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.
Table of contents
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
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).
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.
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.
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).
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 th