Dr. Asad Zaman
October 2014
Submission for: 10th International Conference on Islamic Economics & Finance (10th ICIEF), Institutional Aspects of Economic, Monetary and Financial Reforms, 23-25 March 2015, Doha, Qatar
On the Nature of Modern Money presented at the 10thInternational Conference on Islamic Economics and Finance. Forthcoming chapter in edited volume on Islamic Economic Perspectives and Theoretical Models. editorial board consisting of members from Islamic Research Training Institute (IRTI) of the Islamic Development Bank (IDB) and Qatar Faculty of Islamic Studies (QFIS), Hamad Bin Khalifa University (HBKU).
For current draft, see LINK
RELATED PAPER: Review of House of Debt by Mian and Sufi
Contents
2. On the Importance of Money.. 4
3. A Central Problem: Fractional Reserve Banking. 5
3.1 Origins of Paper Currency.. 6
4. A Brief History of Modern Banks. 8
4.2 Post Depression Regulation of Banks. 8
4.3 Keynesian Economic Theory.. 9
4.4 The Keynesian Era – 1948 to 1973.. 9
4.5 The Revolt of the Wealthy.. 10
4.6 Financial Crisis of the 80’s. 11
4.7 Deepening Inequalities Strengthen the Control of the Wealthy.. 11
4.7.2 Control of Intellectuals & Education.. 12
4.7.3 Control of Institutions. 12
4.8 The Global Financial Crisis of 2007-8.. 13
5. Lessons from Experience of Banking in USA. 13
5.1 Three Major Banking Failures. 13
5.2 Effects of Private Money Creation.. 14
5.2.1 Concentration of Wealth.. 14
5.2.2 Insurance, Derivatives, Property and Stocks. 15
5.2.3 Regulation and Ratings. 15
5.3 Clever Strategies of the Wealthy.. 16
6. Problems With Private Creation Of Money.. 17
6.1 A Crisis Prone Financial System... 17
6.2 Illusions Created To Sustain The System... 18
6.2.1 Mis-measures of Wealth.. 18
6.2.2 Hiding Costs and Inequalities. 19
6.2.3 Wrong Descriptions of Creation and Control of Money.. 19
6.2.4 The Myth of Financial Intermediation.. 19
7.2 Savings and Loans Institutions: 22
7.3 Differentiated and Specialized Savings Institutions. 24
7.3.1 Housebuilding Finance. 24
7.5 Alternatives to Insurance. 27
7.5.1 False Promises & Gambling: 27
7.5.3 Avoiding Concentration of Wealth: 28
7.5.5 Natural Government Monopoly: 28
8. Answering Common Objections. 30
8.1 Fear of Big Government. 30
8.2 Fear of Government Corruption.. 30
8.3 Fear of Reduced Growth.. 31
9. Advantages of the Islamic Plan.. 32
9.2 Socially Optimal Investments. 33
9.3 Community Based Development. 34
9.4.1 Direct Control of Money Supply by Central Bank.. 34
9.4.2 Massive Reductions in Private and Public Debt. 35
9.4.3 Elimination of Financial Fragility.. 36