Capitalist Traditions in Early Arab-Islamic Civilization

In the following article, Professor S. M. Ghazanfar, a specialist in the history of economic thought in the Islamic civilisation, explores the evidence concerning the roots of historical "capitalism" as it evolved in the early Islamic world. After delineating the geographical extent of capitalistic, commercial/business ventures in the early Islamic world, he discusses the major centres of Islamic commerce, then focuses on the nature and content of the economic activities undertaken by the early Muslim entrepreneurs, and describes the development of financial institutions. Finally, the article concludes with the argument that, notwithstanding the relatively recent origin of the nomenclature, the capitalistic system indeed was the prevailing mode of economic activities in the early Islamic civilization.

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S.M. Ghazanfar*

Table of contents

1. Introduction
2. Geographic Extent of Islamic Commerce
3. Entrepreneurs and Centers of Economic Activities
4. Major Commodities Traded: Textiles and Fabrics
5. Development of Financial Capitalism
6. Some Concluding Remarks
7. Bibliography

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1. Introduction

In his posthumous classic A History of Economic Reasoning (1983), the late Karl Pribram (1877-1973), while tracing the origins of European Renaissance, mentions "two significant streams" of influence from the Arab-Islamic sources. Thus, "one stream originated in Italian cities, which in the wake of the Crusades had established relations with the traders of the Near East and had adopted various institutions and devices which were at variance with the rigid pattern of medieval social and economic organization. The other, far more important, stream started with the body of Scholastic theologians, who derived their intellectual armory from the works of Arabian philosophers" (Pribram, 21).

Figure 1: Land and sea trade routes in the Islamic world.

Observations such as these corroborate the well-established fact that during several medieval centuries, there was considerable transfer of diversified knowledge from the Islamic civilization to Latin-Europe. The "intellectual armory" has been variously identified by scholars--what Harvard's late Charles Homer Haskins and others have called the "turning point" for 12th-century Renaissance of science and philosophy (see Haskins, 282; also see Sarton, Nebelsick, Hitti, and others). Thus, as a consequence of the "shaping of European attitudes, feelings, and values" through prolonged contacts with the Islamic world, specially during the Crusade centuries, the two "cultural advances were: (1) the emergence of humanism (meaning human dignity, rationalism and reason, nature as comprehensible), and (2) the discovery of the "individual" (self-discovery, self-expression, inner intention free from authority) (Ferrueolo, 137).

Clearly, Pribrams's two "streams" are inseparably interdependent and mutually nurturing and reinforcing. However, some recent explorations have documented the "intellectual armory" in the field of economic thought, originating among several medieval Arab-Islamic scholastics (see Ghazanfar, 1990, 1991,1998, and 2003). Those explorations also provide evidence as to the prevailing market-oriented, capitalistic economic environment of the early Islamic world. The present paper intends to explore that environment further.

Specifically, we wish to explore some evidence concerning the "various institutions and devices," mentioned only tangentially by Pribram, that evolved and flourished in the Islamic civilization for centuries but which were "at variance with the rigid pattern of medieval [European] social and economic organization" at the time. Further, again as suggested by Pribram, those "institutions and devices" spread to Italy and other parts of evolving Europe over a period of several centuries, the Crusades being among the most prominent source. Through these contacts, the "Crusaders were the strongest influence on the development of medieval trade and industry," thus promoting "the capitalistic cycle of capital, investment, profit, and reinvestment of profit for further profit and initiated a money economy which threatened and certainly modified the old land economy of Western Europe" (Krueger, 72-23).

It is worth noting here that the purpose of this paper is not to trace the sociological or ideological roots of capitalism, originally the subject of Max Weber's controversial book. Briefly, Weber argued that capitalism emerged as part of the European Reformation that transformed individuals into "rational capitalistic" behavior (see Weber, Robertson, Rodinson, Green, Walker, Turner, for example). It is argued by some, however, that the capitalistic "ethos" and the related institutions evolved not as a "religious calling" but more as a historical process which can be traced, among other things, to the 12th Renaissance of Europe. Thus, "The great cause of the rise of rational capitalism was not Christian at all –it was a secular scientific development, taken over by Western Europeans from Muslim Arabs and Syrians" (Robertson, 45; see Haskins, Sarton, Nebelsick, and others for similar perspectives). Further, Weber ("still the godfather of Eurocentric historiography," Blaut, 204) dismissed all non-Western cultures, including the Islam world, as "non-rational." Despite historical evidence to the contrary, he suggested that "the ideal personality type in the religion of Islam was not the scholarly scribe, but the warrior" (Weber, 1978, 626). Indeed, the Islamic Scriptures endorse and encourage the sort of economic institutions and practices which are regarded as capitalistic in character, "the free-market economy," as characterized by one scholar of Islam (Goieten, 1967).

