The Economic System of Islam

We continue with the serialisation of the epic lecture delivered by the Second Worldwide Head of the Ahmadiyya Muslim Community, Hazrat Mirza Bashir-Ud-Din Mahmud Ahmadra later published as a book titled, The Economic System of Islam. In this ninth part of the series, the need to use force in a Communist system as well as its use of interest are discussed.
To read the first eight parts, visit our website,


4. Force Needed to Uphold Communism

The fourth flaw of Communism is that whenever the system encounters a serious difficulty or challenge, it gets replaced by dictatorship, with consequences far worse than before. The reason is that by destroying independent thinking, the system is bereft of new ideas that might help to overcome the challenge. As such, when the process of decline sets in or the system collapses altogether, there would be nothing, other than dictatorship, to fill the vacuum so created. Germany accepted Hitler mainly because of the Communist movements that had swept the country. The experience of the French Revolution also supports that viewpoint. As the first wave of popular fervour over the newfound freedom receded, it gave rise to an autocrat like Napoleon. No one from among the ordinary people could assume the control of affairs under a democratic system.

 When the Communist system faces challenges, it is replaced by dictatorship, as seen in Russia. Lenin was followed by Stalin as dictator. © De Visu |
When the Communist system faces challenges, it is replaced by dictatorship, as seen in Russia. Lenin was followed by Stalin as dictator.
© De Visu |

Communism may choose to call itself a proletarian or a totalitarian regime. There is little doubt that this kind of system eventually and inevitably leads to dictatorship. In fact, the current situation is that although they claim to support representative government, in reality they do not share governance with ordinary citizens. There has only been dictatorship since the inception of Communism in Russia. Lenin was the first dictator, who was succeeded by Stalin; Molotov may well be the third dictator, and so on. In any case, such regimes cannot survive without the use of force, and the Russian experiment stands testimony to that.

5. Interest, a Part of Communist Philosophy

The fifth flaw of Communism is that it has not rejected the institution of interest as part of its philosophy. It is claimed that there are no private banks in Soviet Russia that operate on the basis of interest. I do not at the moment have any certain knowledge that this is actually the case. But the absence of banks that run on the basis of interest is an entirely different matter from rejecting interest as something fundamentally wrong. The absence of such banks may be due to a number of reasons: lack of facilities, general ignorance on the part of the public in regard to the working of banks, or just expediency. When the necessary facilities are installed, the public gets educated about the banking system, or when the opportunistic policy is abandoned, individual banks may start operating throughout the country. But when something is forbidden as a matter of principle, no change in circumstances can make it lawful or acceptable. Communism does not put interest under this absolute ban. There is no prohibition of interest in the communist literature, which leads me to conclude that Communism is not fundamentally opposed to the institution of interest. I find, besides, that the Soviet government borrows from other governments that lend only on interest. Thus, it is clear Communism is not against interest— indeed, it accepts its use. During this war, the Russian government borrowed from Russian people, which I surmise must have been on interest. If I am correct that Communism is not fundamentally opposed to interest (in fact, various developments leave no other conclusion possible), it must be conceded that the dearth of interest-based transactions in the country is only a temporary phenomenon and a consequence of the extraordinary changes that occurred since the overthrow of the old order. With the expansion of Russian trade and industrial development, the Soviet State too would increasingly resort to interest-bearing loans, just as in other European countries. Accordingly, for the successful prosecution of wars and industrial development, the branches of the state bank will be established in the country, and the institution of interest would take the country from Communism to Capitalism, just as it did in the other Western countries.

