Capitalism - an Islamic invention

Tweet

When I studied economic history years ago I learned that commercial or mercantile capitalism originated in the Renaissance Italian city states such as Venice and Genoa between 1250 and 1600. Modern capitalism evolved in Holland and Britain with the development of the trading companies and national markets in the late 16th century eg the East India Company, which was formed in 1600. Industrial capitalism developed 2 centuries later.

However, what I did not know was that the institutions and rules of commercial capitalism, like notes of credit, banking and double bookkeeping, actually originated in the Islamic world - and were transmitted into Europe through the crusades (1100-1300). Mohammed himself was a merchant and the Koran sanctifies trade and business much more than the Bible does. This is of great significance given that since Max Weber and Marx it has been a commonsense that a combination of Protestantism and Enlightenment rationalism, based on classical Greek free thinking, gave rise to capitalism in western Europe in the 16th-18th century. But this appears to be a gross simplification.

Early forms of proto-capitalism and free markets were present in the Islamic Caliphate, where an early market economy and early form of merchant capitalism was developed between the 8th–12th centuries, which some refer to as "Islamic capitalism". A vigorous monetary economy was created on the basis of a widely circulated common 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 early contracts, bills of exchange, long-distance international trade, early forms of partnership (mufawada) such as limited partnerships (mudaraba), and early forms of credit, debt, profit, loss, capital (al-mal), capital accumulation (nama al-mal), circulating capital, capital expenditure, revenue, cheques, promissory notes, trusts (waqf), savings accounts, transactional accounts, pawning, loaning, exchange rates, bankers, money changers, ledgers, deposits, assignments, the double-entry bookkeeping system, and lawsuits. Organizational enterprises independent from the state also existed in the medieval Islamic world. Many of these early proto-capitalist concepts were further advanced in medieval Europe from the 13th century onwards.

Of course it should be remembered that this early commercial capitalism co-existed with a predominantly agrarian society and one in which slavery was very widespread. It was only in the last century that industrial capitalism, wage labour and urbanisation became the norm in the majority of the world. Industry in the Islamic period was dominated by state factories, as it was in China. Free wage labour is also a recent development of capitalism, replacing slavery, feudal serfdom and independent artisans.

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.