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Article
Publication date: 10 November 2022

Mohamad Mehdi Mojahedi Moakhar, Mahmoud Esavi, Amir Khademalizadeh and Fathollah Tari

The purpose of this paper is organized as follows. Section 2 reviews the literature on the subject matter, focusing on western economic literature and the Islamic economic…

Abstract

Purpose

The purpose of this paper is organized as follows. Section 2 reviews the literature on the subject matter, focusing on western economic literature and the Islamic economic paradigm, including the Quran, Sunnah, jurisprudence and Islamic philosophy thinking, to illustrate the origins of the Islamic approach to monetary systems. The money interest rate and its studies are explained, and the role of money and credit in the production function is considered. Then, it is shown that money maintains the demand for money in the overlapping generation model, as well as the consumption behavior of households. It is followed by an explanation of general Pareto optimality and the role of the money interest rate in inefficiency and nonoptimality for households and firms. Finally, Section 4 concludes the paper.

Design/methodology/approach

This paper studies the effects of money issuance and bank creation on Pareto optimality. In explaining the origins of the Islamic approach to monetary systems, the literature review, it focuses on western economics’ literature and Islamic economics paradigms such as the Quran, sunnah, jurisprudence and Islamic philosophy thinking. In modeling section, the authors show how banks’ fractional reserve credit is profitable. The authors also examine how the introduction of the money interest rate can change the Pareto optimality. In this regard, the comparison between two situations, namely, financing by the stock of money and borrowing in the credit market, indicates that welfare is reduced by the creation system and is inefficient (or nonoptimal). The result is that no money and no credits are created. The provision of this system compensates money by increasing the real money supply or deflation. To ensure Pareto optimality, it has been proven in the field of microfoundation that there should be no fixed money contracts and no money interest rates. It is necessary that the interest rate on consumption credit is zero or Qarz-al-Hasna is broken. Moreover, profit sharing is offered in the production sector.

Findings

As a result, the authors proved mathematically that the money interest rate must be zero to ensure productivity and Pareto optimality. On the other hand, the introduction of money or credit through loanable money leads to inefficiency, both in production and households and in the general equilibrium. The inflation generated by the credit system stimulates the change in the price level and perpetuates this inefficiency. Thus, if the authors want to return to the optimality condition, the interest rate on consumption credit must be zero or Qarz-al-Hasna is breached. However, the behavior of the fractional banking system and the credit mechanism teaches us that the money interest rate is an integral part of credit and loanable funds. Thus, the elimination of the money interest rate from the banking system without bank creation is implausible. Finally, to ensure Pareto optimality, it has been mathematically proven in the field of microfoundation that there should be no fixed money contracts and no money interest rate. It is necessary that the interest rate on consumption credit is zero, or Qarz-al-Hasna is broken. Moreover, profit sharing is offered in the production sector. The result is that no money and credit are created. The provision of this system compensates money by increasing the real money supply or deflation.

Originality/value

The capitalist theory of the definition of interest plays a decisive role in economic science. In this context, the authors are dealing with different vocabularies and terms for the interest rate. These different vocabularies have their origin in the different economic situations and especially determine the thinking of the schools. Because of the relationship between future and spot, the authors have to transform the variable “level” into the variable “interest rate” in the dynamic space. Finally, the exact explanations for the movement and evaluation of the economy are revealed by the correlation of the different interest rates.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 16 no. 2
Type: Research Article
ISSN: 1753-8394

Keywords

Abstract

Details

Further Documents from F. Taylor Ostrander
Type: Book
ISBN: 978-0-76231-354-9

Article
Publication date: 13 November 2017

King-Yin Wong and Michael Lynn

This research paper aims to examine the proposed easy-money effect of credit cards, which stimulates consumers to overspend. This paper shows how such an easy-money effect can be…

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Abstract

Purpose

This research paper aims to examine the proposed easy-money effect of credit cards, which stimulates consumers to overspend. This paper shows how such an easy-money effect can be weakened.

