neo institutional economic fun!
[Like medieval Christian societies,] Islamic societies similarly found ingenious ways to circumvent the usury ban. The primary one was the double sale. In this transaction, the borrower would get, for example, both 100 dinars cash and a small piece of cloth valued at the absurdly high price of 15 dinars. In a year he would have to pay back 100 dinars for the loan of the cash and 15 for the cloth. These debts were upheld by Sharia courts.
The cognition of rules and ethics sure is complex. I'd love to read the reasoning from those courts.
From from Gregory Clark's rather intense review of Avner Greif's new-ish book on institutional economics. (Clark's the one who wrote that interesting but weird evolutionary argument about European economic development.) If you're in to the little worlds of institutional, evolutionary, and behavioral economics, Greif's work is really interesting. Along with other institutional (or is it neo-institutional?) economists, he works to understand the functioning of markets, contracts, and laws as stable equilibria of games -- that is, how individual incentives and behaviors can lead to different organizational efficiencies and therefore economic growth.
Greif's book expands the notion of institutions as systems "of rules, beliefs, norms, and organizations that together generate a regularity of (social) behavior." He wants to bring in cognition! Not be strictly bound to individualistic rational choice! And he even does nifty mathematical backflips to put an interesting spin on various models of cooperation, contract enforcement, and the like. It's all very exciting, but as Clark (convincingly) points out, highly theoretical, a bit vague and difficult to test. I read Greif a few years back when I was a lot more willing to work through pages of equations just for their own sake -- I guess you can't keep that up forever.
In any case, economists wanting to do something with cognition is a great, but failing to do so unfortunately common. (You can view the entire field of behavioral economics in that way -- they went ahead and modeled lots of interesting systemic effects (the biases of heuristics & biases), but the substantive bases aren't necessarily there. On the other hand, it's not clear if anyone has good substantive explanations for any human decision-making or social behavior.) I wonder if there's any hope to usefully understanding social behavior as the interaction of cognitive agents. Things might just be too complex.