Politico-Economic Justice, Part III: The Islamic Principle of Harmonic Justice

Politico-Economic Justice, Part III: The Islamic Principle of Harmonic Justice

By Dr. Robert D. Crane

Harmonic justice is an Islamic term invented twenty years ago at the Center for Economic and Social Justice in Washington, D.C., in order to provide a framework, based on tawhid and mizan, for the creation of money, the provision of credit, and the limits to taxation.  The purpose of harmonic justice is to promote self-determination (freedom) for persons and communities so that they can best acquire the necessities of life and fulfill their higher potentials. 

Tawhid is the coherent and purposeful ordering of the created universe based on the Oneness of its origin.  Mizan is the balance that sentient beings can and should maintain in this world of diversity in order to understand and deal with the seeming chaos in their own lives and communities.  The greatest Islamic scholars over the centuries have developed this framework in the maqasid al shari’ah or irreducible purposes of jurisprudence.  In one expression or another this paradigm of justice is found in all the world religions.

The technical definition of harmonic justice in the glossary of the Center for Economic and Social Justice reads: “Harmonic justice is the feedback principle that through the competitive market system balances input (Participative Justice) with outtake (Distributive Justice)”.

Freedom means many things, but mainly it involves a responsibility to be the person one was created to be and to build a community based on the search for higher meaning in life.  This term, derived from the word Freiheit, comes from the ancient Anglo-Saxon and Nordic culture that gave rise to the Great American Experiment.  Freiheit is the opposite of liberte or liberty, which is a Continental term of recent origin meaning most simply “get out of my way, because I personally am the source of all meaning”.

The purpose of freedom is to pursue justice, both transcendent and immanent.  Freedom is the opposite of slavery.  Slavery is denial of the right to own one’s own labor.  Slavery is also one’s de facto status of servitude when someone else owns the tools with which one earns a living.

Harmonic justice is designed to bring a balance between contributory (participative) and distributive justice.  Contributory justice is the right of every citizen individually to contribute both the ownership of one’s own labor and the ownership of one’s capital to production.  Distributive justice is the right to own the profits from both one’s own labor and one’s ownership of capital.

Failure to maintain balance between input and output will create pressures to introduce re-distributive justice, i.e., taking from the rich to support the poor, which is the essence of radical liberalism, socialism, and Communism.

Two institutions are essential to produce harmonic justice.  The first is the introduction of pure credit based on future wealth production rather than on past wealth accumulation, so that universal capital ownership as a basic human right can be accomplished without stealing from the existing owners.

Two objections are advanced against pure credit.  One is that it costs money to create money.  This is based on the false Keynesian assumption that economic growth must come from past savings in a world of scarcity and from government bailouts of an out-of-balance economy.  Of course, it would cost the economy if the government creates money, as it is doing now, with the recent handout to Goldman Sachs, so that Goldman-Sachs can buy treasuries and earn interest at the expense of the government and American taxpayers.  This is a crime against humanity.

The other bogus objection to pure credit is that it allegedly would be inflationary.  The “printing” or creation of money is inflationary only if it is used to finance consumption, particularly through interest-burdened debt (including the federal discount mechanism and fractional reserve banking), because there will then be more money than the amount of goods to spend it on.

How does one avoid these objections?  Section 13 of the Federal Reserve Act of 1913 provides that the purpose of America’s central bank is to provide money for investment in productive goods when rapid economic growth outstrips the available investment funds in the private sector.  According to Says Law and the Real Bills doctrine, such creation of money is not inflationary because the goods that are produced absorb the money.

This is particularly true if the consumers are also the owners of the capital that produces the goods, because then income and outgo would be the same.  Billionnaires can consume only so many mansions, yachts, and private jets.

The next question is how does one broaden capital ownership as an essential and universal human right in the modern era when 90% of production and profits come from capital, i.e., the tools, production methods, and managerial know-how that produce real goods.

The first method, which would be at least marginally effective, is known as the sharing of profits between capital owners and employees.  Several laws relating to banking, credit, and taxation were passed in the early 1970s to make this profitable for business owners.  These are known as ESOPs (Employee Stock Ownership Plans).  ESOP companies in America now number more than 11,000 with over 11 million worker-owners sharing the profits of production through these plans.  The productivity of the beneficiaries, namely, the business enterprises, according to a New York Stock Exchange study, increases 30% if the worker ownership stake exceeds 30% so that the workers begin to think like owners rather than like slaves revolting against their masters.  The real task here is to introduce a mindset so that employees will care more about profits than pay.

