January 02, 2004

A Matter of Interest

A necessary, but insufficient, condition of Liberty is the ownership of private property. If you cannot own property and dispose of it as you like, then you are unable to ever attain independence from others (the State, your boss or your lord or what have you). Without the independence to choose what you will do, without the possibility of your actions causing offense which offense in turn causes you to lose your livelihood, you are not free. You are not free, because you must constantly tailor your actions to not offend those who have power over you, by dint of being able to deprive you of your livelihood. And of course, once a person has that kind of power over you, it becomes terribly easy to offend them, because they don't have any incentive to not be offended, and every incentive (human nature being what it is) to exercise that power.

However, the mere ownership of property is not sufficient to Liberty. In order to be at liberty to do what you will, you have to be able to dispose of property as you will. That is, you need to be able to acquire, sell or give away, allow to lapse or in any other way manipulate your property. Otherwise, you are at the mercy of those who regulate the way in which your property can be used. They have the power to deprive you of your livelihood by depriving you of the ability to obtain wealth from your property. (Note: in a very real sense, your time is your property as well, and the labor you invest in can create wealth just as the improvement of land can.) Even barely-intrusive regulation has a chilling effect on Liberty, and the more intrusive the regulation the greater the effect.

From these simple observations arises the concept of the free market. A free market is one in which a person may take posession of (and in some cases create) property, use it, give it away, sell it or in any other way dispose of it, and in which no outside entity interferes as long as the transactions are between private individuals. The closer to this ideal a market is, the freer it is. The US once had an almost entirely free market domestically. This is no longer the case, but our market is still relatively free, even compared to Europe or Japan (which are much more regulated, but still freer than most of the world). History provides no example I can find of a country maintaining Liberty (or even representative government) without a relatively-free market; nor is there any country I can find which has had a mostly-free market (even at the level of China today) for 50 years which has not become a free country, with a representative government and respect for the rule of law.

This actually brings up both a long-term solution to the problem of terrorism, and a problem to be solved first. We talk continually, it seems, about bringing "democracy" (by which is usually meant some form of representative government) to the Arab/Muslim world, in order to remove the conditions that foster terrorism. But what we really want to bring is free markets. Without those markets, it will be impossible to sustain a truly free society, because eventually some group will begin to gain power over others, and that power will concentrate. Without a core of independent people who can resist the powerful without losing their livelihood, a society would eventually slide back into despotism of one form or another. With free markets, though, the ability of people alone or in groups to dominate a society and remove its people's liberties is much diminished. Bringing free markets to the Arab/Muslim world, then, is the long-term solution to the problem of terrorism.

But there is a problem with bringing these markets into being: Islam forbids usury, as Christianity once did. Without the ability to charge interest, many of the types of transactions necessary to a free market are simply impossible: you cannot borrow money to start a business or buy a house, for example. Assuming that the power of the religious authorities of Islam cannot be made to define usury as a high level of interest, rather than any interest at all, some solution has to be found which will allow the charging of interest in fact, if not in name, in Islamic societies.

I am insufficiently versed in economics and Islam to determine what that solution might look like, but it seems to me that we don't have a long-term solution to terrorism until we have a solution to charging interest in Islamic societies.

Posted by Jeff at January 2, 2004 01:18 PM | Link Cosmos

Where there is no commercial lending, there can still be affectionate lending.

Vietnamese and Korean immigrants to the US have the charming concept of clan-based "money clubs," which function as informal banks to underwrite individuals' commercial ventures. Oriental families and clans are sufficiently strong to support this practice; can the same be said of Muslim families?

Posted by: Francis W. Porretto on January 2, 2004 02:27 PM

There are options and ways to circumvent the prohibitions. UK banking rules are currently being changed to facilitate some of the practices.

Posted by: yank_in_london on January 5, 2004 11:45 AM
Post a comment