Capitalism in Medieval Islam

Economic History Association
Capitalism in Medieval Islam

Author(s): Subhi Y. Labib
Source: The Journal of Economic History, Vol. 29, No. 1, The Tasks of Economic History (Mar.,
1969), pp. 79-96
Published by: Cambridge University Press on behalf of the Economic History Association
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Capitalism in Medieval Islam

H
E who looksfor the term "capitalism"in the Islamicsourcesof
the Middle Ages will look in vain. On the other hand, the term
"capital" has been known since the beginning of Islamic culture.
Even in the Holy Book of Islam, in the Siirat al-Bakara, the idea of
capital appears in connection with trade, business, and the illicit
practice of loaning for profit-usury. "O you who believe, keep
your duty to Allah and relinquish what remains [due] from usury, if
you are believers. But if you do [it] not, then be apprised of war
from Allah and His messenger; and if you repent, then you shall
have your capital. Wrong not, and you shall not be wronged." In the
same Sirah God forbids usury but not Bai', trading, or buying. At
another place God's commands clear the way for investments. "O
you who believe, devour not your property among yourselves by illegal methods, although you may engage in trading by mutual consent. And kill not your people. Surely Allah is merciful to you."'
The Islamic merchant tried to follow this system of ethics.
I
Islam approved of trading, and not only because of the revelation.
Also, trading was enhanced by its milieu. The Islamic merchant was
born into an active trading community, and the Prophet himself had
engaged in trade. The caravan trade between the Indian Ocean and
the Mediterranean Sea had passed through the Arabian Peninsula
ever since antiquity. Mecca, the birthplace of Islam, arose as a South
Arabian settlement around a shrine and acquired significance as a
marketing town and religious, spiritual pilgrimage center after the
Qurais tribe had captured it. The main caravans, one in the summer
and one in the winter, were communal undertakings in which whole
tribes took part. These conditions led eventually to a familiarity with
money economy. Although barter predominated, in Mecca Byzantine
and Persian coins circulated. Mecca and Medina were not only the
holy places of Islam but also the cradle of its culture, its business,
and its government.
1 The Holy Book of Islam: Sirat al-Bakara, vers No. 275; Sfirat al-Nisa', vers
No. 29.
79
80
Subhi Y. Labib
United throughthe ProphetMuhammad,supportedby a religious

