ARTICLES & Conference Papers

International Conference
Monday 26th & Tuesday 27th January 2004
Trisakti University, Jakarta Indonesia

Professor Masudul Alam Choudhury,
Dept. of Economics and Finance, College of Commerce and Economics,
Sultan Qaboos University, Muscat 123, Sultanate of Oman - Email:
Fax: (968) 514-043 Tel: (office) (968) 515-845: (home) (968) 513-445

Money and the Real Economy
Presenting comparative studies in real money linkages with
social issues, economic transformations, institutions and markets


Binary Economics
Linking money to productive efficiency and justice

Rodney Shakespeare
(The Christian Council for Monetary Justice, United Kingdom, London Global Table)
11, Charman House, Hemans Estate, London, SW8 4SP, United Kingdom.
Tel: (UK) 020 7771 1107.


Abstract -1. Introduction - 1.1 The choice - 1.2 The crucial issue - 2. The present monetary system - 2.1 Fiat money - 2.2 Interest is added but is not necessary - 2.3 Summary of fiat money/credit and breach of Islamic principle - 3. Un-free market finance capitalism - 4. Alternatives to the present monetary system - 4.1 Gold (and silver) - 4.2 Zakah - 4.3 Gold-backed money/credit - 4.4 Central banks and the bete el mar - 4.6 Three key questions - 5. Introduction to binary economics - 5.1 The new paradigm - 6. The new justice - 7. The new monetary system - 7.1 Why should a government have to pay interest? - 7.2 Interest-free money/credit - 7.3 Inflation and counter-inflation - 7.4 Interest-free loans for public capital assets - 7.5 Clean green investment - 8. A new understanding of how wealth is created - 8.1 ‘Binary’ means ‘composed of two’ - 9. Interest-free loans for private capital investment if new owners are created- 9.1 Benefits of binary economics - 10. Basic mechanism of binary economics - 11. Small business - 12. A second basic income - 13. The rise of the ummah - 14. References


xxxxxThe ummah can choose to rise or to languish. In order to rise and have a fruitful destiny free from foreign control, the ummah must address the nature of the money/credit supply, its relation to the real economy and its relation to economic and social justice. Gold alone is far from enough. Money/credit 100% backed by gold could be sufficient if there is a strong will to implement justice.
xxxxxHowever, there is another possibility binary economics which, implementing genuinely just market principles in a counter-inflationary way, uses interest-free money/credit (i.e., repayable and cancellable loans) for:
xxxxx• public capital expenditure (thereby reducing it to half, one third, even one quarter of the present cost)
xxxxx• private capital expenditure if thereby new owners of capital, receiving as income the full earnings of xxxxxcapital, are created
xxxxx• small and start-up businesses (with no requirement for wide ownership) thereby freeing them from the xxxxxcrushing pressure of interest-bearing debt
xxxxx• green investment, particularly for clean, renewable energy
xxxxxSuch use of interest-free money/credit will implement a genuine free, fair and efficient market, throw off foreign and financial elite control, implement social and economic justice, and give hope for the environment.

Key Words:
rise of ummah; binary economics; real economy; money/credit supply; economic justice; social justice, green investment.



1. Introduction

The ummah is faced with a momentous choice.

1.1 The choice

xxxxxIt can choose to rise and achieve a level of success exceeding that of past Islam, a success embodying true Islamic values and a profound implementation of economic and social justice. In thus choosing to be self-reliant and independent, the ummah will be giving an open, bold, exhilarating and very necessary lead to the world today.
xxxxxOr it can choose to languish, to be humiliated and oppressed, to be dominated by Western neo-liberal values and the Western (now worldwide) banking system. In thus choosing, the ummah will have given up all hope of dignity, let alone justice.

1.2 The crucial issue

xxxxxThe ummah will not be able to rise, however, unless a crucial issue is addressed the nature, control and use of the money/credit supply and, in particular, its relation to the real economy.
Control and use of the money/credit supply have many outcomes. They include the:

• level and quality of productive capacity
• existence (or not) of plutocracy
• ability (or not) of a society to guide its own destiny
• existence (or not) of economic and social justice
• practice (or not) of riba/usury (the imposition of interest)
• narrow, or widespread, ownership of productive capital
• existence, or absence, of political freedoms.

2. The present monetary system

xxxxxThe main reason for the languishing of the ummah for its inability to control its own destiny; its uncertain, often miserable, standards of living; its rich-poor divisions; its social and political oppressions is the design and control of the present worldwide monetary system together with the associated institutions and practices, particularly riba. The Qur’an and Hadith state that decline in the ummah happens because Muslims do not follow their religion correctly. Muslims have unfortunately allowed riba to arise and this is certainly one big reason for societal weakness.

