The Universal Paradigm & Islamic endogenous loans: Rodney Shakespeare: Abstract
A paradigm is the basic mental framework which organizes experience and information. A major paradigm affects, even governs, all the institutions and practices of a society. When a paradigm is universal it encompasses all societies.

The significance of The Universal Paradigm is best grasped by noting the huge changes evolving in six areas of human understanding _ epistemology, religion, technology, environment, economics, and finance/money supply _ taken together with the impetus coming from a modernising Islam.

Epistemology. The change is from the reductionist view that knowledge is best split into ever smaller areas of study (with often little or no connection between them) to the realisation that it is time to re-establish the connections between, and kinship of, studies with consequent implications for the kinship of humans.

Religion. The change is from a narrowed concept of personal salvation to a recovered social concept. The personal concept is merely concerned with an individual’s own salvation and sees its obligation towards others as, at best, a need to provide charity. In contrast, the social concept sees its obligation towards others as a positive duty to work for the overall, beneficial, restructuring of society so as to achieve an inclusive social and economic justice.

Technology. The change contains a welcoming recognition of technological progress in all its powerful forms but it also, even more importantly, comprises a recognition that, for several decades, modern technology has been capable of eliminating all forms of poverty. Thus the failure to eliminate the poverty defacing large parts of the world is the result of a failure in human institutions and practice and not a failure in technology.

Environment. The change has led to a realisation that humans cannot arrogantly continue to destroy natural resource nor ignore the complex interrelationships with flora and fauna. The use of interest-bearing debt at the centre of the economic system is a major factor in environmental destruction.

Economics. The main aspect of the change is the recognition that neoclassical economics (which founds the ‘free market’ finance capitalism prevailing in the world) is not (as is claimed) objective, scientific, just, stimulative of independent societies, universal, free, modern, fair and efficient. Rather it is totally biased, unscientific, unjust, economically colonizing, one-sided, unfree, ossified, unfair and grossly inefficient. It is, moreover, perverted and, in much of its consequences, obscene. Above all, it is hypocritical in claiming that there can be an economics without ethics. Every economics has values (which may, or may not, be good ones). In the case of neoclassical economics, most of those values are bad.

Finance and money supply. The change comes from three modern and remarkable insights into practice and theory, namely, that:_
• interest (as opposed to administration cost) is unnecessary for new productive investment
• societies can create their own non-inflationary money supply thereby not having, as largely at present, to rely on interest-bearing credit creation by the commercial banking system
• the money supply can, and should, be directed at productive capacity.

Impetus coming from a modernising Islam. In addition to the changes in the six areas, a modernising Islam is giving impetus to the situation because it profoundly desires to find a new, distinctive way forward which has markets, private property for all, participation, partnership, economic and social justice, and is not only non-inflationary but is also (unlike the present system of ‘free market’ finance capitalism) not based upon riba/interest.

The changes and impetus, taken together with changes in many other studies including history, law, ethics and philosophy, constitute a new Universal Paradigm which in its efficacy, justice, and overall sense of relatedness can be described as an understanding and implementation of Unicity or, in Islam, tawhid.

From the Universal Paradigm flow prescriptions, policies and morality enabling, amongst other things: _
• an efficiency which produces justice and a justice which produces efficiency
• genuinely free markets and private property for all (rather than just the few)
• societies able to control their own destiny and not be ruled by outsiders
• all individuals to become continually productive (via widespread capital ownership) so that they have sufficient income for their reasonable needs
• a basic income for all
• reasonableness and fairness within societies
• a graduated lessening of rich-poor division
• good health, housing, education and transport systems
• a focussing of financial activity on the real, productive economy
• counter-inflation
• an end to the present financial system which is bent on putting the whole world into debt
• an end to interest/riba
• decrease in National Debt
• stable population levels
• effective concern for the environment

The key practical expression of the Universal Paradigm is the concept of Islamic Endogenous (as defined) Loans which, using the techniques of binary economics, are interest-free loans for productive capacity in the following areas:_
Public capital investment thereby allowing hospitals, roads, bridges, sewage works, fire stations, schools etc. to be constructed for one half, or one third of the present cost. Over time, the National Debt would reduce.

• Private capital investment in large corporations IF such investment creates new owners of capital and is part of policy to enable all individuals, over time, on market principles, to become owners of substantial amounts of productive capital paying out its true full earnings.
• Environmental capital investment, particularly for clean, renewable energy.
• Small and start-up businesses thereby freeing them from the crushing pressure of interest-bearing debt.
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If the world is to be changed for the better, new intellectual and spiritual forces must be generated. Such forces do not come about by chance. They can only result from discarding the false and negative, and promoting the true and positive.

1. On paradigms
A paradigm is the basic mental framework or mindset which organizes experience and information. Amongst other things, it decides (or not) to notice phenomena, to say what is (or not) relevant or important, and to look for patterns and connections.1
Paradigms contain assumptions about reality because humans cannot avoid making assumptions upon which to found their understanding and thought.2 In practice, the assumptions decide what does, or does not, happen in everyday life.
A new paradigm revolutionises thought.
A major paradigm affects, even governs, all the institutions and practices of a society.
A universal paradigm encompasses all societies.
The significance of The Universal Paradigm is best grasped by first noting the huge changes evolving in six areas of human understanding _ epistemology, religion, technology, environment, economics, and finance/money supply3 _ and then relating them to the impetus coming from a modernising Islam.

