The abrupt collapse in oil prices shows that however unyielding Saudis may be in matters of faith, in business they are consummate practitioners of the art of setting prices flexibly. It has been ever thus. John Burckhardt in 1831 published Notes on the Bedouins and Wahabys, an early account how the Arab economy was run after Wahhabis came to power in Arabia in the eighteenth century, where he observed of their leader: “Saud always protected trade in his dominions”, and explained how that worked: “as years of dearth often occur, the rich people hoard up great quantities of corn. With these Saud never interfered: and in times of scarcity he allowed them to sell at their own prices, however they might distress the poor; for, he said, that Mohammad never forbade merchants to derive from their capital as much profit as they possible could obtain.” Wahhabi fundamentalism in religion is consistent with dynamism in business, something which may seem incongruous but in fact follows guidelines set by Muhammad who not only had been an entrepreneur, but also a seminal economist – indeed, Muhammad arguably was the first economic policymaker who cared about price competition and free markets. That is what a brief look at Muhammad’s business policies will show.
Muhammad began setting business policies after he emigrated to Medina. One of his actions was to establish a market that he inaugurated with the words: “Let this be your market and let no tax be levied on it.” Medina at the time already had four markets, so opening a new one and exempting it from tax was a case of fiscal competition. Later, he overturned business conventions when during a famine he was asked to cap food prices but refused to do that because, as he declared, “prices are in the hand of God.” This was a radical departure from business conventions because at the time, it was common practice for authorities to determine the price of food. Europeans had to wait for Adam Smith to hear a similar notion.
Muhammad’s policies promoted entrepreneurship, and it did not take long until caravans comprising as many 700 camels wended their way through the desert to reach Medina. Business policies in early Islam in many respects were a seamless continuation of pre-existing Arab business conventions that had evolved over centuries, ever since Arabs had set out to source and sell wares in markets as distant as China and Cornwall, compelled by force of necessity to seek a living through ventures however hazardous. (Indeed the term hazard comes from the Arab word azar which describes the danger of caravan travel.) To fund these long-distance journeys, merchants needed to pool capital and draw up agreements fixing profit shares and salaries. That such was compatible with the Koranic prohibition of taking interest has been understood for a long time. In 1706 the German philosopher G. W. von Leibniz pointed out: “as to usury, which is condemned amongst the Mahometans, we may say, that it is allowable to share the profit with those to whom we lend for their gain, yet it is not just to oppress the Poor and Miserable, who borrow only to live.” Later, Europeans from cities such as Venice adapted this very model to fund convoys. These combinations, which brought together investors who underwrote risk ventures managed by experienced caravan merchants, were effectively joint ventures – ancestors of what today are corporations. The mechanics of these ventures Muhammad understood only too well. Acting in the capacity of a caravan merchant had been how Muhammad had first cut his teeth in business when at the age of 25 his future wife Khadija put up the money for his first venture.
Muhammad’s early successors, like their Prophet, had a professional background in business. That background stood them in good stead when they had to lead a community that was growing quickly and getting richer. To pick one example, the second caliph Umar ibn Chattab set up a dedicated finance department which assessed the Empire’s tax base through compiling a land registry and made use of its findings to set an annual stipend for every man, woman, and child. Umar’s government-funded social security plan, a measure consistent with Islam’s commitment to caring for the poor, was the world’s first.
But if social security payments are to be met, an economy needs to keep growing, and Muslim fiscal managers had to flank price deregulation and fiscal competition with other measures that helped markets get bigger. The Islamic Empire expanded trade with partners abroad, and indeed commercial relations with European trade communities progressed even as political encounters were marked by mutual suspicion and confrontation. Islamic trade centres – cities such as Alexandria, Cairo, and Damascus – contained infrastructure that fulfilled the same function as offshore trade centres today. These centres were designated funduq, adapting an originally Greek term for hostels that Muslims encountered when they took control of former Byzantine provinces where the majority population was Greek. A funduq was a walled building, several stories high, containing storage and residential accommodation for the exclusive use of merchants from cities with which trade treaties were in place. Details of these treaties were subject to negotiations where either side needed to avoid overplaying their hand: Muslim authorities would have wished to extract as much trade tax as possible from expatriate merchants communities, but tax competition was at work because merchants were free to take their business elsewhere, to other cities that would be eager to woo them. The most prolific European business presence across the Islamic Empire was that of Venice and of Genoa, and it is baffling how funduqs could continue operating at a time when crusaders and jihadis were engaged in war. However, their long-term effect likely outweighed that of the crusades: funduqs were turntables not only for wares, but also a window for Europeans to observe Islamic business practices from close quarters. One of Europe’s most famous mathematicians, Leonardo Fibonacci, was born in Pisa but moved to Algeria where his father worked in a funduq and afforded his son tuition by an Arab mathematician. Fibonacci when he in due course returned to Italy authored one of Europe’s first textbooks for business case studies. The list of knowledge transfers list could extend to include examples such as the manufacture of paper, glass, and ships. (The term used by Venetians for their shipyard, arsenal, is another word with roots in Arabic.)
Arabs traded across the globe long before Muhammad was born, and the religion he founded and which claims the devotion of Muslims from the beginning was conducive to promoting enterprise and seeking profit through agile bargaining. Price manoeuvring in oil markets is wholly consistent with adherence to Islam’s fundamental values.