faith, and favored by the decline of the world powers of the time,
the Arabsstreamedin strictlydisciplinedarmiesvictoriouslyinto the
neighboringcountriesand founded an empirewhich extendedfrom
western Turkestanto the Atlantic Ocean. Three quarters of the
coastlandsof the MediterraneanSea, once the focal point of Roman
culture, now belonged to Islam. Furthermore,the Arab expansion
ended the long Roman-Persianchallenge in the Middle East, and
the Islamic Empire favored more than before the interrelationship
of the Mediterraneanand the Indian Ocean politically and economically.
Araband Persiantraderspushed vigorouslyto India, Malaya,and
Indonesia. Merchantsof the Islamic world became indispensable
middlemenbecause of their contact with the West-either through
the Mediterraneanor the Baltic-and also the Far East. In consequence of their worldwide trade relationships,the Arabs brought
sugarcanefrom India, cotton to Sicily and Africa, and rice to Sicily
and Spain.They learned from the Chinese how to produce silk and
paper and took this knowledge with them into all parts of their
empire. From China they introduced the use of the compass and
from India the so-called Arabic numbers. Everywhere that Islam
entered, it activated business life, fostered an increasingexchange
of goods, and played an importantpart in the developmentof credit.
Tradingprofitsformedan importantsourceof incomeboth for states
and individuals.However, we must not overlook the fact that the
prosperityof the world under Islam always depended mainly on
agriculture,and with it, the closely connected handicraftindustry.
In the early MiddleAges a Pax Islamicawas the foundationof an
economic golden age of which the protagonistsin the field of trade
were Arabs, Persians,Berbers,Jews, and Armenians.Islamic trade
reached from Gibraltarto the Sea of China. The voyages of Christians, 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 before the
courageouscitizens of Italian republicswere able, thanks to their
political developmentand their maritimeprogress,to make an end
to Islamic-Byzantinedominationof the Mediterranean.
Oriental and Occidental (Frankish) merchantstogether created
a phase of activity which can be called commercialcapitalism,but
we should not overlook two essential differences between the
Capitalism in Islam
81
Christian West and Islamic East. First, capitalism was able to develop much earlier in the Islamic regions than in the Occident. The
process of the reagrarianization and the dismantling of the great
exchange economy which began in Europe in late antiquity was intensified in the time of the barbarian invasions and continued beyond
the Carolingian period. In the agrarian society of Europe, trade,
although it never wholly disappeared, played only a subordinate
role. In contrast, the Orient at this time was not affected by any
barbarian invasions and a growing trade economy was able there to
attain its peak.
The essential difference between the economic development of
East and West came about during the late Middle Ages. Internal
trade in the entire Islamic area could not keep pace with international commercial developments, for the Islamic lands of Asia, which
were affected by the Mongolian invasions, lost much of their productivity, and as a result their business potential diminished.2
II
Although trade was not able to change the social structure of
Islamic society much, or to influence its social thought very basically,
nevertheless it had considerable effect on the economy, the accumulation of capital, and the development of production. The great
expense of equipping armies cannot be paid from an empty state
treasury or the modest depository of an Emir. Only a financially
stable upper class can satisfy its desire for precious stones and
jewelry.
The cradle of Islamic capitalism was in the main cities of the
Islamic world. In the early Middle Ages Baghdad was the commercial metropolis and exerted a marked influence on the whole of
Islamic big business. With the tenth century, however, the weight
of Islamic commerce was gradually shifted from Iraq and the Persian
Gulf to Eygpt, the Red Sea, and the harbors of the Arabian Peninsula on the Indian Ocean. Cairo became the leading city. The state
fleets of Fatimid Egypt and private ships of its high ranking dignitaries strengthened commercial links in the Mediterranean, above
all with Sicily, Tunisia, and Syria.
For Egypt's relations with the West the emergence of the Karim-s,
2 B. Spuler, Geschichte Mittelasiens seit dem Auftreten der Thirken,in Handbuch
der Orientalistik,erste Abteilung (Leiden, 1966), Bd. 5, pp. 215-27.