Figure 2: Satellite global map of the Mediterranean. (Source).

But, what is free-market, capitalism? Fundamentally, it is a system of "private property in which goods are bought and sold–and production is for the market with goods and services obtained from markets. In this respect, capitalistic production implies a commercial economy," in contrast to production-consumption within one household/clan or by a centralized authority (Lane, 5). There is nothing in the Islamic Scriptures that denies private property or condemns in principle, or hinders in practice, the development of capitalistic exchange-economy and related institutions and practices. In fact, profit-making activities are encouraged and looked upon with utmost favor, though within the Islamic moral-ethical rules of conduct (see Ghazanfar-Islahi for some details). After all, Islam's Prophet Mohammed was a businessman, as were several of his companions and successors; Caliph Umar is reported to have said, "Death can come upon me nowhere more pleasantly than where I am engaged in business in the market, buying and selling on behalf of my family" (Rodinson, 17). Because of such emphasis on economic pursuits, some have gone so far as to characterize the Holy Qur'an as "a businessman's book" (Huston Smith, 250); and it is "a holy book in which rationality plays a big part" (Rodinson, 78).

The present paper presents some evidence as to that historical "capitalism" as it evolved in the early Islamic world. First, the succeeding pages will provide some evidence as to the geographical extent of capitalistic, commercial/business ventures in the early Islamic world. Then, there will be some discussion as to the major centers of Islamic commerce, including a discussion of the commercial/trade links, where the capitalistic traditions dominated. This will be followed by a discussion of the nature and content of the economic activities undertaken by the early Muslim entrepreneurs. Then there will be some discussion of the development of financial institutions. The paper will conclude with the argument that, notwithstanding the relatively recent origin of the nomenclature, the capitalistic system indeed was the prevailing mode of economic activities in the early Islamic civilization.

Figure 3: Model of a "chebec", an Arab ship famous for its speed and maneuverability. The chebec proved so useful as a fast raider, despatch boat or even merchant ship that versions of it were adopted in other countries. (Source).

2. Geographic Extent of Islamic Commerce

As noted, Islam Scriptures approve and encourage economic activities, as part of the Islamic sacred-secular spheres of the socio-economic system. The Muslim entrepreneur was born into an active business community. The caravan trade between the Indian Ocean and the Mediterranean Sea passed through the Arabian Peninsula ever since antiquity. The city of Mecca, where Islam originated, arose as a South Arabian settlement around a shrine and acquired significance as a commercial town and religious-spiritual pilgrimage center. The main caravans were communal undertakings in which whole tribes participated. These conditions led eventually to a familiarity with money economy; and Byzantine and Persian coins circulated in this exchange economy. The cities of Mecca and Medina were not only the holy places of Islam but also the cradle of its culture, its business, and its government.

United through the new faith and favored by the decline of the world powers of the time, the Arab armies extended into the neighboring lands and founded an empire which spread from western Turkestan to the Atlantic Ocean. Three quarters of the coastlands of the Mediterranean Sea, including the Islamic Al-Andalus (now Spain), now belonged to Islam. Further, the Arab expansion ended the long Roman-Persian challenge in the Middle East, and the Islamic Empire now forged economic and political links between Mediterranean and the Indian Oceans.

Arab and Persian businessmen expanded their trade links to India, Malaya, and Indonesia. Merchants of the Islamic world became indispensable middlemen because of their contact with the West--either through the Mediterranean or the Baltic--and also the Far East. Due to their global trade links, the Arabs brought sugarcane from India, cotton to Sicily and Africa, and rice to Sicily and Spain. From the Chinese, they learned how to produce silk and paper and took this knowledge (including the use of compass and numerals from India) with them into all parts of the Empire. Wherever they traveled, they activated business life, fostered an increasing exchange of goods, and played an important part in the development of credit. Profits from business ventures formed an important source of income both for states and individuals.

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Figure 4: Front cover of European and Islamic Trade in the Early Ottoman State: The Merchants of Genoa and Turkey by Kate Fleet (Cambridge University Press, 1999).

