Islam and banking (1979)

From the December 1979 issue of the Socialist Standard

The Koran—which is supposed to be the literal word of God as dictated to Mohamet by the Archangel Gabriel — bans the taking of interest. Or at least that is how it is being interpreted by the Ayatollah Khomeini in Persia and by the Moslem fundamentalists who advise the military dictator of Pakistan, General Zia.

The trick of course is in the definition of interest. It can be admitted that, from the point of view of economic theory, there are two kinds of interest, depending on what the loan is granted for: consumption or production. Before capitalism most loans were not investments in production but were to people to spend on consumption, the luxuries of the rich or the necessities of the poor as the case may be. When such loans are made to the poor the moneylender can exploit his client’s dire need to extract a very high rate of interest and can eventually reduce him to a state of virtual slavery, as occurred on numerous occasions in pre-capitalist times. Mohamet wrote the Koran, of course, well before capitalism evolved, about 1300 years ago in what is now Saudi Arabia and its ban on interest was designed to prevent the social structure of the then tribal society being undermined by debt-slavery.

Interest under capitalism is something different. It is a share in the profits extracted from the exploitation of wage-labour. The lender loans his money to an entrepreneur who invests it in production and who pays the interest out of the profits he makes. This means that under capitalism there is a limit to the rate of interest: it cannot be greater than the rate of profit.

Banks are specialised financial institutions which gather together money which people want to lend and pass it on to capitalists to invest in production. They realise their profits out of the difference between the rates of interest they pay their depositors and the rates of interest they charge their customers. Banks play an important intermediary role under capitalism and without them the accumulation of capital out of profits — which is the be-all and end-all of capitalism — would proceed, and would have proceeded, at a much slower pace.

Capitalism has only been going for about two hundred or so years but it has now spread all over the world, including Moslem countries. In such countries too it finds banks essential as financial intermediaries channelling money for productive investment; and of course banks, charging and taking interest, exist in all Moslem countries including both Khomeini’s Persia and Zia's Pakistan.

Moslem theologians have overcome this problem by interpreting the Koran’s ban on interest to apply only to the taking and paying of amounts of interest fixed in advance. From here on it is easy: the interest, both that paid to depositors and that charged to borrowers, comes to be called “a share in profits”. This is how the Amman correspondent of the Financial Times (21/3/79) describes the operation of the Jordan Islamic Bank:

  A depositor places his money in a savings account in an Islamic bank without being guaranteed any fixed return every year. Instead he is promised a share of the profits of the projects the bank is financing. When the bank lends money to finance a new industrial plant, the borrower does not pay a fixed interest rate every year, but rather promises to give the bank a share of the profits the plant generates after it starts production. If the plant makes a quick and large profit, the bank and the depositors share in the bonanza. If the plant makes only a small profit, they get less. The bank always maintains a reserve fund from which it will pay its depositors and shareholders a dividend during any particularly unprofitable years.

Another way out is, instead of demanding a share of the borrower’s profits, to charge him a “commission” or “fee” for arranging the loan.

Actually, this solution — of calling “interest” a “share in profits”— conforms very well with the nature of interest under capitalism which, as we saw, is precisely a share of profits — though it is another matter whether the foregoing of the administrative convenience of paying fixed interest just to respect the letter of the Koran is a rational banking practice.

What is interesting in this is the confirmation it brings of the materialist conception of history that the ideology of a particular society its morality, its religion,—is a reflection of its economic basis and changes as that basis does. As capitalism has come to Moslem countries so the Koran's ban on interest has been re-interpreted so as to fit in with the system's need for the financial intermediaries that are banks.

There is a precedent for this. The Bible too used to ban interest and this had to be changed when capitalism evolved in Christian countries. It seems, according to R.H.Tawney in his Religion and the Rise of Capitalism, that by the end of the Middle Ages the Christian theologians had reached exactly the same conclusions as today’s Moslem theologians — that anything goes except the giving and taking of payments fixed in advance (indeed there would seem to be one or two subtleties here that may not yet have occurred to the Ayatollah Khomeini):

   No man, again, may charge money for a loan. He may, of course, take the profits of partnership, provided that he takes the partner’s risks. He may buy a rent-charge; for the fruits of the earth are produced by nature, not wrung from man. He may demand compensation — interesse — if he is not repaid the principal at a time stipulated. He may ask payment corresponding to any loss he incurs or gain he foregoes. He may purchase an annuity, for the payment is contingent and speculative, not certain . . .What remained to the end unlawful was that which appears in modern economic text-books as ‘pure interest’ — interest as a fixed payment stipulated in advance for a loan of money or wares without risk to the lender. . .The essence of usury was that it was certain, and that, whether the borrower gained or lost, the usurer took his pound of flesh. Medieval opinion, which has no objection to rent or profits, provided that they are reasonable — for is not everyone in a small way a profit-maker? — has no mercy for the debenture holder. His crime is that he takes a payment for money which is fixed and certain, and such a payment is usury. (Pelican edition, pp 54-5).

