Medieval Muslim Contributions
Some of my sources:
The History of Economic Thought, Sammuels, Biddle and Davis, Chapter 3.
“Islam and Markets” by Imad A. Ahmad
IQTISAD AL ISLAMY (Islamic Economics): “Ibn Khaldun, Father of Economics” by Dr. Ebrahim M. Oweiss
Medieval Islamic Economic Thought: Filling the “Great Gap” in European Economics by S. M. Ghazanfar (ed.)
Other various web sites
Introduction:
Muslim contribution to economics has failed to be generally recognized in the Western literature that deals with the history of economic thought. This led to the concept of a “Great Gap” of over 500 years in the history of economic thought from the time of the Greek contribution to that of the Scholastics. Joseph Schumpeter, in his History of Economic Analysis (1954) said that this intervening period was sterile and unproductive.
However, the Muslim civilization did make contributions to intellectual activity during that time. Many think that the Scholastics were greatly influenced by the Muslim contributions.
There are many who contributed. Some of the names most often mentioned are: Ibn Sina, Ibn Rushd, Maimonides, Ibn Taimiyyah, Imam Shatibi, Iman Ghazzali and, most especially, Ibn Khaldun.
We will look at Ibn Khaldun’s contributions later. He appears to be the most popular contributor. Some think that he should be known as the “father of economics.” But first...
General Overview of the Muslim Contributions
According to Imad A. Ahmad (President of the Minaret of Freedom Institute):
The relationship between Islam and trade is not well appreciated in the West. The Prophet Muhammad (peace be upon him) and his wife Khadija were both merchants. The Qur’an, the Muslim scripture, is filled with parables using the language of trade. It was merchants, not soldiers, who were mainly responsible for the spread of Islam throughout the world.
Market Analysis and Price Controls
Muhammad disliked price controls and limited his interventions to the prohibition of practices like fraud and ribâ (overcharging inherent in barter?).
The Islamic analysis of markets reached the level of economic science by the time of the fourteenth century historian Ibn Khaldun. As we shall see later, he rejected the utopianism of the Greek-influenced philosophers. To him, the fact that the policies mandated by God could be scientifically demonstrated as the best social policies was the natural consequence of the fact that the laws of economics and the laws of good living had the same Creator.
His understanding of the harmfulness of a planned economy can be seen from the titles of the section headings in the Muqaddimah (Introduction to History), e.g.,
“Commercial activity on the part of the ruler is harmful to his subjects and ruinous to the tax revenue.”
In general then the early Arabs seemed to have had a strong commitment to trade and bargaining.
The rise of Islam did not change, nor did it seek to change, the centrality of trade and commerce to the Arab way of life. Instead we see:
1. the establishment of commercial law,
2. the prohibition of fraud,
3. the call for the establishment of clear standards of weights and measures, and
4. the uncompromising defense of property rights (even while calling for a greater responsibility for alleviating the plight of the poor and needy).
Ibn Khaldun (May 27, 1332 AD - March 19, 1406 AD)
Now let’s look at Ibn Khaldun – who seems to have been the most prolific writer on the topic of economics.
His Background:
From Wikipedia (so?): He is considered the forerunner of several social scientific disciplines: demography, cultural history, historiography, the philosophy of history, sociology, and modern economics. He is sometimes considered to be a "father" of these disciplines, or even the social sciences in general, for anticipating many elements of these disciplines centuries before they were founded.
He is best known for his Muqaddimah (known as Prolegomenon in Greek), the first volume of his book on universal history, Kitab al-Ibar.
Much of the following is from this book.
His is given credit for coming up with ideas that were later developed by the Mercantilists, the commercial capitalists of the seventeenth century-Sir William Petty (A.D. 1623-1687), Adam Smith (A.D. 1723-1790), David Ricardo (A.D. 1772-1823), Thomas R. Malthus (A.D. 1766-1834), Karl Marx (A.D. 1818-1883), and John Maynard Keynes (A.D. 1883-1946), to name only a few.
