Posts Tagged ‘economics’

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Sharia money man hates owing the West

May 20, 2012

One of the two best known sharia finance advocates, Taqi Usmani, has written a column proposing a post-Communist alternative to the “inequitable” nature of capitalism.  The alternative would be an Islamic economic system.

Such as system wouldn’t be nearly so equitable as Usmani leads the reader to believe.  Pakistan has had state-mandated zakat for decades, which has only caused more dependence and squalor among its citizens.

Under Islamic tax law, not even the poorest Christians, Sikhs, or other religious minorities are entitled to receive zakat; in fact, they are required to pay the jizya from which there is no waiver due to poverty.

But leaving that aside, it’s worth noting how deeply humiliating it is for Usmani and for Islamic countries to owe money to the West for development aid loans.  Not only do they detest being dependent on the Great Satan (and dependent on the Jews who they regard as the masters of world banking and lending in the world), but they resent paying loan interest that they believe is haram.

We should do Usmani and the Islamic world a favor and discontinue any such loan programs.

Here’s Usmani’s column as reprinted in the Pakistan Herald:

It is common knowledge that Ummah’s basic economic problem is the dependence of the Muslim countries on others. Most of the them areborrowing huge amounts from the rich Western countries. Some countries are incurring these heavy interest-bearing loans not only for the development projects, but also for their day-to-day expenses, and what is more serious, for the payment of interest accrued on their previous loans which keeps the size of their indebtedness ever-increasing through a vicious circle.

Dependency on foreign loans is the basic disease of our economy that has not only shattered our economic life, but has also devastated our self-determination and has forced us to submit to the demands of our creditors Read the rest of this entry ?

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The Hadith’s ban on forward contracts

April 25, 2012

Agreeing upon a price now for merchandize to be produced or delivered later, which is a pretty common, uncontroversial, and healthy tradition in free market economics, is banned by the Hadith, the collection of sayings and actions of Muhammad.

The following comes from one of the most important and widely accepted Hadith among Muslims, the Sahih Al-Bukhari, Book 34 (The Book of Sales [Bargains]):

Chap. 33.  Al-Gharar (the sale of what is not present) and Habal-il-Habala (i.e. the sale of what is in the womb of an animal.)

1022.  Narrated ‘Abdullah bin’Umar:  Allah’s Messenger forbade the sale called ‘Habal-il-Habala which was a kind of sale practiced in the Pre-Islamic Period of Ignorance.  One would pay the price of a she-camel which was not born yet and would be born by the immediate offspring of an extant she-camel.

Similar language appears in Book 10 (The Book of Transactions), Chap. 8, of the Sahih Muslim, another widely agreed upon Hadith, which states that “it is invalid to sell the commodity before taking possession of it” in reference to grain.

It is unfortunate for the world’s Muslims and their economic development that Muhammad made this choice that forever limited the types of transactions available to willing buyers and sellers operating in a free market.

One Western source describes the benefits of production contracts which Muhammad seemed unable to understand:

There are several potential advantages for producers who may consider a production contract. Such contracts may provide for a more stable income for the producer by reducing traditional marketing risks. Such contracts may allow a producer to benefit from technical advice, managerial expertise and access to technological advances provided by the contractor. An agricultural production contract may provide the producer with a guaranteed market, provided that the commodities are produced in accordance with the contract. Finally, such contracts may allow a producer to increase the volume of his business with limited capital since the contractor may often supply the necessary production inputs…

From the contractor’s perspective, production contracts may provide an orderly flow of uniform commodities so as to allow the contractor to control production costs. And such contracts may allow contractors to better respond to changing market conditions. The use of such contracts may allow a contractor to protect its investment in genetics and other intellectual property associated with a particular commodity.

Contemporary sharia financiers have tried to distinguish a forward contract from a futures contract, saying that a forward contract is clear enough to satisfy the requirements of sharia law.  However, that interpretation still seems at odds with the plain language of the text above.  More on the contract loopholes of sharia finance (salam and istisna’a) later…

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Freeman: Markets were struck by Islamic terror

February 17, 2012

Kevin Freeman, author of Secret Weapon: How Economic Terrorism Brought Down the U.S. Stock Market and Why It can Happen Again, says that Islamic terror states, sovereign wealth funds of the Middle East, Muslim Brotherhood and Al Qaeda followers, and former and current Communist regimes of the world, were partly to blame for the financial collapse of 2008.