How long will it be before the Archangel Gabriel appears again to dictate an amendment to the Koran permitting fixed interest payments?

Adam Buick

Capitalism and democracy (1979)

From the December 1979 issue of the Socialist Standard

There is a notion in certain circles that something called “democratic socialism” is a contradiction in terms, that state ownership and centralised planning is incompatible with freedom. Such an assertion is intended as a smart rap over the knuckles of left wing gurus such as Tony Benn or Eric Heffer who like to see themselves as “democratic socialists”. They confidently assert its vital difference from the stale and discredited “social democracy” of the Labour Party stick-in-the-muds; and yet argue that it offers a democratic “humanistic” alternative to the tyrannical political system of places like Russia whose economy is predominantly under state ownership.

Unfortunately for Benn, Heffer and the like, theirs is a herculean task. Not, one must hasten to add, in convincing critics of their ideological separateness from a socially acceptable “social democracy” (what would the establishment press do, without a Red Scare in the guise of harmless-looking Wedgie to provoke good old Col Twrphitt-Plunkett into bristling indignation over tea and the Telegraph?) No, the real problem for them is to persuade their critics and an electorate which provides them with the votes they want, that they are not the Red Scare they are made out to be (hence the stress on “democracy”). And, of course, they’re not: sheep in sheep’s clothing would be nearer the mark.

For one thing, the qualification “democratic” gives rise to the suspicion that those who make use of the phrase “democratic socialism” allow for the possibility of there being something called “undemocratic socialism”. If democracy is not a necessary concomitant of “socialism”, it then becomes possible to envisage a situation in which “democratic socialists” would choose “socialism” at the expense of “democracy”.

For another, critics of “democratic socialism” would say that full-blooded state ownership of the economy—the washed-out worthless ideal of “democratic socialists” obtains in decidedly undemocratic Russia. It sounds nice in theory, they would say, but look how it turns out in practice. For did not Lenin argue in 1918—not unlike our “democratic socialists” today—for a state that would be “democratic for the proletariat and propertyless in general and dictatorial against the bourgeoisie only” (section added to the 2nd edition of The State and Revolution). Further, is there not a significant correlation to be discovered if we look at the world around us, between dictatorial government and state involvement in the economy?

“Democratic socialists” would respond to this criticism by pointing out, with justification, that an undeveloped, predominantly feudal, economy such as existed in Russia in 1917, is an altogether different matter from that of an industrially advanced capitalist economy. They would locate in the backward nature of the chaotic, war-stricken economy of pre-revolution Russia the essential reason for the emergence of a new political dictatorship to replace that of the tsar and to preside over the birth-pangs of capitalism. Indeed, the liberalising tendencies that appear to go hand in hand with industrial development in all economics, state capitalist or private enterprise, would seem to support this argument. Expensive modern wage slaves, who produce and operate all the sophisticated machinery of modern industry to submit indefinitely to naked, brutal coercion.

Thus “democratic socialists” would reaffirm their faith in state capitalism, although many have wavered in it and some have renounced it altogether as in the fifties. Then, the emerging picture of the stalinist nightmare provoked first disbelief then waves of disillusionment. Nevertheless, the basic argument is still adhered to: state ownership does not present a threat to, but on the contrary is a necessary basis for the extension of political democracy. To quote Ramsay MacDonald:

  The nationalisation of production is just as necessary to democracy and is just as inevitable if democracy is to mature into fullness — as the nationalisation of the sovereign authority by the suppression of the personal right of kings to rule. (Socialism 1907.)

The justification for this belief was spelled out many years later by another Labour leader:

  Political democracy, moreover, in a regime of capitalism and great social inequality, is only half alive. Political forms are twisted by economic forces. Citizens legally equal, wield unequal power. Political democracy will only be fully alive when married to economic democracy in a society of equals. (Practical Socialism for Britain by Hugh Dalton, 1935.)

A left wing assumption is that nationalisation brings the “economic democracy” necessary for the full and vital functioning of political democracy. If ownership of property is the basis of power, the argument goes, then an extension of public ownership to encompass the entire “public” (“economic democracy”), must correspondingly result in an extension of political democracy itself.

