of the Irish bank closure provides an unusually useful opportunity to understand more clearly the nature of money. Like Furness’ report from Yap, it forces us to reconsider what is essential to the functioning of a monetary system. But because the Irish case is so much closer in time and technology to our own, it is much more suitable for economic triangulation. The story of Yap showed that the conventional theory of the origins and nature of money is confused. The story of the Irish bank closure helps point the way to a more realistic alternative.

The story of Yap stripped away a central, misleading preconception about the nature of money that had bedevilled economists for centuries: that what was essential was the currency, the commodity coinage, which functioned as a ‘medium of exchange’. It showed that in a primitive economy like Yap, just as in today’s system, currency is ephemeral and cosmetic: it is the underlying mechanism of credit accounts and clearing that is the essence of money. We were left with a very different picture of the nature and origins of money from the one painted by the conventional theory. At the centre of this alternative view of money – its primitive concept, if you like – is credit. Money is not a commodity medium of exchange, but a social technology composed of three fundamental elements. The first is an abstract unit of value in which money is denominated. The second is a system of accounts, which keeps track of the individuals’ or the institutions’ credit or debt balances as they engage in trade with one another. The third is the possibility that the original creditor in a relationship can transfer their debtor’s obligation to a third party in settlement of some unrelated debt.

This third element is vital. Whilst all money is credit, not all credit is money: and it is the possibility of transfer that makes the difference. An IOU which remains for ever a contract between just two parties is nothing more than a loan. It is credit, but it is not money. It is when that IOU can be passed on to a third party – when it is able to be ‘negotiated’ or ‘endorsed’, in the financial jargon – that credit comes to life and starts to serve as money.Money, in other words, is not just credit – but transferable credit. As the nineteenth-century economist and lawyer Henry Dunning Macleod put it:

These simple considerations at once shew the fundamental nature of a Currency. It is quite clear that its primary use is to measure and record debts, and to facilitate their transfer from one person to another; and whatever means be adopted for this purpose, whether it be gold, silver, paper, or anything else, is a currency. We may therefore lay down our fundamental Conception that Currency and Transferable Debt are convertible terms; whatever represents transferable debt of any sort is Currency; and whatever material the Currency may consist of, it represents Transferable Debt, and nothing else.40

As we shall see, this innovation of the transferability of debts was a critical development in the history of money. It is this, rather than the graduation from a mythical barter economy, which has historically revolutionised societies and economies. In fact, it is barely an exaggeration – if we make allowance for the unmistakable overtone of Victorian melodrama – to say, as Macleod did:

If we were asked – Who made the discovery which has most deeply affected the fortunes of the human race? We think, after full consideration, we might safely answer – The man who first discovered that a Debt is a Saleable Commodity.41

The recognition of this third fundamental element of money is important. It explains what determines money’s value – and why money, even though it is nothing but credit, cannot just be created at will by anyone. For sellers to accept buyers’ IOUs in payment, they must be convinced of two things. They must have reason to believe that the debtor whose obligation they are about to accept will, if it comes to it, be able to satisfy their claim: they must believe, in other words, that the money’s issuer is creditworthy. This much would be enough to sustain the existence of bilateral credit. The test for money is more stringent. For credit to become money, sellers must also trust that third parties will be willing to accept the debtor’s IOU in payment as well. They must believe that it is, and will remain indefinitely, transferable – that the market for this money is liquid. Depending on how powerful are the reasons to believe these two things, it will be easier or harder for an issuer’s IOUs to circulate as money.

It is because of this third critical element of transferability that money issued by governments, or by the banks which governments endorse and backstop, is thought to be special. Indeed, there is an influential school of thought – known as chartalism – which argues that governments and their agents are the only viable issuers of money.42 But the story of the Irish bank closure exposes this as another misleading preconception. The closure of the Irish banks showed that the system of credit creation and clearing need not be the officially sanctioned one. The official system – the banks – was suspended for the best part of seven months. But money did not disappear. Like the infamous fei that sank to the bottom of the sea, the associated banks suddenly vanished – and with them the official apparatus of credit accounts and clearing – and yet money continued to exist.

The Irish bank closure demonstrates that the official paraphernalia of banks and credit cards and solemnly printed notes with unforgeable insignia is not what is essential to money. All of this can disappear and yet money still remains: a system of credit and debt, ceaselessly expanding and contracting like a beating heart, sustaining the circulation of trade. What matters is only that there are issuers whom the public considers creditworthy, and a wide enough belief that their obligations will be accepted by third parties. For governments and banks to fulfil those two criteria is generally easy; whereas for companies, let alone individuals, it is generally hard. But as the Irish example goes to show, these rules of thumb do not apply universally. When the official monetary arrangements disintegrate, it is surprising how effective society is at improvising an alternative.

