The main themes of medieval Persian economics

In contrast to many medieval Christian scholars, medieval Muslim Iranian scholars respected economic activity and gain, as well as wealth accumulation. This approval can be observed in the writings of all three groups of Iranian/Persian scholars listed above.

Medieval Persian Nasir Tusi, in his Nasirean Ethics, also viewed wealth accumulation as significant. In his own words: “The intelligent man should not neglect to store up provisions and property” (Hosseini, 1998, 118). Asaad Davani, another medieval Persian philosopher/ ethicist, also viewed wealth accumulation as an attribute of human nature. Kai Kavus, a brilliant eleventh-century author of the famous Persian mirror for princes Qabus Nameh, advocated both wealth accumulation and its maximization. He also understood what is now called utility. Kai Kavus wrote: “My son, do not be indifferent to the acquisition of wealth, assure yourself that everything you acquire shall be the best quality and is likely to give you pleasure/satisfaction” (ibid.).

Historians of economic thought attribute the origin of the assumption of self-interest to Adam Smith's Wealth of Nations. While this assumption is accurate in terms of modern economics, it is not accurate historically. In fact, various medieval Persian scholars, in addition to viewing human beings as self-interested, even advocated self-interest as a logical human attribute. This advocacy of the notion of self-interest can be seen in the writings of the Persian philosopher/ethicist Ibn Myskaway and Nasir Tusi: it can also be observed in Kai Kavus's Qabus Nameh.

Historians of economic thought have identified at least three types of division of labor — the social division of labor, division of labor in the household, and division of labor within the factory which is also called technical/manufacturing division of labor. According to these economists, the social division of labor was first discussed by ancient Greek thinkers particularly Plato and Xenophon. According to Peter Groenewegen, the first scholar to acknowledge the division of labor in the household was the English economist Thomas Hodgskin in his 1829 book Popular Political Economy. And those historians who view the division of labor in the factory as central to Adam Smith's analysis of economic growth believe that the concept had been considered before 1776 by English writers such as William Petty. However, medieval Iranian scholars discussed various types of division of labor and its significance centuries before.

Of course, those contributions were unknown (if not ignored) by historians of economic thought until recently. This explains why, for example, Vernard Foley's 1974 article traces the roots of Adam Smith's, and William Petty's, division of labor to Plato, or Paul McNulty's 1975 article traces Smith's notion of division of labor to French Encyclopedie and the writings of Joseph Harris, John Locke, Sir Thomas Mun, and Bernard Mandeville.

Various medieval Persian scholars — as philosophers and ethicists, theologians, and the writers of medieval (Islamic) mirrors — discussed and contributed to the above-mentioned types of divisions of labor. A few examples will demonstrate this claim.

Let us begin with social division of labor. The medieval Persian-speaking philosopher Farabi (870—950) — one of the first Greek-inspired Muslim philosophers — discussed divisions of labor and their significance in his famous book Good City. In that book he writes: “A human being is a creature who, obtaining his/her means of subsistence and building his character, requires the achievement of certain tasks that he/she cannot achieve alone. These tasks must be done by a group which he/she is only a part of” (Farabi, 1982, 251).

The medieval Iranian Nasir Tusi discusses the social division of labor in several parts of his Nasirean Ethics. For example, in the course of defining civilization (Tamdon in Persian), Tusi writes: “The term is derived from Madina which means the assemblage of persons who cooperate with one another by adopting various crafts in industries in order to provide the comforts of life. This is exactly the meaning of the statement that humans by their very nature are social.” Elsewhere in the same book, Tusi writes: “Thus every craftsman/producer concentrates on his craft because he has specialized in it according to social requirements.”

Peter Groenewegen attributes the household division of labor to Hodgskin's 1829 work. However, numerous medieval Persian-speaking (Muslim) Iranians discussed this concept centuries before Hodgskin.

In this book, Ibn Sina also writes: “As far as the means of subsistence are concerned, kings and subjects, masters and servants are alike. Man needs a house to protect from burglars, what he has accumulated, and a place as shelter and to rest. He also needs a wife to protect his assets and the house. Man also needs children to help him in times of need, to attend to his chores when he is old, and to protect and revive his good name after he dies.”

Nasir Tusi too devoted the Second Discourse of his Nasirean Ethics to the application of the division of labor to the household. In fact, Tusi viewed this notion of division of labor as a necessity and as needed for efficiency, and tried to prove this as follows:

Whereas mankind needs food for the preservation of the individual, and the food needed for the human species cannot be produced without adhering to the economic tasks of sowing, harvesting, cleaning, pounding, kneading and cooking; and the arrangements of such processes cannot conceivably be effective without the collaboration of those who help, and the application of toils...

(1985, 205)

Given the limitations of their pre-industrial age and writing before the rise of the modern factory, medieval Iranian scholars' understating of the manufacturing division of labor was substantial. In fact, this type of division of labor and its usefulness was understood by several Persian scholars. For example, medieval Iranian Ethicist Asaad Davani stated that: “Philosophers have a saying that there are a thousand things to be done before anyone could put a morsel of bread in his/her mouth” (1946, 320).