2. Epistemology
Epistemology is the study of the methods and grounds by which humans establish knowledge, obtain the best truth, and develop new paradigms. However, the history of thought shows that truths and paradigms are not permanent. Nor is the best truth always the result of continual bit-by-bit additions of knowledge on top of what has been added before.
Rather the process of obtaining the best truth may tend to have the superficial appearance of bit-by-bit addition but, in the underlying reality, a stress is often building up. As it increases, accompanied by creaks and trembles, upholders of the existing truths become ever more rigid, ever more dogmatic _ and ever more ridiculous _ as they attempt to prop up a crumbling structure based on false assumptions.4 Worse, the rigidity, dogmatism _ and ridiculousness _ result in various forms of negativity, dysfunction, injustice and inefficiency.5 Eventually, there comes drastic, revolutionary change.6

2.1 Reductionism
The problem of false assumptions is further compounded by an excessive reductionism which has caused knowledge to be split into ever smaller areas of study (with often seemingly little or no connection between them). Even within each study, moreover, there is further reductionism. Thus young people today are indoctrinated with the message that knowledge is encapsulated in the separate packages of ‘subject disciplines’ such as science, mathematics, history etc. and further encapsulated in the sub-sections of those studies.

The results of reductionism are typically seen in neoclassical economics which, choosing to ignore other studies, has become a narrow, isolated _ and sterile _ mathematical construct based on a narrow, false assumption about human nature (i.e. that humans only follow their own immediate, short term self interest and have no concept of long term self interest let alone of helping others). A lack of empathy and an inability to go beyond the narrow confines it has set itself, are two of the reasons why neoclassical economics complacently draws the conclusion that extensive poverty is inevitable _ or the fault of others _ rather than a direct result of its own inadequacies. Economics is supposed to be about how wealth is created, by whom or what, and how it is distributed. Economics is supposed to address questions such as why societies full of hard-working people eager to better themselves, remain in dire poverty. Instead, in its neoclassical form, economics has become self-obsessed, self-righteous and incapable of recognising that it has become biased, unscientific, unjust, economically colonizing, one-sided, unfree, ossified, and grossly inefficient.

Furthermore, the reductionist perception of studies as separate entities causes a narrowing of mental faculties, a limitation of skills and a suppression of vital parts of the human psyche. This results in young people being initiated into forms of thinking and skills which are certainly rational and well developed _ analysing, classifying, predicting, assessing _ but which, at the same time, neglect imagination, intuition and, in particular, the empathy which results in a concern for something more than self.
Lastly, perhaps the greatest danger arising from reductionism is that, when the concept of overall relationship is denied, moral concepts are in practice being undermined, even destroyed. That is bad enough in itself. But the undermining of morality then disastrously combines with the undermining of empathy and the lack of relation between parts to block the realisation of, and the need for, major new thinking. The combination then also prevents any understanding of the need for, and possibility of, overall change of which a solution to the poverty and misery defacing large areas of the world is the prime example.

Indeed, the disastrous combination explains why neoclassical economics asserts that extensive beneficial change is impossible. Thus it is that, since the fall of communism in 1989, the apologists for neoclassical economics (which now prevails throughout the world) boast that so-called ‘free market’ capitalism has won; that it cannot be bettered; and that history (in the sense of the possibility of any substantial change to economic and political systems) has come to an end.7
The change in epistemological understanding

However, fundamental epistemological change is taking place. There is an increasing realisation that there is a need to range beyond the normal confines of a study and see the relevant connections between different studies.8 The modern environmental movement is a good example of seeing the relevant connections and then saying what needs to be, and can be, done. Indeed, it is to the eternal credit of environmental activists that, over recent decades, they have been able to make links between phenomena and subjects to create a new paradigmatic understanding without which the world would be largely unaware of the environmental danger it is in.

All in all, it is now being realised that studies, as with individual people, do not have to ossify intellectually and morally but can re-energise themselves with major new and beneficial understandings by looking openly beyond themselves. It is also being realised that the time is ripe to re-establish the connections between, and kinship of, studies which in itself will have huge implications for the kinship of humans. Such kinship is a vital global requirement and any political movement or religion _ Islam, for example _ which takes up the cause of kinship will be giving the world a moral, intellectual and material lead.9

3. Religion
At the core of the great faiths is the idea of surrender to God _ and that is the literal meaning of ‘Islam’. Such surrender has in the past been conceived rather narrowly as a personal, inward-looking _ even self-centered _ concept of submission of the individual will on the path towards salvation. In such a conception the obligation towards others is at most only one of charity.