EXCERPTED FROM “MONEY: THE UNAUTHORIZED BIOGRAPHY” by Felix Martin

Simplistic history of money and fractional reserve banking

The sovereign’s capacity to issue money afforded one specific benefit: the creation of seigniorage, the ability to profit directly from the issuance of currency. These days, seigniorage arises because of the interest-free loan that a government obtains by printing money on comparatively worthless pieces of paper. But when currencies were associated with particular weights of precious metals, monarchs exploited this power through more overt methods. Many would “clip” gold or silver coins to melt down and redeem the value of the shavings. Before coins were assigned specific numerical values, rulers would “cry down” the arbitrarily assigned value of a specific coin—by declaring that it could now buy less of a certain useful commodity or contribute less than previously to the settlement of a tax bill. In effect, the monarch was recanting on a promise to honor IOUs at a certain rate and so got to write off his or her debts in accordance with the size of the cry-down. By the same token, the crown’s subjects were forced to come up with more money to meet their debts. Needless to say, this irritated the moneyed classes—the nobles and aristocrats, and later the bourgeoisie, for whom the periodic, arbitrary depreciations could amount to significant reductions in wealth. As their resistance to this abuse of power grew, it gave rise to some of the great liberal ideas upon which modern democracy is based, ideas behind the founding of America and the French Revolution. Now, this same spirit of resistance is found among bitcoin evangelists.

Well before the medieval European monarchs even had coins to tinker with, Chinese emperors were taking money into its next phase of technological development. In the ninth century A.D., when regions such as Szechuan experienced shortages of the bronze they’d used for coins, government officials began experimenting with letters of credit that functioned as a form of paper money. Then, in 1023, the Song dynasty issued full-blown sovereign-issued paper money across the kingdom.

In Europe, the struggle between the private and the public sectors for control over money has a much deeper history. While many complained about the sovereign’s constant debasement of the currency, some developed work-arounds that created de facto private money.

The most impressive of these was the écu de marc, a form of currency developed and used by the merchant bankers who emerged out of the Italian Renaissance and which allowed them to expand their business internationally. Based on an exchange rate jointly agreed upon by the merchants, the écu de marc allowed the exchange of bills of trade from different banks in different countries. The sovereigns in each land kept tight control over their currencies, but this banking class was developing its own international exchanges through the wonder of credit creation. The bills financed shipments—say of shoes made in Venice to an importer in Bruges—that enriched the manufacturer, but the real profit spinner lay in trading the paper, a lesson that would be passed down through generations of bankers to the present day. “For the first time, a private-sector community had come up with a de facto money-creation machine. This direct threat to the sovereignty of monarchs gave rise to a political clash as the kings and queens of Europe feared that their monopoly powers were being eroded.

But the bankers didn’t want political power per se. They were pragmatic businessmen, as they would prove to be for centuries afterward. They would use the leverage of private money to strike deals with governments, sometimes as a threat but mostly to wheel and deal their way to more wealth.

This negotiation between the sovereign and these new private generators of money would find its ultimate expression in the royal charter that founded the Bank of England in 1694. The BOE, as bond traders in London’s City now call it, was formed at the behest of King William III, who wanted to build a world-class navy to take on France, then the dominant power on the high seas. “The privately owned bank—the BOE was not nationalized until after the Second World War—would lend the Crown £1.2 million, a massive sum for its time, and could then issue banknotes against that debt, effectively relending the money. Then, to give the banknotes value as a de facto currency, the sovereign agreed to accept them in payment of taxes. In one fell swoop, the agreement created a form of paper money effectively endorsed by the sovereign, established fractional-reserve banking—a guiding principle of modern banking that allows regulated banks to relend most of the money they take in as deposits—and conceived the idea of a central bank. The Bank of England had, in effect, been given a license to print money.

This was the dawn of modern banking, and it had a profound impact on England’s economy. The new financial architecture not only helped the kingdom develop a top-class naval fleet with which it would rule the world from pole to pole, but also financed the industrial revolution. Bank credit effectively became money, since it was deemed to be backed by the sovereign. This new definition of money has prevailed ever since.

Excerpt From: Vigna, Paul. “The Age of Cryptocurrency.” St. Martin’s Press.

Shariah Compliance or Maqasid-as-Shariah

The functions of maqasid as-shari’ah and shari’ah-compliance are not identical. The maqasid as-shari’ah is necessarily and sufficiently in agreement with the idea of shari’ah-compliance; but ‘‘shari’ah-compliance’’ as practiced today may not necessarily invoke maqasid as-shari’ah. It has been pointed out loosely that the maqasid as-shari’ah includes the goals of sustaining Islamic belief, self which comprehends progeny, needs which includes property and security, and intellect which includes knowledge, and sustainability of the Islamic community (Shatibi, 1884). There is a close correspondence between Shatibi’s delineation of the maqasid as-shari’ah and those explained by Imam Fakhruddin Razi and Imam Ghazali. This topic was covered earlier while discussing the concept of moral self-actualization in Islam. The comprehensive way of delineating moral development of society in terms of the shari’ah-compliant basket of essentials comprises necessaries (durruriyath), comforts (hajiyyath), and refinements (tahsaniyyath) of Shatibi. Likewise, according to Imam Fakhruddin Razi the moral development regime comprises ubudiyyah (life-sustaining by means of worship). To Imam Ghazali it meant sustaining knowledge and the world system in the light of inner surrender to the conscious oneness. Shah Waliullah joined in the projects of explaining the Islamic worldview as a comprehensive multidisciplinary and multidimensional quest for an integrated approach to real experiences. This experience extended across economics, society, politics, philosophy, science, and belief (ibadah). He focused his project on the Qur’an and the Sunnah to explain the need for the multidimensional approach in the comprehensive development future of Muslims. But he went beyond to universalize the Qur’anic message by launching the translation of the Qur’an into other languages. In so doing, Shah Waliullah introduced a dialectical methodology to the study of worldly phenomenology in the light of Islamic epistemology.

