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Category: Faith & Spirituality, Life & Society Topics: Interest (Riba) Views: 3037

In his essay 'The Economic Possibilities for our Grandchildren' Keynes envisaged a future that would afford people the possibility to 'live wisely and agreeably and well.' At this stage, he wrote 'I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue -- that avarice is a vice, that the exaction of usury is a misdemeanor...'  

The big question is why that time of well-being is not possible now. What cause withholds us to achieve it? Keynes answers the question while guarding us against the perils of moving towards that stage too enthusiastically. 'Beware!' he said, after his vision of the millennium 'The time for all this is not yet. For at least another hundred years, we must pretend to ourselves and to everyone that fair is foul and foul is fair, for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.'  

So, 'foul' is useful. 'Economic necessity' makes it so. What economic necessity? To whom is this foul useful? Mine eyes behold the minority affluent of my land living 'happily ever after' with their merry-making and with their easy access to the huge funds the country borrows for the 'economic necessity' of affording these gods and goddesses their never ending binge. And mine eyes behold the rest of the living -- the ordinary majority -- struggling and striving and laboring to eke out a precarious subsistence.  

Yea, yea, there's this wee, 'growing' middle-class as well, the youth of which have that fine ornament the gods call talent -- talent which the youth spend more on vain efforts to emulate them gods rather than on their own productivity and development. Yet, in these youth there's a reason for the dear country to hope. But the 'foul' is rarely useful to them in a land where not more than 2.5% of the revenue expenditure is spent on education and where a talented young person often has to figure out the grand puzzle: which honest trade, apart from speculation of course, can afford him or her a profit high enough to pay for the heavy interest on a loan of just three lac rupees from YIPS that is supposed to be given to the talented youth who do not have enough capital already to pledge as collateral for a true share of the borrowed funds our rulers regard national wealth?  

The question thus remains: to whom is this 'foul' useful? and what 'economic necessity' justifies it? Time has now clearly shown that the 'invisible-hand' has rarely been benevolent to the have-nots, and that the celebrated 'equilibrium' it causes has no relation as such with their 'wants' and needs, as it may result at a level much below the needs of individuals; for demand in economics is not 'wants', still less 'needs'. Demand is money - votes, which determine what is to be produced, how much is to be produced and for whom it is to be produced. With this magic wand, the affluent can cause such patterns of production and distribution as churn out superfluous luxuries, while the majority, containing millions of potential, average innovators, entrepreneurs, thinkers and skilled works -- essential for pervasive economic development -- and a number of potential Einsteins, Edisons and Lee Lacoccas -- essential for breakthroughs -- do not even get the share of resources to come out of the vicious trap of poverty which confines their potential to the most menial of chores for the rest of their lives. This is not only morally despicable but very bad economics as well, for there is no factor of production more important -- economically and socially -- than human beings. As Sismondi (1773-1842) asserted, we must be concerned with not only how big the stock of wealth is but also with 'For Whom?' it is being piled. 'No nation' he said 'can be considered as prosperous, if the condition of the poor, who form a part of it, is not secure....' -- in our case, that of the majority. The ability of a nation to produce wealth depends not on the self-interest of a few individuals, but on a culture conducive to the production of wealth. As List (1789-1846) put it 'The prosperity of a nation is great, not in proportion to the accumulation of wealth, but in proportion to the development of productive forces.' Among these 'productive forces' are a required variety of natural resources, science and technology, appropriate laws, law and order, a congenial environment for industry, commerce and services, a sense of proportion, and, above all, moral values. Says George Soule:  

Again and again, it has been discovered that a nation cannot much benefit merely by attracting large foreign loans and putting up highly mechanized factories, unless more elementary cultural and material advances have created the readiness to make good use of these facilities. Education, health, desire for improvement, reasonably honest and orderly government, a harmonious interrelationship among agriculture, manufacture, commerce, and good transportation, are all found to be necessary....1  

Culture is created by people, whose behavior is greatly influenced by the structure of the society and the prevailing values. A thing is worth as much as people think it is worth. If the people with the magic wand of demand think cottage industry is important and divert their resources towards it, cottage industry will become important. If they think construction of beautiful government buildings is more important and direct their money-votes towards it, that construction will become more important. The rigmarole theory of 'the invisible-hand' being stimulated by economic activity to benefit everyone often fails when disparity of income and wealth is so great as it is in our society. Even Keynes conceded that wide disparity in the distribution of income has the tendency to increase saving and restrict investment because the majority poor do not have the ability to generate enough demand to stimulate investment out of the attempted saving by the affluent.  

