63: This Is How Monetary Policy Works in The Islamic State

up more, Joe. This is a momentous occasion exactly, this huge new endeavor we're taking on a three part series on money, markets and crime. Pause for effect. Okay, I'm excited, me too. So normally we talked about markets and finance and money in the sort of the legal world, the regulated world, but of course all of these same phenomena exists, uh in the in the illegal world and off of

exchanges and outside of official official industries. Well more than that, right, because you could argue that in the absence of legitimacy, money is kind of the thing that drives crime and makes it happen and makes the criminal world go round, so to speak. Right, you could you could probably argue that for our first episode, we're going to talk about what maybe the what might be considered to be the largest criminal entity in the world right now, and that

is uh Isis or the Islamic State. Okay, well, I mean this is a topic um that's pretty close to home for me right now, which is um abi dabi and obviously a topic of great concern. It's interesting to come at it from a monetary angle. What exactly are

we going to be talking about there? Well, I mean, so they've established the new geopolitical it today or it's a few years old by now, but it's always sort of I've always been curious, like how money really works, because any new geospatial entity, just like any other nation state, has to kind of you know, have a currency and taxes and all that kind of stuff. And so I think we should talk about how how it all really works. So with us today in studio here is Graham Wood.

He is a lecturer at Yale, he's at the Atlantic and he has a new book out titled The Way of the Strangers Encounters with the Islamic State, and I recently read it and it was phenomenal. So I wanted to bring Graham in. So Graham, thanks for joining us. Good to be here, Joe Tracy. So your book is now, just to be clear, your book is not even really about the operation of the Islamic State specifically. What you did is you went around the world. Well, describe what

your book is like you do. My book is an exploration into the mental world of the Islamic State. And you know, there's physical territory that they control, and then beyond that, they have this network of supporters that's worldwide. That's in the Caliphate itself, Syria and Iraq, but that's also in places like Tokyo, Melbourne, the United States, Western Europe, and it's it's it's a whole vision of what the universe is, what the best way to organize a human

society is. And this of course includes how to actually administer a state in that includes aspects of finance and economic policy that people were willing to describe to me in pretty great detail. So one thing I've learned from living in the Middle East is um. The Islamic faith is open to significant interpretation. And while a lot of it is based on the Quran, um a lot of it also revolves around people trying to interpret the Koran and figure out how to apply it to modern life.

So I guess my question is, if you think that the Islamic State is fundamentalist when it comes to islam, um, how are they interpreting Islamic treatment of monetary systems. Well, in some ways, the Islamic states view of finance of

economic policy is pretty orthodox within Islam. Like you have a burgeoning Islamic finance industry that tries to get around, for example, the charging of interest, which is called ribba in Islam and traditionally has has not been permitted, and the Islamic State, of course it outlaws that it falls into line with kind of orthodox readings of of what's permitted as tools or instruments of of of economic policy.

So that's that's part of what you see there. You also see, though, a much broader adoption of some of the early practices of Islam as the Islamic State reads it, and that includes things like getting rid of fiat currency, getting rid of a whole range of of other economic instruments that that exist and that are used in a

place like even Abu Dhabi. But that the Islamic State, because that their pretensions to purity uh has tried to get rid of what do they see, you know, they tried to practice extreme fealty to the sort of letter of the law. They go back to, you know how the profit lived. Where in the Koran or elsewhere is a fiat currency outlawed? Yeah, so the profit is said to have have said this, that that that's the form

of currency that that we should follow. That was what was instituted during I believe his own lifetime was of a gold dinar, and then discussion of silver and copper as well. So that's a perfect example where the Islamic State they have this kind of holier than now attitude, and so you can actually see the videos that they've put out in their propaganda saying, hey, look at this beautiful new coin that that we have minted, and that that once we're really up and running, this is the

only thing we're going to use. I think Tracy was just watching one of these videos, weren't you. Yeah, So I quickly googled one of these um right before we know, I should say, I've been doing my research for many, many weeks, and I came upon this video ages ago, and I looked at it and uh interpreted it and analyzed it for many many hours Isis has amazing production values on their videos. Um, that's one thing. And they put out a video about money essentially, and there's all

these references to Bretton Woods and the Federal Reserve System. Um, and yes, there are pictures of some very very shiny new coins and it's essentially a propaganda video for their money, which is pretty amazing. Yeah, from my perspective, I watched these videos all the time, and you know, first of all, it's nice to have one that has no bloodshed in it.

