Is “Islamic Finance” Islamic?

Yves here. This post has more political significance than many readers might appreciate. Even though the issues that Öncü discusses may seem unduly doctrinal and therefore abstract to non-Muslims, they are extremely important to believers. Riba is the second worst sin in Islam. Shirk is the worst. If you commit that sin, you are not Muslim anymore.

In addition, the post also contains important historical information on the development of “Islamic finance” and shows how it was closely linked to the rise of neolibearlism.

By T. Sabri Öncü (sabri.oncu@gmail.com), an economist based in New York

To elaborate on the question, let me quote five ayats from the Quran that ban “riba” (Arabic: ربا) first and explain “riba” later. These ayats are from the surah Al-Baqarah:

Ayat 275: Those who consume riba cannot stand except as one stands who is being beaten by Satan into insanity. That is because they say, “Trade is just like riba.” But Allah has permitted trade and has forbidden riba. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns – those are the companions of the Fire; they will abide eternally therein.

Ayat 276: Allah destroys riba and gives increase for charities. And Allah does not like every sinning disbeliever.

Ayat 278: O you who have believed, fear Allah and give up what remains of riba, if you should be believers.

Ayat 279: And if you do not, then be informed of a war from Allah and His Messenger. But if you repent, you may have your capital – you do no wrong, nor are you wronged.

Ayat 280: And if the debtor is in difficulty, give him respite till the time of ease; and your foregoing the entire debt from him is still better for you, if only you realise.

The above are not the only translations and debates on whether the Quran can correctly be translated to other languages or not have been going on for centuries. I selected these translations among many candidates and modified them slightly.

Is Riba Usury or Interest or More?

The word “riba” is translated into English at times as “usury”, at other times as “interest” and yet at other times as “usury/interest”.

If you view “riba” as interest, however, then it is clear that these ayats are nothing other than a broadly defined debt restructuring programme. And, Ayat 275 bans interest forever after the restructuring.

And, since the word “usury” does not fit well in this debt restructuring programme, the word “usury” cannot be an appropriate translation of “riba”.

One of the key words in this programme is the word “capital” which appears in Ayat 279. It is the translation of the Arabic word “ruus-u amwal” (Arabic: أَمْوَال رُءُوسُ) which is the plural of “ras-ul mal” (Arabic: المال رأس). However, since capital is uncountable in English, both the singular and plural forms have to be translated as “capital”.

Those translators who view “riba” as interest only also translate this word as “principal” to mean the principal amount of some debt. However, the word “principal” refers only to capital in money form whereas capital can take many forms.

For example, Piketty (2014) defines capital as the stock of all assets held by private individuals, corporations and governments that can be traded in the market no matter whether these assets are being used or not. Of course, Marxian economists strongly disagree with this definition and point out the Marxian definition of capital as a process, not a thing (Marx 1992). These are not the only definitions of capital and I should mention that at the time of Prophet Muhammed another important form of capital −which has existed since antiquity− was merchant capital.

In any event, since the Arabic word “ras-ul mal” does not refer to capital in money form − that is, interest-bearing or usurers’ capital− only, “riba” cannot be viewed as interest only.

No doubt, interest is a form of “riba”, but “riba” is more than just interest.

Riba as Unjustified Gain

Riba” is a noun in Arabic that means “increment” or “addition” and in the context of the Quran translates to “unjustified excess” or, equivalently, “unjustified gain”. Here is how one Islamic scholar describes “riba”:[1]

However, the concept of riba is a lot wider than is commonly understood. The term riba need not be restricted to any amount charged on cash, but can also mean any kind of excess given over and above any commodity. So any excess paid by a borrower of, say, wheat, to a creditor also implies riba.

Prior to further progress, let me mention that debates among Islamic scholars on what exactly “riba” means in the context of the Quran has never ended and it seems unlikely that these debates will end anytime soon. This means that while many Islamic scholars will disagree with me strongly, there will be many others who will agree with me wholeheartedly.

