Contrasting Islamic & Marxist Positions on Discounting

Marxist theory regards both interest and profit as forms of surplus value which stem from the exploitation of labour and must be eliminated in a socialist state. For this reason, discounting was neglected in the economic planning in most communist countries. After Stalin, several Soviet economists were gradually able to argue that discounting is theoretically essential to optimal investment planning. As a result discounting has been shyly introduced, implicitly under different names, or explicitly as a shadow price.

Some Western economists were quick to depict this matter as a theoretical retreat on the part of Marxist economists (Samuelson, 1976, p. 606; Eckaus, pp. 640-41). Does not the acceptance of discounting by Muslim economists represent a similar theoretical retreat?

I hope the reader will immediately see that such criticism is totally irrelevant to an Islamic economy in which profit is accepted as a legitimate source of income while interest is rejected. Rates of return based on profit provide the discounting factors used in such an economy. In contrast, the Marxists’ dilemma is caused by their rejection not only of interest but also of profit. It is understandably embarrassing for them to have to admit that the supposedly exploitative profit rate has a necessary social function even under socialism.

Source: Fiscal Policy and Resource Allocation in Islam, Ziauddin Ahmed, Munawar Iqbal and M. Fahim Khan. Republished with permission.