The key word then is values. What is more important to those who are important in society? Most of Western economics has concerned itself with material welfare of man in the hope that his material welfare will lead to prosperity and justice and compassion in society. This topsy-turvy premise has justified the hedonism of the 'economic man' to the extent such justification was useful to the prosperous class. Reality is the other way round. It is when the ethos of a society consists in nobler values as justice and compassion, hard work and industry, and entrepreneurship and co-operation that material welfare is ensured to the majority of its members. Where material progress has been made in disregard or negation of nobler values, such progress has often, if not always, been the outcome of exploitation of man by man.  

The problem though is that the assumption of 'economic man model' is not wrong per se. Each one of us does want material benefit for his or her own self and wants to take such decisions as would lead to his or her material prosperity. Preservation of values, on the other hand, often requires sacrifice of material benefit. Sure, we all love to pay lip-service to the idea of being nice and all that, but, deep down, hardly anyone wants to be 'the sucker left holding the bag'2, especially when no reward of any kind is anywhere in sight, not even in the longer-run. Sure enough, it is part of human nature to be altruistic also. But does that aspect of human personality make economic sense, especially when we are talking about sacrifice in the real sense of the word, which sacrifice is essential for concrete and lasting change in society, not about paternalistic, condescending charity which cons conscience into accepting as desirable much less than what is actually required? The answer lies in that realm of human life which Western economics has unsuccessfully tried to ignore: religion. The West began its age of 'Enlightenment' with the virtual abandonment of belief in God and with its substitution by belief in Nature. Even most of those who still held on to religion in one way or the other believed that God brought His will to pass through nature and its laws.  

The philosophers of Enlightenment insinuated that misery of man was the result of disobeying 'natural laws'. Nature now was the 'Father' -- impersonal, yet systematic and benevolent. They talked about the results of 'deviations' from the norms of some imaginary society in the distant past when everybody was happy because nothing 'un-natural' existed. As George Soule has put it 'In this disguised form they revived, without being conscious that they were doing it, the legend of the Garden of Eden as the prototype of a new earthly paradise they were intent on creating.' But we know that life is rarely perfect. To sacrifice material benefit in the true sense of the word just for the preservation of values especially when no reasonable reward is in sight, not even in the longer-run, is a decision that makes economic sense only if you are certain that in such persecution 'great is your reward in heaven'. That kind of reward can provide Veblen's3 'leisure class' and 'captains of industry' with the purposive ness they need to replace the 'virtues' of 'ferocity, self-seeking, clannishness, disingenuousness, and a free resort to force and fraud' with genuine altruism where it is most needed.  

Therefore, religion, especially Islam, gives an absolutely different direction to life than the one charted out by Western 'Enlightenment'. Indeed, in Islam, the very purpose of a person's life is different: it is servitude to God4. With this purpose, the whole perspective changes. Life becomes a trial rather than a reward or punishment. 'Freedom' does not remain a privilege that is unrestrained by anything but 'nature' -- which itself can be cruel as well as kind -- or a privilege that is considered justified in taking no account of ethical constraints imposed by reason and Divine revelation. Freedom becomes a responsibility.  

All the directives and injunctions of Islam -- whether they relate to a person's economic activity or to other social and individual dealings -- have one basic aim: the 'purification of a person's  
soul'5 to enable him or her to be a true servant and slave of God.  

Such people as have no desire or inclination to be God's servants can easily find justification in  concepts as the 'invisible-hand' for their deviation, which makes them captives of their base desires. To such people, the underlying wisdom of the laws of God can rarely be explained. But to the servants and slaves of God, a lot can be said. And if those who have authority and power among men -- the affluent and the elite -- become men of God rather than becoming false gods themselves, a lot can be done. As Robert Owen (1771-1858) said:  

Any general character, from the best to the worst, from the most ignorant to the most enlightened, may be given to any community, even to the world at large, by the application of proper means; which means to a great extent are under the control of those who have influence in the affairs of men.  

Assuming -- for the sake of argument only -- that those in authority in our dear country are men of God, this unworthy scribe would to like say a few things to the gods.... er, sorry,  to the men of God who live on the Mount Olympus in Islamabad and who serve the rest of the country from up there.  