2.1 Fiat money

xxxxxThe monetary system generally uses fiat money/credit. In the case of the banks, fiat money/credit is created out of nothing by the press of a computer button. In the case of government, fiat money is money created by manufacturing coins (whose metal has little intrinsic value) and paper notes.
xxxxxIt is important to note that when banks lend money/credit, they are not lending the money of their depositors but are lending the money/credit created by the computers. The UK percentages are an astonishing 97% of the new money supply being created by the banks and 3% by the government. Many, but not all, countries have similar percentages.
xxxxxThe creation of fiat money/credit is never willingly admitted. In the West, the banking system and its supporters in academia and government do everything they can to hide, sideline, fudge or ignore the facts, thus keeping the public in ignorance. The unwillingness to admit that the banking system creates vast amounts of money/credit, and has an effective monopoly of that creation is, in the circumstances of public ignorance, a situation akin to fraud.

2.2 Interest is added but is not necessary

xxxxxTo the fiat money/credit that they create, the banks add interest. Thus in the UK today 97% of the new money supply is issued as interest-bearing debt.
xxxxxJust as the creation of fiat money/credit is never willingly admitted, so there is an unwillingness to admit that interest (as opposed to administration costs) is not necessary. Money/credit can be created, lent and repaid without interest being involved in the form of repayable and cancellable loans. In any case, interest is something that ought always to be avoided if at all possible rather than something which, as at present, is allegedly necessarily imposed.
xxxxxThe imposition of interest makes a huge burden. Throughout the world today, debt personal, corporate, town, city, regional and national is rising, in some cases, exponentially.
xxxxxBut interest is not necessary. It only exists because, by imposing it, a financial elite, creating money/credit out of nothing, can batten onto society, particularly the poor, often forever.

2.3 Summary of fiat money/credit and breach of Islamic principle

xxxxxIt is bad enough that fiat money/credit stimulates and exacerbates debt. However, it also causes inflation and, instead of being used for investment in the real economy, is often traded as a commodity or used for speculative or corrupt purpose.

In sum, present fiat money/credit is:
• inflationary
• interest-bearing
• not necessarily directed at productive capacity
• traded as a commodity
• of an origin akin to fraud
In all these respects, fiat money breaches Islamic principle.


3. Un-free market finance capitalism

xxxxxFiat money/credit is not only at the centre of the methods by which individuals, corporations, governments and whole societies are being put into exponentially increasing debt but is also at the centre of the system of ‘free market’ finance capitalism.
xxxxxSince the fall of communism in1989, the ‘free market’ system, boasting that it is the most efficient system possible and that all its outcomes are just, has come to prevail throughout the world. However, the purported ‘free market’ is not free. Rather, it is un-free, un-fair and inefficient.
xxxxxIt is un-free because most people are in practice excluded from the markets for productive capital and thus excluded from ownership of what creates a large part of the wealth. The exclusion is the main cause of rich-poor divisions.
xxxxxIt is un-fair because of huge rich-poor divisions as well as an abysmal treatment of many social groups including carers and women who often have no income, let alone a secure one.
And it is inefficient with the basic evidence being that, despite the world having huge, undoubted, technological, natural and human resource and capacity, poverty is widespread and increasing.
Furthermore, un-free finance capitalism does not enable societies and countries to rule themselves – rather, they are ruled by finance capitalists and foreigners.
As for the un-free market claim that all its outcomes are just, well, anybody who believes that, will believe anything…….
So, despite its arrogant boasting, un-free market finance capitalism, together with its associated fiat monetary system, does not, or does not properly:

• address poverty and rich-poor division
• introduce economic democracy including some form of secure income (in addition to any income from labour)
• focus financial activity on the real productive economy
• allow everyone to own productive capital
• enable societies to control their own resources and their own destiny
• end, or at least mitigate, the practice of riba
• end a financial system bent on putting the whole globe into debt.


4. Alternatives to the present monetary system

xxxxxIn considering alternatives to the present monetary system it should be observed that it is not enough just to implement change. In addition there must be borne in mind the need, among other things, for:

• material prosperity
• economic justice
• social justice
• resources to be mobilized into socially acceptable projects
• an extensively relational overview relating to participatory purpose
• new, clean, green energy generation and technology

xxxxxThus, no matter how desirable a change may seem in itself, all aspects of the situation including outcomes and omissions have to be considered. Bearing these things in mind, some alternatives to the present fiat monetary system can now be discussed.

4.1 Gold (and silver)

xxxxxA possible alternative to fiat money/credit is the use of only gold (and silver). Gold has the virtues of intrinsic value and a non-fraudulent origin. It is relatively (but far from completely) stable one dinar (4.24 grams of gold) bought a sheep at the time of the Prophet Muhammad, and still buys a sheep today. Since the supply of new gold is limited, around 2000 tons per annum, its use would not be inflationary. Very importantly, gold is part of the Islamic tradition.

