HISTORY OF ECONOMIC THOUGHT
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UTILITY THEORY
The expected utility hypothesis stems from Daniel Bernoulli's (1738) solution to the famous St. Petersburg Paradox posed in 1713 by his cousin Nicholas Bernoulli (it is common to note that Gabriel Cramer, another Swiss mathematician, also provided effectively the same solution ten years before Bernoulli). The Paradox challenges the old idea that people value random ventures according to its expected return. The Paradox posed the following situation: a fair coin will be tossed until a head appears; if the first head appears on the nth toss, then the payoff is 2n ducats. How much should one pay to play this game? The paradox, of course, is that the expected return is infinite, namely:
E(w) = å i=1¥ (1/2n)·2n = (1/2)·2 + (1/4)22 + (1/8)23 + .... = 1 + 1 + 1 + ..... = ¥
Yet while the expected payoff is infinite, one would not suppose, at least intuitively, that real-world people would be willing to pay an infinite amount of money to play this!
Daniel Bernoulli's solution involved two ideas that have since revolutionized economics: firstly, that people's utility from wealth, u(w), is not linearly related to wealth (w) but rather increases at a decreasing rate - the famous idea of diminishing marginal utility, u¢ (Y) > 0 and u¢ ¢ (Y) < 0; (ii) that a person's valuation of a risky venture is not the expected return of that venture, but rather the expected utility from that venture. In the St. Petersburg case, the value of the game to an agent (assuming initial wealth is zero) is:
E(u) = å i=1¥(1/2n)·u(2n) = (1/2)·u(2) + (1/4)·u(22) + (1/8)·u(23) + .... < ¥
which Bernoulli conjectured is finite because of the principle of diminishing marginal utility. (Bernoulli originally used a logarithmic function of the type u(x) = a log x). Consequently, people would only be willing to pay a finite amount of money to play this, even though its expected return is infinite. In general, by Bernoulli's logic, the valuation of any risky venture takes the expected utility form:
E(u | p, X) = å xÎ X p(x)u(x)
where X is the set of possible outcomes, p(x) is the probability of a particular outcome x Î X and u: X ® R is a utility function over outcomes.
[Note: as Karl Menger (1934) later pointed out, placing an ironical twist on all this, Bernoulli's hypothesis of diminishing marginal utility is actually not enough to solve all St. Petersburg-type Paradoxes. To see this, note that we can always find a sequence of payoffs x1, x2, x3, .., which yield infinite expected value, and then propose, say, that u(xn) = 2n so that expected utility is also infinite. Thus, Menger proposed that utility must also be bounded above for paradoxes of this type to be resolved.]
Channelled by Gossen (1854), Bernoulli's idea of diminishing marginal utility of wealth became a centerpiece in the Marginalist Revolution of 1871-4 in the work of Jevons (1871), Menger (1871) and Walras (1874). However, Bernoulli's expected utility hypothesis has a thornier history. With only a handful of exceptions (e.g. Marshall, 1890: pp.111-2, 693-4; Edgeworth, 1911), it was never really picked up until John von Neumann and Oskar Morgenstern's (1944) Theory of Games and Economic Behavior, which we turn to next.
ISLAMIC ECONOMICS
https://www.hetwebsite.net/het/schools/islamic.htm
Islamic economics
The term "Islamic economics" has been given various meanings by different economists. But by and large it refers to the legal aspects, specifically how Islamic law understands and implicates economic organization and practice.
Commerce and Property
In contrast to the Christian scholars, Islamic scholars were certainly less troubled by commerce and capitalism. The Prophet Mohammed, after all, had been a merchant and so were many of his early followers (Mecca was a major commercial center in the 7th Century). Thus, throughout the Sunna, we find continual references to private enterprise, profit and commerce. The Holy Qur'an and the Hadith are peppered with statements in praise of merchants -- e.g. the Prophet is said to have said "Merchants are the messengers of this world and God's faithful trustees on Earth" and "He who makes money pleases God", etc.
Islam, unlike Christianity, did not have to grapple too much with the problems of church property, or square the contradictions between spiritual goals and material facts in religious institutions. While some sects extolled the spiritual ideal of poverty, it never achieved the prominence that can be found in Christianity or Buddhism. Although poor preachers, holy men and Sufi "saints" were respected, and some even venerated, in local communities, Islam does not have a tradition of religious mendicants. Admittedly, there was a class of professional beggars, who justified themselves by scripture and were even incorporated into guilds in several Arab cities.
