Abdur Rahman ibn Yusuf Mangera – Prophet Muhammad The First Capitalist Part 1 . Benedikt Koehler
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I'd like to give you an introduction of learning about
learning about finance as a Muslim student. And I'd say it's divided
into two things. The first thing is that interest is not allowed.
And the second thing is that you have to give 2.5% in the form of a
charity tax every year. And that's pretty much where it stopped. I
was speaking to Dr. Benedict earlier on. And he mentioned that
after he first wrote an article to do with Islam and capitalism, they
asked him to do it again. Because simply the literature just isn't
there.
And slowly, as you start to discover the realities of what is
some offers, it's a lot more than what we seem to think, you know,
there is a whole financial dynamic, whole financial world,
actually. And we'll refer to both both speakers, as I was speaking
as well to remove the decline in the use of earlier on.
Islam is a it's a very holistic religion.
And it tackles finance, a lot more than we seem to think. At the
moment, I'm writing my dissertation on an economic
analysis of principles in Islamic finance. And one thing I've come
to realize is that there is a lot more, without any further delays,
Dr. Benedict Koehler completed his BA in history, from the University
of Yale before doing an MSc from City University, and then a
doctorate in philosophy from the University of Toledo. Dr. Mandel.
Good evening, ladies and gentlemen.
Well, my talk is about capitalism, and what Islam has to do with it.
So that's about two different things, capitalism, and about
Islam. And I've been asked, first of all, to speak a bit about
capitalism, because you don't want to have a talk about Islam and
then finding out at the end, actually, we don't see that
connection to capitalism. So let me start talking about capitalism.
Capitalism, in itself is a very big word. And we use it all the
time and all sorts of connections, and cotton has all sorts of
connotations. In fact, this is one of the problems I have with people
talking about capitalism. Capitalism is used in so many
connotations. You don't really know what it means anymore,
because it seems to apply to variously. Anybody who's doing
business, anybody who invests any market,
long distance trade, big corporations. And I could probably
think of a couple of other things. The term capitalism now covers so
much that it seems to be coming to overlap with the term economics
generally. And I have a hard time figuring out, well, if capitalism
envelops everything in economics, it's really a meaningless term,
and we don't need it anymore. There's got to be a bit about
capitalism that makes capitalism different from economics, when
it's not capitalist.
So there are four people, in my opinion, who told us about
capitalism, and what doesn't make it different from economics
generally. And I would like to touch on those one by one there,
Adam Smith, Karl Marx, Max labour, and Friedrich von Hayek.
Now, it's one of the problems when people speak about capitalism, and
say that it existed always, is that the first person that we
associate with as being an economist of capitalism, is Adam
Smith, who wrote in the 18th century. So that's about 250 years
ago. Until then, it seems nobody knew about capitalism, but it
would have existed. But finally, in 1776, there's Adam Smith, he
writes The Wealth of Nations. And now we have capitalism. And what
are one of his key insights? There were many others. But one of those
is that he said, Well, capital markets are guided by an invisible
hand, by which he meant that you don't have a government saying
what prices should be, you don't have any authority, saying, who
should produce what, you don't have an overall plan for the
economy, you have what he called the invisible hand. And the
invisible hand is the multitude of individuals, all of us here with
our wants and needs and our supplies, who meet up and the
market sorts it all out. And that's how production tends to
those and gravitates to those services and products, which
people want most. That's the invisible hand.
But, Adam Smith, if you look for the word capitalism, and Adam
Smith, you won't find it, he never used it once.
So let's move on to the second big important person, Karl Marx, Karl
Marx, everybody tends to associate with his biggest book, which is
about copy talk. So he wrote about capital, he had that notion that
in a capitalist society or in any society, there is a concentration
of capital, and that capital is used. And those people who have
that capital exploit people who do not have any capital, and really
said Karl Marx, history is a sequence of struggles over
capital.
So that's what he said is, is capitalism
And
that's how we would see it. Now, his, his analysis is about
capitalism. But if you read Karl Marx, you'll have a hard time
finding the word capitalism, because he does use it maybe half
a dozen times, but never in the way we use it. Now, it's
incidental, it appears in a couple of sentences. So he didn't really
use capitalism.
