The quality of modern media has been such that many obscene inequities of the globe have been brought to the starkest light. An essential part of this tale has been the failure of dominant economics to bring forth a just social order. Recently, the role of bankers – and their supposed greed – has come under severe criticism in the aftermath of the sub-prime loan scandal in the USA, which has had resounding global implications for markets and economies. Jon Moulton – who was credited at seventy-one in the Power 100 on the dominant people in British business – in a recent documentary on Channel Four in England, entitled ‘How the Banks Bet Your Money’ (18 February 2008), discussed this issue, and he identified the greed of bankers as the essential problem of the whole sub-prime tragedy – I use tragedy here to only refer to those normal people, with no involvement, who will have to essentially pay for the clean-up, through their taxes and lowering social services (as their governments take on the burden of the fall-out). While I accept that greed is, perhaps, the essential malignant disease of dominant economics, one needs to look deeper than Moulton at the manifestation of what is, essentially, a spiritual disorder. For this, one needs to proceed as Martin Palmer did in his ‘Thought for the Day’ on the BBC Radio 4 (7 November 2007), and identify ‘usury’ as the grave sin of modern dominant economics, which – as Palmer says – ‘we are almost all implicated’. Interestingly, Palmer cites the traditional condemnation of usury by Christianity, Daoism and Islam – and he notes that ‘though Islam has wavered in the last few centuries, in recent years many Muslims have returned to the Qur’an and its teachings’ on the topic of usury; and he then cites from a verse of the Qur’an: ‘Allah has permitted trade, and forbidden usury’ (2:275). It is of great importance, therefore, that we explore how Muslim scholars have attempted to apply this Qur’anic law to the modern world; but, of course, this is after we first get a glimpse of what is the dominant economic model.
The name given to the dominant economic method of contemporary nation states is capitalism. Joseph Stiglitz has written in Making Globalization Work: ‘Capital is at the center of capitalism’. The calculation of capital is in the form of fiat money. Why is fiat money the dominant form of transaction, reserve and financial calculation? Stiglitz, again, helps us with his summation of how fiat money replaced gold as such a standard. Historically, gold was replaced as it was found that fiat money (‘pieces of paper’) were more convenient as a means of financial exchange, with it being possible for the paper to be ‘converted into gold’. Stiglitz continues: ‘At first, it was thought that there had to be full backing – for every dollar of fiat money issued, the government or the central bank had to hold a dollar’s worth of gold. Then it was discovered that this was not necessary; all that was required was confidence in the currency.’ This explanation shows the what, but it does not satisfactorily show the why. For the latter, we can turn to another great American economist, John Kenneth Galbraith – who, like Stiglitz, can be placed in a neo-Keynesian tradition, as opposed to the Chicago School free-marketers tradition.
The dominant features of the modern banking system, which is fuelled by the notion of paper money, are the notions of wealth creation and interest. Galbraith notes, in his Money: Whence it Came and Where it Went, that ‘the discovery that banks could so create money came very early in the development of banking’. Hence modern banks – and here we are primarily talking of the early eighteenth century onwards – saw the reward that could be gained by not only holding people’s deposits of money, but also lending that money onto others at interest, in the hope that all of their depositors would not make a ‘run on the bank’ and thus request the immediate refund of their deposits. The former-Justice Taqi ‘Uthmani, in his Historic Judgment on Interest: Delivered in the Supreme Court of Pakistan, explains that this ‘money creation’ or ‘fractional reserve lending’ means: ‘to loan out more money than one has as a reserve for deposits’. As banks became more reliable, customers in the West were less prone to such ‘runs’. [Interestingly, Martin Wolf, in the Financial Times (17 February 2008), noted that the run on the Northern Rock bank in England by customers in September 2007 was ‘the first since the 19th century’.]
