This blog looks past partisan politics to find solutions and provide insights into public policy. It is the companion blog to the author's on-line training course in democracy and civic action: www.3ptraining.com.au
It covers a wide spectrum of issues from local to international concerns.
It was previously the support blog for the author's biography "Finding Home, An Autobiographical Account of a Child Migrant Growing on the Edge of the Tasmanian Wilderness” available from Amazon.
Erik is a public policy professional and owner of the online training course in democracy and civic action: www.3ptraining.com.au
…explores ways to create a sustainable and just community. Explores how that community can be best protected at all levels including social policy/economics/ military.
Erik’s autobiography is a humorous read about serious things. It concerns living in the bush, wilderness, home education, spirituality, and activism. Finding Home is available from Amazon, Barnes&Noble and all good e-book sellers.
“Allow me to issue a nation’s
currency and I care not who makes its laws”Rothschild
In my previous post I wrote about
Biblical capitalism but noted that the church never developed a clear set of
financial rules. Islam however, claiming as it does to offer a ‘whole of
society’ alternative, has in the last few decades become much more engaged.
A couple of thousand years after
the Hebrew prophets did their thing Mohamed appropriated the Old Testament for
his own purposes and expanded on a number of financial themes. However it
wasn’t until the 1970’s that Islamic economic scholars began to develop a hard
set of financial rules which became the Islamic banking sector. That sector
continues to flourish. There are several keys to this flourishing.
banks don’t deal in derivative instruments so were relatively fire-walled from
are culturally more risk averse – excessive risk taking being seen as immoral.
deal in actual property. An Islamic bank will not lend at interest so you can
buy a car. However they will buy the car and re-sell it to you at a higher
price to be paid by fixed instalments over an agreed period.
is paid through fixed instalment contracts so there is no variable rate of
interest. There are pro’s and con’s to this arrangement but it does create
banks tend to be better capitalised.
The extent to which Islamic banks
are fundamentally different from conventional banking remains controversial
(see for example: https://openknowledge.worldbank.org/bitstream/handle/10986/3929/WPS5446.pdf?sequence=1).
They key differences appear to be a focus on real assets, greater capitalisation,
stable ‘interest’ payments, and an aversion to dealing in derivatives. One
doesn’t have to be a Koranic scholar to realise that this makes sense if you
want to generate real economic activity rather than speculative gains. Islamic
banks still only hold one per cent of global financial assets but they are
experiencing double digit growth rather than seeking public bailouts.
Ironically a good deal of fiscal
conservatism was legislated by the Western Powers after the Second World War.
Keynes recommended fire-walling different parts of the economy so that if one
part went down it wouldn’t bring down the economy as a whole. This basic
approach to finance led to a raft of regulation which has been steadily
dismantled since the 1980’s with predictable, and predicted, results.
An alternative approach?
What would the world look like if
the global financial system was run on principles inherent in Biblical/Islamic
capitalism? Or if religious terminology freaks you out, what if we returned to
With few exceptions only real goods
or services would be traded, and those agreements could not themselves be
traded. In other words:
·there would be no currency speculation. Goods
and services could be traded in different currencies and those currencies
exchanged, but currency itself could not be bought, exchanged or traded
·all interest rates would essentially be fixed
·all lending would be backed by hard assets
·there would be no bond market beyond the initial
purchase of a bond
·there would be no futures market beyond the
initial futures contract
·there would be no market in packaged financial
·communities would generate their own credit
based solely on the tangible wealth of that community
Would the world really be worse
Admittedly there would be some
inefficiencies and inconveniences for some people.
Speculators couldn’t make a living solely out of speculation. Economic activity
would slow and economic growth might take a downward turn in some areas. This
would be extremely irritating for a lot of people. There would be a lot of
bleating about ‘freedom’ and ‘development’.
On the other hand the GFC is pretty
inconvenient too. So was the crash of 1929 which, as I mentioned in my previous
post, led to the Second World War in Europe. In this
context we might let history be our guide and consider for example how many
Germans died of starvation before, during and after WWII.
Let’s mention the war
WWII ended the British
Empire, devastated much of Eurasia, brought
America to the
ascendancy, led in time to the creation of a multitude of independent states
and associated conflicts, and ushered in the Cold War. These are not trivial
issues, and if the GFC of 1929 led to war, we have to ask ourselves, could it
Frankly the Nazis had a point – not
about Jews or invading the world, or bumping off anyone they didn’t happen to
like – but about banking. Why should German people starve because of excessive
risk taking by American banks and the wealthiest one per cent? No one else was
prepared to stand up to the banks, tell the international community to get
stuffed and re-vitalise the economy. Hitler did; and found jobs for a
generation of disenfranchised and unemployed young men. There are many reasons
why Hitler had a fanatical following but one of them is because there was no
demonstrable alternative. OK so the Nazi’s were an aberration, but poverty
always leads to war, internal or external. What alternatives do we have in our
day? I don’t profess to have the answer but history and the Bible surely give
us some clues, and we had better find an answer fast – nature abhors a vacuum
and our current state of non-leadership is, well, vacuous.
Another war? In the 1920’s talk of
another war was considered absurd and people (including Churchill) who warned of the coming catastrophe were
considered unhinged, war mongers, or communists. Nevertheless the war happened
and we were not prepared. The powers of State and corporate surveillance,
propaganda and repression, are so much more sophisticated now – it would be much
harder for extremist movements to succeed…but there are countries with little
to lose. Indonesia
has over 200 million Muslims who cannot take a massive cut in living standards
and feed themselves. If we learn nothing else from the last great depression it
is that when people are starving, war and political violence surely follow. That's why financial regulation matters - because its the powerful undercurrents of international finance, not the political froth on top, that really directs where we go.
Next post: Why Environmentalists
Should Care About the Military – and why Australia
Tag line: Islamic banking, Biblical capitalism, GFC, Global Financial crisis, alternative economics, Keynes, financial regulation, Rothschild.