The Concept of Law and Market Mechanism According to Ibn Khaldun and Imam Al-Ghazali

Abstract

The market mechanism in Islamic Economics emphasizes the need for balance (iqtishad) between the market, the state, and the individual, rejecting the dominance of one over the others , which differs from conventional markets that often experience distortions. This research is a conceptual study that analyzes the market mechanism concepts of two Islamic economic scholars: Ibn Khaldun (through his Muqaddimah) and Imam Al-Ghazali (through Ihya’ Ulumuddin). The research findings indicate that according to Ibn Khaldun, a nation's wealth is determined by its production level , the value of a product is equal to the amount of labor it possesses , and prices are determined by the law of supply and demand. He views gold and silver as the most suitable measures of value and monetary standards. Furthermore, the product price is distributed into three factors: income (producer's wage), profit (merchant's compensation), and tax (compensation for state officials/rulers). Meanwhile, Imam Al-Ghazali links all economic activities to morals and ethics , explains market movements by describing the shape of the supply curve (rising from bottom left) and the demand curve (descending from top right) , and asserts that the motive for trading must be to seek profit in this world and the hereafter, not just worldly profit. He considers the production of basic necessities a social obligation (fard al-kifayah). Overall, both figures conclude that the market must operate justly according to norms and principles derived from the Qur'an and Hadith.