Selected points from The Rich Islamic Economic System that would help Check Inflation

1 Hard Currency – Tied to Gold standard.

Today countries artificially create currency by printing money as required.  Whenever our Govt borrows money from SBP it is effectively printing the money and devaluing our currency and the very notes in our pockets over night. This has a big knock on effect on inflation.  Scary when you think about it, the very notes in our pockets have no intrinsic value of their own and only possess the value of the paper they are printed on.

The Islamic system requires currency / medium of exchange to be based on the Gold & Silver standard which have an intrinsic value.  Notes can be used to represent the precious metals instead of carrying gold and silver around, but they must be backed up by them. Due to the intrinsic value in the precious metals stability is achieved and devaluation and inflation controlled.

2 No Artificial money

As well as printing, money is also artificially created via bank loans.  Banks regularly loan out more money than they have and there is in circulation i.e. they lend what they don’t have (e.g. in US in 2007 the debt was seven times the amount of money in actual circulation). This artificial consumer spending power also leads to inflation, as artificially increased money supply is competing in chasing limited goods.

The Islamic system doesn’t only forbid Riba, but also does not allow you to loan what you don’t own or have.  Money cannot be pulled out of a rabbit’s hat.  Banks cannot produce money.

3 Ownership of Oil, Gas, Natural Resources. 

Pricing and inflation is also linked to the cost of energy resources. The price of a barrel of oil is rising exponentially and likewise is the cost of production and transportation.  This has a direct effect on the price of all commodities especially the basic necessities such as food items (due to the barbaric Capitalist system, the poor are finding it difficult to buy food).  High-energy costs are affected by govt taxes and drive for profits by hungry companies and this contributes to inflation.

Islam’s solution is based on its view of ownership and permissibility of generating profits from natural resources. Islam is the only system that defines 3 types of ownership; individual, public and state property. The Prophet SAW in his Hadith has included natural resources that combust (oil field, gas field, coal mine, etc) as public property as well as other natural resources. Public property can not be transferred to the state or private sector, but remains the property of the public (Muslim Ummah) and is run by the Islamic state for their benefit on a no profit, no tax basis.  Any profit generated by selling surplus oil to friendly non-muslim countries must be spent on the Ummah. Imagine you could receive a cheque in the post from the Khalif with your share from the profits generated by oil revenue.

Hence the Islamic view on natural resources would be a pivotal factor in reducing prices and controlling inflation.

4 No hoarding to manipulate supply and demand

We know the capitalists regularly hoard essential items in an attempt to artificially affect supply and demand in order to push up prices.  This usually happens under the govts. nose.

The Islamic system would actively prevent hoarding and the artificial manipulation of supply and demand.

5 Revival of Dead Land

The Prophet SAW informed us that a Muslim who revives a dead Khiraji land, which was never cultivated since Muslims opened it, would own the neck as well as its produce.  The Prophet SAW also informed us any Muslim or Zimmi (non-Muslim citizen of the Islamic state) who revives a dead Khiraji land on which Khiraj was applied in the past would own the produce, whilst the neck would remain with the State. 

The concept being whoever revives a dead land can benefit from it. In Pakistan there is approx 9,709,300 (one crore) Acres of barren land can you imagine the benefit to the state and the populace of reviving this land.  This presents a great incentive for poor farm workers and others to take advantage of this Islamic rule and revive dead land and the whole state would benefit.  Poverty would be reduced, employment would increase and so would production.  Increased production leads to increased supply and therefore cheaper prices and lower inflation.

6 Independence from dictates of Colonial Organisations

Muslim countries do not have independent economic policies but take dictates from colonial organisations such as World Bank, IMF, WTO, etc.  These organisations dictate a wide range of policy issues including removal of govt. subsidies on energy resources and subsidies to industry and agriculture.  These subsidy removals also lead to higher prices and inflation for the general populace.

The Islamic State would not take dictates from any organisations regarding its policies.  The state would enact Islamic policies beneficial to its citizens, without a care for such organisations.

These are just a few aspects of the Islamic economic system that would help lower and control inflation.  Islam is a complete way of life and implementing aspects of it in a pick and choose fashion would not achieve the desired result.  The complete system must be implemented as other parts are interlinked and work together(social, political, economic, penal, education, etc).  The motivation for implementing the Islamic System should be derived from our desire to please our Creator. 

 Source: http://www.paktribune.com/pforums/posts.php?t=9822&start=1