CONCEPTUALIZATION OF THEORY OF MARKET PRICE IN ISLAMIC ECONOMICS
Assalamualaikum. How are you? Hopefully you guys was in pink of health.
Today, I would like to share a journal that have been writing by Nurizal Ismai
with the topic Price theory from Islamic Perspective: Analysis from the earlier
Muslim Scholar's thought .
I love to share because I think this topic was interesting to
be looked in different perspective. And I believe that the best of people are
those who are most beneficial to the society. I hope by sharing this journal
can improve our knowledge towards Islamic economy. Hope all of you can enjoy.
Ok. Before we go through the conceptualization of
theory of market price in Islamic Economics, we need to understand and take
noted what have been Islamic scholar thought about this matter.
PRICE THEORY FROM EARLIER MUSLIM SCHOLARS PERSPECTIVE
Actually
some Islamic economics literature have been discussedand have described by the
classical Muslim scholars were long before the emergence of schools of
economics such as classical economics or the new classical economics. A
description of the prices concept by earlier Muslim thinkers as follows:
1. Imam Abu Yusuf
Real
name is Yaqub ibn Ibrahim al-Ansari was born in Kufa (Iraq) in the year
731A.D or 113 A.H. He occupied the highest position in law as the chairman of
the judges(Qudhat al-Qudha) in the reign of Harun al-Rashid.Further
his contributions to the fieldof economic thought can be seen from his
book kitab al-kharaj´.In regard to the concept of price, Imam Abu Yusuf argued
that the price is cheap not because of supply (supply)of food in the market
that much, and the expensive price is not caused by a few food supplied. Abu
Yusuf rejected the argument that states when supplies of goods increase,then
prices will decrease or when the supply is limited, then the price will
increase. The rise and fall in the market price according to him is the
will of Allah SWT. Here we can see that the market determines the price not
only lies on the demand side, but there are other factors that determine
which is on the supply side.
For
example, it was happened in the Amirul Mukminin Umar bin Khattab period, in which the price of corn during the period
increased due to a bad season (natural factors). So the offer supply
or demand in the economy is a mechanism of price formation through a
policy of Allah SWT (the natural law).
2. Imam Shafi'i
Real
name is Abu Abdullah Muhammad ibn Idris al-Shafi i or Muhammadibn Idris
ash-Syafi `I was born Gaza, Palestine, 150 H / 767 A.D. He was a great mufti
Sunni sect of Islam and also the founder of the Shafi'I school. In regard to
the concept of price, Imam Shafi'i only describes briefly about the
cause of the rising and falling prices in the market. According to him, the
value of a commodity increase and decrease at anytime due to changes in price,
and at less and more of human desire and the quality and number of goods.
From a
brief explanation is understandable that there are some decisive factors that
cause the value of a commodity or service subject to change, namely: human
desire, change of price, quality and quantity of goods
3. Qadi 'Abdul Jabar
His
real name is Abdul Jabbar Ibn Ahmad Ibn 'Abdul Jabbar
al-HamaJani al-Asadabadi, who was born 935 A.D. He was a Mu'tazilite the
ologian, a follower of the Shafi'i school. He lived in Baghdad, until he was invited to Rayy, in 367 AH/978 A.D, byIbn
'Abbad, a staunch supporter of the Mu'tazila. He was appointed chief Qadi of
the province. On the death of Ibn 'Abbad, he was deposed and arrested by
the ruler.In regard to his view on the price theory it can be traced from
his book "Al-MughniAbwbfi
al-Tawhid wal'Adl
"
in the chapter of prices, cheap and expensive,' Abdul-Jabar gives moredetails his
concept of market price. The first explanation about is the provision of
acommodity exchange that will be sold by pleasure way.
Furthermore,
he divides the concept into two parts, namely the price on the concept of cheap and
expensive in the market. The definition of cheap is a decrease in number
according to the price, the custom prevailing at the time and place.
Therefore, it cannot be equated ice price decreases in winter, which happens in
the summer that the price becomes cheaper. On the other hands,decrease of ice
price in cold regions cannot be regarded as cheap price in hot areas.The
definition is expensive according to the price increase as customs prevailing
at the time and place.
From
the definitions and examples mentioned we need to know thecauses of rising and
high prices of some goods. The price to be cheap because Allah SWTwho increases
the commodities or goods of the particular period, then the quantity
will become cheaper, Moreover, the price becomes cheaper due to Allah SWT
to deduct or decrease need for something.
Because
the other is Allah subtracting the number of people
who
want a commodity due to contain the disease. While the price is high due to
AllahSWT subtracting the quantity of commodities or goods to the needs of a
commodity or the number of requests for goods or commodities.
By
these points it can be understood or inferred the explanation of Qadi 'Abdul
Jabar on the concept of price that rise and fall of prices is Allah
who determines. We must obey Him and be grateful for every blessing that has been given by him.
4. Ibn Taymiyyah
His
real name is Taqi ad-Din Abu 'l-Abbas Ahmad ibn Abd al-Halim ibn
Abdas-Salam Ibn al-arrn Taymiya who was born in Harran in 1263 AD. Its
contribution in the field of Islamic economic thought can be known through
his book "Majmu al- Fataawa" and "Siyasa al-Syar'iyyah". According to Ibn Taymiyyah
that something increases its demand, the price will increase,
otherwise if a little demand. It is related to the few and the many needs
or strong and weak demand. So when more and strong demand for something
then it will increase the price compared to when the little and weak need
not increase the price.
