PRICE THEORY FROM ISLAMIC PERSPECTIVE: AN ANALYSIS FROM THE EARLIER MUSLIM SCHOLAR¶S THOUGHT By Nurizal Ismail
INTRODUCTION
Economic theories that we know in present time are the theories that originates from western civilization in the form of capitalism and socialism. In fact, Muslims have been made amnesia by those who wish to eliminate evidence of the progress of literary and authentic Islamic thought (golden age) which had previously produced many great works in his time, without exception economic theories that have been generated by the first Muslim thinkers such as Abu Yusuf, Ibn Sina and Imam Ghazali. Therefore, according to Sabri Orman, the sources of Islamic economic thought can be traced through 2 ways from 1
the general and specific sources.
One of the economic theories discussed by the earlier Muslim thinkers was the concept of market price, which has very sensitive component to the economy of state. Even in some hadith explains the concept of market prices is a clear and detailed. Therefore, by reviving the literature of Islamic economic thought, Muslims in the world will re-capture their glory. This paper attempts to study the theory of price from Muslim scholars such as Imam Shafi'i, Qadi 'Abdul Jabar, Ibn Taymiyyah and Imam Ghazali. 1
Sabri Orman , Source of th of thee H ist ist ory ory of I slamic slamic Economi Economicc T houg ht ht , Al-S l-S hajar hajar ah ah , Vol Vol 2. No. 2, Lumpur: ISTAC Publication, 1997, 24
uala K uala
Furthermore,
it will be compared to the western concept whether the theory has been
introduced western prices equal to what has been written by Muslim thinkers and what the similarities and distinguishes between them. Finally, it will be conceptualized in the Islamic economics.
RELATIONSHIP BETWEEN PRICE AND LAW OF DEMAND AND SUPPLY
Price according to the conventional notion refers to the value of a commodity or service in the form of money. Meanwhile, according to Adam Smith (1776), known as the father of economics in modern times in his book entitled ³th ³thee Wealth Wealth of N ation ation s s´ explains that the market price is the actual price of every commodity which is commonly sold.2 The market price of every commodity is regulated by the proportion between the quantity contained in the market and demand from people who buy the natural price of a commodity. This is related to the concept of supply and demand law. The law of demand explains the demand of a commodity or service will increase when prices of goods on the market go down and vice versa. While the law of supply (supply) explains the supply of goods will rise when the price in the market falls, otherwise supply of goods will decline when its price on the market rises. Therefore, the market prices are allowed to fall or rise to their equilibrium levels, no matter how low or high those levels might be.
2
Adam Smith, An Smith, An Inqui Inquiry int o the the N at at ure ure and C d C au se se s of th of thee Wealth Wealth of N ation ation s: s: Abridged with commentary and notes by Laurence Dickey, USA: Hacket Publishing Company, 1993, 24.
By
these points it can be seen how prices equates demand with supply. The prices
are believed to measure the intensity of our wants for various goods and services sold in market. This statement can be concluded that: Price mechanism is presumed to allocate the scarce resources of the economy to various uses and distribute goods among the consumers in an efficient manner. This way market determined price present a cost free 3 rationing system that ensure social soc ial justice. So, however, the price has the important role in the economy which its function can be seen in the law of demand and supply. It will adjust in the market by natural process through the invisible hand without any government go vernment interventions.
PRICE THEORY FROM EARLIER MUSLIM SCHOLARS PERSPECTIVE Based
on previous explanations it is necessary to study the concept of price from
an Islamic perspective. Actually some Islamic economics literatures have been discussed and have described by the classical Muslim scholars were long before the emergence of schools of economics such as classical economics or the new classical economics. A description of the prices concept by b y earlier Muslim thinkers as follows: follows: 1. Imam Abu Yusuf
Real name is Yaqub ibn Ibrahim al-Ansari was born in
ufa K ufa
(Iraq) in the year 731
A.D or 113 A.H. He occupied the highest position in law as the chairman of the judges (Qudhat al-Qudha) dha) in the reign of Harun al-Rashid. Further his contributions to the field of economic thought can be seen from his book ³kitab ³kitab al-khar al-khar aj aj´. In regard to the concept
3
Zubeir
52.