Although Islam stresses that God is the ultimate owner of all property (S. III.189), it recognizes the right of human "trustees" to dispose of it as if it were privately owned. As detailed in the Sunna, private ownership was certainly the norm among the Prophet's followers. The right to private ownership is not disputed among legal schools. There were quibbles, however, about the details of transferring property (particularly inheritance).
Profit, too, was sanctioned. Buying low and selling high was regarded as natural, not immoral. Unlike their Christian counterparts, most Islamic scholars and jurists did not worry about "just price". The "just price" is whatever price was deemed acceptable by traders.
There were restrictions, of course. The merchant must conduct his trade honestly and he must not deal in impure goods (e.g. wine, pigs, etc.). Common goods (e.g. water, grass) were given special protection. Zakat, the duty of regular charity, was enforced and took a substantial bite out of profits. Conspicuous consumption was discouraged ("Eat and drink: but waste not by excess for God loveth not the wasters" (S.VII.31)) and periods of abstention (notably, the fasting month of Ramadan) were instituted as a reminder ("so that ye may learn self-restraint." (S.II.183)). The hoarding of wealth was deplored ("And there are those who bury gold and silver and spend it not in the way of God: announce unto them a most grievous penalty" (S.IX.34)). Speculation upon necessities, such as food, in times of great need, was frowned upon. The prohibition of usury (riba) and dealing in uncertainty (gharar) -- which we shall return to momentarily -- naturally placed limits on the size and scope of commercial ventures.
Nonetheless, outside this relatively small set of reminders and restrictions, Islamic legal codes and authorities took a generally laissez-faire attitude on economic matters. Crimes against property, such as theft, were subject to harrowing penalties. Some scholars recognized the "legitimacy" of theft in cases of "dire need" (when, it must be assumed, zakat is not being properly collected and administered), but this was a minority opinion.
Theoretically, government appropriation was justified in the case of "misuse" of private property (hijr). An example of "misuse" is when property is hoarded or left unutilized. The Prophet is said to have said that if land is left uncultivated or undeveloped for three years, the owner will cease to have any right to it, a principle enshrined by Caliph Omar's declaration ("he who revives dead land, owns it; but the demarcator has no right after three years"). Also condemned are the use of property to harm others (e.g. building a dam on your land to deprive your neighbors of water) or to procure extra-economic benefits (e.g. political enfranchisement). Profiteering is also considered "misuse". The Prophet is said to have said: "Whoever withholds cereals that they may become scarce and dear is a sinner."
The "misuse of property" idea served as the basis of the Islamic condemnation of monopolistic practices. This was particularly emphasized by the Hanbali jurists, Ibn Tamiya and Ibn al-Qayyim. Although puritanical, they were also quite "progressive" in the sense of emphasizing that the State was responsible for social welfare. They introduced the notion of the "price of the equivalent" -- which is the closest Islamic scholars dared come to the idea of "just price". They discussed how how competition (and the lack of it) will draw actual market prices nearer to (or away) from it.
Initially, the property of conquered peoples did not receive quite the same protection in the law, but once Omar, the second caliph, prohibited the distribution and purchase of conquered lands by Muslims, a new system was instituted whereby the property of non-Muslims were afforded full protection upon payment of jizyah and kharaj taxes.
The Prohibition of Usury
The Islamic position on usury was no less complicated than the Christian one. Scriptural exigency was clearer the Qur'an, e.g. "Those who devour usury will not stand except as stands one whom the Evil One by his touch hath driven to madness. That is because they say "Trade is like usury," but God hath permitted trade and forbidden usury." (S.II:275; see also S.II.278).
So from the outset, it seems clear that Qur'an forbids usury. But what is usury? This is unclear and left unexplained. The Arabic term, riba, means merely "increase" and early Islamic jurists had scant else to go on. As a result, Islamic scholars have had to look to other legal sources for explanation, and an enormous body of scholarship has swirled around this. Most of them focused on the following Hadith attributed to the Prophet: "Exchange gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt, similar to similar, hand to hand. He who gives or takes more incurs riba, the giver and taker are equal (usurers)". In another narration, the following was added "Should the kind of commodities differ, then exchange as you wish provided that the exchange is hand to hand."