Now we get to the 20th century. And there you have the person who
put the ISM into capitalism, that was the founder of sociology, Max
viva. Now, what did Max Viva do? And what did Max Viva right? That
makes him so different from Adam Smith, and from Karl Marx. What
makes him different is that he said, capitalism is a very
particular way of organizing a society.
It's a society where people who engage in investment and engage in
commerce,
have a very high social status and become role models. And because
they become role models, whatever they do, tends to become formative
for society.
That's his sociological approach. Capitalism isn't just about how
you do business, and then you go home and do something else. He
says, capitalism is about how you do business. But when you go home,
you are still living the way a capitalist does. So to understand
capitalism, you have to understand the way of life, the mentality,
the outlook. And then he went on. And he said, Well, where does that
outlook come from? Well, what capitalists do, they're very
rational people, they plan, they look ahead, they delay having fun
right now in favor of doing some really hard work, but it helps
them have more fun at some later point in the future. So it's an
entirely sober lifestyle that looks to the future, and looks to
rewards by accumulating material goods.
And that attitude didn't exist in history from the very beginning.
It came about at a very particular moment, it came about with the
rise of Protestantism.
Because Protestants have this attitude of being very sober and
of having the attitude of going to bed early and Early to bed and
early to rise makes a man healthy, wealthy and wise. And once that
attitude became formative for society, then you have the mindset
that creates capitalism. That was a very convincing theory. So
everybody thought, well, now it's an open and shut case. But
somebody discovered a tripwire because they said, Professor V.
But this makes a lot of sense, what you're describing about a
capitalist society, we buy into all of that. But the thing is,
everything you described already existed in the Middle Ages, in
places like Venice and Genoa, because they were ruled by
merchants, and they did a lot of investing, and they got rich that
way, and that shaped their society. But in Venice in January
in the Middle Ages, they didn't have any Protestants. So can you
please explain that. From then on, the reputation of Max Veva started
to nosedive, because people thought the first bit of his
theory works, but the it doesn't really match the empirics.
I now get to the next person who brought the study of CAP took the
study of capitalism to the neck took it to the next level,
Friedrich von Hayek. High IQ was somebody who said, I agree with
most of what my predecessor economists have said. But there is
something about a society that's capitalist that makes it different
from any other society. But what makes it really different is that
it has its essence or its center, its core
in the market.
So now a new approach, which has become dominant, came to the fore,
which is to think of capitalist societies as market economies.
And like viva, he said, well, but a market economy is one where you
not simply go to the market and buy and sell without anybody
stopping you from doing that. But you also then go home and because
that's what you did during the day and it shaped your working life,
it shapes the rest of your life.
That has become a theory which became dominant because it was
capable of explaining many, many social phenomena that you observe
in capitalist societies, you associate a society that is based
on markets with one that is very innovative, that is
entrepreneurial, and that is progressive and open to new ideas.
Hyack for many decades, well for several decades, was not at the
forefront of economic debate, but he then rose to significant
popularity when his views were taken on by the then Prime
Minister Margaret Thatcher. So hierarchy and economics
And Thatcherism often is seen hand in hand. But his legacy is to say
that there is such a thing as the market, there is such a thing as a
government. But the two don't really get along very well. And a
market squeezes out governments and the market and the government
squeezes out markets, but there is a tension between markets and
governments.
So that's where I'm coming from. When I talk about capitalism, I
adopt the views of those key thinkers. In my view, Max Weber
and Friedrich Hayek, capitalism is a way of life. It's a way of
approaching how society is structured. And it thinks of a
capitalist society as one that has the market as its core social
activity, and that core activity ripples outward to all other
social phenomenon.
So, so much for capitalism.
Now, what's Islam got to do with that?