In reading he ideas I was struck by some contradictions – as has been common in those we will discuss. He still didn’t seem to have a “system” of ideas – theories here and there that don’t always reconcile with each other if carefully thought out. Nonetheless, he did seem to have an idea about a lot of issues that others came up with much later.
So the question is – did these “others” have access to Khaldun’s ideas.
Most think they did – or at least there is a lot of evidence that they had access to his writings. So why wasn’t he referenced if that’s the case?
Labor, Value and Productivity
According to Ibn Khaldun, labor is the source of value. It is necessary for all earnings and capital accumulation. This is obvious in the case of craft.
Even if earning "results from something other than a craft, the value of the resulting profit and acquired (capital) must (also) include the value of the labor by which it was obtained. Without labor, it would not have been acquired."
Human Effort: All earnings are value realized from human labor, that is, obtained through human effort. Even though the value of objects includes the cost of other inputs of raw material and natural resources, it is through labor and its efforts that value increases and wealth expands, according to Ibn Khaldun. With less human effort, a reversal to an opposite direction may occur.
So he seems to have a production theory similar to Adam Smith – productivity is the key to wealth and labor is the source of value.
He gave an explanation for the reasons behind the differences in labor earnings.
They may be attributed to differences in skills, size of markets, location, craftsmanship or occupation, and the extent to which the ruler and his governors purchase the final product. (My italics).
As a certain type of labor becomes more precious, that is, if the demand for it exceeds its available supply, its earnings must rise.
So now he has value (or at least earnings) determined by demand. So his was not the same “labor theory of value” that Marx (and Smith and Ricardo) spoke of.
And notice this: High earnings in one craft attract others to it, a dynamic phenomenon which will eventually lead to an increase in its available supply and consequently lower profits.
Here we have a dynamic analysis of markets and how they work.
Demand and Utility: Demand for an object is based on the utility of acquiring it and not necessarily the need for it. Utility is therefore the motive force behind demand. It creates the incentives for consumer spending in the marketplace.
But also notice this: Demand for a certain commodity also depends upon the extent to which it will be purchased by the state. The king and his ruling class purchase much larger quantities than any single private individual is capable of purchasing. A craft flourishes when the state buys its product.
So now do we have a demand theory of productivity – similar to Keynes. OR – is he just talking about one market and not on the whole?
In any case he does seem to understand “derived demand” - Demand for a craftsman is therefore derived from the demand for his product in the marketplace.
Besides 1. individual and state demand and 2. cost of production, Ibn Khaldun introduced other factors which affect the price of goods or services, namely:
3. the degree of affluence and the prosperity of districts,
4. the degree of concentration of the wealthy, and
5. the degree of customs duties being levied on middlemen and traders.
“The direct functional relationship between income and consumption as presented by Ibn Khaldun paved the road to the theory of consumption function as a cornerstone of Keynesian economics.” (Oweiss)
What do you think?
"Income and expenditure balance each other in every city. If the income is large, the expenditure is large, and vice versa. And if both income and expenditure are large, the inhabitants become more favourably situated, and the city grows."
Tax Theory:
"When tax assessments and imposts upon the subjects are low, the latter have the energy and desire to do things. Cultural enterprises grow and increase, because the low taxes bring satisfaction. When cultural enterprises grow, the number of individual imposts and assessments mount. In consequence, the tax revenue, which is the sum total of the individual assessments, increases";...
Supply side economics?
On Money:
"The two mineral 'stones,' gold and silver as the (measure of) value for all capital accumulations ... [are] considered treasure and property. Even if under certain circumstances, other things are acquired, it only for the purpose of ultimately obtaining [them]. All other things are subject to market fluctuations from which (gold and silver) are exempt. They are the basis of profit, property and treasure."
The real form of wealth is not money, however; wealth is rather created or otherwise transformed through labor in the form of capital accumulation in real terms.
So he distinguished between money and real wealth, even though he realized that the latter may he acquired by the former. Yet money played a much more efficient role than barter in business transactions in a society where man exchanges the fruits of his labor, whether in the form of goods or of services, with another to satisfy the needs which he cannot fulfill alone on his own.
Money also facilitates the flow of goods from one market to another, even across the border of countries.
So some say he had all three functions of money down.