The paper discusses reforms in monetary policy to reorient it towards serving the needs of real economy. It focuses on reforms that can be introduced in the transitional phase since reconceptualising the whole monetary system with a reformed outlook on nature of currency, mode of currency issue, money creation and credit creation would take much longer time and requires greater political will.
This paper presents the ideas of transformative school in Islamic economics. Transformative school of thought in the methodology of Islamic economics is not that much interested in descriptive studies and improving the predictive capability of models to analyze market outcomes and to design policies accordingly. It believes in the transformation of choices through education.
Many professionals today experience a dilemma where they must make a choice between being good humans and being good at their job. They are left to wonder how the principles of love, generosity, fairness, reciprocity, and trust that they know to be true about life in general, do not apply at work. Some resort to the unfortunate conclusion that cold selfish behaviour is “natural” for human beings in economic situations. This is false. One of the prime reasons for moral listlessness at the workplace lies buried in mainstream economic theory.
Mainstream economics treats altruism as ‘impure’. It looks at altruism in the paradigm of pursuing self-interest. Economists like Andreoni reason that altruism can be explained through the ‘warm glow’ effect. People feel good to help others as they gain personal and private comfort. They might be doing it because of social pressure, to gain fame, to improve social image, to exhibit status or to avoid the guilt of saying no to a cause in public. The paradigm of self-interest is neutral between a person’s decision to help others or to not help others.
Socialists claim that economic problems arise from the extraction of surplus value by the Capitalists in the production process. On the other hand, Capitalists urge that scarcity of resources is the basic economic problem which restricts output growth because wants are innumerable, but the resources for satisfying those wants are limited. Nonetheless, the empirical evidence does not support that resources are scarce for legitimate and compulsory economic needs.
Famine, death from hunger and debt enslavement is the fact of life for the half of the people on earth not because that overall, the societies have scarce resources, but because the distribution of resources is inequitable as empirically proven by Nobel Laureate Amartya Sen and noted by Thomas Piketty in his recent book ‘Capital in the Twenty First Century’.
Even though the principles like prohibition of Riba and Zakat are binding as rules, they also have an important economic rationale and function in economic matters of an Islamic society. Hence, the mandate of Islamic economics will be to explain their economic merit using experimental and observational data and by applying statistical and other suited techniques to establish certain analytical hypothesis.
As much as people can be selfish, they can be altruist as well. They have free will and they can be as much responsible as they can be reckless. What we need is a conditioning mechanism that nurtures positive tendencies.
Both the absence of broad based wealth taxes and the legal decree of allowing compound interest on money capital are the prime sources of wealth concentration. If both are corrected, capitalists would not be able to systematically exploit in competitive markets.
This article briefly analyzes the logical arguments that are usually presented in the defense of interest as a price of money capital in loans.