Design/methodology/approach

In Study 1, an implicit association test was conducted with a sample of 169 participants to test the proposed credit card easy-money effect. In Study 2, experimental data were collected online from 365 participants to test the effectiveness of a hard-work reminder in weakening credit cards’ easy-money effect on consumer spending.

Findings

The proposed credit card easy-money effect exists, with spendthrift (ST) participants associating money with hard work less in the implicit association test after being presented with a credit card cue versus neutral cue. The results from Study 2 show that ST participants spent more on their dinner than tightwad participants when shown a credit card cue. However, this effect could be weakened when STs were also reminded of their hard work by a picture accompanied with words.

Practical implications

This paper suggests that credit cards’ spending-stimulating effect is due to consumers’ associations between credit cards and easy money. Based on this notion, this paper suggests conditions in which credit cards will stimulate more and less spending.

Originality/value

This is the first research attempt to examine the credit cards’ easy-money effect and the effectiveness of reminding consumers of their hard work to mitigate credit cards’ long-established spending-stimulating effect.

Details

Journal of Consumer Marketing, vol. 34 no. 7
Type: Research Article
ISSN: 0736-3761

Keywords

Article
Publication date: 1 May 1997

Anghel N. Rugina

The equation of unified knowledge says that S = f (A,P) which means that the practical solution to a given problem is a function of the existing, empirical, actual realities and…

3004

Abstract

The equation of unified knowledge says that S = f (A,P) which means that the practical solution to a given problem is a function of the existing, empirical, actual realities and the future, potential, best possible conditions of general stable equilibrium which both pure and practical reason, exhaustive in the Kantian sense, show as being within the realm of potential realities beyond any doubt. The first classical revolution in economic thinking, included in factor “P” of the equation, conceived the economic and financial problems in terms of a model of ideal conditions of stable equilibrium but neglected the full consideration of the existing, actual conditions. That is the main reason why, in the end, it failed. The second modern revolution, included in factor “A” of the equation, conceived the economic and financial problems in terms of the existing, actual conditions, usually in disequilibrium or unstable equilibrium (in case of stagnation) and neglected the sense of right direction expressed in factor “P” or the realization of general, stable equilibrium. That is the main reason why the modern revolution failed in the past and is failing in front of our eyes in the present. The equation of unified knowledge, perceived as a sui generis synthesis between classical and modern thinking has been applied rigorously and systematically in writing the enclosed American‐British economic, monetary, financial and social stabilization plans. In the final analysis, a new economic philosophy, based on a synthesis between classical and modern thinking, called here the new economics of unified knowledge, is applied to solve the malaise of the twentieth century which resulted from a confusion between thinking in terms of stable equilibrium on the one hand and disequilibrium or unstable equilibrium on the other.

Details

International Journal of Social Economics, vol. 24 no. 5
Type: Research Article
ISSN: 0306-8293

Keywords

Article
Publication date: 1 August 2008

Ian Phau and Charise Woo

The purpose of this paper is to investigate money attitudes and credit card usage, between compulsive and non‐compulsive buyers, of young Australians. It also serves to validate…

8303

Abstract

Purpose

The purpose of this paper is to investigate money attitudes and credit card usage, between compulsive and non‐compulsive buyers, of young Australians. It also serves to validate the money attitude scale (MAS) using an Australian sample.

Design/methodology/approach

Data were collected using a mall intercept method in a major shopping complex in Perth, Western Australia. A self‐administered questionnaire was distributed and recorded a response rate of 18 per cent.

Findings

Compulsive buyers are more likely to perceive money as a source of power and prestige. They are also more frequent users of credit cards and are more likely to bargain hunt. There are no differences between compulsive and non‐compulsive buyers for the dimensions of time retention, distrust, and anxiety of the MAS.

Research limitations/implications

The study has only captured young adult Australians and should not be generalized across other demographics and national consumers. Studies on compulsive behaviour of online shopping and a comparison between fashion and non‐fashion related variables could also be explored.

Practical implications

Firms should consider using advertising campaigns that portray images of status and prestige in order to appeal to young adults. They could utilize aggressive in‐store promotion and selling techniques and highlight the discount or best buy slogans. For the credit card companies and banks, word‐of‐mouth through family and friends are better promotional tools to attract users. Marketers and policy makers are recommended to incorporate consumer education programs for young adults to build skills to counter financial problems.