This Hadith has given the outline for the Islamic law on usury. But the different schools of Islamic legal thought interpreted it differently. The Zahiri school, for instance, said that the ban on usury should only apply to the six commodities mentioned (the ribawi: gold, silver, wheat, barley, dates and salt); usury in all other commodities is permissible. The Hanafi, Hanbali and Shi'a schools extended the ban on usury by analogy to all commodities which are measured by weight (like gold and silver) or volume (like wheat, salt, barley and dates). So, items like beans and rice, measured by volume, would could under the usury ban, while cloth, measured by length, would be exempt. The Shafi and Maliki schools extended the ban by analogy to all foodstuffs and excluded all non-foods (except the two mentioned metals) from the ban. Curiously, all schools permitted usury in money that was made neither of gold nor silver (e.g. minor coins, like the copper flus, were exempt).
The ban on usury, may seem innocuous once we have limited the ban to a certain types of goods. But most financing occurred precisely in the form of these goods -- gold, silver, grain, etc. and so it put a large crimp on many things.
As long as the gold dinar and the silver dirham reigned over the Islamic world, this seemed a practicable resolution. But when bills of exchange began circulating (as early as the 8th Century), the debate picked up once again. Some said that dealing with bills was like dealing with interest-bearing debt and thus banned, while others insisted they dealt with the traded commodities, and thus whether interest was permissible was contingent on the commodity. Some said that because they were ultimately backed by gold and silver, then the usury ban applied; others claimed that as they were made of paper, then they were like flus, a money of a different "metal", and thus exempt.
The issue of rent was a bit more complicated as it has features very similar to usury. In the strictest interpretation, a landlord cannot demand a "fixed" amount of crop or monetary payment as rent but only a share of the harvest or profits. However, most jurists maintain that a fixed rent is acceptable if the landlord has contributed long-term improvements to the land, such as drainage, fencing, etc., in which case rent takes on the legal character of the landlord's "wage". If a landlord makes no contributions to the land, however, scholars agree that he cannot demand a fixed rent.
Of course, what is determined in theory has to be distinguished from what happens in practice. Usury is prohibited in Shari'a outright, but, no matter how strict the school of thought, individual jurists are allowed to exercise discretion and thus, in practice, many exceptions slide by. The penalties for riba (unlike other offenses, like drinking wine) are traditionally very light -- often a civil matter quickly and quietly resolved with a fine. The disincentive was not very high. Nonetheless, Muslim merchants and financiers developed a variety of financial arrangements to serve as an alternative to debt . Acceptable forms of financing include the following:
(1) musharaka (partnership): this is the simplest financing method. Two (or more) people pool their resources in a joint venture, participate in its management and share the profits and losses on a pre-determined basis.
(2) mudarabah (silent partnership): also known as the Commenda in Europe, this form of financing operates as a kind of mutual fund. One party puts up the capital, the other puts in the entrepreneurial skill. The lender is entitled to a pre-determined share of the profits (and losses), but not a guaranteed return. Some jurists argue for asymmetric distribution, i.e. the lender's share in case of profits is less than his share in case of losses. The logic is that the entrepreneur's contribution of time and effort is already a sunk cost.
While musharka and mudarabah may be convenient financing methods for businesses, consumer loans cannot really be financed this way as there are no "profits" to be redistributed. The following religiously-acceptable set of purchase/sale contracts are meant to replicate consumer loans:
(3) murabaha ("cost-plus-profit" financing): the financier acts as the purchasing agent for the borrower, and then sells the goods to the borrower with a fixed mark-up on the purchase price (e.g. a bank buys a house for "itself" and then sells it to the borrower with a 10% profit for its "services"). The borrower is allowed to defer payment.
(4) ijara wa iktina (hire-purchase, leasing) Instead of handing the home-buyer a mortgage, a bank "enters" into a partnership with a customer to jointly own a house. For use of the portion of the house "owned" by the bank, the customer pays "rent" to the bank (i.e. pays interest) and, over time, "buys out" the bank's share (i.e. pays back principal). Once again, this is virtually indistinguishable from an interest-bearing loan, except in the legal code.
The banning of usury complicated, but did not end, debt finance. There were always ways to "create" interest-bearing loan contracts. The simplest is simply via "delayment fees". For instance, in a murabaha contract, the financier could increase the mark-up the longer the deferment period (e.g. 1 month deferment means 11% mark-up, 2 months, 12% mark-up, etc.). Alternatively, they could charge a high mark-up for a long period (e.g. 20% for one year) and then offer a discount for "quick repayment". These delayment fees and speeding-up discounts effectively replicated interest, but their legal status is different.