When you talk about capitalism, you tend to think about big
cities, big companies, big department stores, luxuries,
skyscrapers and so on. Why? Why do I claim capitalism began in
Arabia, specifically with Islam? Well,
the makings were already there before Islam came into being they
were already there during the Age of Ignorance during Jamelia. Why
do I say that? Well, because Arabs at that time, were very unique,
were unique for in two particular respects. They didn't have a
government. And they were worldwide traders, Arabs, already
long before Mohammed was born, we're trading in distant places as
far away as China, and transfer and taking goods and transporting
them to Europe. So right there, you have something in the jar
Helia, which Hyack would have been very sympathetic to. It's not the
absence of the government, which he thought would be a problem, he
would actually like that because if there is no government to
enforce the way people live, people have to find ways how to
get along with each other on their own.
And the second is, it was a society which lived off trading
and taking goods from one part of the world to another. So they were
very outward looking, and they were accustomed to living in
different legal frameworks that made Arabs in the Jahai Lea very
different.
So let's move on to a particular city in Arabia to Mecca. Mecca was
one of the cities in Arabia in the GI Lea that was a center for
devotion and for for pilgrims. And when those pilgrims congregated
and convened in Mecca, they had an opportunity to trade. So religion
so pilgrimage and trade,
developed, side by side in Mega long before Mohammed was born.
It started to take off especially around the middle, mid fifth
century, when, when a certain cause I started to build
a protective wall around the Kaaba and said From now on my tribe Kool
Aid, we are going to manage this place. And it continued growing,
and kosai had his had many, many descendants. And they branched out
into different families. And some of them were very distinguished.
Commercial diplomats, one might say in their own right. One of
those was a man whose name is known because people generally
refer to Hashemites as an important branch of our of our
clans. And that was their, the man who gave the name to Hashemites,
Hashem. Hashem was someone who did something that was then very new.
Not only did he go and travel across deserts heading at the head
of caravans, what he did was, right. Trade was he was a
commercial diplomat who wrote trade treaties with the heads with
of tribes through whose areas he traveled, and it went something
along the lines like this. He said, Listen, guys, instead of you
giving instead of you trying to ambush us, why don't we have an
agreement here, you give us some of those goods that you would like
to see sold on the atom in the Mediterranean, we'll take them to
the Mediterranean, sell them and when we get back, we'll split the
profit. How does that sound, saves you a lot of trouble and saves us
a lot of headache and we all it's a win win situation. And these
agreements were called the elf. The elf were very important
because they did something coincidentally, which the Haram in
Mecca already did. They created a particular area where you that was
that guaranteed personal property and pursuit of trade. So Hashem
was another very important person to get after kosai.
By the time Mohammed was born, Mecca was already a thriving Trade
Center and caravans going from on the laughs from Mega comprised as
many as two and a half 1000 camels. So these were pretty big
businesses that were with division of responsibilities, which were
already entrained at the time Mohammed was born. Now Mohammed
will
was born for an orphan. His father was a caravan trader, and he who
had died while his mother Amina, was expecting Mohammed. So he
died. So he, he died at a time when he did not yet have very much
money and Mohammed didn't have grew up a poor kid.
But Mohammed had certain immaterial assets, because he was
a direct descendant, of course, I and Hasheem. So he came from a
family that had, for several generations been distinguished as
caravan traders and as commercial diplomats. When he grew up, he
started out as a shepherd. But he didn't stay a shepherd. His uncle
Abu Talib arranged an introduction for him to find someone investing
so that he too could be a caravan trader, which he did around the in
his early 20s. And in his mid 20s, he married the person who was his
investor had the job.
They were married for, I think, about 25 years. So Mohammed, who
came from a commercial diplomatic family, who came from a family of
caravan traders, married a caravan investor, and for a long, long
time had day by day exposure to the mechanics of investing in
caravans. Now just for a moment, let's just look at these caravans
I already said, They comprise say, two and a half 1000. camels. When
you have two and a half 1000 camels setting forth, there's a
lot of organization that needs to go on, somebody has to decide when
they leave, you can't have a couple of camels leading first
leaving first and a couple the next day, and so on. If you want
to organize it so that they're secure, you want them all to leave
on the same date. For that to happen, everybody has to equip
those camels by a certain date. For that to happen, production and
supply has to be organized. So you have a vertical supply chain,
which has to be organised in that particular in the city.
