Economic Justice: What’s That?

Justice is central to both classical American and classical Islamic thought. Unfortunately, Americans nowadays ignore justice altogether, even though they often use terms that amount to the same thing. Muslims stopped talking about justice six hundred years ago when the maqasid al shari’ah went out of style. Instead they talk about abolishing debt and interest-burdened loans. These buzz-words, “debt free” and “interest-free,” are relevant to justice, but they are peripheral and are often used fraudulently to hide the moral bankruptcy of Islamic banks.

The broader topic is investment and expanded capital ownership. The buzz-word “debt free” can best be accomplished by investment, because investment does not produce debt, unless one would arbitrarily include the investor’s return on investment as debt owed by owners of the undertaking financed.

“Interest-free loans” would also not be included in investment, because the bank or financier does not loan. Fraudulent “Islamic banking” claims to make “interest-free loans” but actually does not do so when it uses any or many or all of the twelve “halal” ways to charge what amounts to fixed interest for a loan without actually doing so.

Rather than resort to such dissimulation, it would be better to argue that charging interest is not haram under all circumstances, though it definitely is makruh, that is, to be discouraged whenever possible. Investment with a flexible return based on profits is much better. In fact, all consumption finance, which by definition must be on the basis of loans not investment, should be discouraged, not merely because it is inflationary but because money should be created only to facilitate intermediation in the creation of wealth. The Japanese had debit cards for decades, but it took a vigorous campaign by the banks during the 1980s and 1990s to persuade the Japanese to use credit cards. In their culture, asset-based money made sense, but money based only on debt did not.

The ideal banking system, once recommended in Pakistan, creates money based entirely on real assets. The process of money creation should start with local banks investing in their customers wealth-creating projects with a return based on an agreed percentage of the profits. The next level of banks, the regional ones, should issue money to the local banks based on an agreed percentage of the local banks’ profits, which one can call interest charges if one wants to. Then, the central bank will do the same thing on the same basis by investing in the regional banks. The “discount” would be the agreed percentage of profit sharing in the profits that the central bank earns from the regional banks. The central bank would orchestrate the money supply by raising or lowering the profit percentage. This would help eliminate the disfunctional speculation on Wall Street, which claims to balance supply and demand but does not.

Twenty-five years ago, the U.S. State Department paid me to write an entire book on this subject under the title, Islamic Commercial Law, in response to the dire warning from the U.S. ambassador to Pakistan that the introduction of Islamic banking would destroy the country and produce a radical revolution. The radical revolution has indeed come about, as I predicted, but it did not come from Islamic banking, which in reality in Pakistan never came about. In fact, it resulted from the failure to introduce real Islamic banking based on broadened access to capital ownership. This failure perpetuated the oligarchical feudal system that supports military dictatorship, and the rest is history. We now are seeing something similar in America, but hopefully much more malign than we see in the metastacized malignancy of concentrated wealth in much of the rest of the world.

The ideal situation, which I call harmonic justice, as understood in The Just Third Way and promoted for decades by the Center for Economic and Social Justice and more recently by the Abraham Federation, comes through broadened access to credit based on ownership of future wealth production. This is based an the input-output system whereby everyone has a natural right to contribute through ownership of one’s own labor and capital to the production of wealth, and everyone has a right to the proceeds. These two are known as contributive justice and distributive justice. The government has a right to assure that they remain in balance. This is harmonic justice.

The central bank can accomplish this through the current system or it can provide it also directly to every man, woman, and child. The authorizing legislation in 1913 for the American Federal Reserve system is designed to provide such investment funds and thereby automatically provide the needed funds for consumption, and for further investment.

Theorists talk about “surplus wealth”. Some consider it bad, while others consider it good. There is, indeed, such a thing as surplus wealth. Rich people cannot consume their wealth, which is why they keep on investing it ad infinitum. This is not all bad, but the other 90% of the population should have the same option to invest in the production of future wealth without relying on past savings. Thorstein Veblin in his book, Conspicuous Consumption, which my father, an economist at Harvard, made me read as a sixteen-year-old, was wrong, in my opinion, when he claimed that the rich can consume their billions by building bigger and better yachts ad infinitum, thereby providing jobs for the rest of humanity.

The problem with modern talk about “debt free” and “interest-free” is that they can be straw men manipulated by diverse parties with narrow agendas. The objective should be justice, not arguing about how many angels can dance on the point of a pin. Economic justice is based on two principles. Everyone has an obligation to contribute toward multiplying the bounties of nature and human ingenuity. And everyone has a corresponding right in natural law individually to own the capital or means to do so and to receive the just returns. The solution is simple. See and Pulverize the wealth gap! Own or be owned! Up the Revolution!