With the financial markets in the gutter, and the trickle-down effect starting to be seen in many of our daily lives – friends and neighbors losing jobs (I especially see it around here in New York) – now seems like a good time to reflect on our financial culture here in the West.
A lot of us probably hate the idea of finance, think it‘s a sleazy profession motivated by greed. But in many ways the developments in finance in Europe over the past five hundred years have been a crucial part of our success, helping to make possible a huge array of innovations, from the first clothing factories in England at the end of the eighteenth century, to the development of the iPod at the end of the twentieth.
Despite the gains facilitated by finance, the benefits to society have always been coupled with a wild irregularity, a boom-bust cycle, which Marx described as part of the inherent contradictions of capitalism, contradictions which would eventually lead to its demise. We've never really grounded our financial ideas in solid principles, other than the sole one of making as much money as possible.
Perhaps there's another way. A shining example that has come out in the past fifty years, one that casts serious doubt on the Western no-holds-barred style, is the recent development of the principles of Islamic Finance.
Based on Sharia law, which derives its authority from the Holy Qur'an, the principles of Islamic Finance have provided a beacon of clarity and common sense in good investment practices which are desperately needed here in the West.
What is at the core of the philosophy of Islamic Finance is the idea of money as a measure of value, and not a real asset in itself. According to the principles of Islamic Finance, profiting from money – including charging interest on loans – is regarded as riba, or nonpermissible investing activity under Sharia law.
Instead, what Islamic Finance emphasizes is the idea that the investors should share the risks involved in whatever projects they are investing in, and that they should be investing in real things, whether it's land improvement projects, housing, or helping start up a new business.
This represents a glaring difference from daily activities of investment firms in the West, who get huge returns by hacking variations in currency exchange rates, legally manipulating stock prices, and engaging in the kind of risk-spreading and avoiding activities (through an ever-increasing range of derivatives) that have created the huge mess we're in now.
We have to learn to differentiate between the legitimate function of finance, which is to provide money to start and expand a wide range of projects, and the activities that are really disconcerting: The hacking of markets, currency trading, calls, puts, the entropic soup of Western instruments, many of which do nothing, absolutely nothing to help start projects, nothing to help businesses stay afloat during the hard times and expand during the good, nothing to help people buy their first homes or first cars or, yes, even go to college.
These do nothing at all except fatten the pockets of the financiers that carry them out. They're skimming off the top of a huge pot of resources made from the commonwealth, from the work of people who make an honest living. And at the end of the day this “skimming” leaves everyone a little bit poorer, with a little bit less left in the pot, and it's a practice that really ought to provoke outrage.
At a time like this we need to start thinking about how to put real principles into the world of finance, ideals that are at the core of Islamic Finance and at the core of human decency.
In my idle time, I dream of the day when I can walk down Wall Street and see coffee shops, music halls, see kids busking on the street, see the hideous cigar store on Broad Street turned into a hangout space for artists and philosophers where they talk about the latest ideas and ideals while on break from the tedious job of handling finance.
I dream of the day when flower vines grow over the grotesque naked buildings of the financial districts here and in London and in Tokyo and in Dubai, for the day when finance is again the pulsing heart of the coming Renaissance. I dream of the day when – as one of my friends put it – a tree grows from the New York Stock Exchange.
Now head over here and plant that tree's seed.