In the early Middle Ages a Pax Islamica was the foundation of an economic golden age in which the protagonists in commercial enterprises were Arabs, Persians, Berbers, Jews, and Armenians. The traders reached from Gibraltar (Jabal Tariq in Arabic) to the Sea of China. The voyages of Europeans, in contrast, were limited to modest coastal journeys along the shores of the Adriatic and southern Italy and between the islands of the Greek Archipelago. It was centuries later that the citizens of Italian republics were able to penetrate the Islamic-Byzantine domination of the Mediterranean. The Muslim entrepreneurs created a phase of activity which can be called commercial capitalism. Similar activities also prevailed to a limited degree in Europe, however, with two key distinctions. First, capitalism was able to develop much earlier in the Islamic regions than in Europe. The process of reverting to agrarian activities and dismantling of the exchange economy, which began in Europe in late antiquity, was intensified in the time of the barbarian invasions and continued beyond the Carolingian period. Further, in the agrarian society of Europe, commercial activities were not as prominent. In contrast, the Islamic world at this time was not affected by any similar invasions and an exchange economy thrived throughout.

The essential difference between the economic development of East and West came about during the late Middle Ages. Trade within the Islamic world could not keep pace with international commercial developments, for the Islamic lands of Asia, affected by the Mongolian invasions, lost much of their economic resilience, and thus, their business potential diminished (Spuler, 215-217). In addition, around the Mediterranean, there was considerable deterioration of economic life in the wake of the Crusades.

3. Entrepreneurs and Centers of Economic Activities

Although commerce and trade did not significantly change the social structure of the Islamic society, however, it had considerable effect on the accumulation of capital and the promotion of economic progress in various regions. The centers of Islamic capitalism were in the main cities of the Islamic world. In the early centuries, Baghdad was the commercial metropolis and exerted a huge influence on the development of business ventures everywhere. As the 10th century approached, the weight of Islamic commerce gradually shifted from Iraq and the Persian Gulf to Egypt, the Red Sea, and the harbors of the Arabian Peninsula on the Indian Ocean. Cairo replaced Baghdad as the commercial center and now the commercial links of Fatimid Egypt strengthened in the Mediterranean, particularly Sicily, Tunisia, and Syria.

For Egypt's relations with Europe, a unique group of entrepreneurs and large-scale merchants was represented by the Karimi family, who first emerged in the 11th century. Distinguished by their entrepreneurial skills, they soon attained wealth and influence in all important eastern markets and became quite prominent in financial activities as well as in politics. From the 12th century, the Karimis and the Franks dominated commercial activities between East and West and displaced the Jewish and Christian merchants of the Byzantine, Ayyubid, and Mamluk empires. Karimi funduqs (a specialized trading center, equivalent of a large, contemporary shopping mall) emerged on the main trade routes from the Indian Ocean to the Mediterranean, in particular in Cairo, Alexandria, Qus in Egypt, in Aden, Ta'iz, Zabid, Ghalafiqua, Bir ar-Rubahiyya in Yemen, and in Mecca, Medina, and Jeddah in Hijaz (now Saudi Arabia). The Suq al-Attarin or Al-Buhar (a merchandise market) was known to be the center of all Karimi family business activities in Alexandria. Karimi trade routes by sea led through the Red Sea and the Indian Ocean as far as China, and the land routes in times of peace went from Egypt through Syria, Iraq, and Iran. As the Ottomans conquered important parts of Asia Minor, the Karimi enterprises expanded their trading activities into this area as well. In Africa they traded not only on the west coast of the Red Sea but also on the caravan routes with Nubia and Ethiopia. Their trading activities reached into distant Ghana and Mali; the gold mines of Mali was a source of wealth for them (Labib, 102-3, 116).

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Figure 5: View of Najjarin Funduq in Fez, Morocco. Like the Caravanserais, the Funduq is a North African term for a small, urban shop complex. A typical funduq is a square two-storey structure built around a central courtyard with shops on one floor and store rooms on the other. (Source).

If one estimated the average capital of a wholesale merchant at about 30,000 dinars prior to the Karimi period in Egypt, the wealth of the Karimi entrepreneurs would amount to at least 100,000, or even 1 million dinars or more. From the biographical sources of the 14th century, one source describes a wealthy Karimi, named Nasir al-Din b. Musallam (d. 1374) "as the marvel of his time, as far as his wealth was concerned" (Labib, 115). The ancestors of this Karimi entrepreneur were also merchants. His grandfather, Ibn Yasir al-Balisi, was among the most famous merchants of the East, if not the world. His wealth is said to have amounted to 10 million dinars, described as about the wealthiest Karimi merchant of his time. His financial fame went beyond the business circles of Egypt; except for a non-Muslim partner in India, none matched his wealth. The famous world traveler, Ibn Battuta (1304-1368), noted that the wealth of the Karimi merchants was comparable to that of the greatest middlemen of China (Labib, 116).