The change in religious understanding
The developing modern view of surrender to God, however, is very different, being outward looking, and much more comprehensive. It sees surrender as a social concept _ a surrender of individual selfishness in favor of serving others. The obligation towards others, moreover, is the far more extensive one of a duty to work for the overall, beneficial, restructuring of society. Indeed, the modern view is that, unless there is an active societal concern going way beyond ourselves _ to other people, fauna, flora and the environment in general _ we have no right to see ourselves in a serious relationship with God.
The change in understanding the nature of religious surrender is connected with change in technology and the understanding of what is physically achievable. In the past, ensuring a substantial and enduring help for others was difficult, even impossible _ the fate of most people was (and for most of the world’s population today, still is) a grim, generally unjust, poverty for which charity was the only, and totally inadequate, remedy.

Yet, today, the situation has fundamentally changed. The poverty remains but with the vast difference that we now have the technological capacity to eliminate it. Thus any failure to eliminate poverty is a failure to surrender properly to God; and the essence of morality is a duty to work for inclusive structural justice.

Such justice furthermore, is the only concept capable of uniting people of faith, and of good faith, in a powerful cause _ transcending class, cultural and political boundaries _ for the betterment of humankind.10

4. Technology
The great growth in productive capacity and total economic output in modern times began to develop around 1750 and is largely the result of capital productiveness.11 The old spinning wheels were replaced by the mechanical marvels of Arkwright and Crompton; canals and railways were built; around 1900 motorcars and aeroplanes became the noisy harbingers of the modern age. Today, the process of technological change is continually assuming great new proportions and is becoming robust, self-reinforcing and ever-expanding with varying degrees of automation.

4.1 The change in understanding the impact of technology
Thus there can be little dispute that, over the last two hundred and fifty hundred years, the productive capacity and output of economies like those of Western Europe, Japan and the USA, have massively increased. Yet _ extraordinary as it may seem _ there are two differing explanations for the increase. On the one hand, there is the conventional explanation (which is upheld by both left-wing socialist and right-wing neoclassical economics) and, on the other hand, there is the new explanation now gaining adherents around the world.

The conventional explanation is that the increase is almost totally due to an increase in human productivity. Left-wingers like this explanation because it enables them to claim that all output is due to the efforts of the workers. And right-wingers are happy to agree because any theory about workers doing all the work has the admirable consequence (from the point of view of the right-wing) of hiding the true abilities and worth of productive capital assets. Thus the right-wing is able to claim, as it does claim, that it does not matter who owns the capital assets! In short, the Labor Theory of Value (and its variants) is highly acceptable to both left-wing and right-wing politics and economics.

The new explanation, however, is subtler and fits the facts as they have developed over the course of the industrial revolution. It says that, while labor productiveness has increased, capital productiveness has increased even more so that an increasing percentage of the total output is due to the capital assets. Therefore it follows that if all individuals are to be truly productive they must own (and continuously receive the full true earnings of) at least some form of productive assets. Indeed, without the widespread ownership, the production and consumption sides of the economy cannot balance (as, according to Say’s Theorem (Law) they must balance if there is to be an efficient economy).12

The new explanation recognises not only technological progress in all its powerful forms but also, even more importantly, recognises that, for several decades, modern technology has been capable of eliminating all forms of poverty. Thus the failure to eliminate the poverty and misery which deface large parts of the world is the result of a failure in human institutions and practices and not of a failure in technology. Moreover, the new explanation results in the understanding that productive capital (and the technology it contains) must become widely owned throughout an economy if there is to be, simultaneously, both economic justice and efficiency.

5. Environment
Whereas individuals and communities have often well understood local environmental matters, the modern environmental movement is on a global scale. Among the great authors contributing to the new understanding are James Lovelock (Gaia), Teillard de Chardin13 and Amartya Sen.14

5.1 The connection between interest-bearing money and environmental destruction
Central to that understanding is the need to see connections between what might _ at first sight _ appear to be unrelated phenomena. Many phenomena could be mentioned but one is of particular relevance to this paper _ the connection between the present finance system of interest-bearing money and environmental destruction. At the moment, unfree market finance capitalism has, at its core, a demand for the endless repayment of interest. That demand necessarily causes an endless expansion of debt because of the need to repay borrowed money plus interest.15 While the money supply is almost wholly dependent upon bank-created money issued with a requirement for the payment of interest, a frenetic over-consumption is certain. Therefore when conventional economics views humans as being endlessly greedy (and it does so view them) it is only giving expression to what is required by the present finance system.

Apart from the present finance system, moreover, endless greed is also stimulated by a lethal combination of insecure social status and the insecurity which comes from poverty or, at the very least, a perception of insecurity.

Therefore the elimination of greed requires:_
a fundamental change to the system of finance and money supply with a substantial diminution in interest-bearing money
policies to ensure that everybody earns a big proportion of their income in the same way, and in a secure way
societies with an obvious fairness.

5.2 Encouragement of stable population levels
It is widely believed that the most intransigent problem facing the world is the burgeoning population. In many countries, the population increases while, at the same time, there is a standard of living just above the starvation level. Moreover, there are abysmal, even non-existent, health and education services, and no welfare state. In such situations families have large numbers of children to ensure that some survive; children are necessary to provide for the upkeep of the aged; and women have little choice as to whether or not they have children _ this is not just a matter of economics but also a reflection of a power balance between the sexes, a balance tilted against women.

