ALL those who deliberate, discuss, debate and write about interest know that the Arabic term riba is a comprehensive term and includes usury, interest, bank interest, sood, biaj or any difference in quality or quantity in the exchange of a currency. There has never been any confusion as to what riba is. Those who know that riba is basically an economic injustice which is largely responsible for inflation and the ever widening gulf between the rich and the poor and also those who want to confuse riba, in order to protect `bank interest’, very well know riba.
To use the epistemological term the ‘Justified True Belief’ that riba is an economic bane is not only borne out by repeated `revelations’, which is an accepted source of knowledge, but `perceptual experience’ of the present day economy provides testimony to the `Justified True Belief’ and the `knowledge’ about riba has no `sceptism’.
The present day bank interest which is being vehemently protected did not exist when riba was prohibited. At the end of this article, it should be evident how riba is causing injustice in the present day economy, and how the `Justified True Belief’ about what riba is, has full ‘justification’.
From articles about riba, presenting the economists’ point of view, which have recently appeared in this space, it seems that there are generally four interof riba which are causing confusion:
•Interest, `Usury’ and riba.• Interest, Profit, Turnover and Economics.
•Bank Interest and Economic Injustice.
•Riba was prohibited much before the last `revelation’.
Interest, Usury and Riba: When the ‘holy books’, including the King James version of the `Holy Bible’, were being translated, there was no word in the English language which could mean the Arabic riba, or the Hebrew `neshec’, except the word `usury’. In fact the word interest was introduced into the English language during the sixteenth century A.D., when usury was prohibited and King Henry VIII of England who was quite a spendthrift, borrowed large amount of gold from Dutch goldsmiths and some remuneration had to be paid to serve the `interest’ of the goldsmiths.
One of the earliest uses of the word `interest’, in its new meaning was made by Dr. Thomas Wilson in his “Discourse Upon Usurie”, published in 1572, that traders “lend not for usurie but for interest and by exchange.” Encyclopaedia Britannica shows how the meaning of the word `usury’ has changed. It says: “In modern law, it is the practice of charging an illegal rate of interest for the loan of money. In old English law, the taking of any compensation whatsoever was termed `usury’.”
With the passing of the AntiUsurious Acts during 1545 to 1571, the word usury acquired the stigma of a high and unconscionable rate of interest. These Acts, in the beginning defined usury as interest above 10 per cent. With the passing of different antiacts, the rate of usury kept varying between 10 per cent and 40 per cent. History shows that interest rates have at times been higher than usury. Semantically there is no difference between usury and interest. This shows how idle has been the debate concerning riba, trying to drive a wedge between the two English words, usury and interest, to prove that riba is usury and not interest and only usury is prohibited.
Interest, Profit, Turnover and Economics: Modern interestbanking and economics rapidly developed in the aftermath of the `industrial revolution’ and the advent of largescale production in large mills and factories which needed large amount of capital to establish and operate. It should be noted that such mills, factories and largeproduction units never existed before the `industrial revolution’.
Modern banks provided loan capital, generally to landlords who had land to offer as collateral, both for establishing and running the large scale industrial units. The return on the borrowed capital was bank interest. Economists in their theory assigned interest as the remuneration of capital, but did not know how to deal with and define profit.
In the beginning they said that profit is the reward of organisation and applied various theories to determine profit, such as the `rent theory of interest’, `marginal productivity theory’ and the Dynamic Theory of profit to show that profit differs from organisation to organisation, because the quality of management differs from business to business, just as `land rent’ differs from one piece of land to another on the basis of its fertility and productivity.
Taussig and Davenport advocated that profits “are best regarded simply as a form of wages.” J.B. Say, a Frenchman who popularised the ideas of Adam Smith in Europe, criticised the English economists for combining profit and interest. He maintained profit is the share of the entrepreneur. In a sole proprietorship, business profit is just added to the owner’s capital. Entrepreneur is not a separate factor of production. In the case of a sole proprietorship entrepreneurial skill, which is necessary to run the business successfully, is possessed by the sole proprietor.
Economics does not recognise turnover and its effect on profit which is a very big lapse. If one starts buying and selling on a day-to-day basis, buying or manufacturing `goods’, say at a total cost of rupees one thousand and selling it daily for rupees eleven hundred, he is making a profit of 10 per cent on his cost. If he keeps doing the same for three hundred days of a year, he earns a profit of rupees thirty thousand, that is 3,000 per cent per annum.
Profit and interest are totally different from one another. Profit is transactionand interest is timeProfit is determined only when the sale transaction is over, whereas interest keeps accumulating with time. After the sale transaction is over, the amount of profit cannot change. The rate of profit cannot be predetermined.
Bank interest and economic injustice: Banks hold savings of a large number of middle-class and lower middle-class depositors. They give so many small depositors money to a businessman, who establishes a factory with the capital, which does not belong to him. With the earnings on the small depositors’ money, he pays interest and also the amount of loan, according to the `repayment schedule’ given by the bank. After repaying the loan, the entire factory, which was established with the capital belonging to so many small bank depositors, becomes the property of the businessman.
The ownership of the poor depositors’ money is thus feloniously passed on to the businessman. Financially so many small `bank depositors’ remain where they were, having earned a very small amount of interest but on the other hand the businessman keeps adding factories after factories to make a big group of companies, all established with money, which never belonged to him. That is because the bank deals with their depositors’ money and do not manage their money.
The banks can acquire services of professional managers, assess profitability of each project and finance on a ‘participative’ basis. That will be managing money. If the ownership of bank depositors’ money continues to be feloniously transferred on to borrowers, the gulf between the rich and the poor shall keep widening and no taxation, no welfare scheme can rectify the situation, except abolition of interest. The fact is evident from the widening gulf between the rich and the poor even in the United States of America.
Riba was prohibited much before the last `revelation’: riba was not prohibited for the first time in the Holy Quran but it was prohibited earlier also in the Torah and the Gospel. Under the laws of Moses (A.S) the punishment for dealing in riba was death, and the punishment under Islamic law is no less severe.
It is nothing short of a miracle that, while prohibiting riba in the strongest possible terms, in Ayat 279 of Surah `Albaqrah’, the property in the principal amount of any loan is preserved: “If you do not do so, then there is declaration of war from Allah and His Messenger; and if you repent, the principal amount of your money is yours. You do no wrong and you shall not be wronged.”
Under the present day interest financing, a businessman borrows an amount from the bank, which is the property of small bank depositors, and repays the amount from the profit earned on the borrowed amount, which did not belong to him. After repayment from the profit earned on the borrowed amount, the principal amount, which got invested in the business becomes his property. Before the industrial revolution things were cheap and the volume of business small. If anyone borrowed for business, he would pay interest and also return the principal amount, irrespective of the fact that the business ran into a loss or earned any profit.
The word `epistemology’ was coined by the Scot philosopher James F. Ferrier. It is theory of knowledge and deals with “how do we know what we know?” Revelation, amongst so many, is a source of knowledge. There is sufficient evidence of certainty of what we know about riba. The interpretation of three signs (aya) of the Holy Quran, given in the article on riba, which appeared in this space on November 28, 2010, is not epistemological but sacrilegious.
Epistemology does not have any technique to interpret the meaning of any word or of any sentence as such and if so done, it will be irrelevant and produce misleading result as riba has been made to mean in the article `excess trade profit’. Riba or interest was prohibited throughout Christendom up to the sixteenth century A.D., and the prohibition is based on every `revelation’, including the last, the Holy Quran. The `justification’ of the `Justified True Belief’ has throughout been confirmed by history of economic and moral facts.