The use of only gold, however:
• does not directly address poverty and rich-poor division indeed, it would probably increase such division (zakah is considered below).
• would certainly not cause inflation but could cause a deflation with a much slower-moving economy.
• could result in such a tight supply of money/credit that it would seem to be impossible for large sums to become quickly available for feasible investment projects. Such projects are essential if poverty is to be removed and a green environment established.

Moreover, the use of only gold does not necessarily:
• introduce economic democracy including some form of secure income (in addition to any income from labour)
• focus on the real productive economy
• allow everyone to own productive capital
• allow societies to control their own resources and their own destiny
• end the practice of riba (interest)

xxxxxThus the use of gold (and silver) alone, while undoubtedly having an emotional and historical appeal to Muslims, is unlikely to be the means by which the ummah can break from its present lethargy and become a new comity of proud, self-reliant societies.

4.2 Zakah

xxxxxIn order to answer the objection that the use of gold does not address poverty and rich-poor division, advocates of gold remind us of the Koranic duty of zakah (a 2.5% wealth tax for the benefit of the poor). This, they say, is the answer to poverty.
xxxxxZakah, however, while commendable as a form of charity and an expression of social responsibility, does not answer the question as to why there is poverty in the first place. Nor does it address the subject of rich-poor divisions, provide regular incomes, or spread the ownership of productive capital.
xxxxxZakah, moreover, breaches market theories of efficiency for it is a redistribution of money after it has been earned whereas effort should be concentrated on ensuring that the poor are individually more productive (so that zakah is not needed). In any case, the amount of money raised by the zakat wealth tax will probably always be inadequate.
xxxxxIn summary, zakah could perhaps be described as a charitable amelioration of poverty, but not an attempt to solve it.(However, the author of this paper has been informed of something which suggests that zakah can solve poverty. It is reported that in early times there was so much zakah money available in the Yemen, and so few poor people, that the authorities in Yemen sent the money to Medina for distribution. Whereon the authorities in Medina who also had too much zakah available returned it to the Yemen!)

4.3 Gold-backed money/credit

xxxxxRather than the use of gold alone, a much better solution is money/credit backed 100% by gold. Such money/credit, in practice, maintains, even increases, its value and thus would not be inflationary. Because it is only linked to gold (rather than being gold itself), the amount of money/credit available in the economy is, in practice, much larger. Thus there is much less risk of deflation and this is a key matter a much greater degree of possibility in addressing issues of poverty, rich-poor division etc. Furthermore, the advocates of such money/credit (e.g. Choudhury, 1997 and 2003 (1)) know that such money/credit can, and should, be issued interest-free. Most important of all, many of the advocates propose that gold-backed money/credit could, and should, be directly linked to the provision of real production, real goods and real services.

4.4 Central banks and the bete el mar

xxxxxWho would issue the gold-backed money/credit? There is an Islamic concept of a treasury, the bete el mar (bayt al mar, literally, ‘house of wealth’) which is a publicly accountable body (and many Western monetary reform proposals include a similar idea). There seems no reason why the bete el mar could not issue interest-free money/credit if it is issued for patently beneficial, productive and non-inflationary purpose. The money/credit would have a small administrative cost attached but in no way would it have attached the heavy cost of interest. In Seven Steps to Justice(2), Shakespeare and Challen, noting that the imposition of interest is not necessary, record that interest-free money/credit (i.e., repayable and cancellable interest-free loans) issued through the bete el mar, can be used for:

xxxxx• public capital investment
thereby allowing hospitals, roads, bridges, schools etc. to be constructed for one half, one third or even less of the present cost. Over time, a large part of the national debt would be eliminated (because interest-bearing money/credit would not be being used) and, consequently, taxes would become much less.
xxxxx• private capital investment (at one half, one third or even one quarter of the present cost) if such investment creates new owners of capital (rather than the existing rich) and if such use is patently for the benefit of all and is non-inflationary.
xxxxx• small and start-up businesses (with no requirement for wide ownership) thereby freeing them from the crushing pressure of interest-bearing debt.
xxxxx• green investment, particularly for clean, renewable energy

xxxxxVery importantly, these uses would back the currency with assets, break the grip of usury, and be patently non-inflationary, indeed, counter-inflationary. The rationale for such uses is that resources are being mobilized into socially acceptable and desirable projects in a context of genuine participation by the general population. Please note the significance of an Islamic country having an endogenous, rather than exogenous, source for the money/credit supply. An endogenous source originates from within the society. In contrast, an exogenous source is one coming from the outside. The meaning of the difference is simple if a society has an endogenous source of money/credit, it can largely control its own destiny: if the source is exogenous, the society is controlled by outsiders.

