and increase trust. Risk reduction and trust enhancement in turn support economic progress and prosperity.12
Short History of Economic Thought in Islam
The last section provided a general description of Islamic teachings on economics, but we cannot sidestep a number of inescapable questions. Namely, given our claim that Islamic teachings on the economic system are based on the morality and ethics of centuries ago, why have the contributions of Islamic economics not entered into mainstream economics? Why is it that apparently none of the concepts of conventional economics is based on Islamic economics? And why is it that Islamic economics is not more developed as a social science so that it could be at least taught in Muslim countries as a stand-alone economic system? While space limitations preclude a full discussion, brief references may begin to address the issues.
Mirakhor made one of the early attempts to point to the neglect of Muslim contributions to modern economics.13 It is disheartening that after discussing Greco-Roman economics, Joseph Schumpeter in his magnum opus, History of Economic Analysis, states: “So far as our subject is concerned we may safely leap over 500 years to the epoch of St. Thomas Aquinas (1225–1274) whose Summa Theologica is in the history of thought what the south-western spire of the Cathedral of Chartres is in the history of architecture.”14
This statement is the reason he titles this section of Chapter 2 of his book “The Great Gap.” The implications of this statement, as well as the rest of the material in this section of Schumpeter's book, is that for 500 years nothing was said, written, or practiced that had any relevance to economics. In this respect, Schumpeter was merely reflecting an attitude in the coverage of the history of economic thought existing since the late 1800s. The fact that his book became the locus classicus of all works on the history of economic thought only means that this idea would continue from that time on. It is a demonstrable fact that almost all books about the history of economic thought to present-day textbooks echo Schumpeter's sentiments about economic thought prior to the Scholastics (the philosophers who were responsible for the economic thinking in the medieval period, which lasted from 500 to 1500).
Whatever may have been Schumpeter's reason for not recognizing and acknowledging the influence of Muslim scholars, the results were unfortunate for the history of economic thought. The fact that his book became such a celebrated reference in the discipline helped perpetuate what we may call a blind spot in the field that has continued to the present. Even if scholars wish to ignore the research in the history of philosophy, theology, ethics, and science, the mere fact that anyone who consults original writings of medieval scholars can see references to names such as Alfarabius (Al-Far
A number of early Muslim contributions included discussion of ideas on taxation, market regulation, usury, permissible economic behavior, wages, prices, division of labor, money as medium of exchange and as unit of account, admonition against debasement of money, coinage, price fluctuations, and, finally, ethical prescriptions regarding observance of the mean. These works have shown that during the first two and a half centuries of Islam, ideas were developed regarding fiscal policy, monetary policy and institutions, credit and credit instruments, price determination and price policy, market and market regulation, commodity exchange, usury, government budgets, use of taxation as a tool to encourage production and discourage accumulation of wealth, public treasury, deficit financing, methods of balancing governmental budgets, supply and demand, checking and savings accounts, rudiments of banking institutions and procedures on formation of partnerships and commenda contracts, and monopoly.
By the ninth century, many of these ideas had appeared in writing in the form of Islamic legal (fiqh) manuals. Udovitch's studies on commercial techniques, credit, and credit instruments existing in the world of Islam by the ninth century was based on analysis of these types of manuals as well as mercantile manuals of early periods of Islam. Based on his studies, Udovitch suggests: “The earliest Muslim legal sources now justify the assertion that already in the late eighth century, and possibly earlier, credit arrangements of various types constituted an important feature of both trade and industry” in the Islamic world.15 Similarly, the works of Abul-Fadl Ad-Dimashqi, a ninth-century scholar, show advanced ideas regarding value theory, cost and price determination.
As discussed in Chapra, historical records reveal a number of important early contributions by Muslim scholars to the development of Western economic thought and the Enlightenment movement in Europe. Unfortunately, with the passage of time, these contributions were either forgotten or attributed to others. Chapra similarly identifies a number of important Muslim contributions from secondary sources centuries before they were identified and incorporated in conventional economics, including:
interdisciplinary approach; property rights; division of labor and specialization; the importance of saving and investment for development; the role that both demand and supply play in the determination of prices and the factors that influence demand and supply; role of money, exchange, and market mechanism; characteristics of money, counterfeiting, currency debasement, and Gresham's law; the development of che[cks], letters of credit and banking; labor supply and population; the role of the state, justice, peace, and stability in development; and principles of taxation. 16
Chapra discusses some of these contributions in more detail and goes on to describe how these and other contributions of Muslim scholars were ignored:
to remove the concept of the “Great Gap” of “over 500 years” that exists in the history of conventional economic thought as a result of the false assumption by Joseph Schumpeter in his book, History of Economic Analysis (1954), that the intervening period between the Greeks and the Scholastics was sterile and unproductive. This concept has become well embedded in the conventional economics literature as may be seen from the reference to this even by the Nobel Laureate, Douglas North, in his December 1993 Nobel lecture (1994, p. 365)…Even the Scholastics themselves had been greatly influenced by the contributions made by Muslim scholars. The names of Ibn Sina (Avicenna, d. 1037), Ibn Rushd (Averroes, d. 1198) and Maimonides (d. 1204) (a Jewish philosopher, scientist, and physician who flourished in Muslim Spain), appear on almost every page of the thirteenth century summa (treatises written by scholastic philosophers) (Pifer, 1978, p. 356).17
And Chapra goes on to explain the reason for the decline of Muslim economic progress:
The trigger mechanism for this decline was, according to Ibn Khaldun, the failure of political authority to provide good governance. Political illegitimacy, which started after the end of khilafah in 661 gradually led to increased corruption and the use of state resources for private benefit at the neglect of education and other [n]ation-building functions of the state. This gradually triggered the decline of all other sectors of the society and economy.18
Even a cursory reading of the writings of the last century by Muslim scholars, social critics, and pamphleteers – beginning perhaps with Jamaluddin Asadabadi (better known as Afghani) and his students, such as Muhammad ‘Abduh, Hassan al Banna, Sayed Qutb, Allamah Dr. Muhammad Iqbal, Sayyid Abul A'la Mawdudi, Shaheed M.B. Sadr, and Fazlur Rahman to social critics such as Malik Ben Nabi and Ali Shari'ati, and to contemporary scholars reveals a conviction that Islam has solutions to people's contemporary problems.
Siddiqi (2010) divides the history of economic thought of Muslims into three periods. The first period lasted from after the hijra (the migration of the Prophet (sawa) and his followers from Mecca to Medina) until AH 450 (AD 1058). In this period, fuqaha (jurists) and philosophers emerged.