In Part One of this article I outlined two arguments against interest – the “interest-is-exploitative” argument, and the “money-is-only-a-means-of-exchange” argument. In many ways, this article simply expands and adds further colour to the “money-is-only-a-means-of-exchange” argument, so, if you haven’t read Part One, definitely read it before you read this!
At the end of Part One, I said:
“So what is the problem with renting out a store of value? Well, what is this value that we are storing? The value in a £10 note is that which we are willing to give it. If our confidence in the acceptability of the £10 wavers, then our confidence in the £10 will crumble. The thing that gives value to the £10 is its widespread acceptance and our knowledge that we can use this intrinsically worthless little piece of paper to buy things that are intrinsically precious.
So we’re renting out “confidence of many others in society”. I don’t like that – and that, I think, is ultimately why interest is haram.”
There are two problems with renting out the “confidence of many others in society”. Firstly, there is a deal of uncertainty in this transaction, one cannot really specify what levels of confidence are running at, at the time. This is problematic as Islamic law prohibits “gharar” (uncertainty) in a transaction and it also requires the asset at the heart of a transaction to be clear and distinct (which “confidence in many others in society” is not really).
However, ultimately, I think we may be able let this slide, as levels of confidence may not be relevant beyond a certain point. For example, when we borrow money we want to know we can buy our grocery or house with it, but we’re not necessarily interested in a Moody’s or Fitch level analysis of the credit risk profile of the country’s currency.
Also, clearly one can price interest – it goes up and down with demand and supply – so an argument could well be made that you can actually approximate confidence levels at any time
The second problem with renting out the “confidence of many others in society” is much harder to get around: this immaterial thing “confidence of others” that we are renting out, is not something we have a right to rent out.
This is because we don’t really “own” the confidence of others in society. Let us say we add our own confidence to the currency – given we are just one of millions – our contribution to the value of Pound Sterling is negligible. So why then should a bank (or indeed anyone) be allowed to rent out the combined “confidence of others in society”?
One could also argue “hang on, aren’t brands also all about deriving their value from what many others in society imbue into them? Isn’t Nike worth more than an unbranded pair of trainers?” Yes this is true. But the key differences here are (1) Nike trainers are an intrinsically valuable object that people buy to use for itself, while money is not such an object, and therefore one can set any price that the market is willing to pay as what we’re paying for is the good itself, not the confidence others have in it; and (2) Nike trainers are being sold by the owners of Nike trainers. If, however, one was renting one’s Nike trainers from a friend, one would not have the right to sell them. That is what is happening with money, so goes my argument.
As an aside, I think this argument also speaks to the power dynamics in society, wealth distribution, and what role the state has to play in monetary policy (and money creation) – but my thinking on this tangent has not fully developed yet. If you guys have any bright ideas on this front – please feel free to share.
A further thought to add to the mix:
People value and have confidence in money to buy things – they are focused on the intrinsically valuable things they can buy. By “renting out” money, i.e. by charging interest, one actually detracts from that confidence slightly, as you are using that money not to buy/sell things of intrinsic value, but of no value. You are also asking for more money back, which will require more money to be created in the economy as a whole(or more debt), and as such, you are cheapening the value of money, and therefore weakening the confidence of people in that money. So the very act of lending out on interest corrodes the value of that currency.
While the above line of argument is an interesting and potentially promising line of analysis, it is admittedly very theoretical and may or may not succeed. For me personally, a sophisticated form of the “interest-is-exploitative” argument from Part One of this article is still my go-to argument when people ask me “why is interest haram.” As ever, I’d be interested to hear what your go-to arguments are, whether you are convinced by the above, and/or if you can think of any way of rebutting/supplementing it.
PS: I am also currently working on a cryptocurrency article due to overwhelming requests to do so, and all your questions to IFG about it! So watch out for that – and we’ll be discussing “confidence of many others in society” in that article too!