This is a highly debated topic so I guess you should avoid making direct inferences like that . Avoidance of usury is generally prescribed in all religions including even hinduism on moral ground like taking advantage of one's shortcomings. On this pretext many consider charging any interest on loans as usury. The governments use laws to regulate interest rates etc in order to place a legal control over it, however there is no religious grounds for allowing usury or interest .

The thing is modern capitalist economies arose during age of enlightenment, a period when rational thinking was encouraged and religious teachings were compromised or compensated.
"When money is lent on a contract to receive not only the principal sum again, but also an increase by way of compensation for the use, the increase is called interest by those who think it lawful, and usury by those who do not." This statement from commentaries on laws of England by William Blackstone would very much give you an idea how it was perceived at those times

__________________
The precondition for existence of a higher humanity is not the state, but the nation possessing the necessary ability.

my friend there are two measure with a government to control the economy: the fiscal policy and the monetary policy. the banking system operates on the monetary policy and the government revenue/expenditure runs on fiscal policy. i have told you about both.

what else do you want in an economic system? there are no guidelines for consumers or producers in capitalism or communism. in that regard islamic economic system is more comprehensive.

i did say books are available in the market about islamic economics. and economics is simple; politicians make it complicated.


who makes the law in an unislamic state? who implements it? who protects it?
the same is with an islamic state. only that the legislature is independent. and in case of a dispute i don't think they will attack model town or storm the supreme court.
this is not how it works the way you mentioned it.
a higher interest rate leads to savings in the bank. then the bank gives away those savings as loans. those loans are then invested or consumed. the downside is that if you are getting an interest rate of 10 for your savings you won't invest it if the profits from investment is 7, 8 or 9. similarly if the profit is 9 and the bank is giving away loan at 11 then the investor won't take the loan. the money will stay in the bank and not become part of the investment.

also inflation is a function of too much money chasing too few goods. in case of a zero interest rate you are not only encouraging consumption but also investment. the higher demand will be met with a higher supply so do not worry about inflation. on the other hand a higher interest rate is also a cause of inflation as it does not leave investment to grow.

and conspicuous consumption is simply the consumption on luxuries. the government can anytime increase sales tax on luxuries to discourage their consumption.

whether you call it riba or usury or interest rate, it is the price of the time for which the loan is given and it is haram, simply. the person who gives riba, takes riba, records it and bears witness to it is equally sinful. if the sin of riba is divided in 70 parts then the sin of one part is like having incest with mother.

there is another hadith which says that halal and haram are well defined, it is your ventures in the grey areas in between that will lead to your destruction.

regards

Zero interest rate will cause hyper inflation

__________________
He that increaseth knowledge increaseth sorrow (Ecclesiastes 1:18)

Although I’m not an economist and have a very rudimentary knowledge of how it works, I’ll point out a simple flaw in the very beginning of your cause and effect chain.

Tell me, is interest rate the only factor affecting the investment? “Highest possible investment can be achieved by the elimination of interest" means that there are no other variables at work. Is that it? Are we keeping everything else constant? This is not a text book question but real life situation we are talking about. And if indeed there are other factors, and if indeed zero interest rates have other drastic effects as Buddha has mentioned, your whole chain of argument tumbles down. What do you say?

That is ethics, not economics.

You said that legislature in Islam in ‘voluntary’. May be I did not quite grasp what you were trying to say. Would you care to explain this a bit more? I would like to have a clear answer to the four questions I raised in a previous post.

If the interest rate is zero then every project seems feasible. Many gullible investors will rush to start things and in the process will not care much for efficiency. The result will be bulk of investment in those projects Which are not offering the best returns. Capital that can be used on better projects would be lost. Chances are that many incapable people will get loans from the banks because there is no tension of paying interest and not only they will not make any profits they will waste the original sum also.
Also increase in investment causes inflation because investment trickles down to labor force via wages and this higher income leads to higher demand for goods and thus the inflation.

"The current president of American federal reserve called for a tight monetary policy to check the Inflation wave in the country. She/he said that in previous years interest was lowered to encourage investment and employment but the time has come to increase interest."(I read her/his interview a year ago perhaps).

You can also read about Philips curve to know the link between investment and inflation.
http://en.wikipedia.org/wiki/Phillips_curve

If the interest rate is zero then every project seems feasible. Many gullible investors will rush to start things and in the process will not care much for efficiency. The result will be bulk of investment in those projects Which are not offering the best returns. Capital that can be used on better projects would be lost. Chances are that many incapable people will get loans from the banks because there is no tension of paying interest and not only they will not make any profits they will waste the original sum also.
Also increase in investment causes inflation because investment trickles down to labor force via wages and this higher income leads to more demand for goods and thus the inflation.

"The current president of American federal reserve called for a tight monetary policy to check the Inflation wave in the country. She/he said that in previous years interest was lowered to encourage investment and employment but the time has come to increase interest."(I read her/his interview a year ago perhaps).

