Over time, it was considered that the prohibition of interest was nothing more than a religious dogma that needed to be done away with. Religion could no longer be allowed to run economics. This was certainly the sentiment expressed by famed economist historian Richard Tawney when he stated, “The whole scheme of medieval thought attempted to treat economic affairs as a part of hierarchy of values embracing all interest and activities of which the apex was religion.”[1] At the same time, though, it seems that the change in attitude that took place was not based on purely economic reasons. Lawrence Dennis stated,

Aristotle, the Roman Catholic Canonists, the Jewish Torah. . . all forbade loans at interest, or denounced interest as usury. Lending at interest took its rise in the medieval centuries largely as a matter of accommodating princes who needed and could not raise enough money for war and other public purposes. Contrary to current ideas, lending was not originally developed as a way of financing commerce. The Venetians, Dutch, Henseatic, British and other merchants up to the seventeenth century financed their operations with partners’ capital contributions.[2]

Dennis further states,

The Catholic Canonists did not disapprove of profits on commercial ventures, rent for the use of land or the sale of the fruits of the land or other capital. They disapproved of money interest on money lent. During the Reformation Period, interest came to be rationalized mainly by the Protestants in a way to get around Canonist objections. The Catholic Church never abandoned its attitude towards usury, but it acquiesced in, or tolerated loans on, the basis of certain assumptions. This moral acquiescence by the Catholic Church and positive endorsement by the Calvinist traders came to be embodied in laws and thoughts and behaviour patterns of modern societies.[3]

The rationalizations Dennis is referring to can be seen in a number of commentaries on the Bible. Even though the Old Testament texts are very clear in their condemnation of interest, this did not keep later scholars from virtually ignoring or seemingly distorting this prohibition.[4] For example, the Henry’s Concise Commentary to Leviticus 25:37 states:

And thus far this law binds still, but could never be thought binding where money is borrowed for purchase of lands, trade, or other improvements; for there it is reasonable that the lender share with the borrower in the profit. The law here is plainly intended for the relief of the poor, to whom it is sometimes as great a charity to lend freely as to give.

This explanation is refutable on its face as interest has never been about the lender sharing with the borrower in the profit. If that were the case, many of the evils of interest would be removed. Similarly, in the Jameison-Fausset-Brown commentary it states:

 “Usury was severely condemned (Psalms 15:5, Ezekiel 18:8,17), but the prohibition cannot be considered as applicable to the modern practice of men in business, borrowing and lending at legal rates of interest.”

How did the act go from severely condemned to not possibly being applicable to the “modern practice of men in business”? No logic or proof is offered for such a leap. Similarly, in their commentary on Deuteronomy 23:19-20, the Jameison-Fausset-Brown commentary states:

“Thou shalt not lend upon usury to thy brother . . . Unto a stranger thou mayest lend upon usury--The Israelites lived in a simple state of society, and hence they were encouraged to lend to each other in a friendly way without any hope of gain. But the case was different with foreigners, who, engaged in trade and commerce, borrowed to enlarge their capital, and might reasonably be expected to pay interest on their loans.”

Again, no evidence is given for their proposition. (There, however, seems to be attitude that the sacred texts are not able to express themselves properly.) In fact, even a famed economist was willing to provide Biblical commentary: Paul Samuelson wrote in his classic textbook on economics, “The Biblical utterances against interest and usury clearly refer to loans made for consumption rather than investment purposes.”[5]

With the removal of “scholastic” objections, it then became the role of the budding science of economics to justify the paying of interest. This, it turns out, is much more difficult than it sounds. Haberler was certainly correct when he stated,

The theory of interest has for a long time been a weak spot in the science of economics, and the explanation and the determination of the interest rate still gives rise to more disagreement amongst economists than any other branch of general economic theory.[6]

In reality, among economists, “There is not a single adequate and generally accepted theory of interest which can give a sound explanation of the origin and the cause of interest

The mere plethora of opinions attempting to explain the existence of interest and justify its payment—accompanied by the credible critiques of all of these views by noted and respected economists[1] —should be a sign to everyone that something is not quite right.  In the history of economic thought, one can find the following theories justifying interest (among others):

(1)  The “Colorless” Theories (as Boehm-Bawerk calls them): These were advanced by Adam Smith, Ricardo and other early economists.  This theory has many flaws, including confusing interest with gross profit on capital.  Ricardo further traced all value of capital back to labor—but somehow he failed to note that it was never labor that was receiving the payment for said value.