Furthermore, as also highlighted by Galbraith, this apparent wealth creation – which is only illusionary, for it is simply an increased financial circulation that does not correspond to the actual wealth in the banks’ reserves – was additionally utilised to the banks’ advantage by their charging interest on the loans issued forth by them on the created sums that had a rough correlation to the actual wealth deposited with the bank. Moreover, with the eradication of any notion of a ‘gold standard’, banks have been left with wide powers for ‘wealth creation’, despite being still constrained by certain inflationary and national-state legislative factors. The reality of ‘wealth creation’ now has been highlighted by Taqi ‘Uthmani, in his Historic Judgment: ‘the net result [of the ‘legalising the creation of money by private banks’] is that the modern banks are creating money out of nothing’, whereas they previously had to produce money in relation to their gold assets and its relative value, even if restricted (and not a ‘100 per cent reserve requirement’ – a term mentioned by Ahamed Kameel Mydin Meera, in his Theft of Nations: Returning to Gold). In this regard, ‘Uthmani further states in The Historic Judgment:
- ‘They [modern banks] are allowed to advance loans in the amounts ten times more than their deposits. The coins and notes issued by the government as a genuine and debt-free money have now a very insignificant proportion in the total money in circulation, most of which is artificial money created by advances made by the banks…The spiral of loans built upon loans is now the major part of the money supply. Taking the example of UK according to the statistics of 1997…the original debt-free money remained only 3.6% of the whole money supply while 96.4% is nothing but a bubble created by the banks…[i.e. it] is nothing but numbers created by computers, having no real thing behind them.’
‘Uthmani points out that ‘interest-bearing loans have no specific relation with actual production’ and the ‘serious mismatch between the supply of money and the production of goods and services…is obviously one of the basic factors that create or fuel inflation’.
Now who suffers from such inflationary fluctuations, which result in raised or lowered interest rates? Invariably, it is the poorer sections of society, including the middle classes, who suffer, not to mention the greater suffering of the poorest sections of society. Here, let it be remembered, we are only talking about the state of affairs in the West! ‘Uthmani quotes extensively from Michael Rowbotham’s Grip of Death: A Study of Modern Money to prove the disastrousness of the cyclical alterations to interest rates, which, although designed to correct future loaning tendencies, actually hit harder the people who have already borrowed sums of money; Rowbotham states:
- ‘The fact that, by this method, people and businesses with outstanding debts can be suddenly hit with huge extra charges on their debts [:]…an injustice quite lost in the almost religious conviction surrounding this ideology…Many past borrowers are rendered bankrupt; homes are repossessed, businesses are ruined and millions are thrown out of work as the economy sinks into recession.’
Rowbotham continues to illustrate the fact that this method of economic control is part of an endless ‘cycle’, because once ‘inflation and overheating are no longer deemed to be a danger, borrowing is discouraged and the economy becomes a stagnating sea of human misery’; this then leads to ‘the problem of lack of demand, so we must reduce interest rates and wait for the consumer confidence and the positive investment climate to return’. Then setting the cycle back in motion.
The ability to control ‘wealth creation’ has led to the situation as described by Taqi ‘Uthmani, in his appended essay to his father Mufti Shafi’s The Issue of Interest:
- ‘The result is that resources of the entire nation end up controlled by a handful of capitalists who start playing with the destiny of the nation on the strength of resources available to them. Every thing from world politics to the economies of the nations are at their mercy and they rule the political, economic and social life of the entire universe, with complete spirit of selfishness and personal aggrandisement.’
‘Uthmani states in The Historic Judgment: ‘It needs no expertise in economics to realize that this [state of Pakistan’s huge foreign debt] is an alarming situation which is leading us constantly towards slavery of the whole nation in the hands of our lenders’.
Central to this global control of nations’ wealth, in the opinion of so many people, are the World Bank and the International Monetary Fund (IMF). Joseph Stiglitz – a famed author, winner of the Nobel Prize for Economics 2001, and former Chief Economist at the World Bank – has made a successful alternative career out of laying bare many of the injustices of the present system that he perceived whilst working at the World Bank, and one can read his Globalization and its Discontents for his portrayal. Stiglitz’s account of IMF policies lead him to conclude that they were driven by ‘a curious blend of ideology and bad economics, dogma that sometimes seemed to be thinly veiling special interests’. In the process, the IMF, in his opinion, would ‘prescribe’ measures on ‘developing’ countries in ‘crises’ that only exacerbated the social pain already being felt by the people of those countries in general. He states that such punitive measures ‘failed’, and its ‘structural adjustment policies’ only ‘led to hunger and riots in many countries’; while in those countries where such measures were not so negative, he contends that ‘often the benefits went disproportionately to the better-off, with those at the bottom sometimes facing even greater poverty’. What is also fascinating about his account is the portrayal of the IMF’s handling of post-Communist Russia in the 1990’s – a country that many would align with the ‘West’ or ‘North’: he blames the IMF’s aggressive liberal capitalist stipulations upon Russia for the destruction of the currency and the subsequent social chaos, poverty and misery. If true, it shows that the bankers’ search for profit finds no friends, just clients and the smell of profit in their ideological and financial battle.