Classical economists starting with Adam Smith and his contemporaries defined “unearned income” as “economic rent”, and there is no doubt that “unearned income” is a form of “unjustified gain”. Therefore, if one agrees with that “riba” is “unjustified gain” and accepts classical economists’ definition of “unearned income”, then “riba” goes beyond interest and incorporates economic rent also.

The rent you collect from your land or your real estate is a form of economic rent and interest is nothing other than rent on money, but, as Hudson (2016) describes below, economic rent is more than these:

[E]veryone deserves to receive the fruits of their own labour, but not that of others. Classical value and price theory provided the analytic tool to define and measure unearned income as overhead charge for access to land, minerals or other natural resources, bank credit or other basic needs that are monopolized. It aimed to distinguish the necessary costs of production – value – from the unnecessary (and hence, parasitic) excess of price over and above these costs. This monopoly rent, along with land rent or credit over intrinsic worth came to be called economic rent, the source of rentier income.

Hudson (2016) continues:

Land rent is what landlords charge in payment for the ground that someone’s forbears conquered. Monopoly rent is price gouging by businesses with special privileges or market power. These privileges were called patents: rights to charge whatever the market would bear, without regard for the actual cost of doing business. Bankers, for instance, charge more than what really is needed to provide their services.

Before concluding this section let me mention that since it is extracted through the ownership of capital, it is unquestionable that what Marx (1990) called surplus value (a part of the product of their labour workers must abandon when they work for an alien entrepreneur) is also a form of “unjustified gain”. Therefore, although surplus value is not exactly a form of economic rent because it may or may not be decomposed into a rent component (Marx 2000), it should be considered as “riba” as well.

Let me now conclude this section with that Islam and capitalism cannot be compatible for the simple reason that “riba” is banned in Islam, not to mention other reasons.

Ban “riba”, there cannot be any capital accumulation and hence no capitalism.

Sharia” and “Islamic Finance

As is well-known, “sharia” is the Islamic law. And according to Islamic scholars, “sharia” compliant “Islamic finance” contracts (which they claim can be traced back to the time of Prophet Muhammad) must be based on risk sharing between contracting parties. Furthermore, they claim also that “Islamic finance” contracts must avoid “gharar” (Arabic: غرر ‎‎) which literally means uncertainty in English. They claim this because “gharar” is banned in the Quran (the word is not specifically mentioned in the Quran, but two ayats, namely, Al-Baqarah 188 and An-Nisa 29, are believed to refer to it).

But this is a contradiction in terms.

As is well-known, there are two types of uncertainty: 1) we know the potential outcomes and their probabilities; 2) we do not even know the potential outcomes, let alone their probabilities. Risk is about the first type of uncertainty, but if there is no uncertainty, then there is no risk to share.

Furthermore, especially in the case of finance and economics, the first type of uncertainty hardly ever exists because although on occasions potential outcomes can be known, objective probabilities that can be associated with the outcomes hardly ever exist. Most probabilities that can be associated with known potential outcomes in the case of finance and economics are subjective without question.

Origins of “Islamic Banking”

As Kuran (2004) noted, prior to the 19th century there were no durable financial institutions recognizable as banks in the Muslim world. Although many banks (mostly non-Islamic or traditional) in several Muslim countries had appeared in the 19th and early to mid-20th centuries, the first “modern” commercial “Islamic” bank, Dubai Islamic Bank, was established in 1979.

Coincidentally, 1979 is the year of Iranian revolution which brought Islamists to power in a “modern” state for the first time and some have argued Iranian revolution gave rise to a wider resurgence of Islam across Asia, Africa and elsewhere in the world (Hefner 2010).

But this is not the only interesting coincidence.

The year 1979 coincides also with the beginning of the Deng–Volcker–Thatcher–Reagan revolution (also known as the neoliberal restoration programme) of 1978–80. With this revolution, the economies started to polarise between creditors and debtors, and the debt burden started to shift from the public sector to the private sector (see, for example, Öncü 2016).

If you cannot convince Muslims to participate in the financial system (don’t they call this convincing “financial inclusion” these days?), how can you shift the debt burden from public to private in Islamic countries?

