The origins of capitalism and free markets can be traced back to the Islamic Golden Age and Muslim Agricultural Revolution,[1] where an early market economy and form of merchant capitalism took root between the 8th–12th centuries, which some refer to as "Islamic capitalism".[2] A vigorous monetary economy was created by Muslims on the basis of the expanding levels of circulation of a stable high-value currency (the dinar) and the integration of monetary areas that were previously independent. Business techniques and forms of business organisation employed during this time included contracts, bills of exchange, long-distance international trade, forms of partnership (mufawada) such as limited partnerships (mudaraba), and forms of credit, debt, profit, loss, capital (al-mal), capital accumulation (nama al-mal),[3] circulating capital, capital expenditure, revenue, cheques, promissory notes,[4] trusts (see Waqf), savings accounts, transactional accounts, pawning, loaning, exchange rates, bankers, money changers, ledgers, deposits, assignments, the double-entry bookkeeping system,[5] and lawsuits.[6] Organizational enterprises independent from the state also existed in the medieval Islamic world, while the agency institution was also introduced.[7][8] Many of these early capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards.[3]

The systems of contract relied upon by merchants was very effective. Merchants would buy and sell on commission, with money loaned to them by wealthy investors, or a joint investment of several merchants, who were often Muslim, Christian and Jewish. Recently, a collection of documents was found in an Egyptian synagogue shedding a very detailed and human light on the life of medieval Middle Eastern merchants. Business partnerships would be made for many commercial ventures, and bonds of kinship enabled trade networks to form over huge distances. Networks developed during this time enabled a world in which money could be promised by a bank in Baghdad and cashed in Spain, creating the cheque system of today. Each time items passed through the cities along this extraordinary network, the city imposed a tax, resulting in high prices once reaching the final destination. These innovations in the medieval Islamic world are believed to have laid the foundations for the modern economic system, some arguing that it laid the foundations for the development of modern capitalism.[9][10]

Market economyEdit

See also: Islamic economics in the world

A market economy was established in the Islamic world on the basis of an economic system resembling merchant capitalism. Capital formation was promoted by labour in medieval Islamic society, and financial capital was developed by a considerable number of owners of monetary funds and precious metals. Riba (usury) was prohibited by the Qur'an, but this did not hamper the development of capital in any way. The capitalists (sahib al-mal) were at the height of their power between the 9th–12th centuries, but their influence declined after the arrival of the ikta (landowners) and after production was monopolized by the state, both of which hampered the development of industrial capitalism in the Islamic world.[11] Some state enterprises still had a capitalist mode of production, such as pearl diving in Iraq and the textile industry in Egypt.[12]

During the 11th–13th centuries, the "Karimis", an early enterprise and business group controlled by entrepreneurs, came to dominate much of the Islamic world's economy.[13] The group was controlled by about fifty Muslim merchants labelled as "Karimis" who were of Yemeni, Egyptian and sometimes Indian origins.[14] Each Karimi merchant had considerable wealth, ranging from at least 100,000 dinars to as much as 10 million dinars. The group had considerable influence in most important eastern markets and sometimes in politics through its financing activities and through a variety of customers, including Emirs, Sultans, Viziers, foreign merchants, and common consumers. The Karimis dominated many of the trade routes across the Mediterranean Sea, Red Sea, and Indian Ocean, and as far as Francia in the north, China in the east, and sub-Saharan Africa in the south, where they obtained gold from gold mines. Strategies employed by the Karimis include the use of agents, the financing of projects as a method of acquiring capital, and a banking institution for loans and deposits. Another important difference between the Karimis and other entrepreneurs before and during their time was that they were not tax collectors or landlords, but their capitalism was due entirely to trade and financial transactions.[15]

Though medieval Islamic economics appears to have somewhat resembled a form of capitalism, some Orientalists also believe that there exist a number of parallels between Islamic economics and communism, including the Islamic ideas of zakat and riba.[16] Others see Islamic economics as neither completely capitalistic nor completely socialistic, but rather a balance between the two, emphasizing both "individual economic freedom and the need to serve the common good."[17]

Even as late as the 19th century, the Ottoman Empire's trade policies were fairly liberal compared to other European powers at the time, such as the Ottoman Empire's liberal tariff policies, compared to the higher protection and tariffs of other European powers at the time. [1]

Adam Smith, one of the founders of modern capitalist economics, stated: [2]

"...the empire of the Caliphs seems to have been the first state under which the world enjoyed that degree of tranquility which the cultivation of the sciences requires. It was under the protection of those generous and magnificent princes, that the ancient philosophy and astronomy of the Greeks were restored and established in the East; that tranquility, which their mild, just and religious government diffused over their vast empire, revived the curiosity of mankind, to inquire into the connecting principles of nature."

See also Edit


  1. The Cambridge economic history of Europe, p. 437. Cambridge University Press, ISBN 0521087090.
  2. Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1), pp. 79–96 [81, 83, 85, 90, 93, 96].
  3. 3.0 3.1 Jairus Banaji (2007), "Islam, the Mediterranean and the rise of capitalism", Historical Materialism 15 (1), pp. 47–74, Brill Publishers.
  4. Robert Sabatino Lopez, Irving Woodworth Raymond, Olivia Remie Constable (2001), Medieval Trade in the Mediterranean World: Illustrative Documents, Columbia University Press, ISBN 0231123574.
  5. Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1), pp. 79–96 [92–3].
  6. Ray Spier (2002), "The history of the peer-review process", Trends in Biotechnology 20 (8), p. 357-358 [357].
  7. Said Amir Arjomand (1999), "The Law, Agency, and Policy in Medieval Islamic Society: Development of the Institutions of Learning from the Tenth to the Fifteenth Century", Comparative Studies in Society and History 41, pp. 263–93. Cambridge University Press.
  8. Samir Amin (1978), "The Arab Nation: Some Conclusions and Problems", MERIP Reports 68, pp. 3–14 [8, 13].
  9. Heck, Gene W. (2006), Charlemagne, Muhammad, and the Arab roots of capitalism, Walter de Gruyter, ISBN 3110192292
  10. Nolan, Peter (2007), Capitalism and Freedom: The Contradictory Character of Globalisation, Anthem Press, p. 277, ISBN 1843312808
  11. Maya Shatzmiller, pp. 402–3.
  12. Judith Tucker (1975), "Islam and Capitalism by Maxime Rodinson", MERIP Reports 34, pp. 31–2 [31].
  13. Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1), pp. 79–96 [81–2].
  14. The Cambridge economic history of Europe, pp. 438–40. Cambridge University Press, ISBN 0521087090.
  15. Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1), pp. 79–96 [81–4].
  16. Bernard Lewis (1954), "Communism and Islam", International Affairs (Royal Institute of International Affairs 1944-) 30 (1), p. 1-12.
  17. Shadi Hamid (August 2003), "An Islamic Alternative? Equality, Redistributive Justice, and the Welfare State in the Caliphate of Umar", Renaissance: Monthly Islamic Journal 13 (8) (see online)

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