Among other important entrepreneurial families were the al-Kharrubi, al-Kaubak, Yasir, al-Mahalli, and the al-Damanini family–all of whom inherited the business traditions of the Karimi group. Each generation inherited the family businesses, as well as the accumulated wealth and customers for future growth. A Karimi prepared his children for their profession, and sent them to various countries to acquire necessary experience and to entrench the family business more firmly. Further, the Karimi merchants had agents/representatives who imported and exported merchandise and recruited for them. The Karimis played another important role in the history of Islamic capitalism; the financing of state projects was one of their methods of acquiring capital, and they operated a type of banking institution for loans and deposits. Among best customers were not only Frankish merchants but also Sultans (rulers) and Emirs (state dignitaries), whom they helped with credits--and also with soldiers and weapons if necessary.

In one important respect, the Karimi businessmen differed from other entrepreneurs and merchants of the Egyptian Empire prior to their era (before the 12th century): they were not landlords, nor tax collectors. Their capitalism rested primarily on commercial and financial transactions. On the other hand, the most important Jewish merchant families in Egypt up to the end of the Fatimid period and also outside of Egypt (primarily in Iraq and Iran) were wholesalers, bankers, and tax-farmers of entire provinces. Indeed, the financial relationships of prominent Jewish financiers with the Abbasid caliphs and ministers at the beginning of the 10th century represent an important chapter in the history of Islamic world's financial capitalism. Ibn Allan al-Yahudi (d. 1079) was a wealthy financier/tax-farmer of Basra and served the caliphs for more than 20 years; once he gave a loan of 100,000 dinars to the reigning caliph (Fischel, 345).

Islamic commerce, from the very beginning, included traveling merchant, al-Tajir as-Saffar, in addition to the resident merchant, al-Tajir al-Muqim. The former tended to be imbued by the spirit of adventure as well as business acumen. There is evidence of numerous merchants who traveled between China and Andalusia, who were keen to acquire knowledge, as well as profits through economic pursuits. Many tales from the Arabian Nights give examples and reconstruct the picture of the adventurous merchants of the early-medieval Islamic world. From the late Middle Ages, a typical example of wealth accumulation is the following: One of the most prominent merchants of his time, Muhamed b. Abd al-Rahman b. Ismail al-Jaziri (d.1302) (who traveled between Syria, Mecca, Egypt, Iraq, and the Persian Gulf and undertook three trips to China) started with 500 dinars as capital and left behind 50,000 dinars at the time of his death. Further, sometimes ambitious entrepreneurs were the ambassadors of their countries, and it was not unusual for an ambassador to combine a diplomatic duty with a lucrative business deal. One example is that of Fakhr al-Din Uthman, Egypt ambassador to Aragon during early 14th century, who borrowed 60,000 dirhams before his journey in order to buy goods and sell them for profit in Aragon (Labib, 79).

A factor that contributed to the growth of capitalistic trade was access to effective and secure transportation infrastructure. However, the distance and danger of the routes as well as the scarcity of merchandise often influenced prices. Ibn Khaldun analyzed the links between travels and profits and concluded that those who traded and exchanged their merchandise over longer distances earned greater profits, compared to those who traveled and traded between cities and villages within the same province, one reason being plentiful supply of the wares in nearby areas (Khaldun, 298). Thus, the experienced merchants were persuaded to buy goods through long-distance trading when the goods were in season and in demand. This in turn required a thorough knowledge of the conditions of the wares in their original locations. Traders had to be well-informed about market conditions–not only demand-supply conditions, but also product quality and quantity, relative costs, safety of travel routes, etc. Some of this knowledge had to be obtained through inquiries and close questioning of caravans. In other words, successful businesses required rational, calculated decisions in order to safeguard against potential risks.

Of great significance for the capitalistic trade in the Islam world was the establishment of the funduqs, which, as noted, were large-scale, specialized commercial institutions and markets and which developed into virtual stock exchanges, warehouses, and trading centers. They dominated the landscape of the major cities in the entire Islamic world. A few illustrations are in order. At the time of the Crusades, there were four funduqs in Cairo that engaged in commercial exchange between Egypt and Syria. One of them was related to the import of oil from Syria. According to the available information, a 14th-century oil trader paid 20,000 silver dirhams for oil imports and 90,000 dirhams for other goods he imported from Syria. Another specialized as a fruit-market where the wholesale fruit merchants of Egypt and Syria traded and stored their ware. Another specialized in amber which was imported even from the Baltic region and which found a ready market in Egypt, for it was a popular spice and also used for cosmetics. Further, goods imported from China, India, Africa, and the Levant were stored and traded in the Cairo funduqs. There was a fur market, for this item was much in demand as a fashion good; thus, we hear of a merchant who bought at one time 300,000 garments of gray squirrel to sell on the Cairo market. Further, there were funduqs for storage and trading of grain and textiles in all large cities, such as Baghdad, Cordova, and Damascus.

