On the ground of the Vatican: Taurus and Virgo
Thoughts from Iraj Toutounchian’s ‘Islamic Money & Banking: Integrating Money in Capital Theory’
‘The speculative valuation of share capital on the Stock Exchange does not in any way correspond with the economic productivity of the firm; hence it constitutes a sort of ‘double life’ for the share capital… The way in which this alter ego is born and repeatedly animated leads to gross misuse of capital.’ (Wilken 1982: 37)
It makes one wonder, along with Keynes, how ‘when Wall Street is active, at least a half of the purchases or sales of investments are entered upon with an intention on the part of the speculator to reverse them the same day. This is often true of the commodity exchanges also.’ (Keynes 1936: 160 footnote) The question at this point is: How in the world could speculators be thought to have better and deeper insights into the future than experienced economists? The future of the capital market (that is, the primary market) has been made artificially uncertain and unstable by the acts of speculators. Surprisingly, the long-term future outlook for investors has been rendered uncertain by the short- term activities of speculators! Keynes put it this way:
It would be foolish, in forming our expectations, to attach great weight to matters, which are very uncertain. It is reasonable, therefore, to be guided to a considerable degree by the facts about which we feel somewhat confident, even though they may be less decisively relevant to the issue than other facts about which our knowledge is vague and scanty. For this reason, the facts of the existing situation enter, in a sense disproportionately, into the formation of our long-term expectations; our usual practice being to take the existing situation and to project it into the future, modified only to the extent that we have more or less definite reasons for expecting a change. (Keynes 1936: 148)
Worse still is the impact of artificially produced instability in the everyday lives of households, to which we will return shortly. It stands to reason that the world economy needs to prevent any avoidable and artificial uncertainty being imposed on the majority of the few. The message of Islamic finance and economics can provide ‘the’ answer. Implementation of this message cannot be complete without bringing individuals and their mutual destinies together through cooperation.
What we need is an approach that incorporates mankind in all of its complexities, a kind of ‘humane economics’ of the sort promoted by Professor Don Lavoie, who has attempted ‘to demonstrate that economics is closer to the humanities than to physics.’ (High 2006: 3) Lavoie believes that economics emerged from interactions among historical, philosophical, and cultural aspects of societies.
This book is an attempt to return the focus to the more cooperative aspects of human nature, which necessitates an integration of the ‘tools’ – that is capital- in a cooperative context. Cooperation is not limited to labor – capital; rather, it extends to the stock of ‘knowledge,’ which belongs to all human beings. Our main concern here is with science-based knowledge but, for the sake of brevity, we will simply refer to ‘knowledge.’ We need to know how society can achieve a level of intelligence and coordination that far surpasses the intelligence and abilities of any individual or group of individuals within a given generation. Our approach is somewhat different from that of Professor Hayek (1973 – 1979), in that his central question is about how knowledge is generated, dispersed, and used in a society and the process by which culture is transmitted. The difference lies, therefore, in both subject matter and approach. His approach aimed at developing a theory in within which ‘Social rules such as private property, money, and contract carry with them the capacity for ever-increasing dizzying diversity of ends, all without the consent or direction of any central authority’ (High 2006: 183), as a device to demonstrate the fatal errors of socialism through the necessity of the market process as an outgrowth of the cultural revolutionary process. (Hayek: 1988)
We, on the other hand, are looking at the causes of the knowledge-wealth of the nations from a realistic perspective and at how economic growth is related to the knowledge- wealth.
It is neither possible nor interesting to catalogue the many knowledge traits that render a national economy more or less sensitive to economic growth. Naturally, there are numerous interdependent elements working together, simultaneously or otherwise, and it is a slow, accumulative process, which has taken generations to develop. It is something we may call a ‘universal’ public good.
‘Knowledge’ is to be understood broadly as the sum of information and understanding inherited from previous generations. It is the device through which past evolutions make up any given society’s present civilization and culture. Past knowledge has shaped our present way of life and present knowledge shapes that for future generations. Knowledge knows no political boundaries: it belongs to all countries. Globalization, in this sense, becomes more meaningful than a superpower dictating her rules to other nations. That is not to deny, though, that those countries with higher social capital have made better use of this science-based knowledge and become leaders in the advancement of material well being. Social capital is important in this transformation but the effective use of such knowledge requires dynamic elements in the system to use and diffuse the knowledge at all levels, from the top down and from the bottom up. Governments have to take responsibility for providing an environment that facilitates the transformation of the stock of knowledge-wealth into the flow of knowledge in the form of culture and social capital, as well as goods and services. The higher the rate of such transformation, the more developed the country.
With this argument in mind, there also needs to be a set of criteria for assessing the beneficiaries of this flow. As outlined earlier, I believe that a firm’s laborers have the right to a share of its profits in line with the skills and knowledge they bring to their work. This requires an index by which to measure the respective contributions to both increasing production and reducing cost. On the grounds that equal treatment of unequals is unjust, the index is proposed here is the intellectual-property rights referred to in Chapter 1, which can best be implemented within cooperative enterprises, where it guarantees higher profits while maintaining justice.
This suggestion has many political implications, especially with regard to the voting system, in which the vote of a highly educated university professor is given the same weight as, say, that of an uneducated laborer, is clearly not compatible with justice, in that unequals are treated equally. However, every day millions of decisions are, implicitly or explicitly, taken along the lines I am advocating here within international organizations, business firms, educational circles, scientific gatherings, and households, for example. But when it comes to politics, people have kept silent on the benefits and advantages of such an approach. Perhaps it is not hard to understand why the international community has chosen a different approach, given the immense political power exercised by certain politicians who might feel it more appropriate for their purposes.
Democratic societies cannot last long on double standards: one standard in politics and the other in all other areas of life. If what is being suggested here is properly implemented and a universal index is found for all countries, it will provide us with a specific index for comparing such properties in different countries. Unlike conventional quantitative measures for comparing the degree and stage of development, this method will give us a qualitative index. Combining the two measures in an appropriate way makes the comparison of countries more meaningful.
…Unlike Adam Smith, who mistakenly thought individual self-interest was a minimum unifying social force in all economic activity, I firmly believe that cooperation among all agents of economic activity is the answer to the failure of both capitalism and communism. In such an environment, as soon as individuals and agents enjoy the benefits of cooperation they find themselves in positions free from any injustice. The cooperative environment that produces maximum efficiency provides love and envy, the powerful dynamism for self-improvement and promotion, and these replace hatred, jealousy, and oppression. Unity in diversity and diversity in unity becomes a fact of economic life. (Iraj Toutounchian)