Curiously, laissez faire apologists attack egalitarianism precisely because they feel a “society of equals” would

   “. . . require a political system in which the state is able to hold in check those social and occupational groups, which by virtue of their skills or education . . . might otherwise attempt to stake share of society’s rewards. The most effective way of holding such groups in check is by denying them the right to organise politically” from Class Inequality and Political Order 1972 by Frank Parkin, quoted in The Free Nation 16 February - 1 March.

Further, they see in state capitalism not the extension, but the abolition of property ownership as far as the “public” is concerned: which calls into question the nature of “property ownership”. Tory MP Stephen Hastings summed up what he saw as the consequences of this, in a diatribe under the heading “Time to unite against Marxism” in the Daily Telegraph some years ago. His argument, stated simply, was that “democracy only has meaning if it is based on individual liberty” and “liberty can only exist if it is rooted in the concept of property and the rule of law” and that should “Marxism” — by which he meant state capitalism — prevail, this would result in the erosion of liberty and therefore democracy. But since when have the “concept of property and the rule of law” been exorcised from the domain of state capitalist dictatorships? If they have, then perhaps Hastings would care to provide some explanation to account for — and to comfort — some poor wretch of a Russian worker up before the law for stealing “public” property which he might have been forgiven for thinking he was entitled to as a member of the “public”? The “rule of law” is a product of property relationships and its application implies the existence of a property set-up which it seeks to protect.

The fact is that both the left and its laissez faire critics are wrong. Nationalisation no more entails the extension of property ownership to the public than it does the elimination of property relationships. For a start there are just too many uncomfortable facts which neither viewpoint can account for, such as the immense inequality of power and income in all state capitalist regimes. Tins could not exist if nationalisation brought about “economic democracy" or abolished property ownership. Such inequality makes the Free Nation view that egalitarianism gives rise to dictatorship completely irrelevant as an explanation for state capitalist dictatorship.

State property is effectively the collective private property of a small minority who, through their control of the state, exercise ownership and control of the economy. If dictatorial government is a tendency in state capitalism this may be due partly to the fact that access to the “commanding heights” of the economy depends on political criteria — the Party has the say in the selection of top state officials. It is is hardly surprising, then, that this arrangement should tend to reinforce political conformity and stifle dissent.

But this cannot be explained by the absence of class or property relations in places like Russia; on the contrary, it is precisely because of class division in society that the possibility for political dictatorship arises in the first place. As Marx put it, with the end of class division that will come with the establishment of socialism, “there will be no more political power properly so called, since political power is precisely the official expression of antagonism in civil society” (The Poverty of Philosophy). No political power means no government, liberal or dictatorial.

In a recent lecture, Professor F. A. Hayek remarked:

  If a free society is to continue to exist, no monopoly can be allowed to use physical force to maintain its position and to threaten to deprive the public of essential services others are capable and willing of rendering. (The Listener 17 August 1978.)

In thus attacking trade unions, Hayek inadvertently provided a description of capitalism which is based on a class monopoly of the means of production backed up by the armed might of the state. It is by Hayek’s own yardstick an unfree, undemocratic society. Despite the fact that the workers produce all the wealth in society they have very little, if any, say in the process of producing this wealth because they do not own the means of production. When the profit motive dictates that the public should be deprived of essential services which workers are capable and willing of rendering, as is the case in capitalism’s periodic slumps, what better evidence can there be of the way in which capitalism undemocratically places the interests of the few before the interests and wishes of the majority?

In contrast, the entire community will own the means of production in a socialist society, with the necessary consequence that the process of production will be democratically organised by and in the interests of society as a whole. This will not be the sham democracy of the people electing governments to run society against their interests, but direct, democratic control by people over the conditions of their existence.

And the phrase “common ownership” is not used here as a shibboleth or empty slogan after a leftist fashion. It means precisely what it says — that everyone will own all the means of production and will therefore have unrestricted, free access to the fruits of production and all the information necessary for the fullest democratic discussion and participation in decision-making. Next to this, what more is there to be said for the “democracy” of the marketplace; if pound notes spent are votes cast, then the great majority everywhere languish under the iron heel of minority dictatorship.