Figure 6: Covered Bazaar in Istanbul. View from the Beyazit Gate, leading into the Kalpakçilar Street at its western end. Above the entrance is the royal monogram (tugra) of Abdülhamid II (1876-1909), marking the construction of the gate during the 1892-94 restoration. A short Arabic phrase included in the monogram medallion says: "God loves the one who does trade". (Source).

4. Major Commodities Traded: Textiles and Fabrics

Among the important lines of business were the grain trade, the spice trade, and mining, but considerably more significant was the production and highly-esteemed trade in textiles and fabrics. The Caliph Abu Bakr himself had been a textile merchant. "If there were trade in Heaven, I would choose cloth-trade because Abu-Bakr al-Siddiq was a fabric-merchant," wrote Abu 'l-Fadhl Ja'far b. Ali al-Dimashqi, a 12th century businessman/scholar, author of Kitab al ishara ila mahasin al-tijara (Indication of the Merits of Commerce). Often the entire family participated in the production (spinning and weaving) of fabrics. The Umayyad and Abbasid rulers and other elite owned and operated textile mills which not only manufactured cloth for their wardrobes, but also the covering of Mecca's Ka'ba and for royal honor-presentations and gifts. The importance of these fabrics increased under the Fatimid Dynasty. State-sponsored textile factories were built not only in Egypt and Syria but also in other parts of the Islamic world. In Al-Andalus (Spain), they were located in Almeria, Murcia, Sevilla, Granada, and Malaga; in Asia Minor there was a factory at the Saljuq's court. Even in Sicily, under Arab rule for about 200 years, the tradition of state factories was preserved and in Palermo there were factories which produced finely woven silk down to the 13th century. Baghdad remained the most important center of royal production. Also there were factories in Persia.

These factories were not only producing for the needs of the rulers, but also for general commerce. The town of Tinnis (Egypt) is an important example, with 5000 looms and a factory of the court. The export of Tinnis textiles was substantial, and by late 10th-century, their annual exports reached 20-30,000 dinars, a rather large sum at the time. The significance of their textile trade becomes evident from the fact that the Egyptian towns of Tinnis, Damiette, and Al-Ashmunayn in 974 (Fatimid period) could pay 200,000 dinars as taxes in one day. One scholar of early Islamic economic history gives a few examples of textile production for the needs of the rulers' courts. Also, there was textile production, commercially and for the needs of the rulers, in cities such as Baghdad, Tabriz, Isfahan, Yazd, and Nishapur.

As the golden age of Islam dwindled in the wake of the Mongol invasion, beginning about late 13th century, the textile/fabric production began to decline. Ibn Khaldun informs us that the fabrics and garments were no longer made in state factories, but what the state required was woven in the private facilities (usually houses) of the weavers (Labib, 293-94)--not an uncommon practice throughout these early Islamic centuries. In Almeria (Spain), where 800 looms were operational during the 12th century, gold-silver brocades were manufactured in the style of those of Isfahan.

It might be noted that the activities of private textile manufacturers often suffered greatly because of state controls, particularly during the Fatimid Egypt. They had to obtain materials from the state officials; and the finished fabrics could only be sold through state-appointed brokers; and the Caliph himself was known to be involved in making large profits from this business. Often state officials invested in the textile manufacturing through contracts. They sometimes had their own "house" factories, with considerable volume of production and competed with the private manufacturers. Further, it might be noted, that at the weekly markets and trade fairs, the merchandise traded--whether woollen or cotton, silk or linen--carried the name of the producing city or town so that the buyers would know the quality of the material, for the various cities and towns were known for their qualitative differences.

Thus, "the accumulation of data relating to towns and districts certain of whose products were destined to be sold elsewhere shows at least that production for the markets was highly developed" (Rodinson, p.34). Indeed, capitalistic practices and institutions were thriving in this environment.