Apologies for the wobbly Youtube bootleg somebody uploaded from Mr. Freeman’s Jan. 18 appearance on Glen Beck TV:

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Islamic countries doomed to economic misery

November 14, 2011

This graphic from the New York Times can be interpreted in several ways.  It depicts the degree to which people say religion plays an important part in their daily lives and per capita GDP by country.  Pres. Obama might look at this as evidence that poor people “cling” to religion, but judging by the high number of Islamic countries in the upper left-hand corner, one cannot escape the likelihood that as an economic system, Islam is unsustainable.

Productivity & faith by country

The early caliphate enriched itself through plunder of newly conquered lands.  But once the territorial expansion reached a standstill, so did the Islamic world’s economic growth.  The caliphate had exhausted the wealth of the people they conquered.  Their subjects faced excessive Islamic taxation, capital was limited by the sharia prohibition on interest, and zakat has served to keep the poor in a permanent state of welfare dependence.

Among predominantly Muslim nations, only Saudi Arabia with its vast oil wealth even came close to a mid-line to a per capita GDP of $25,000, but still falls short.  The U.S. and Italy show that it is possible to have highly religious people and highly economically productive people at the same time.

Meanwhile, we are still told by Iran and the supporters of sharia finance that Islamic law provides for a more ethical and sustainable economy.  Hooey!

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Weekly word: Infaq

October 19, 2011

Infaq means “spending.”  Some people explain infaq as a third type of Islamic “charity” along with zakat and sadaqa, but strictly speaking it is not.  “Infaq fi sabil Allah” is spending for the sake of Allah, which suggests spending for the purposes of jihad, dawah, and charity.  S.M. Hasan-uz-Zaman explains:

Infāq literally means spending.  It signifies any spending whether for good cause or bad.  That is why spending by non-believers for opposing Islam, their spending on their wives, spending by hypocrites, spending by Muslims on their wives by way of dower and sustenance are all termed infāq.  Infāq qualifies itself to become virtuous in case it is made for Allah’s pleasure.  It should be done scrupulously without any desire for publicity.*

It is important to understand the concept of infaq by non-Muslims, because it explains part of the hostility of Muslims toward the Western “infidel” economic and financial system.  The Koran declares that infaq by infidels is “like a freezing wind, which falleth upon and destroyeth the cornfields” (3:113 in J.M. Rodwell’s translation of the Koran, 3:117 elsewhere) and, “The infidels spend their riches with intent to turn men aside from the way of God: spend it they shall; then shall sighing be upon them, and then shall they be overcome.  And infidels shall be gathered together into Hell” (8:36).

Supporters of sharia finance have their individual motives, and among them are those who seek not just to provide an alternative investment option to pious Muslims, but to supplant what they deem as an intrinsically untrustworthy, unholy system of Western finance as characterized by their Koran.

*Hasan-uz-Zaman, Syed Muhammad, Economic Guidelines in the Qur’an (Islamabad:  International Institute of Islamic Thought, 1999).

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Shia economics

April 20, 2011

The Ayatollah Khomeini once famously said “economics is for donkeys.”
 
Khomeini’s comments proved to be prophetic–the Iranian economy today certainly looks to be run by jackasses.
 
Iran’s recipe for an economic turnaround is as follows:
 
1.  Dub the current year “The Year of Economic Jihad.”
2.  Take more statist, government control of private businesses and bazaars and call it “cooperation” (see details below).
3.  Eliminate three zeroes from the currency to “reduce” inflation.  Seriously.
 
It has been said that over the centuries, Muslim leaders have often taken a dismissive view of fact-based economic scholarship because they have focused more strictly on the legal or jurisprudential traditions of Islamic financial law.  That seems to be the case in contemporary Iran, and a turnaround looks unlikely.  Poor Iranians are paying the price for their leaders’ anti-intellectual sharia socialism.
 
From Zawya on Apr. 14:
 

Minister of Economy and Finance Affairs Seyyed Shamseddin Hosseini said cooperation between the state-run and private sector would create an economic turning point in the current Iranian year (started March 21).

Speaking in the unveiling ceremony of Negotiation Council of Government and Private Sector, he noted that last year was the year of endeavors and challenges and those involving in economic activities took extensive efforts, ISNA reported.

He noted that following the targets envisaged in Vision 2025 caused domestic economy to flourish.

Referring to naming the current year as the Year of Economic Jihad by supreme leader Ayatollah Seyyed Ali Khamenei he said that the measure aims at realizing the objectives set by Vision 2025 in under the general policies of Article 44 of the Constitution.