82
Sub/i Y. Labib
a unique group of capitalistic entrepreneurs, was of great importance. This group of large-scale merchants, of whom we first hear
in the eleventh century, was distinguished by its enterprise and
competence, and soon attained wealth and influence in all important
eastern markets and-through its considerable financing activities
-in the field of politics too. From the twelfth century, the Kdrimis
and the Franks came by degrees to dominate the important trade
between East and West and displaced the Christian and Jewish
merchants of the Byzantine, Ayyubid, and Mamluk empires. Through
commercial privileges obtained in return for military services to
the Byzantine emperors, the Italians succeeded in eliminating Greek
merchants almost entirely, while Saladin's support for the Muslim
Karimis meant the end of the important position of the Coptic and
Jewish merchants of Egypt. Kdrimi funduqs sprang up 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, Bi'r ar-Rubdhiyya in Yemen; in Mecca, Medina, and
Jidda in Hijdz. The Siiq al-'Att-ar-nor Al-Buhar was presumably the
center of all the Kdrim1trading in Alexandria. Kdrimi 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 Karimls expanded their trading activities
into this area. 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, where,
from the most important gold mines of the world, they obtained
gold.3
If one estimated the average capital of a wholesale merchant,
either Muslim or non-Muslim, at approximately 30,000 dinars before
the Karimi period in Egypt, the wealth of many Karim1merchants
would amount to at least 100,000, or of a few to 1 million dinars or
more. From the biographical sources of the fourteenth century, we
learn the following about the Kariml NMsiral-Din Muh. b. Musallam
(died 1374): "He was, as far as his wealth was concerned, the
marvel of his time."4 It is reported further that not one of his slaves
who worked for him in oriental markets such as India, Yemen,
3 S. Labib, Handelsgeschichte Agyptens im Spdtmittelalter (Wiesbaden, 1965),
pp. 102-3, 116.
4 Labib, p. 115.
Capitalism in Islam
83
Ethiopia, Ghana, and Mali had died abroad,and thus the business
from this standpoint had suffered no setbacks. The ancestors of
this Karimlmerchanthad likewise been merchants.His grandfather
ibn Yasiral-B-alis!was also amongthe most famousmerchantsof the
Orient,if not the world. His wealth is said to have amountedto 10
million dinars. The fame of his financial ability went beyond the
business circles of Egypt. A contemporarydescribed him as being
the wealthiest Karimimerchantof his time. Indian merchantswho
traded in Egypt and Mecca confirmedthat no Indian possessed
wealth as great as that of this merchantwith the exception of an
unbeliever (of India) of whom he was a business colleague. Also
interestingis the statement of the world traveler Ibn Battfita that
the wealth of the KarimImerchantswas comparableto that of the
greatest middlemenof China.5
Among the most important merchant families were the alKharrfibi,al Kaubak (written also al-Kuwaik), Yasir, al-Mahalll,
and the al-Damdnlniwho inherited the traditions of the Karimi
group. It should be emphasized that these trading establishments
were family businesses. Each generation inherited the experience,
assets, and customers of their ancestors. A Karimi prepared his
children for their profession,and sent them to various countriesto
gather necessary experience and to entrench the family business
more firmly.The Karimimerchantsin additionhad agents, free and
slave, who representedtheir houses, importedand exported wares,
and recruitedfor them. In addition to their business activity, these
houses played an importantrole in the historyof Islamiccapitalism
thanksto their importantfinancialpotential. The financingof great
projects was one of their methods of acquiring capital, and they
conducteda type of bankinginstitutionfor loans and deposits.Their
best customerswere not only Frankishmerchantsbut also Sultans
and Emirs, whom they helped with credits and also with soldiers
and weapons if necessary.
In the history of Islamic capitalismthe Karim-merchantsdiffer
from other entrepreneursof their time outside of the Egyptian Empire and from the wholesale merchantsof this empire before their
time (before the twelfth century) in one importantway: They were
neitherlandlordsnor tax collectors.Their capitalismrested on trade
and financial transactions.This remained the basic characteristic
5Labib, p. 116.
84
Subhi Y. Labib
of their activity. The most importantJewish merchantfamilies in