5. Development of Financial Capitalism

Capitalistic commercial trading ventures also necessitated the evolution of financial capitalism. The practice of lending at interest, albeit surreptiously, with the development of financial capital, was equally well known in the Meccan society in which Islam first appeared. There is evidence to suggest that, despite the scriptural prohibition of riba'a (as also by the prior Abrahamic traditions), the practice prevailed in subsequent times. It was quite customary for the creditor to calculate his interest and include it in the sum owed without stating it separately in the agreement (see Rodinson, 35-37 for further insights). Private money-changers and bankers worked on a capitalistic basis and played a major role in borrowing-lending business. Also, there is some evidence of borrowing-lending businesses conducted under state supervision, although very little is known about such practices.

Currency problems and variation in the value of coins forced a search for safer forms of payments, particularly in the late Middle Ages. Thus, the need to safeguard the integrity of money transactions, especially with respect to large private and state transactions, led to the evolution of financial innovations in the Islamic world. One such device was the bill of exchange or letter of credit (suftajeh), which became well established in state and private commerce. Adam Mez explored and discovered considerable information on this institution (i.e., bills of exchange, or suftajahs) in the early Islamic literature. He describes:

"A savant who journeys to Spain takes with him a letter of credit (suftajah), and 5,000 dirhams in cash. Nasir-I Khusrau received from an acquaintance in Asuan a blank letter of credit addressed to his agent (wakil) in 'Aidhab, of the following content: "Give Nasir all that he may demand, obtain a receipt from him and debit the sum to me." The Viceroy of Egypt sent his representative in Baghdad letters of credit for the cashiered vizier. The representative accepted them, and put the money at the vizier's disposal. A sort of bill of exchange was the sakk… In Audagusht in the western Sudan, ibn Hauqal saw a check for 42,000 dinars drawn by a man of Sijilmasah on one Muhammad ibn 'Ali Sa'dun in Sijilmasah; it was officially certified. The paper had travelled through a great part of the Sahara. In Islamic metropolises the sakk was a regular check in connection wherewith the banker plays an important part. In the 3rd/9th century (to which the anecdotes connected with Harun al-Rashid belong) a magnate drew checks on his bankers. About 300/900 a great man paid a poet in this way, only the banker refused the check, so that the disappointed poet composed a verse to the effect that he would gladly pay a million on the same plan. A patron of the same poet and singer (320/936) during a concert wrote a check (ruq'ah, "note") in his favour on a banker (sairafi) for 500 dinars. When paying, the banker gave the poet to understand that it was customary to charge one dirham discount on each dinar, i.e., about ten per cent. Only if the poet would spend the afternoon and evening with him, he would make no deduction. Another banker (Jahbadh), who was even a greater patron of the fine arts, not only made no deduction, but presented the poet with an extra 10 per cent. There was therefore plenty of employment for bankers, and it is not surprising that in Isfahan there were 200 banks in the Bankers' Bazaar –for these too sat together.

About 400/ 1000 the banker had made himself indispensable in Basrah: every trader had his banking account, and paid only in checks on his bank (Khattsaraf) in the bazaar. This would appear to have been the most important refinement of monetary operation in the empire, on the frontier between Faris and Iraq. For the people of Basrah, the Persians of Faris, and the South Arabians were the best traders among the Believers, and had their colonies wherever anything could be produced. About the year 290/902 al-Faqih al-Hamadhani observes: "The people of Basrah and the Himiarites are the greatest moneygrubbers. One who travels to the remotest region of Ferghanah or the Western edge of Morocco is sure to find a man from Basrah or a Himiarite there" (Mez, 448, quoted in Labib).

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Figure 7: Front cover of Trade and Civilisation in the Indian Ocean: An Economic History from the Rise of Islam to 1750 by K. N. Chaudhuri (Cambridge University Press, 1985).

Ibn Battuta (1304-1368), the Muslim adventurer who traveled to Africa, Persia, India and the Far East, far in excess of what we know of Marco Polo's travels, wrote a priceless account of his travels and narratives of life in the East before the rise of Europe (The Rihlah, or The Travels). Among other things, he discusses the profitable practice of credit:

"Every person proceeding to the court of the King of India, Sultan Muhammad Shah, must needs have a gift ready to present to him, in order to gain his favours. The sultan requites him for it by a gift many times its value. When his subjects grew accustomed to this practice, the merchants in Sind and India began to furnish each newcomer with thousands of dinars as a loan, and to supply him with whatever he might desire to offer as a gift or to use on his own behalf, such as riding animals, camels, and goods. They place both their money and their persons at his service, and stand before him like attendants. When he reaches the Sultan, he receives a magnificent gift from him and pays off his debt to them. This trade of theirs is a flourishing one and brings in vast profits."