The maqasid as-shari’ah was thus seen as the comprehensive understanding of the Islamic law in addressing the time-bound problems of human societies. Even science as human pursuit was not missed out in this comprehensive structure of socio-scientific development prescription for the Muslim world (ummah). We have seen in this regard, that dynamic basic needs of life were at the center of all development prescriptions of the great learned Qur’anic scholars, the mujtahids, for the rise of the conscious world-nation of Islam (ummah). In such a precept of the maqasid as-shari’ah only, it is possible to realize the essential impact of the Islamic law in life’s overarching and integrative functions. The shari’ah-compliance concept makes objective sense only in such an understanding and application of maqasid as-shari’ah.

The idea of ‘‘shari’ah-compliance’’ is not necessarily that of maqasid as-shari’ah. Most often it is found that shari’ah-compliance as an idea has fell victim to an overly legal-religious interpretation of the shari’ah to specifics taken separately from the overarching general system worldview of Islam. Besides, the tenets of Islamic law became increasingly surrendered to such piecemeal interpretations and applications. The result was a differentiated interpretation (fiqh) of the Islamic law by different Islamic schools. Some of these interpretations have lost legitimacy across changes of events and their complexity in time. Above all, in none of these piecemeal approaches to the shari’ah-compliance concept is the epistemic idea of unity of knowledge and the world-system, the participatory worldview of this conscious oneness and the human future, in place. These greatest precepts are merely expressed in utterance without delivering the functional ontological understanding of the being and becoming of a dynamic sustainable moral development future.

In Ibn Khaldun’s philosophy of history (Mahdi, 1964) we find his immaculate praise of the shari’ah as the ideal law. But at the same time one condescends to Ibn Khaldun’s utter failure in explaining the shari’ah as the comprehensive law of the great overarching system that the Qur’an builds for humankind. In the end, the shari’ah as a systemic worldview of divine code of life and the worldly pursuits did not flourish in the writings of Ibn Khaldun. Ibn Khaldun was devoid of the holistic and multidimensional intellection of history that is found in Shah Waliullah. In modern times, the reawakening of movements for the shari’ah is by and large a political and commercial one. No intellectual emphasis is placed, and Islamic scholars have failed to realize the great overarching meaning of the shari’ah as the systemic holism of human experience, extending beyond society into science as well. We have dwelled on this issue earlier. Here we can point out the futility of the idea of shari’ah compliance mistaken for maqasid as-shari’ah. This remiss has darkened the intellectual acumen on the Muslim frontage of Islamic economics and finance. This demise that continues to ferment the Islamic intellectual growth is once again the fiqhi-basis of interpretation and understanding of the shari’ah. The emphasis has been on the particulars of the shari’ah in respect of specifics, rather than in deriving the particular from the general system worldview of conscious oneness. This kind of intellection ought to be premised on the foundational episteme of Islamic law. Yet the possibility of such a pursuit has drifted to the backbench, with only a detached mention of the maqasid as-shari’ah, rather than the instilling of its functional ontology in the scheme of ‘‘everything.’’

Taqi Usmani’s book (2004) presents the prevalent nature of detachedness of the shari’ah-compliance concept from the Qur’anic holistic overarching worldview of maqasid as-shari’ah. One can note a number of disturbing historical developments and their present days’ consequences on the shari’ah implications in Islamic economics and finance. Firstly, the field of the shari’ah has been restricted to affairs of economics, finance, commerce, and society. The greater implications of the shari’ah in science and the socio-scientific world are nowhere even referred to. Consequently, the common understanding of the shari’ah is not ontologically and analytically grounded on the Tawhidi episteme of conscious oneness. A segmented understanding of the shari’ah is erected by such a dichotomy between Sunnat Allah, the divine law that is impelled to govern the physical universe; and the shari’ah that is made to govern worldly matters (muamalat). Reference to Tawhid as the cardinal axiom of Islamic law being detached, the functional ontology of the Tawhidi worldview in action in relation to the socio-scientific world-system, remains benign. The inner dialectical essence of integrated and complementary development sustainability across the overarching multidimensional domain of intellectual inquiry and positive action as conceived by the great mujtahids has no discernible trace in the prevalent meaning of the Islamic law. Upon this contorted knowledge of the shari’ah, the notion of shari’ah compliance takes its roots. The result is consequential methodological independence between differentiated compartments of the intellectual disciplines. Such a differentiated view has led to the annoyance of de-harmonization between the maqasid as-shari’ah and shari’ah-compliance concepts among differing schools of theology, namely of the pitiful mazhabs. Mazhab has become a means of both dividing Muslims and make the world bereft of intellection in the greatness of Tawhid as the episteme of the maqasid as-shari’ah to the entire world. In the case of legal rules governing the contract and financing of the principal Islamic financing instruments there remain wide differences and no substantial advance in intellection and application.

