Money

Money is media of possessions.

A media is a channel of transfer/transportation.  

Air is media of sound. Road is media of people. Blood is media of nutrients and oxygen. Vacuum is media of energy. A wire is media of electricity.

A media is means of transportation. A thing through which another thing can change position.

If you want to go from point A on surface of a planet to another point B on the surface of same planet then you have to go through a media. It could be the surface itself, or air, or space or even underground. All of these are media.

TV, internet, radio, sms, phone calls are all media of information.

If you want to exchange possessions with another human being, such as give some hours of labour and get a cell phone in return, then you can conveniently do so by using money.

Note that you can do exchange without money. This is called barter system. In barter system you exchange possessions directly. In money system you first convert your possessions into money, then give the money to the other person, and that person give you the thing.

In every money based transactions, possessions are converted into money twice.

Anything can be made into money, as long as its scarce. Another requirement is durability. A piece of wood cannot be used as money for long period of time because it may get burned, termite-eaten, or just plain damaged.

Money is not valuable, possessions are. Money is supposed to be kept for minimum period of time, and quickly changed into a possession. Keeping money for long period of time jam the economy.

Money is like blood. Blood itself is not valuable. Its the nutrients and oxygen that it transports which is of value. Blood without nutrients and oxygen is useless.


Blood is supposed to be kept running. Nutrients are constantly poured into blood by stomach and lungs and transported to all parts of body. If blood is holded in one part of body for a long period of time then the other parts of body suffer. Same way if money is locked in purses or safes, then nutrients, that is possessions stop being transferred and the whole system suffers. This is why markup is haram.

When a party takes markup, it holds money. Assuming 10% markup rate per period (period can be year, month whatever), it takes 110 units of money per 100 unit it gives, next time it takes 121 units of money and so on. Its like in every cycle, more and more blood is supplied to a certain organ. The other parts of body suffers, as their supply of blood keep on reducing. The part that gets more blood also get damaged after an initial boom.

Markup is more dangerous than looting and levying unfair taxes. Its because none of these have compounding effect that markup has. A very cruel govt can levy a draconian tax rate of 70% but the tax rate remains constant, no compounding. Compounding is when the rate itself increase. Note that even at a fixed markup rate of 10%, the rate of income that goes to banks can increase. For example at an income of Rs. 100, the markup is Rs. 10, next year it becomes Rs. 11, next year to that Rs. 12.1. The percentage of income that goes to banks keep on increasing.

One can say that the percentage of income that goes to banks would not increase if markup is paid the first year. Indeed markup can be paid every year, keeping the percentage of income going to banks constant, if the world is perfect. World is not perfect, problems do come, businesses do fail, natural disasters do come, prices do fluctuate. In most cases, percentage of income going in markup increase, not decrease.

One can say that in an expanding economy, production on average increases, therefore the burden of markup would reduce, not increase, in future. The expansion of economy is an anomaly. The expansion is due to increase in extraction of fossil fuels. In a finite planet in a finite universe, expansion cannot continue indefinitely. Rules are supposed to cover normal cases, a rule is not supposed to cover anomalies.

Expansion for a limited period of time may be universal, but loans are given to individuals. There is no guarantee that in an expanding economy, all of the business would expand, some would contract, some would vanish.

The expansion not comes free. More and more human effort (even if its just mental effort) is needed every year. Its the working labor that is supposed to get the benefit of expansion, not a banker.

Another cost of expansion is pollution. More you produce more you hurt the environment. At sometime you have to pay for the damage of environment, in terms of diseases for example. These costs are usually ignored.

One can say that we can estimate cost of pollution and compensate that by reducing markup rate. One can say that cost of disasters human or natural can be compensated through insurance. One can say that failure of individual business in an expanding economy can be covered by bankruptcy laws (by which lender cannot have money back if business fails). Even with all of these safeguards markup is inherently bad, not just bad but dangerous to economy. Let me explain.

So you have insurance, bankruptcy laws and very low markup rate. Still there are things you don't cover. Such as fall in profits due to increase in production costs or decrease in produced goods prices or both. There is no insurance against these. If you put insurance against these then you kill efficiency at other places by killing competition. Even if a company is still in profit, just that profit percentage decreases, the percentage that goes in markup increases. The reduction in profit may expand till you are not able to pay all of your markup, that is when the compounding effect kicks in. The markup which goes unpaid adds in the base loan and next time you have to pay even more markup, reducing your chance of taking your troubled company out of trouble.

Another problem is that, money becomes a comodity. Money itself is not supposed to become a commodity. Its like buying air before talking. Money is supposed to flow free. Markup is as dangerous to economy as private ownership of roads to transportation. If roads are privately owned, certain critical roads can be blocked by their private owners altogether irrespective of pricing.