Therefore, affected nations, particularly rich ones, are pumping billions of dollars into financial markets to restore confidence while ignoring the basic foundation of free market and laissez faire, which capitalists used to hold as something sacrosanct. Whatever efforts capitalists have planned to salvage the system can at best relieve its pain temporarily because the basic foundation of capitalism is weak. Therefore, a patchwork cannot result in any durable solution. There are four factors at the heart of capitalism’s foundation that need to be addressed.
One, curbing of gold as the sole standard for currency by bringing in the dollar as a parallel standard at the end of the Second World War under the Bretton Woods’ agreement and then, finally, replacing gold by the dollar as the monetary standard in the early 70s rendered the global economy susceptible to any economic shock in the US.
This was because currencies of most other countries, if not all, were tied to the dollar instead of gold, even though the value of the dollar bill itself is that it is not more than a piece of paper printed in America.
Even after the advent of euro in the arena, the dollar generally retained its position, as most currencies were tied to it. It is for this reason that unless gold returns as the monetary standard, such economic crises will certainly be repeated.
Any dollar shock will automatically shake the economies of other countries.
Even US policies that impact the dollar will have effects outside of America. Indeed, this can happen with any paper, fiat currency of any influential state.
Two, interest-based loans result in great economic difficulties. Even though the original loan, or principal, gradually decreases with respect to the interest payments, individuals or states are unable to repay loans, in many instances. This results in a loan repayment crisis. Economic activity slows down due to the inability of many, or most, of the middle income bracket to repay loans and this affects production as well.
Three, the system and practices in financial markets and stock exchanges of buying and selling of shares, financial instruments and commodities do not require possession of goods. Rather these are sold and bought many times over, without being actually transferred from the original seller.
This practice is invalid. It causes difficulties rather than solves them, because it inflates and depreciates prices of goods, even though the goods are not in possession. All this triggers shocks in the markets. Thus profits and losses accrue through various speculative means. These may accrue repeatedly, unabated and undiscovered, until an economic crisis ensues.
Four, a very important factor is the complete lack of awareness about the reality of ownership, in both the East and the West. Under the communist/socialist ideology, ownership is vested in the state and under the liberal capitalist ideology, it is held by the private sector with no state intervention, simply because the liberal capitalist ideology promotes free market. This is further compounded and exacerbated by globalisation.
Ignorance of reality leads to such economic crises and tremors. In comparison, the economic system of Islam has looked into this reality comprehensively and defined clearly what can be owned by the state and individuals and what would be kept in public property.
Similarly Islam has established that currency must have intrinsic value behind it in the form of gold and silver. Also, Islam is against the practice of giving loans on interest, trading in futures, speculation and forward selling.
The world is witnessing history in the making; the collapse of capitalism is inevitable since the basic problems are in its foundation. On the contrary, the Islamic economic system is comprehensive and has addressed and treated all economic problems and crises resulting from man’s heartlessness.
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