A Paper for the Durell Institute Fall 1995 Conference

by Imad-ad-Dean Ahmad

Minaret of Freedom Institute

4323 Rosedale Avenue Bethesda, MD 20814

Bethesda, MD 20814


In his posthumously published survey of the history of economics, Murray Rothbard traced the origins of free market thought as understood by the "Austrian" school back to the thirteenth century scholastics and sixteenth century Spanish economists. We find interesting parallels to these views in the contemporaneous and preceding Islamic tradition. We call for an extension of Rothbard's work to the Islamic contemporaries and predecessors of the Christian scholars that he studied.


Murray Rothbard reveled in challenging conventional wisdom. In his posthumously published book on the history of economic thought, Rothbard (1995) challenged the popular notion that Adam Smith was the first great hero of free market thought. In particular, he was determined to explode the myth that the scholastics should be dismissed "as moralistic medieval ignoramuses who kept warning that the 'just' price must cover a merchant's cost of production plus a reasonable profit" (Rothbard, p. x). With undisguised delight, Rothbard (pp. x-xi) identifies the scholastics as "'proto-Austrians', with a sophisticated subjective utility theory of value and price." With his characteristic rhetorical relish, Rothbard asserts that Smith "took the sound, and almost fully developed, proto-Austrian subjective value tradition, and typically shunted economics onto a false path, a dead end from which the Austrians had to rescue economics a century later" (Rothbard, p. xi).

Rothbard (p. xii) properly emphasizes that to omit the religious outlook of the economists about which he writes would skew our picture of the history of economics. Yet, this observation is ironic since Rothbard makes no mention whatever in his history of the Muslim economists whose tradition fills the gap between the "Greeks" and the scholastic and Spanish scholars in whose works Rothbard finds so many "proto-Austrian" ideas.

I would like to see Rothbard's work extended to include the Muslim economists of the classical era. I believe that it would prove as enlightening as the studies into Islamic development of the modern scientific method in the natural sciences has been (Ahmad 1992). The "revolution" of modern science in Europe was a continuation of a tradition picked up from the Islamic civilization and advanced to new heights in modern times. As a preliminary move in the direction of such a study in the area of economic theory, I would like to place some of the early "proto-Austrian" achievements which Rothbard uncovered alongside the work of the classical era Muslims. First we shall look at some of the characteristics of the 13th century scholastics in the light of the Islamic economics up to that time, and then we shall consider the work of the fourteenth century scholar, Ibn Khaldun in the light of the subsequent work of the sixteenth century Spaniards of the Salamanca school.


In comparing the Medieval Muslim and Christian literature one must be aware of the general development of Islamic social thought. The principle source of Islamic law is the Qur'an. That book Muslims accept as a revelation from God to the Prophet Muhammad (peace be upon him). I have elsewhere summarized the Qur'an's attitude towards economic issues in these terms (Ahmad 1993):

The Qur'an's economic perspective has been summarized in a number of places (e.g., Mannan 1970 and Ahmad 1986). The key element of the Qur'an from the economic point of view is its stress on moderation (see, e.g., verses 7:31-32, 18:46 and 17:29). Consumption is permitted ("O ye people! eat of what is on earth lawful and good...." 2:168) while niggardliness (35:29), wastefulness (6:141) and extravagance (17:27) are condemned. The desire for a livelihood (4:5), for comfort (42:36), even for ornament and adornment (18:46) or protection from future uncertainty (4:9) in this world is never called evil. Instead the Qur'an insists that its precepts are the means for achieving success in these things without trading it in for failure in the life to come. The Qur'an "not only permits the Muslims to disperse in the earth and earn their livelihood after Friday prayers (62:10) but also advises the holy Prophet to cut short the morning prayers in order that economic activity is also not hampered (73:20). It also allows its followers to continue their trade during their journey for Hajj (2:198). Along with these incentives to earn, it repeatedly asks man to satisfy his wants and demonstrate his prosperity (4:37, 82:20), without going to the extent of ostentatious extravagance" (uz-Zaman 1981). The only line drawn is overspending (isrâf) which is prohibited even in charity (17:29).

The Qur'an deals with a number of specific economic issues. Private property is protected (2:188). The fulfillment of obligations is commanded (2:177;5:1) and is accompanied by details of contract law (e.g., 2:282-283). There is a prohibition of fraud (26:181) and a call for the establishment of clear standards of weights and measures (55:9).

Thus, when Rothbard finds Giles of Lessines (d. c. 1304) maintaining that a good is worth whatever it can be sold at without coercion or fraud (p. 53), we must remember that this view was established in Islam from the beginning.