The greater goal of maqasid as-shari’ah in the light of sustainability in the ummah has failed. In this failed portfolio there is ambivalence toward dynamic life-sustaining regimes of development, poverty alleviation, global networking of Islamic markets and institutions, and a unified determination of structures of ummah transformation, relevant policies, institutions, instruments, and participatory development within an intellectual, and fresh and learning vision of change. But it harkens to the fact that the intellectual capital of Islamic transformation has remained low. Islamic institutions and buyer–seller relations have not included the ways of inducing the moral law in their institutional consciousness. The maqasid as-shari’ah has thus been abandoned in the face of the catchword of shari’ah-compliance. The fuqaha using traditional fiqh analogies have approved of such dissociated bundle of rules for gaining legitimacy. An Islamic transformation has thus failed to realize in essence. Yet such an Islamic conscious change is not in sight through the route of contemporary Islamic economic, financial, social, and socio-scientific thinking.

Conclusion:
The overarching and systemic issues underlying the understanding and application of maqasid as-shari’ah invoke a general-system learning model based on the episteme of conscious oneness. The methodology of conscious oneness is conceptualized and applied to all issues and problems of Islamic economics, finance, science and society. This methodological approach has not been understood by the fuqaha and the modernist scholars in the field of Islamic issues of science and muamalat. Contrarily, the dissociated ways of understanding maqasid as-shari’ah by relegating it to traditional fiqhi rules on specific issues has rendered the entire Islamic intellectual enterprise to the whims of divided Islamic schools of thought led by their juristic heads (Imams). Yet the Imams did not pronounce this pursuit at all. It is the latter days fuqaha and Islamic scholars along with institutions such as Islamic banks, Islamic Development Bank, Organization of Islamic Conferences Fiqh Council and the like that have caused such a rift to happen and deepen. The so-called shari’ah- compliant financial instruments today lie in utter disarray.

The fuqaha and Islamic scholars of the latter days have forgotten the most important premise of Islamic intellection in developing maqasid as-shari’ah across overarching domains of ‘‘everything.’’ This area of investigation comprises the way that conceptualization and rules (functional ontology) can be derived and formalized on the basis of the epistemic origin of conscious oneness for the world-system taken up in perpetuity of learning processes in reference to the Tawhidi unity of knowledge. Tawhid has become a mere uttered word, sounded in the backdrop of Islamic intellection. It has not been understood and used as a substantive learning power.

Excerpted from , “ISLAMIC ECONOMICS AND FINANCE – AN EPISTEMOLOGICAL INQUIRY” by Masudul Alam Choudhury

Pakistan Army and Martial Race

From Express Tribune:

Lieutenant General Raheel Sharif was appointed as the new Chief of the Army Staff  (COAS) and Lieutenant General Rashad Mehmood was appointed as the new Chairman of Joint Chief of Staff Committee (CJCSC) on Wednesday

So this is what head of Inter Services Public Relations Gen Asim Bajwa tweets from his personal account:

 

One can also find the bio-data on ISPR page here.

Since it was stated in the first line, a lot of people wondered what is martial stock. And here Wikipedia comes to help:

Martial race was a designation created by Army officials of British India after the Indian Rebellion of 1857, where they classified each caste into one of two categories, ‘martial’ and ‘non-martial’. The ostensible reason was that a ‘martial race’ was typically brave and well-built for fighting, while the ‘non-martial races’ were those whom the British believed to be unfit for battle because of their sedentary lifestyles. However, an alternative hypothesis is that British-trained Indian soldiers were among those who rebelled in 1857 and thereafter recruitment policy favoured castes which had remained loyal to the British and diminished or abandoned recruitment from the catchment area of the Bengal army.

The British regarded the ‘martial races’ as valiant and strong but also intellectually inferior, lacking the initiative or leadership qualities to command large military formations. They were also regarded as politically subservient or docile to authority. For these reasons, the ‘martial races’ theory did not lead to officers being recruited from them; recruitment was based on social class and loyalty to the British Raj.

Whereas Martial Race theory continued to be abandoned every where, Pakistani military continues to hang on to it

English: Flag of the Pakistan Army
English: Flag of the Pakistan Army (Photo credit: Wikipedia)

Though seldom used in today’s context, it has been alleged that Pakistan Military believed in the concept of martial races, and thought that they would easily defeat India in a war, especially prior to the Second Kashmir War Based on this belief in martial supremacy, it was popularly said that one Pakistani soldier was equal to four to ten Hindus or Indian soldiers, and thus numerical superiority of the foe could be overcome.

The Pakistan Army was also accused of bias and racism by the Bengalis of East Pakistan who felt humiliated by this dubious theory that was being floated in West Pakistan, that they were not ‘martially inclined’ compared to the Punjabis and Pashtuns. Pakistani author Hasan-Askari Rizvi notes that the limited recruitment of Bengali personnel in the Pakistan Army was because the West Pakistanis “could not overcome the hangover of the martial race theory”.

Defence writers in Pakistan have noted that the 1971 defeat was partially attributable to the flawed ‘martial races’ theory which led to wishfully thinking that it was possible to defeat the Indian Army based on the theory alone. Author Stephen P. Cohen notes that “Elevating the ‘martial races’ theory to the level of an absolute truth had domestic implications for Pakistani politics and contributed to the neglect of other aspects of security.” Since then, the ‘martial race’ theory has rarely, if ever, been used by Pakistan.

