IBN KHALDUN :  THE FATHER OF ECONOMICS

Abd Al-Rahman Ibn Khaldun (744-820Hijrah) 1332-1406 A.D

Ibn Khaldun was in the era when the Western world was experiencing the renaissance. This was also the beginning of the decay of Islamic civilization. There were crusades and invasions from East. Besides, disputes of Caliphs were common. Among all this background, Ibn Khaldun represents the climax of history of Islamic economic thought.

Ibn Khaldun wrote his voluminous book on history of the world, titled; Kitab al Ibr wa-diwan al-mubtada wa-l-khabar fi ayyam-il 'arab wa al ajam wa al barbar wa man 'asarahum min dhawis sultan al-akbar. This book was translated in French in 15th C, and later in German and English. The Western world although recognizes Khaldun as the father of Sociology but hesitates in recognizing him as a great economist who laid its very foundations. It was Khaldun who for the first time wrote about the logic of history. Marxists greatly admire him.

Ibn Khaldun was a descendant of a well to do Andulusian (Spanish) family. His family left Spain before its fall to Christians. He was born in Tunisia, where he was well brought up and given the best education, both religious and modern. He completed his education at the age of 19. By the age of 20, he was working as a civil servant. Later he went to Morocco. Khaldun showed a great interest in politics, and also became a minister thrice. He was sometimes imprisoned or detained for his views, and even threatened to be executed. During his notable stay in the desert he wrote comprehensively on history of nations, religions, fiqh, origin of sciences etc. Later, during his stay in Egypt he was appointed Qadi (Judge), by the Sultan of Egypt. Here too his engagement in politics cost him the enmity of the Sultan.

He greatly depended on logic and deduction. He used logic in analyzing observations, that led him to induction. Very accurate observations can give a theory. Khaldun depended on history as a tool for analysis. Through history we can deduce things and can try to get reasons. So logic of history can be used in getting further results. In addition, he depended on Sociology in finding facts. Marx and various German institutions also recognized Sociology behind economic behavior. So now we have economic sciology. Besides these, Khaldun also depended on Geography in explaining economics. John Hicks was also the one in modern times to explain under-development due to geographical factors.

It is worth mentioning that Ibn Khaldun was not like the traditional scholars in the Muslim world. He was different in a way that he discussed things by logic and evidences. It was through this that he concluded by giving a critical analysis using the Quran and Hadith. It was due to this that secularism was attributed to him. Some Muslims were skeptical of this methodology. But thinking rationally, we find that he gradually takes us to Islamic facts. Actually this was a new methodology to Dawah. It showed positive results as various Western scholars accepted Islam through his writings.

Ibn Khaldun talked about human needs. He recognized that human needs are derived from the nature of man. Man needs to eat and drink. He also has to have clothes and find a place to live in. So there are some natural needs due to the very nature of man. These needs may also be termed as elementary and basic needs. The desire to fulfill these needs results in a further use of his knowledge and intellect. Therefore secondary needs arise. Tools are used as well as the intellect to get the needed things. A step after this is the process of civilization. At this stage a man would look for luxuries. For this he would have to be more intelligent. As a result civilization advances. It must also be kept in mind that Khaldun never meant that civilization is solely based on material needs. So it is the development of needs that results in the advancement of civilization.

He further talked about the nature of production and the necessity of cooperation amongst the members of the society to fulfill the production needs. There are various production processes which are like rings, that are overlapping and compound. Production is characterized by interdependence and interaction in the production process. It is not possible for an individual alone to fulfill his needs through the production process. There are several production stages and for this teamwork is necessary. For example, even baking bread would involve several persons from the wheat growing to baking it. Firstly land would have to be cultivated and after various processes we get bread. So there is cooperation involved. The group of individuals would get much more output per capita as compared to an individual working alone. Cooperation enables large scale as well as simple production. Labor is divided and there is division of labor. So people have to work together to get more. This 'more' would later give even more output. (The Multiplier Effect) When Adam Smith explained this, he could not reach the Sociological point of cooperation. Each person would do the job according to his skill.

Aristotle and Plato thought that skill depended on genes. Ibn Khaldun also said that there is natural inheritence in the case of skill. But he added that skill can also be acquired through training and education. He thus gave his famous theory of "Al-Imran" or "Development in all sense". Khaldun said that growth not only means growth of material output, but also population growth and growth in welfare. He mentioned real output. Output produced is measured in terms of gold or silver or money. (not Faloos). Therefore: Real Output =Real Income. There is no voluntary unemployment. It could only be forced. He always thought about the value of work. He said that, in general terms, population is the labour force. (Later, Classical Economists also treated population growth = labour force).