4.5 Scepticism

xxxxxHowever, scepticism has been expressed about the willingness of present central banks to take on the role of issuing gold-backed, interest-free money/credit. The scepticism comes about because of an expected huge opposition from the ruling elites in the existing interest-ridden financial system that serves the money-masters in both the West and in Muslim countries. The solution, the sceptics say, is to fulfill the 100% shari’ah requirement by asking the Islamic private sector to ensure that all monetary investment is made into the real economy and for shari’ah-approved purposes including social and economic justice.
xxxxxThis solution is very revealing because it is asking the private sector to eschew any investment that is not into the real economy and actively to promote concepts of social and economic justice. However, just as there is scepticism about the willingness of the central banks to use interest-free money/credit, so there may also be scepticism about the willingness of the private sector always to act in an Islamic way, let alone to promote social and economic justice.

4.6 Three key questions

Which brings us to three key questions:
xxxxx1. If central banks and the private sector cannot be relied on how, in practice, is it possible to create the impetus necessary to ensure that interest-free money/credit is issued and used for the real economy while also implementing social and economic justice?

xxxxxThe author of this paper and colleagues of the London Global Table think the only long-term solution is the establishment of an informed religious, political and economic movement comprising people of good faith from all backgrounds. The movement would be committed to monetary reform, justice and participatory purpose and, expressing the needs of millions of people, would demand that the power structures implement social and economic justice. The London Global Table’s lead to the movement can be found at and the matter is dealt with extensively in Seven Steps to Justice.
xxxxxThis University Conference, however, is of equal, if not greater importance for it is focusing the minds of academia and business on the need for clear new thinking. Such thinking is essential if the rise of the ummah is to be achieved. Yet the thinking will not happen unless there is a simple determination amongst forward-looking thinkers to co-operate. Furthermore, and in particular, that co-operation will not happen unless the thinkers are imbued with a strong sense of the need for social and economic justice. Without that sense, all proposals are ultimately worthless.

xxxxx2. Is there anything (apart from gold-backed money/credit) which can act on the real economy, be non-inflationary and yet still achieve social and economic justice?

xxxxx3. Is there anything which can use markets, and improve the efficiency of markets, while still implementing justice?

xxxxxThe answer to questions 2 and 3 is Yes. It is called Binary Economics and a brief description is set out below.

5. Introduction to binary economics

xxxxxIt was observed in paragraph 4.4 above that interest-free money/credit (i.e., repayable and cancellable interest-free loans) issued through the bete el mar, can be used for:

• public capital investment
• private capital investment
• small and start-up businesses
• green investment

xxxxxThese uses of interest-free money/credit would back the currency with assets, break the grip of riba/usury, and be patently non-inflationary, indeed, counter-inflationary. They would implement a genuine free, fair and efficient market; would throw off foreign and financial elite control; and would result in social and economic justice.

5.1 The new paradigm

xxxxxThe main textbook on binary economics is Binary Economics The New Paradigm (3). The word ‘paradigm’ is important because without a new paradigm a fundamentally new way of understanding reality the present conventional paradigm of neoclassical ‘free market ’ finance capitalism will continue to dominate.
xxxxxIf un-free market finance capitalism is to be successfully challenged, the new paradigm must comprehend three key matters:

• a new justice
• a new monetary system
• a new understanding of how wealth is created.

6. The new justice

xxxxxJustice is a set of universal principles defining right and wrong. Its ultimate purpose is to elevate, under Allah/God, the dignity and sovereignty of humans.
xxxxxJustice is concerned with the structures of society. It is not charity. Although charity is within justice, charity offers only expedients and not long-term solutions. Charity can never be a substitute for justice.
xxxxxThe main aspects of justice are social justice and economic justice together with ecological justice.

Social justice
guides us in the creation of social institutions. Such institutions, if justly organized, provide what is good for people, both individually and in their associations with others. Social justice commands us to work with others to perfect our institutions as tools for personal and social development. Also embodied in ecological justice, social justice requires us to maintain the environment because, without that maintenance, all else becomes nought.

Economic justice
involves individuals and the social order. Like social justice, it is sensitive to ecological justice which is the root of the sustainability upon which the future of civilised life depends. Economic justice gives moral principles to be embodied in economic institutions. These institutions determine how each person earns a living, enters into contracts, exchanges goods and services with others, and otherwise produces an independent material foundation for his or her economic sustenance. The ultimate purpose of economic justice is to free each person to engage creatively in the unlimited work beyond economics – that of the mind and the spirit.
Economic justice has three principles:
xxxxxParticipation. This is an equal opportunity to participate in the economic process in order to make a living. Such opportunity cannot be equal unless there is access to private property in productive assets as well as opportunity to engage in labor. The principle does not guarantee equal results, but requires that every person be guaranteed the right to make a productive contribution to the economy both through labor (as a worker) and through productive capital (as an owner).
xxxxxDistribution. This principle says that individuals should receive from an economic system what they have productively put into it (via their labor or capital ownership). It involves the sanctity of property and contracts in a truly free and open marketplace. Through the distributional features of private property within a free and open marketplace, distributive justice becomes automatically linked to participative justice, and incomes become linked to productive contributions.
xxxxxHarmony. The principle of harmony detects failure in implementing the principles of participation and distribution, and makes the corrections needed to restore a just and balanced economic order for all. The principle is violated by unjust barriers to participation, by monopolies, or by the use of property to harm or exploit others. It opposes greed because greed leads to the exclusion and exploitation of others. The principle is also violated by environmental depredation since such depredation ultimately harms all.

