Journal of Islamic Economics, Banking and Finance
“….The farmers need the 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 they possess. Therefore, pressures emerge which
lead to the creation of trading places where various tools can be kept for
exchange and also warehouses where farmer produce can be stored. Then
the customer comes to obtain these goods, and markets are established” (Al
Ghazzali, Vol.3 page 227).
Al-Ghazali observed that the development of the market and the marketplace was the
result of self-motivation
With regard to price determination, Al-Ghazali was much advanced in his observation
than his predecessor, Abu Yusuf. He rightly realized that both buyers and sellers play
a role in determining market prices. Al-Ghazali wrote:
“The farmers bring produce to the market and if they cannot readily sell or
exchange what they possess, they sell them at a lower rate to traders who in
turn store the produce and sell to buyers at a profit. That is true for all kinds
of goods”. ((Al Ghazzali, Vol.3 page 227). With regard to low price, he
observed that “if the farmer does not get a buyer for his produce he sells at a
low price”10.
In modern terminology, “supply” plays an important role in determination of a price,
although Al-Ghazali did not clearly mention the word “supply” in his observation. He
was much concerned with the high price of foodstuff and as such advocated for the
policy of state intervention. Al-Ghazali did not mention the word “market failure”
but he observed that markets do not always function smoothly. Therefore, he laid
down a well-defined business and ethical code for fair trade