History of Money in Islam

History of Money in Islam: Estimating the Value of Classical Dirham - EP - 2

The ‘monetary value’, or purchasing power of money has been defined as the amount of goods or services that can be purchased by some specific amount of money. Today, the value of money is determined using the price index and it is easy to determine whether the value of money has risen or declined with reference to the base year. To determine the monetary value of Islamic dinar and dirham, we need to figure out their purchasing power and compare them with current purchasing power. To do that, we need to study different sources for information about the prices of goods and services and the rates of wages. With that information, we can, in theory, form a basket of goods and services and estimate the purchasing power of Islamic dinar and dirham. However, there are some practical limitations to how far and how well we can do this:

1. Costs and prices at the time cannot be surveyed directly; they have to be inferred and adjustments made for inflation at the time.
2. The methods and costs of production were very different then, compared to today. If we ignore these differences, it will be impossible to compare prices, which are determined based on methods and costs of production.
3. Since the goods and services of the two periods are different with regard to their value and quality, it may be difficult to find goods of comparable quality and value.
4. In old days, land transport was limited to animals, which (in contrast to today), were very important in transportation. This is an important factor that has to be taken into consideration.

In spite of these limitations, the fact that in those times production methods were relatively stable make it possible to infer information about costs and prices. Also, there were no marked changes in international trade so that, over the long term (excluding periods of famine and inflation), the costs stayed unchanged. Accordingly, we can with some confidence ignore temporary aberrations and get the information needed for our comparison.

We have three types of baskets of goods

o clarify the figures pointed out in the table according to some record, acre of wheat cost 1 dirham (in cash) and one ghafìz of cereal. In other records, only the cash has been registered (4 dirhams). From this, we can work out that 1 ghafeez of wheat cost 3 dirhams. The data presented in al-Kamil and al-Ahkam, confirm this estimate.

The weight of each kg in ghafeez is:

                       1 / 3.094 = 0.32321 Ghafees

Thus, the cost in dirham is estimated to be:

                       0.32321 * 3 = 0.9692 Dirhams

According to the History of Baghdad every 60 ratls of mutton cost one dirham. The data suggested by al-Kamil confirm this. The weight of 60 ratls is estimated to be 27.76 kg. Considering that each ratls equals 386.75 gm, we have:

                       1000 / 386.75 = 2.5856 Ratls

Thus, the cost in dirham can be estimated as follows:

                   (1 * 2.5856) / 60 = 0.04308 Dirham

According to the History of Baghdad every 30 mods of broad bean cost one dirham. The weight of one kgm in ratls is:

                      100 / 696.15 = 1.4365 Ratl

Thus, the cost in dirham is estimated to be:

                    1.4365 / 696.15 = 0.0408 Dirham

According to al-Kamil, every 60 ratls of date cost one dirham. Thus, the cost in dirham is estimated to be:

                     2.5856 / 60 = 0.0431 Dirham

As in al-Kamil , each makak of salt cost one dirham. Since each 0.163 makak equals one kgm, then the cost of each kgm salt is estimated to be 0.163 dirham. Ibn Abi al-Ûadid says: 

Ali ibn Abi Talib brought a denim shirt, which cost 4 dirhams. (Ibn Abi al-Uadid, 1959-1964: 2/15).

As recorded in the History of Baghdad, a medium quality and cheap shirt cost 8 and 4 dirhams, respectively. Now, in the second step, we form the next basket. The second basket of selected goods are as follows:

Some figures used in the table require some explanations. As recorded in al-Kamil, each makak of rice cost 12 dirhams. To estimate the weight of one kg in makak we have

                        1 / 6.11827 = .01634 Makak

And the cost in dirham is estimated to be:

                      0.1634 * 12 = 1.961 Dirham

According to the History of Baghdad, the price of 30 good nabat eggs was 4 danighs. Thus, the cost in dirhams is:

                         4 / 6 = 0.667 Dirham

The way the cost of oats is estimated is the same as what we did in basket A. But, the cost of wheat was twice as much as that of oats. According to the History of Baghdad, each 16 ratls of olive cost one dirham.

Thus: 2.5856/16=0.16162

As recorded in the History of Baghdad, one kore of almond cost 60 dìnars. Thus, the cost in dirhams is: 

                      2.5856  * 60   = 155.136
155.136 * 15   = 2337.04

                      2337.04 / 1200 = 1.9395

The third basket consists of some selected services and their prices as follows:

Using the data reported in these three tables, the purchasing power of the Islamic dirham in comparison to Pakistan Rupee can be estimated as follows:

                 4384 / 5.259 = 833.618 Based on Table 1

                 3970 / 5.311 = 747.505 Based on Table 2

               24100 / 11.524 = 2091.287 Based on Table 3

                 833.618 + 747.505 + 2091.287 = 3672.41

                         6372.41 / 3 = 1224.1336

Thus, it can be said that the purchasing power of one dirham is equal to the purchasing power of 1224.1366 Pakistani Rupee, and considering the transfer rate of the value of dìnar to dirham (12) in that time, the purchasing power of each dìnar in Pakistan Rupee is estimated to be:

                    1224.1366 * 12 = 14689.64

As can be seen, the estimation of dirham by this method gives a close result (14,689.64) in comparison to the previous one (19,855.21).

Source:https://www.linkedin.com/pulse/history-money-islam-estimating-value-classical-dirham-qureshi/?published=t

In View of Mufti Fahad Ahmed Qureshi Chairman of the Supervisory Board at Global Halal Food Council

Research