You also have something which is very important for the development
of capitalism. Somebody needs to put up the money for this, because
you have to pay salaries, you have to buy camels, and you have to
make sure that those people who made money by selling and still
wait for the cat for the caravan to return. What you need is
somebody to underwrite the risk.
So already in, in the days of Muhammad, you had what we would
now call a capital market. You had some people who managed caravans,
some people who were staffers on caravans, some people who supplied
the goods that caravans would sell, and some people who invested
in them. And one such investor was the wife of Muhammad Khadija
when Mohammed then discovered his vocation and became became a
prophet is first convert was his wife Khadija. So in Islam, you
have something that's very unusual for a religion, you have a
religion where the prophet was an entrepreneur, and were the first
convert was a female venture capitalist. But that does not
explain what Islam has got to do with capitalism, that could just
be coincidental.
What happens that what the trigger the tipping point for capitalism
was after Mohammed emigrated to Medina, and started to put his
vision of an ideal society into practice. There were many aspects
of his reforms. But I'm just going to stick to two in particular,
those two relate to market practices. The first is that
Mohammed started a market in Medina. And when he started the
market, he announced to his community, this is your market.
And then he added something which was really key, and let there be
no tax on it. So he started a market. That's not unusual, but he
started one that was tax free. So here you have something that's
economic policy, that's fiscal competition. He's inducing trade
and attracting trade to his particular market through fiscal
incentives.
And there's a second step, that he that is critical, and that is even
more, that's a seminal importance in the history of economic
thinking.
This occurred at a time when there was a famine in Medina. And as was
customary in at the time, people would expect authorities to fix
prices for food necessities.
I should say that it was customary at the time and markets all over
the middle Middle East for people in charge of communities to fix
prices for daily necessities.
But Mohammed on this occasion, when people appeal to him and
said, Look, our budgets are being squeezed because food prices are
going up.
On this occasion, he didn't do what his adherence hoped he would
do. He didn't set prices. On the contrary, he said, prices are in
the hands of God
fixing a price was something which he specifically excluded from his
remit as leader of the community. This was, in my opinion, one of
the seminal statements in the history of economic thought. I
mentioned earlier that Adam Smith said, markets are managed or are
guided by an invisible hand. Well, Mohammed said that in Medina at
the time, much earlier, and introduced this not as a
theoretical concept, but as a practical policy guideline.
So this was, so these two steps alone, and there were there was a
whole raft of others of other steps led to the creation of a
capitalist market. Why do I call that a capitalist market? I just
want to reiterate that a society there where governments do not
intervene in entrepreneurs who engage in market market practices.
Now Mohammed died, and one of the things he said that you can find
that he predicted that you can find in a society that's
capitalist is a spirit of exploration and initiative and
entrepreneurial innovation.
This is what we see in early Islamic society, because early
Islamic society had a number of innovations that were completely
new. Some of those began already in the lifetime of Muhammad. Some
of those happened later. The first one that I would like to mention,
I'm just going to mention three.
The first one is the work of the Islamic charity, Mohammed after it
was Mohammed who created a new concept of providing public
welfare. The worker is an institution
generally would be generally known, the work would be is an
institution that works like that provides public welfare, and it
has its own endowment. The first time a work was created was after
the was a few years before Mohammed passed away. And he set
up the first work in cooperation with the later Khalif Umar. So
Mohammed and uma were the first people involved in create setting
up the first one. Setting up a charity in itself is not an
innovation. charities have existed since human kind banded together
in societies. But works are different. Because waqfs are their
own legal entities, which are ring fenced from interference by
external sources. So a wax was a seminal financial innovation. That
one occurred while Mohammed was still alive. The second one
happened long after he had died. That was monetary reform. One of
the things Hyack says you can tell how you can tell a capitalist
society is that they have that they care about stable money and
see and money that has value you find in Islamic society that
within 60 years, just over 60 years of Muhammad's death, they
created a gold coinage and silver coinage, the dinars and the DRAM.
These were created under in the reign of the Khalif Abdul Malik.
When Abdul Malik created a gold currency in Islam, that was very
innovative because it was the first time that a gold currency
was created outside Europe. And he did this indirect in currency
competition with the then prevailing gold currency of
Byzantium. So monetary reform is the second innovation of early
Islam.
