Saudi Arabia's Islamic Growth Model - Applications to Monetary and Banking Policy
Abstract
Perhaps no other area of Islamic economic thought has been more misunderstood than that concerning the role of the rate of interest. Any economic system concerned primarily with the welfare of the individual must not only encourage allocative efficiency but also promote economic growth if it is to avoid social injustice, economic stagnation and widespread unemployment. The method of state allocation utilized in the Eastern Bloc countries is one possible way of avoiding the widespread use of interest rates, given that the complete or near complete socialization of the means of production that this system requires is contrary to the individualistic moralistic philosophy of Islam. The Saudi government is, given its concern for the welfare of the economy, left with little choice but to somehow direct savings through the organized capital markets to the private sector. The difficult problem from an Islamic point of view arises because the only known method of encouraging the productive use of savings is to raise the interest rate to the point where the discounted marginal social cost of investment is equal to the discounted marginal social benefit of investment. If the interest rate is not permitted to rise to some positive value to discourage marginal and inefficient projects, it is likely the kingdom's objectives of social justice with material betterment for its citizens will not be met.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jan 01, 1985
- Accession Number
- ADA529253
Entities
People
- Robert E. Looney
Organizations
- Naval Postgraduate School