We can now be said to live in the age of the ‘dollar standard’. Robert Wade, professor of political economy at the London School of Economics, has written of the ‘dollar standard’ age:
- ‘Under this arrangement the US dollar is the main global currency, and the US Federal Reserve can create dollars without a supply-side limit (such as convertibility into gold). Provided US trading partners are prepared to accept payment in dollars, the US can run almost unlimited deficits just by printing the dollars or treasury bonds with which to pay for them.
- ‘The dollar standard contains no mechanism to correct trade imbalances between countries. The US current account deficit has increased almost without interruption since the early 1980s. These deficits have enabled the US to enjoy both guns and butter at the same time (rising military expenditure and rising consumption), financed by increasing amounts of domestic and foreign debt.’ [Quoted from Wade’s debate with Anatole Kaletsky, entitled ‘Is Global Finance Out of Control?’ in which Wade argued yes to Kaletsky’s no, in Prospect (December 2007).]
[Noreena Hertz, in her I.O.U. The Debt Threat and Why We Must Defuse It, writes that the US ‘owes $3 trillion, around 10 times what Africa owes’. Moreover, it is interesting to read Stiglitz, in Making Globalization Work, when he discusses the weakening of the reserve system where countries would gather reserves in the dollar. Due to the growing weakness of the dollar, countries have increasingly started to increase their reserves of euros; yet Stiglitz does point out that ‘virtually all reserves today are held in dollar-denominated assets, sometimes dollars themselves but…more likely U.S. Treasury bills’. Nevertheless, Stiglitz argues that the very nature of being a reserve currency is that it is ‘self-defeating. The reserve currency country winds up getting increasingly into debt, which eventually makes its currency ill suited for reserves’. This is due, in Stiglitz’s words, to the ‘special problem of inadequate demand in the reserve currency country’, which, in practice, leads to ‘imports exceeding exports’, as the reserve currency country essentially borrows from an outside country; and this ultimately leads to economic problems, which naturally affect the population in an adverse manner. Furthermore, when a currency is widely held as a reserve currency, the reserve currency increases in value; thus leading to less exports and more imports. Such a scenario also can mean a lack of jobs at home as the demand for and cost of homeland products is made less advantageous from an economic view.]
In summation, Max Weber’s Protestant Ethic provides an interesting parting note for us, as it deals with the ‘spirit’ of capitalism. Weber, in chapter two of The Protestant Ethic, uses Ferdinand Kurnberger’s satirising of the words of Benjamin Franklin to illustrate the nature of the ‘spirit of capitalism’, and Weber makes the following summation of that ‘spirit’:
- ‘The peculiarity of this philosophy of avarice appears to be the ideal of the honest man of recognized credit, and above all the idea of a duty of the individual toward the increase of his capital, which is assumed as an end in itself. Truly what is here preached is not simply a means of making one’s way in the world, but a peculiar ethic. The infraction of its rules is treated not as foolishness but as forgetfulness of duty. That is the essence of the matter. It is not mere business astuteness, that sort of thing is common enough, it is an ethos.’
Weber continues to inform us: ‘Capitalism existed in China, India, Babylon, in the classic world, and in the Middle Ages. But in all these cases, as we shall see, this particular ethos was lacking.’ In the course of The Protestant Ethic, Weber goes on to try and prove that this ‘spirit of capitalism’ was part of the culture of the people before the advent of capitalism, and he identifies it with various Protestant theories, in particular Calvinism. Nonetheless, one should be careful to understand what Weber really meant by this latter concept. He is simply speaking about ‘the spirit of hard work, of progress, or whatever else it might be called, the awakening of which one is inclined to ascribe to Protestantism’; and not that the ‘old Protestantism of Luther, Calvin, Knox…[and] Voet’ was directly calling for such definitions of the individual as understood in this modern ‘philosophy of avarice’. Indeed, he further writes that these individuals and their thought ‘had precious little to do with what today is called progress. To whole aspects of modern life which the most extreme religionist would not wish to suppress today, it was directly hostile.’ In a way, one could argue that modern capitalism has turned Protestantism on its head as Marx had done to the idealist philosophy of Hegel (as Engels claimed), i.e. the basic structure of the thought is present, but it has been transformed in meaning and application. Nevertheless, such an infraction has managed a convincing feat of beguilement – and a world stands dazed and numbed in the beams of its high voltage lighting, which is currently outshining any other attempt at providing an alternative method of trade and financial valuation