Enter Muslim World League and Organisation of Islamic Cooperation

Both the Muslim World League (MWL) and the Organisation of Islamic Cooperation (OIC) are organisations that came to existence relatively early in the era that started when the United States (US) took over the world leadership from the United Kingdom (UK) at the Bretton Woods Conference in 1944. Both of these organisations had the blessing of the US and have been supported by the petrodollars of Saudi Arabia and the Gulf Region. Together with the now world renown Muslim Brotherhood, they have been among the major instruments of the well-known US green belt project to construct a barrier against the Union of Soviet Socialist Republics (USSR) along the USSR’s southern border.

The MWL (known in the Muslim world as Rabitat al-Aalam al-Islami or Rabitat) is a “non-governmental” organisation based in Makkah, Saudi Arabia. It was established by the government of Saudi Arabia in 1962 and has been funded by it till now. Many of Rabitat’s Jurisprudence Committee members are prominent figures in the world of “Islamic Finance” advising governments as well as “Islamic Banks” on the subject.

The OIC came to being in 1969 upon a decision of a summit held in Rabat, Morocco by Muslim countries following the arson of Al-Aqsa Mosque in Jerusalem. Its first conference of foreign ministers was held in Jeddah, Saudi Arabia in 1970 and it was decided to establish a permanent secretariat in Jeddah headed by the OIC’s secretary general. Together with the International Monetary Fund and the World Bank–not to mention Wall Street− the OIC has been one of the main promoters of “Islamic finance” for decades. Indeed, among the OIC’s current priorities is investment and finance, and hence “Islamic finance”.

From Wall Street to Halal Street

Let me allow a scholar who knows Malaysia way better than I to speak (Rudnyckyj 2013):

Islam has played a pivotal role in the state’s development strategy, as the state has sought to develop industries and services deemed suitable for an increasingly educated and skilled labouring population. Scholars have noted how the state has strategically deployed Islam to discipline the population and create an environment conducive to economic growth…

With the active encouragement of the developmentalist state, Japanese, American, and European firms set up shop in extensive industrial zones and hired a vast number of new workers to provide the labour for export-oriented growth. Islam was deployed by corporations and the state as a means of disciplining especially the young, female labouring population involved in high-tech assembly…

Thus, ‘government policies seek to bring Islam in line with capitalism’ by promoting a form of Islam that is fully compatible with the state’s development objectives…

The promotion of Malaysia as a global hub for Islamic finance is part of state strategies to sustain the nation’s impressive record of economic development since the early 1970s. In part, efforts to foster the growth of Islamic finance are an outcome of how religion and ethnicity have been integrated into …”postdevelopmentalism” in Malaysia.

Let me finish this section with one last quotation from Rudnyckyj (2013):

Islamic finance experts had long bemoaned the dearth of potential employees with training in Islamic finance and the lack of educational programs to train such professionals … For example, the former deputy governor of the Central Bank, Dato’ Muhammad Razif, who was responsible for the Central Bank’s Islamic finance portfolio, stated, ‘If you critically review, even in Malaysia, [Islamic finance] has been based on imitation rather than innovation … Our starting point is compliance, it’s not sharia-based. The bankers right now are converts; conventional bankers transformed into Islamic bankers. Of course [their] mind sets are conventional … My suggestion [is] that banks would employ sharia scholars as bankers’ …

Innovation or Imitation?

Most “Islamic finance” products are some form of special purpose vehicles (SPVs). And SPVs were invented in Wall Street in the 1970s when the Government National Mortgage Association wanted to sell securities backed by a portfolio of mortgage loans.

Let me now allow Gorton and Souleles (2007) speak:

An SPV, or a special purpose entity (SPE), is a legal entity created by a firm (known as the sponsor or originator) by transferring assets to the SPV, to carry out some specific purpose or circumscribed activity, or a series of such transactions. SPVs have no purpose other than the transaction(s) for which they were created, and they can make no substantive decisions; the rules governing them are set down in advance and carefully circumscribe their activities. Indeed, no one works at an SPV and it has no physical location.

They also say:

In short, SPVs are essentially robot firms that have no employees, make no substantive economic decisions, have no physical location, and cannot go bankrupt.