Or, Iranian theologian Ghazali, understanding that, to produce a good, various tasks should be assigned to different workers. In the Ihya, centuries before Adam Smith, he writes: “If one inquires, one will find that perhaps a single loaf of bread takes its final shape with the help of perhaps one thousand workers.” Ghazali explained this complex process as follows:

You should know that the plants and animals cannot be eaten and digested as they are. Each needs some transformation — cleaning, mixing, and cooking, before consumption. For bread, for example, first the farmer prepares and cultivates the land, and then bullocks and tools are needed to plough the land. Then the crop is harvested and grains are cleaned and separated. Then there is the milling into flour before baking. Just imagine how many tasks are involved; and we have mentioned only a few. And, imagine the number of people performing these various tasks.

(Ghazali, 1985)

Adam Smith made a similar argument about the woolen coat some seven centuries later.

Another similarity between eleventh-century Persian Ghazali and eighteenth-century Smith is that both writers saw a relationship between division of labor and exchange. As Ghazali argues in his Ihya:

Perhaps farmers live where farming tools are not available; blacksmiths and carpenters live where farming is absent. So, the farmer needs blacksmiths and carpenters, and they in turn need farmers. Naturally, each will want to satisfy his needs by giving up in exchange a portion of what he possesses. But, it is also possible that when the carpenter wants food in exchange for tools, the carpenter does not need the tools. Or, when the farmer needs tools the carpenter does not need food. Therefore, pressure emerges leading to creating trading places where tools can be kept for exchange and also warehouses where the farmers produce can be stored.

(Hosseini, 1998, 672)

As stated before, Smith's substantive economic analysis of manufacturing division of labor appears with his celebrated illustration of the productivity of the pin factory.

Long before the modern application of the division of labor to the international economy, various medieval Iranian scholars had understood and discussed that application and its benefits. This can be seen in Farabi's Good City (1982, 25), in which all societies are portrayed as imperfect, since each is endowed only with certain resources and goods. Farabi maintains that a perfect society can only be achieved when domestic, regional and international exchange all take place.

The benefits of international and inter-regional exchange were also appreciated and understood by Iranian Kai Kavus in the Qabus Nameh. This Persian Prince understood that international trade/exchange can be very valuable to society, since each country/region has certain goods/resources while lacking others. Praising the positive role of merchants engaging in international trade, in the eleventh century Kavus wrote: “To benefit the inhabitants of the west they (merchants) import the products of the east, and for those of the east the products of the west, and by doing so become the instruments of world's civilization” (1951, 156). The usefulness of the international division of labor and international trade is also emphasized by theologian Ghazali in the Ihya.

Centuries before the emergence of modern economics, medieval Persian scholars also understood the barter system, its problems, and the evolution and functions of money. This is in particular true of Ghazali. While discussing voluntary exchange in volume four of Ihya, Ghazali discusses the evolution of money and its roots in the barter system. Understanding the problems associated with barter, such as what we now call the lack of double coincidence of wants, indivisibility of goods due to lack of a common denominator, and limited specialization, Ghazali demonstrates the evolution of money and its utilization in the exchange process. He understood the functions of money as discussed today, in particular emphasizing that money is a means of exchange.

It is interesting that medieval Persian scholars even understood that money is only one asset people can own, and that, to mitigate risk, a person's total assets should be diversified. This can be seen in the writings of both Nasir Tusi and Asaad Davani. For example, according to Asaad Davani: “It is advisable to have part of our property in money and species, and part in land, establishments... in order that if anything occurs to unsettle one kind, it may be made up by another.” The same argument was also made by Tusi in his Nasirean Ethics: “It is advisable to have part of one's property in cash and part in the proceeds of merchandise, part in commodities, furnishings...” (1964, 159).

Medieval Persian scholars had a substantial understanding of market processes and their significance centuries before Adam Smith. Their understanding and advocacy of the market far exceeded those of Greek scholars, and even anticipated some developments in Western Europe during and after the rise of capitalism. It is interesting that for those scholars both domestic and international exchange were rooted in the profit motive and the satisfaction of consumer needs. This explains why Ghazali, in the Ihya, described the cause of international exchange as follows: “The motive behind all these activities is the accumulation of profits” (327).

In Qabus Nameh, and long before Alfred Marshall, Kai Kavus understood that demand, supply, and markets had their own, albeit imperfect, laws. Kavus writes: “My son, although commerce is not an occupation which can with complete accuracy be called a skilled craft, yet, properly regarded, it has laws” (Kavus, 1951, 156). In providing his son advice for purchasing a house, Kavus understood how housing markets function: “If you wish to buy a house, buy one in a street where prosperous people reside and not on the outskirts. Also, look first at all your neighbors, not closing the bargain/deal until the land had been valued and is free of doubtful qualities.” In a modern sounding statement in Qabus Nameh, he advised his son that: “When you make purchases, buy nothing which has not been seen by you or displayed to you and, if you wish to sell goods, first inform yourself of the market rate/price and sell according to proper conditions and contract, and avoid any litigation and dispute.”

