Signs from Allah: History, Science and Faith in Islam
80. The Rise of the Global Credit Economy, Part 1 of 3
By Professor Nazeer Ahmed
Concord, CA
Civilization moves in epochs. In each epoch, the rules of competition are different. What drives the global civilization today is economic centralization, and the aristocrats of this drive are the bankers. The merchant, the industrialist, the soldier, the teacher and the mullah are all beholden to the banker, and more specifically, to the global credit system.
There is a great deal written about interest and usury by Muslim scholars. It is a complex issue and continues to be the subject of much controversy. There is always the risk of oversimplification because modern banks discharge a variety of services and cannot be lumped into one category. Nonetheless, in the caldron of global ideas, the Muslim point of view about usury must be put forth as clearly as possible so that one may evaluate it on its merits. Islam maintains that usury is debilitating to civilization. It saps the strength of individuals and nations, encourages greed, and discourages trade. It works in the direction of economic centralization, makes the rich richer and the poor poorer, creates instability in the society and ultimately destroys it. (“Those who devour usury will not stand except as stands one whom Satan by his touch has driven to madness”, Qur’an, 2:275-276)
Another way to state the Islamic position is that zero interest is the best guarantor of sustained economic growth. Islam is not the only religion that looks askance at usury. The Christian church also frowned upon usury in medieval times.
Interest and usury are not new to the modern age. They have been practiced in practically every civilization from times immemorial. In India, the village moneylender has been known for ages. The function of these intermediaries in the cycle of trade and commerce was well understood and accepted. In the village milieu, the moneylender provided liquidity to the poor farmers who offered gold and silver jewelry as collateral. A discount rate was agreed upon between the lender and the borrower. Since the borrower was usually in dire need of cash, the discount rate was exorbitant, sometimes as high as 8% per month. More often than not, the farmer was unable to pay the interest, and lost his jewelry to the lender within a year. The difference in the value of the jewelry and the original amount lent was the “profit” made by the lender. This “profit” was about one hundred per cent per year!
In the Byzantine world, where trade routes from many nations crossed, moneychangers were active in the temples down to the times of Jesus. Their primary function was to buy and sell currencies from the various kingdoms depending on the amount of precious metal in the currency. A discount was applied to the transactions. The moneychanger also provided cash at interest to merchants against the collateral of their goods. If the merchant was successful, he paid back the loan; if he was not, he forfeited his goods to the moneylender.
From the perspective of Islamic history, an understanding of the role of interest takes on importance because the economic institutions that grew up in Europe in the 18th and 19th centuries accumulated further clout in the 20th century, and came to dominate the globe. The issue transcends the Islamic world, and affects it only because it is now a part of a global community of poorer nations. Whether it is coffee, coconut, spices or oil, the international banks have a major influence on the economic sinews of the world. Interest payments are a major factor in the enormous flow of capital from the poorer countries of the world to the richer nations. In our own times, between the years 1980 and 1990, no less than 1.3 trillion US dollars were transferred from the poorer countries to the richer countries. The interest economy rules the world, and whether the mullah or the alim likes it or not, he is a part of it.
The rise in the power of commercial banks in the 18th century was directly related to the Industrial Revolution in England. It was a convergence of several historical events that transformed England from a mercantile society to an industrial society and finally led to the triumph of the bankers. The arrival of fresh capital from Calcutta and Oudh (1757-1767) enhanced the substantial wealth that was flowing in from the Atlantic slave trade, and enabled the funding of innovative ideas. Inventions need capital to see the light of day. Without it, they wither and die. The first thrust of British innovation was the replacement of cotton goods from India. The spinning jenny went through rapid modifications and was “perfected” in 1767 by Hargraves. The colonization of Bengal provided a large captive market of thirty million consumers. The British East India Company slopped on a hefty 70% duty on Indian made goods while opening the floodgates to imports from England. British cotton goods inundated the Indian market, displacing the traditional products of Bengal.
The use of coal and the invention of the steam engine speeded up mechanization. Economies of scale dictated that large farms were more efficient than small ones. The small farmers lost out in the economic competition and moved to the cities in hordes where they became maids, butlers and laborers manning the engines of the industrial revolution. Consolidation of capital intensified. Investment increased, industrial production rose driven by demand from the colonies, profits shot up and merchant entrepreneurs transformed themselves into industrialists.
Behind this profound transformation was a change in the social paradigm. The Battle of Plassey (1757) demonstrated that the age of soldier-kings was over. From times immemorial, the merchant had depended for his protection on the soldier. After the Battle of Plassey, the tables turned and the soldier was to be a servant of the merchant and his hired hand. Civilizational initiative passed from the soldier to the merchant. Robert Clive, the shrewd merchant, had outfoxed SirajadDawlah, the soldier-king. Henceforth, money and manipulation would triumph over the sword, and the genius of the age would turn its attention to the accumulation of wealth, not the conquest of territory.
The British rapidly consolidated their hold on the Indian subcontinent after the Battle of Plassey. Tippu Sultan and his father Hyder Ali resisted the British for more than 40 years. But from a global perspective, it was only a rearguard action. The tide of power had inexorably turned in favor of Europe. Tippu fell in 1799 at the Battle of Srirangapatam, the same year that Napoleon occupied Egypt. By the year 1806, the Moghul court in India was all but a vassal of the East India Company. Tippu was the last soldier-king in Asia. He fell, defeated by merchants or their mercenaries, whose principal weapons were money, bluff, and duplicity, which were often packaged as diplomacy.
(The author is Director, World Organization for Resource Development and Education, Washington, DC; Director, American Institute of Islamic History and Culture, CA; Member, State Knowledge Commission, Bangalore; and Chairman, Delixus Group)
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