Given what I have said about “riba” so far, I have doubts that Allah would accept any of these.

Let me mention one last thing about “Islamic banking”. In any country where there is “Islamic banking”, “Islamic” banks and conventional banks coexist. And “Islamic” or not, all banks are subject to reserve requirements.

Do you think any bank can obtain reserves without paying interest on them?

Let me now conclude with what I started.

Is “Islamic finance” Islamic?

References

Gorton, G B and Souleles, N S (2007): “Special Purpose Vehicles and Securitization,” in “The Risks of Financial Institutions”, Editors: Carey, M and Slutz R M, National Bureau of Economic Research, pp 549-602.

Hefner, R (2010): “Religious Resurgence in Contemporary Asia: Southeast Asian Perspectives on Capitalism, the State, and the New Piety.” Journal of Asian Studies, Vol 69, No 4, pp 1031-1047.

Marx, K (1990): “Capital Volume I”, Penguin Books

Marx, K (1992): “Capital Volume II”, Penguin Books

Marx, K (2000): “Theories of Surplus Value”, Prometheus Books and Humanity Books.

Piketty, T (2014): “Capital in the Twenty-first Century,” Belknap Press.

Rudnyckyj, D (2013): “From Wall Street to Halal Street: Malaysia and the Globalization of Islamic Finance,” Journal of Asian Studies, Vol 72, No 4, pp 831-848

Öncü, T S (2016): “TINA, India and Economic Liberalisation,” Economic & Political Weekly, Vol 51, No 29, pp 67–71.

[1] https://islam.stackexchange.com/questions/5620/what-is-%D8%B1%D8%A8%D8%A7-riba-according-to-the-quran

 

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39 comments

  1. John

    Interesting discussion of riba …for those wondering about shirk(a favorite word of mine in its borrowed sense) it is associated with idolatry. The practice of idolatry as worship of money and the material world is rampant among humans. Many teachers and prophets have tried to work on that one but it’s a hard task. The golden calf of Babylon grew up to be the Wall Street bull. Buddhists talk about this in terms of grasping and desire. Arising out of ignorance the source of suffering. Few know about sufficiency or enough.

    1. Comradefrana

      “The practice of idolatry as worship of money and the material world is rampant among humans.”

      Humans are material beings, it would be quite odd if they didn’t seek material benefits.

      “Few know about sufficiency or enough.”

      I’d say most, it’s just that every person has different idea what “enough” means.

      1. tagyoureit

        We can thank our “Lizard Brain” and the panic response for not knowing what is enough with respect to any essential resource. Overcoming these ‘instincts’ requires considerable effort.

        As for materialism, that idea has been around for a long, long time too. :)

        1. Comradefrana

          “We can thank our “Lizard Brain” and the panic response for not knowing what is enough with respect to any essential resource.”

          That begs the question(s): How much is objectively enough? What are objectively essential resources? And who gets to decide?

  2. UserFriendly

    It is amazing how religions get so distorted. If anyone hasn’t read this great Michael Hudson piece where he covers how in biblical times the word for sin was also the word for debt which makes you think of “forgive our our daily sins” in a whole new way.
    http://michael-hudson.com/2017/01/the-land-belongs-to-god/
    Also I just happened to watch this quick little video on Rosa Luxemburg about how all imperialism is economic imperialism and how europe devastated egypt with loans.
    https://youtu.be/DzwbF8q6O94
    Highly recommend them both.

    1. cocomaan

      I will always +1 Michael Hudson’s work on religion and debt. It’s some of my favorite stuff out there.

      Also for those who haven’t seen it, David Graeber’s Debt: the First 5000 Years, from the anthropological perspective. He goes into Islamic society in the middle ages too, which is related to this post.

      A shame that Islamic finance has just turned into a religious arm of the bankster industry. I loved this line: No doubt, interest is a form of “riba”, but “riba” is more than just interest. It points to something very real about interest: interest isn’t merely more money to pay. It’s time for the debtor, it’s opportunity cost, and in a community, it’s something that can take away from everyone, especially when it’s done in excess. Zakat, or tithing, shows how concerned early muslims were with how their community functioned.