Probably Wikipedia writers didn’t get the ISPR bio-data of COAS Gen Raheel Sharif. I have gone and edited the above entry to incorporate Pakistan Army still believes in Martial Race theory. Lets see if it gets accepted.

To summarize, Martial Race theory was devised by British Raj to define races that will remain loyal to British. This view is also propounded by Shuja Nawaz in his book Crossed Swords.

The point here is not to belittle the valor and sacrifices of soldiers of Pakistan Army. The point here is Pakistan Army continues to hold the dubious theory as absolute truth that their former colonial masters floated to keep them as a loyal subject.

It is now forgotten but this is how British treated brave men such as Tipu Sultan by calling stray dogs as Tipu. As quoted by Mushtaq Yusufi in his book Aab-e-Gum:

Why hadiths (oral traditions of Prophet) were not written down?

The notion of prioritizing reports about the Prophet was inherently objectionable in their eyes, and a scheme to incorporate hadiths into a legal structure raised an even more fundamental objection. They thought it was wrong to write down hadiths at all. Books in their view could only befuddle belief. The assumptions that underlay that opinion are hard to know for sure – not least, because no one holding them put them in writing – but countless chroniclers attest to its existence. Abu Bakr had reportedly doubted the wisdom of writing down even the Qur’an. Human literature of a lesser sort seemed pure folly.

Such ideas feel atavistic today, and it is easy to characterize them as superstitions or to reduce them to a fear of change. The invention of the printing press once produced similarly dire predictions television sets were more recently expected to destroy the moral fibre of baby boomers; and some commentators tut-tut today about the brain-rotting potential of the internet. But though complaints are always tiresome when they turn into moral panics, the move away from an oral culture carries genuinely far-reaching consequences.

That truth was well reflected a thousand years before the advent of Islam in a fable that Plato put into the mouth of Socrates. It told how Thoth, the ibis-headed god of ancient Egypt, had invented writing and offered it up to the king of Thebes (Alexandria) as an elixir of memory and wisdom – only for the monarch to complain that it was actually a recipe for forgetfulness and stupidity. Thoth’s innovation would encourage people to remember words rather than what they signified, warned the king, and promote the delusion that knowledge could be acquired without a teacher. Socrates, who famously wrote nothing himself, knew the limits of literature. Once a story has to be structured to convey a lesson, it loses buoyancy. A text read alone is no substitute for social interaction. And attempts to describe a truth can sap energies that would otherwise be used searching for it.

Sadakat, Kadri. “Heaven on Earth: A Journey Through Shari‘a Law.”

Egypt Coup : Engineered by military and supported by elite and West

The purpose of this post is to have a record for posterity as everything will be lost in the narrative and media barrage.

First things first. Was the removal of Morsi in Egypt was a coup or not. Well, if you go by the definitions collected, it definitely was a coup

Yes, That’s a Coup in Egypt

  • A coup d’état is defined as a forceful seizure of executive authority and office by a dissident/opposition faction within the country’s ruling or political elites that results in a substantial change in the executive leadership and the policies of the prior regime (although not necessarily in the nature of regime authority or mode of governance).
  • [Coups d’etat are defined as] overt attempts by the military or other elites within the state apparatus to unseat the sitting head of state using unconstitutional means…there is no minimal death threshold for defining a coup. A coup attempt is defined as successful if the coup perpetrators seize and hold power for at least seven days.
  • The distinguishing characteristics of the coup coup d’état as a political technique are that: (a) it is the effort by a political coalition illegally to replace the existing governmental leaders by violence or the threat of violence; (b) the violence employed is usually small; (c) the number of people involved is small; (d) the participants already possess institutional bases of power within the political system.

You might wonder why this argument over whether its a coup or not goes on in media. Part of the reason is that Egypt gets aid to the tune of $1.5 Billion every year from US and if it is a coup against a democratically elected government, then that aid due to the laws prevailing in US will get suspended which neither the Egyptian Army nor US wants. On a different level, calling it a “revolution” and not a “coup” makes it palatable to its supporters.

Much of Rendon’s work is confidential—he enjoys a level of beyond–Top Secret clearance that even high-level intelligence analysts sometimes fail to get. His role in George W. Bush–era pro-U.S. propaganda in Iraq is unclear: While some sources claim he was a central figure in the effort, Rendon denies any involvement. But his dream is quite clear: “Rendon wants to see a world where television “can drive the policy process,” where border patrols [are] replaced by beaming patrols,” and where “you can win without fighting.”

Given all that, I was a bit surprised when the first weapon he referred me to was a very quotidian one: a thesaurus. The key to changing public opinion, Rendon said, is finding different ways to say the same thing. He described a matrix, with extreme language or opinion on one side and mild opinion on the other. By using sentiment analysis to figure out how people in a country felt about an event—say, a new arms deal with the United States—and identify the right synonyms to move them toward approval, you could “gradually nudge a debate.” “It’s a lot easier to be close to what reality is” and push it in the right direction, he said, than to make up a new reality entirely.”

Excerpted from Eli Parser, “Filter Bubble”

So if one sells the narrative that its continuation of revolution, one changes reality. No where this thesaurus is more prominent than the comments made by US. From NYT

America finds itself in a tight spot. After the coup, President Obama expressed “deep concern,” steering clear of any explicit condemnation. More troubling, he called for the restoration of “a” — not “the” — democratically elected government, an important distinction that won’t be lost on the Brotherhood.

