Interest and the Modern Economy

Zaman, Arshad and Zaman, Asad (2000): Interest and the Modern Economy. Published in: Lahore Journal of Economics , Vol. 1, No. 6 (2001): pp. 113-127.

Abstract

The argument that modern economies cannot function without interest is examined in detail. We show that Islamic alternatives to interest, which vary with the context and the type of loan, provide adequate substitutes. Interest based institutions lead to many types of difficulties both practical and theoretical. Islamic alternatives provide solutions to these difficulties.

• Item Type: MPRA Paper
• Language: English
• Keywords: interest; riba; Islamic economics; prohibition of interest; profit sharing; Ricardian equivalence; Modigliani Miller Theorem
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B59 - Other

References

Alameda, Cyril 1997 'are Profits the only business of business? NO," in Taking Sides: Clashing Views on Controversial Issues, 8th edition, edited by T.R.Swartz and FJ. Bonello, McGraw-Hill, NY.

Peter Farkas, 'The Collapse of Russian Industry", Working Paper # 97 of the Institute for World Economics, Hungarian Academy of Sciences. Fi- ll 24 Budapest, Kallo Esperes V. 15. Dec. 1998.

Vincent Ferraro and Melissa Rosser, 1994 'Global Debt and Third World Development", in World Security: Challenges for a New Century, edited by Michael Klare and Daniel Thomas, St. Martin's Press, New York, pp. 332-355.

Milton Friedman, 1997 'Are Profits the only business of business? YES," in Taking Sides: Clashing Views on Controversial Issues, 8th edition, edited by T.R.Swartz and F.J. Bonello, McGraw-Hill, NY.

Jensen and C. Smith, 1989 The Modern Theory of Corporate Finance, McGraw Hill, NY 1989.

Jung, Han-Yung, Bayesian Tests of the Ricardian Equivalence Proposition, Ph.D. Thesis, Johns Hopkins University, 1994. UMI number 941994.

Kester, "Capital and ownership structure: a comparison of US and Japanese manufacturing corporations," Financial Management 15 (Spring 1986).

Mehra and Prescott, "The interest premium puzzle", Journal of Monetary Economics, 1985.

Mohsin Khan, Islamic Interest Free Banking: A Theoretical Analysis, IMF Staff Papers (33) 1/1, March 1986, pages 1-27.

Mohsin Khan and Abbas Mirakhor, The Financial System and Monetary Policy in an Islamic Economy, Journal of the King Abdulaziz University, 1, 1989, pages 39-58.

F. Modigliani and M. H. Miller, "The Cost of Capital, Corporate Finance, and the Theory of Investment," American Economic Review 48, June 1958, pp.261-297.

F. Modigliani and M. H. Miller , "Corporation Income Taxes and the Cost of Capital: A Correction," American Economic Review 53, June 1963, pp. 433-43.

Maurice Obstfeld and Kenneth Rogoff, 1996, Foundations of International Macroeconomics, MTT Press, page 273 footnote 5.

Blaisdell, 1929, European Financial Control in the Ottoman Empire, Columbia University Press, New York.

Stephen Ross, Westerfleld and Jordan, 1993, Fundamentals of Corporate Finance, Irwin, NY.

R. H. Tawney, 1926, Religion and the Rise of Capitalism, Harcourt, Brace, and Co., NY.

Muhammad Taqi Usmani, 1998, An Introduction to Islamic Finance, Idaratui Ma'arif, Karachi, Pakistan.