In the following lines are some assertions regarding Islam and economics followed by some suggestions for economic policy making. Regarding Islam, it must be said at the outset that where any unequivocal directive or injunction exists in the Qur'an or the Sunnah, the question of ijtihad does not arise. The only task for a scholar of Islam is to interpret the directives and injunctions in relation to their context. For example, since Riba has been prohibited in the Qur'an, what Riba means is a question which must be looked into vis--vis the context and the language of the Qur'an. While dealing with the question of the meaning of Riba, the line of argument which takes into account factors extraneous to the Qur'an and, on that basis, regards practicable solutions which do not fit into the context of the relevant verses of the Qur'an as the true expression of the meaning of the book does no justice to this Divine source of guidance. Only that meaning can be accepted as correct which truly emanates from the language and the context of the relevant verses in the Qur'an. The question of viability should be tackled thereafter6. Ijtihad, or intellectual reasoning, is for matters not touched upon by the original sources of Divine guidance. A book is not interpreted by intellectual reasoning which is used to 'rationalize' it, but by using the principles of linguistics to arrive at the true meaning of its contents. Therefore, if one finds those contents unreasonable or impracticable, one should have the intellectual courage to say so. To put extraneous solutions into the context of a book to 'rationalize' it is downright intellectual dishonesty.  

In the following lines, assertions related to Islam are based on the interpretation of the Qur'an and the Sunnah and on a general understanding of Islam and its spirit. These assertions should therefore be repined or accepted on same bases rather than on the basis of extraneous factors related to the question of viability. Quite often what is practical and useful seems impracticable because the overall environment necessary for it does not exist. In such cases, it is not wise to do away with the ideal itself. 'Ideals' as a Frenchman has put it 'are often like stars. You can't always reach them, but you can use them to chart out your course.' If you change the ideal on the grounds that you can't reach it all at once, then you'll change the direction altogether; then you'll never get there. If it is difficult, or even impossible, to be thoroughly honest in our society, it does not mean that our ideal should be abolishing only 50% or 60% of the existing corruption. We have to keep on trying to move gradually towards the ideal.  

However, all the other assertions, related to economics and the suggestions, that follow are subject to open debate vis--vis their viability. But even here, it must be remembered that quite often the solution to unresolved problems lies in the radical vision of a path finder who has the sagacity and the courage to go beyond existing perimeters. Any such person, whose vision is based on serious academic work rather than on just whims, deserves a fair audience, if nothing else.  

Now, for the assertions:  

I. Regarding Islam  
        1. Islam has not given any economic system. In fact, it has not given any social system. A system is essentially a set or assemblage of interconnected and interdependent things that form a complex unity7. If Islam had given social systems in that sense it would have been obsolete long ago. It has however given certain universal ethical principles for the purification of human soul.  
        2. In the case of vices which have pervaded society to the extent that their eradication in one stroke can only cause greater disruption and evil than the one which is sought to be rooted out, Islam has always had a gradual approach towards implementation (for example, its gradual prohibition of intoxicants during the Prophet's time -- sws)  
        3. Islam does not take away the freedom of an individual to own and use wealth. Only in exceptional cases, where the chances of exploitation are great, does it take away the right to 'use' wealth8. Also, it acknowledges the fact that there are natural differences among humans in relation to their abilities, circumstances and wealth. These differences create a harmonious society if each individual is given a fair and just  opportunity to utilize his or her potential. Islam restrains the freedom of an individual seeking his or her material benefit only to the extent that there is no exploitation and that the collective and personal activities of an individual do not hinder his or her soul's purification, which purification is essential for enabling an individual to become a true servant of God. Purification of human soul is the underlying spirit of injunctions as the prohibition of Riba and of directives as the implementation of Zakah.  