Originality/value

This is the first Australian study that examined money attitudes, credit card usage and compulsive behaviour. Further the MAS scale is validated with the addition of the “bargain hunting” variable.

Details

Marketing Intelligence & Planning, vol. 26 no. 5
Type: Research Article
ISSN: 0263-4503

Keywords

Article
Publication date: 15 March 2011

Joshua Fogel and Mayer Schneider

College students often embrace credit card use and do not always consider the potential risks of incurring debt from irresponsible credit card use. This paper aims to focus on…

4732

Abstract

Purpose

College students often embrace credit card use and do not always consider the potential risks of incurring debt from irresponsible credit card use. This paper aims to focus on this issue.

Design/methodology/approach

College students (n=301) were surveyed and reported their disposable income and employment status. Outcome variables were attitudes toward irresponsible credit card use, compulsive buying, money anxiety, and money price sensitivity.

Findings

It is found that an incremental pattern of greater levels of disposable income and employment was associated with greater credit card use irresponsibility. Greater levels of disposable income were associated with greater levels of compulsive buying and money anxiety. Part‐time employment was associated with the greatest level of money price sensitivity.

Originality/value

The paper shows that college students should seek information about, or counseling for, the responsibilities associated with credit card use and proper handling of personal finances.

Details

Young Consumers, vol. 12 no. 1
Type: Research Article
ISSN: 1747-3616

Keywords

Article
Publication date: 13 July 2015

Simon Mouatt

The discourse on credit cycles has been reinvigorated following the global crisis. The purpose of this paper is to contrast the positions of mainstream, Marxist, Austrian and…

Abstract

Purpose

The discourse on credit cycles has been reinvigorated following the global crisis. The purpose of this paper is to contrast the positions of mainstream, Marxist, Austrian and post-Keynesian (PK) schools of thought on these matters. It is posited that most notions underplay the significance of real economy factors in shaping the fluctuations of credit levels and relations. It is argued these ideas are best illustrated by Marx (as interpreted by the Temporal Single System Interpretation) and tendency for the profit rate to fall with accumulation. Empirical evidence on the UK profit rate is provided as supporting evidence.

Design/methodology/approach

The paper explores the theoretical work on credit and business cycles from the relevant schools of thought and contrasts them. The aim is to consider which approach best describes the reality. Empirical work on the profit rate provides supporting evidence.

Findings

It is argued that the mainstream view of monetary neutrality is an insufficient explanation of the financial reality associated with credit and business cycles. Instead, it is posited that the PK approach, which emphasizes productive and financial factors, is more preferable. This contrasts with the usual singular financialization commentary that is used to describe the financial crisis and real economy stagnation that followed. It is argued that Marx’s notion of falling profit and its ramifications best explain the reality of both the credit and business cycle. This is supported by the evidence.

Research limitations/implications

It is problematic to calculate a Marxian rate of profit given the lack of suitable reported statistics. The research illustrates the significance of productive factors, especially the tendency for the profit rate to fall, in driving business cycles. There are, therefore, implications for government fiscal/monetary/industrial policies to reflect these factors when seeking to influence the business cycle.

Practical implications

Policies that are designed to target levels of profitability are likely to be beneficial for capitalist sustainability.

Social implications

The focus on profitability in the paper informs individuals working in business organizations of some of the imperatives facing corporations in a modern competitive environment.

Originality/value

Whether financial factors drive the business cycle, or are themselves driven by it, is an important question given that policy prescriptions will differ depending on the answer. The recent financialization commentary, for instance, suggests that better regulation or reform of the financial sector will preclude unstable business cycles. The paper argues, in contrast, that the cause of the credit instability is rooted in production (following Marx) and that, therefore, a more production-focused policy response is required whilst recognizing the instabilities of the credit system. This latter point has a measure of originality in the current discourse.

