The Effect of the Corruption of Western Economics on Humanity

The Monetary System

One of the primary pillars of the Western economic system is the monetary system and it is upon this basis the economic structure stands. This monetary system is reliant upon the state's military and economic strength; not its own inherent strength. Over time this system has moved through many phases to become the monetary system we see implemented in the West.

Prior to the First World War, the system of paper money was covered by the gold standard, this means that its value, the amount issued and the amount allowed into the markets represented the amount of gold a country would have in its vaults and safes. However after the end of the First World War the global scene had changed, the gold standard began to come across difficulties and restrictions because some countries terminated the option of exchanging their own paper currency for gold. This pushed the active countries to form a new agreement, accepting the American dollar as the measure for the different currencies and establishing a law for this, which became known as Bretton Woods. After the rise of the United States as a military and economic superpower in the West, the American dollar became the standard for all other currencies, on the condition that the value of the dollar would be linked to that of the value of gold, at the ratio of $35 per ounce of gold. Specific limitations and definitions were set for this system according to the amount of currency (the dollar) available in the markets, the interest rates of the banks and the price of the dollar in comparison to that of gold, but this system did not last long. The U.S. tore down this system, floated the dollar and released it from any ties to gold, all in the year 1971 during the term of Nixon.

Thus, paper currencies remained this way until today, having no inherent value or any gold or silver that it represented. Instead its strength came from the laws enforced by the state on this currency. The paper currency system, in its current form, has terrible and dangerous effects on societies in general. These negative effects are:

Firstly:

There is a continuous instability in the prices of currency so the value of money is constantly changing. This is because the manner in which a currency is made stable is by linking it to a stable basis. This basis must have the following characteristics necessary to give it this stability, including; the capability of this cover to be transferred to goods and services or other currencies at any time, without any restrictions, and it must be available internationally and not restricted to one region alone, whereby certain states could monopolise it. Furthermore, the costs of producing this cover must be comparable to the amount of money printed, so that no country is able to print whatever it wishes and drown the market whenever it wishes. All these characteristics exist only in the gold and silver standards.

The numbers and figures of exchange rates were gathered, and compared to the value of gold, at different periods of time, and found that they were comparable only when gold was being used as a cover.

The issue of instability of exchange rates causes great harm to the owners of capital who have large amounts of money saved in the banks. It also causes problems to the labourers and those with set wages and leads to the inflation of prices within the country.

Secondly:

The American Dollar is then the international monetary cover. When the exchange rate of this international monetary cover fluctuates it leads to great losses, either in the U.S. economy alone, or as well as those who are linked to her. So America may fall into economic difficulties, internal or external, or undertake military actions, which would affect her economy and her currency, causing a drop in value, which in turn affects her internal economy, causing prices to rise and wages to drop.

The countries that are tied to the dollar, like the European states or oil producing countries, are also greatly affected. In 1977, when the American dollar dropped in value by 10% in relation to the Japanese Yen, the value of the German Mark and the Swiss Frank rose against the dollar, and as a result affected their foreign trade. This meant the prices of products made in these countries for export rose. This caused buyers to turn elsewhere and thus led to an economic depression, forcing them to buy the excess dollars from the markets and offer economic support for it.

The estimated losses in oil producing countries such as Kuwait, during the years of 1971-2, due to the drop in value of the U.S. dollar, was 18%, or approximately $76 million. The estimated losses of the OPEC (Organisation for Petroleum Exporting Countries) member states in 1977 was approximately $15 billion. This occurred when the price of oil dropped from $12.7 a barrel to $7 a barrel.

Thirdly:

The U.S. uses the international monetary cover as a political and economic pressure tool on some states. It will also use this tool to influence their economies if they were competitor states. For example, when Germany raised their interest rates, contravening an international agreement, the U.S., in retaliation, lowered the price of the dollar, the monetary cover of the Mark, which caused a 22% drop in the value of shares in one day. The U.S. adopted this strategy to apply pressure on Germany to conform to the agreement, which regulates the bank interest rates.