Egypt up to the end of the Fatimidperiod and also outside of Egypt
(primarily in Iraq and Iran) were wholesalers,bankers, and tax
farmers of entire provinces. To Joseph b. Phineas and Aaron b.
'Amran,courtbankers,a certainvizier had to pay 30 percentinterest
on a loan of 10,000 dinarswhich he borrowedfrom them. The relationshipof such Jewishfinancierswith the Abbasidcaliph and his
viziers at the beginningof the tenth centuryis an importantchapter
in the history of oriental capitalismas they loaned the Caliph and
his viziers large sums of money. Ibn 'Allan al-Yahiidli,who died in
1079,was a tax farmerof Basraand served the caliphsfor more than
20 years. He was extremelywealthy and granted a loan of 100,000
dinars to Nizam al-Mulk.6
In the history of Islamic trade we find from the beginning the
itinerantmerchant,al-Thjiras-Salfhr,beside the resident merchant,
al-Ta-jiral-Muqim.To the former,adventure,associatedwith business, became an essentialpart of his life. We know of a substantial
numberof merchantswho traveled between China and Andalusia,
many of whom went for learningin additionto business.Many tales
from the ArabianNights give importantand well-knownexamples
and reconstructfor us the picture of the adventurousmerchantof
the Islamicearly MiddleAges. From the late Middle Ages a typical
example which has some informative data is the following: The
merchantMuhamedb. 'Abd al-Rahmanb. Ism-a' il al-JazlrI(died
1302), one of the most respected merchantsof his time, traveled
between Syria,Mecca,Egypt, Iraq, and the PersianGulf and undertook three tripsto China.At the beginningof his careerhe possessed
500 dinarsas capital. At his death he left behind the sum of 50,000
dinars.
Often clever and ambitiousbusiness entrepreneurswere the ambassadorsof their countries,and it was not exceptionalfor an ambassadorto combine a diplomatic duty with a good business deal
whenever the opportunitypresented itself. An interesting example
is the following: Fakhr al-Din 'Uthmdn,the Ambassadorof Egypt
to Aragon in the year 1304, borrowed 60,000 dirhams before he
startedhis journeyin order to buy goods which he hoped to sell in
Aragonfor a good profit.7
6 W. Fischel, "The Origin of Banking in Medieval Islam," Journal of the Royal
Asiatic Society, 1933.
7 Labib, p. 79.
Capitalism in Islam
85
The political picture of Islamic capitalism would remain incomplete if I did not refer to al-Sawdmilli.Professor Aubin, in his work
"Les Princes d'Ormuz" spoke not only of the importance of the
capitalist merchant al-Sawdmilli,but also of the position of Hurmuz
Harbor, which from the thirteenth to the fifteenth centuries presented the unusual picture of an autonomous oriental city.8 In this
important seaport, economic activity went hand in hand with political independence. I have looked in vain in Arabic sources for a connection between the K-arimlmerchants and al-Sawamili.
Steady traffic and relative safety of the roads contributed considerably to the growth of trade. However, the distance and danger
of the route as well as the scarcity of wares influenced prices. 1bn
Khaldfin analyzed these things well and arrived at the conclusion
that usually the merchants who traded and exchanged their merchandise in distant marketplaces could acquire great wealth.9 On
the other hand, merchants who simply traveled between cities and
villages of one province could count on only small profits, since in
most cases their merchandise was obtainable in large quantities.
Therefore, the more experienced merchants were advised to buy
goods through long-distance trade 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
learn whether or not a product might be found there in large or
small quantities; whether it was expensive or inexpensive; whether
or not it turned out scanty or faulty; and whether or not the routes
for import were safe or impeded. Some of this information had to be
obtained through inquiries and close questioning of caravans. In
other words, business required many rational decisions and preparatory calculations.
Of great significance for the medieval capitalistic trade of Islam
was the establishment of the funduqs, specialized large-scale commercial institutions and markets which developed into virtual stock
exchanges. They dominated the townscape of the great cities in the
entire Islamic world. A few examples which give an approximate
idea of the trade transactions which took place there are as follows:
At the time of the Crusades Cairo possessed four funduqs for the
8 J. Aubin, "Les Princes d'Ormuz du XIIIe siecle," JournalAsiatique, 1953; Labib,
p. 117.
9 Ibn Khaldfin, Prolegomena (English translation by Franz Rostenthal, New York,
1958) Vol. II, pp. 298 if.
86
Subbi Y. Labib
commercialexchange between Egypt and Syria. One of them was