However, there is much evidence that population levels stabilize, even decline, where there is a reasonable standard of living; an education and health system; and some, if only minimal, empowerment of women. Thus, in the USA and Europe today many strata of society are generally showing a population decline. Needless to say, the Universal Paradigm provides a reasonable standard of living, education and health systems, and an improvement in the position of women

.6. Economics
Consider these questions:_

Why does material scarcity persist throughout the world despite the technological capacity to eliminate it?
Why are 20% of the world’s population existing on under $1 per day; 40% on under $2 per day; and 55% on under $3 per day _ with the situation likely to get worse in the coming decades?

Why are there huge strata of misery and poverty within the purported ‘free market’ societies, the USA, for example?
Why does the allegedly efficient neoclassical system still have to rely on redistribution (taxation enabling the payment of welfare benefits) to keep vast numbers of people away from absolute poverty?

Just the asking of these questions _ at a time when everybody knows that the world’s factories and farms are physically capable of solving material problems _ points to the large-scale failure of neoclassical theory and practice thus exposing the ineffable arrogance of neoclassical economists who claim that they promote a system which cannot be substantially bettered.

6.1 Apparent qualities of so-called ‘free market’ capitalism
The failure is the more startling because, at first sight, so-called ‘free market’ capitalism appears to have some good, solid qualities. Indeed, three of them, in particular, feature extensively in neoclassical rhetoric as being the main reasons for the ‘free market’s’ purported success. The rhetoric claims that neoclassical economics:_
• promotes the free markets which are essential to the efficient creation of wealth
• upholds private property for all people not only as a desirable end in itself but also as an integral part of the market mechanisms
• implements Say’s Theorem (Law) _ that, in a market economy, the total market value of the wealth produced is equal to the total purchasing power created by the process of production i.e., that supply creates its own demand. The Theorem (Law) also requires that producers and consumers must be the same people.

These three claims are, say the neo-classicists, the very essence of ‘free market’ finance capitalism and explain its alleged success. Yet, when a closer look is taken at reality (rather than rhetoric), it becomes clear that the claims are untrue and that in the purported ’free market’:_
• freedom is only freedom for some and not for all
• markets _ particularly the markets for productive capital _ are not open to all. The ‘free market’, therefore, is unfree
• efficiency is illusory because millions of people do not benefit from it
• private property, in particular, the ownership of productive capital, does not extend to all
• there is a huge potential supply which does not create its own demand and producers and consumers are not the same people.

That is to say, at present, Say’s Theorem (Law) most certainly does not work in practice.
In other words, the situation is a very long way from the state of near-perfection that neoclassical economics claims to exist.

6.2 A significant implication
But the neoclassical claim of near-perfection for its teachings contrasted with the obvious lack of perfection in the so-called ‘free market’ has significant and perhaps surprising implications _ since, for example, the so-called ‘free market’ is unfree, would not things be much better if it became genuinely free?

And if private property is desirable both in itself and as part of the market mechanisms, would not things work much better if the ownership of productive capital were to be extended to everyone, rather than just a few?
As for Say’s Theorem (Law), would not its unequivocal implementation _ productive capacity spread to those who have unsatisfied consumer needs so that producers and consumers are the same people _ have hugely positive consequences?
All in all, it behoves us to look a little more closely at neoclassical economics to identify its flaws and, at the same time, to see if there are clues to a better economics.

6.3 Flaws of so-called ‘free market’ capitalism and clues to the economics of The Universal Paradigm
Neoclassical ‘free market’ economics:_

a) claims that the ‘free market’ is free, fair and efficient and all its outcomes are economically just.
However, the claim is untrue. The so-called ‘free market’ is:_
i) Unfree because most people are in practice excluded from ownership of that which creates a large part of the wealth _ productive capital. The consequence is that most people are denied a true, continuing and substantial productiveness. There is also debt slavery everywhere.
ii) Unfair because of huge rich-poor differences; huge imbalances between societies; and an abysmal treatment of millions of hard-working people, particularly carers, who get little or nothing for their effort.
iii) Inefficient with the basic evidence being that, despite the world undoubtedly having a vast technological, natural and human resource capacity, widespread poverty remains, and is worsening.
iv) Unjust. Neoclassical economics claims that all its outcomes are just because it thinks that, in the ‘free market’ economy, individuals obtain (in money terms) the equivalent of what they put into the economy (in productive terms).16 At the same time, neoclassical economics asserts that morality is not part of economics.17 Thus there is a contradiction between the claim to have just outcomes and the claim not to be concerned with morality.