The minister said that the leader has paid special attention to the economic issues during the recent years, noting a large number of forums, mostly political, have been formed during the past years.
Hosseini stated that the expenses of the political forums are higher that their income.

He called for the members of council to join hands and cooperate with each other in order to create new economic capacity for the country.

The economic structures of the country should be developed, he said, adding experiments show that public and private sector should collaborate to achieving the purpose.

He hoped that the council would help enhance cooperation between the government and private sector and remove the distance between them.

Mutual Understanding
Pointing to the lack of mutual understanding between public and private sector, he said that for example those involving in the industrial activities believe that the profit rates of banks’ saving account are high in the country but when the Money and Credit Council lowered the rate, the private banks wrote a letter to complain about the issue.

The minister said that this year should be a turning point in the economic jihad process and average annual economic growth rate, which stood at 5 percent in the past, should increase this year.

“In order to realize the economic growth envisaged in the fifth development plan, at least, $1000 billion worth of investment should be absorbed. We didn’t have such experience because financial resources have been restricted”, he noted.

Hosseini said that improving the business environment and enhancing productivity are among the necessary measures which should be taken in the industrial sector, adding in line with the same policy the Commerce Ministry lowered final cost of products.

Talking to the reporters on the sideline of ceremony, he said that Money and credit Council would study banking development plan which aims at establishing good relation between money and investment.
Criticizing the way of issuing participation bonds for financing projects, he said that banks themselves are in charge of repurchasing the bonds and paying back the original sum plus profit.

“It is actually like paying profit to saving accounts “, he noted.

He stated that nothing has so far been ratified about new national monetary units and the number of zeros that are to be eliminated from national currency.

Looping 3 Zeros Off
Slashing several zeros from national currency was put on agenda of Central Bank of Iran (CBI) several years ago. But, recently practical moves have been adopted to this end. It seems that upon implementing this plan, at least the volume of bills used in current transactions of the people will be reduced.

Read the rest of this entry ?

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U.S. tax prof puts cart before horse, misreads zakat data

July 26, 2010
Russell Powell, an associate professor of law at Seattle University has penned a glowing review of zakat-based tax systems as a progressive model for the rest of the world to adopt (h/t TaxProf Blog).
 
Leaving aside that problematic premise, we’ll focus instead on one supposed “correlation” that Prof. Powell sees in the Islamic world.  There are countries in the Islamic world with mandatory zakat laws (such as Saudi Arabia and Pakistan), countries with voluntary zakat programs run by the government, and countries with no government run programs.  Powell argues that there is a positive relationship between national wealth and economic equality and which countries adopt zakat systems.
 
Powell says the slight relationship in his chart, which shows that the Middle Eastern countries with the highest per capita GDP are likelier to have zakat systems than poorer countries, is worthy of futher study:
 
Zakat systems in the Islamic world sorted by GDP

Chart by Russell Powell, Seattle Univ. School of Law

I’ll help you out.  The relationship is not about national wealth.  It’s not that these countries experience a economic boon because of zakat.  Collecting zakat, skimming off the top through corruptly high tax administration, and transferring whatever is left over to a mishmash of political cronies, imams, terrorists, and a few poor Muslims, does not “produce” a higher gross domestic product.
 
It’s somewhat true that richer countries may impose zakat because their citizens can actually afford to pay it.  But get beyond the materialist arguments and take a look at the actual countries that mandate zakat:  Libya, Malaysia, Pakistan, Saudi Arabia, the Sudan, and Yemen.  What’s the common thread?  Look elsewhere, sir, than GDP to explain it.  These are all Muslim theocracies or countries that have outsourced vast realms of public policy to Islamists.
 
National wealth (ie, oil wealth) can fuel the degree and speed of Islamization of the country, which itself could lead to calls for a host of Islamized public policies.  But let’s not fool ourselves into thinking zakat creates wealthy, egalitarian societies.

(I may address Powell’s broader points at a later date, but for now I’ll simply say that the paper is well researched but profoundly myopic.  One cannot examine Islamic tax law properly by researching only zakat.  Powell even suggests that zakat presents a model for small government because zakat is simply passed through and not retained by government hands.  This ignores that the bayt al mal of the caliphate throughout history has been funded by the jizya and kharaj taxes against non-Muslims.  Professor, I look forward to reading your next article if you take Islam’s total tax picture into account.)