The Risk-Sharing Organizing Principle of Iqtiṣād

The stabilizing role of risk-sharing in an Iqtiṣād-driven system can be understood in relation to the nature of economic uncertainty. There is an irreducible amount of randomness in economic systems, which implies that failure to predict the future cannot be simply explained by flaws inherent to human knowledge. The notion that uncertainty and imperfect knowledge are part of economic life precludes the argument that it is also possible for certain economic agents to insulate themselves from losses through debt agreements based on risk transfer. There is evidence that interest-bearing debt is the source of financial instability. and that central bankers are losing traction of the interest-rate transmission mechanism, and thereby, control of monetary policy. In contrast, risk-sharing in an Iqtiṣād system promote financial stability, which is conditio sine qua non for economic development and full employment. This organizing principle provides remedies to the central contradiction of capitalism as it prevents capital from reproducing itself faster than output increases, and the past from devouring the future.