The truth is that every economics has moral (or immoral) values at its core and the real problem is to ensure that proper moral values, rather than immoral ones, are identified and promoted.
Consider, then, what might be the situation when proper moral values are integrated into the economy so that:_
• all people are able to come to ownership of productive capital
• all people get a proper reward for their effort
• basic poverty is eliminated
• all people have secure incomes
• there is societal agreement on just economic outcomes.

b) misunderstands who or what physically creates the wealth
The most fundamental thing in market economics is an accurate identification of who or what physically creates the wealth. If the markets are to work efficiently, whoever or whatever creates the wealth must get a reward equivalent to the production.
Yet neoclassical economics either ignores the matter (by assuming that what an input factor receives in payment genuinely reflects its physical contribution) or, more generally, simply fails to identify correctly who or what physically creates the wealth. Indeed, making a false assumption remarkably similar to that of socialism and communism, neoclassical economics alleges that human labour does most, if not all, of the wealth creation thereby downplaying and obfuscating the contribution of productive capital.

Thus the right wing (intent on keeping a narrow ownership of productive capital) alleges that it does not matter who owns the productive capital because jobs (and welfare) suffice for the bulk of the population. At the same time, the left wing argues that the workers (via the state) must own all the wealth because they produce it all. In other words, left and right in practice conspire to keep the capital assets either controlled by the state (which is manipulated by a narrow elite) or narrowly owned in the private sector. Neither left nor right has any concept of productive capital being owned individually by all members of the population and they both conspire to hide the truth about who or what physically creates the wealth.18
The truth, however, is clear _ wealth is created by human labour and productive capital. They sometimes work alone, but usually work in co-operation with each other, with an ever-increasing percentage of the output being attributable to capital. Thus, if all individuals are to be properly productive (and to produce an equivalence of what they consume) _ and if the economy is to become truly efficient _ the ownership of productive capital must be spread throughout the population.

c) does not implement Say’s Theorem (Law)
Conventional economics is fond of claiming that Say’s Theorem (Law) _ that, in a market economy, the total market value of the wealth produced is equal to the total purchasing power created by the process of production and therefore supply creates its own demand _ works in the present economy. The Theorem also requires that producers and consumers must be the same people.
Yet Say’s Theorem does not, and cannot, work as things are at present. This is because the physical production of goods and services is being largely done by capital, and capital is narrowly owned i.e., producers and consumers are not the same people (as is required if the Theorem is to work properly).19

However, an economy can achieve a balance of supply and demand _ i.e., Say’s Theorem (Law) can work efficiently _ if productive capital is distributed more broadly among the population, over time, on market principles, thereby ensuring that productive power and consuming desire are vested in the same people.20

d) believes in a zero-sum equation
The conventional claim of a zero-sum equation is that if somebody gains something, somebody else loses the equivalent. Thus conventional economics believes that no overall improvement in economics is possible and any improvement for the poor must inevitably involve a detriment for the rich. The belief is negative and, ultimately, selfish because every sane person knows that improvement is possible _ the world undoubtedly has enough productive capacity to eliminate poverty.21
Moreover, if there is the implementation of an economic justice which, at the same time, creates a greater economic efficiency, then there most certainly can be a win-win situation in which the poor gain and the rich do not lose. And the key point about wide capital ownership is that, in distributing productive capacity to those who have unsatisfied consumer needs, supply and demand are brought into balance, Say’s Theorem (Law) is fulfilled, and justice and efficiency are both forwarded at the same time.

e) has a narrow approach
Neoclassical economics views itself as a separate study _ and a narrow one at that _ thereby ensuring that it becomes sterile, negative and static. Three examples of the narrowness are that neoclassical economics:_
• generally ignores the fact that almost all of the modern money supply is interest-bearing money which the banking system
• creates out of nothing
• obfuscates or ignores the fundamental economic question of who or what physically creates wealth
• thinks that ethics is irrelevant to economics
Which, of course, raises the question as to what will an economics look like if interest-free money is directed at productive capacity, if the fundamental issue of who or what creates the wealth is properly addressed, and if ethics are incorporated into economics.

f) does not implement democracy
Neoclassical economics claims that it is inextricably intertwined with democracy. Yet a moment’s reflection reveals that neoclassical economics and democracy are two virtually opposite things. Democracy is supposed to be about the ability of ordinary people to influence their own lives and the life of their society as a whole. Yet the right to vote is a remarkably weak power exercised infrequently and with no certainty of a satisfactory outcome.

Now compare the weak power of the vote with the strong everyday power of those who have economic control over their own lives (and over the lives of others). In terms of influencing things, a person’s economic power (if she/he has any such power) is many times stronger than the political one.

However, since most people today are prevented from being independently and strongly productive they in practice have little control over their everyday lives. ‘Free market’ rhetoric continually talks about ‘democracy’ when it has no intention of introducing the true democracy which is based on the economic democracy of ensuring that all individuals are substantially, continuously and independently productive. A genuine democracy is possible but only when there is a genuinely democratic economy.

6.4 The change in the understanding of economics
A number of the flaws in neoclassical economics _ and the clues to a better Universal Paradigm economics _ have been identified. By considering those flaws and clues it is possible to see why a radical change is now occurring in the understanding of economics. The boastful neoclassical rhetoric has been shown to be just that _ boastful rhetoric _ and elements of the new way forward have been outlined. They include a necessity for the free market to become genuinely free; for everyone to own productive capacity; for the key issue of what or what creates the wealth to be accurately addressed; and for ethics to be introduced into economics.