Furthermore,
according to him that the human desire have a lot of difference and
diversity, namely:
1. By
many and few goods requested; people want the goods when the quantity is less than more.
2.By
many and less demand of goods: when it is more demand of goods, the price will rise inversely when
less demand of goods, the price will fall
3.Based
on the few and the many needs, and strong and weak demand, so when many needs and strong
demand, prices will rise slightly and inversely proportional to the weak need
not increase the price.In addition, he says that the rise and fall in prices is
not always due to an injustice (zulm) by certain individuals. Thus
if desire for the good increases while its availability decreases, its
price rises. On the other hand, if availability of the good increases and
the desire of goods decreases, the price comes down. Accordingly, the
causes of price are not only because of injustice, but also from other
aspects or components which it is desire of human is created by Almighty
Allah.
5.Imam Ghazali
His
real name is Ab med Muammad ibn Muammad Ghazl was born in1058
A.D. In regard to the concept of price can be found in his book
³Ihya Ulumuddin´
.The
price according to him when the demand of commodity decreases the price
willdecrease. It is stated: ³if the farmer does not get a buyer for produce,the he
sells at a very low price´
His
awareness of market forces is evident when, concerning high food prices,he
suggests that the price should be induced down by reducing demand, implying
aleftward shift in demand curve. In addition, according to Ghan zafar and
Islahi that Imam Ghazali already talked about equilibrium price which in
the term known today.
It
was called in his book as just price.
From
the description of classical scholars on the concept of price can be concluded
that the price is determined by God as the Word of Prophet Muhammad:
"So
Allah SWT that determines a lot and at least demand a good or service and he
also determines a lot and the least supply of goods and services on the
market.
The
implications of the will of God it is to changes in commodity prices or
goods and services.They agreed that the price changes are determined by the
will of Allah SWT( sunnatullah process) are realized in the form of market price mechanism, namely: the
first is when the demand increases for goods and services that are in the
market will cause prices to rise and reverse the price will come down when
demand for goods decreases in this case relates to the supply side.
Both
are from the quantity of goods, when the quantity of goods or commodities on
the market then the prices will come down and vice versa when the quantity of
goods and commodities on the market a little then the price will goup (demand
side). Third is the enabling factors that cause changes in prices, such as the
human desire factor, quality factor for commodity goods, and natural factors.
On the second point only Imam Abu Yusuf who do not agree, he said not all goods
are abundant,the price will be low and vice versa are not all expensive when
the price of scarce good sin the market. In essence he said the price of cheap
and expensive is God Almighty who set out as described by 'Abdul Jabar.
Taking
into consideration of two figures it can be derived by such explanation.Explanation in figure 1
is a clear that when the price decrease from P1 to P2, the demand of goods
on the market will increases from Q1 to Q2. On the other hands, figure 2 is
a supply curve that explains when the supply of goods increases from Q1 to
Q2, the prices will rise from P1 to P2.
Both
curves are transformed by the will of Allah.
Furthermore,
by taking an example given by Imam Ghazali then will find the balance point between
demand and supply curves. According to Imam Ghazali if farmers do not get
the buyer of the goods, he will sell it at a cheaper price.
See figure 3
At the
price level P1, the number of goods offered by the seller amounts to QS, while
the amount of goods demanded is QD1.
Because
the farmer does not find a buyer, then he lowered the price at the point P2, so the
number of buyers increased from QD1 becomes Q*, forming price equilibrium
(E) is the meeting point between demand and supply items to be sold by
farmers. This equilibrium price is determined by the will of Allah SWT (sunnatullah process).
Furthermore,
the concept of price by western thinkers has a similarity with the earlier Muslim thinkers,
but the difference is the secular and west ignores the role of religion in
economic activity.
Therefore, in the price theory, they mentions that the price will be
formed adjusted naturally without any role of God the Almighty fornicators
over everything in it. In Islam the price adjustment is determined by God
Most Originator of all things. Although the actual price of Adam Smith is
the market mechanism through invisible hand that
encourages the formation of prices. According to him let alone adjust with
reasonable price without any interference from the government because there
will be invisible hand that will bring prices at the point of equilibrium.
But
Adam Smith did not explain whose invisible hand that he meant. The fundamental
difference can be seen from the economic worldview of both concepts. In Islam,
Tawhid is the main foundation of a human as a
guidance for all economic activities while the view of secular and west that
the reason are mainstream.
CONCLUSION
In
fact, Islamic literature either in general or specific source, introduced the
price theory in the tenth century as well as the modern concept of price which
was introduced by western scholars in seventeenth century.
Both
views have similarity concept in the demand and supply law and have the
difference in the fundamental aspect of man(worldview).In the fundamental
aspect, the price theory from Islamic perspective is different from secular and
western point of view. The price according to Islam is determined by the will
of Allah through certain causes or called sunnatullah
process,
while secular system views that the price will find or adjust in equilibrium
price in natural. So, the secular or western concept on the price ignores
of God who determines the price. This economic worldview is just only grounded
by the reason. On the other hands, Islam must be based on firstly on the
revelation, and after that the reason.
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