And this is one of them where that they take the coins and you know it's it's a gold, shiny coin, So you get good fighting, you get a good camera, and you've got quite the image of a guy at a bureau of change, you know, in the middle of the Islamic state, fondling this new coin and then talking about how, wow, no longer do I have to deal in paper currency with pictures of the White House on it. Instead, we've got something that that is purely Islamic, gets back

to the prophetic model. That's the vision that they try to put forth with with everything that they do. And in this case, you know that they actually do have historical precedent and scripture that they turned back to. It's

you know, it looks looks good. The fact that they don't actually use the din r for for very many, you know, day to day transactions in the Islamic State is beside the point that the theory is there, and this is again the mental world of the Caliphate is thinking that whether they're actually doing it, they're on the

right track. Well, so I was just going to ask about that, what is the gap between the their idealized vision of a system based on these beautiful gold dinars and what they're actually using day to day most people to say buy things, Yeah, I think day to day you'd find them using local currencies. You find Iraqi dinars, Syrian pounds, and then you would find U S dollars

probably used used as well. Now there is some use of the Iraqi diner or excuse me, the Islamic State dinar as well, when we know about that because of some recently revealed documents that prohibit the the export of

the dinar, the Islamic State dinar. So apparently they're out there in circulation and some coin enthusiasts somewhere is going to get one of these and it's gonna be really valuable, but what they're actually using in day to day practice is probably something that actually resembles a fairly normal economic system.

And I should just point out that's really interesting because um monetary regimes throughout history that have been based on gold have always had this export problem that they want the currency to circulate within the economy, but there's the problem of why not just take the gold and get

it out of the economy. So kind of fascinating that they're experiencing something on that or trying to prohibit something that regimes have dealt with for hundreds of years on this and this really shows that the Islamic state exists in the world economy despite itself. You know, they are subject to the same pressures, the same inflows and outflows of capital. And yeah, the rules of of the rules of economics, they do not cease to apply just because

you want to live back in the seventh century. Well, I was going to ask, so, how much is the hatred of fiat currency down to whatever um the prophet says in the Kuran versus how much of it is down to the idea that fiat currency ultimately is associated with our modern monetary system and associated um with Western economies, which presumably isis Um is not a big fan of In my experience, you could ask people for the reasons for for favoring one policy or another, and they'll always

start with the principled reason. They say, well, this is what the prophet said we have to do, so we'll do it. And then they'll go to the more instrumental arguments for it, and they've got a whole slew of kind of warmed over economic conspiracy theories, plus crankish views of of how international finance does and should work, and

they'll start invoking those two. So you'd find people who have almost uh um, maybe a fringe e kind of occupy a view of the world and say, look, finance is a corrupt system to such a degree that we need to to burn it away, and that's luckily we

have this prophetic model where we can do that. And so they think that if we get the kind of vampiric finance industry off of our backs by getting rid of interest, by getting rid of of fiat currency, then the economy will be unleashed and we can have a big raft of social programs that will be funded by the large s It's interesting how an I don't want people to inter with this the wrong way, but how people with UH fringe viewpoints across the sort of spectrum

often arrived and similar solutions. And you profile one of the people you profile or a couple of you profile in Texas, and I think the wife at least in this couple was UH Ron Paul fan. And I'm not saying that Ron Paul fans are the same as Isis, but you have and your stretch. I don't because someone's gonna get really angry and say that I compared Ron Paul aderans to Isis. But you know, there ends up being this sort of ideological overlap. And monetary policy is

a great example. Yeah, it's actually not just the wife but the husband as well, who is American from Plano, Texas and is the most important American in the Islamic State today. Both of them huge Ron Paul fans. And yes, I too would like to say clearly is not a member of the Islamic State, and most Islamic State members are not fans of Ron Paul, and most Ron Paul fans are not members of the Islamic State. Yes, those of you who wish to disregard my caveats here. I

look forward to your mail. Now. Yes, their view of the world economy was one that had kind of conspiratorial aspects to it, even without support for the Islamic State. But they saw, for political reasons as well as economic reasons, kind of vindication of Ron Paul's ideas in the rise of the Islamic State. She, by the way, is not part of the Islamic State. She left Syria with their kids. And yeah, the dad's still over there and is churning

out mostly non economic writing about the Islamic State. But he's out there and working hard. Isn't it amazing that? I mean, on that note, isn't it amazing that decades after um, we've been living with paper currency and you know, we had the introduction of Bretton woods and modern monetary systems and all that, Like, we still seem to have a significant portion of the population that remains obsessed with gold and silver, these things that they can touch that

they feel have intrinsic value of some sort. It's just like, I mean, it kind of speaks to thousands and thousands of years of human nature. I guess. Yeah, this American that I've named his name is Yahia Abu Hassan in my book. It's the first time his identity has been revealed. The comparison that I often reached to um to previous American traders is as a pound poet. Yeahhia Abu Hassan runs a lot of poetry as well, and as repound.