Members of one Islamic school of thought known were known as the falasafas. They were influenced by ancient Greek thinkers whose works had been translated into Arabic. The thirteenth century scholastics obtained most of their knowledge of the ancient Greeks from translations of the Arabic texts and the commentaries of these falasafas into Latin. A prominent example of this group was Abu Nasr Muhammad ibn Muhammad ibn Tarkhan al-Farabi (870-950), known to the Christian scholastics as Alpharabius (or Avenassar). As in the case of his predecessor Ibn Abu ar-Rabi (9th c.?), he seems to mix political ideas from translations of the Greek classics with Islamic practices based on the Qur'an. Although they are aware of markets and respect their function, these scholars' economic analysis is not "Austrian," nor scientific in the modern sense.

Another school of thought was the Islamic revivalists who sought to reassert the original Islamic nomocracy against the Greek (and later Perso-Turkic) influences. This school was more thoroughly pro-market. Wali ad-Din Abdur-Rahman Ibn Khaldun was an outstanding example of the latter group. A member of a prominent Andalusian family which had moved to North Africa, Ibn Khaldun was born in Tunis in 1332. He was the first scholar to take a truly scientific attitude towards the study of history and economics.


Rothbard finds a relatively pro-market view (compared to the Greeks) even among early scholastics like St. Thomas and St. Albert. The mixture of Greek economic views with Islamic pro-trade views is what one might expect from the influence of the Muslim falasafas, like al-Farabi.

In al-Farabi's writings one can sense a compromise between Platonism and Islamic nomocracy. Al-Farabi accepts Plato's concept of the ideal leader, but wants him to follow a fixed law laid down either by "revelation" or by his predecessors. Using the Islamic legal term for precedent, he calls such a leader "a prince of the law (sunnah)" (Najjar 1969, p. 37). Is al-Farabi seeking to explain Greek thought in Islamic terms (Butterworth 1980, p. 13), or is he attempting a synthesis of the two traditions? Either way, his introduction of these foreign concepts into Islamic scholarship yields a hybrid view consistent with the hybrid view Rothbard perceives in the Christian scholastics who knew their work--directly, or indirectly through St. Thomas.

Rothbard (p. 42) finds the thirteenth century scholastics have departed sharply from earlier Europeans in their relaxed attitudes towards restriction on trade and markets. Would we be justified in inferring that it is the Islamic influence that has precipitated this departure? If so, then we might expect that the scholastics would share the exception to free markets which the Muslims made for usury. This is, in fact, the case. Rothbard (p. 43) wonders where this prohibition of usury originates since it is not found in the gospels. The earliest Christian prohibition of usury (instituted in the fourth century at the council of Nicaea on the basis of Psalm 14) applied only to the clergy (p. 43). Only in 789, at the synod of Aachen, did Charlemagne expand it to include the laity. Significantly, this was just one year after his failed attempt to conquer Saragossa (Saraqustah). The prohibition of usury had been in place among the Muslims for over a century when Charlemagne had this contact with them.

It is also significant that the Christians of that era opposed usury not as unjust, but as uncharitable. Every criticism of usury in the Qur'an is in the context of a discussion of charity (Ahmad 1995). A final piece of evidence is the argument Hostiensis (the last of the thirteenth century canonists) uses to determine exceptions to the prohibition on usury. He invokes the principle of lucrum cessans (the idea that the lender suffers from foregone opportunity) to make exception for, for example, discount for cash and surcharge for credit. Rothbard (p. 46) notes that this principle anticipates the Austrian principle of "opportunity cost." Like Pierre de Jean Olivi (1248-98, Rothbard, p. 60), who followed him, Hostiensis permits such exemptions only to traders and not to professional money lenders. Muslim scholars made the same distinction (Ahmad 1995).

Discount for cash and surcharge for credit are generally permitted under Islamic law. The overwhelming majority of the scholars, however, have forbidden a third party from lending the cash price to the vendor and collecting the credit price from the buyer. The damping effect that this can have on a an economy is usually easily gotten around by having the third party buy the product outright and then sell it in a credit transaction to the ultimate buyer. This restriction has the effect of inhibiting partial reserve banking, an effect Murray Rothbard would no doubt deem beneficial. (So-called "Islamic banks" deal in profit and loss sharing and are therefore more like mutual funds.) On the other hand, I have argued (Ahmad 1995) that this restriction has a negative effect in impeding the development of radically innovative enterprises. If the entrepreneur cannot convincve investors that there is any possibility of profit, he cannot induce them to invest ina profit-sharing enterprise.