II. Regarding economics  
        1. There is no viable basis for institutional credit creation -- the primary function of banks -- apart from interest. If there had been, someone would have found it by now. The Jews tried it, the Christians tried it, the Muslims tried it9. All failed. It's time we started looking for an alternative solution rather than wasting further efforts on looking for alternatives to interest as a basis for institutional credit creation. Perhaps, the solution lies in looking for a banking-free economy rather than in looking for an interest-free banking system. A radical idea perhaps, but one that needs looking into, especially since preserving the existing structure of banking is not a Divine commandment.  
        2. Since, as Paul Samuelson has put it 'A thing is worth what people think it is worth'10, values can have the profoundest economic impact. In the promotion and preservation of any value, the affluent and the elite who are at the helm of affairs have a great role to play. It is not only through laws but also through personal example that values are inculcated. That is why it used to be a convention in true Islamic societies that a ruler's standard of living never went above that of an average person.  
        3. An economic system does not exist in isolation. Any successful economic guideline requires certain accompanying factors in the political, legal, social and cultural set-ups shaping the economy11.  III. Recommendations   The economy should be re-structured on the bases of a just distribution of wealth and self-reliance in such a manner that gradually the government is left with no need to impose any tax on its citizens others than Zakah12.   Details of this suggestion, which is based on the ideas of Javed Ahmad Ghamidi13, are presented by Shehzad Saleem in the next editorial. While considering these suggestions in relation to budget making, the following points must also be considered:   1. Usually, policy makers in our country think of only one way of reducing the gap between revenue and expenditure: increasing the revenue -- which is generally done through additional borrowing or increased taxation or both. Yet, another way has always been there: reducing the expenditure -- the wrong kind of expenditure. Expenditure which eats up the stock of capital goods more quickly than it adds to it or leads to such patterns of production and distribution as make the rich richer at the cost of the development of the rest certainly needs to be curtailed. Changing the structure of expenditure requires courage, commitment and sagacity. But it can be done.   At the moment, the greatest curse our nation is facing is debt-servicing. Domestic debt servicing alone was Rs. 113 billion last year in the revenue account of the federal budget. If the government, by taking the masses into confidence, musters up enough political support to get the majority vote on this one14, it can declare a moratorium on the payment of domestic debt on the basis of the Qur'anic verse which urges a lender to extend the time of ease for a borrower in straitened circumstances15. All interest payment on domestic debt can immediately be stopped on the grounds of interest being un-Islamic. The current value of debt may be linked to gold and re-payment assured on that basis so that no panic results. The facility of sale (through the Exchange) of marketable instruments of this debt may continue. The time-period for re-payment in gold (or value thereof) may be delayed for at least 15 years so that ample time is available for generating income by using the saved funds for productive and developmental enterprise. With this one stroke, the largest chunk of expenditure can be dealt with. All other superfluous expenditures must also be curtailed or stopped.   2. Zakah is usually thought of as a very narrowly-based tax. This tax, with its inherent appeal of being an obligatory ritual of worship for a Muslim, has a very wide base (as is explained ahead) and can be used for all collective and State purposes. In this regard, the condition of Tamlik imposed by some jurists, which restricts its use to personal possession at the level of individuals who belong to the destitute class, has no basis in the Qur'an or Sunnah16. It is suggested that this tax be used to the fullest extent to broaden the base of taxation, especially by including agricultural produce in real terms.   3. Since the government has the right to take away the right of use from incompetent owners of wealth so that exploitation in society is checked17, it should look into the possibility of sharing in the management of large, under-utilized tracts of agricultural lands. Some suggestions in this regard follow in the next section.   4. The financial system should be restructured in such a way that interest is abolished and indigenous entrepreneurship, especially at the middle-income levels and at the levels of cottage industry, is encouraged. (See the first suggestion in the next section for how this restructuring may actually be done).   