(2)  The Abstinence Theories: These kinds of theories have popped up every now and then.  Economists discovered that “abstinence” may not be a good word to use[2]  and would often change it to other terms, such as “waiting” (a la Marshall).  Interest is, in essence, the wage one receives for “waiting” or “abstaining” from immediate consumption.  This theory failed because it seems to think that savings are solely a function of interest, which has been found not to be true.

(3)  Productivity Theories: The proponents of this theory see productivity as being inherent in capital and therefore interest is simply the payment for that productivity.  The theory, as put forward by Say, assumes that capital produces surplus value but, again, there is no proof to support that claim.  The most that one can claim is that some value has been created, which is a payment to capital, but one cannot prove that excess or surplus value has been created, which is the essence of their claim that interest is justified.  Of course, these theories also complete ignore the monetary factors when analyzing interest.

(4)  Use Theories: “Boehm rejected the validity of the assumption that there was beside each capital good a ‘use’ thereof which was an independent economic good possessing independent value.  He further emphasized that ‘in the first place, there simply is no such thing as an independent use of capital,’ and, consequently, it can not have independent value, nor by its participation give rise to the ‘phenomenon of excess value.’  To assume such a use is to create an unwarrantable fiction that contravenes all fact.”[3]

(5)  Remuneration Theories: This group of economists sees interest as the remuneration of “labor performed” by the capitalist.  Although supported by English, French and German economists, perhaps this view needs no comment.

(6)  The Eclectic (combination of earlier theories, such as Productivity and Abstinence) Theories: Afzal-ur-Rahman writes:

This line of thought seems to reveal a symptom of dissatisfaction with the doctrine of interest as presented and discussed by the economists of the past and the present.  And, as no single theory on the subject is in itself considered satisfactory, people have tried to find a combination of elements from several theories in order to find a satisfactory solution of the problem.[4]

(7)  Modern Fructification Theory: Henry George was the developer of this theory but it never carried enough weight to have many, if any, followers.

(8)  Modified Abstinence Theory: Yet another unique theory, proposed by Schellwien; it never had much impact.

(9)  The Austrian Theory (The Agio[5]  or Time-Preference Theory): This is the view that Boehm-Bawerk himself endorses.  According to this theory, interest arises “from a difference in value between present and future goods.”  Cassel has critiqued this theory in detail.  It boils down to being a fancy “waiting” theory.

(10)     Monetary Theories (the Loanable Funds Theory, the Liquidity Preference Theory, the Stocks and Flows Theory, the Assets-Preference Approach): More recently, economists have tried to introduce and emphasize the influence of monetary factors into the issue of interest.  In reality, though, the emphasis here begins to be switched from why interest is paid to what determines the prevailing rate of interest.  “According to Robertson, interest in liquidity preference theory is reduced to nothing more than a risk-premium against fluctuations about which we are not certain.  It leaves interest suspended, so to speak in a void, there being interest because there is interest.”[6]  Similar critiques have been made of the other views in this family of theories.

(11)     Exploitation theory: Incidentally, socialist economists have always considered interest as nothing but exploitation.  It should be recalled that the “founding fathers” of capitalist theory, Adam Smith and Ricardo, believed that the source of all value is nothing but labor.  If that is true, then all payments should be made to labor and interest is nothing but exploitation.