Rothbard (pp. 99-101) identifies the Salamanca School with the rise of "liberal Thomism" in Spain, beginning with Francisco de Vitoria (c. 1485 - 1546). Their approach seems more modern and scientific, in the Austrian sense, than either the scholastics or falasafas. To Martin de Azpilcueta (1493-1586) Rothbard (p. 105) attributes the development of the quantity theory of money, denial that it is a fixed measure of value, and recognition the role of both supply and demand as factors. Rothbard (p. 118) nominates Juan de Mariana (1536-1624) as the "forebear of John Locke's theory of popular consent...." He also credits Mariana with the identification of currency debasement as a hidden tax.

The birth of the Salamanca School followed the reconquista of Spain from the Muslims. Juan de Mariana was a student at a school founded it 1508, whose name reflected the Moorish legacy of its location, the University of Alcalá (al-Qal`ah). It is thus appropriate to look at the views of the Muslim scholars during the Muslim occupation.

The need for a scientific methodology for measuring the relative merits of rival Islamic and foreign politico-economic concepts became apparent in the aftermath of the fall of Baghdad in the thirteenth century. The Mongol conquerors of the heartland of the Muslim world found in the Greek idealized ruler concept that had infiltrated the otherwise nomocratic political theory of the Muslims, the justification for the imposition of their own dynastic law. The proto-Hobbesian arguments for a Leviathan state were combined with the Mongols' traditional belief in absolute monarchy. The most articulate opponent of this emerging paradigm was Ibn Khaldun.

Ibn Khaldun (1332-1406) analyzed economic issues objectively, aiming to show what the consequences of various policies are. He distinguished his historical approach from the utopianism of the Greek-influenced falasafas: "The 'ideal city' (of the philosophers) is something rare and remote. They discuss it as a hypothesis" (Ibn Khaldun 1967, II:138). Ibn Khaldun's objectivity has deceived some modern scholars into assuming that he was a secularist. He was not, but was rather the culmination of the revivalist trend.

As preface to his massive history of the Arabs, Ibn Khaldun wrote a two-volume introduction, known to the world as the Muqaddimah which outlined a new approach to the study of history. Of most interest to us was the passages in the Muqaddimah dealing with economic issues. The significance of the achievement of those passages is best appreciated by comparing their analytical mode of analysis with the moralistic normative assertions of Ibn Khaldun's most renowned Muslim predecessor, Ibn Taymiyah.

Ibn Taymiyah used a legal rather than economic approach. Observing the downward trend of Islamic world, he concluded that there was a need for a new political economy based on the non-interventionist practice of early Muslim period. He called for the restoration of the function of the law as the objective "to ensure the rule of justice and the well-being of the people. As the material well-being of the people connotes social peace and individual rights it is the function of the imam to set law in motion to attain this end" (Sherwani 1959, p. 202). Ibn Taymiyah dealt with specific economic questions, but his approach was moralistic and not scientific as we understand the term.

The most celebrated example of Ibn Khaldun's insights is his articulation of the Laffer Curve: "It should be known that at the beginning of the dynasty, taxation yields a large revenue from small assessments. At the end of a dynasty, taxation yields a small revenue from large assessments" (Ibn Khaldun 1967, I:89). His explanation of why this is so makes him a candidate for the originator of public choice analysis. As he describes the problem, the tendency of young dynasties to protect property and insure the free functioning of markets is eroded in later generations. Leaders aware of the benefits of the system they command to themselves and their favorites, but with no sound understanding of the policies that make such benefits possible, seek to increase the benefits by increasing taxes and debasing the money supply. I am unaware of any passage in which Ibn Khaldun explicitly identifies debasement with hidden taxation. His analysis opens the door to that conclusion, however. We are unsurprised when we find his student, Taqi ad-Din al-Makrizi, concluding that the three causes of ninth century Egypt's economic woes are government corruption, high taxes, and depreciated coins (Enan 1941, p. 100).

Ibn Khaldun is well aware of the role of supply and demand in the prices of goods in general. Unlike the falasafas and the early scholastics, he does not insist that the just price must equal labor and the cost of production. On the contrary, he argues (Ibn Khaldun II:336-337) that "commerce means the attempt to make a profit by increasing capital, through the buying of goods at a low price and selling them at a high price.... The accrued (amount) is called 'profit' (ribh)." He distinguishes this from gambling or robbery on the grounds that it "does not ... mean taking away the property of others without giving them anything in return. Therefore it is legal."

