Early Islam and the Birth of Capitalism


“… The spread of Islam also was a breakthrough for capitalism and globalization. This is hardly surprising, considering Islam is the only world religion whose founder had a background in business and came from a long line of merchants…” Read more of Benedict Koehler article on ‘Early Islam and the Birth of Capitalism”, here.

This lecture, given by the historian and former banker, Benedikt Koehler, actually begins from 7:00.

Controversial? No. Not really. Although it depends on what we mean by ‘Capitalism’. I’d remind the reader that ‘Interest’ (Usury) and ‘exploitation’ is strictly forbidden in Islam, so if you’re able to conceive of a capitalism without this, you might be closer to the genius of the Prophet’s revealed way…

8:38 – Koehler reminds us of Muhammad’s (saw) background as a merchant.

9:12 – Koehler makes the connection that the capitalism practiced by the Prophet made its way into Europe. This is elaborated, later (below).

9:21 – He begins to define ‘capitalism’. Following Max Weber, he explains that it is an “attitude of individuals who want to produce and manufacture with a view to selling and making a profit in the long run.”

But when did this attitude make its entry into history? It wasn’t the Greeks or Romans. And it wasn’t the Protestants… So… From whence did it come?

At 12:00, Koehler makes a controversial statement to say that unlike Buddha or Jesus, Muhammad died the richest man of his time. Before we all rush to object (as I was about to – because from my reading, this was blatantly not the case) – but later, Koehler explains what he means by this statement in the Q&A section… (below).

At 15:00 Koehler gives a brief exposition of Muhammad’s influence on ‘the market’, on business and investment, and on his promotion of free and fair trade.

At 19:50: The Prophet is reported to have said: “Prices are in the hand of God”… (See later for the significance of this statement, below.)

“When Muhammad de-restricted prices on the market in Madina he threw out the rulebook of economic management that had been in place since the beginnings of Mesopotamian history… This was a highly significant step.”

I must emphasise – the period of the Last Prophet was truly a ground-shaking moment in human history. (A post forthcoming on this topic. Watch this space.)

At 24:20, Koehler turns to Europe. Venice became the bridge between the Islamic realm as the economic gateway into Europe. At 28:58, Koehler explains that those Europeans who had access/ exposure to Islamic domains, systems and practices came back home to ‘practice what they had seen’. Four innovations were created as a result: 1. Firms, 2. Business Studies, 3. The Evolution of Trusts and 4. Monetary Reform.

At 34:20, Koehler turns to the loss of economic dynamism in Muslim civilisation: 1. Changes in trade routes, 2. New markets in the Americas. 3. Muslim civilisation ‘closing the doors of Ijtihad’.

At 36:19, Koehler explains that when the Prophet talked about “Prices are in the hand of God,” this statement actually corresponds with Adam Smith’s statement about the ‘Invisible hand that guides markets’.


39:01: Koehler appears astonished at the sheer presence of female entrepreneurs in early Islamic history – circa 7th Century to 13th Century CE  (which corresponds with Dr Akram Nadwi’s account of the frequency of female scholars in Classical Muslim history). The question is: what happened?

41:50: Koehler explains that people might have a perception that early Islam was monolithic in its ‘Arab’-ness. [This is probably a modern prejudice.] In fact it was ‘incredibly multicultural’ in its heyday. He repeats and elaborates this point later, in 52:32.

43:50: Isn’t Islam closer to socialism than it is to capitalism? And if we look at Muslims societies now, they are under-developed and poor… so… what happened?

Koehler explains that in the period of the Rashidun Caliphs, they had to deal with the fact that there were some Muslims that had become very rich, whilst others who could have been rich, instead distributed their wealth to the poor and thus lived modest lives. They knew how the Prophet was always giving to the poor, so they had to reconcile this tension between capital gains and social welfare. Koehler’s answer: In early Islamic history, there is evidence to suggest that it was fine to accumulate wealth in the early period but there was also a (spiritual) obligation to distribute to those that needed it.

47:28: Muslim capitalism did differ with the European capitalist development when the latter innovated the Stock Exchange. This was due to legal developments when the Trust (synonymous with the earlier Islamic Waqf) evolved into the Corporation.

55:04: Muhammad died as the richest person? But he didn’t accumulate personally. He was a statesman but the State was richer. Koehler explains that his lifestyle was incredibly modest and frugal. Koehler uses the word ‘stingy’ for Rockefeller as a comparison – but I feel this comparison is probably not the best as the Prophet was famously magnanimous – and ‘stingy’ is not the best adjective. ‘Modest’ and ‘Frugal’ is better.

1:07:05: “What is remarkable about early Islam… It was always the private individual and the private donor who determined what the waqf should be doing… is why Islamic culture was so rich, because you didn’t have a single source determining what public benefit is, you had lots of people who were allowed to say that…”


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