5. Further foreign loans should not be taken. Efforts should be made to retire all foreign debt in the next 15 years. Superfluous expenditure must be put to an end, the government and its members should promote austerity by personal example, and the more well-off segments of society should take the lead in making the dream of full retirement of debt a reality. Had the present government been a true leadership of the masses rather than of the affluent and of the industrial bourgeoisie, one might even have suggested some drastic measures for the retirement of debt, considering the gravity of the situation. These drastic measures would have included among many others, redistribution or acquisition of land on the basis of original ownership before the British took control from the Muslim rulers of India and acquisition of or sharing in the management of enterprises set up in the private sector through funds borrowed from the State controlled banks and DFI's. (Alternatively, a system of Khiraj could be used as suggested in the next section for 'less drastic' measures).   The unhallowed hand of this scribe presents these suggestions with full awareness that in all probability the rulers of today will rather choose to ignore them. But since there is hope in the younger generation, these suggestions it must present. Perhaps, the Nawaz Sharifs and Benazir Bhuttos of the future will pay heed to them in a time when there is no difference between making money and making goods, when the man who makes most money is no longer one who exploits others, stifles indigenous enterprise with his interest-based business expansion and cut-throat competition or who, with his speculation and interest-based business activity, creates for small investors, entrepreneurs and for the majority of people in society problems as panics, industrial failures and unemployment.   But until then, until darkness gives way to that daylight, it seems we have no choice but to continue in the worship of avarice, interest18 and precaution as our gods.     1. Soule, George, Ideas of the Great Economists, (New York: The New American Library of World Literature, Inc., 1960), p. 78.  2. Quoted by Samuelson as one of the two prevailing rules of property values, the other being 'A thing is worth what people think it is worth'. See Samuelson, Paul. A, Economics, 11th Edition (Tokyo: McGraw-Hill Kogakusha, Ltd. 1980), p. 67  3. Veblen, Thornstein (1857-1929)  4. See the Qur'an (51:56)  5. See the Qur'an (62:2)  6. For a discussion on whether Riba refers to interest of all kinds or to exploitative usury, see 'The Meaning of Riba' in this issue. (See also 'Rent and Riba' for the difference between the two). Those who think that interest is a boon for society rather than a bane might like to see under 'The Tentacles of Interest' part of an article by Muhammad Akram Khan for some arguments against their viewpoint.  7. Koontz and Weihrich, Management, 9th Edition (New York: McGraw-Hill Book Company, 1988) p. 44.  8. See the Qur'an (4:5). Although this verse relates to a specific group in society, the underlying reason for this directive extends the application to include any person (s) who does not have the mental competence to manage his wealth appropriately; for example, the directive may be used by the government as a basis to take away the use (not the ownership) of excessive, under-utilized land from incompetent owners.  9. It may be surprising for some, but in all the three great religions: Islam, Christianity and Judaism, interest had been prohibited. Adherents of all three religions tried subterfuges ranging from defining interest as exploitative usury to different 'modes' of financing.  10. Samuelson, Paul. A, Economics, 11th Edition (Tokyo: McGraw-Hill Kogakusha, Ltd. 1980), p. 67  11. For our suggestions on changes required in these areas, see 'Renaissance', Vol. 6, (Feb. 1997), No.2.  12. Islam does not allow the Islamic State to charge any tax on its Muslim citizens apart from Zakah. For details see Shehzad Saleem, 'The Islamic Concept of Taxation', Renaissance, Vol. 2 (Oct. 1992), No. 10, pp. 3-12 and A New Economic Framework, (Lahore:  Al-Mawrid), 1995, p.13.  13. President and Research Fellow of Al-Mawrid's Institute of Islamic Research. (Most of the material presented in this journal is often based on his ideas and research work).  14. Since such a radical step can incite a lot of opposition, the government, for taking this step, might require majority vote in accordance with the Qur'anic principle of government for the Muslims: amruhum shura baynahum (42:38). (Their affairs are by consultation among them).  15. (The Qur'an 2.282)  16. For details see Nadir Aqueel Ansari's article on Tamlik in this issue and for further detail see Amin Ahsan Islahi, Tawdihat, (Lahore, Islamic Publishing Centre, Ltd.), 1985, pp. 107-173). See also Shehzad Saleem, A New Economic Framework: Ghamidi's Proposition, (Lahore: Al-Mawrid), 1995. For details of other Islamic guidelines for the economy, see Javed Ahmad Ghamidi, 'Qanun-i-Ma'ishat', (Urdu), (Lahore: Al-Mawrid), (unpublished).  17. (See the Qur'an 4:5)  18. Keynes uses the word 'usury' in both the extracts quoted in this article, whereas abolition of 'usury' meaning exploitative interest has never been a problem even in the West. Obviously, what he is trying to appease by calling it a 'misdemeanor', despite his own severe criticisms on it, is interest. See Shaikh Mahmud Ahmad's Towards Interest Free Banking (Lahore: Institute of Islamic Culture, 1989, pp. 27-29) for a criticism on the Keynes' apprehension that owing to psychological factors it will not be economically feasible to let the interest rate fall too low or to let it become zero (despite the advantage of ridding the economy of unemployment -- an advantage he himself conceded).

  Category: Faith & Spirituality, Life & Society
  Topics: Interest (Riba)
Views: 3037

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