7. The new monetary system

xxxxxPeople know that they pay interest but do not generally realise that they also pay interest even when not borrowing because every price they pay contains an element, often a very large one, of interest. In Aachen, Germany, interest on capital is 12% of the cost of rubbish collection; 38% of the cost of drinking water; 47% of the cost of sewage; and up to 77% of the cost of public housing(4). Remembering also that the prices a manufacturer pays to his suppliers include the suppliers’ borrowing costs (and so on with the suppliers’ suppliers) it has been estimated that such costs (principal and interest) amount on average to an amazing 50% of the price of goods and services.

xxxxxMoreover, the payment of that interest does not affect everyone equally there are huge differences between what people pay. In Germany, 80% of the population pay out more than they receive; 10% receive twice as much as they pay. Thus the rich get richer and the poor get poorer. But, since nowadays money/credit is created by pressing a computer button, interest is not necessary so there can be no justification for the imposition of riba/interest (administration and other costs are separate) and that is the insight which founds the new monetary system.

7.1 Why should a government have to pay interest?

xxxxxFurthermore, why should a government have to pay interest? In the UK and other countries, countries borrow to fund their public capital expenditure. This is called the national debt and, in the UK, it amounts to £8/9 per week per person.

xxxxxThat is an outrage. If money/credit is borrowed to pay for public capital spending (e.g., low-rent public housing or a hospital) it might be repaid over 50/60 years. However, even if borrowed at the prime, lowest interest rates, the effect of the interest is that three to four times the original borrowing would eventually be paid back. Thus a $100,000,000 governmental housing project would pay back $300,000,000 or $400,000,000 when the risk is virtually nil (governments can raise taxes to pay off their debt) and the administrative cost is tiny.

xxxxxSo why does a government have to pay interest? Why do governments have to borrow billions from the banking system and have to repay even more billions? Why?

xxxxxThe answer is that the banking system owns the money/credit it has created and riba/interest is the charge it chooses to make. Thus governments have allowed the most fundamental thing of all – the money/credit supply – to become owned by the banking system (5). In past times, kings and governments in need of money (in the form of metallic coin) borrowed from bankers who charged interest. Today, when money/credit is not metal with intrinsic value but is created merely by pushing computer buttons, the banking system has ended up with a virtual monopoly power to create money/credit and to add interest. A power inherent to government on behalf of all – the power to decide on money/credit matters – now lies with the banking system over which the government only has some influence (by deciding interest rates).

xxxxxThat is shameful. Action must be taken.

7.2 Interest-free money/credit

The basis of the new monetary system can now be seen:

• Since a government has an inherent, existing, power to issue its own money/credit,
it can increase the amount of new money/credit that it issues
• The money/credit can be interest-free
• The interest-free money/credit can be used instead of interest-bearing money/credit
• When repaid, the interest-free money/credit can be cancelled

7.3 Inflation and counter-inflation

xxxxxWhereon a supporter of the Western banking system can be expected to jump up and shout, “What about inflation? You are proposing the unlimited printing of money as in Germany in 1923!” (6) The response is simple – there can be no inflation if the interest-free money/credit is used instead of interest-bearing money/credit, and if it is made repayable and cancellable and if it is used to create productive assets. Put shortly, if the money/credit is issued in the form of an interest-free loan for a productive asset and the loan is repaid, the money/credit no longer circulates. Indeed, since productive assets are, by definition, productive and the money/credit has been repaid (and can then be cancelled), nothing is left except the productive asset. Thus something extra has been gained and the money/credit which created it has been withdrawn. Such a situation can only be counter-inflationary. Even more importantly, the cost of the asset will, in general terms, be one half or even one third, even one quarter of what it would otherwise have been simply because no element of interest is involved.