In a couple of places, Afzal-ur-Rahman has provided excellent conclusions concerning these different theories of interest.  He stated:

A critical study of the historical development of the phenomenon of interest has shown that interest is paid to an independent factor of production, which may be called either waiting or postponement or abstinence or use etc.  But all these theories have failed to answer or to prove as to why interest is paid or should be paid to this factor.  Some point to the necessity of waiting; others to the necessity of abstinence of postponement; but none of these explanations answer the question.  Neither mere necessity of waiting or postponement or abstinence nor mere use or productivity of capital is enough to prove that interest is a necessary payment for the employment of capital in production.  Besides, these theories have failed to answer how a variable factor can possibly determine a fixed factor like the rate of interest?  How could such a theory be valid or tenable?[7]

Later he writes:

The monetary theories, like marginal productivity theories, have made no attempt to answer the question: why should interest be paid?  Or why interest is paid?  They have simply ignored this question and have sought refuge in the theory of value.  They say, like all other things, the price of capital is determined by the demand for and supply of money.  But it seems that they have forgotten the basic difference between the two problems; the theory of value is a problem of exchange, while theory of interest is a problem of distribution.  Both loanable funds and liquidity preference theories are basically supply and demand theories of interest and explain it with reference to supply of and demand for loanable funds and money respectively.  But they do not give any justification for the phenomenon of interest.  Even if capital has a right to proper compensation as a reward for its contribution to the creation of wealth, “it can only draw its share from the increase of national wealth only to the extent of its contribution to it.  It cannot be allowed to run away with its pound of flesh, determined in advance, and unrelated to the actualities of production.”[8]  According to Boehm Bawerk, the study of all these theories” reveals the development of three essentially divergent basic conceptions of the interest problem.”  One group, the representatives of the productivity theory, treats the interest problem as a problem of production.  The socialist-exponents of the exploitation theories treat the interest problem as purely a problem of distribution; while the third group, the supporters of the monetary theories, seeks in the theory of interest, the problem of value.  There is no doubt that all these theorists, having been confused by the very magnanimity and pervasiveness of the phenomenon of interest, have avoided the main issue as to why interest should be paid?  They have, indeed, spent all their energies in solving the problem either of waiting or abstinence or productivity or “labour value” or “the determination of value” and have not said anything about the origin or the justification of the institution of interest.[9]

The Ills of Interest


Economists can attempt to come up with numerous justifications for the payment of interest but the real test is to study the affects that interest has.  It is important to note that when something is prohibited by God, this does not mean that there is absolutely nothing beneficial in the prohibited item or practice.  Indeed, one may be able to find something beneficial even in prohibited items.  For example, God says in the Quran about alcohol:

“They ask you [O Muhammad] concerning wine and gambling.  Say: ‘In them is great sin, and some benefit for people; but the sin of them is greater than the benefit…’” (Quran 2:219)

Thus, the essential point is not whether there is anything beneficial in something but whether the harm of something outweighs its benefit.  Thus, economists may be able to find a hint of a justification for paying interest but this definitely would not outweigh the harms that interest can be shown to cause, as shall be discussed in this section.

Even if interest is considered some kind of payment to a factor of production, it has some unique characteristics that set it apart from payments to any other factor of production.  Due to its unique nature, it leads to some very disturbing results.

First, interest leads to an inequitable distribution of income.  This can be seen by taking an example of three people.  Suppose there are three people who consume of all of their income in a given year yet one of them starts with $1,000 in savings, a second with $100 and a third with zero.  At 10% interest per annum, by the end of the year, the first person will have $1,100, the second $110 and the third person zero in their accounts.  If the same scenario follows in the next year, the first person will have $1,210, the second $121 and the third will have zero.  Already, one can see how the distribution between them grows every year, even between the one who has some savings of his own.  This scenario will be made even worse if the richest person will also to be able to add savings.  Suppose he adds one thousand at the end of each year.  He will have 1,100 at the end of the first year, he adds $1,000 and continues with his 10% interest and he will have $2,310 at the end of the second year, and so on.  Now it is one thing if this money paid was actually due to some positive factor of production but in reality one cannot make that argument in this case.  The money that the people are making via interest may have been squandered, lost or even stolen by the people who borrowed it, but one still has to be pay the interest.  It may have been invested in a completely losing project and therefore it actually did not produce anything.  But all of that does not matter, it has to be paid regardless of whether that “factor of production” produces anything or not.  This is simply one of the unique aspects of money and payments to money.  No one can argue that this is just and therefore its results are an inequitable distribution of money.

Furthermore, the distribution of income becomes more and more skewed over time.  One can imagine some individuals dealing in millions while others are dealing in hundreds or thousands.  The disparity in their interest incomes will indeed be great and growing every year.  In other words, as one hears often, it will lead to a situation where the rich keep getting richer while the poor keep getting relatively poorer.  Note that those in debt, paying interest that grows every year, have not been added to the equation.  In their case, as interest continues to grow, more and more of their overall income is consumed by interest, further exacerbating the skewed distribution of income.

Someone could ask as to whether an inequitable distribution of income should be considered a major issue.  Besides the psychological effects on the poor, especially given mass media advertising that emphasizes the good life and the need to consume, there are very important effects on the market as a whole.  In a market economy, production will be geared towards those who have the money to pay for the output, regardless of how necessary other goods may be for society.  If the rich desire, demand and are willing to pay a lot of money for SUVs and gas-guzzling vehicles, those will be produced (regardless of how much conservationists may complain).  As the income distribution becomes more and more skewed, more and more resources will be devoted to the demands of the richer classes.  Since resources are somewhat “fixed,” this means that less and less will be devoted to the needs of the poorer classes.  Furthermore, the lesser resources devoted to the goods that the poor consume reduces supply and drives up the prices of those goods, further harming the poor people’s overall economic situation.  For example, one can find numerous medical clinics catering to the rich (those who can afford such treatments), even if they are far from necessary, such as numerous places for cosmetic surgery and the like.  At the same time, one may find it very difficult to find clinics catering to the poor and meeting their basic needs.  If they could pay more for those essential services, in a market driven economy, one would definitely find more of those types of clinics, more resources devoted to those needs and a cheaper price in the long-run for what they need.  (In addition, this skewed distribution also has strong implications for the health of democracy; however, that discussion is beyond the scope of this paper.)

In addition, the burden of interest upon the poor who fall into debt puts them into a situation where they cannot advance socially or economically, widening the gap between the rich and the poor.  Debt itself is a difficult situation for any individual.  However, it is interest payments that make one’s debt a moving target, many times one that an individual simply cannot keep up with.  Again, it is a bogus factor of production but it works to allow the rich to get richer while putting a great burden upon those who fall into debt.  Perhaps all the readers are familiar with how much of a debtor society the United States, the richest country in the world, has become.  This has afflicted not only the lower classes but many of the middle class as well.  Some sorry individuals do not realize that if they pay only the minimum on their credit card bills, for example, they will virtually never clear their balance.[1]  But, of course, it is the poorest that are hardest hit.  In fact, the system is stacked against them as the poorer an individual is, the worst his credit rating and the higher the interest rate he will be forced to pay.  Mirza Shahjahan’s Income, Debt and the Quest for Rich America: The Economic Tale of Small and Mid-Sized US Cities is a study of how debt and its corresponding interest burden has afflicted much of “middle America.”[2]  The plight of small-scale farmers forced to borrow due to dropping prices on their output has been well-documented.  Many of them have pawned their precious belongings or lost their farms that have been in their families for generations simply due to interest payments that they could not keep up with.  Shahjahan found that some of the poor pay over 15% of their yearly income on interest payments alone (with most paying between 8% and 12%)—not to mention the burden of calls and threats from creditors that the poor often receive.  In Shahjahan’s conclusions, he states:

Both the monetary and real burdens of debt have kept many debtors in a lifelong struggle to service their debts.  The average size of the debt of indebted households for the 1990-1993 period was $32,493, equaling almost 100% of these households’ income.  Our estimate of per capita household debt for 1990-1993 amounts to $12,571.  Debt of this magnitude, combined with a temporary job and low income, can be depressing and produce overwhelming psychological conditions…

Some households’ interest payments exceed 15% of their income.  This high interest cost has been a source of significant erosion of household income…

Most households – millions in number – in mid-sized cities struggle day in and day out to meet their basic needs of life.  Thousands of them fail to provide a decent life for their families or support the higher education of their children.  They live in debt and die in debt.  This situation makes them feel that they live less than a full life…

These households are caught in a situation of economic servitude where the most obvious escape routes are blocked by institutional forces.  Acquiring skills or higher education could be the key that opens the way to real opportunity, but higher education is expensive and beyond the reach of most of the households in these cities.  These households have no opportunity to excel and find themselves passed over for the positions they had hoped for.  This is the nature of the plight of the working class families in the small and mid-sized cities of our nation.

On an international level, the situation is much more devastating and dangerous.  There is no question that when looked at from an international perspective, interest kills people.  The debt servicing of lesser developed countries today is so great that they must sacrifice essential health and nutritional needs.  It is dumbfounding to think that untold numbers of children are dying daily in lesser-developed countries due to the “tool” of modern capitalism: interest.  Some African governments are forced to spend more on debt servicing than they spend on health or education.[1]

In this context, the UNDP (1998) predicted that if the external debt of the 20 poorest countries of the world was written off, it could save the lives of 20 million people before the year 2000.  In other words, it means that uncancelled debt was responsible for the deaths of 130,000 children a week up until the year 2000.[2]

Ken Livingston, Mayor of London, claimed that global capitalism kills more people each year then were killed by Adolf Hitler.  He blamed the IMF and World Bank for deaths of millions due to their refusal to ease the debt burden.  Susan George stated that every year since 1981 between 15 and 20 million people died unnecessarily due to debt burden “because Third World governments have had to cut back on clean water and health programs to meet their repayments.”[3]

Debt, with its increasing amount of interest compounded upon it, is dangerous for any nation because it means loss of sovereignty and control.[4]  This aspect, incidentally, is no accident.  Lesser developed countries—especially their elites and corrupt rulers—are not free of guilt when it comes to the issue of the debt that they have accumulated.  At the same time, if they did not borrow and get in debt, pressure would definitely be put on them to do so.  Caufield noted:

Thus it has been with the World Bank; refunding operations have become more and more of the total of its lending.  The result has been an accumulation of debt by the Bank’s borrowers—and a gradual loss of sovereignty as well.  No creditor is willing to keep refunding forever without asserting some control over the way the debtor conducts business.  In earlier times, the great powers did not hesitate to use military force to bend recalcitrant debtors to their will.  In his classic essay, “Public Debts,” published in 1887, the American economist Henry Carter Adams wrote that “the granting of foreign credits is the first step toward the establishment of an aggressive foreign policy, and under certain conditions, leads inevitably to conquest and occupation.”

The Bank’s approach to its debtors is not so crude.  Instead of sending in the Marines, it offers advice on how countries should manage their finances, make their laws, provide services to their people, and conduct themselves in the international market.  Its powers of persuasion are great, due to the universal conviction that, should it decide to ostracize a borrower, all other major national and international powers will follow its lead.  Thus, by the excessive lending—born of an underlying inconsistency its mission—the Bank has added to its own power and depleted that of its borrowers.[5]

John Perkins’ now famous Confessions of an Economic Hit Man [6] details contemporary economic intrigues.  While describing his job of evaluating projects, he wrote:

The unspoken aspect of every one of these projects was that they were intended to create large profits for the contractors, and to make a handful of wealthy and influential families in the receiving countries very happy, while assuring the long-term financial dependence and therefore the political loyalty of governments around the world.  The larger the loan, the better.  The fact that the debt burden placed on a country would deprive its poorest citizens of health, education, and other social services for decades to come was not taken into consideration.[7]

Perkins’ work has now been followed up by A Game as Old as Empire: The Secret World of Economic Hit Men and the Web of Global Corruption edited by Steven Hiatt.[8] Hiatt writes,

Debt keeps Third World countries under control.  Dependent on aid, loan reschedulings, and debt rollovers to survive—never mind actually develop— they have been forced to restructure their economies and rewrite their laws to meet conditions laid down in IMF structural adjustment programs and World Bank conditionalities.[9]

The current debt situation, with the major role that interest is playing in it, is potentially very devastating for the world as a whole.  In Global Trends 2015, the Central Intelligence Agency (CIA) recognized:

The rising tide of the global economy will create many economic winners, but it will not lift all boats.  [It will] spawn conflicts at home and abroad ensuring an ever-wider gap between regional winners and losers than exists today.  [Globalization’s] evolution will be rocky, marked by chronic financial volatility and a widening economic divide.  Regions, countries and groups feeling left behind will face deepening economic stagnation, political instability and cultural alienation.  They will foster political, ethnic, ideological and religious extremism, along with the violence that often accompanies it.[10]

Noreena Hertz has an excellent chapter in her work, The Debt Threat: How debt is destroying the developing world… and threatening us all, delineating many of the dangers that the massive debt—and, again, which would not be as massive without the ever-growing aspect of interest—poses for the world today.  She details the dangers of extremism, terrorism, depletion of the world’s natural resources, and more.  To cite just one aspect, she writes:

Debt’s ugly progeny—poverty, inequality, and injustice—are also called upon to justify, and even legitimize, acts of the greatest violence.  Only a few weeks after the World Trade Center was attacked, leading African commentator Michael Fortin wrote: “We have to recognize that this deplorable act of aggression may have been, at least in part, an act of revenge on the part of desperate and humiliated people, crushed by the weight of the economic oppression practiced by the peoples of the West.”  Fortin’s language—“crushed,” “oppression,” “desperate,” “humiliated”—is deliberately evocative.  And it is manifestly clear that there is an audience with whom such words powerfully resonate.[11]

In reality, there are yet other ills related to interest that could be discussed but the above should suffice for the purposes here.

The Islamic Solution


The Islamic solution to the issue of interest rests upon two basic principles:

(1)  If an individual wishes to lend money to another in order to help the latter, this act must be based on “brotherly principles” and it is absolutely unacceptable to charge any interest in such a case.  It is not helping another individual to put him into a cycle of debt where he has to pay more than what they borrowed.  This principle applies as well to Islamic international relations.  If this important principle were applied today, countries would truly give “aid” and assistance to other countries, rather than sucking them into a pattern of dependency and debt burden.

(2)  If an individual wishes to use his money to make more money, then he must be willing to put his money at risk.  In other words, he cannot guarantee for himself a fixed return (whose amount keeps growing over time) regardless of the result of the investment that his money is used for.  If he puts his money at risk, he is deserving of some share of the profits.  However, this also means that he must accept losses if losses occur.  This is a system that is based on justice.  It also has numerous benefits to it.  The one who invests becomes concerned about the results of his investment and cannot demand his “pound of flesh” regardless of what may occur to the debtor.

This Islamic solution works for individuals as well as for society as a whole.  Banks are essentially financial intermediaries.  They take money from those who have excess money (savings) and turn it over to those who need money for investment purposes.  Interest is not necessary for such a system to work.  The bank and its depositors (shareholders) invest, rather than simply loan, their holdings.  The money is put at risk and the return to the depositors will be based on the amount of profits made in the respective investments.  Under normal circumstances of a growing economy, if the bank is big enough and it diversifies its portfolio, the bank is virtually “guaranteed” a positive return on its total investments.  Thus, those who invest their money with the bank will also receive a positive return on their money without it being guaranteed or fixed ahead of time.