Robin Cox

Merry Christmas? (2020)

From the December 2020 issue of the Socialist Standard

Is your stocking hung upon the wall? Are you all pepped up waiting for your fraction of a family (depending on the apparatchiks latest government edict) to arrive and share the festive fun with you? Or will they be deterred from coming by the incessant government propaganda pouring out of the telescreens – Obey! Disarray! Dismay! Rule of Two Four Six Eight! Or will they be dissuaded by the militarised police cruising up the street on the lookout for unessential food purchases such as Christmas pud? ‘Police will enter homes and break up Christmas dinners if families break lockdown rules – and there will be riots, predicts police commissioner’ (Mail Online, 28 October). Or will they decide to celebrate the event now known as Super Spreader on their own?

Santa’s reindeers exceed the rule of six so some two at least are going to lose their jobs, seasonal as they are. They’re going to be in company with many many workers whose jobs and industries have been destroyed in less than twelve months. It’s still a capitalist society. Until the majority decide to choose socialism, a moneyless society where goods are made for use, not for profit, workers have no choice but to continue to sell their labour power, physical and mental. If you give your heart to capitalism it will break it over and over. With Santa in the sleigh they’re pulling they would still be over the limit , so it looks like the Gang of Four will be pulling the sleigh this year. It’s not bad news for everyone though: ‘Billionaires’ wealth rises to 10.2 trillion amid Covid crises’ (Guardian headline, MSN.com, 7 October).

Put the Third Man in the Moscow Mule and the Streetcar in the fridge. Tis the season to be merry, stuff it, Ma let’s hit the sherry! All our troubles we can bury. Let’s stay drunk till February! A reliable source provides information that in New Zealand the seasons partying begins on December first and continues happily for eight weeks after that. The Antipodeans may well be harking back to early Germanic peoples whose midwinter festival, Yule, took place around a similar period. For the sensible many not of a religious bent there are many party alternatives to help lift the Winter mood. There’s Saturnalia, a Roman festival; Koliada, a Slav winter festival or the Iranian Shab-e Yalda.

Some where in the world, whether they know it’s Christmas time or not, someone is getting slayed. Even Madame Arcati’s crystal ball couldn’t reasonably predict this future. At the time of writing the outcome of events which assume significance for many are unknown. The USA presidential election, Brexit, Covid84, what further level of incompetence the global governments can sink to, the result of Strictly Come Dancing (shudder). Given the negative state of the world it’s not surprising if many decide to emulate the supposed behaviour of the ostrich and ‘bury their heads in the sand’. When Rip Van Winkle awoke the American Revolution had occurred. As with most revolutions the net result was a change in the folks telling you what is good for you and a more intrusive state interference in people’s lives. Being woke in 2020 means feeling the warm glow that Christmas always used to claim for itself. Now, it’s the virtuous satisfaction that comes from unthinkingly subscribing to the latest ‘progressive’ shibboleth which dissuades independent thinking.

Charles Dickens ‘A Christmas Carol, In Prose, Being A Ghost Story Of Christmas,’ 1843 (and a progenitor of awful ‘feel good’ television films that play on a loop once October arrives) set many of the traditions for a post-Victorian Christmas. Despite Scrooge’s apparent change of demeanour from a mean, grasping, exploitative loan shark he still remained a member of the capitalist class underpaying Bob Cratchit (a wage slave selling his labour power to Scrooge) even after the wage rise he was given. Upon reading this insight into the plight of the poor (all deserving) did the Victorian middle classes cry, thank god it’s them not me? Worth noting still is the warning of ‘Christmas Present’ when showing off two of Man’s children named Want and Ignorance. ‘Christmas Present’ admonishes his audience to beware of Ignorance the most. Ignorance needs to be converted to education so that chaotic capitalism can be replaced by a sane socialist society as soon as possible for everyone’s sake.

‘Eat, drink’ depends on whether the supply chains are still intact and irrational locust behaviour hasn’t swept the shelves cleaner than vultures on a wildebeest carcass in the Serengeti. Be merry? The human spirit is always able to find something positive in the most dire of circumstances. Acceptance of a bad situation while saying, gosh it’s terrible but there’s nothing we can do about it, is not acceptable however. After one of the most dramatic years which continuing on may have profound negative societal changes in global society it is no longer good enough to complainingly accept what is being implemented. Contrary to what a Tory leader once said, there is an alternative.

A 1961 British film, ‘The Day the Earth Caught Fire’, has the planet heading toward the Sun following some drastic efforts caused by USA and Soviet nuclear testing. Awaiting the result of alleviative action, the newspaper, around which the film revolves, has to prepare its headlines for two possibilities: ‘World Saved’ and ‘World Doomed’. Spoiler alert. World saved. Probably. Merry Christmas?

DC