The problem of concentrated capital ownership and the devastating effect it has on efficient production was brought home to me when I worked the night shift in a factory during the 1950s to support my family while getting a degree at Northwestern University.  I could have increased production five fold, but the union bosses forbid me from ever telling the management, for example, that I could inspect pipes passing over a light table for flaws moving five times as fast as they did and ten at a time instead of one.  If the workers had earned from the vastly increased profits as owners, and had formed ownership unions rather than labor unions, they would have been the first to demand more efficiency.

The rapidly increasing wealth gap and disfunction of the American economy is not a new phenomenon.  The disease itself and the partial solution to an economy out of whack was brought home to me also by one of America’s great labor leaders, Walter Reuther.  During his tenure as leader of the UAW (United Automobile Workers) from 1946 at the age of 39 until his death in a plane crash in 1970 he built his union up to one and half million members.

In testimony before the Joint Economic Committee of Congress on the President’s Economic Report on February 20, 1967, Walter Reuther said: “Profit sharing in the form of stock distributions to workers would help to democratize the ownership of America’s vast corporate wealth which today is appallingly undemocratic and unhealthy.  The Federal Reserve Board recently published data from which it is possible to estimate the degree of concentration in the ownership of publicly traded stock held by individuals and families as of December 1962.  Preliminary analysis of these data indicates that, despite all the talk of “people’s capitalism” [a term I invented in 1962 when I was a Principal in the Center for Strategic and International Studies] in the United States, little more than one percent of all consumer units owned approximately 70 percent of such stock.  Fewer than 8 percent of all consumer units owned approximately 97 percent – which means, conversely, that the total direct ownership of more than 92 percent of America’s consumer units in the corporation-operated productive wealth of this country was approximately 3 percent.”

Reuther continued, “Profit sharing in a form that would help to correct this shocking maldistribution would be highly desirable for that reason. … If workers have definite assurance of equitable shares in the profits of the corporations that employ them, they would see less need to seek an equitable balance between their gains and soaring profits through augmented increases in basic wage rates.  This would be a desirable result from the standpoint of stabilization policy because profit sharing does not increase costs.  Since profits are residual, after all costs have been met, and since their size is not determinable until after customers have paid the prices charged for the firm’s products, profit sharing as such cannot be said to have any inflationary impact on costs and prices.”

Much more important than mere profit sharing, would be the use of pure credit to provide capital investment accounts for every American at birth.  Based on annual allotment of capital credit of $7.000, under the Capital Homestead tax reforms a baby born today would accumulate a little more than $462,000 after taxes in assets by age 65, which should produce more than $46,000 in constant dollars of dividend income. 

Over those 65 years of Capital Homesteading investments that citizen would have earned almost $1.6 million in after-tax dividends to supplement his or her other sources of consumption income, which should be more than enough money to pay for higher education and ordinary medical expenses.  There is no way that the existing system of money, credit, and taxation, relying on governmental provisions for Social Security, Medicare, and welfare distributions, can possibly provide these essentials of a working civilization.

This infusion of money would not be designed to increase consumption, as it would in Keynesian economics, but rather to increase production, so that, according to Say’s Law, production and consumption would be in balance.  This, in turn, would remove or at least reduce the swings between boom and bust, which eventually without reform of our institutions in money and credit can only cause continuing suffering for millions of Americans.

The essential problem is not the greed of capitalists or the envy of the oppressed but an American educational system that has spread its poison all over the world.  Our universities have produced a world of brain-washed automatons who worry either about full employment or about transparency of action in doing what the financial system has been doing all along, rather than about the justice and increased productivity that would result from removing the barriers to broadened and universal ownership of productive capital.

In an era when capital produces 90% of the wealth and labor only 10%, we need to introduce the principles of binary economics (both capital and labor), whereby producers and consumers are one.  Failure to reconsider the entire bases of modern economic theory inherent in Keynesian economics will accelerate the wealth gap within and among countries.  This will assure that global terrorism and terroristic counter-terrorism will be a major and increasing part of life in the 21st century until civilization itself may simply self-destruct.

The so-called “wise men” in the White House, both in Republican and Democrat administrations, have blinders about the very concept of natural law and compassionate justice, which is why they refuse to consider that they might be 100% wrong in their bankrupt strategies to facilitate peace, prosperity, and freedom. 

If we want real change, we need only rehabilitate and adapt the founding principles of the Great American Experiment in self-determination, which are based on the coherence of a diverse world and the balance of harmonic justice.