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The Turbulence of the Stock Markets:
Their Causes & the Shari’ah Rule pertaining to these Causes

Hizb ut Tahrir

1418 AH / 1998 CE

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Selections from the Book

The stock markets in the West could not have come into being had it not been for three basic systems in the Capitalist economy. These are:

  The public limited companies system.
  The usurious banking system.
  The inconvertible paper money standard.

These three systems have come together to split the Capitalist economy into two economies, or into two types of markets: the first represents the real economy where the production, marketing and real services take place, and the second is the financial economy, which some refer to as the parasite economy, where the contriving, buying and selling of various financial papers takes place. These are considered as binding contracts, or cheques or securities, representing a transferable right by one party that can be bought and sold, whether in a company property, its debts, government bonds or real estate or in many other (rights) certified by financial papers that are transferable, and considered as a temporary option to buy or sell another specific right at a price that differs from the current market price (e.g. options contracts). All this has no direct connection whatsoever with the real economy. This parasite financial economy has grown to the point where the value of its transactions have exceeded those transactions undertaken in the real economy by manifolds.

The Shari’ah rule pertaining to this is as follows:

The public limited company system gives the public company a distinct quality of limited liability, aimed at protecting major capitalists and businessmen in case the company fails and incurs losses, in which case, those who have claims against it would not be able to demand from its investors any compensation no matter how large the personal assets of the investors are. The financial claims are only confined to what is left in the company in terms of assets.This system is contradictory to Shari’ah in every aspect. The Shari’ah rule obliges all to repay debts in full to the rightful owners, and it is forbidden to cut anything from them.