Hassan, Int Int rod rod ucti uction on t o M icroeconomi croeconomicc s: An I slamic slamic Per spec spectiv tivee, Malaysia: Prentice Hall, 2006,
of price, Imam Abu Yusuf argued that the price is cheap not because of supply (supply) of food in the market that much, and the expensive price is not caused by a few food supplied. Abu Yusuf rejected the argument that states when supplies of goods increase, 4
then prices will decrease or when the t he supply is limited, then the price will increase.
The rise and fall in the market price according to him is the will of Allah SWT. Here we can see that t he market determines the price not only lies on the demand side, but there are other factors that determine which is on the supply side. For example, it was happened in the Amirul Mukminin Umar bin
hattab K hattab
period, in which the price of corn
during the period increased due to a bad season (natural factors). So the offer supply or demand in the economy is a mechanism of price formation through a policy of Allah SWT (the natural law). 2. Imam Shafi'i
Real name is Ab Abdullah Muhammad ibn Idris al-Shafi i or Muhammad ibn Idris ash-Syafi `I was born Gaza, Palestine, 150 H / 767 A.D. He was a great mufti Sunni sect of Islam and also the founder of the Shafi'I school. In regard to the concept of price, Imam Shafi'i only describes briefly about the cause of the rising and falling prices in the market. According to him, the value of a commodity increase and decrease at any time due to changes in price, and at less and more of human desire and the quality and number of goods.5 From a brief explanation explanat ion is understandable that there are some decisive factors that cause the value of a commodity or service subject to change, namely: human desire, change of price, quality and quantity of goods.
4
Abu Yusuf Ya¶qub Ibn Ibrahim, K itab itab al- K har har aj, aj, K airo: airo: Al-Matba¶ah Salafiyyah, Salafiyyah, 1302, 132²133. asani, Badiu adiu al-S al-S honi¶ oni¶ f i T ar tib tib al-Sy al-Sya ar¶ r¶ I , K airo: airo: Syirkah al-Mathbu¶at al-µAlamiyyah, Ilauddin al-K asani, (n.d), 193. 5
3. Qadi 'Abdul Jabar
His real name name is µAbdul Jabbar Ibn AHMAD AHMAD Ibn 'Abdul Jabbar al-HamaJani alAsadabadi, who was born 935 A.D. He was a Mu'tazilite theologian, a follower of the Shafi'i school. He lived in Baghdad, until he was invited to Rayy, in 367 AH/978 A.D, by Ibn 'Abbad, a staunch supporter of the Mu'tazila. He was appointed chief Qadi of the province. On the death of Ibn 'Abbad, he was deposed and arrested by the ruler . In regard to his view on the price theory it can be traced from his book " Al Al- Mug hni Abwb f i al6
T awhid wal awhid wal 'A 'Adl dl " in the chapter of prices, cheap and expensive, ' Abdul-Jabar gives more details his concept of market price. The first explanation about is the provision of a commodity exchange that will be sold by pleasure way.
Furthermore,
he divides the
concept into two parts, namely the price on the concept of cheap and expensive in the market. The definition of cheap is a decrease in number according to the price, the custom prevailing at the time and place. Therefore, it cannot be equated ice price decreases in winter, which happens in the summer that the price becomes cheaper. On the other hands, decrease of ice price in cold regions cannot be regarded as cheap price in hot areas. The definition is expensive according to the price increase as customs prevailing at the time and place. From the definitions and examples mentioned we need to know the causes of rising and high prices of some goods. The price to be cheap because Allah SWT who increases the commodities or goods of the particular period, then the quantity will become cheaper, Moreover, the price becomes cheaper due to Allah SWT to deduct or decrease need for something. Because the other is Allah subtracting the number of people 6
µAbdul Jabbar, A Jabbar, All- Mug Mug hni Abwb f i al-T al-T awhid awhid wal 'Adl 'Adl , al-ta¶lif, 1965, 55²57.