concerned with the import of oil from Syria. According to the
sources,an oil traderwho lived in the fourteenthcentury disbursed
20,000 silver dirhamsfor his oil imports and a further 90,000 for
other goods he importedfrom Syria.In the Dar at-Tuffahin Cairo
the wholesalefruit merchantsof Egypt and Syria stored their goods
-apples, pears, quinces, etc.-after having purchasedthem at the
fruit market, the funduq Qiisiin. funduq al-'Ambarspecialized in
amber which was importedeven from the Baltic region and which
found a ready marketin Egypt, for it was-and still is-a popular
ornament in the Egyptian countryside. In addition to Egyptian
products, goods of Chinese, Indian, African,Western, and Levantine origin were sold in the Cairene funduqs. The fur market of
Cairo grew rapidly toward the end of the fourteenth century, for
fur was in this period much in demand in male fashion. W-allsand
provincialgovernorscould profitfrom this trade; thus, we hear for
instanceof a Wall (and merchant)who broughtat one time 300,000
garmentsof gray squirrelto sell on the Cairenemarket.Funduqsfor
grain or textiles belonged in the picture of all large cities such as
Baghdad, Cordova,and Damascus.Baghdad had a special market
for Chinese importswhere profitsreached many times the original
cost.
III
Among the importantlines of business were the grain trade, the
spice trade, and mining;because of lack of space only the production of textiles will be described here. The trade in fabrics was
especiallyhighly esteemed.
The Caliph Abi Bakr himself had been a textile merchant."If
there were trade in Paradise,I would choose cloth-tradebecause
The production of
Abii Bakr al-Siddiq was a fabric-merchant."'0
fabricsin which the entire family participatedthroughspinningand
weaving was done not only in the home for home use but it was
also encouragedby the state, which eventuallymonopolizedthe industry. The Umayyads and Abbasids housed in their palaces the
cloth mills which made cloth for their wardrobes,for the covering
of the Ka'baas well as for royal presentations(robes of honor) and
gifts. The importanceof these fabricsincreasedunder the splendor10 al-Dimashki/H. Ritter, "Ein arabisches Handbuch der Handelswissenschaft,"
Der Islam, 17, 1917.
Capitalism in Islam
87
loving Fatimids. Royal factories, called Dar al-Tiraz, were of course

built not only in Egypt and Syria; they were all over the Islamic
world. In Spain they were in Almeria, Murcia, Sevilla, Granada,
and Malaga; in Asia Minor there was a Tiraz factory at the Saljuq's
court. Even in Sicily, where the Arabs ruled for a long time, the
tradition of state factories was preserved and in Palermo the regium
ergasterium produced finely woven silk down to the thirteenth century. The same system also spread in Persia. In Iraq, Baghdad remained the most important center of royal production.
Factories built and maintained by the state were not only producing for the private needs of the rulers, which were in fact very
great, but also for commerce. Tinnis (Egypt) is an important example: 5000 looms and a factory of the court were producing textiles. The export of Tinnis textiles was considerable, and down to the
year 360/971 reached a value of 20-30,000 dinars annually. It is significant that the treasuries of the towns of Tinnis, Damiette, and
Al-Ashminayn in 363/974 (Fatimid period) could pay 200,000
dinars into the treasury in one day. The expenditure for gold thread
was usually 31,000, and under the Fatimid Caliph al-Amir it even
mounted to 43,000 dinars. Through the Resala-ye Falakiyyd it is possible to give a few examples of capitalistic Mongolian court procedures of the late Middle Ages: Baghdad manufactured royal garments
(Bayt al-Athw-ab) with a budget of 20,000 dinars."1Tabriz produced
them with a budget of 10,000 dinars and at the same time manufactured brocade (Bayt al-Zarduziyya) with a budget of 20,000
dinars. For the production of calico in the royal weaving mills of
the city of Isfahan 10,000 dinars were used. For the production of
taffeta (Bayt al-Taftagat), with which the city of Yazd supplied the
court, 20,000 dinars were spent. The same figure is given by the
city of Nishapur for their production of silk damask (al-Kamkh-awt).
It was only with the decline of the great Muslim empires that the
Tiraz production system came to an end. Ibn Khaldfin tells us
that the fabrics and garments with Tirazes were no longer made in
their factories and palace workshops in Egypt or produced by the
state in its own buildings, but what the state required was simply
woven in the houses of the weavers.'2 In fact throughout the Middle
11 W. Hinz, "Das Rechnungswesen orientalischer Reichsfinanziimter,"Der Islam,
28, 1950.
12 Encyclopaedia of Islam, article "Tirdz";S. M. Imamuddin, The Economic History of Spain (Asiatic Society of Pakistan, Dacca, 1963), pp. 197 ff.; Labib, pp. 29394.
88
Subbi Y. Labib
Ages textiles were manufactured in private homes as well as in the

