Editor in Chief: Moh. Reza Huwaida Monday, November 20th, 2017

Financial Serfdom & Freedom

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Financial Serfdom & Freedom

Interest is the pillar of Fractional Reserve Banking and Margin Trading which is contrary to the philanthropic objectives intended for beating the extremities of poverty and the creation of dignified channels of financial support for the down trodden with a view to achieving the lofty goal of egalitarian society in sustainable manner. The etymology of “interest” is derived from the Latin term “intereo” which means “to be ruined or to be lost.” According to Oxford dictionary, Interest is the Money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt. In modern economics, Interest is regarded as the payment of the use of service of capital. According to Prof. Marshall, Interest is the payment made by borrower for the use of a loan.  Prof. Keynes says that interest is the reward of parting with liquidity for a specified period. Prof. J. S. Mill considers interest as the remuneration for mere abstinences.  Karl Marx defines interest as a portion of the profit or a portion of the surplus value which a functioning capitalist, industrialist or merchant has to pay to the owner and lender of the money capital whenever he uses loaned capital instead of his own.1 As far as the term Usury is concerned, it is derived from Medieval    Latin “usuria” which means interest or from Latin “usura” that also means "interest”. Originally, Usury was a euphemism for the charging of interest on loans. In the words of Easton’s Bible Dictionary, Usury is the sum paid for the use of money, hence interest; not, as in the modern sense, exorbitant interest. Charlemagne defined usury as where more is asked than is given.2 In the words of John T – Noonan, Usury is the sin of taking profit on a loan without a just title.3 Yaron Brook says that Usury is a financial transaction in which person A lends person B a sum of money for a fixed period of time with the agreement that it will be returned with interest.4 Jeremy Bentham is considered to be the first person among legal economists who created the present misdefinition of Usury that is used by most of the economists today i-e the taking of a greater interest than the law allows (or) the taking of greater interest than is usual.5 The Hebrew word in Old Testament for interest is "Nechech" which is improperly translated as Usury. In Hebrew language, it means interest of any kind and not usurious interest. It cannot then be taken in the acceptation now given in the word Usury.6  The Old Testament conveys the message that all interest is usury and that all usury is interest. Formerly the word usury carried no invidious meaning: it simply implied any interest whatever.7 The Greek terminology for Interest is "Tokos" which means the birth of money from money. In New Testament, it is used in Matthew 25:27 and Luke 19:23. The Islamic terminology for interest is Riba which means excess, increase or addition. Riba is defined as trading two goods of the same kind in different quantities, where the increase is not a proper compensation. There are two types of Ribai-e Riba An Nasiyah and Riba Al Fadl. Riba An Nasiyah is defined as excess, which results from predetermined interest that a lender receives over and above the principle. Riba Al Fadl is defined as excess compensation without any consideration resulting from a sale of goods. Riba An Nasiyah is further classified into two types i-e Simple Interest and Compound Interest.8 Simple interest is the interest calculated only on the initial investment while Compound interest is the reinvestment of each interest payment on money invested, to earn more interest. As far as the difference between interest and usury is concerned, the best answer to this perplexity is given by Khurshid Ahmad in his book “Elimination of Riba from the Economy” who says…….
“Historically interest and usury always treated as one and the same thing. It was only in the post-Christian, post-renaissance period of European history that the term interest was used as a substitute for usury to wriggle out of the religion and moral prohibition”. (P-39-40)
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 father of modern day interest rate theory, Knut Wicksell in his book “Interest and Prices” reaffirmed the statement of Aristotle that money in principle is sterile. Sheikh Mahmud Ahmad in his book “Economics of Islam, A Comparative Study” says that all the theories of interest fail to answer the simple question: Why should interest be paid? According to him, the theory of price is the problem of exchange, whereas the theory of interest is a problem of distribution. The Scholastics championed the complete abolition of usury during their era. The moral theology of some Bookmen between 1250 and 1400 justified interest on loans by two extrinsic titles i-e Lucrum Cessans (Profit Ceasing) and Damnum Emergens (Loss Occurring) however by 1400; the majority of Scholastic opinion was still against these two extrinsic titles. The title of Poena Conventionalis or Penalty was acceptable to the early scholastics only.9 In the words of Bernard Dempsey, These extrinsic titles are the notorious 'subterfuges' by which the medieval canonist sought to 'evade' the prohibition of usury. Martin Luther condemned anyone who charged interest as a thief, robber and murderer.10 Karl Marx has also expressed the gloomy and fatalistic effects of interest and usury in part 5of volume 3 of Capital that is titled as “Division of Profit into Interest and Profit of Enterprise. Interest-Bearing Capital.”  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) (To be continued)

Dr. Faisal Ali is a freelance columnist. He can be reached at the drfaisalali88@gmail.com

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