airo: K airo:
Al-Muassat al-Mishriyyah al-µAmmah li
who want a commodity due to contain the disease. While the price is high due to Allah SWT subtracting the quantity of commodities or goods to the needs of a commodity or the number of requests for goods or commodities. By these points it can be understood or inferred the explanation of Qadi 'Abdul Jabar on the concept of price that rise and fall of prices is Allah who determines. We must obey H im and be grateful for every blessing that t hat has been given by him. 4. Ibn Taymiyyah
His real name is Taqi ad-Din Abu 'l-Abbas Ahmad ibn Abd al-Halim ibn Abd as-Salam Ibn al-arrn Taymiya who was born in Harran in 1263 AD. Its contribution in the field of Islamic economic thought can be known through his book " M M ajmu ajmu al Fataawa" and " S Si yasa yasa al-Sy al-Sya ar' i yyah" yyah" . According to Ibn Taymiyyah that something increases its demand, the price will increase, otherwise if a little demand. It is related to the few and the many needs or strong and weak demand. So when more and strong demand for something then it will increase the price compared to when the little and weak 7
need not increase the price.
Furthermore,
according to him that the human desire have a
lot of difference and diversity, namely: 1.
By
many and few goods requested; people want the goods when the quantity is
less than more. 2.
By
many and less demand of goods: when it is more demand of goods, the price
will rise inversely when less demand of goods, goo ds, the price will fall.
7
Ahmad Ibnu Taimiyah , M ajm¶ al-Fatwa ajm¶ al-Fatwa,, Riyadh: Darul ilm al- K utub, utub, Vol. 29, 1991, 524
3.
Based
on the few and the many needs, and strong and weak demand, so when
many needs and strong demand, prices will rise slightly and inversely proportional to the weak need not increase the price. In addition, he says that the rise and fall in prices is not always due to an injustice ( z ulm) lm) by certain individuals. Thus if desire for the good increases while its availability decreases, its price rises. On the other hand, if availability of the good increases and the desire of goods decreases, the price comes down. Accordingly, the causes of price are not only because of injustice, but also from other aspects or components which it is desire of 8
human is created by Almighty Allah. 5. Imam Ghazali
His real name is Ab med Muammad ibn Muammad Ghazl was born in 1058 A.D. In regard to the concept of price can be found in in his book I ³I h ya ya U l lu muddin ddin´. The price according to him when the demand of commodity decreases the price will decrease. It is stated: ³i ³i f th f thee f ar mer d er d oe s oe s not not ge get t a a buyer for pro prod d uce, uce, the the he se sells at a at a very 9
l ow pr pr ice´ His awareness of market forces is evident when, concerning high food prices, he suggests that the price should be induced down by reducing demand, implying a leftward shift in demand curve. In addition, according to Ghanzafar and Islahi that Imam Ghazali already talked about equilibrium price which in the term known today. It was called in his book as just price. 10
8
Ibn Taimiyah, M Taimiyah, M F S (M ajmu ajmu¶ Fatw Fatw S haikh haikh al- I I slm Vol. 8 Riyadh: Makhtab al-Riyadh, 1963, 583. Abu Hamid Al-Ghazali, I Al-Ghazali, I h ya ya U l lu m al-Din al-Di n (The Revival of the Religious Sciences) Sciences) , 4 Vols. Beirut: Dar¶al Nadwah, (n.d), 227. 10 S.M. Ghanzafar and A.Azim Islahi, Economi Economicc T houg ht ht of an Ar ab ab Sch Scholastic lastic s (Medi (Medieeval Economi Economicc T houg ht: ht: Filling Filli ng th thee ³Great ³Great Gap´ in Euro pe pean Economi Economicc s), s), ed. S.M. Ghanzafar, New York: Routledge, 2005, 29. 9
CONCEPTUALIZATION OF THEORY OF MARKET PRICE IN ISLAMIC ECONOMICS From
the description of classical scholars on the concept of price can be concluded
that the price is determined by God as the Word of Prophet Muhammad: "So Allah SWT that determines a lot and at least demand a good or service and he also determines a lot and the least supply of goods and services on the market. The implications of the will of God it is to changes in co mmodity prices or goods and services. They agreed that the price changes are determined by the will of Allah SWT ( sunn sunnat at ullah proce proce ss) ss) are realized in the form of market price mechanism, namely: the first is when the demand increases for goods and services that are in the market will cause prices to rise and reverse the price will come down when demand for goods decreases in this case relates to the supply side. s ide. Both are from the quantity of goods, when the quantity of goods or commodities on the market then the prices will come down and vice versa when the quantity of goods and commodities on the market a little then the price will go up (demand side). Third is the enabling factors that cause changes in prices, such as the human desire factor, quality factor for commodity goods, and natural factors. On the second point only Imam Abu Yusuf who do not agree, he said not all goods are abundant, the price will be low and vice versa are not all expensive when the price of scarce goods in the market. In essence he said the price of cheap and expensive is God Almighty who set out as described by 'Abdul Jabar.
Taking into consideration of two figures it can be derived by such explanation. Explanation in figure 1 is a clear that when the price decrease from P1 to P2, the demand of goods on the market will increases from Q1 to Q2. On the other hands, figure 2 is a supply curve that explains when the supply of goods increases from Q1 to Q2, the prices will rise from P1 to P2. Furthermore,
Both
curves are transformed by the w ill of Allah.
by taking an example given by Imam Ghazali then will find the
balance point between demand and supply curves. According to Imam Ghazali if farmers do not get the buyer o f the goods, he will sell it at a cheaper price. See figure 3
Figure 3
At the price level P1, the number of goods offered by the seller amounts to QS, while the amount of goods demanded is QD1.
Because
the farmer does not find a buyer, then he
lowered the price at the point P2, so the number of buyers increased from QD1 becomes Q*, forming price equilibrium (E) is the meeting point between demand and supply items to be sold by farmers. This equilibrium price is determined by the will of Allah SWT ( sunn sunnat at ullah process). llah process). Furthermore,
the concept of price by western thinkers has a similarity with the
earlier Muslim thinkers, but the difference is the secular and west ignores the role of religion in economic activity. Therefore, in the price theory, they mentions that the price will be formed adjusted naturally without any role of God the Almighty fornicators over everything in it. In Islam the price adjustment is determined by God Most Originator of all things. Although the actual price of Adam Smith is the market mechanism through
invisible hand that encourages the formation of prices. According to him let alone adjust with reasonable price without any interference from the government because there will be invisible hand that will bring prices at the point of equilibrium.
But
Adam Smith did not
explain whose invisible hand that he meant. The fundamental difference can be seen from the economic worldview of both concepts. In Islam, T awhid awhid is the main foundation of a human as a guidance for all economic activities while the view of secular and west that the reason are mainstream.
CONCLUSION
In fact, Islamic literature either in general or specific source, introduced the price theory in the tenth century as well as the modern concept of price which was introduced by western scholars in seventeenth century. Both views have similarity concept in the demand and supply law and have the difference in the fundamental aspect of man (worldview). In the fundamental aspect, the price theory from Islamic perspective is different from secular and western point of view. The price according to Islam is determined by the will of Allah through certain causes or called sunn sunnat at ullah process, while secular system views that the price will find or adjust in equilibrium price in natural. So, the secular or western concept on the price ignores of God who determines the price. This economic worldview is just only grounded by the reason. On the other hands, Islam must be based on firstly on the revelation, and after a fter that the reason.
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