Fourthly:

The internal economic investments within those countries that have an unreliable currency are negatively affected by the fluctuations in the mandatory foreign exchange rates. This means that those countries that rely upon America to keep their own currency stable are hurt when the American currency fluctuates. This is because the currency of these countries are seen to have major ups and down and therefore do not encourage the holders of capital who fear the security of their investment. This is how this strategy - fluctuations in currencies - leads to effective political crises in some countries, which may even lead to the overthrowing of governments. This is what occurs in the 'Third World', when the World Bank imposes economic restrictions and conditions such as lowering the price of the currency and raising prices of goods, which also leads to the loss of workers' wages, continuous labour instability and constant inflation.

Fifthly:

When imports become greater then exports, they cause a deficit in the trade expenses budget i.e. too much has been spent and too little has been earned. This causes excess currency, meaning an increased amount of printed money and a decrease in its buying power. Consequently this raises prices due to this imbalance between the amounts of currency available and the goods and services.

The deficit in the trade expenses budget of the U.S. in 1977 reached approximately $30 billion, which was the difference between the imports and exports, and this led to inflation in the U.S., which she handled by printing more paper money and releasing it into the markets, or in other words, she threw a very large share of the burden on other countries. This is in the industrialised countries. As for the other countries, especially the developing ones, when they have a problem with inflation they are forced to handle the problem alone. Therefore they are thrown to the mercy of the colonialist states, or to the policies of the IMF, to live under the mercy of its loans and its colonialist conditions. All this leads to dependency and economic colonisation, which is the 'new face' of colonialism.

These are just a small selection of facts on the miseries of the Capitalist economic system. This system came from the thought of secularism, as did the effects of this economic system upon humanity and on its relationships and transactions.

In reference to the solutions suggested by the West to solve these problems we see that they suggest many possible avenues with reference to the foundation to this system. The problem of populations finding difficulty in attaining a basic standard of living is as a result of the Western insistence that this basic standard is achieved by production and distribution. When this fails we find that they 'solve' this problem by introducing social security; a net for those who fall from the tight rope of capitalism. Other solutions consist of interfering with pricing policies and limiting the price of goods. They insert the thought of 'The pricing/valuing system defines supply and demand in the markets', and that supply and demand imposes the prices for goods and services. They may also interfere in the markets by imposing new laws that eliminate articles from the foundations of the system, such as terminating or preventing drug trade, thus eliminating the idea that every wanted thing is considered an economic issue.

Equally if the problems were related to the economic structure, they also propose solutions. Such as the inflation that occurs to the paper currency, they try to solve this matter by using twisted means. Therefore they steal the wealth and resources of the people, or where other countries steal their resources by releasing currency into the market without any cover and thus 'flood' the market with extra money. They may also attempt to limit the interest rates in the banks through international agreements, or by placing laws on the defining of duty between countries. All these solutions and others do nothing but aggravate the problem, increasing the complexity of international problems, without ever finding a correct and satisfying solution.

As for the true solution and the exemplary method to solve such problems, this emanates from a correct system; a system which looks to the human being, his needs and what society should be, in a complete and accurate manner. This must be a view that did not ignore anything in him, of spiritual or material needs, and views all matter in this universe as being subservient to him, for him to utilise, not the opposite, where he runs after it trying to gather more and more.

The correct solution that must be implemented is the complete, divine and just system, which had been implemented for a period of time that saw goodness, justice and security on Earth; where the poor and the rich lived together, not knowing the meaning of classes in the wretched manner of the West, or despotic policies, or exploited and thrown into slavery. All people had the rights that Allah (swt) had granted them, living according to divine, just laws, making him a slave of Allah (swt), not a slave of man. This solution is the economic system that is built upon the Islamic point of view.

As for how Islam solved economic problems, and how it organised man's affairs relating to this, we will discuss this on another occasion, by the leave of Allah (swt).

On a final note, our prayers are, 'All praise be to Allah, the Lord of the Worlds.'

Abu Al-Mu'tasm