Market price as seen by Abu Yusuf
As early as the 8th century when the whole of Europe was unaware of the market
mechanism and price determination, Abu Yusuf provided a deep insight into market
pricing mechanisms. Yusuf explains why the price of some goods is high while the
price of others is low. Without mentioning the modern terminology of “demand” and
“supply”, Yusuf, in his book on taxation, “Kitab Al-Kharaj”, explained that the high
price or low price of a product is not the result of “too little” production or “plentiful”
production. He wrote, “Sometimes food is plentiful but still very dear and sometimes
it is too little but it is very cheap”9
. In modern terminology, this could be equivalently
interpreted as a “decrease in supply” or an “increase in supply.” In the 8th century,
Yusuf rightly realized that supply alone cannot determine price.
However, Yusuf failed to mention the role of demand in a market. He admitted this
by saying that there was something in the high or low price that he knew not. So, he
wrote that the high price or price might be caused by “heaven” or a “principle” which
he knew not. He stated that “They are subject to the command and decisions of God.”
Market as seen by Abu Hamid Al-Ghazali (1058 -1111 AD)
In the 12th century, Abu Hamid al Ghazali made an important contribution in the
revelation of the market and its price determination. He observed that the market was
the development of voluntary exchanges of goods and services. The evolution of
markets, in his observation, was “the result of natural order.” Guided by mutual
dependence and self-interest, buyers and sellers made voluntary exchanges which, in
turn, lent to the emergence of markets. Al-Ghazali wrote: