Riba

1- INTRODUCTION

 Interest is present in the human society from the invention of the currency, but it was also present when there was no currency and people did their exchange on barter. Man got this point in the very beginning that interest is unnatural and against the man’s nature and it produces many social evils. So, the struggle of man to liberate him from the depredation of interest is as old as history itself, and predates even the minting of money[i]. All great religions including Islam have opposed interest, even philosophers like Aristotle to poets like Dante. Early criticisms of interest were based on religious objections to this most un-fraternal of facts. A surprising feature of the Christian case against usury is how late it developed and how little it was influenced at the outset by specific Biblical reference. Historians cite the ‘Hadriana’, an 8^th century collection of canons and writings, as a crucial document, it contains as epistle from the Pope Leo, the Greatest forbidding clerics to act as usurers and declaring that lay men who did so would be guilty of seeking ‘turpe lucrum’ (Shameful gain).

 Jews drew on a similar Biblical tradition and also cited Talmudic writing that condemned usury. One reference in particular – in Deuteronomy, ch. 23 – set out a fateful injections, “…………. unto foreigners thou may lend upon interest but unto brother thou shall not lend”. In Medieval times, some Christian saw this as an excuse to exempt Jews from the prohibition against interest. Exclude from many professions by jealous guilds, some Jews are willing to oblige. Things grew sticker for European moneylenders in 850, when the Paris synods recommended excommunication for lay usurers, and history stick after 1179, when Pop Alexander III declared that usury was forbidden by both Biblical testaments, excommunicated usurers and denied them Christian burial. 

 Islamic societies trod an easier path. Specific injunctions in the Quran and Hadith against interest (Riba) were broadly followed, without controversy.

 Nowadays, interest became so common that in every exchange and trade, interest element in involved, even the base of modern banking system is also on interest (Riba)[ii]. Because of these reasons in the existing world, people doubted that interest has economic advantages rather than disadvantages. People also believed that interest helps to facilitate the exchange and it plays a crucial rule to achieve the economic welfare. This is against our faith and Iman because in Quran and Hadith, it is clearly mentioned that interest is illegal. If there is no harm in it then why does Islam forbid it? It is out belief that the purpose of Islam is to achieve Muslaha and remove evils from the society.

 As it has been proved that all existing forms of interest are Riba and its prohibition is proved from Quran and Sunnah. Now there is one important question that what really Riba is? In this paper, the answer is very briefly being discussed. But critical and crucial point is that does Riba really disturb the economy? Is it a big hurdle to achieve a stable economy? There is no need to give answer to these questions because it is out belief that all Islamic injunctions are for the welfare of mankind. But there are a lot on objections against Riba-free economic system. As being Muslims, it is, therefore, our duty to evaluate the nature and significance of these objections and give answer to the questions of non-Muslims. This exercise will also indicate the rationale behind Riba. So in the second section, it is tried to give reasons, which may behind the prohibition of Riba.

 2- THE MEANING OF RIBA

 2.1 Literally

The Holy Quran uses the word Riba for interest and usury. The root of word ‘Riba’ is ‘Raba’, which covers the meaning of ‘Excess’, ‘Growth’, and ‘Rising’. In the Holy Quran, however, many words from the same root have been used. These words carry the meaning of excess, addition and growth. For instance:

             “When we send down water thereon, it doth thrill and swell and put forth every lovely kind of growth”[iii]

             “Allah hath blighted usury and made almsgiving fruitful”[iv]

             “And the flood beneath (on its surface) swelling foam” [v]

             “Therefore, did He grip them with a tight tanning grip”[vi]

             “So that one people might take advantage over the other”[vii]

             “We gave them (Mercy and Mission) refuge on height”[viii]

 The word Riba springs from the same root. It denotes “Excess to wealth and addition to principal”[ix]. This meaning has been explicitly explained by the Holy Quran, in Surah Al-Baqarah, Ayat no. 278-79, “any increase on the principal will be called Riba”. From this ayat, we can conclude that present day interest is also the addition on the principal, so it is also Riba.[x] Riba means increase, addition, expansion or growth.[xi] According to the early Islamic sources, Riba was an increase either paid by a borrower to a lender on a loan of money (gold or silver) cattle, food grains, crops fruits and slaves against time extension (Riba-al-Nasiah), or an increase paid by one person to another in a equal direct exchange of sale of one commodity of higher value for lesser value of the same commodity.[xii] Thus, Riba, in general, is an earned income, which comes as a growth or increase to owner of money.

 2.2 Technically

Muslim scholars and Muslim economists interpret the word Riba differently. Before we see the definitions of Muslims about this important point of macroeconomic theory, first see that how the different capitalist economists interpret the word interest or usury.

             “Usury – which one meant nothing more than lending money in return for interest? Lenders are – in fact, getting something for nothing; ……. In western societies, the act of charging interest has come to be regarded as respectable. Inflation in nowadays a predictable erode of capital, and interest may allow a lender to recover at least the real value of his lent money”.[xiii]

 Keynes gave explanation for interest, based on his liquidity preference theory[xiv]; “… the rate of interest is not the ‘price’, which brings into equilibrium the demand for resources to invest with the readiness to abstain from present consumption. It is the price which equilibrate the desire to hold wealth in the form of cash with the available quantity of cash……………”.

 Both Adam Smith and David Ricardo, the two most prominent classical economists, had always considered interest as a part of profit (something derived from profit). But, the rate of interest then be deterministic framework. Furthermore for Ricardo, profit was a reward to risk taking and a residual after payments of wages. This would make it more difficult to justify a fixed and positive rate of interest. John S Mill made it clear and distinguish between interest as a reward for waiting and profit for risk taking[xv].

 In modern economic theory, interest is defined as, “the charge made (or price paid) for the use of loan able funds”. Deane gives four rationalizations for the payment of interest in a modern capitalist economy; 1) Loan able are now productive factor like other factors of production; 2) Interest is a reward for abstinence; 3) People’s propensity for liquidity preferences; and 4) Interest is allowed as risk premium[xvi]. Henry W Spiegel with the coming age of individualism in the 19^th century, “Interest was recognized as a price for the use of capital of loan able funds”[xvii].

 The Federal Shariat Court (FSC) of Pakistan announces a historic judgment in December 1991 on the legality of interest on financial transactions. The Court, presided over by Mr. Justice Dr. Tanzil ur Rehman, had declared that a “Transaction, which contains excess or addition over an above the principal amount of a loan, which is predetermined in relation to time period, payable to the creditor (such a transaction contain the said element) constitutes Riba and any transaction and nay sale, transaction or credit facility, in money of this kind, has been considered to a transaction of Riba, which is unlawful (Haram) in the territory of Islam, and in Muslim society. There is a consensus (Ijma’) of the Muslim Jurists on it[xviii]. (Words in parenthesis added by the present writer)

 The late Dr. Fazal ur Rehman, who was the director of the Islamic Institute, Karachi, gave a modernistic definition of Riba, which was actually an official statement of the institute. He defined Riba as, “An exorbitant increment where by the capital sum is doubled several fold, against a fixed extension of the term of payment of the debt”[xix]. For Dr. Rehman, therefore, the Quranic term Riba essentially means an exorbitant interest rate of the nature of illegal usury, which, he thinks, must be reformed by religion and prohibited by means of law and the present bank interest does not fall in the category of Riba. Many religious scholars harshly criticized Dr. Rehman’s interpretation of Riba as usury or compound interest. The Ulama think that bank interest and usury are same and it is Riba[xx].

 The Report of the Panel of Economist and Bankers (Elimination of Riba, 1980) appointed by the Council of Islamic Ideology (CII) in 1977 was in sharp contrast to the liberal ideas of Islamic Modernists, like Dr. Fazal ur Rehman, who interpreted Riba as illegal usury and not interest. The Report defines Riba as, “Interest in all its types and forms”[xxi]. The CII all along expressed the view that the term Riba encompasses interest in all its manifestations, irrespective of whether the loans are of personal nature or commercial type, whether the borrower is government, a private individual or a business and whether the rate of interest is low or high[xxii]. 

 The religious scholars and Muslim economists interpret Riba differently but almost all are agreed upon that present day interest is Riba. For instance:

 Maududi is of the opinion[xxiii] that all loans given for consumption to the needy for interest and as well as the loans for production given on interest falls in the category of Riba.

 Abd al-Rehman al-Jaziri in his book, ‘al-Fiqh ‘ala al-Madahib al Arabi’ah’, defined the Riba as, “Riba means an increase in one of two homogeneous equivalents being exchanged without the increase being accompanied by a return……….”[xxiv].

 “Riba is discrepancy which results from the contractual obligations of a party in the context of a direct exchange of items of the same general kind between two parties”.[xxv]

 “Such an addition in debt which has been declared a creditor’s right but in exchange ofit, he gives nothing to debtor”.[xxvi]

 “Riba technically refers to the premium that must be paid by the borrower to the lender along with the principal amount as a condition for the loan or for an extension on its maturity”.[xxvii]

 “In Shariah, both usury and interest falls in to the same category that is call Riba”.[xxviii]

 According to Salman Moin[xxix], the Quran has banned Riba-al-Nasia, the expression refers to the monetary benefit that on a debt, including the present day interest on debts. Muhammad (PBUH) had banned the Riba-al-Fadal. Riba-al-Fadal applies to those transactions, which relates to the barter system.

 Dr Shahid Hasan Siddiqui[xxx] is on viewpoint that, “…….. Interest is prohibited in all form and manifestations. This prohibition is strict, absolute and unambiguous”.

 Sheikh M Mustfa Shibli interpreted the term Riba as, “The increment on principal amount of loan, whether it is paid before or later, whether the loan is for non-production purpose or for production purpose”. Dr. Abdul Jaleel Shibli has also the same opinion and he said about the loans of banks that it is a pure Riba, which is strictly prohibited by Shariah.[xxxi]

 Dr. Ali al-Salosi said that, “Any additional amount which is conditionally on loan payable for the compensation of time”[xxxii].

 “The profit which paid or taken by the bank is interest, in which all parts and nature of Riba is present completely”.[xxxiii]

 “Riba is on the principal sum but in the Shariah it is specifically meant as an increase from one side without any increase from the other side”[xxxiv].

”The Riba is an increase which is devoid of any recompense on the Shariah standard but is binding on one of the parties of a contract”[xxxv].

“………Usury as consisting of undue and illegitimate profit made out of loans of gold and silver and necessary articles of food like what, barley, dates and salt as mentioned by the Holy Prophet Muhammad (PBUH)”[xxxvi]. This definition includes profiteering of all kinds but excludes what may be called as economic credit, which is the basis and creation of modern banking and financial system. This definition doesn’t explain the term Riba correctly as only includes the commercial loans, i.e., Riba-al-Nasiah, which is prohibited by Quran and Sunnah. As cited above and especially last two definitions, interest on commercial loans fall in the category of Riba as in the case the lender is getting increased without anything.

All four school of Islamic Jurisprudence and Muslim economists including Dr. M. Uziar[xxxvii], Dr. Shahid Hasan Siddiqui[xxxviii], M.A. Mannan[xxxix], M. Ariff[xl], Muhammad Anas Zarqa[xli], Prof. Khurshid Ahmed, Dr. Fahim Khan, M. Akram Khan, Dr. Syyid Tahir, Dr. Umar Chapra, Dr. M. N. Siddiqui and many others including Sayyid Maududi and Sh. Mahmud Ahmed that interest of today on loans, whether these laosn are for consumption of for production purposes, whether the borrower is individual, government falls in the definition of Riba, which is strictly prohibited by Shariah. 

3- ECONOMIC RATIONALE OF INTEREST

 The Quran says that, “God has permitted Bay’ (Transactions and Business) but prohibited Riba”. The simplest implication of this Ayat is that Riba is quite opposite to that of Bay’. As far as, Hadith and Fiqh (Islamic Jurisprudence) are concerned, they laid down a principle that “if any body repays an additional amount, or it someone demands additional amount of payment, it is Riba”. The implication seems to be that additional payment is not reasonable or fair in case of loan. In normal business, however, additional income in the form of profit, which is associated with risk, is allowed.

 The Holy Quran and the Hadith has not given any specific reason for the prohibition of interest as indeed in several other matters. In some cases, Quran has mentioned reasons for some matters in very broad terms and used the words like this, “This is better for you if you know or understand it”, “This is better for you if you practice it”, or “This is better for you because it is closer to piety and fear of God”. In the case of prohibition of alcoholic drinks, Quran has pointed out that, “There are benefits and advantages, but its disadvantages far exceed the advantages”. This would indicate that Islam is not against reasoning and giving rationale for something. In fact, Islam is the only religion, which is not against rationale. 

 As it is clear that Riba is strictly prohibited, but what are the reasons for its prohibition? What is the rationale behind the prohibition of interest? In this section, it is tried to indicate some economic reasons out of those reasons due to which, Riba is prohibited.

 3.1 INTEREST AND INFLATION 

Some people tried to argue that present day interest is not Riba, which is prohibited in Islam. They reasoned that if Mr. X lends some money say, Rs. 1,000 to Mr. Y for one year. If Mr. X demands some extra amount over and above the principal amount after one year, then it is reasonable, because after one year the purchasing power of Rs. 1,000 is decreased due to the inflation. It is, however, interested that in Pakistan, interest rate on average is about 7-10 % per annum; but the inflation rate in the county is presently about 19%. If we see it in the context of above argument, the depositors are getting interest, but in real terms, they are getting nothing but the negative interest rate[xlii]. The point that is necessary to rise in connection with making inflation the reason for retention of interest is that there will be no inflation if interest is abolished for an economy[xliii].

 Is really the interest causes inflation? Yes, interest is not only related to price level but a it cause an over all inflation in an economy. How?

 1-         As all non-Muslim economists agreed that interest is the reward for capital, like wages for labor, and rent for land. The cost of producing goods is the summation of the prices of inputs. When an entrepreneur pays interest for the use of capital, it will give rise to the total sum of prices of inputs or factors of production. In this way, interest enters in the cost of production. Therefore, any increase in interest rate leads to higher cost of production, which simply leads to a proportionate increase in the price level. Some economists argued that there is a positive correlation between interest rate and price level. This point of view has not received due attention from economic profession. Even the neoclassical economists, who emphasize the need to raise the rate of interest to control inflation, do not consider it. But for example, Carlo Panico, in a recent study has stated about Keynes as follows; “The conclusion of this analysis is the persistent changes in the interest rate affect income distribution and price formation. A rise in the interest rate tends to raise the prices, while a fall in the interest rate tends to lower the prices”[xliv].  

 2-         Some idea can be gathered from these figures of interest and inflation. We find that between the first and second periods, inflation and interest rates moved in the same direction in two out of seven countries; between the second and third period, in five out of seven countries; between the third and fourth period, in seven out of seven countries and between fourth and fifth period, again in seven out of seven countries. This makes a total of 28 period-country and the inflation rates has moved in the same direction as interest rates in 20 out of28 period-country, giving 70%. 

Table I

Interest and Inflation in Seven Countries, 1956-1980

Int. = Average Rate of Interest for 5 Years

Inf. = Average Rate of Inflationary Percentage

Source: Ahmed (2), Unpublished

If we confine our attention to the average value for interest and inflation, in the seven countries, for each period, the result gives more remarkable view. Except for the period between first and second period where these move in the opposite directions, for every one of the subsequent periods, these values move in the same direction. We may conclude from this empirical data that there is positive correlation between interest rate and inflation, which means that as interest rate rises, inflation will increase.

Series 1: Un-Weighted Average Rate of Interest for 5 Years

Series 2: Un-Weighted Average of Inflationary Percentage

3- As most of the economists agreed that there is negative relationship between interest rate and investment; that as interest rate rises, investment relatively decreases in the economy. Decrease in investment means less funds are available, which leads to the contraction of economy. It further leads to a rise in the price level as fewer goods and services are available and in this way overall price level (inflation) will increase[xlv].

4-         In interest based economy, interest plays a vital role in determining the prices of other factors of production[xlvi]. It creates stickiness in the market operation of rate of rents and profits leading to general rise in prices. It can be understand easily from the following example; suppose in an interest-based economy, market interest rate is 20%. If a person has Rs. 10,000, he can simply deposit it in the bank and can earn 20% per annum without doing any job or taking any risk. If he plans to build or buy a building and then lend it out. If the rent is more than 20% then it is beneficial for him, otherwise, why does he hear the maintenance cost of building and risk of not getting any hirer and receive less income than the interest rate, which he can get without any effort (cost & risk)? Therefore, the presence of interest leads to raise the rent, which cause for further increase in price level. Same is true in the case of profits. If the profit rate is not higher than the prevailing interest rate, then why does a person take risk for lower rate of return, these two variables, i.e., rent and profit in interest-based economic system lead to increase in general price level, which in turn lead higher wages. If the wages are increase, a new cycle of higher prices will setup.   

5-         sometimes, a vicious circle of inflation, interest, debt, fiscal deficit and interest may also take place. When public anticipates that inflation will persist, nominal interest rate will rise, since bondholders demand higher premium for parting their money. As a result, nominal debt increases, which further increase fiscal deficit. In turn, this accelerates inflation and the whole cycle starts all over again[xlvii].

6-         Assume a closed interest-oriented economic model, in which there are only two groups of people, one is the capital owners (say group A) and second is the entrepreneur (say group B). It is also assumed that there is neither government nor foreign sector. We take the case of production loans. Group B takes the loans from group A, any pays interest to them. This loan is not on the basis of profit-loss sharing and group B has to pay predetermined rate of interest with capital amount. Because the fear of losses, or less profit, group B sells the produced product on relatively high prices and general price level will increase. Second impact of interest on inflation is this way that profit margin is higher on luxuries than on non-luxuries. So there is more production of luxury goods,

Figure I

Entrepreneur spent more money on advertisement (which is nothing but want-enhancement). This leads to raise the cost of production and prices will again increased. The cost-push inflation will occur. Third, for non-luxury goods are it the same level but the supply decreases, because the resources are shifted to luxury goods production. So the supply curve shifts upward and prices will increase[xlviii]. 

 7-         Nowadays, the biggest current source of inflation is the fiscal deficit of government. Interest payments on debts are themselves a direct cause of fiscal deficit leading to further debt. For example, data given for the fourteen highly indebted countries listed in the table II shows that out of eleven years, only in three years, fiscal deficit was larger than interest payments. Otherwise, in each year, interest payments were larger then the fiscal deficit. If there were no burden of interest payments, there would have been no fiscal deficit and it would have reduced the rate of inflation in these countries[xlix]. It is not claimed that there are no other reasons for fiscal deficit. The table simply shows that interest is one of the main contributing elements towards fiscal deficit, which leads to inflation.   

 Currently, governments are the big source of inflation, which is due to deficit financing[l]. And deficit financing is due to interest. For example, in Pakistan, during the fiscal year of 1994-95, fiscal deficit was Rs. 45.5 billion. Rs. 140 billion was paid as interest payment on foreign debt and Rs. 83 billion paid on domestic debt. If we sum up these, it will come Rs. 223 billion, but the fiscal deficit was only Rs. 45.5 billion. If there are no interest payments, there will probably be no or less fiscal deficit.

Table II

 INTEREST AND FISCAL DEFICIT

CASE OF HIGHLY INDEBTED COUNTRIES

 Note: Figure related to the following highly indebted fourteen countries: Argentina, Bolivia, Brazil, Chile, Colombia, Cote d’Ivoire, Ecuador, Mexico, Morocco, Nigeria, Peru, The Philippines, Uruguay and Yugoslavia.

 Source: Guidothi and Kumar, Domestic Public Debt of Externally Indebted Countries
 (Occasional Paper No. 80), Washington DC, IMF, 1991. p. 27

 3.2 INTEREST AND UNEMPLOYMENT

 Modern societies have failed to solve the problem of unemployment. Even in rich countries, there always exist a certain level of involuntary unemployment, but most interesting is that economists accepted it as a bitter fact of life. The new discussion is not about that how do we abolish unemployment but about the natural rate of unemployment. The unemployment exists along with the idle physical and technological resources as the finance to mobilize these resources are not available. As in the Holy Quran, it is clearly mentioned that everyone whom born, he comes with his food, and when the stock of hid food is finished, he died. So factors of production are not scare, but man himself produces this scarcity.

 It is obvious that the entrepreneur only invest in that business in which expected rate of return (profit) is higher than the cost of production. As clearly and with detailed in previous section, it was explained that interest increase the cost of production by its several multiples, which leads to squeeze that many investment decisions, which means that labor force remain idle and unemployment rises while bounties of nature lie dormant and un-worked.

 Keynesian economists have established if beyond doubt (and Classical economists not agree) that interest and investment are inversely related. The higher the rate of interest, the lower will be the level of investment and thus of unemployment. The unemployment can be reduced to a bare minimum of fractional level if there is no interest.

 As discussed in last section, that in interest oriented, entrepreneur has to pay back the capital as well as interest after the maturity of loan, whether he earns losses or very large amount of profit. Suppose, a person A borrowed Rs. 10,000 on 10% interest rate for one year from person B. he borrowed with intention of starting a small business to earn a living. Due to some misfortune or accident or sudden decline in the prices of stock, he can earn net return of only Rs. 1,100 in one year. He has to pay Rs. 1,000 to the lender as annual interest payment and retain only Rs. 100 for himself. Here a man has sweated a whole year and has earned Rs. 100 and money for the mere permission of its use will claim Rs. 1,000. And thanks God, he earned initially Rs. 1,100. if he had lost Rs. 1,100, instead of earning Rs. 1,100, he would still have to meet contractual commitment by capital. If still there is a man who can regard interest as something useful, they must have been ‘driven to madness’ by ‘the touch of Evil One’[li]. As it is easily understandable that there is always a risk of loss or less profit in each and every business. Entrepreneur knows that in any condition, he has to pay predetermined, fixed rate of interest, and this is the thing, which really hurts the entrepreneur to borrow money and run the business. If entrepreneur does not take initiative to start business (only reason is that of interest payments incase of loss), people remain unemployed and physical assets remain unused.

 Sh. Mahmud Ahmed gave an interesting solution for full employment. According to him[lii], so long as interest dominates an economy, unemployment must persist. This theoretical enunciation has the support of empirical evidence. Ever since the Industrial Revolution, there never has been a period when any one of the capitalist country enjoyed full employment. The only exceptions are the global wars. The experience of three hundred years should be good enough to reach a decision and it is this: there is no way to give employment to all in an interest oriented economy, unless, we wage a global war all the time.

 As it is argued that there is an positive relationship between interest and employment, the data proves this argument. Since 1950, Japan’s average rate of interest on capital for investment has been less than 5%. As compared to Japan, the interest rate in USA and other Western European countries has been between 10% to 15%, during this period. No wonder, the rate of unemployment in these countries has also been much higher than the rate of unemployment in Japan. Pater Drucker has recently argued that this low cost of capital is the only factor, which explain Japan’s success[liii].

 Some idea can be gathered from the figures of interest and unemployment (Table III). We find that in the period between first and second quincunx unemployment moved in the dame direction as interest in five out of seven countries; between the second and third period again, fine out of seven countries; between the third and fourth period, six out of seven countries, and between fourth and fifth period, again five out of seven countries. Thus out of total of 28 Period-Countries, interest elasticity of unemployment is visible in 21 period-countries, giving a percentage of 70%.

 If examines the statistical evidence form the point of view of average value of interest and unemployment, for the seven countries, during each of those five years period, the results become even more conclusive. On the basis of average results, shown in the last column of table III, in each of the four periods, unemployment moved in the same

 Series 1: Un-Weighted Average Rate of Interest for 5 Years

Series 2 = Un-Weighted Average Unemployment, Percentage of Labor Force

Table III

Interest and Unemployment in Seven Countries, 1956-1980  

 Int. = Average Rate of Interest for 5 Years

U. = Average Unemployment, Percentage of Labor Force

Source: Ahmed (2), Unpublished

direction as interest. This gives a return of 100%, indicating a high probability of our capacity to overcome unemployment, if we could exclude interest from our economic system. The graph of this result is furnished in Figure no 3, showing both categories, stopping in the same direction, in all the four periods.

Considering, changes in inflation and unemployment rates, we find that these have changed in opposite directions, in accordance with the simple Philips Curve, in five out of seven countries, between the first two periods; in four out of seven countries, between the second and third periods; in one out of seven countries, between the third and fourth periods; and two out of seven countries and between the fourth and fifth periods.

If we average out the result of seven countries, as done in the last column of the Table IV, we find clear shift from a negative Philips Curve to a positive one.

As in previous section, we concluded that in interest-oriented economy, inflation occurs due to the presence of interest. And as interest rate rises, inflation rises. The data given Table IV, and Graph III shows that there is a positive relationship between inflation and unemployment. We reach, therefore, on conclusion that interest is not only the cause for inflation, but also for unemployment, so as interest rate rises, unemployment increases.

Series 1: Un-Weighted Average Rate of Inflationary Percentage

 Series 2: Un-Weighted Average Unemployment, Percentage of Labor Force

The question arises as to why capitalist’s societies don’t eliminate interest to achieve full employment despite there understanding of the inverse relationship between and unemployment? The answer lies in the fact that the wealthy class, which owns finance, is willing to part with its interest income. The political power lies with this class. The economists also rely on this class to help them in research work and obtaining degrees, the research institutions and publishing their paper. Many economists also invest their money in bonds and securities. This all powerful and influential people are interested in continue the interest institution. They pay a lot of lips services to the agony of the unemployed. They have a system by implementing it, they can sustain the poor and the needy. But they are unwilling to uproot the real cause of unemployment, i.e., interest[liv].

Table VI

Inflation and Unemployment in Seven Countries, 1956-1980 

 Inf. = Average Rate of Inflationary Percentage

U. = Average Unemployment, Percentage of Labor Force

Source: Ahmed (2), Unpublished