You can also read about Philips curve to know the link between investment and inflation.
http://en.wikipedia.org/wiki/Phillips_curve

Zero interest rate would be a disaster for economy. Because of hyper inflation money will lose its value. Cash savings of people will become worthless and people could only barter for everyday needs. The result will be a total collapse of the economy

There exist no such thing as an Islamic Economic System. Islam like any other religion gives ethical guidelines to promote fair economic practices. In principle, Islam endorses a laissez faire economy as is given in the following ayah
Then if they repent, are diligent in the prayer and pay zakah, leave them alone.
(9:5)

"This verse explains to the Idolaters of Arabia the conditions which they had to fulfil to become Muslim citizens of the state of Madinah. If this context of the verse is kept in consideration, it follows from the words  (fa khallu sabilahum: then leave them alone) that just as a state cannot tamper with the life, honour and freedom of expression of people who have acquired its citizenship after fulfilling the conditions stated in the verse, it also has no right to commit any excesses against their assets, wealth and property." from Mizan by Javed Ahmad Ghamidi


Fellas, faith is a very powerful force that can greatly improve our lives. The better Muslims we are, better we will be in our social interaction. We will be better friends, better sons and daughters, better husbands and wives and better professionals and tradesmen. Islam teaches us honesty, truth, tolerance, charity and law-abidance. And if those traits are there in the individuals who act in an economic system then that is an Islamic economic system. Same goes for the political system; if the political actors are honest, wise and God-fearing individuals then they form an Islamic Political system.
Obviously there are some directions, which are not specific to economic practices, given by Islam which a good Muslim will automatically follow. For example Islam's guidelines about Halal and Haram; that a person should not deal in terms of Haram goods. Rest whatever laws govt makes, a good Muslim is obliged to follow them. These laws could be about quality of goods, about tax, about hording of grain etc. A good Muslim is expected to follow the laws even if he is part of an "UnIslamic System".

how? you are only speaking of the demand side. what about the supply side? zero interest rate will not only increase consumption it will also increase investment. demand will be met by a quick supply. also interest rate becomes part of the production process at every step. interest rate raises prices at the time of mining, processing, transportation, production, distribution and sale. zero interest rate will actually reduce prices and not raise them.

if you find any other factor other than interest rate for investment let me know. investment means not only production of goods and services but education, scientific research, public infrastructure and exploration as well. another factor affecting investment will be law and order situation.

the difference between western economics and Islamic economics is the fact that the west sees man as an organism whereas Islam sees him as a vicegerent. west says that there are scarce resources whereas Islam says that resources are plenty. the difference between both is of fundamental difference of their views about man and the universe.

the Islamic legislature is voluntary and independent. that means they do not have any interest in the passing or annuling of any law. compare that with modern legislatures.

my friend Islamic banking works on sharia investments. it does not just give away loans.

http://en.wikipedia.org/wiki/Sharia_investments

secondly in the present form of banking loans are given to earn interest from costumers. a zero interest rate means that modern banking system will have to go. because there is no profit for the bankers they are not idiots to just give away loans. and you might prepare a question about Islamic banking as a question did come in Islamiat 2014 paper .

the Phillips curve is a trade off between inflation and unemployment only in the short run. the long run Phillips curve is vertical i.e. fixed at a particular unemployment level. the long term solution is to shift the vertical Phillips curve to the left. how? by investing in long term development projects, education, infrastructure, research etc. and that can only happen with increased investment.

the depression was caused by lack of money. America now faces a problem of too much money thanks to a fluctuating, unreliable interest rate system.

lord Keynes is considered the father of modern economics. he pointed out a century ago that interest rate is an impediment in achieving full employment.

regards

I'm wondering how are you saying that zero interest rate is miraculously gonna fix the supply side?

Zero interest rate means people are going to spend, but that doesn't mean what they're going to buy is going to multiply. Investment does not mean that automatically we will have a huge supply! Resources are scarce. If they aren't scarce they come without price e.g. air.

Zero interest rate also means domestic investors will shift their FINANCIAL investments to other countries where there is at least rate of return, even a low rate of return(which is better than zero)!

They will supply rupee and demand foreign currencies esp. dollar or euro in foreign exchange markets which will depreciate the rupee. Result? Further inflation. Now depreciation in rupee will make imports more expensive! And that means Oil will be more expensive and it will raise other commodity prices which are linked to the Oil price. Inflation!

You're assuming investments are going to fix everything and beef up supplies. Can you tell us where will those investments come from and in what sectors will they be invested in? FDIs? Or domestic financial investors instead of taking their capital to financial markets abroad will decide let's invest in Pakistani mining or transportation? Risky business! Are their investments going to pay them back? Instead they will take a more reliable route and take their capital abroad to secure it.

__________________
He that increaseth knowledge increaseth sorrow (Ecclesiastes 1:18)