Classical Islamic economic thought History of Islamic economics

1 classical islamic economic thought

1.1 islamic economic thinkers
1.2 riba
1.3 ibn khaldun

classical islamic economic thought

to degree, muslims based economic analyses on qur (such opposition riba, meaning usury or interest), , sunnah, sayings , doings of muhammad.

early islamic economic thinkers

al-ghazali (1058–1111) classified economics 1 of sciences connected religion, along metaphysics, ethics, , psychology. authors have noted, however, connection has not caused muslim economic thought remain static. iranian philosopher nasir al-din al-tusi (1201–1274) presents definition of economics (what calls hekmat-e-madani, science of city life) in discourse 3 of ethics:

study of universal laws governing public interest (welfare?) in far directed, through cooperation, toward optimal (perfection).

many scholars trace history of economic thought through muslim world, in golden age 8th 13th century , philosophy continued work of greek , hellenistic thinkers , came influence aquinas when europe rediscovered greek philosophy through arabic translation. common theme among these scholars praise of economic activity , self-interested accumulation of wealth.

persian philosopher ibn miskawayh (b. 1030) notes:

creditor desires well-being of debtor in order money rather because of love him. debtor, on other hand, not take great interest in creditor.

this view in conflict idea joseph schumpeter called great gap. great gap thesis comes out of schumpeter s 1954 history of economic analysis discusses break in economic thought during 5 hundred-year period between decline of greco-roman civilizations , work of thomas aquinas (1225–1274). however, in 1964, joseph spengler s economic thought of islam: ibn khaldun appeared in journal comparative studies in society , history , took large step in bringing muslim scholars attention of contemporary west.

the influence of earlier greek , hellenistic thought on muslim world began largely abbasid caliph al-ma mun, sponsored translation of greek texts arabic in 9th century syrian christians in baghdad. time numerous muslim scholars had written on economic issues, , muslim leaders had shown sophisticated attempts enforce fiscal , monetary financing, use deficit financing, use taxes encourage production, use of credit instruments banking, including rudimentary savings , checking accounts, , contract law.

among earliest muslim economic thinkers abu yusuf (731-798), student of founder of hanafi sunni school of islamic thought, abu hanifah. abu yusuf chief jurist abbasid caliph harun al-rashid, whom wrote book of taxation (kitab al-kharaj). book outlined abu yusuf s ideas on taxation, public finance, , agricultural production. discussed proportional tax on produce instead of fixed taxes on property being superior incentive bring more land cultivation. advocated forgiving tax policies favor producer , centralized tax administration reduce corruption. abu yusuf favored use of tax revenues socioeconomic infrastructure, , included discussion of various types of taxes, including sales tax, death taxes, , import tariffs.

early discussion of benefits of division of labor included in writings of qabus, al-ghazali, al-farabi (873–950), ibn sina (avicenna) (980–1037), ibn miskawayh, nasir al-din al-tusi (1201–74), ibn khaldun (1332–1406), , asaad davani (b. 1444). among them, discussions included division of labor within households, societies, factories, , among nations. farabi notes each society lacks @ least necessary resources, , optimal society can achieved domestic, regional, , international trade occur, , such trade can beneficial parties involved. ghazali noted subtle understanding of monetary theory , formulation of version of gresham s law.

the power of supply , demand understood extent various muslim scholars well. ibn taymiyyah illustrates:

if desire goods increases while availability decreases, price rises. on other hand, if availability of increases , desire decreases, price comes down.

ibn taymiyyah elaborated circumstantial analysis of market mechanism, theoretical insight unusual in time. discourses on welfare advantages , disadvantages of market regulation , deregulation, have contemporary ring them.

ghazali suggests version of price inelasticity of demand goods, , , ibn miskawayh discuss equilibrium prices. other important muslim scholars wrote economics include al-mawardi (1075–1158), ibn taimiyah (1263–1328), , al-maqrizi.

riba

the common view of riba (usury) among classical jurists of islamic law , economics during islamic golden age riba , therefore unlawful apply interest money exnatura sua—exclusively gold , silver currencies—but not riba , therefore acceptable apply interest fiat money—currencies made of other materials such paper or base metals—to extent.

the definition of riba in classical islamic jurisprudence surplus value without counterpart. when currencies of base metal first introduced in islamic world, no jurist ever thought paying debt in higher number of units of fiat money riba concerned real value of money rather numerical value. example, acceptable loan of 1000 gold dinars paid 1050 dinars of total equal mass. rationale behind riba according classical islamic jurists ensure equivalency in real value , numerical value immaterial. interest rate did not exceed rate of inflation not riba according classical islamic jurists.

ibn khaldun



statue of ibn khaldoun in tunis

perhaps best known islamic scholar wrote economics ibn khaldun of tunisia (1332–1406), considered forerunner of modern economists. ibn khaldun wrote on economic , political theory in introduction, or muqaddimah (prolegomena), of history of world (kitab al-ibar). in book, discussed called asabiyya (social cohesion), sourced cause of civilizations becoming great , others not. ibn khaldun felt many social forces cyclic, although there can sudden sharp turns break pattern. idea benefits of division of labor relate asabiyya, greater social cohesion, more complex successful division may be, greater economic growth. noted growth , development positively stimulates both supply , demand, , forces of supply , demand determines prices of goods. noted macroeconomic forces of population growth, human capital development, , technological developments effects on development. in fact, ibn khaldun thought population growth directly function of wealth.

although understood money served standard of value, medium of exchange, , preserver of value, did not realize value of gold , silver changed based on forces of supply , demand. introduced concept known khaldun-laffer curve (the relationship between tax rates , tax revenue increases tax rates increase while, increases in tax rates begin cause decrease in tax revenues taxes impose great cost producers in economy).

ibn khaldun introduced labor theory of value. described labor source of value, necessary earnings , capital accumulation, obvious in case of craft. argued if earning results other craft, value of resulting profit , acquired (capital) must (also) include value of labor obtained. without labor, not have been acquired.

his theory of asabiyyah has been compared modern keynesian economics, ibn khaldun s theory containing concept of multiplier. crucial difference, however, whereas john maynard keynes middle class s greater propensity save blame economic depression, ibn khaldun governmental propensity save @ times when investment opportunities not take slack leads aggregate demand.

another modern economic theory anticipated ibn khaldun supply-side economics. argued high taxes factor in causing empires collapse, result lower revenue collected high rates. wrote:

should known @ beginning of dynasty, taxation yields large revenue small assessments. @ end of dynasty, taxation yields small revenue large assessments.