6. Adoption of Prevailing Exchange Rate System

The sixth flaw of the Communist economic system—one that will not let it supersede capitalism—lies in its adoption of the exchange rate mechanism, which emerged out of banks’ manipulation and government interference. Communism not only supports this mechanism, but has chosen to act according to its dictates. As it is, the exchange rate (which is the relative price of two currencies) is no longer determined by a country’s balance of trade, but is fixed by the great economic powers. In fixing the exchange rate, these powers pursue basically their own self-interest and trade strategy. They take into account not only the current balance of trade but also the development of future commercial relations. As far as the weaker or poorer economies are concerned, their exchange rates are in the hands of banks. Weaker countries often complain about the prevailing system but their protests go unheeded, and they continue to face a disadvantage in trade, as they lack sufficient economic influence. As things stand, an exchange rate between two currencies is essentially artificial and can be utilised to their advantage by banks as well as governments. As a result, international trade, instead of being governed by supply and demand conditions in the markets of commodities and precious metals, is driven by the exchange rates between different currencies. Consequently, the trade of the weaker economies is subject to manoeuvring on the part of banks, while the trade of the stronger economies is influenced by political considerations. There is no doubt that the exchange rate system has facilitated commerce, and the growing volume of international trade would not be possible without a satisfactory system of exchange. But it is not necessary for that the exchange rates to be subject to politics and used as a means to exploit poor economies.  With careful consideration, it should be possible to adapt the old barter system—which was based on the exchange of goods, not the exchange rate—to meet the present-day requirements of trade, while protecting it from government interference.

The banks and government manipulate the exchange rate system to suit their own needs. © Bankoo |
The banks and government manipulate the exchange rate system to suit their own needs.
© Bankoo |

After due consultation with traders and government representatives, the exchange rate regime could be adjusted as needed, but its guiding principle must remain the exchange of goods rather than paper money.  After the war [of 1914–18], Germany manipulated its exchange rate and depreciated its currency so much that capital began to flow into the country from all over the world. And when it had built up large enough foreign exchange reserves to meet its commercial requirements, Germany just abolished its currency at little or no cost. This kind of measure could not have been possible under the barter system. Russia did attempt to follow in Germany’s footsteps, but because of its lack of financial expertise and backward industry, it could not derive much benefit from it. An artificial exchange rate, in short, is a weapon that the strong can use to gain control over the trade of weaker countries and to make trade flow not in its natural directions but into channels of their choice. By accepting the prevailing exchange rate system, Communist Russia in effect has left the foundation of capitalism intact. As a consequence, with the growth of its industries, the country would resort increasingly to this weapon to secure new markets, thereby gaining control over the trade of weaker countries. The Soviet State may of course amass great wealth this way, but in the process she would undermine the weaker economies and thus nullify the very principle that gave it birth. [1]

7. Compulsion in Economic Matters

The seventh flaw is that the Communist system requires the use of force to run the economy, which ends up only hurting the country. It seeks to confiscate the wealth of the rich, leaving them with only the bare necessities of life. Irrespective of the merits or demerits of the objective, the issue is that Communism regards it legitimate to use force to pursue its objectives. Instead of relying on education and persuasion to make people gradually change their attitudes and become more compassionate towards the poor and accept the principle of equity, Communism, on coming to power, employed only force to deprive the rich of their wealth. Clearly, this process could not but rouse hatred for the system on the part of the dispossessed. Those who suffered in the process could hardly have any sympathy, instead of resentment, for the Communist system.  Without question, Islam too took away wealth from the rich, but it did not use force. It relied in the first place on persuasion, but it also went on to remove the incentives to amass wealth. This was followed by discouragement of excessive consumption as well as admonition to give zakat and charity to help the poor. Finally, wealth that still remained at the time of a person’s death was distributed among heirs. Thus while both Communism and Islam sought equity, the former relied on forcefully taking away wealth from the rich, while Islam relied on persuasion. The result is that there is a significant cross-section of rich Russians living in other countries that oppose Communism for usurping their wealth and reducing some of them to a life of penury.

Communists are mistaken in thinking that there is no opposition to the communist system in other countries. They do not realise that the opposition is hushed only because the Western powers—America and England—need Russia’s help in the war effort and are not prepared to allow criticism of Russia. As the war comes to an end, the Western governments will not be able to control the freedom of expression, and schemes for the elimination of the communist system will once again begin to emerge. (It may be noted that soon after this speech, the Second World War ended and criticisms of Communism became very strong, especially in the United States.)



  1. The author’s above remarks were both profound and prescient. Soon after the time of this lecture, The International Monetary Fund (IMF) and the World Bank were established, and currency manipulation by any country was made unacceptable and subject to sanctions. (Publishers)





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