Seeing that their narrative that this is not a coup is not getting traction, pro-coup Egyptians have resorted to calling it “soft coup” or “people-power-backed military coup” as if it is something unique or happened with Egyptian for first time in history.

Egypt’s misguided coup

Egyptians may claim there was something unique about the people-power-backed military coup that unfolded Wednesday in Cairo. But the world has witnessed many such putsches in the past half-century. From Buenos Aires to Bangkok, crowds have begged generals to oust democratically elected governments and cheered when they responded. Without exception, the results have been dismal: violence, if not civil wars; massive human rights violations; decades-long political conflicts.

Oh, and by the way, those removed from power sooner or later have returned.

The Islamic character of Egypt’s ousted government should not obscure the way the country resembles Argentina, Venezuela, Turkey, Thailand and other developing nations in which free elections after decades of autocracy have brought a new elite to power. The new rulers typically represent previously disenfranchised poor and rural populations, who often don’t share the cultural values of the capital’s middle and upper classes.

Once in office, new governments made up almost entirely of novice officials frequently overreach. They battle with the old establishment in the bureaucracy, judiciary and media. They write new constitutions in an attempt to lock in their electoral advantage. They tread on civil liberties. And, more often than not, they badly mismanage the economy by adopting populist measures that cater to their political bases.
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Cairo’s secular middle class consequently had far less cause to take to the streets last weekend than did the pot-bangers in Allende’s Chile, the general strikers of Caracas or the yellow shirts of Bangkok. They can, however, expect much the same results — which will be anything but the liberal democracy they say they support.

Applauders of military coups have in common two illusions: that the generals share their agenda and that their hated opponents, despite their electoral victories, can be politically nullified. Invariably, neither turns out to be true. Armed forces aren’t good at convening roundtables or implementing liberal platforms; they are good at using force. Even if they don’t torture and kill, they sweep up nonviolent political leaders, shut down media they regard as troublesome and try to impose political rules protecting their own political and economic interests.
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… the ultimate losers in this week’s coup will be those who cheered it on.

And here is another perspective from Authors of Why Nations Fail:

The Egyptian Paradox: Saving Democracy and Setting It Back

The first freely elected government of a country, where a large fraction of society is disenfranchised, disempowered and made to feel like second-class citizens, is ousted, in the name of saving democracy, by a military coup supported by former elites and “liberals”.

And the outcome? Three more military coups and more than 50 years later, a deep chasm in society that is still preventing the emergence of truly inclusive politics.

No, we are not talking about the future of Egypt (not directly in any case).

This is just a description of what happened in Turkey in 1960

…what Egypt needed was those ascended to power for the first time to peacefully lose an election — not because the other side cannot tolerate the very thought of those that have so far viewed as second-class sitting in the presidential palace but because they just messed up and weren’t governing well. Because they just lost the support of the ordinary people and had to leave the way they came, through the polls.

Just like in Turkey, Egypt needed assurances to both sides that inclusive politics in which every segment of society, regardless of creed, religion, gender and social status, can share power.

Instead, we have in our hands a military coup that confirms the worst fears of a very large fraction of the population — that the so-called liberal elites and the military that have ruled the country for so long will do anything not to share power with them (never mind that Mubarak and his cronies, together with the military, had also effectively sidelined the young and the liberals who have now turned into allies of the soldiers).

How will this segment of society ever trust democratic politics? How can we expect them not to work to undermine their opponents completely the moment they wrestle power nationally or locally? How can we now hope to end the Egyptian iron law of oligarchy?

As the authors have hinted above, Shadi Hamid also points to the fact that this will have a negative consequence for a large segment of society that decided to become part of mainstream and but the elites and military didn’t like it. And the consequences will be dangerous

Demoting Democracy in Egypt

The Brotherhood’s fall will have profound implications for the future of political Islam, reverberating across the region in potentially dangerous ways. One of the most important political developments of recent years was the decision of Islamist parties to make peace with democracy and commit to playing by the rules of the political game. Leaders counseled patience to their followers. Their time would come, they were told.

Now supporters of the Brotherhood will ask, with good reason, whether democracy still has anything to offer them. Mr. Morsi’s removal will breathe new life into the ideological claims of radicals. Al Qaeda and its followers have long argued that change can’t come through the democracy of “unbelievers”; violence is the only path. As the Qaeda leader Ayman al-Zawahri once said, “What is truly regrettable is the rallying of thousands of duped Muslim youth in voter queues before ballot boxes instead of lining them up to fight in the cause of Allah.”

The events of this week could have similarly profound implications. In the hours after Mr. Morsi’s ouster, the new military leadership suspended the Constitution, shut down at least three Islamist television stations, and, more ominously, issued arrest warrants for at least 300 Brotherhood members. Prominent liberal voices are calling for “dissolving” the Brotherhood and holding what would amount to dubious show trials.

Then the narrative that the locals sell you that MB was hand-in-hand with US and Anne Patterson was against Morsi’s removal is pure hogwash and part of propaganda. This from NYTimes

Morsi Spurned Deals, Seeing Military as Tamed

As President Mohamed Morsi huddled in his guard’s quarters during his last hours as Egypt’s first elected leader, he received a call from an Arab foreign minister with a final offer to end a standoff with the country’s top generals, senior advisers with the president said.

