The approach of the modern islamic economics to the prohibition of interest in the context of theories of time preference and price control

Interest has been always a part of the humans' daily economic life. Therefore, the concept of interest has attracted an intensive attention, studied and discussed by philosophers, religious scholars, lawmakers, administrators and economists, regarding almost all economical, social, moral and religious aspects. Receiving interest was considered sin, condemned for being dishonorable, disrespectable, uncharitable, unjust, and source of many evils in many societies. For this reason, interest-based lending has been always restricted by the authorities through legislative, administrative and financial arrangements, religion and ethics. In cases where it was allowed, the rules of practicing interest were regulated heavily. However, despite all concerns and regulations, interest has been always practiced. By the seventeenth century, when the role of interest in economic life became more significant, the scholars began to deal with the concept of interest more systematically and many theories were developed on the nature of interest. Among many others, Böhm-Bawerk's comprehensive time preference theory of interest presented causes for the existence of interest that may be claimed to be inherent. On the other hand, a controversy emerged on the consequences of interest rate control in the relevant literature. It is claimed that, as a type of price control, prohibiting interest or limiting its rate have undesired distortive effects on the market. If so, the means-ends consistency in regulations may have to be reevaluated. In this work, we evaluate the responses of the regulation supporters to the causes of time preference asserted by Böhm-Bawerk as the justifiers of interest, and to the claims of the distortive consequences of interest rate control. The concept of interest with respect to its meaning, history and relevant theories is reviewed. The time preference theory and the concept of interest rate control as a type of price control are presented. Considering that the supporters of an interest-free economic system have the most explicit attitude against interest, the works of Muslim economists are scrutinized regarding their approach to the issues of the causes of time preference and the consequences of interest rate control.