Forum Comments:
Money, Interest, and
Binary Economics
Dr. Mohammad Omar Farooq
Associate Professor of Economics and Finance
Upper Iowa University
IBF-Net; 2/9/07; Message #6163
[Note: To access the messages to which my comments were in reply, one may need to subscribe to the respective forum.]
Salam
(peace) and greetings.
Mr.
Shakespeare wrote:
Not
in the context of Islam? Really? This is an Islamic discussion
list, is it not?
This IS
an Islamic discussion list. However, Binary Economics can be discussed
independently of Islam, can it not be? For example, when Mr.
Shakespeare shared his thoughts about independent productiveness
of capital, which is integral to BE, it is not necessary that an Islamic
paradigm has to be based on the same premise. Similarly, when we are
discussing JB Say or Say’s Law or whether Adam Smith had more than one
theory of value, or whether JB Say was a conventional economist within the
Classical economic tradition, each specific thread does not have to pertain
to Islam or Islamic economics. Therefore, while the discussion list is
Islamic, each thread and all the issues that we delve into may or may not be
pertaining to Islam. Thus, my comment, observation or queries about BE can
be independent of Islam, because those may relate to certain facts or
understanding that do not necessarily have any connection with Islam.
Moreover,
you are using your claim that the issue of riba-interest equation is
not settled from an Islamic perspective to avoid the issue of supporting
interest-free loans.
A clear
misunderstanding here. That the riba-interest equation is not settled is not
my personal viewpoint. I have presented a detailed essay
documenting this matter. See “The
Riba-Interest Equivalence: Is there an Ijma (consensus)?”
Also, ceteris paribus, the lower the cost to the borrowers,
economically the better it is. Therefore, as an economist (or someone with
even common sense) I have no reason to oppose interest-free loans. The issue
is that "a loan necessarily has to be interest-free" is not
Islamically established. Therefore, you are reading too much into my
observations that is not warranted. I am all for interest-free loans,
but I am not convinced that from Islamic viewpoint, a loan HAS TO BE
interest-free.
I ask
--
a)
Are you really saying that the $43 billion nine hundred and ninety nine
million figure is not a settled matter from an Islamic perspective?
b)
As a Muslim do you have any comment to make on the Obasanjo situation? (Or
are you going to claim that the matter is not yet settled from an Islamic
perspective?)
Another example of
incorrectly connecting these dots. Debt burden is a real problem, both from
the Islamic and conventional viewpoint. Thus, how a small amount of loan
based on compound interest (AND other factors) balloons into such monstrous magnitute
is not a matter of joke and this kind of exploitative and oppressive
conditions most definitely come under the purview of the prohibited riba.
This is not merely an Islamic issue. Anyone familiar with development
economics, where ideas come from socialistic as well as market-oriented
perspective, I don’t know of any camp that views such debt burden lightly
or dismiss the problem as irrelevant or insignificant. However, unless
President Obasanjo does not know what he was talking about (e.g, when he
should use interest in general, he uses “compound interest,” ) one would
presume that he is not talking about debt per se, but rather the debt burden
that accumulates in an unfair, exploitative and oppressive manner. However,
the debt burden that has grown is more than just due to the issue of
interest.
For
example, the US government is the largest borrower in the world and it also
has access to the largest pool of funds at a rather low cost. Suppose US
government has access to interest-free funds, instead of borrowing in the
market. That definitely would lessen the financial burden of the government.
However, one miscalculated adventure of Bush (as in Iraq) and the US
economy is ambushed for nearly half-a-trillion dollar (and counting). My
point is that compound interest – as President Obasanjo identified in his
speech – is a major problem in case of development assistance. But
that’s not the whole story. [BTW: I don’t have to read the mind of
President Obasanjo. I have no reason to believe that he does not know what
he is talking about. If he uses compound interest specifically, in lieu of
simple or just "interest", I would read his observation as he
stated. There are also among Muslim scholars who, from Islamic viewpoint,
have opposed compound interest, but not simple interest.
Dr.
Farooq, I keep answering your question. It is not my fault that
you do not understand.
There
are several possibilities, Mr. Shakespeare. I could be dumb. Or, maybe I am
trained in economics (read, conventional economics, though I don’t adhere
to any particular school), so as you predicted, I am not expected to
understand the "new" paradigm. Another possibility is that I am
not “well motivated” to understand. However, do you really in all
earnestness think any of the above is a serious possibility?