Various other statements in Qabus Nameh are indicative of Kavus' understanding of the market process. For example, in an aphorism that he attributes to a pre-Islamic Persian King, i.e. Anu Shiravan the Just, Kavus provided the following two statements: “Do not buy at any price, so that you may not be compelled to sell at any price” (ibid.). And: “The most profitable merchandise, let it be clear to you, is that which is bought in wholesale quantity and sold retail by the dram — the worse being the opposite” (ibid., 158).

An understanding of the market mechanism by medieval Persian scholars is also evident in the writings of Iranian theologian Ghazali. His understanding of what we now call the law of supply is obvious from his statement in the Ihya that, “If the farmer does not get a buyer for his produce then sells at a very low price.” In fact, Ghazali seems even to have understood what we now call price elasticity of demand. This is evident in his argument in the Ihya that a cut in profit margins by a price reduction may cause an increase in sales, and thus total profits. Long before the emergence of classical economics, Ghazali understood various aspects of the market mechanism and demand/supply as we understand them today.

In the following quotation from Qabus Nameh, Kai Kavus demonstrates his understanding of demand, supply, competition, and even the need for marketing and sales promotion by businesses:

If you are a craftsman (business person) in the bazaar, whatever your craft, let your work be quick and worthy of praise, so that you may acquire many patrons; and whatever work you are engaged in, let it be better than that of your fellow craftsmen. Be content with a modest profit, for while you sell at eleven a single article which costs you ten, you may sell two at ten and a half a piece. Do not drive customers away importuning and over­insistence; thus you will gain a livelihood from the practice of your craft and more people transact business with you. In the course of selling an article exert yourself to say “my friend,” “my dear sir,” or “my brother,” and to make a show of humanity, and with all your strength... contain yourself from harsh and foul language. By your gentleness the customer will shame from bargaining/haggling and you gain your object.

(1951, 237—8)

Although historians of economic thought attribute the concept of the just price to the thirteenth­century Christian scholar Thomas Aquinas, this concept too had been discussed by Persian writers several centuries before its discussion by Aquinas. This is in particular true of Muslim theologians such as Ghazali, and to some extent philosophers/ethicists like Ibn Myskaway. Ghazali discusses this concept in his Persian book Kimya-Ye-Saadat (unlike Ihya, which was in Arabic), where he proposes a series of ethical guidelines that would lead to a just price. Among these guidelines is the following: “The seller must not praise the commodity beyond what it is worth. Otherwise it would be deceitful, cruel, and sinful... the seller must not conceal the defects of the commodity being sold. The seller must be frank; otherwise he is guilty of fraud, cruelty, and sinfulness” (from the 1940 edition, 273-9).

In the first few decades of Islamic history, Muslims assumed that only God was entitled to set market prices. According to Yassine Essid, this was taken to imply that the market corresponds to God's will (1987, 81). However, later on, Islamic society became much larger and more complex than the time of the Prophet. As Muslim societies expanded to include numerous non-Arab lands, that view of the market was modified. This can especially be seen in works by Persian writers. For example, Ghazali, who still believed in free markets, and generally opposed price controls, came to support price controls in times of emergency like wars and famine, and if price increases had occurred as a result of monopolization of markets and hoarding. This type of view resulted in the rise of the institution of hisbah, which allowed politico-religious authorities to control prices under the above circumstances.

While many Persian Muslim scholars believed in free markets, however, they did not support the Smithian notion of the invisible hand. Interestingly enough, medieval Iranian Asaad Davani, as if responding to Smith's argument that self-interest will necessarily lead to public interest, stated that: “men must not be left to their own natures... for each, in pursuing his/her own advantage/interest, would be injuring the rest; this must lead to dissension, till they fell to hurting and destroying one another. Some provisions therefore must evidently be made... now this provision is termed supreme government” (Hosseini, 1996).

Like modern economists, medieval Iranian scholars, in particular in several mirrors for princes they composed, also understood that governments are needed to provide peace and stability in the market/society; also, they saw government as a necessary institution to construct infrastructure — like canals for irrigation and transportation. As an example, several chapters of Kai Kavus' Qabus Nameh dealt with government and its functions in the economy/society. For example, in the chapter on being a king, the author views government as a useful institution necessary for the proper functioning of the market/society. Kavus, believing in what we now call govern­ment activism, encouraged the government's role in promoting economic development.

Another very important mirror by a medieval Iranian scholar dealing with the role of government and public finance was Siasat Nameh by Nezam-al-Mulk, the wise wazir of two Persian Seljuk kings. In that mirror, as a wise practitioner of politics, Nezam-al-Mulk truly understood public finance issues and the proper function of the government. For example, in chapter fifty of this seminal work, while discussing the difficulties facing the country and budget and tax policies, Nezam-al-Mulk describes the king's role in the budgetary process and the proper way to collect taxes. Believing that government should seek a balanced budget, he proposed a golden rule for the king according to whom the country's budget, while seeking the maximum welfare of the subjects, should also avoid being extravagant and wasteful.