The "repurchase agreement" (known both in the Christian and Muslim worlds as the mohatra contract) was the perhaps the most common dodge. Agent A would sell agent B a worthless item (e.g. a candlestick) for 110 dinars payable in a year's time, and then immediately turn around and buy the candlestick back from agent B for 100 dinars in cash now. In effect, agent A has just made a one-year loan to agent B at 10% interest -- but it looks like a pair of legitimate purchases and sales. Of course, in the end, no good but gold exchanged hands and so a strict judge may be able to condemn it. So a slight variation has agent A buy back something else (say, a matchbook) from agent B for 100 dinars and so there are two clearly separate transactions. As the money has been exchanged for different goods, all we can detect is a price ratio between candlesticks a year hence and matchbooks now, no hint of usury is (legally) in sight. The Hadith, recall, says that in trading one good for a different good, the price is whatever is decided upon by the traders. No "just price" calculations come into play and if agent B wants to pay exorbitant amounts for candles and A overpay for matchbooks, so be it.
Another famous dodge is the contractum trinius, composed of three separate contracts: (1) agent A invests 100 dinars in agent B; (2) agent A sells agent B his right to any profit above, say 30 dinars, for a fee of 15 dinars; (3) For a fee of 5 dinars, B agrees to absorb all losses from the enterprise. The net result is a 100 dinar loan from A to B with a fixed interest payment of 10 dinars.
Islamic jurists condemned these kinds of tricky practices and tried hard to provide workable definitions of usury to handle these dodges. They carefully defined and condemned riba al-nasi'ah (interest on money lent), riba al-fadl (interest obtained via trading contracts) and riba al jahiliyyah (delayment fees). However, not all schools or jurists agreed to their definitions. Liberal judges, usually Hanafi, were often willing to let riba al-fadl to slip through. Some jurists went even further, arguing that the ban on interest should only apply to consumption loans, while productive loans were exempt. The argument here was based on the historical "fact" that in the time of the Prophet, when usury was first banned, most loans were consumption loans. Others argued that the prohibition only applies to excessive usury. This argument is based on the Qur'anic verse "Oh ye who believe! Devour not usury, doubled and multiplied; But fear God; that ye may prosper." (S.III.130). However, the condemnation of usury is so vehement and unequivocal in the Hadith (the Prophet is said to have compared it to incest) that such a contention cannot stand.
Gambling and Risk
A few words must be given to the prohibition of gambling (gharar). Medieval Islamic jurists expanded the definition of "gambling" beyond its scriptural confines to include trading wherever risk or uncertainty is involved. This was done in response to Egyptian soldiers using their paychecks (drafts on local grain deposits) to speculate on the grain market at a time of great need. Banning their speculative activity by calling it gharar, rather than on some other legal basis, was probably a mistake. All things in life (especially commercial life) are uncertain. Nonetheless, the ban is technically in place, although many jurists (for good reason) have chosen to take its teeth out.
The basis for the ban is the Prophet's disapproval, documented in the traditions, of certain types of transactions with uncertain outcomes. These include the sale of unborn offspring of animals (existence is uncertain -- they may be stillborn), the advance sale of the fruit of a tree prior to ripening (the quantity of ripe fruit is uncertain), the sale where the outcome is based on the throw of a pebble (pure gambling) and the sale by a cloth vendor in which he does not give the buyer a proper opportunity to examine the cloth (trade is not transparent).
By analogy, waiters working for tips or salesmen working on commission are deemed to be engaged in gharar because one cannot predict the volume of trade and thus the income that will be forthcoming. The prohibition of gharar is more easily circumvented than that of usury since it only needs a more careful definition of the contract. For instance, instead of hiring a hunter and pay him a fixed amount per rabbit caught (as yet unknown), hire him on the basis of the hours of labor he puts into catching rabbits (clear and well-defined). Similarly, with waiters and salespeople who would otherwise rely on tips or commissions.
However, some jurists say that the ban only applies if the outcome of a particular enterprise is purely uncertain, in the sense that there is nothing systematic the entrepreneur can do to affect that outcome. Because the number of rabbits caught, the satisfaction of customes or the number of sales is systematically dependent upon the efforts of the hunter, waiter and salesman respectively, then the outcome is not completely "uncertain" and thus not subject to the prohibition of gharar.
Other jurists have stressed a stricter definition of gharar which is more in line with its "gambling" origins. Ibn Taimiya for instance, noted that the main element of "gambling" is that who gains and who loses is purely dependent on chance. When two people bet on a toss of a coin, one will win completely and the other lose completely. If, however, the winner agrees to share his gains with the loser, then the bet is not, strictly speaking, gharar.