Ibn Battuta himself made use of the occasion; he says:

"On reaching Sind I followed this practice and bought horses, camels, white slaves and other goods from the merchants. I had already bought from an Iraqi merchant in Ghazna about thirty horses and a camel with a load of arrows, for this is one of the things presented to the sultan. This merchant went off to Khurasan and on returning to India received his money from me. He made an enormous profit through me and became one of the principal merchants" (Gibb, 184-85).

With the growth of commerce, trading companies were formed which evolved the development of other financial instruments and transactions. One such institution that evolved for pooling of financial capital was known as the commenda ("mudarabah"). The principle of the commenda contract calls for an association of individuals in which the partners are equal, and one furnishes the capital while the other manages the business and the profits/losses are shared as agreed upon. In practice, the suppliers of funds for this arrangement were not only merchants but also wealthy individuals who invested their surplus resources for profit. One scholar reports the discovery of a rare commenda contract setting forth this type of agreement between a Venetian and an Egyptian made in the early 15th century Alexandria (Labib, 501). While this record does not deal with the details of the contract, it does report that the Egyptian sent a letter to the Venetian consul in Alexandria to inform him that certain problems which had arisen had been resolved and that he and others had informed to the chief justice in Alexandria so that the Venetian merchant would no longer be prosecuted. The suppliers of the funds for the commenda companies were not only merchants but also the wealthy who wanted to invest their surplus for profit. As for the capitalistic character of such arrangements, one scholar says, "With no real guilds available, the Moslem world relied for business upon individualistic capitalism in which the dominant type of association was the partnership which took various forms" (Lewis, 1988, 31).

As noted, the commenda was intended to be a form of capital investment wherein the profits/losses were distributed according to pre-determined agreement among the partners. Here the contract involves a capitalistic calculation of accounts. The original capital invested is compared with the final sum and the residual, after all expenses, is marked profit to be distributed. This type of settlement was not unknown in the regions that became part of the Islamic world. However, the practice was not widespread in the Islamic civilization until the introduction of numerals. And that emerged with the mathematical innovations of the Muslim mathematician Muhammad ibn Musa al-Khwarizmi (d. 850), who introduced the Indian positional numerals with index values and zero. With this development, numbers and the numerical system became the framework for the capitalistic industrial economy; he himself stated that his book was compiled for the purpose of resolving questions of business transactions, inheritance, wills, purchase and sales agreements, matters of money exchange, and a variety of other needs requiring quantitative measurements (Labib, 216; also see Bernardelli). Another early Muslim scholar-entrepreneur who lived in 12th century Damascus (Syria) was Al-Dimashqi. He wrote a book on business practices, and he advised his readers ,"Everything that is being bought and sold shall be measured by the dry measure, or by time, or in numbers. Therefore a merchant should know the swindler and the methods which he applies when measuring, weighing and counting, so that he shall not be dependent upon unreliable people" (al-Dimashki-Ritter, 62, quoted in Labib).

Credit transactions as well as the organization of trading companies made accurate accounting imperative. Bankers and money changers were required to keep records and to enter the transactions of their clients accurately in ledgers, although they were not required to specify their own profit. Generally bankers received deposits which could be withdrawn by means of a written assignment. The double entry book-keeping was an important part of a merchant's skill. It allowed him to watch not only the flow of single values but also the circulation of the capital, and it enabled him to register quantitatively its change and transformation and to control and guide the success and the development of the business. The account-keeping pertained to goods and completed business. Normally a merchant would settle a sale immediately and would enter the profit or loss in his ledger. This method gave a current account of profit and loss. A periodic balancing was therefore not necessary; if it was made, it served the purpose of audit and control. It might be noted that the Islamic state did not take steps to establish a national bank, although embryonic banking practices were common place. Perhaps one reason for this phenomenon might be the possibility that such an institution would have become a political force and would have assumed an unusual position between the state and private enterprise. On the other hand, it might have provided a mechanism that would have helped to prevent or overcome economic upheavals in the society.

However, some scholars of Islamic history have discussed the evolution of a financial institution in the Islamic world, called maona. This institution was a kind of private bank which loaned out state money. The word maona (in Arabic ma'una) means support or help or, as the case might be, reciprocal, mutual help. The maona did not go through the same development as did the European maona subsequently, the latter was used for financing wars or mining. The function of the ma'una in Islamic society remained restricted to giving financial assistance to businesses on a limited scale. The maona institution was also operational in Tuscany, established for the exploration of iron mines and a large trade in iron (see Dozy, quoted in Labib).