Then there's a third innovation, the fonedog fonedog is a term one
encounters if one travels in an Arabic country because it's used
for hotel or hostel. But in early Islam Fundex also had another
another purpose Fundex were walled structures where people from
abroad could bring their goods, store them and sell them. And
these Fundex were set up and managed by exterra, taught by
expatriates, principally from Italian cities such as Venice and
Genoa. So from very early on in Islamic history, you had
expatriate merchants community who had their own tax privileges, who
had their own legal protection by local domestic authorities who
traded and who brought goods into the Islamic empire and brought
goods from the Islamic empire back to Europe. And the fonedog very
much functions exactly the way an offshore Trade Center does. It was
outside it had legal protection by domestic authorities, but it had
its own and it had its own privileges, but it created
business and created scope for entrepreneurial initiative.
So I've given you three exits. So these have been three examples of
early Islamic innovations work as a means to provide public welfare
through private
initiative,
monetary reform creation of a gold currency to create stable money.
And thirdly, offshore trade centers the phone book, where
which benefited cross international trade and promoted
international trade.
I now come to capitalism in Europe, you might ask, well,
capitalism is something that exists all over the world. How did
it get? How did it get out of Arabia? How did it get out of the
Islamic empire? Did people just invent their own capitalism then
later?
My argument is no, they didn't. All the business people from
Venice and Genoa, who traded in Boondocks were very alert to what
they saw around them. And when they came, when they went home,
they said, when we get home, we're going to try some of this. So the
promotion of Mediterranean seafaring, by way of convoys,
which sailed out from Venice and Genoa
copied, how caravan, the financing structures of caravans, you needed
people to underwrite them, you needed them to be supplied with
goods by a certain date, they needed protection, and they needed
to travel in groups. So they did everything pretty much the way a
caravan did, only they did it across the sea rather than across
the desert. Now, you might say, Well, hang on, they probably
figured that out on their own, didn't they? Well, maybe they did.
But if they did, why did convoys originate in precisely those
cities who had trade in the Islamic empire? If the idea
offered itself equally to everyone, you would have seen
convoys in France or in Spain, or in England, or in Germany, but you
don't you see them in the very places where they were Europeans
were interfacing with the Islamic empire.
There's another aspect of capitalist society I mentioned
earlier, Hayek said capitalist societies innovate in many areas.
Another such area is for example, provision of welfare. And we find
that in England, the Inns of Court.
And the earliest colleges were set up as trusts, now, Inns of Court
and trial and colleges, and copy the notion of the structure of
madrasahs madrasahs were establishments of higher learning
in Islamic countries, usually funded by waqfs.
Now the odd thing is that colleges and Inns of courts were set up by
the by the very people who had contact with the Islamic empire,
because they had a base in Jerusalem, the Knights Templar and
the Franciscan friars.
If Trust's were something had been something that Europeans figured
out for themselves, how come they happen in the very places, and
through the very people who were interfacing with their
counterparts in the Islamic empire? Doesn't seem to me that it
seems an odd coincidence.
And there is the third issue, the creation of a gold currency in
Western Europe, the first gold coins were minted in Sicily, in
Genoa, and in Venice, and Florence.
These are the very cities that had, again, these are, again, the
very cities that interfaced with the Islamic empire, if a gold
currency were something that Europeans had thought of
themselves, why did it happen there and not someplace else?
So in closing, what I'd say is, capitalism, which began in Arabia,
then came to Europe, but it didn't, it wasn't a self starter
in Europe, it was something that came through emulating examples
set by by Islam.
So in sum, I got three takeaways.
The first is
that capitalism started in Islam. It's the first instance that you
have a capitalist society, because it was started by a prophet who
have amongst several other innovations that prices are in the
hands of God.
The second takeaway is that in a capitalist society, you see
continuing innovation. And you see that in early Islamic society, I
gave you a couple of examples, the walk, monetary reform and the
fonedog. And the third is that capitalism happened in Europe, in
precisely those places where Europeans interacted with Muslims.
So there, it's very difficult to claim that capitalism in Europe
started in any way other than to exposure to Islam.
Ladies and gentlemen, thank you