This stricter definition of gharar however still implicates many common activities, notably insurance. Jurists claim that conventional insurance is gharar because when a claim is not made (as chance dictates), one party (the insurance company) acquires all the gains (the premium), while the other party (the insured) gets nothing. In their view, conventional insurance contracts are pure gambles: the insurance company "bets" that I do not get sick while I bet that I get sick. As an alternative vehicle, Islamic jurists recommend "cooperative insurance" (takaful), where the insurance company is, in effect, a "community fund". Members of this "community" contribute premiums to indemnify any member of the community who experiences a specific loss.
The issue of forward contracts are trickier, since they inevitably involve uncertainty. In the Hadith, the Prophet is said to have said "Whoever buys cereals he shall not sell them until he obtains their possession" and "Bargain not about that which is not with you." This is obviously impracticable and the Sunna has numerous instances of forward contracts being undertaken by both merchants and farmers. So, the prohibition has been given a narrower meaning. Specifically, Islamic law allows salam contracts on commodities, where goods are paid for in advance, only their delivery is deferred. The Hanafi school stresses that even though delivery is deferred in a salam contract, the goods must already be in existence somewhere; the other schools allow them to "come into being" in the interim period. Commodity futures contracts where both payment and delivery of commodities are deferred to the future are expressly forbidden by all schools. The exception to this is istisna, or a futures contract on manufactured goods. Goods that need to be manufactured do not need to be paid in advance, nor is it necessary to determine a date of delivery.
Public Finance
Islamic law has imposed several constraints on the financing of government activity. There are four sources of religiously-ordained revenues:
(1) Zakat, the duty of regular charity is one of the "five pillars" of Islam, as inseparable to the identity of a Muslim as regular prayer. In practice, it is a redistributive property tax. Zakat is not optional. Voluntary charity (sadaqah) is encouraged, but zakat is obligatory for all Muslims and backed, if need be, by the full force of the civil authorities. Almost from its inception, zakat has been collected by the State on behalf of the poor. It is a tax on property held for more than a year, assessed after deductions for living expenses. The theological reasoning for zakat is not only to provide for the poor, but also to "punish" idle property and encourage it to be put into circulation.
As with all such things, the legal schools were divided on what exactly is subject to zakat. From the original sources, the consensus was that gold, silver and the profits of trade are taxed at 2.5% per annum. Livestock is taxed at the same rate. Agricultural and farming produce is taxed at 10% p.a. if irrigated naturally by rain and by 20% p.a. if irrigated artificially. The reasoning for this differential, based on a Hadith, is that artificial irrigation deprives others of a scarce resource (water in this case) and thus it is the responsibility of the depriver to compensate the community for it. Mines and extracted natural resources are taxed at 20% for the same reason. Zakat on modern property -- such as industrial machinery, dividends on stock, etc. -- is assessed by analogy.
(2) Jizyah is the poll tax paid by non-Muslim dhimmis (Jews and Christians) and commanded in the Qur'an (S.IX.29),. Some have considered this a tax in order to "punish" dhimmis for failing to be steadfast in the true religion. Others have taken it simply as the purchase of a "right" to live in a community of Muslims and have their persons, property and religious rituals protected by law, as well as to be exempt from military service. In practice, the payment of jizyah, while higher than zakat, was not crushing.
Jizyah has the characteristics of a poll tax, in that the amount is owed is assessed per head, rather than per dinar of income. But it is not a uniform tax across all people. For starters, there are classes of people - the very poor, women, the elderly, disabled, monks, etc. - that are entirely exempt from jizyah. Moreover, even its assessment on free, able-bodied men was often qualified by income. For instance, Amr ibn al-As, after conquering Egypt, set up a census to measure the population for the jizya, and thus the total expected jizya revenue for the whole province, but organized the actual collection by partitioning the population into wealth classes, so that the rich paid more and the poor less jizya of that total sum. Elsewhere, it is reported customary to partition the population into three classes for jizyah collection, e.g. 48 dirhams for the rich, 24 for middle class and 12 for the poor.
In many communities, the burden of jizyah often fell in practice on the wealthy alone, whom by solidarity or custom, assumed the payment of the jizyah for the poorer members of the community. Landlords paying the jizyah of his tenants was routine (often more expedient, and taken out of rents anyway).
(3) Kharaj is the tax on the produce of lands conquered in the course of the expansion of Islam, but kept in the hands of non-Muslim tillers. This was perhaps the major source of government revenue during the early Islamic Empire.