The foreign minister said he was acting as an emissary of Washington, the advisers said, and he asked if Mr. Morsi would accept the appointment of a new prime minister and cabinet, one that would take over all legislative powers and replace his chosen provincial governors.

The aides said they already knew what Mr. Morsi’s answer would be. He had responded to a similar proposal by pointing at his neck. “This before that,” he had told his aides, repeating a vow to die before accepting what he considered a de facto coup and thus a crippling blow to Egyptian democracy.

His top foreign policy adviser, Essam el-Haddad, then left the room to call the United States ambassador, Anne W. Patterson, to say that Mr. Morsi refused. When he returned, he said he had spoken to Susan E. Rice, the national security adviser, and that the military takeover was about to begin, senior aides said.

“Mother just told us that we will stop playing in one hour,” an aide texted an associate, playing on a sarcastic Egyptian expression for the country’s Western patron, “Mother America.”

From Reuters:

What is clear is that despite Patterson’s public statements underlining Mursi’s democratic legitimacy – which drew sharp criticism in Egyptian media – there was no red light from Washington against military takeover.

It is not as if ouster was a surprise. In his own words, Mr. ElBaradei said that they were in touch with western powers before engaging the coup.

Prominent Egyptian Liberal Says He Sought West’s Support for Uprising

Mohamed ElBaradei, the Nobel Prize-winning diplomat and Egypt’s most prominent liberal, said Thursday that he had worked hard to convince Western powers of what he called the necessity of forcibly ousting President Mohamed Morsi, contending that Mr. Morsi had bungled the country’s transition to an inclusive democracy.

What Morsi failed to realize or appreciate that he doesn’t control the military head on in your first year. Whereas Erdogan was successful in taming  military in Turkey but one has to remember that it was his third time, he is widely popular and most importantly he has distributed fruits of economic development widely thus strengthening his support base.

Cover Page of July 2012 Time Magazine

Mursi’s downfall

But relations between Mursi and his new generals deteriorated within months of his inauguration. Even Mursi’s apparent success in brokering a ceasefire between Israel and the Hamas Islamist movement that runs the Gaza Strip irked the military.

“Mursi’s intervention in the Gaza war made Egypt guarantee that Hamas would not carry out attacks on Israel. Which threatens Egyptian national security, because what if Hamas did? It could prompt Israel to retaliate against us,” the security source said.

Mursi also talked loosely about possible Egyptian participation in a jihad (holy war) to overthrow Syria’s President Bashar al-Assad, and raised the prospect of military action over a Nile River dam in Ethiopia. As a result, distrust of him grew in Egypt’s high command, which saw him as recklessly risking their involvement in conflicts without properly consulting and respecting the generals.

“It reached a point where we began to be worried about putting important national security reports in front of someone we perceived as a threat to national security,” the security source said.

The generals became equally alarmed about political and sectarian polarization in Egypt, against a backdrop of a sharply worsening economy. They had secured their own position in an Islamist-tinged constitution rammed through by Mursi’s allies last December, ensuring they would remain a state within a state, with limited parliamentary scrutiny of their economic privileges, armaments contracts and control of the vital Suez Canal. But they were increasingly concerned by what they saw as a risk of civil war.

By the time Mursi took office, Egypt’s economy, which had boomed for the rich with scant improvement for the poor in the late Mubarak years, was already in deep trouble. The military council which ruled in the 16-month transition from Mubarak’s overthrow to Mursi’s inauguration had failed to carry out long-overdue reforms of food and fuel subsidies or to negotiate a loan deal with the International Monetary Fund for fear of sparking unrest. Tourism and investment had dried up because of political instability.

Mursi’s bumbling, do-little administration only made things worse. While the Muslim Brotherhood remained the most powerful political force and ran a social welfare network that provided services to the poor and needy, millions of Egyptians felt no one was representing their interests.

What is clear is that military has been the real rulers of Egypt.

Egypt’s Cunning General: How the Military Plans to Keep Power

Egyptian President Morsi has been toppled, and a judge will be the country’s new interim leader. But in reality, he’s just a puppet. Behind the scenes, General Abdel-Fattah el-Sissi and his military apparatus will continue to call the shots.

Since it took power in a coup in 1952, the military has remained the most important political player in Egypt. Neither Mubarak’s fall in 2011, nor the short rule by Morsi, a member of the Muslim Brotherhood, have changed this. El-Sissi demonstrated just how powerful the influence of the military’s generals is on Wednesday night, when, after giving Morsi 48 hours to leave office, he summarily informed the president that he was no longer the leader of the country. No matter that Morsi was the country’s first democratically elected head of state.

This time the head of the military has been trying from the outset to stay in the background. The events of Wednesday night are clearly a coup — the army has deposed a democratically elected president and suspended the constitution. Yet Sissi acted as if the generals had been compelled by the Egyptian people to intervene.

Indeed, many Egyptians have welcomed the coup. The military envisions a power-sharing setup where civilians will hold primary authority. That way, they will be the ones to draw the ire of the population as they slave away to solve the country’s disastrous economic situation and mend deep political divisions.