Consider
another possibility. A more plausible one, that you have not made your case
cogently or convincingly so that it could be understood. If on the basis of
interest and fractional reserve, the interest rates are already hovering at
a low level, such as 2-3% (and in some cases in negative territory), halving
or eliminating this level of inflation through “counter-inflationary”
effect would cause the economy to reach the zero inflation threshold, but
not necessarily be stable there. As many times as you keep saying that
“counter-inflationary” effect is not necessarily deflationary, which I
understand (and you pronounce that I don't), to suggest that if the
direction of the effect is sustained, there will be absolutely no chance of
deflation is a heavenly idea, but so far hardly in any respect we have been
able to realize heaven in this world. Mr. Shakespeare, is there anything
called deflation going to be in our vocabulary, or are we just going to wish
it away? Maybe there won’t be any business cycle anymore! Another heavenly
idea. It would be wonderful if we could eliminate it. However, trying to
explain business cycle with merely interest and fractional reserve (so that
if we eliminate those two things) we will reach our economic El Dorado
requires more convincing thoughts than I have seen so far.
Both
books deal with many aspects but they certainly aspire to nil or
minus inflation , indeed, counter-inflation but I am in some
difficulty here in explaining this because I do not think you
understand the difference between counter-inflation (a good thing) and
deflation (as bad thing which is associated with unemployment, poverty,
distress etc).
Mr.
Shakespeare, this argument that people are seeing things through their
“old paradigm eyes” or “conventional” background can carry your
argument of BE’s case only so far. Let me state emphatically: I am for
inflation-free economy. I am also for an experiment somewhere to see if this
result can be achieved. However, my desire and aspiration in this case is
not matched by the intellectual paucity in explaining how it can be
sustained. Yet, if it is possible, I am not against it. I would welcome it.
Moreover,
the spreading of the productive and consuming capacity enables Say's Theorem
to become, in practice, a Law.
For
those familiar with economic history, the Classical School, of which Say was
a part, found blindsided about the Great Depression partly due to
Say’s Law [Supply create its own demand]. Partly, it was Say’s Law that
made the followers of Classical economics blind to the possibility that
overproduction or underproduction in the long run can occur. Intellectually,
the notion is enticing, but in reality we have not experienced it yet. If BE
can help us achieve it, especially make Say’s Law work as it is supposed
to, I am all for it and I am open-minded about it.
People
who oppose the binary division usually do so because they are unwilling to
admit that they also oppose the consequences of the binary division -- which
include wide capital ownership.
A
false, erroneous and presumptuous conclusion. A person can be supportive of
wide capital ownership, but may not be convinced why all factors have to be
lumped into only two. Just like four is not a magic number for factors of
production, so is not two.
I
trust that my answer to your question is completely clear.
NB
It is excellent that you recognise that capital can be indpendently
productive. So why not accept the binary division?
The
reason is simple. Recognition of
independent productiveness of capital does not depend on “binary
division.” One can argue for it, but it does not necessarily follow.
(
I keep saying they can understand if they are well-motivated.
How many more times do I have to say it?)
Another
erroneous assumption. If somebody doesn’t understand BE (or what Mr.
Shakespeare is arguing) or doesn’t find the argument and explanation
convincing, then let’s resolve this by saying that those who don’t
understand are not well-motivated!!! Such a suggestion is
untenable, even if repeated as many times. Yes, the "normal
practitioners" - to borrow Kuhn's terms - may not see or welcome new
ideas or paradigms like the proponents of new ideas would like. However,
every time a proposed or new idea won't be understood or appreciated does
not mean that those are necessarily compelling. A new paradigm becomes a
paradigm because there are new adherents of the new paradigm. Just like
Keynes hit a brick wall with the existing economic paradigm, but through
persistence and convincing ideas, he won over many capable, talented and
topnotch economists in USA.
(You
completely misunderstand the position on Say. I quoted JB Say to you showing
that Say disagreed with Smith on the most fundamental thing of all --
who or what creates the wealth. Because you do not like that (very
substantial) quotation you are trying to pretend it does not exist.
Well, it does. You had never heard of it before, had you?
Right,
Mr. Shakespeare. No economist (read again, conventional economist) has read
JB Say or has understood it. Only the BE folks have discovered Say recently
and only they understand him and his thoughts. That’s a great revelation!
(You think so?
That's your opinion. Would you kindly re-read the passage I
have quoted to you and read the opening of Adam Smith's Wealth
of Nations and then
tell me if Smith and JB Say are in harmony or in complete contradiction to
each other (actually , they completely contradict each other on the most
fundamental thing of all -- who or what creates the wealth).
Mr. Shakespeare, am I to understand that you basically read only the opening of Smith’s Wealth of Nations in drawing this comparative conclusion? The Wealth of Nations does go beyond the opening pages, you know. Please refer to my other message on JB Say.
Once
you recognise the independent productiveness of capital (although it
co-operates with labour) you start to realize the productive power of
capital and so -- following the insight perhaps originally starting with JB
Say -- there has to be wide ownership of capital. Please correct me if
I am wrong but I do not see many conventional economists jumping up and
demanding the wide ownership of capital.
Mr. Shakespeare, most economists still have not heard about either BE or Trisakti University where it is being further developed. Economists need some time to learn about it. With your prognosis that economists (read, conventional economists) are not generally expected to understand BE, the new paradigm might be experiencing only a very slow progress in even being on the radar of economists.
It
is very clear to me that, deep down, you are horrified by the use of central
bank issued interest-free loans which, combined with full payout of
capital's earnings, capital credit insurance and Just Management -- www.cesj.org)
really would spread capital ownership including through
binary ESOPs but also through other forms of ownership plans. In
another email I am asking you some questions so that, inter alia, your
position on interest-free loans for various forms of productive capacity can
be precisely established so that these long exchanges can end. Maybe
you are not horrified -- and maybe you are. It's time for you to be
specific.
This is unbelievable. I don't know as an educated person how you can surmise (as if you can read my mind) that I am or would be horrified at the thought of interest-free loans and spread of capital ownership. First you assert that "it is very clear" to you, and then you suggest that maybe I am or maybe I am not. Such person-focused conjectures really do not have any place in a conscientious intellectual discourse. If you might recall, our exchanges began in the context of poverty alleviation model of Grameen Bank and I took interest in the issue because I have a keen interest in poverty alleviation and better income equality. That's both from Islamic and humanistic viewpoint. Instead of focusing on whether I am horrified or not, if you would focus on the cogency of your arguments, we might go somewhere in this exchange.
Yes.
And true binary ESOPs even more so. Please remind me -- have you read
the Ashford/Shakespeare book?
No, I have not. However, it seems that I might be doing better in studying and understanding BE on my own than having this exchange, where you are trying to read my mind (whether I am horrified), questioning the motivation (whether I am well-motivated), prejudging (because I am an economist - read, conventional economist).
You keep
viewing things with old paradigm eyes. Today's ESOPs are not binary
ESOPs. The potential effect of interest-free loans (plus full payout
etc) is of capital ownership spread throughout the economy, You are
refusing take into account the effect of the combination of the
interest-free loans and the full payout provision (plus, if necessary,
capital credit insurance) which would provide colossal incentives for a
whole economy to move towards wi8despread capital ownership.
I am for widespread capital ownership, and that's why I took interest in this thread to have further discussion about BE. However, as I said, I still don't see a necessary connection between widespread capital ownership and the binary notion.
You
have refused to listen to the answer -- which I keep repeating -- and you
appear to be out to say anything to justify why you do not want a
widely spread capital ownership (and if I am wrong, kindly correct me).
I await your answers to my other email to find out your true position on
many big economic questions. If you want a narrow capital ownership,
interest-bearing money, inflation etc etc please just say so and then we can
end this correspondence.
I keep saying -- they can understand if they are well-motivated. Binary economists always object to people making sweeping objections about BE when they have not read the books and, at heart, are upholding interest-bearing money and narrow capital ownership.
Binary economists are also economists, right? Can you please provide names of some "economists" who have done works on BE or have articulated the model of BE? Maybe if I read their works, I will understand better.
Dr, Farooq, this last remark is absolutely fascinating. It now seems as if you are trying to say that the prescriptions of BE are fine but you do not like the way it is expressed!! Hooray!! If that is right, why not be bold and just say you like the prescriptions of BE? However, as I have indicated above, the truth is probably that you do not like the prescriptions and are trying to hide the dislike. Come on now, what is the truth on this? Do you, or do you not, like the prescriptions of BE?
Mr. Shakespeare, I can't help but ask this question. Are you actually reading my messages thoroughly and carefully? But before I address this matter a little further, is there anyone else on this forum who is taking an interest in this thread on BE? I have not seen any yet. It is because I found many of BE ideas quite interesting and meaningful that I took interest in it and introduced several threads on this.
I wrote earlier: "BE has mapped out its solution considering the inequality problem as one of the fundamental problems that must be dealt with within market framework. This is a positive aspect of BE." [# 6015] Is this really an unclear indication of my inclination?
I also wrote: "there are definitely some powerful ideas that might be the starting point for taking a closer look at the suggested BE framework." [# 6118]
As
I am approaching with a positive interest, in almost every one of your
messages, you are rebuffing by referring to whether someone is
"well-motivated", whether economists (read, conventional
economists) can understand it or not, etc.
NB.
Two questions for you:
a)
Do you like the prescriptions of Binary Economics? If yes, please say
so If no, say similarly.
b)
Do you think the prescriptions of Binary Economics are in any way unIslamic?
Since in another message you provided another list of questions, let me combine those in this one message. You asked the following:
In order that IBF NET members should not be confused (or bored) by over-long emails between us, I ask that you now be clear about your position and give the shortest possible answers (maybe a yes or no) to the following questions:-
====================================
Dr.
Mohammad Omar Farooq
http://www.globalwebpost.com/farooqm
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