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Caliphs and capitalism

George Bush, a New England minister, explained the term ‘caliph’ came from ‘the Hebrew chalaph; to be changed, to succeed, to pass round in a revolution’. This definition from his Life of Mohammed in 1831 had not been bettered even by the time his collateral descendants in the White House were similarly preoccupied with getting to grips with Islam. Now, caliphal precedents once more are being invoked and it makes sense to have a fresh look at what they were.

Finding a successor to Muhammad, and a title for his office, was a delicate undertaking because Muhammad before he died had not said who should succeed him or how a successor should be chosen. Hence there was ample room for competition between rival candidates and also over what the incumbent would be entitled to do. The title caliph emerged within a day of Muhammad’s demise, henceforth a designation conferred on whoever claimed supreme authority in Islam until in 1924 it seemed to have disappeared together with the Ottoman Empire. The economic policies of the early caliphs merit review.

Early caliphs injected the commercial culture of the Islamic Empire with an acute awareness of how trade spreads benefits to everyone involved. This approach was a carryover from pre-Islamic Arabia when already Arabs coined terms that centuries later found their way to the commercial world of Europe. One example is the term hazard, which comes from the Arab word for the danger of caravan travel, azar. Islam evolved this approach further. The term that describes the very essence of entrepreneurial activity, risk, plausibly derives from a term in the Koran, rizq, where it occurs in numerous contexts to denote ‘God’s bounty’. Innovation in Islam did not end with the death of Muhammad, as his successors were similarly adept in promulgating economic innovation.

Abu Bakr, the first caliph, was a former professional merchant who lived off his investments in mining and in his will vested his estate in a waqf, a charity benefiting his wider family, essentially pioneering family trust funds. The second caliph, Umar, was also a financial innovator, who had endowed the very first waqf and appointed as its manager his daughter, Hafsa. The appointment of a woman to an executive position was not uncommon then; Umar in Medina also appointed a woman to serve as muhtasib, equivalent to a market regulator. Supervising a market was a demanding task. Markets in Medina ran on free-market lines – Muhammad had lifted government-imposed price policies because ‘prices are in the hand of God’, and Umar was seen ‘striking the merchants with his whip when they agreed on the price of food in the market’.

As the borders of Islam were pushed out from Arabia and encompassed the entire Middle East, Muslims came to find themselves in a minority and had to find ways of cohabiting with Christians and Jews who together made up the majority of the population. New approaches were tried, tested, and made to work. In Damascus, for example, disputes over access rights to the cathedral led to an ecclesial Muslim/Christian timeshare – each congregation worshipped at different ends of the cathedral at different times. In Jerusalem, Umar made a point of staying outside the Church of the Holy Sepulchre to make the point that Christian churches should be left alone. When Umar confiscated property of non-Muslims in Arabia – he expelled Jews and Christians and resettled them in Palestine and Iraq – he awarded financial compensation.

Caliphal courts of the Omayyad dynasty in Damascus encouraged Muslims and non-Muslims to mingle socially and Christians served at top levels of government. Abd al Malik, a monetary reformer who introduced a bimetallic gold and silver coinage, was advised by a finance minister who was Christian (so were also his court poet, the tutor of his son, and other high-ranking officials). The succeeding Abbasid dynasty in Baghdad did not reverse Omayyad multicultural promotion policies; if anything, Jews and Christians in government service were even more conspicuous. In the early ninth century, a time when Baghdad was the world’s largest city, a government loan market came about through collaboration between Muslims, Jews, and Christians. The wealth created in Baghdad funded civic initiatives of spectacular scale and range; Baghdad was home to the world’s largest libraries and students of law had a choice between twenty-four different institutions. At this time, Jews were granted extensive self-regulation. In medieval Mosul, for example, local Jews were in charge even of their own prison.

A cursory overview of practices of early caliphs shows they promoted innovative and dynamic economies. Would-be pretenders who wish to bear their mantle ought to keep in mind that the benefits from enlarged markets are far greater than those from rapine and intolerance.

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As in all IEA publications, the views expressed in this blog are those of the authors and not those of the Institute (which has no corporate view), its managing trustees, Academic Advisory Council or senior staff.

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