Details

International Journal of Social Economics, vol. 42 no. 7
Type: Research Article
ISSN: 0306-8293

Keywords

Abstract

Details

Special Edition: Financial Crisis - Environmental Crisis: What is the Link?
Type: Book
ISBN: 978-1-78052-670-6

Book part
Publication date: 8 May 2004

Costas Lapavitsas

In Finance Capital Hilferding suggests that, in the early stages of capitalist development, banks engage in short-term lending for “circulation” purposes, while concerning…

Abstract

In Finance Capital Hilferding suggests that, in the early stages of capitalist development, banks engage in short-term lending for “circulation” purposes, while concerning themselves with their liquidity. As capitalist development proceeds, banks lend longer-term for “investment” purposes, and their concern shifts to securing their solvency. Consequently, banks and industrial enterprises become amalgamated into “finance capital,” developing mutual “commitment” relations, and giving a bank-based character to the financial system. The core of Hilferding’s argument resembles Smith’s analysis of banking, but in important respects his argument is reminiscent of Steuart’s earlier and opposing analysis. Hilferding was able to integrate key elements of both approaches to banking by relying on Marx’s concept of loanable money capital, as well as on Marx’s claim that the average rate of interest is normally lower than the average rate of profit. However, Hilferding’s view that financial systems spontaneously become bank-based has not stood the test of time well. This failure is probably due to underestimating the importance of state intervention in shaping the financial system.

Details

Neoliberalism in Crisis, Accumulation, and Rosa Luxemburg's Legacy
Type: Book
ISBN: 978-0-76231-098-2

Book part
Publication date: 30 October 2020

Pierre de Saint-Phalle

In 1767, did Sir James Steuart predict the political and financial crises that started the French Revolution? Étienne de Sénovert, the editor and translator of Steuart’s work…

Abstract

In 1767, did Sir James Steuart predict the political and financial crises that started the French Revolution? Étienne de Sénovert, the editor and translator of Steuart’s work, seems to argue to this effect in the introduction to the first French edition of An Inquiry into the Principles of Political Economy in 1789. The visionary “prediction” set forth by Steuart was the following: if the king of France had introduced public credit, this would have changed the political balance in French political society, making it very unstable. The English and the French governments used different ways of borrowing money in 1760: the French king contracted debts with a network of financiers close to the government, while the English government borrowed on the credit markets through the intermediary of the Bank of England. The second of these methods constitutes public credit and has proved its efficiency. According to Steuart, implementing the English public credit system in France could have dangerous consequences. Landed interests and moneyed interests would compete for the control of the State. The author realized that the French nobility, the landowners, as a social and economic group would have no chance in facing such a powerful rival (the public creditors). In this chapter, the author analyzes Steuart’s “prediction” as a coherent part of his systematic and original approach to political economy. Steuart’s theories about the role of political economy and the role of “interest” are connected to his understanding of institutions. Introducing such a complex support for the value as public credit might have different consequences in France and England. Steuart thinks each country’s economy should be analyzed according to its own institutional and social context.

Steuart’s work was still relevant in 1789 for two reasons. Firstly, the author’s prediction of political antagonism between capitalists and nobility anticipated the political conflict about debt expressed by pamphleteers such as Sieyès, Mirabeau, and Clavière between 1787 and 1789. This is the context of Étienne de Sénovert’s claim: the political narrative built by the revolutionaries of 1789 (rescuing the “sacred” public debt from royal despotism) fitted Steuart’s prediction. This may have been the incentive for the translation and publication of his work in 1789 and 1790. Secondly, Steuart’s financial and monetary theory was at the heart of the project of financial reform that would lead to the assignats. Steuart’s (1767) theory of public finance and state power in 1789 provides a key to the understanding the events of the time, and to how actors tried to make sense of them. Steuart made another crucial observation about the deep effect of what he called “the modern economy” upon the power of the governments of Europe: even an absolute monarch could not damage public credit without destroying his own sovereignty.

Details

Research in the History of Economic Thought and Methodology: Including a Symposium on Sir James Steuart: The Political Economy of Money and Trade
Type: Book
ISBN: 978-1-83867-707-7

Keywords

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