It will not, however, be possible to fully understand all the change going on in economic understanding until the subject of finance and money supply has been discussed. This is done in the next section of this paper.

7. Finance and money supply
Where does money come from? Where do currencies _ US dollars, Japanese yen and UK pounds etc. _ come from? And why do the overall amounts of these currencies continually increase?

The answers to these questions can be quite difficult to come by because the origin of the money supply is generally a matter which neoclassical economics does not like discussed. Or if it is discussed, prefers that the subject of the money supply be obfuscated or just assumed to be a given, an inevitable part of nature _ one of those things that require little or no analysis or examination.

7.1 The money supply is created out of nothing
The reluctance to come clean on the subject of money supply becomes understandable once it is realised that the money supply is created out of nothing. In the UK, for example, 97% of the new money supply is created out of nothing by the banking system which does it very simply _ by pressing computer buttons (the other 3% is created by the government). Indeed, right the way around the world today, money is created out of nothing by the banking system which creates most of the money supply as loans to which a demand for interest (beyond justifiable administrative charges) is attached.

The neoclassical (and banking system) justification for creating money out of nothing
So is there any justification for letting the banking system continually _ and on a huge scale _ create money out of nothing? After all, making money out of nothing is usually called counterfeiting which is punished by long prison sentences. Indeed, how does the banking system commit the crime of counterfeiting and get away with it, free of penalty?

Firstly, the banking system is able to manufacture money, free of penalty, simply because people are not generally aware that the banking system creates out of nothing the money that it lends. Other people’s deposits are not used for the lending but the public usually believes that they are. All the time, various sorts of subtle propaganda are used to maintain this belief.

Secondly _ and this is the key attempt at justification of the practice of creating the lent money out of nothing _ conventional economics says that the purposes of the economy (and of society) are being properly served because the lent money is being directed at productive capacity. Thus conventional economics uses the phrase ‘endogenous money’. The dictionary meaning of ‘endogenous’ is ‘coming or growing from within’ and conventional economics claims its endogenous money (which is created by the banking system and which has an added requirement for interest) as being central to, and efficiently serving, the ‘free market’ economic system because the money is being lent for the purposes of the real economy and production.22

7.3 Conventional endogenous money is NOT directed at the needs of the real economy
But conventional endogenous money is NOT directed at the needs of the real economy particularly the need for new productive capacity, let alone a need for a capacity having new owners coming from those who were formerly without capital. At best, a few percent of the money supply is so directed. The rest of the supply goes into inflating the price of existing assets (e.g., stocks, shares, houses), or into massively increasing that gargantuan casino which is the world of derivatives23 and the like, or into ripping off consumers via consumer credit or _ and this is the worst aspect _ into putting individuals, corporations, towns, cities and countries into a deep debt which, increasingly, can never be repaid.

Thus conventional economics is truly hung with its own petard because its proclaimed justification for interest-bearing money created out of nothing _ that it is directed at the real needs of the economy _ is false.

7.4 The false savings doctrine of neoclassical economics
The recognition that money is created out of nothing by the present banking system has a most remarkable consequence _ it completely wrecks conventional savings and investment doctrine. That doctrine blithely states that, before productive capital investment can be made, there has to be both financial savings and physical savings. By ‘financial savings’ is meant money: by ‘physical savings’ is meant bricks, cement etc.

a) Financial saving
But if money is created out of nothing, the financial saving is simply not necessary _ the money for a productive investment can just be created. Yes, the money should be put into a productive capacity which will pay for itself. Yes, the money should be repaid and then be cancelled or cancellable. Yes, there should be collateral (security) provided to guard against the possible loss of the investment. And, yes, the private sector must not be squeezed out from building, managing and owning. But, with those things satisfied, a financial saving is not necessary _ indeed, if there is viability and sufficient demand, any project can be financed.

b) Physical saving
The position as regards physical savings is somewhat different. There may, for example, be a shortage of skilled labour (in which case, a project may have to wait) but there is rarely a situation where materials, or their substitutes, are impossible to obtain. Prices may rise, but there is rarely an inherent physical shortage.

Therefore, all in all, neither financial nor physical savings are necessary before new capital investment is made and thus neoclassical savings doctrine is a fundamental untruth. When that is understood, it is easily realised that a new situation can arise in which there is limitless possibility for productive investment if there is a genuine demand for its output.24
The (conventional) time value of borrowed money argument

Behind all the conventional justifications for the existing system is also the argument that there is a time value for borrowed money. This means that if you get some money now it has greater value (because it can "earn" interest) than the same amount of money borrowed next year.

And even further behind the time value argument are quaint, outdated, fossilised arguments that savings are necessary before investment is made and that lenders are "sacrificing" themselves when they lend money.

The truth, however, is the opposite. Viable capital projects to invest in are necessary; demand for the product of the projects is necessary; collateral is necessary; repayment is necessary; administration cost is necessary. But when money is created out of nothing financial savings (and the interest they bear) are not necessary and the time value argument has no validity.