7.4 Interest-free loans for public capital assets

xxxxxAll states have an inherent power to create money/credit. Yet, amazingly, they all have been bamboozled into believing that, when in need of money/credit, they should let the banking system do the creation and pay it interest. Thus power has ebbed from states and national governments and has gone to financiers in the world’s financial centres. However, the way is wide open for any state to create money/credit for its own spending at no interest. If the money/credit is repayable, and is so repaid and cancelled, there cannot possibly be any inflationary effect. There would, in particular, be no inflationary effect if the interest-free loan were to be spent on public capital works. Repayment of the loan, of course, would come from taxes, but taxes much lower than they would otherwise have been.

xxxxxAt which point the supporter of the Western banking system may be expected to jump up (again!) shouting that state-issued interest-free loans will reduce the resources available for the private sector. As everybody knows, he will shriek, the private sector is a much more efficient user of resources than the public one. The supporter, however, is completely missing the point that there is always a large, necessary amount of public capital spending – low cost public housing, roads, bridges, sewage systems and when that spending is made it should be done at the lowest possible cost i.e., without interest. This in no way crowds out the private sector. It only means that when public capital spending is done, it is done cheaply, instead of expensively. Thus if the state issues $1,000,000 as an interest-free loan for building a hospital only $1,000,000 needs to be repaid instead of perhaps $3,000,000 as at present. Taxpayers will give a sigh of relief.

7.5 Clean green investment

xxxxxThe whole world will also give a sigh of relief, however, if global warming and other major environmental problems are solved. By using interest-free repayable and cancellable money/credit (instead of interest-bearing debt), societies would be able to take advantage of technologies that, at present, do not appear to be commercially viable. Thus, for the purpose of generating electricity, tidal barrages, dams, windmills, wave machines, solar electricity, and geothermal power stations could all be used. Moreover, there are some extraordinary other alternative technologies which could soon become available e.g., the Motionless Electromagnetic Generator.

xxxxxIt is a shocking thing that clean, green energy generation is not substantially in existence and thus the world could destroy itself through global warming all because of the insidious grip of usury.

8. A new understanding of how wealth is created

xxxxxMuch is new in binary economics but perhaps the most important thing is its view of who or what actually creates the wealth. This is the binary reality check which starts by observing that the prevailing obsolete neoclassical paradigm can never answer a very important question Why is it that, when sufficient productive capacity undoubtedly exists, billions of people throughout the world (and even whole strata within the developed economies) still remain in poverty? The various conventional answers are always unsatisfactory not least because they never explain why the world is full of people who labor long and arduously but who still have poverty-stricken lives.

xxxxxIndeed, every day, we are taught that people must work to earn their living. The slogan is always jobs, jobs, jobs and understandably so because, in practice, jobs are at present the only way by which most people can earn. However, the slogan ignores the facts that a lot of people cannot labor and that jobs are not always available. Moreover, many jobs do not pay enough for a reasonable standard of living and, in many parts of the world, pay only a pittance; and, everywhere, jobs are insecure. The slogan ignores these facts because society (and conventional neoclassical economics) says that jobs create the wealth.
xxxxxYet suppose it were true that it is not labor but rather productive capital that really does most of the work and creates most of the wealth. Then, indeed, there would be a new situation in which all individuals would have to have at least some ownership of capital if they were to be genuinely economically productive.

xxxxxThat said, most people probably still have some difficulty in re-thinking who or what creates the wealth. Nevertheless, they could start to consider why the rich are rich and might then notice that the rich tend to own a very large amount of productive capital that produces a lot of valuable income. They might also notice that in large parts of the world, millions of people labor ceaselessly every day yet they are, and always will be, in poverty because they own little or no capital.

xxxxxWealth is created by labour and productive capital. Machines, hydroelectric power stations and technological processes have extraordinary productive powers. Binary economics clearly establishes the significance of the productive contribution of capital to wealth creation and so it becomes a matter of the highest importance that everyone should have some ownership of productive capital. (In contrast, conventional economics, concerned with keeping capital narrowly owned, says that it does not matter who owns the capital).

xxxxxWhen everybody owns capital, moreover, a balanced growth becomes possible. Binary economics states that the more broadly productive capital is acquired over time on market principles, and its income fully distributed to its new owners, the larger the economy will grow. Binary economics gives a capital acquisition right, to every individual. Operating on market principles, this right enables any individual to acquire efficient, income-generating capital assets. The assets pay for themselves out of their earnings (8).

xxxxxThe neoclassical and binary views are in further opposition when jobs are considered. The conventional paradigm alleges that jobs and welfare are enough for most people. In contrast, the binary view, particularly in the face of technical advance, is that jobs and welfare can never be enough (not least because, even with jobs, many people remain in poverty). Indeed, binary economists insist that there can be never be proper market efficiency, or substantial growth, or any hope of social and economic justice, without the ownership of productive capital extending widely throughout the population.

8.1 ‘Binary’ means ‘composed of two’

xxxxxYet, at present, most people do not own substantial amounts of productive capital. People (unless they are slaves) own their own labor but they certainly do not own the other big factor in production – capital. ‘Binary’ means ‘composed of two’ and there are two factors in production – capital and labor. Thus there are only two ways of genuinely earning – either through owning capital and/or though owning your own labor. The main object of binary economics is to ensure that all individuals have access to both ways of earning. The result is the founding, on just market principles, of a private property system which diffuses, rather than concentrates, capital ownership so that 100% of the population come to be substantial owners.

