Editor in Chief: Moh. Reza Huwaida Tuesday, October 23rd, 2018

Quest for Economic Freedom


Quest for Economic Freedom

On September 19, 2016, The Khyber Pakhtunkhwa Assembly in Pakistan unanimously passed the Prohibition of Interest on Private Loans Bill. The event marked an addition to the similar chain of events that had occurred in the history of mankind. The initial pages of “An Essay on the Law of Usury” by Mark Ord exhibit that usury was banned by Common Law. The laws of Charlemagne categorically prohibited usury in 806 CE. In 1275, Edward 1 of England passed the Statute of Jewry which made usury illegal. The Communist Party of China proscribed usury in its revolutionary base areas in 1920 and replaced it with credit cooperatives. The criminal code of North Korea (2009) in the chapter 5 titled “Criminal Violations of The Socialist Economic System” forbids usury under Article 118. The article prescribes a punishment of less than 2 years of Labor training for practitioners of usury and stipulates the same punishment for up to 5 years in case of large profits gained through usury.
Aristotle berated interest on the principle that it is a yield arising out of money itself, not a product of that for which money was provided. The Scholastics championed the complete abolition of usury during their era. John Whipple, a Rhode Island lawyer arithmetically proved the impossibility of long term interest in “The Importance of Usury Laws- An Answer to Jeremy Bentham” …….
“If 5 English pennies…. had been…...at 5% compound interest from the beginning of the Christian era until the present time (say 1850), it would amount in gold of standard fineness to 32,366,648,157 spheres of gold each eight thousand miles in diameter, or as large as the earth.”(P-48)
The father of modern economics, John Maynard Keynes contended that without the abolition of interest, unemployment cannot be eradicated. Silvio Gesell castigated interest on the basis that his sales were more often related to the price of money (i-e interest) than people’s needs or the quality of his products. Gesell also launched “Stamp Script Movement” to make money a public service for a use fee but all his efforts went in vain. In 1919, Gottfried Feder wrote a book “Breaking the Shackles of Interest (Brechung der Zinsknechtschaft)” about the implications of interest and wealthy bankers. His endeavors led Adolf Hitler to proclaim that the kernel of National Socialism is breaking the thralldom of interest. Margrit Kennedy, the ink-slinger about the negative consequences of interest is considered as the mother of anti-usury movement in modern times. Thomas Greco in his book “Money: Understanding and Creating Alternatives to Legal Tender” says…
“The banks are continually making new loans and retiring old ones as they are repaid. In the aggregate, the debts owed to banks are increasing with the mere passage of time, because interest accrues over time. The money available to repay those debts, however, can be created only by the banks as they make additional loans.”
The major religions of the world deplore, condemn and prohibit interest in all its forms. The Manu Smriti of Hinduism categorically expresses sentiments for contempt of usury in chapter 11: verse 62. The Buddhist Jatakas refers to the practitioners of interest as hypocritical ascetics. The Holy Bible speaks about the proscription of interest in the books of Deuteronomy 23: 19, Leviticus 25: 36, Exodus 22: 25, Ezekiel 18: 13, Ezekiel 22: 12, Psalms 15: 5 and Luke 6: 35. Jesus (Peace be Upon Him) says in the 95th verse of the Gospel of Thomas that if you have money, do not lend it at interest, but give (it) to one from whom you will not get it back. The forbidding of interest in Holy Koran is mentioned in the Chapter of The Romans: verse 39, Chapter of The Family of Imran: verse 130, Chapter of The Women: verse 161 and Chapter of The Heifer: verses 275-281. The prohibition of interest is also mentioned in the Sayings of Prophet Muhammad (Peace be Upon Him). The Apostle (PBUH) said…...
“No matter how much is the increment accrued through interest, the eventual outcome is scarcity.”
The usury based Fractional Reserve Banking became a legalized form of economic sacerdotalism at national and international level after the establishment of Bank of England and the foundation of International Financial Institutions (IFIs). The era of this banking has affected the countries and humanity in form of interest payments on debts, business cycles, buying power, global imbalance of payments, increased taxation and positively skewed distribution of wealth. In 2015, the United States of America (USA) paid $223 billion of interest on the debt which amounted to 6 percent of the federal budget. In Germany, the poor 80% pay one billion Euros in interest to the wealthy 10% per day which amounts to one seventh of German GDP according to Anthony Migchels of Real Currencies.
Economists must keep on questing for an alternative of fractional reserve banking and a system of interest free credit. The Chicago Plan and Chicago Plan Revisited are the masterpieces for abolition of fractional reserve banking and imposition of Full Reserve Banking. The other variants of Full Reserve Banking include Kay’s Narrow Banking, Kotlikoff’s Limited Purpose Banking, Positive Money and New Economics Foundation’s plans for monetary reform. The substitutes also comprise Islamic Banking, Mutual Credit, Constitutional Monetary System of Lincoln and Bradbury Pound initiative of His Majesty’s Treasury in 1914. The best example of interest-free Full Reserve Banking is Jord Arbete Kapital (JAK) bank in Sweden while in the arena of Islamic finance, Akhuwat Model of interest free loans in Pakistan is considered to be more pragmatic than JAK model. The Peasant Land Bank of Russia in 1880 that provided interest-free loans to the liberated peasantry can also be utilized as an interest free model. The system of Rural Cooperative Foundations (RCFs) of Peoples Republic of China which played a pivotal role in the curtailment of rural usury during 1980s can also be employed in usury free arena.
Stephen Zarlenga in his book “The Lost Science of Money” shows that the monetary reform is more a matter of morality and law than of economics. He also advocates the evolution of monetary department into a fourth branch of government that should work for the common good and nationalization of money creation process which is a precondition for solving the usury problem and its wealth concentration effect. Therefore, it is imperative to the leaders and legislators of various nations to initiate interest write off movement for their respective countries domestically and internationally and promulgate the acts for complete abolition of debt service because it is the interest which is feasting on the flesh and bones of developing world especially those nations that are dependent on others and in which corruption and embezzlement are rampant. Furthermore, the International Financial Institutions (IFIs) should initiate interest write off programs for developing countries under special initiatives. As far as the recovery of loans from governments is concerned, it can be dwarfed by galvanizing the debt-equity swap method. Hence, it is concluded that the economic salvation depends on the total elimination of usury based fractional reserve banking.

The writer is the medical graduate of Xi’an Jiaotong University, P.R. China and a freelance columnist. He can be reached at drfaisalali88@gmail.com.

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