(4) Ushr is a tithe on conquered lands held or bought by Muslims or previously uncultivated lands brought into cultivation by Muslims. Today, ushr is charged for the use of State-owned lands.
(5) The Caliphal fifth. is a 20% tax on war spoils, that was instituted in the early days of the Islamic conquest, the rate mandated in the Qur'an (S.8:41). Initially earmarked for the maintenance of the Prophet's family, after the Prophet's death, it was re-directed by the early Caliphs for the central administration and armies of the Caliphate. The Hanafi school argued the caliphal fifth extends to spoils discovered after the war is over, such as hidden treasure troves and (more significantly), it was extended by analogy to mining. However, other schools (e.g. Shafi'ite, Hanabilite) regarded troves and mining as subject only to the conventional rates (e.g. zakat). Curiously, the prominence of Hanafi school in the west led to the institutionalization of the tax in Muslim states in Spain. After the reconquista, the Christian states of Castile, Portugal, etc. adopted the tax themselves as the quinto real ("royal fifth"). It became an important part of crown finance for the Iberian monarchies, and was extended to their overseas empires in the Americas, Africa and Asia.
As zakat is earmarked for redistribution to the poor, the jizyah, kharaj and ushr were the only real sources of revenue for the government. This led to the paradox that the greater the amount of conversions into Islam, the smaller the tax revenues (the ushr rate is lower than the kharaj rate). For this reason, we find several instances in history when Caliphs tried to dissuade further conversions or forbid the transfer of property from non-Muslims to Muslims and even to just disregard the law and apply jizyah and kharaj taxes on certain segments of the Muslim population (see above for the historical account).
To make up for this "deficiency" in tax base, some legal schools recognize that the state can "sell" its "services" and has the right to "charge" for them in the form of taxes, duties, etc. However, whether it can compel such payments is a point of contention. In principle, at least, "trade", even between State and citizen, must follow all the laws of commerce, e.g. it must be mutually agreed upon, transparent, no asymmetries in information, etc.
Monetary policy is implicated in this. By outlawing gold-for-gold usury, seignorage was forbidden: as much gold must be given back as coins as is submitted in ingots (although scholars allow a fee to cover minting costs). Many jurisst considered debasing currency is considered to be pure theft and fraud. Government borrowing was also difficult, as interest could not be paid and, for most government activities, there is no clear "profit" to be shared. Of course, Muslim princes violated this repeatedly, or simply borrowed from non-Muslims.
Foreign Commerce
The predisposition of Islam towards commerce extends, perhaps unsurprisingly, to foreign commerce as well. While European princes were erecting all sorts of protective barriers to keep out long-distance trade and "protect" locals from the vicissitudes of the market, the princes of the Islamic kingdoms were bending over backwards to encourage foreign merchants to come trade and settle in their lands. As mentioned, the Prophet and many his early companions were merchants, and 7th C. Mecca was an important commercial entrepot for foreign trade, so there was from outset a decent respect, socially and in the law, for foreign trade, if not quite a theory of it. Even after trade routes changed, the Hajj, the obligatory pilgrimage to Mecca, brought Muslims together from the far-flung corners of the world, bringing with them information about different lands, resources and trading opportunities. Foreign business deals and partnerships were often struck up between merchants on the pilgrimage. Arab merchants themselves extended trade (and their religion) well beyond the political boundaries, to India, Central Asia, sub-Saharan Africa and southeast Asia. And that respect was extended to others - Armenians and Jews lived and traded virtually unhampered throughout the Muslim empires.
The Arab historian and social philosopher, Ibn Khaldun (1377) was quick to point out the link between commercial enterprise, capital accumulation and the well-being of a kingdom. Khaldun warned princes of the ruinous long-term consequences of trying to interfere in the economic affairs and trade of private citizens.
By geographic happenstance, Muslim lands lay exactly on the trade routes between Europe, Africa and Asia and everybody knew that the fortunes of the state rose and fell with the volume of trade that passed through it. As such, Muslim princes were not completely devoid of mercantilist instincts, and undertook various efforts to ensuring that trade routes passed through their territories rather than their rivals. This sometimes meant wars to control ports and shipping lanes or making exclusive deals with specific groups of foreign traders, e.g. Mameluke sultanate of Egypt with the Venetian Republic, the Persian Il-Khanate with the Genoese, the Ottoman empire with the Levant Company, which often entailed freezing out other foreign competitors.