Koehler, Benedikt. Early Islam and the Birth of Capitalism. Lanham, MD: Lexington, 2014. vi + 231 pages. Hardcover, $85.00.
Sociologists all know the story of the birth of capitalism as told by Max Weber in The Protestant Ethic and the Spirit of Capitalism. According to Weber, the ideology espoused by John Calvin contributed to a line of thought and behavior that was necessary for rise of capitalism. In this telling the birth of capitalism began in Western Europe and spread to North America. In Early Islam and the Birth of Capitalism, economist Benedikt Koehler rewrites capitalism's origin story. In his rendition, it is Islam rather than Christianity that provided the organizational and ideological elements that combine and give rise to capitalism. He begins his story in pre-Islamic times where "Arabia's skies and soil (were) hostile to farmers... [and] their hopes of prosperity hinged on finding trading partners abroad" (p. 17). Religion and trade became intertwined early in Arab culture with the founding of the Kaaba in the Becca Valley and the rise of Mecca as a religious and trade center. He explains, "Mecca's business model [was] a symbiosis of religion and commerce" (p. 21).
Prior to his conversion experience, Muhammad was an established entrepreneur. After his conversion experience he "alienated Mecca's leading merchants" and fled to Medina, where he not only chose a site for a mosque, but also "established a market and then proceeded to lay out the rules for fair trade" (p 16). Fair trade meant that transactions were free of extracting "excessive advantage from a customer [and provided] a fair share to a business partner" (pp. 146-7). One thousand years before Adam Smith's Wealth of Nations, Muhammad lifted market price controls, declaring, "Prices...are in the hands of God" (p. 11). Muhammad promoted literacy to facilitate business transactions and the use of fractions in the calculation of taxes.
Building on Muhammad's use of his business acumen to establish and spread Islam, his successors strengthened the Muslim empire by creating a single currency that included "coins in gold, silver and copper" (p. 103), and a banking system funded by commissions instead of interest or usury, which was prohibited by the Koran. We learn about the role played by early venture capital (known as quirads) in sharing trading risks as well as the rise of "a corporate structure sufficiently durable to enable investment in long-distant trade to...