Demand supply and the market mechanism

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Medieval Muslim scholars demonstrated an understanding of the forces of supply and demand, and their role in price determination. For many of these thinkers, there are only free markets and voluntary exchange. Providing advice to his son, Kai Kavus states: "Further you must buy when the market is slack and sell when the market is brisk" (in Hosseini, 1995, p. 553). According to Ibn Taimiyah, "If desire for goods increases while its availability decreases, its price rises. On the other hand, if availability of the good increases and the desire for it decreases, the price comes down." Ibn Taimiyah and other writers also understood shifts in supply and demand (Hosseini, 1995, p. 553).

Ghazali also understood the same forces and causes. In the Ihya we read: "If the farmer does not get a buyer for produce, then he sells at a very low price" (Hosseini, 1995, p. 557). In the Ihya, Ghazali seems to have understood what we now call price elasticity of demand, when he suggested that a cut in profit margin by price reduction will cause an increase in sales and thus in profits (ibid.). Ibn Miskaway even discusses equilibrium price, a price that Ghazali calls the "prevailing" price (Hosseini, 1996b, p. 74).

Medieval Muslim thinkers discuss various other issues, including production and its efficiency, the economic function of the state and regulation, diversification of assets as a hedge against loss, and many more. They also anticipated many modern economic concepts, including the Malthusian theory of population. Several writers - Ibn Miskaway, Nasir Tusi, Asaad Davani, and Biruni -presented arguments resembling that introduced by Thomas Malthus centuries later, even utilizing mathematical calculations to prove their arguments. In fact, Spengler, in his article about the Iranian thinker Biruni, brought to our attention that this eleventh-century thinker can be regarded as the precursor to Darwin and Malthus. In his book on India, Biruni warned of the problem of overpopulation, argued that the growth of anything is limited by the environment accessible to it, and recognized that since the capacity for growth of a species in number is unlimited, its actual growth is restrained by limiting and (apparently) almost exclusively external agents. Biruni observed, as did Charles Darwin upon reading Malthus, that the pressure of increasing numbers will give rise to natural selection (Hosseini, 1996b, pp. 78-9).

Although political economy as an independent branch of thought goes back to Adam Smith, and the first use of the term (in 1615) can be attributed to the French writer Antoyne de Montchretien, some medieval Muslims were at least implicitly aware of the need for such as a discipline. In fact, Nasir Tusi discusses the need for a science that he calls hekmat-e-madani (the science of city life), whose definition very much resembles Marshall's definition of economics. In discourse three of his book Ethics (in Persian), Tusi defines this science as: "the study of universal laws governing the public interest (welfare?) in so far as they are directed, through cooperation, toward the optimal (perfection)" (in Hosseini, unpublished paper).

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