state factories. In Almeria (Spain), where 800 looms were working
in Idrisi's time, valuable brocades, siqlatun and silver, were made in
the style of those of Djurdjan and Isfahan. In the Nile Delta, in the
early Islamic period, the lot of the private cloth makers was
wretched. Their private production was strictly controlled-at least
during the Fatimid period. They had to obtain their materials from
the Caliph's officials.The finished fabrics could only be sold through
brokers appointed by the state and a government official kept a
record of all transactions because of the Caliph's large profits from
this business. Many governors invested in the fabric business
through contracts. They sometimes had their own house factories,
the production of which was considerable. A few examples are
known of respected dignitaries who carried on the home weaving.
It is related that on his accession Hisham I (788-96 A.D.) sent for
Mus'ab b. 'Imrdn al-Hamad-ahn,whom he desired to appoint as chief
Qadi of Cordova. His wife was seen regulating the loom while
Mus'ab was at a distance from her preparing the threads. It cannot
be determined how much the scholar in question produced for the
market.
The weavers were divided into two groups: the artisans who
worked for wages and the owners of weaving looms. Some of the
latter processed the already woven threads which were brought to
them by their employers. A contract was drawn up to determine
wages and conditions for production. Other weavers themselves
bought the thread and turned it into fabrics to be sold. In every
large city there was a qaysariyya for the trade of fabrics; in small
towns it was a sfiq (bazaar). Textiles of all kinds and types were
offered at weekly markets and trade fairs. Every piece of cloth,
whether woolen or cotton, silk or linen, cheap or dear, bore the
name of the producing city, so that the purchaser could know for
what he was paying.
IV
There is much material which shows that the free loan was known
in the Islamic world, but it was customary for the creditor to calculate his interest and include it in the sum owed without stating
it separately in the credit agreement.
Money changers and private bankers worked on a capitalistic
basis and played a major role in the deposit and loan business and
Capitalism in Islam
89
in the clearinghousetraffic.Some businessmenhad greater trust in

judges, however, and in some dependable scholars who accepted
their deposits and managed the settlement of their accounts. The
deposit and loan business conducted under state supervisionwas
also not unheard of, although our knowledge about this is very
limited.
Currencyproblems and the decline in value of coins forced a
search for safer forms of payments, particularlyin the late Middle
Ages. This tendency to devise a traffic in money independent of
coinage troublescharacterizesthe whole historyof paymenttransactions in the Islamic era, particularlyregarding large private and
state (official) transactions.One of the results was that the bill of
exchange obtained a solid place in state and private commerce.It
was so familiarthat it appeared in the adage: "Takeout a bill of
exchange on your mother";this advice was given to a son who
wanted his motherbroughtsafely to Basra.
Adam Mez collected the best materialon suftajahs (bills of exchange) that we find in the early Islamicliterature.He said:
A savant who journeys to Spain takes with him a letter of credit (suftajah),
and 5,000 dirhamsin cash. NMsir-iKhusraureceived from an acquaintancein
Asuan a blank letter of credit addressed to his agent (wakil) in 'Aidhdb, of
the following content: "Give NMsirall that he may demand, obtain a receipt
from him and debit the sum to me." The Viceroy of Egypt sent his representative in Baghdad letters of credit for the cashiered vizier. The representative
accepted them, and put the money at the vizier's disposal. A sort of bill of
exchange was the sakk . . . In Audagusht in the western Sudan, ibn Hauqal
saw a check for 42,000 dinarsdrawnby a man of Sijihmasahon one Muhammad
ibn 'All Sa'dfinin Sijihmasah;it was officiallycertified. The paper had travelled
through a great part of the Sahara. In Islamic metropolises the sakk was a
regular check in connection wherewith the banker plays an important part.
In the 3rd/9th century (to which the anecdotes connected with Harfin alRdshldbelong) a magnate drew checks on his bankers.About 300/900 a great
man paid a poet in this way, only the banker refused the check, so that the
disappointed poet composed a verse to the effect that he would gladly pay a
million on the same plan. A patron of the same poet and singer (320/936)
during a concert wrote a check (ruq'ah, "note") in his favour on a banker
(5airaft) for 500 dinars.When paying, the banker gave the poet to understand
that it was customaryto charge one dirhem discount on each dinar, i.e., about
ten per cent. Only if the poet would spend the afternoon and evening with
him, he would make no deduction. Another banker (Jahbadh), who was even
a greater patron of the fine arts, not only made no deduction, but presented
the poet with an extra 10 per cent. There was therefore plenty of employment
for bankers, and it is not surprisingthat in Isfahan there were 200 banks in
the Bankers'Bazaar-for these too sat together.
90
Subbi Y. Labib
About 400/1000 the banker had made himself indispensable in Basrah: every
trader had his banking account, and paid only in checks on his bank (Khattsaraf)in the bazaar.This would appear to have been the most importantrefinement of monetary operation in the empire, on the frontier between Faris and
Iraq. For the people of Basrah, the Persians of Faris, and the South Arabians
were the best traders among the Believers, and had their colonies wherever
anything could be produced. About the year 290/902 al-Faqlh al-Hamadhanli
observes: "The people of Basrah and the Himiarites are the greatest moneygrubbers.One who travels to the remotestregion of Ferghanah or the Western
edge of Moroccois sure to find a man from Basrahor a Himiaritethere."'3
Ibn Battiitadiscussesan occasionworthyof notice in which credit

