Introduction

Abstract

This book is about risk sharing, a concept that has been with humans since their pre-history existence, a way by which humans share the risks of life on earth. Archaeological evidence from the Middle East from eight to third millennium B.C. suggests strongly that risk sharing is a pre-historic concept until beginning in the third millennium, when risk transfer mechanism in form of interest-rate debt instruments invented. Soon after the “invention” of interest-rate mechanism and its associated modes of financial transactions, a radical form of risk transfer appeared in which risks of a bilateral transaction were shifted to third parties without their knowledge or consent (Cizakca, 2014; Mirakhor, 2018). An example of risk shifting is a form of debt-slavery occurring when a debtor defaulted on a debt and, consequently, the creditor took the debtor’s family as slaves. A contemporary example of risk shifting was observed in the aftermath of the 2007/2008 financial crisis when financial institutions were bailed out and the costs were shifted to the taxpayers. In today’s situation, this pandemic will lead to debt crisis and inherits its burden to younger and future generation. One of the contemporary example of risk sharing economy was Germany national policy 1933–1935. As the upcoming chapters of the book indicate, the government imposed a change in financing job-creating programs which laid the foundation for emergence of a solid, stable, debt-free economy with near full employment and little or no inflation by 1935, before the start of rearmament program. Whatever else is credited (or blamed) for these developments, it is certain that substantially reduced reliance on interest-based debt finance played a highly important role in the German economic miracle. Hence, the ways and means by which the German economy’s reliance on debt financing gave way to financing by widespread risk sharing among all participants in the economy is the focus of this book.