One can find precursors of the modern stock-exchange/money market in Islam: there was not only the wholesale/retail commercial exchanges in the funduqs, but also activities typical of the modern commodity exchange, i.e., the futures-trading in commodities–commodities not yet available in the market but to be delivered in the future. Dates were legally sold at auction before they were harvested. Even the wholesaling of many kinds of tuberous vegetables (such as onions, garlic, carrots, turnips, radish, and colocasia) took place before their were harvested.

As a summary observation relating to the development of monetary and credit institutions in the early Islamic civilization, it is useful to quote an eminent medieval economic historian:

"Until forty years ago the prevalent view was that the Middle Ages constituted a pre-credit era… The earliest Muslim sources now justify the assertion that already in the 8th century, and possibly earlier, credit arrangements of various types constituted an important feature of trade and industry… Any assertion that medieval credit was used for consumption only, and not for production, is quite untenable with reference to the medieval Near East" (Udovitch, 1967, 87).

6. Some Concluding Remarks

It should be noted that the primary focus of early capitalistic practices, in the Islamic world as elsewhere, was not the functioning of the national economy; the economics of the medieval centuries pertained to the study of the house, oikos. The tradition of the oikos economics begins with the Greek oikonomia, known among Islamic philosophers, as Ilm tadbir al-Manzil (science/management of the household, or domestic philosophy). This tradition, with its Islamic additions and refinements, subsequently reached Europe through Latin-Scholasticism. Indeed, both the early Islamic civilization and Latin-Scholasticism discussed the issues of ethics, economics, and politics in a holistic perspective which viewed all human behavior in teleological terms. One even finds reminders of this in Adam Smith's 8th century writings; his Theory of Moral Sentiments especially talks in terms of "sympathy" and a moral-ethical framework, through Providential guidance. While the profit-motive is acceptable, it must be must be tempered by larger ethical-social considerations and concern for the common good.

However, as for the main purpose of this paper, based on considerable historical evidence presented, it is abundantly clear that the early Islamic civilization functioned in a market-exchange, capitalistic framework, not only in its basic premises but also in terms of its various practices. There were entrepreneurs who pursued production and exchange for private profits and who owned and operated financial institutions for that goal. Further, they played key roles in the distribution process; their merchandise, either bought from abroad or produced in their own factories, was sold to wholesalers and retailers, or directly to consumers. While Islamic capitalism tended to be largely a commercial/financial capitalism, those who engaged in such enterprises, given their motivations, would be "very difficult to differentiate" from those who engaged in industrial capitalism (Robertson, 203).

Further, these early entrepreneurs pursued activities that required rational calculations; they pursued the goal of 'fructifying' capital and earn profits. Certainly, it was not quite the "non-rational form of capitalism outside of modern Europe" that Weber talked about (Rodinson, 247). These entrepreneurs added value to raw-materials and products, transforming them into marketable commodities; and they directed their production towards exchange--all such activities, geared by the lure of private gain, reflect what capitalism is all about.

As an eminent French scholar of early Islamic economic history suggests, while similar capitalistic economic activities are to be found in the Greek and Roman world, India, China, Japan and even medieval Europe, early Islamic capitalism differs:

"A level does seem to have been reached in the Muslim world which is not to be found elsewhere at the time, or earlier. The density of commercial relations with the Muslim world constituted a sort of world market of unprecedented dimensions. The development of exchange had made possible regional specializations in industry as well as in agriculture, bringing about relations of economic interdependence that sometimes extended over great distances. A world market of the same type was formed in the Roman Empire, but the Muslim 'common market' was very much bigger. Also, it seems to have been more 'capitalist,' in the sense that private capital played a greater in forming it, as compared with the part played by the state than was the case in the Roman Empire. Not only did the Muslim know a capitalistic sector, but this sector was apparently the most extensive and highly developed in history before the establishment of world market created by the Western European bourgeoisie" (Rodinson, 56).

Further corroboration of such observations also emerges in the writings of numerous early Muslim scholars who wrote on economic issues. Thus, not only various techniques and methods of commerce, as well as the spirit of enterprise and adventure, spread to medieval Europe from the Islamic civilization, but, further, "the Muslim writers of this period do tend to be more sympathetic to mercantile activity than those of Christian Europe" (Cook, 219 and 226; also see Hitti). Indeed, capitalism and related institutions and practices represented the modus operandi of economic life in the early Islamic civilization, much before that transformations took place in Europe.

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*Professor/Chair, Department of Economics (Emeritus, 2002); Adjunct Professor, 2003-08. This research was partly facilitated by an earlier summer research grant from the College of Business and Economics, University of Idaho. This article was presented at the History of Economics Society Conference, George Mason University, Fairfax, VA in June 2007; somewhat revised based on feedback from the HES session.

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