brought an enormousprofit:
Every person proceeding to the court of the King of India, Sultan Muhammad
Shah, must needs have a gift ready to present to him, in order to gain his
favours. The sultan requites him for it by a gift many times its value. When
his subjects grew accustomedto this practice, the merchantsin Sind and India
began to furnish each newcomer with thousands of dinars as a loan, and to
supply him with whatever he might desire to offer as a gift or to use on his
own behalf, such as riding animals, camels, and goods. They place both their
money and their persons at his service, and stand before him like attendants.
When he reaches the Sultan, he receives a magnificentgift from him and pays
off his debt to them. This trade of theirs is a flourishingone and brings in vast
profits.
Ibn Battfta himself made use of the occasion.He says:

On reaching Sind I followed this practice and bought horses, camels, white
slaves and other goods from the merchants. I had already bought from an
IraqImerchantin Ghaznaabout thirtyhorses and a camel with a load of arrows,
for this is one of the things presented to the sultan. This merchant went off to
Khurdsdnand on returningto India received his money from me. He made an
enormousprofitthroughme and became one of the principalmerchants.'4
Interest and usury were legally prohibited;however they were

customary.Usury and excessive profit played an importantrole in
Islamiccapitalism.Neither Muslimsnor Christiansnor Jews shunned
usurious business dealings. Even Caliphs, Sultans, and Emirs received loans carryingtoo high an interest rate.
These credit dealings were not carriedout only to gain profit in
the form of interest.From the heads of states one could ask for importanttrade, tariff,rent, and tax privileges instead.
With the growth of commerce trading companieswere formed.
A. Mez, Die Renaissance des Islam (Heidelberg, 1922) p. 448.
H. A. R. Gibb, Ibn Battfita, Travels in Asia and Africa (London, 1929), pp.
184-85.
13
14
Capitalism in Islam
91
Some were family enterprisesin which the profitswent into a common fund without an accurate settlement of the accounts of the
various partners.The example of the prophet Muhammadhimself
servesas a prototype.It was no secret that the prophet and his wife
Khadijahad established a commenda. The principle of the commenda was that within the associationthe partnerswere equal, and
one furnishedthe capital while the other managed the business. I
found a rarecommendacontractsetting forth this type of agreement
between a Venetianand a native made in the earlyfifteenth century
with Alexandriaas the place of the agreement.' While this record
does not deal with the details of the contract,it does reportthat the
native sent a letter to the Venetian consul in Alexandriato inform
him that certainproblemswhich had arisenhad been cleared up in
the meantime, and that he and others had written to the Q-dd alQud-h in Alexandriaso that the Venetianmerchantwould no longer
be prosecuted.The suppliersof the monies of the commendacompanies were not only merchantsbut also the wealthy who wanted
to invest their surplusin trade for profit.
As we know, the commendawas intended to be a form of capital
investmentwherein the profitswere distributedaccordingto what
the partnershad agreed upon. Here we have a capitalisticcalculation of accounts.The originalcapital invested is comparedwith the
final sum and the surplus is marked profit to be distributed.This
type of settlementwas not unknownin the civilized countrieswhich
the Arabs conquered. However, it was not widely utilized in the
Islamiccivilizationuntil the introductionof numerals.At the beginning of the ninth centurythe Islamic mathematicianMuh. b. Musa
al-Khwarizmiintroducedthe Indian positionalnumeralswith index
value and zero. One began thinking in numbersand the numerical
systembecamethe frameworkfor the capitalisticindustrialeconomy.
In the introductional-Khwarizmihimself states that his book was
compiled to meet the needs of people in solving questions of inheritance,wills, purchaseand sales agreements,in money exchange,
in surveying,in the cleaning and digging of rivers and canals, in
the measuringof goods, and in technical matters.'6We must not
forget that the Fiqh schools placed great emphasison the fact that
theirgraduatesdistinguishedthemselvesin having a good knowledge
of Arabicmathematics.A glance at the introductionof mathematical
15
Labib, p. 501 (b. Private No. 2).
16 Labib, p. 216.
92
Subbi Y. Labib
works is enough to confirmthat this knowledge was not only required of merchantsbut also was part of the trainingof the 'Ulamda'.
The preferenceof the orientalprivatebusinessmenand of the scribes
of the state for mental arithmeticand finger arithmetic,as well as
the use of the mysteriousSiydq and coptic numeralshas been maintained until moderntimes. We should not be deceived into thinking
that the introductionof Arabic numberswas to be of importance
mostly in the developmentof private accounting.
Al-Dimasql,in his often quoted booklet about trade, advised the
merchants:"Everythingthat is being bought and sold shall be measured by the dry measure,or by time, or in numbers.Thereforea
merchantshould know the swindlerand the methods which he applies when measuring,weighing and counting, so that he shall not
be dependent upon unreliable people."'17
Credit transactionsas well as the organizationof trading companies made accurate accounting imperative. Bankers and money
changerswere requiredto keep recordsand to enter the transactions
of theirclients accuratelyin ledgers,althoughthey were not required
to specify their own profit. Generally bankers received deposits
which could be withdrawnby means of a written assignment.The
double entry method was an importantpart of a merchant'sskill.
It allowed him to watch not only the flow of single values but also
the circulationof the capital, and it enabled him to registerquantitatively its change and transformationand to controlthe success and
the developmentof the business.
The accountswere of goods or of completedbusiness.Normallya
merchantwould settle a sale immediatelyand would enter the profit
or loss in his ledger. This method gave a current account of profit
and loss. A periodic balancing was thereforenot necessary. If one
was made, it only served the purposeof a control.This information
on medieval Islamic accounting,unfortunately,does not come from
commercialaccountingledgers,since to this day we have been unable
to find any such books, but rather it is a compilation of details
which I have been able to crystallizefromlegal books,notarialbooks,
and treatiseson financialadministration.
The private business of the Islamic princes was extensive. The
state treasurywas in realityalso the privypurseof the prince.Viziers'
households and businesseswere separatedin name only. Their en17 al-Dimashki/H. Ritter, p. 62.
Capitalism in Islam
93
terprises were among the largest capitalistic undertakings of their

time and needed accurate accounting so that they might not lose
sight of their credits and debits. In medieval Islam, rulers bought,
sold, and filled their magazines with native and foreign goods; the
Fatimid Caliphs possessed many funduqs and thousands of shops
and were at the same time the largest merchants, producers, and
consumers in their realm.
Leasing the privilege of collecting taxes was the surest way to
build capital in the Islamic Orient. It was well known that oriental
tax farming was essentially a concession by the state to a private or
official finance contractor who as a rule had to put up his own means
as collateral in collecting the revenue debit due. These tax farmers
understood well how to let profits work for them in new business
undertakings. They were active in trade and manufacturing, where
they invested their surplus. There are many examples which show
how deeply tax farmers and officials penetrated into the economy.
V
Islamic capitalism was mainly a commercial and consumer-credit

capitalism, and its unstable organization is revealed in the fact that
princes and regents were bad debtors. They not only failed to pay
their obligations but in times of need they confiscated the wealth of
their creditors. Confiscation in times of unrest and invasion was the
order of the day. On the other hand, the privileges and advantages
received from the heads of state brought such high profits that some
creditors were able to amortize the debts and cover even the losses.
Neither Islamic law nor the Islamic rulers recognized the independence of the city-nor did they offer it autonomy. In addition,
the urban community, which was supposed to remain religiously
oriented, was unable to develop into a politically effective community-neither through autonomy nor by compromises with the
rulers. This had a definite influence upon the economy.
The Islamic state did not take steps to found a national bank.
Savings or checking accounts were not new to the Islamic world,
and pawning, loaning, trusts, money changing, transfer of credit,
and transfer of debts were all important divisions of business life
in any large Islamic city. Yet neither the government nor the businessmen took upon themselves the task of founding a state bank
which would take care of business transactions well and efficiently.
94
Subbi Y. Labib
Such an institution would have become a political force and would