9. Interest-free loans for private capital investment if new owners are created

xxxxxOnce we realize that the state can issue interest-free loans for public capital investment, it becomes easily comprehensible that the same basic mechanism – interest-free loans – can also be used for private capital investment. In both cases, public and private, repayable, cancellable interest-free money/credit is used to create productive capital. This is patently sensible for public capital investment and is even more sensible for private capital investment done on market terms, because such investment, by definition, pays for itself. In practice, such private capital investment is not just non-inflationary but counter-inflationary (9). Yet – it might be asked – why should private capital investment have the benefit of interest-free money/credit? That’s allowing the rich to get richer.

xxxxxYes, indeed, but it would be a completely different matter if, on the principles of binary economics, the interest-free loans were used to ensure that all individuals, over time, on market principles, should come to have a substantial independent income from their ownership of capital. If all really did mean all – carers, retired, sick, unemployed, women, children and men – then poverty would be banished. Moreover, the rich-poor gap would be properly addressed and, most importantly, the economic base that empowers individuals and deepens democracy would have been established.

9.1 Benefits of binary economics

xxxxxThe benefits of binary economics include:–

• A basic income for all.
• The balancing of supply and demand.
• A change in attitudes towards consumption.
• A green growth.
• Clean green energy investment.

xxxxxOther obvious benefits include the provision of old age pensions; a huge reduction in the need for welfare benefit; an income for children (sufficient to pay for their basic needs); and the ability to stop people getting their income in ways harmful to the environment by giving them another means of being productive.

10. Basic mechanism of binary economics

xxxxxVery briefly, the binary mechanisms work in exactly the same way as happens at present, using existing institutions and practices with a little modification. Each year in the USA new capital investment is made – somewhere around $7,000 per woman, man and child per year. That is a huge amount and it remains huge even when depreciation is taken into account. Yet, each year, it stays narrowly owned, and will always stay narrowly owned, because ‘free market’ practices are un-free and ensure that narrow ownership.

xxxxxBinary economics, however, uses principles now well established in USA ESOP (Employee Share Ownership Plan) legislation, but extends the principles to cover 100 % of the population(10). The credit privileges and special tax advantages that the U.S. government has given to workers who adopt ESOPs, allow workers without savings to purchase shares on credit wholly secured by the future profits of the company. Because employees are directly linked to productivity increases and profits through their ownership rights, studies indicate that firms financed through ESOPs, when combined with participatory management and gain sharing, generally perform better than their competitors. Knowing about the ESOP helps towards understanding how binary economics enables everyone, over time, to come to individual ownership of productive capital.

xxxxxSuppose a big corporation or company wishes to expand. It could go to a local bank for the money/credit which would be lent at riba/interest. Yet the corporation could also decide to ask a Constituent Trust (similar to an ESOP) to put up the money/credit – the Trust would offer to give the money/credit to the corporation and, in exchange, the corporation would issue new shares to the Trust which would then hold the shares in the name of its constituent clients. Acting for employees or for anyone, the trustees then makes a proposal to a local bank which independently evaluates the soundness of the proposed expansion.

xxxxxAt which point binary economics proposes that cheap money/credit should be available. The state’s central bank (e.g., the US Federal Reserve) would issue the money/credit at a 0% rate of interest, and give it to the local bank which would then lend it to the Trust. So this would be interest-free loan money/credit for market-driven productive investment as long as the investment makes capital owners of people who previously had little or no capital (11).

xxxxxFor the next five to seven years, on average, the Trust will receive dividend income from the stock held in trust for the client. This income is credited towards the cost of the stock bought in the client’s name and is repaid to the local bank which provided the original loan. The local bank, upon receiving repayment from the Trust, in turn repays the Federal Reserve. The Federal Reserve can, of course, then cancel the money or recycle it into further industrial expansion (12). As each share of stock is paid for in full, it is released from the Trust and ownership accrues to the clients who thereafter will receive the cash income from their investment in the form of dividends or capital appreciation (12).

xxxxxThe specific result of all this is that the clients become the independent owners of a capital estate providing income. The overall result is, among other things, an increase in productive and consuming capacity but no corresponding increase in the money/credit supply, so there is no inflation; rather counter-inflation. A new word is needed – perhaps ‘doeflation’. Consequently, efficiency and justice are forwarded. In binary economics, the efficiency creates the justice and the justice creates the efficiency. Yet, in contrast, neoclassical economics thinks that nothing much better than the present can be reasonably expected and that those who have little or no labor income (or no security of income) are only getting what they deserve.

xxxxxCrucially, binary economics ensures that all individuals can become, and remain, economically productive (whereas conventional economics only conceives of people being productive when they are in paying jobs). Thus binary economics serves everybody, and not just a few, with remarkable benefits. Without inflation or recession, the binary economy offers to release the full potential of technology to the immense advantage of humankind and the environment. It offers to lower and eventually remove the need for redistribution, consumer debt, and deficit spending. It offers to tame, if not eliminate, the destructive economic cycles that have blighted history. It will establish economic justice and, eventually, eliminate material poverty. In a binary economy, moreover, freed from the constraints and pains of poverty, people will have happier, more balanced and independent lives. They will have a greater freedom to be creative. There will be an overall increase in our physical capacity to do Allah/God’s work.