      Thanks for this super cool post. This is important stuff. As Tyler Cowen said a few weeks ago, learning about religion is important to understanding the human experience and never is wasted time, whether you believe or not.

  3. JTMcPhee

    Yves, thank you for this. One hopes that the denizens of the global political economy can finally get a useful inkling of workable, decent, commensal alternatives to “markets and dog-eat-dog “competition.” And “Die quicker.” Lots of us mopes have been cooperating.

    I’ve posted links over several years to the wisdom and promise of the approach to commerce and finance embedded in “Islamic banking and finance,” along with cautions on how the Banksters and casuists are looking for ways around the mandates and proscriptions.

    Maybe your post will be a catalyst that will lead to bringing the buccaneers and looters to heel. It is obviously an enormous uphill slog to get us humans all on the same page of a healthy, decent organizing principle and its subheads. Most every religion pays at least lip service to the Golden Rule, which might be a good place to start. (S)CALpers gonifs might never have been such an issue if only…

    Of course one has to learn also from what happens when the Taliban types see their opportunities to hijack “righteousness” to serve their own fixations, preferences and perversions, complete with the too-usual erection of “some animals are more equal than others” fortresses of impunity and immunity.

    Greetings from sunny Florida, from one of the lucky ones among the climate refugees that are tasting what centuries of colonialism/imperialism/consumption have brought about. Even the evilest of corporate types like Exxons are grudgingly owning up to the truth of HICC (human-induced climate change) though the C-suites are still stuffed with Tony “l’d like my life back” Heywards , http://www.nytimes.com/2012/09/02/business/tony-hayward-former-bp-chief-returns-to-oil.html too bad so many of them are just looking for the personal profit in the degrading of the planet. No doubt they are corporate-courting with the Soylent executives…

    1. Brian M

      I can see your point, yet the very verses above use threats of eternal torture to make their arguments. The Taliban ARE Islamic. As with Christianity, there is no one faith. It is all interpretation, all the way down.

  4. bronco

    Sign me up for Islasmic banking . As a builder it always annoyed me that the profit I make on all the labor that goes into building a house is equaled almost with no effort by the banks profit on the same house. Add in the zombie realtor and of course the lawyers and phony inspectors and imaginary title searchers. If that all gets swept aside I’ll start studying the Koran the next day.

  5. Anand Shah

    “Do you think any bank can obtain reserves without paying interest on them?”

    not to take the discussion away from islamic finance…

    I would like to understand this more, from the american banking perspective, where to my knowledge, i am given to understand, that Fed’s QE, though being an asset swap, is money, kept in the form of reserves, at the FED.

    Common sense suggests, that this is a restructure to help the banks come out bankruptcy and therefore i would expect the banks to pay a fee, for the creation of these reserves.

    Here we find ourselves, where the FED pays interest to the banks on these reserves…

    am i wrong in my thinking or is there a fundamental break from the past here… ?

    1. aj

      Currently the American banking system is awash in reserves. Thus reserves are easily obtainable in the system. If the Fed didn’t pay interest on reserves, the Fed Fund Rate would drop pretty close to zero. That is banks would essentially loan each other reserves with (close to) no interest. The Fed wants to keep some positive nominal rate, so they instead pay the interest on reserve balances.

    2. Mel

      The way I’m coming to understand it, reading many various blog posts is: a Central Bank (the FED in the U.S.) is a banker’s bank. Any private bank, to prove that it’s a bank, has money deposited in its Reserve Account at the Central Bank (CB, from now on). Operationally, when money is transferred from one bank to another, the CB effects this by debiting one bank’s reserve account, and crediting the other’s. Ideally each bank will have enough in its reserve account to honor all the various transactions its customers have made during the day and ideally the amounts the bank pays out and takes in on behalf of its customers will mostly balance out.
      if a bank runs out of reserves, it can’t honour payments outside the bank — nobody could cash checks you wrote, for example. This threatens to freeze up the whole financial system, so the CB is under pressure not to have that happen. The CB will usually be pressed to credit the reserve account via a loan.
      There may be regulations requiring each bank to maintain some balance in its reserve account. A bank that keeps more than that may be deemed to have “excess reserves”, and some regulation may stipulate that the CB pay interest on the balance beyond the requirement.
      Naked Capitalism has been good on this subject, and Bill Mitchell mentioned in the Blog Roll, but the information seems always spread out. It’s taken quite a lot of reading. And I still could have got it wrong.

