The Islamic economic system runs on the total absence of the interest factor. Yet there is no historical nor current evidence to suggest that as a result of no interest, the demon of inflation went amok, and set the prices spiralling up beyond control. In the contemporary times, we have a very interesting opportunity to draw comparisons with regard to the influence of interest rates, or its absence, on inflation.

The government of China under Mao Tse Tsung’s era made many experiments with the economy. Some faltered. Some produced excellent results. But during the entire reign of Mao Tse Tsung, interest was not allowed to play any part, either domestically or internationally. Yet, throughout this period, there was no prominent increase in inflation. In fact, when ultimately the overall production level increased, prices began to register a fall.

As compared to this, in the State of Israel, perhaps the world’s most capitalist country, the rate of inflation has been amongst the highest recorded anywhere in the world, except, of course, in Latin American countries and the post-war exceptional phenomenon of inflation in Europe, particularly in Germany. But then those were not normal days. Other things being equal, the role of interest in any economy cannot be described as anything other than inflationary.

Interest as a Threat to Peace

This is the import of the warning so powerfully delivered to mankind 1400 years ago by the Holy Quran with regard to the holocaust to which the interest based economies would ultimately lead mankind.

Those who devour interest stand like one whom Satan has smitten with insanity. That is so because they keep saying: The business of buying and selling is also like lending money on interest: whereas Allah has made buying and selling lawful and has made the taking of interest unlawful. Remember, therefore, that he who desists because of the admonition that has come to him from the Lord, may retain what he has received in the past; and his affair is committed to Allah. But those who revert to the practice, they are the inmates of the Fire, therein shall they abide. Allah will wipe out interest and foster charity. And Allah loves not confirmed disbelievers and arch-sinners. Surely, those who believe and act righteously and observe Prayer and pay the Zakat, shall have their reward with their Lord. No fear shall come on them nor shall they grieve. O ye who believe! Fear Allah and relinquish what remains of interest, if you are believers. But if you do not do it, then beware of war from Allah and His Messenger; and if you repent, then you shall have your original sums; thus you shall not wrong, nor shall you be wronged. And if any debtor be in straitened circumstances, then grant him respite till a time of ease. And that you remit charity shall be better for you, if only you knew.

- { Bukhari, Kitabul ’Adab, Babun Kullu Ma’rufin Sadaqatun Muslim, Kitabuz Zakat, Babu Bayanismas Sadaqati Yaqa‘u ‘Ala Kulli Nau‘imminal Ma‘rufi }

The warning about a war from God in the verses just cited means that the laws of nature governed by God would begin to punish the capitalist society when the factors which have been discussed earlier ultimately lead man to economic imbalance and warfare. Disorders, disturbances and wars always follow exploitation and usurpation of the rights of the poor. We warn you about a war with God and His Messenger means that the state, which thrives on interest, would inevitably end up in a situation where the nations will rise in arms against each other.

Time does not permit me to elaborate this aspect of interest. In the Holy Quran, verses prohibiting interest always follow verses on warfare. This indicates the inter-relation of interest and war. Those who are familiar with the history of the First and Second World Wars would remember that capitalism played a disastrous role in not only causing but also prolonging those wars.