Not only is it legal, but Ibn Khaldun warns of the adverse economic effects of attempting to depress prices. Acknowledging the social desirability of low prices, especially for food staples like grain, he nonetheless warns that when "the prices of any type of goods ... remain low and the merchant cannot profit from any fluctuation of the market affecting these things, his profit and gain stop if the situation goes on for a long period. Business in his particular line (of goods) slumps, and the merchant has nothing but trouble. No (trading) will be done and the merchants lose their capital" (Ibn Khaldun II:340). He does not, however, seem to appreciate that gold and silver are also subject to market fluctuations (Ibn Khaldun II:313).

It is significant that Ibn Khaldun defined profit as the value realized from labor rather than the labor itself. His frequent references to labor (literally to "activity" or "production") might deceive the unwary into believing that he is an advocate of the labor theory of value. Understanding that he talking about the profit realized from activity (including trade) takes him a step away from that school. He is aware that market value can exceed cost of production, although his understanding of why is limited to factors of place and time.

I have identified two areas in which Ibn Khaldun exhibits a glimmer of understanding the subjective nature of value. The first in his assertion that gold and silver are monetary commodities because of people's (subjective) preference for their use in that capacity (Ibn Khaldun, II:231). The second is his discussion of how the prices of necessities in relation to those of luxuries indicate the strength of a civilization. Food being a necessity, the demand is always high. In a strong civilization, however, the supply is also high and therefore the price is low (Ibn Khaldun II:276). He duly notes, however, that times of natural disasters would be an exception as the supply of food would be low on those occasions (Ibn Khaldun, II:277).

The seeds of the quantity theory of money may be seen in Ibn Khaldun's analysis of the variations in wealth among the nations. He rejects the notion that a society is wealthy because it possesses a large quantity of monetary commodities. He notes that the Sudan has more gold than the more prosperous countries of the east. Further, he argues that the prosperous eastern nations export much merchandise. "If they possessed ready property in abundance, they would not export their merchandise in search of money...." (Ibn Khaldun, II:282). Ibn Khaldun seems to understand that a surplus of money would result in a cash outflow, and is arguing that a high level of (net) exports argues against this being the situation.

If a large store of gold does not explain the wealth of nations, what does? Ibn Khaldun answers that it is because a "great surplus of products remains after the necessities of the inhabitants have been satisfied. (This surplus) provides for a population far beyond the size and extent of the (actual one), and comes back to the people as profit that they can accumulate .... Prosperity, thus, increases, and conditions become favorable. There is luxury and wealth. The tax revenues of the dynasty increases on account of business prosperity...." (Ibn Khaldun, II:281).

Rothbard would have been pleased to know that Ibn Khaldun's historical research supports his view that money begins as units of weight of monetary commodities. Before the Muslims minted their own currency, they denominated the currencies available to them in the quantity their gold or silver content in weight units specified in the Islamic law (Ibn Khaldun, II:55). When the Muslims became powerful enough to do so, they melted down the old coins and issued new ones denominated in their own standard weight units (II:55-56). Since the the new coins were pure and requried no computations to determine their value, a reverse Gresham's law effect took place so that the original issues disappeared (II:60).

After enough generations had passed, the Muslim officials forgot the lesson of history and "officials of the mint in the various dynasties disregarded the legal value of dinar and dirham. Their value became different in different regions. The people reverted to a theoretical knowledge of (the legal dinar and dirham), as had been the case at the beginning of Islam. The inhabitants of every region calculated the legal tarriffs in their own coinage, according to the relationship that they knew existed between the (actual) vlue of (durhams and and dinar in their coinage) and the legal value" (Ibn Khaldun II:56).


This preliminary study provides no specific or concrete evidence of influences between the Muslim and Christian medieval scholars. On the other hand, we have found some parallels, a roughly similar level of progress, and some circumstantial evidence of links. The fact that the scholastics and the falasafas fell short of a pure free market view on the same issue--usury--and used similar arguments is provocative. Further, although the Salamanca school went beyond Ibn Khaldun, there is cause to ask whether the seeds for those advances do not lie in Ibn Khaldun's innovative approach. Additional study of scholars who lived in the period between Ibn Khaldun and the Salamancans, like al-Makrizi, remains to be done. The advanced development of economic thought in the medieval Muslim world calls out for the extension of Rothbard's study of the history of economics in Europe to the Islamic tradition as well in any case. A thorough and detailed study may or may not reveal specific links and influences. Even if it fails to produce a "smoking gun" like Russell's (1994) important discovery of Ibn Tufayl's influence on John Locke, such study would be worthwhile on its own merits.


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