The adoption of paper in the early days of the Islamic rule changed literacy practices in the Middle East and eventually around the world, yet the circumstances of its adoption and its impact on the Middle Eastern economy are not well known or understood. This study determines that paper use was linked to an increase in purchasing power and to a shift in cultivation patterns from cereals to textile plants. It shows that the decline in the price of paper and books played a role in the standardization of the Arabic language and in the transition from oral to written practices, the formation of new knowledge, and the spread of literacy. The result was improvement in human capital and rising labor productivity, especially in manufacturing. Finally, the flow of paper documents in the economy changed norms of contract enforcement.