Monday, May 30, 2011

Islamic Finance

Prompted by an article on Islamic Finance in the Financial Times: The US: Moves are under way to lower barriers. "Changes in tax law are being considered, says Aline van Duyn."

Many years ago I learned that the Church in Europe forbade charging interest on loans in the Middle Ages... and that Islamic law forbids it, still to this day.

My reaction then, as now, is that these two religious institutions agreed on the trouble interest and debt can bring upon society and agreed in their reaction against it.

In Europe, or so I have read (somewhere), the Church's rule opened the door for Jews to become Europe's bankers. And then, it seems to me, the troubles that arise from excessive interest became (in the practical but small minds of Christian Europeans of the time) troubles arising from Jews.

I'm not making this up. I'm just putting fragments together. Whether any of them are true, I cannot say. But lacking any other story, I take it for history.

It was Longshanks -- King of England in the Braveheart movie -- who expelled the Jews from England. Because nobody liked them, because of the banking thing. Centuries before Hitler.

Little fragments.

I know nothing of Islamic law. But Islam arose after the fall of Rome. And I can imagine that concentrations of wealth and income were far greater then than now, and interest was just that much more of a burden. And two religions had the same reaction to it.

2 comments:

Jazzbumpa said...

It comes from the old testament injunction against usury - both christianity and islam being offshoots of judaism. That the jews became the lenders in Europe is quite the irony. But interpetations of scripture differ, too.

I think the jews could charge interest to gentiles.

What this illustrates is that even a pre-capitalist society needs credit to function.

Anti-semitism was rampant in Europe from the beginning. Jews could not own land, and were constrained to live in ghettos. Expelling the jews was a convenient way for a king to forgive his own debt. And during the plague years of the mid 1300's, western europeans blamed the plague on the jews, and there was whole-scale slaughter.

And I can imagine that concentrations of wealth and income were far greater then than now

I wonder about that. Fifty years ago You would have been right, but that was a historical anomoly. Now, I'm not so sure. In medieval france, the turn-over in landed nobility was about 50% per century.

I wonder if we have that in our upper .5% these days.

Anonymous said...

The world gini co-efficient is about 0.62 now I think, and has fallen systematically for some time, probably since the 70s. The USA co-efficient is about .45 I think.

Studies suggest that societies from antiquity and the middle ages had gini co-efficients in a very similar range to what we witness today. Byzantium had 0.45, and paris in 1290 had about 0.7 (the higher it is, the greater the inequality).

See here for more detail:

http://history.uwo.ca/events/medievalglobaleconomies/abstracts.html

It seems to me that periods of stagnation and slow technological and cultural change yield lower ginis, and vice versa.

It makes sense to me that the world gini is very high and even recent declines leave it looking high. This is all a result of the global imbalances the last 300 years which in my view are an outcome of the very rapid yet very skewed distribution of technological and cultural change over the same period, which is roughly the same period over which global population went parabolic.