      1. aj

        Mel, you are mostly correct. There are a couple of corrections I would make.

        1) Reserve requirements have a time delay of more than one day. If memory serves me, I think it is in the range to 2-3 weeks but could be longer (I tried to do a quick google search and came up empty handed). At any rate, a bank has a window of time to get the required reserves and isn’t scrambling to try to make the books balance by the end of the day.

        2) The majority of reserve loans are inter-bank loans with the Fed acting only as a lender of last resort. That said, there is automatic overdraft protection on reserve accounts. A bank is automatically given a loan from the Fed if they don’t meet reserve requirements. The Fed typically charges a higher rate than other banks which is why they like to borrow from each other.

    3. Sabri Oncu

      Dear Anand,

      Whether you pay or receive interest is not important. There is always one party who receives interest in such transactions. The same is true even when the interest rates are negative. All are riba. I am not a Muslim. I am just interpreting the Quran.

  6. Mel

    Do you think any bank can obtain reserves without paying interest on them?

    Can’t reserves be funded out of capital? Or am I confused?

      1. Outis Philalithopoulos

        The connection between what you’re suggesting and Mel’s comment is tenuous enough that it’s hard to fill in the gap. Would you like to elaborate?

        1. bronco

          Reserves in the form of physical gold is the way it used to work. Precious metals as money.

          Real bills as short term reserves . Gold as long term reserves . Wiemar Germany used land as reserves to back currency and halted hyperinflation in 1923 . Some anchor is needed to attach our faith to.

          Things instead of smoke and or mirrors.

          For a long time Saudi Arabia demanded to be paid in gold for its oil exports. They were no dummies . The modified gold standard could have worked if the US didn’t decide to fight 70 years of continuous war and run a tab for it.

          1. AJ

            The gold standard causes several issues such as deflation and doesn’t allow the money supply to expand quickly enough in times of increases demand directly leading to a lot of bank runs (see the movie It’s a Wonderful Life for an example).

            1. aj

              If you are inclined for further reading, I recommend this article on the deflationary aspects of Bitcoin. Bitcoin–IMO–is comparable to a gold standard because the quantity of it is fixed (or growing at a shrinking rate). It is a current example of the problem of having a fully-backed (whatever that means), inflexible currency.
              Bitcoin’s Deflation Problem

            2. bronco

              I don’t think deflation is a problem for normal people. Who complains if things get cheaper? Its a wonderful life ( fictional) didn’t happen under an old school gold standard , it happened under one that had already been destroyed by the Federal Reserve . Now deflation is an issue for governments who depend on taxing assets at ever inflated prices ……….. solution lets get rid of them.

              1. JustAnObserver

                Deflation considered from the narrow perspective of prices – maybe not a problem. However once you add in wage deflation as an inevitable consequence – maybe we do have a problem since the amount of debt the wages have to service remains constant in monetary terms. Aka Irving Fischer’s “debt deflation theory” of depressions.

                One interesting question for the NC commentariat: I can – vaguely- remember someone at the Fed way back in 2003 saying that their primary concern was the possibility of deflation. Am I just imagining this ? If not then we’ve had 14 years of Fed (& other CB) hypocrisy where they yammer on and on in public about the risks of inflation but in private deflation has been the spectre they most fear.

                1. bronco

                  “However once you add in wage deflation as an inevitable consequence – maybe we do have a problem since the amount of debt the wages have to service remains constant in monetary terms.”

                  I still don’t see it as a problem , the problem is the debt. Don’t spend what you don’t have. Generations now have been taught that there is no reason to live within your means , that pattern of behavior is what buries most people.
                  With respect to debt our society , both individuals and government, has lost its mind .

