Comparison of the concept of time value of money in Islamic and conventional economics from ontological perspective

Abstract

Introduction: Today, interest is one of the most dominant aspects of global economics and finance both in theory and practice. If one asks an ontological question of why interest exists, one of the most common answers would be that ‘because there is time value of money’. Theory of time value of money can simply be defined with the following phrase that ‘same amount of money is more valuable today than tomorrow’. However, there are some assumptions and postulates behind this phrase such as positive time preference. Thus, it reflects a specific way of understanding money, time and monetary relations whose details will be explained below. There is a contemporary interest in ontology of money. However, when the issue is directly about ‘ontology of time value of money’, there is yet to be any study. This is one of the basic aims of this study, i.e. attempting to understand the ontological background of time value of money. In this regard, studies related to ontology of time are also included. At this point one can wonder whether there might be other ways of understanding, and other ontologies regarding money. The answer would be positive. There is for instances criticism against theory of time value of money by Austrian School. But the alternative standing which will be taken into account in this paper is Islam’s one. Since studying a concept or issue systematically under specific field of research such as economics or ontology is a modern phenomenon, studies especially within the field of modern Islamic economics which dates back to early 20th century can help us in that regard. However, focusing mostly on modern Islamic economics does not mean to shy away from classical sources or sources from earlier periods because modern ones are being contributed by them as well. Depending on all of the above, the aim of this paper is to make a comparative analysis of the concept of time value of money from perspectives of conventional and Islamic economics through ontology of money and time. In result of such a comparative analysis, the paper attempts to make a critical evaluation regarding the subject in order to draw a framework for ontological background of time value of money in Islamic economics. This paper also provides opportunity of learning systematized information about different views from conventional and Islamic literature regarding time value of money. The importance of this paper depends on the fact that developing new kind of mathematical formulas different than interest-based discounting models will be much easier after clarifying ontological view point of Islam towards time value of money. Also, discussions regarding recent developments in monetary world can be understood easier by such a clarification. The following chapter will explain what kind of methods will be used in order to attain the aim of this paper. The third chapter will make comparative analysis comprising also relevant literature. The last chapter will provide a detailed discussion and conclude the paper.