You know, he was a huge efficionado of of economic crank theories, major Douglass theory of social credit views of You can even see it in his poetry talking about gold and the Wonders of Gold. It seems to be a recurring disease that American fascists fall for where they find some utopia which which flatters their their negative views of the economic industry that they that they saw back in their home country, and then they fall for it completely and then go um in the case of Yaha Hassan,

probably to his death. I want to switch gears, but before we do, I want to ask one more questions, specifically about the money and that is isis has to interface with the non isis world. There they are not completely self sufficient done I believe food and energy? They sell oil. How did those transactions work? Like? How does ices ultimately, you know, go to market and sell oil or whatever they have to sell to get money from the outside world for imports. What are the mechanisms there?

You know, I have to guess in some of these cases because the transactions are black market transactions and transactions. If you're buying money for buying buying oil rather from isis than you have to do this under the table. So I'm guessing it's largely bags of cash to be quite honest. Um, but you're right. The the interface between the Islamic state and the rest of the world is the only way that this group can survive. They need money and goods to flow in and out, and that's

actually where they most of their cash. I mean, it's I think that there's a misconception actually that most of it's coming from just selling oil. It's mostly just people having privately their own transactions. And then isis getting its tax skimming off the top of wealth and income. How does the tax system work? Yeah, So they have again a scripturally ordained view of how attacks should be imposed.

They believe that there is charity that has to be given by all Muslims who make a certain um beyond a certain cut off. Point, so they take that it's called zakat, and then beyond that there is a low I think it's I think it's single digit percentage tax of wealth and income that they take beyond that, and then there's certain categories of wealth that again because of scriptural requirement, they take. So um, there's a whole category

called kanima, which translates to spoils. And if you're fighting on behalf of the Islamic stay eight and you know, you shoot someone and then you go grab his stuff that belongs to you. But there is a tax called the homes, which means tax that reverts to the state. This includes even if you're enslaving women sex slaves. If you get ten of them, then guess what two of them go as to property of the state, and they can be sold or disposed of as the caliph desires.

So one of the themes that we talk about, in addition to UH finance and markets that we've hit on several times on this podcast, it's just all the different ways that the Internet is changing society and profound changing the world profoundly, whether it's how we organize ourselves politically, whether it's the collapse of experts UM. People have obviously talked a lot about online recruiting, people discovering the Islamic State UM through the Internet, traveling to the Islamic State

based on information they find. What is UM explained to us sort of what is the role of the internet in allowing isis to exist? I think first we have to say what it's not. There is this misconception that the Islamic State, because it has so much successful propaganda, slick propaganda on the Internet, that that's the main way it gets people. It's not quite like that. In almost every case, the Islamic State gets people through person to

person interaction. You know, it doesn't seem to be enough to just say on the Internet that we are the fulfillment of Islam. Your buddy has to say it and then refer you to the proper website. So that's usually what the the Internet is used for is once you've had the person to person contact, then a resource that you can go to and have all your fears of discomfort when you get there allayed by images of people having a good time, and then have your ideology UM

corrected when it's when it's wrong. So you know what what what you have to what you have to believe. The one thing that is really different though with the Islamic State and its use of the Internet is that it's able to reach women. So unlike al Qaeda, which was looking for basically a military force, a military vanguard, Islamic State wants to create a utopia, and you can't

have a utopia that's that's all men. So they are able to reach out to conservative women who in other cases would not be able to have, you know, interactions outside the house that would allow easy recruitment and get people from the female sex to to come over. So that's that's like of the recruits right there, and it's a demographic that the Internet alone has allowed them to reach.

So one of Joe's um pet theories, which I'm a fan of as well, is the idea that the rise of the Internet is ultimately something that will undermine the nations state. Um, how does that theory apply to isis Because like, in some ways it's a supernational organization, but in other ways it's clearly an organization that is trying to set up an actual caliphate in the Middle East and an actual state. The differences between the physical caliphate and then the mental caliphate are are I think really

important to spell out. And for some people who have been attracted to the Islamic state, they've spent a long time on the Internet in a kind of fantasy world that remained just that until there actually was a concrete caliphate to go to. So the Internet allowed a community to flourish that was separated by geography beforehand, but that

allowed people to have a sense of belonging. And then you know, you've got this vacuum of power because of the Syrian Civil War, because of miss government in the sunny areas of Iraq, and then the Internet is made flesh in the form of the caliphate. So it's it's been extremely important. The other aspect I think that that the Internet has really remade in this terrain is Muslim's

view of scriptural interpretation. So there's this long tradition called um. Well, there's this concept called dad, the ability of a Muslim cleric to create law, to find to derive law from scripture, and this is something that in the past you'd have to go to Mecca and Medina and study with great Muslim scholars and get us their seal of approval before you can undertake this this dangerous process of deriving law

from from scripture. Now the Internet closes that gap, and it creates a huge threat to the authority of those former imams scholars who you'd have to go to visit. So when I would talk to ISIS supporters about theology, they would almost invariably end our conversation by saying, if you want to know more, consult Shake YouTube or shake Google. You know, just just ask around online and you'll find people.

