Market Analysis from an Islamic Perspective and the Contribution of Muslim Scholars 65
“Rise and fall in prices is not always due to the injustice (Zulm) of some
people. Sometimes its reason is deficiency in production or decline in import
of the goods in demand. Thus if the desires for the goods increases while its
availability decreases, its price rises. On the other hand, if the availability of
the goods increases and the desire for it decreases, the price comes down.
This scarcity or abundance may not be caused by the action of any people; it
may be due to a cause not involving any injustice, or sometimes, it may have
a cause that involves injustice”. (Ibn Taimiyah, 1381)
Although Ibn Taimiyah did not use modern terminology, “shifting demand curve” or
“shifting supply curve”, his observation of the “increase in desire” and “scarcity” or
“abundance” could be synonymously interpreted as “shifting demand” and “shifting
supply.” He mentioned several factors for the increase in demand. The factors include
a rise in population, in his word “kathrat al Khalq” (Ibn Taimiyah, 1976), and an
increase in the desire for goods, in his language “Raghabat –fil sahri”.
With regard to the availability of product, “supply” in modern terminology, Taimiyah
clearly found two important factors. He observed: (a) domestic production, (b)
import. Taimiyah states that supply increases when either of the above two or both
increase. Thus, he observed that the increased price in the market could be either due
to an increase in desire (i.e. demand) or due to a decrease in availability (i.e. supply).
Price was not due to the injustice or malpractice of sellers that the price was high or
low, the concept that was prevalent during the this time.
Taimiyah was a strong believer of price regulation because, according to him, market
mechanism is not efficient. For example, when the high price was due to hoarding or
other malpractice of sellers, Taimiyah recommended price control in his book “AlHisbah
fi’l Islam,” and supported market forces in general for the determination of
prices. The discovery of an unambiguous market force, the increase in demand or the
decrease in supply determining high prices, was an important contribution of Ibn
Taimiyah during the 14th century.
Market price behavior as seen by Ibn Khaldoon (1332-1404 AD)
In his book “Muqaddimah,” Ibn Khaldoon provided a somewhat modern explanation
as to why the prices of some goods in some areas are high while the prices of other
goods are low. He classified marketable goods into two categories: necessary goods
and luxury goods. The necessary goods are those goods which are, according to
Khaldoon, “foodstaffs” and “corresponding foodstaffs such as beans, chick-peas, peas
and other edibale grains”(p. 276). People of all walks of life, whether nomadic, tribal,
or urban need foodstaffs. Therefore, the goods that fall into this category command
low prices. Khalddon said: