Saturday, 10 April 2021

The Prophet, artificial money, inflation and riba




THE PROPHET - ARTIFICIAL MONEY - INFLATION AND RIBA

There are some so-called Islamic scholars who adopt the curious position that ‘bank interest’ is justified since it makes up for losses sustained through inflation. This is manifestly false! In the first place ‘interest’ or riba is itself one of the causes of that modem economic curse which is known as inflation. Inflation is the creature of the modem interest-based capitalist economy. It did not exist prior to the emergence of modem capitalism based on riba.

Secondly, interest does much more than simply make up for anticipated inflation. Banks anticipate inflation and still operate for profit. Also, banks are assisted by institutions such as the Federal Reserve Bank which intervene to ensure that inflation does not ruin the banking industry. Indeed banks make more profit that most businesses. And they get most of their income from interest payments made by long-term borrowers. The economic philosophy which permits this is one which claims that money itself must have a cost. Therefore money can, independently of any human effort or struggle, earn more money. The Qur’an provides a completely different economic philosophy which proclaims that reward (economic and otherwise) is always linked to effort and struggle:

And that man shall have nothing except that for which he strives.
(Qur’an: al-Najm:-53:39)

Thirdly, inflation is directly related to the money supply in an economy and to the demand for goods and services. Where previously it was Allah the Most High, Who determined rizq (money supply) and Who delivered real money as the store of value (i.e. gold dinars, silver dirhams, wheat, barley, dates, even salt etc.), in the modern interest-based capitalist economy if is bankers and governments who determine money-supply. They have achieved this by secularizing money through creating artificial money in the form of paper currency with no convertibility to real money, and then persuading a woefully ignorant humanity to accept that artificial money as an acceptable stone of value. That is deception. It is gharar. It is riba!

But they have now been trapped by the creature they themselves invented. They attempt to do a better job of money supply than Allah the Most High, Himself did (and we seek protection with Allah the Most High, from such).

If money can be created by governments (for example) then the quantity of such artificially created money in an economy can be controlled and indeed, must be controlled. It is seldom, perhaps never, controlled as it ought to be controlled. Therein lies the origin of the curse of inflation. Milton Friedman, the monetary economist, agrees:

It follows . . . that inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.

Not only does the US dollar no longer have a specific assigned value, it has been printed so excessively that it is now entirely dependent on the extraordinary foreign demand for dollars from averting collapse in the form of inflation.


Thomas Jefferson, the American statesman scholar and visionary, condemned banks in 1816 for doing what the US government has now done: I sincerely believe . . . that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.

He demanded a specific assigned value for the dollar. He did this in 1784 in a debate on the proper monetary role of the US government:

If we determine that a dollar shall be our unit, we must then say with precision what a dollar is.

As late as the 1920s the US government did honor that imperative of precision. Paper money in the form of gold certificates stated;
This certifies that there had been deposited in the Treasury of the United States of America twenty dollars in gold coins payable to the bearer on demand.

Anyone could go to any bank and redeem paper money for real money in the form of gold coins. Later this inscription was changed. It stated:
Redeemable in lawful money at the United States Treasury, or at any Federal Reserve Bank.

The new inscription Mounted to a curtailing of the rights of paper currency holders to freely convert such to gold at a precise conversion. Today US currency states:
This note is legal tender for all debts, public and private.

It may be legal, but it is manifestly immoral, because it cannot be redeemed for real value (i.e. gold or silver etc.). No bank, not even the US Treasury or the Federal Reserve Bank would redeem US dollars for gold. If the paper dollar has any real value, it now resides in the paper itself. In effect, it resides in the value which the market wishes to assign to it. That is a hoax. It is false. It is fraudulent? It is riba!

Artificial paper, plastic and electronic money (i.e. fiat money) cannot but be susceptible to instability since, for example, it is vulnerable to speculation. The European Community took the courageous decision to attempt to adopt a single currency for the entire Community. This, if achieved, would have constituted a step in the right direction. And it would have taught a lesson to Muslims who claim to follow the Prophet (s). It would have laid the foundation for the second stage in which that single currency would have had its convertibility to gold restored. Europe has not succeeded, and is unlikely to succeed, because the power of speculative transactions in the world currency market is now beyond the capacity of governments to resist.

Hence inflation and speculation, which have largely imprisoned mankind, are creatures of our own sin of abandoning that currency which was created by Allah, the Most High. Only that currency is immune from instability. Thus to argue that modern economic credit is justified since it makes up for losses suffered through inflation is to display a dangerously shallow understanding of the subject.

to be continued . . . . 

The Prohibition of Riba (Interest) by Imran Hosein



The Prohibition of Riba (Interest) (Q&A) by Imran Hosein



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