have assumed an unusual position between state economy and
private enterprise. It would have helped to prevent or overcome
many a great economic catastrophe.
The Maudi' al-Hukm might be called the preliminary step to such
an institution. Al-Maudi' was a bank, a depository, a building, or a
vault in which the state placed certain funds for definite purposes.
Also the Qadi al-Hukm had a bank, a vault, in which he kept under
his protection the possessions and important documents of orphans
or of persons temporarily away from the city. In addition I have
already mentioned that Qadis too occupied an important position
in business circles.
Amari, Dozy, Canale, and Quatremere were the first to refer to
the very interesting appearance of the maona in the Islamic world.
The maona was a kind of private bank which loaned out state
money. The word maona (in Arabic ma'iina) means support or help
or, as the case might be, reciprocal help. The Arabic maona did not
undergo the same development as did the occidental maona; it was
not used for financing wars or mining. The function of the ma'iina in
Islamic society remained restricted to giving financial help on a very
limited scale. Amari has established that the idea of the maona was
used also in Tuscany and signified a general company founded for
the exploitation of iron mines and a large trade in iron.'8
One can find precursors of the modern bourse in Islam: there was
not only the capitalistic business in the funduqs, but also business
activity typical of the modern commodity exchange, i.e., the trading
in wares not present at the marketplace but to be delivered later.
Dates were legally sold at auction before they were ripe and harvested. Even the wholesaling of many kinds of tuberous vegetables
such as onions, garlic, carrots, turnips, radish, and colocasia took
place before the products were out of the earth-that is, before the
merchant ever saw the harvested product. According to many a
jurist this was legal.
Insurance however remained inaccessible to the purely religiously
bound Islamic mentality. The insurance of wares by distributing and
sharing the risk is of course included quite naturally in the commenda but insurance in the service of the development of a capitalistic business and the reduction of business risk remained
18 R. Dozy, Suppl6ment aux dictionnaires arabes (Leiden and Paris, 1927), article
awana, ma 'fina; with references.
Capitalism in Islam
95
practically outside the scope of Islamic economic thought (except

in Mughal India).
One should neither consider nor treat the capitalism of the Middle
Ages in terms of national economy or even from its point of view.
Economics of the Middle Ages is the study of the house, of Oikos.
The tradition of this system of economics in the Occident begins
with Xenophon and Aristotle, and survives through Scholasticism
of the Middle Ages to the modern period. In the Orient it is known
as 'Ilm Tadbir al-Manzil. With this name, 'Ilm Tadbir al-Manzil, the
Muslim refers to the second of the three sciences belonging to the
Aristotelian scheme of practical philosophy, ethics, economics, and
politics. An illustrative quotation follows:
The goal of home economics is the knowledge of managing the household,
which is composed of husband, wife, children, and slaves, with which its (the
house's) state of affairsis arrangedand their (the mentioned persons') condition is regulated. This assists the persons in developing virtues and avoiding
evils. Brfis (that is, Bryson) from the ancients wrote about this and also other
learned persons.19
The elements of home economy are five: father, mother, children,

slaves, and food supply. As with every community, the home requires
cooperative endeavor. This depends primarily upon the man of the
house. The man must look to the best interest of the family through
maintenance and order. A statement of the Prophet Muhammad
makes reference to this: "Every one of you is a shepherd and every
one of you will be held accountable for his herd."
The economy of the home included the totality of all its human
relationships, the relationships of man to wife, parents to children,
lord to servants (slaves), and the carrying out of their duties in the
home. Home economy is not formed by the market or oriented
toward it but toward the economy of the household and the farm.
Trade is necessary and permissible insofar as it serves to supplement
the self-sufficiency of the home; but in and of itself it may not be
concerned with making money. Ancient thought and Islamic revelation confirm this idea.
Ethics, or "practical philosophy," is essentially a moral system for
the individual, the head of the house, the statesman. Within the
moral system it is possible for a man, a home, and a state to approach
their "essence," their true being. This remained the ultimate goal of
19 M. Plessner, Der Oikonomikoe des Neupythagoreers "Bryson"und sein Einfluss
auf die islamische Wissenschaft (Heidelberg, 1928), pp. 40, 59-61, 144.
96
Subhi Y. Labib
Islamic morality. Both Orient and Occident during the Middle Ages
endeavored always to unite ethics, economics, and politics in a system of morality of the person, the head of the house, the statesman.
There was a very strong "urge for gain" which cannot be overlooked,
to be sure, but it was different from the factory production and the
calculation of modern capitalism. In short, the concrete historical
meaning of Islamic commerce (one can almost say "of Islamic
capitalism") is to be found by proceeding from the concept of the
"whole house" and not simply from the concepts of economics which
have been formed by the modern market and are oriented toward it.
With this we reach the core of the question concerning oriental
capitalism.
SUBHI Y. LABIB, University of Hamburg

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