7.6 Interest/riba is not only wrong but unnecessary
Now let us consider the subject of interest or riba. For Muslims, the taking or giving of interest is wrong. And at one time it was wrong for Christians, too. However _ to be blunt _ a secular Westerner (or even anybody other than a good Muslim) is unlikely to be troubled the slightest bit by a statement that interest is wrong. “What do I care?” he will say?

Still less are the proponents of unfree market finance capitalism likely to be troubled by the statement. “Wrong?” they will say. “What ignorant lunacy! Interest is at the heart of the world-beating ‘free market’ economy and so it must be right.” Thus a statement that interest is wrong is highly unlikely to make much progress in the real world today.

However, there is a statement which will trouble _ and deeply trouble _ those secular Westerners and proponents of unfree market finance capitalism and it is a statement which is capable of making huge progress in the real world today. The statement is that interest is not necessary.

A charge for the cost of genuine administration, of course, is necessary but such cost can often be low, even minimal. In the case of public capital investment, for example, the administrative cost is often substantially borne by the borrower and not by the lender (e.g., as when a government collects fees and taxes with which to repay its debts). Furthermore, part of interest payments can be in effect a guard against loss. But if collateral is adequate or largely not involved (e.g. when a government undertakes the obligation to repay, or when specific provision is made for collateral), interest is not necessary. Rather interest is an unnecessary tax which acts to the detriment of 80% of the population.25 Moreover, interest is something that compounds for evermore _ long after administration charges have been paid _ thereby indebting individuals, corporations, towns, and whole nations often in perpetuity.26

Putting the matter shortly, there is no justification whatsoever for the charging of interest long after all administration charges have been paid and when the principal of the original loan has been repaid once, even twice. Nor can there be justification for the everlasting charging of interest on money which has been simply created out of nothing by pressing computer buttons. Indeed, to claim that there is such justification is an outrage.

7.7 All of an interest-free money supply can be directed at productive capacity.
It is therefore time to recognise that interest can be viewed as a tax, a very large one, largely accruing to the existing rich, which is not only wrong but also unnecessary. Having made that recognition, it is then easy to come to a further recognition _ that, if interest is eliminated, the cost of loans for productive investment can be halved or more.

Moreover, there is the momentous prospect that, since today’s loans are created out of nothing, there is nothing to stop a state issuing interest-free repayable and cancellable loans as long as the loans are used for productive purposes and, in every way possible, administered on market principles (including wide ownership and feasibility of repayment).
Other important consequences include the diminution of the National Debt and the creation of counter-inflation as the interest-free money is directed at productive capacity and then, on repayment, is cancelled, leaving the productive capacity behind.
The new Universal Paradigm definitions of ‘endogenous’ and ‘exogenous’

In all dictionaries, 'endogenous' has the meaning of coming or growing from within and 'exogenous' has the meaning of coming from without. However, conventional economics (concerned with maintaining the contradictions and inequities of the present system) has perverted those meanings to almost their exact opposites and sees interest-bearing loans (which are not in practice directed at productive capacity) as truly endogenous. Quite how loans bearing an unnecessary tax (i.e. interest), and not directed at productive capacity can cause a genuine growing from within is never explained. Conventional endogenous money bears interest and, very generally, interest doubles, or more than doubles, the cost of a capital project. So how can something which doubles the cost of a project really be something which causes a ‘growing from within’? Something that hampers growing cannot be claimed to be promoting growing.

In complete contrast, Universal Paradigm thinking chooses to return ‘endogenous’ to its original meaning so that the definition of endogenous loans is interest-free loans arising within society which are always directed at productive capacity and the definition of exogenous loans is either interest-bearing money created by the international banking system operating within a country or interest-bearing money coming from abroad. The usual form of exogenous loans is that of interest-bearing loans which are not necessarily directed at productive capacity and furthering the needs of society; and which hand control of society either to a narrow elite or to outsiders.

7.9 The change in the understanding of finance and money supply
The change in the understanding of finance and money supply is very important in itself. But it is even more important in relation to economics because it is now increasingly comprehended that the present money supply is created out of nothing; is not directed at productive capacity (when it should so directed); and that interest is added when such addition is not necessary. It can be expected that the new comprehension of finance and money supply will soon be founding a revolution in the theory and practice of economics.

7.10 Gold (or other commodity) backed 100% reserve Islamic endogenous loans
Among other things, in order to ensure that inflation is not possible, the Universal Paradigm money supply is linked to productive capacity and, to give further assurance against inflation, is backed by gold (or other commodity).27 It is proposed that there be a rise in endogenous (as defined) and a decrease in exogenous (as defined) money supply eventually reaching a situation where the banking system must have 100% reserves for its lending.8. Modern Islam
In addition to the changes in the six areas, a powerful impetus is coming from a modernising Islam which profoundly desires to find a new, distinctive way forward _ one which is different from unfree market finance capitalism. The Islamic criteria include the need for:_

• a new way forward
• countries to control their own destiny
• markets
• private property for all
• participation
• partnership
• economic and social justice
• a non-inflationary economy
• riba to be avoided
• supply and demand to be in proper balance

But none of the above criteria are completely fulfilled by ‘free market’ finance capitalism and most of them are not fulfilled at all. Modern Islam, therefore, has every reason to be determined to find a new thinking

9. The Universal Paradigm
Taken together, the six changes in human understanding and the impetus coming from modernising Islam lay the basis for the Universal Paradigm which in its efficacy, justice, and overall sense of relatedness can be described as an understanding and implementation of Unicity or, in Islam, tawhid or, in Gaian thought, spiritual imperative.