The people you find if you just consult shake Google about jihad are not the mainstream scholars who are in Saudi Arabia urging obedience to the Saudi King. They're not the American ima who you know, have kind of roles advising the White House. Instead, they're the Jihadis. So they're the outlacky types, and that's because the Internet has allowed those voices to rise. So this is very similar in a way to what happened with the Reformation and the

printing press. I recently, Elizabeth Eisenstein's a historian, wrote a book about the role of the printing press, and I think everyone can into it. You know, Martin Luther, he nailed his theses to the wall and then it's spread around. So the sort of like the viral aspect of a new communication thing. It's kind of obvious. Everyone can get the role, everyone can understand how the new medium allowed

it to spread. But the other point that she made is that prior to Martin Luther, the printing press allowed people to start to read the Bible themselves, see the hypocrisys and the errors and the you know, the compromises made by their you know, the theologians of the time. And so even before there was a criticism, even before there was a new idea that was spread the foundations of the old idea, the existing establishment was starting to crumble thanks to the printing press. And so it sounds

very similar. Even without the idea of something new, like the Islamic State, you still have people learning about say things they don't like that Saudi Arabia does, or various leaders in the Muslim world. They could start to see

the cracks. You got it exactly right with this comparison to the Reformation, because if you look at what preceded the Islamic State in the twenty years before it, there was no shortage of of accusations of having been co opted to existing scholars, they would say, the Islamic States scholars would would have would have been saying for a long time, Look you are Toady's of major Muslim powers, of say a Lazar University in Cairo, and they'd say, look, how can we trust you. Our dollars are the ones

who have been in prison for their beliefs. They have not been paid off. Your scholars are the ones who are in palaces. Obviously we're the ones who have integrity. And so yeah, there is a kind of pre existing rot that the Islamic State was able to point to to undercut the authority of those who opposed them. All right, Graham Wood, the book is the Way of the Strangers Encounters with the Islamic State. I have to say it is a must read. I tore through it and I

really appreciate you coming on. Thank you so Tracy. How do you think that went for the start of our money Markets in Crime series? Uh? Yeah, I mean I'm excited. As you said in the intro, isis is probably one of the biggest criminal organizations in the world. So I'm struggling to see how we're going to top this one. Um. But on the plus side, like for me, it's really interesting. I mean, yeah, the Fiat versus gold stuff is always interesting.

But the thing that you know, I'm obsessed with is the idea of how the internet has been changing the world. And I hate to echo what Graham said, but you're exactly right when you refer to the Reformation and the printing press, because those are the things that essentially started enabling every person two filter their own information and to select their own information that they were interested in. And that was probably the beginning of the Balkanization of media

that is currently being carried out to extremes. I don't wanna, you know, shoot my own horn, So let's go back to the money thing real quickly, I think, but thank you. The point about the law against exporting the Islamic coins I found interesting because if you read monetary history, and we have you have a guest coming up in a few weeks, we're gonna be talking about the monetary history

of the French Revolution. If you read any monetary history, every regime always deals with this issue of if the money is intrinsically valuable, why leave it in the country, And so at some point is Graham noted some coin collectors somewhere is going to get one of these coins and it's going to be a fascinating an object of fascination.

But just this idea that the sort of trying to reinvent a new currency or a new system ends up with the economic problems of the old systems that we've for millennia, I think is hundreds of years at least, it's pretty fascinating. Yeah. Well, I mean the obvious point on that is because they're trying to invent a monetary system that is from the Middle Ages, and they're quite explicit about that, aren't they. Yeah, and it's never gonna

go away. You know, this idea of utopian or what others might say crankish monetary policy views that if we could just have all money be based on hard currency, or if we could get rid of the banks, if we get rid of the interest rates, there are all these these ideas will probably never go away, and they're just going to continue to have adherents in various contexts,

in various places around the world. That's what continues to amaze me is that um gold and you know, shiny metals seem to have this hold over the collective imagination and it just it doesn't seem to loosen. Like everywhere you go in the world and you encounter people who think that paper currency is in some way fake and we should replace everything with gold. Um, it's really amazing. And you've written about this, right joke, like just the

the sway that gold seems to have over people. You know, at some point, my view is we just got to accept it, like we can argue forever that oh, like it doesn't make any sense. It's a barbarous relic as Knees called it, but it's not going away. Like that's just the fact that gold is not going away. So and just sort of accepted. All right, Well, this has been another edition of the Odd Law Podcast. I'm Joe Wisenthal. You can follow me on Twitter at the Stalwart and

I'm Tracy Halloway. I'm on Twitter at Tracy Alloway. And you can follow Graham on Twitter at g car g c a W. Please tune in next week when we will be continuing our money, Markets and Crime series. Uh, we have a lot of bad behavior and economics and finance to get through. Thanks for listening.