Behind the scenes, Sissi and his colleagues set the tone, especially in two areas: Security policy is traditionally their domain, but the government should also keep clear of the generals’ monetary privileges. The army is one of the most important economic power brokers in Egypt.

It remains to be seen whether this power-sharing structure will actually work. This is exactly what the military already tried in vain with the Muslim Brotherhood. But Morsi was rebellious. He began to interfere in security policy and didn’t take the sharp warnings of the generals seriously. From their perspective, things will work out better this time under the duo of military chief and top judiciary.

Below is a small write up on the military’s historic relationship with Egypt’s civil society, patriotism,self-interest, victory and defeat. In this way, it is not much different than Pakistan Army

The Egyptian Military’s Huge Historical Role

Army’s fall from grace

“The Egyptian army’s history is very much defined in relation to the Arab-Israeli conflict,” says Nezar Al-Sayyad, the chair of UC-Berkeley’s Center for Middle Eastern Studies.

The defeat undermined Egyptian monarch King Farouk, whom the Egyptian military blamed for what it considered a fiasco, and in 1952 a group of military officers led by Gamal Abdel Nasser staged a coup. The Egyptian Revolution of 1952, as it came to be known, established the modern Egyptian republic.

Under the charismatic and popular Nasser, the Egyptian Army sought to rebuild itself into a competent fighting force. It didn’t go well.

After a costly expeditionary campaign supporting Arab republican forces in Yemen’s civil war, Nasser led a second Arab coalition against Israel during the Six Day War of 1967. His forces suffered a spectacular defeat, losing the the entire Sinai peninsula—which Egypt had controlled—to Israeli forces.

The loss shredded the Egyptian army’s credibility. The military “not only withdrew [from Sinai], but in fact it lost its equipment and many soldiers came back running,” says Al-Sayyed. “The military became the butt of jokes within the Egyptian public.”

Army’s Redemption

In October 1973, Sadat led the third Arab coalition against Israel in the hopes of regaining the Sinai.

Although the war ended after three weeks with Israel in the advantage, the Egyptian Army enjoyed significant successes during its opening days, and Egypt later regained the Sinai peninsula as a result of the 1978 Camp David Accords.

The win destroyed the myth of Israeli invincibility and restored the reputation of the Egyptian army as a fighting force and defender of the nation’s interests.

Army discovers Capitalism

After Mubarak, a former general, took power following Sadat’s assassination in 1981, the military, backed by American aid, modernized and expanded its force. And when Mubarak launched economic liberalization in the 1990s, the military discovered something even better than American largesse: capitalism.

“The military became an economic company, if you will,” says Al-Sayyed. “It became an enterprise.”

Equipped with valuable and vast real estate and a conscript, low-paid workforce, the military began to insinuate itself into civil society through business, its holdings ranging from bread factories to chemical plants to hotels.

The armed forces’ public-private enterprises may account for up to 15 to 20 percent of GDP, according to Al-Sayyed, and the military took very good care of its officers with the wealth it accrued. As the military’s economic tentacles spread throughout society, its civil clout expanded, too.

What Way Forward?

During the massive protests that led to Mubarak’s ouster, the military—after a period of initial silence—publicly stated that its duty was above all to the people of Egypt, and soon wrested control from the 80-year-old autocrat.

During the period of military rule that followed, however, public opinion turned against the interim military government due to the widespread belief that it was dithering in relinquishing power.

The military seemed to recognize the fickle nature of voters in the drafting of Egypt’s 2012 constitution, ensuring that its privileges and powers were cemented in the new document.

Now, after unseating the unpopular Morsi, the military has public opinion back in its court.

“The majority of Egyptian people today see the army as a patriotic institution that can be trusted to act in the interests of the nation,” says Beinin. “The army has this reputation despite the fact that it has actually on many occasions, and especially in the recent years, acted to secure its own particular institutional interests and not acted for the interests of the nation.”

This tweet by Muslim Brotherhood spokesman makes it clear that how much of coup was engineered

But if you don’t want to buy what MB spokesman says, here it is coming from a journalist

The circus continues

Mohamed ElBaradei to be named Egypt’s interim PM: sources

Mansour held talks on Saturday with the army chief and political leaders, including ElBaradei, on how to pull the country out of crisis as the death toll from Islamist protests over the army’s overthrow of Mursi rose to at least 35.

Mansour later summoned ElBaradei back to the presidential palace, the state news agency reported, without giving more details.

The prime minister will be sworn in at 8 p.m. (2:00 p.m. EDT), state newspaper Al-Ahram reported, not naming who will be sworn in.

ElBaradei who is currently feeling no shame in accepting PM post in Egypt, had this to say in 2012

Mohamed ElBaradei quits Egyptian presidential race

“My conscience does not permit me to run for the presidency or any other official position unless it is within a democratic framework,”

But then this happens

Egypt PM dispute stalls government, Islamists call more protests

ElBaradei’s nomination had been confirmed by several sources and state media on Saturday, but just before midnight a presidential spokesman told reporters that the prime minister had not in fact been chosen.

The abrupt U-turn came amid opposition to the appointment by the Nour Party, Egypt’s second Islamist force after Mursi’s Muslim Brotherhood movement, highlighting the challenge the military faces in finding consensus among liberals and conservatives on who should run the country.

This made me tweet this