HE article of Dr Aqdas Ali Kazmi on Riba in this space on November 28 explains everything about Riba and almost nothing about the interest and concludes “bank interest being the price of (or return on) capital does not fall within the purview of Riba.” Here Dr Kazmi takes as his point of departure from what has yet to be established.
For example, earlier he said that there were some functions which were exclusive to money. Its being a form of capital was one. And capital must be appropriately and justly rewarded. The modern interest was in accordance with the Quran. But the rates must not be usurious. (Dawn, July 16, 1993) and again that interest paid for capital as a factor of production, just as wage paid for labour. (Dawn, 10 December, 1993).Here, he skirts the question because it is the interest itself which has to be explained instead of being taken as given.
Money is a relation of production, which enters the process of production not as a factor but as the form in which the capital first enters that process i.e. as money capital. But before it can become money capital again, that is before it realises itself, it must pass through the forms of industrial and commodity capitals. In the first of these, it absorbs the surplus value, which also realises itself, with the rest of the original money capital, in the form of money. Thus, in a commoditised economy, money can, so to say, realise itself only by adding more money to itself. The total surplus value thus absorbed by the capital in one turn-over forms the general profit. Its redistribution among the factors of production resolves into rent for land, interest for cash borrowings and profit for “enterprise” whatever that means.
Pierre Jalee puts it well: “We know that money does not have the ability to engender money on its own. — But as soon as money takes the form of a capital invested in a productive process, it appropriates surplus value and brings a profit. —The interest which will be paid to me at the end of the year shall be but a part of the surplus value which will have been begotten by my money to become productive capital.” (“L’exploitation capitaliste”, FM/petite collection maspero, Paris, 1981, p.54).
Money is also essential for the alienation of the product of labour from the labourer. It is not the cause of that alienation. That is the function of property. But alienation cannot take effect without money, as it is the final form in which the process is completed. Of course the general basis of alienation is the original contract of the exchange of labour power for wages.
Interest on loans existed in pre-capitalist societies too. Actually, it flourished before the advent of money itself. Niall Ferguson, the well-known American economist, believes that the very idea of interest “probably derived from the natural increase of a herd of livestock.” (“The Ascent of Money”, Penguin, London, 2009, p.31) The idea is not far-fetched as the cattle were the main means of exchange before the invention of metallic money.
Arid Hejaz had a pastoral mode of production, whose political expression is tribalism. This mode produces very little surplus.
So it was not possible to establish a stable system of exploitation there. In fact the only economic relationship which could lend itself to exploitation was direct labour e.g. irrigating an orchard or carrying a load for someone. But, here, the labourer could not be subjected to any high degree of exploitation because the general production was so low and, consequently, the standard of consumption so close to starvation that the wages could not be pushed below a certain level. Even here, the Holy Quran demands that the labourer be paid immediately upon the completion of the task.
However, a unique feature of the economy of Hejaz, at the time of the rise of Islam, was the passage through it of the long-distance trade between southern Asia and the Mediterranean region. The Hejazis, mainly the Makkans, served the Yemen-Syria sector of this trade.
In the long-distance trade, the ultimate buyer of goods has no means of knowing their cost of production as well as the cost of transportation in the various sectors. This entails a high level of profit, in which every purchase is the result of hard bargaining, though, of course, the cost of production, or, rather, the price of production and cost of transportation of a commodity to the point of sale forms the floor beneath which the sale price cannot be pushed. But this complete dependence of trade on bargaining about price at each point of exchange frees the trade of every consideration of fairness or equity, so that the profit appears solely as the product of the advantage one could take of the other’s condition. This culture gradually permeates the whole society, affecting all human relations.
Secondly, the long-distance trade, more than any other, is conducted entirely in money. Every payment is in cash. This leaves the traders, who participate in it, holding cash most of the time, in between their annual or bi-annual trading voyages. These monetary hoards, in the midst of a population living at the edge of survival and suffering from extreme penury, creates the conditions for lending money on interest, in fact, for lending it on extremely harsh terms.
This was the major, the dominant, form of exploitation in pre-Islamic Hejaz. Just as the long-distance trade was practically independent of the local pastoral economy, so the hoards of money, created by participation in that trade, stood apart from local exchanges and their medium. Their only interchange with the local economy could be in the form of interest-bearing loans, which, in practice, sucked away the derisory surplus produced by the pastoral mode. The economy of extreme poverty was, as a result, impoverished even more. Hence the prohibition of interest (Riba) in the Holy Quran, the only explicit prohibition in the field of economy.
The early caliphs had faced some difficulties in enforcing the prohibition but, since then, the law has been frequently violated, as those with money look for and find ways around it. In fact, a whole body of theory, known as “hiyal”, has grown up to explain these deviations and guide those desirous of breaking the law in essence, while conforming to it in form. Modern interest is mainly the transfer of value from the industrial capitalist to the financial capitalist, paid to the latter for the use of his money for a fixed period in the process of production or transportation of commodities. The modern theories of “hiyal” tell the lender how to still effect this transfer through various stratagems, like modarba, etc., without calling it Riba.
The striking feature of these theories is the refusal of their authors to see the origin of interest (as of rent and profit). They accept the bourgeois political economy’s laws wherein a machine or an animal are practically workers, producing value for their owners at par with the human worker, as purely mental or managerial work are also claimed to do. They, therefore, fail to see why money cannot similarly produce value when put at the service of production or “any other form of commerce”, i.e.
when money becomes capital. And the highest factor of production is what the bourgeois economics calls the “enterprise”, which combines various factors of production to create value and is remunerated in the form of profit, which is what remains of the general profit after the owners of land and capital have received their remunerations.
Thus our religious scholars, since they do not accept living physical labour as the sole source of all new value, spend all their efforts to disguise the value, whose creation is attributed by the bourgeois economics to money capital, as something other than Riba. Finding difficulty in Islamising Riba, they have dressed it up differently to give it legitimacy.
They refuse to recognise that the value, being a social relation, can be created only by the humans, as they apply their physical labour to matter with a view to making it useful. The instruments of labour, no matter how impressive, only spread the human labour to a greater number of products. In doing so, they transmit the value embodied in them as a result of previous labour, to the product, as do the raw materials. Neither can create value. Neither can transmit any value not already embodied in it.
Therefore, any part of the new value created by labour and if it does not form part of wages, is distributed as rent, interest and profit, and is exploitation. It is the value of which the worker has been robbed as a result of his lack of control over the conditions of production. The attempt to circumvent the law against Riba by participating in the management of an enterprise, while also investing money in it, only hides the nature of profit. In reality, the income accruing to this manager-investor has two elements---one pays for his activity as manager, the other is interest. Interest is Riba.