                  1. jsn

                    With deflation, as the value of your fixed obligations go up with the value of money and money becomes scarce as a result of that same increase in value, demand collapses because of the scarcity so a growing portion of the population looses its income. As long as you can stay out of that portion, your position here holds.

              2. AJ

                Fischer’s theory is not without it’s flaws. However, there is enough evidence out there that whether or not deflation was a cause of the Great Depression, the tight-money policies of the Fed at the time contributed to the severity and length. Even competing schools of economic thought agree on on the deflation cause of the Great Depression although they disagree on the main cause of the deflation in the first place (see link below for more thorough analysis). A one time price reduction in a handful of goods could be a boon for consumers, but a sustained deflationary period is most certainly not.
                Inflation During the Great Depression

          2. Mel

            Some time ago here I cited a case from Jessica M. Leppler’s book The Many Panics of 1837 where a financial crisis was brought on because a) Andrew Jackson wanted to develop the American Frontier, and b) the Bank of England wanted to expand the consumer economy in the West Indies, where slavery was being abolished, and c) there wasn’t enough gold in the world to finance both.

          3. Adam Eran

            Mark Blyth (Austerity: The History of a Dangerous Idea) says one can have either democracy or the gold standard. Not both. Makes sense to me (and William Jennings Bryant)…Gold is de facto deflationary.

            Graeber’s work (Debt: The First 5,000 Years) declares that, of those 5,000 years, only 200 or so had a gold standard.

            1. bronco

              I agree with Mark Blythe most of the time but I’d like to hear his take on gold standard vs. the kleptocracy we actually have now.

  7. Susan the other

    Thanks for this post. Very interesting. I was thinking Hudson’s explanation of the difference between industrial banking (Germany) and the financialization we have. But Riba is a complex moral issue. The thing that makes me stumble thinking thru this is, where does the funding come from if not from capital accumulation. (of course we know it is created by banks in the western world, but we pretend it is created by capital accumulation.) So capital accumulation, a la Picketty, might not exist in Sharia finance and so would not cause the imbalance we always get from the accumulation of Riba… in that, as Stiglitz says, capitalism is just too successful at what it does. So successful that it runs out of good enough new investments to keep ROI going. It gets way ahead of itself…There could be some good common sense behind the concept of Riba.

  8. Lee

    Since my understanding of finance is rather rudimentary, comments such as those above help me to better grasp the content of many of the more erudite posts at this site. I am glad they are back and hope they remain as civil and enlightening as these.

  9. hemeantwell

    An Iranian friend, Misagh Parsa, has written a book on contemporary Iran

    https://www.amazon.com/Democracy-Iran-Failed-Might-Succeed/dp/0674545044/ref=sr_1_1?s=books&ie=UTF8&qid=1505322233&sr=1-1&keywords=misagh+parsa+democracy+in+iran

    For the life of me, I can’t find any consideration of these principles in his account of the freewheeling corruption rampant in the Islamic state. But it’s hard to believe that the Iranian clergy believes itself to be marching to hell. Could it be that corruption and flat-out looting are somehow on another plane where these principles don’t apply?

  10. Watt4Bob

    The way I read this article, the principle issue that has caused so much trouble lately, between the USA, and the Islamic world is their refusal to adopt the immoral standards of the west as regards what has become the accepted behavior of our financial sector since the neoliberal revolution.

    Ironic isn’t it that the only folks who seem to understand, and seriously resist Wall $treet’s looting, and so should be considered our allies, are instead demonized and subjected to terrible violence.

  11. Kim Kaufman

    I finally got the chance to read the whole post and a couple of comment links, most particularly the one by Michael Hudson. This whole issue is so interesting to me. There’s a lot to think about. I like that Hudson thinks there is a lot of fodder for turning the conversation around from the poor are simply losers and the .01% is justified in making sure none of their taxes go to the commons to something a lot more humanitarian that works for the common good of all. I know the issue is a lot more complicated than this and I’m saving it to reread again. Thank you for writing it, Yves.

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