Wednesday, January 5, 2011

Pure Credit Redux

One of the best things about belonging to an internet group that puts together journalists and (other) writers with (more or less) expert sources is that when you respond to a query from a reporter, you can frequently adapt it as a blog posting as well. That is what we were able to do yesterday with our posting on "Pure Credit for Student Loans."

It's even better when somebody responds at great length to the posting. This has two benefits. One, it demonstrates that somebody is actually reading the posting instead of merely sneaking a quick look to be able to claim familiarity with the most erudite and scholarly blog on the internet. Two, it saves us the trouble of actually having to write anything.

Thus, when early this morning we opened our e-mail and found the following response from Dr. Robert Crane, we rejoiced exceedingly. Dr. Crane raises some points to which, if we handle this right, our response can serve as tomorrow's posting. That will bring us up to Friday and our initial News from the Network for the year . . . and, voilá — our blog is written for the week!

So — here is Dr. Crane's e-mail, edited a couple of places to correct spelling 'n stuff (evidently, some servers still don't have spell check, and some people are too busy with real work to upgrade).

Dr. Bob's E-Mail
(We're Not Indenting as a Quote Because That Messes Up the Home Page)

In reference to yesterday's posting on "Pure Credit for Student Loans," the conflict between "bad" pure credit and "good" pure credit, which has erupted into a worldwide war, could, I believe, be solved by adding a third category of credit in between. I don't know what good English words would be for the three categories, but there are a number of choices in Arabic, which is a much richer language for nuances.

"Pure credit" is money loaned (or invested) based on expansion of credit without reference to existing accumulations of savings (retained earnings). As the lawyer-economist Henry Dunning Macleod pointed out, "money" and "credit" are simply two different aspects of the same thing.

Here are the three kinds with Arabic names:

1) Riba or usury. This kind of credit "is a charge of any amount on a loan of money for something that does not, in and itself, generate a profit", regardless whether or not interest as a fixed charge is involved. This kind of credit, whether for consumption or for investment in money (as in derivatives) rather than in real goods is bad (for all kinds of reasons), because money is merely a medium of exchange and a store of value — a contract — and really has no value in itself. Investing in debt by my definition is inherently a ponzi scheme. Some Islamic banks do it all the time by the back door of legal fictions, about which I wrote a 120-page book in 1982.

2) Minha al Kabira, the Great Minha. This is a loan or investment in either tangibles or intangibles that generate a profit but only over the long term and which cannot easily be calculated. Since this is new thinking, I have invented my own Arabic terms for the second and third kinds of credit. Manaha means both to grant as a favor and to invest for long-range return. This is not zakah or charity without any expected return at all.

An example of minha al kabira or minha al kamila (perfect minha) is money created for infrastructure projects or for education. It might even be eligible for housing, but only under special arrangements, because otherwise it would fit under consumption, for which in principle credit should never be given. It is interesting that the Japanese had no consumer credit cards until a couple of years before their economy crashed. Until then all Japanese insisted on debit cards, because they thought that consumer credit cards were inherently a fraud.

3) Tamar al Kabir. This is investment according to the real bills doctrine, which provides that the return on investment in real goods, i.e., productive capital, can be reasonably calculated in a profit and loss statement. Tamar is profit. The fourth form of the verb, tamara, means to bear fruit, and the tenth form, istamara, is the active form meaning to invest profitably.

The two latter categories could be called, respectively, minha al saghira, the lesser minha, and minha al akbar, the greatest minha. I would prefer, however, to restrict the term "greatest" to zakah, which stands for compulsory charity (not secular taxation) and for sadaqah, which means voluntary charity for the neediest in society (the miskin). The term zakah comes from the verb zakah, which as a religious term has many nuanced meanings, especially to increase or grow, to be suitable, and to be pure and just. By expanded meaning both minha al kabira and tamar al kabir are zakah. The growth in the pure zakah refers primarily to spiritual return, based on the concept that whatever one gives away in charity will return many fold in spiritual benefits, as well as perhaps materially.

Is it necessary to argue as purists about whether pure credit must be restricted to the third category or can also include the second category of long-range return on investment? There are good arguments both pro and con about both categories, but it would be better to address the pros and cons as policy issues rather than as dogmas. The application of all ideas must be contextual to fit time and place. In ideal times Category 3 would be the best choice, but in other times the better policy might include both.

Combining both flexibly is part of the term I invented decades ago for the binary output/input model of binary economics, namely, harmony, based on mizan or balance, which is central to the dialectics of the entire universe and to everything Islamic.

And for this unorthodox thinking, known in the Wahhabbi religion as bida', I may be strung up by all sides.

Justice through faith and rational thought,

Bob

* * * * *

We will assemble our lynch mob and prepare a response that will be posted tomorrow.

#30#

2 comments:

Anonymous said...

Please, don't lynch Baba Faruq. Unleash a cooing dove to roar at him instead. ;

Michael D. Greaney said...

Gee whiz, we never have any fun. Anyway, nobody brought the rope, and we couldn't find enough oil, so we are responding in words.