From the Universal Paradigm flow prescriptions, policies and morality enabling, among other things: _
• an efficiency which produces justice and a justice which produces efficiency
• genuinely free markets and private property for all (rather than just the few)
• societies able to control their own destiny and not be ruled by outsiders
• all individuals to become continually productive (via widespread capital ownership) so that they have sufficient income for their reasonable needs
• a secure basic income for all inhabitants28
• reasonableness and fairness within societies
• a lessening of rich-poor division
• good health, housing and education systems
• an end to interest/riba
• a direct linking of new money to productive capacity
• a focussing of financial activity on the real, productive economy
• counter-inflation
• an end to the present financial system which is bent on putting the whole world into debt
• a decrease of the National Debt
van increase in political freedoms
• policy to unite inhabitants who have different linguistic, religious, geographical and ethnic backgrounds
• an ability of a society to control its own destiny as opposed to being ruled by outsiders and others
• an enduring stewardship of all forms of planetary life
• a new economic system29 which, by a proper use of endogenous interest-free loans, spreads productive capacity to all individuals in the population so that they produce (and thus earn) independently of whether or not they also have a conventional job. The result is a combination of efficiency with social and economic justice.30
Islamic endogenous (as defined) loans

9.1 The uses of Islamic endogenous loans
Islamic endogenous loans take the form of state-issued, interest-free loans (generally administered by the private banking system on true market principles). They are directly related to the real economy, made repayable and, when repaid, are cancelled or cancellable. The loans have four main uses:_

Public capital investment thereby allowing hospitals, roads, bridges, sewage works, fire stations, schools etc. to be constructed for one half, or one third of the present cost. Over time, the National Debt would reduce. However, the capital projects can still, if wished, be built by the private sector, managed by the private sector, even owned by the private sector. The key point is that the cost, at the very least, is being halved.

Private capital investment in large corporations IF such investment creates new owners of capital and is part of policy to enable all individuals, over time, on market principles, to become owners of substantial amounts of productive capital paying out its true full earnings.31 By using state-issued interest-free loans, administered by the banking system on market principles, a large company/corporation would get cheap money as long as new shareholders are created.32

Green capital investment, particularly for clean, renewable energy. At present, using interest-bearing loans, a lot of green technology is not financially viable. With interest-free loans, however, it would become viable. Thus we could have, for example, clean electricity through tidal barrages, dams, windmills, wave machines, solar electricity, and geothermal power stations.
Small and start-up businesses thereby freeing them from the crushing pressure of interest-bearing debt. (In the case of small and start-up businesses, there would be no requirement for wide ownership.)

Very significantly, these four uses _ for public capital projects; private capital projects if wide ownership is involved; green capital investment; and small business _ would back the currency with assets, break the grip of usury and, because they are directly related to productive capacity, would be counter-inflationary. The counter-inflationary tendency would arise because, once the capital project is built, and the money is repaid, the money would be cancelled, leaving the productive capital asset behind. The four uses, moreover, would implement a genuine free, fair and efficient market; throw off foreign and financial elite control, and address social and economic justice through the spreading of wide capital ownership and its associated capital income.

These uses could also combine with a genuinely Islamic Banking (which, unlike conventional banking, does not create money out of nothing, nor use riba _ interest). They have huge practical implications not least that the cost of all productive capital investment is reduced to a half or less of what it costs at present.33 Moreover, there would be a money supply whose origin is not fraudulent because it is directly and continuously related to the real economy with counter-inflationary effect.

Perhaps best of all, the widespread ownership of productive capital would give all owners a stake in the economic success, and social cohesion, of their society. By profoundly involving all individuals in the economy through individual capital ownership, political unity can be built. Countries with different ethnic, religious, linguistic or other groupings will be able to give all their people a strong sense of common cause and purpose.

If there ever was a time when fertility, positive attitude and momentum are required to achieve extensive change, it is now. The Universal Paradigm provides the necessary fertility, positive attitude and momentum for a new world containing a comity of proud, successful and self-reliant societies.
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Books:
Tarek el-Diwany, The Problem With Interest (Kreatoc Ltd., 2003).
Robert Ashford & Rodney Shakespeare, Binary Economics _ the new paradigm (University Press of America, 1999).
Rodney Shakespeare & Peter Challen, Seven Steps to Justice (New European Publications, 2002).
Masudul Alam Choudhury, Money in Islam (Routledge, 1997).
Masudul Alam Choudhury, The Islamic World-system (RoutledgeCurzon, 2004).
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Websites:
www.globaljusticemovement.net
www.cesj.org