Numerous “Islamic” financial institutions have been set up throughout the world today.  They have been established on the principle of avoiding interest and some of them have flourished.[1]

Conclusions


For the most part, “modern civilization” has decided to turn its back on Divine Guidance (mostly due to the experience in the West with Christianity) and have attempted to construct their own economic systems, political systems, international laws and so on.  When doing so, though, they have to admit that they are attempting something that is beyond their means.  The social sciences are very different from the physical sciences.  There are no labs in which humans can be entered to determine what may be the best results under different scenarios (and even that would have to assume that humans will always react the same under the same circumstances).

In the realm of economics, the first thing that may come to mind is the collapse of the theories of socialism and communism.  One should, though, also take a closer look at capitalism and how far its reality is from what it is supposed to be.  The early capitalist theorists envisioned a theory that would lead to “the best of all possible worlds.”  However, their theories were based on assumptions that never were and will never be fulfilled.  They assumed perfect competition, perfect knowledge, free trade and so forth.  Once these assumptions are violated, which they inevitably are, they do not lead to the “best of all possible worlds.”  Instead, they easily lead to a world of exploitation, wherein the rich get richer and the poor get poorer.  One of the diving forces behind this system is the institutionalization of interest.

God has blessed humans with the guidance of the Quran—a book that has been minutely preserved since its revelation.  This book contains the guidance that humankind needs to lead a successful life in both this world and the Hereafter.  It is therefore no surprise that this book absolutely prohibits and condemns interest in the strongest fashion.

The American property market started its downfall towards the end of 2007 and continued to go down for two years. This represented a risk for the world economy as a whole.

In the first year alone 2.6 million people lost their jobs in the United States, but this figure continued to rise until the number of those who lost their jobs reached 8.8 million, according to the figures published by the US Bureau of Labour Statistics, which is a federal agency. The great majority of these losses were among the people whose wages are 14-21 US dollars per hour. When the economy had recovered in 2012, only one quarter of these were back in employment.

Apart from this, one million people lost their jobs in Britain, and the adverse effects spread throughout Europe, and generally speaking throughout the world.

Let us not dwell long on this, because everyone knows this tragedy. Some, however, wonder whether it was avoidable. The realistic answer is that it could not have happened under an Islamic system, but unfortunately finance ministers and American economic professors did not hear of this, or they might have heard of it when it was already too late.

Some may wonder, what is the relationship between prayer, fasting on the one hand and mortgaging property assets on the other?

What people do not know is that Islam has put in place certain economic principles that apply to all transactions. These could have prevented the collapse of the American property market.

Explained simply: Islam prohibits securitization banking, because usury is clearly forbidden according to the Qur'an: ‘Believers, do not gorge yourselves on usury, doubling [your money] again and again’. Likewise, Islam prohibits ‘selling loans in return for loans’. These two transactions were the underlying cause leading to nearly nine million Americans losing their jobs in the twenty-first century. Was this a coincidence? Perhaps.

What we need to understand is that Islamic economy is based on principles that are completely different from the basis of the world market. The world money market is based on profit, while Islamic economy aims at ensuring and maintaining man’s progress. Islam wants the economic system to complement the social and political systems in aiming at social progress.

A basic principle is that of profit and loss sharing. This is very different from making borrowing an essential rule, particularly when rates of interest become too high to render full repayment impossible and lead to the repossession of the borrower’s home

Islamic economy is based on real exchange of money and goods, not on any virtual dealings or speculation that resells a commodity without being received by its first buyer. Thus, speculation may lead to the price rising very high, regardless of the real price in shops.

Islam forbids monopoly, selling loans and usury. It establishes truth and honesty as the two pillars upon which financial transactions are based. Therefore, nothing is surprising in the fact that the greater number of Muslims in South East Asia and Europe embraced Islam through dealing with Muslims in business.

An interesting point of information: twenty years ago, Maurice Allais, the 1988 Nobel Prize winner for economics, undertook a study of the serious structural problem of the liberal world economy. He suggested two remedies: the first is to bring the rate of interest down so that it is close to zero. Isn’t this consistent with the Islamic system? The other remedy is to bring income tax down to around 2%. Does this remind us of the zakat system in Islam?

One God