11. Small business

xxxxxThe basic principle of interest-free loans for productive capital investment (if new capital owners are created) can be used for small business but without the requirement for new owners to be created. There would still be a requirement for collateral as security against the possible loss of the loan and it might be desirable for eligibility for the loans to be confined to socially beneficial businesses. That said, the key point is that riba/interest-free loans could be used for small businesses in exactly the same circumstances as today except that the small businesses would not be suffocated by interest payments.

12. A second basic income

xxxxxAs has been seen binary economics and its provision for all of a basic income stemming from capital ownership is counter-inflationary – greater output and consumption, particularly for the previously poor, but in the context of generally lowered prices. Yet it is a generally agreed aim that the general level of prices should be stable. Whereon a remarkable possibility arises – of a second basic income. When the context is counter-inflation, prices could be raised to a stable level by the issuance of debt-free (non-repayable) money on the lines of the proposal made by Joseph Huber and James Robertson (13). Such issuance would not be directly related to productive capacity but, such is the counter-inflationary power of binary economics, the issuance becomes acceptable as the price of achieving a stable level of prices.

13. The rise of the ummah

xxxxxWith splendid achievement in the past, a massive intellectual and cultural heritage in the present, and bundles of obvious talent and resource with which to build the future the ummah can correct the unhappy present and build a magnificent future. To do that, however, it will not be enough merely to propose a reform of the monetary system. Without a central concern for social and economic justice, all reform will be nugatory.



[1]   Masudul Alam Choudhury (1997), Money in Islam (Routledge, London and New York) and (2003), The Islamic World-System: A Study in Polity-Market Interaction. 

Choudhury spearheads the call for an Islamic worldwide transformation into 100 per cent reserve requirement with the gold standard and has made a series of publications on endogenous money and Islamic capital markets including (1989), Islamic Economic Co-operation; (1990) Journal of Economic Cooperation Among Islamic Countries; and (1998) Reforming the Muslim World. 

[2]   Shakespeare, Rodney & Challen, Peter (2002), Seven Steps To Justice (New European Publications, UK).

[3]   Ashford, Robert & Shakespeare, Rodney, (1999), Binary Economics – the new paradigm (University Press of America).  See also the website of the Center for Economic and Social Justice, Washington, D.C., at

[4]   Kennedy, Margrit (1995),. Interest and Inflation-Free Money.

[5]   In 1694 the founder of the Bank of England gave £1.2 million (@8% interest) to King William III to fight the war with France.  This was the first UK National Debt and, in effect, the government’s inherent right to issue money had been sold to the banking system.  The National Debt principle has been copied worldwide.

[6]   At one period, the exchange rate was about 50,000,000,000 marks to £1.

[7]   See Chapter Three of Binary Economics, op. cit.

[8]   The true, full dividend earnings of shares, in a binary economy, could be as much as five, possibly eight or nine, times what is paid out at present.

[9]   When, for a sum of money, productive capital has been brought into being and the money is then repaid and cancelled, just the productive capital is left.  That capital, however, continues to produce wealth and incomes for its owners worth many times the original formation cost. 

[10]   Although there are now well over 11,000 ESOP schemes, embracing around eleven million people in the USA, present ESOPs are not binary ESOPs because, alas, the ESOP has never been legislated to conform with the demands of binary theory. 

[11]   In order to protect the bank and the Trust against possible losses from business failure and default by the corporation, the Trust pays a premium to buy insurance from a commercial capital credit insurer.  The cost of the premium is added to the cost of the investment and charged to the client, as is the administrative cost of operating the Trust.  The financial soundness of the privately owned capital credit insurer will be guaranteed by new legislation creating a state capital credit re-insurer (similar to the USA Federal Deposit Insurance Corporation – ‘FDIC’ – which safeguards bank deposits against loss).

[12]    Although, of course, it is possible to arrange things so that the money is held on trust for the client, if that is appropriate; and it is also possible to arrange things so that (e.g. for new-born children) previously paid-up capital is used thus giving immediate income

[13]   Huber, Joseph & Robertson, James (2000), Creating New Money (New Economics Foundation, London).