A very famous theory of Ibn Khaldun is of "Al-Assabia". He talked about the transformation of the society from Bedouin life to settled civilization. The State will be dependant on Al-Assabia. But this state would live for three generations. One generation comprises a period of 40 years.

Stage 1

Strong rulers treat their subjects tolerably. People of the State have good aspirations. They work and produce, knowing that there will be no injustice done to them. On the other hand, they only pay what the Shariah asks, e.g. Zakah, Kheraj, Ushr etc. There is also a growth in the population. This is not only through births but also by outsiders who come and live in the tolerant society. The Division of Labor in the production process results in surplus. The surplus further grows. Man is societal by nature and so people cooperate with each other. Needs arise also due to the diversity of commodities at their disposal.

Zakah (Islamic tax@2.5%) acts like an ad-valorem tax. If there is an increase in the payment to the government, it is proportional to the production. Zakah has no burden because it is proportional to production. On the other hand people think of taxes as something imposed upon them and psychologically it is a burden. This feeling is not there in Zakah as it is also a religious obligation. (It was only after the French Revolution, that  a social contract was achieved that taxes would only be spent on the people.) Centuries before, Islam established justice as Zakah could only be spent on the needy (the cetegories given in the Quran). Ibn Khaldun quite keenly pointed out that there is comfort in Zakah. The less capable are helped.

According to Ibn Khaldun when income grows at a higher rate, the population also grows. People will feel more well off and the will be more welfare due to the surplus as a result of division of labour. This surplus can be relied upon to work less and enjoy a better life. This surplus can also be used to for getting commodities from outside (This is International trade and is known as the Vent for Surplus). Professor Mynit says that the Vent for Surplus theory is better for developing countries as compared to comarative advantage. The roots of the Vent for Surplus theory lie in Ibn Khaldun's theory. Khaldun further adds that people enjoy life by looking for better qualities, more varieties and new commodities. There is more progress through the industry. Thus there is advancement in every field. So welfare is also measured by services besides materials.

Stage 2

In this stage, rulers are not as strong. They are the sons of their founders. To increase government's wealth they impose more taxes on the producers (i.e. more than what Shariah imposes). At the beginning the effect is not felt much. The effect is felt gradually. As the citizens are free, they start questioning these taxes. They see their rulers enjoying life. Therefore they do not remain so enthusiastic to work. In this way population growth is affected, as some people start leaving the place for better opportunities outside. Human resources are very important. Those who remain put in lesser effort for work. In this way growth is affected. So total output also grows at a decreasing rate. Ibn Khalsun said that income is the value of labour. It is the value of the work done. Thus it is the rulers who are responsible for growth. They are responsible for welfare and ultimately a better standard of living.

Stage 3

In this stage, the conditions become very bad. People are fighting amongst each other. In this situation the government tries to collect more taxes. This results in a drop in population and income at an increasing rate. (For this Plato had suggested that rulers be deprived of wealth.  Ibn Khaldun was realistic and said that it is not possible to tackle the rich rulers until all people rise. For this Khaldun was even imprisoned). The situation becomes worse at the end as most of the skilled labor emigrates. The cultivators are the main sufferers because this is the profession of the weak. In the extreme case they also leave. Even soldiers start fighting amongst themselves. The dead cannot even be buried.  

 

Ibn Khaldun on Prices

Ibn Khaldun observed various factors which resulted in differences and growth in price level. He greatly depended on induction which is observation of actual life. In those times, people in Egypt, Iraq, India and China were enjoying a higher level of welfare. Was this because they had the treasures of ancient nations? According to Khaldun the main reason for this prosperity was large size, and engagement in effective production activities. They produced more as compared to other countries. The main reason for this greater production was because of a large population size.

The per-capita  income in the modern times is not an accurate measure. Ibn Khaldun compared the people in the same profession in different countries. He even compared beggars. In modern times economics a comparison is made in exactly the same way. For example, workers in a car industry in Germany with workers in the same industry in Korea. The German worker is more productive and richer.

Khaldun even compared conditions of housing in different countries, as well as the quality of commodities and industry. He also compared total demand and total expenditures in different markets. If there is more expenditure than it means that the market is booming. He even explained why Arabs in North Africa (of his time) are becoming poorer. He gave a political reason. There were political disturbances which resulted in economic decay. As a result people left these countries and population reduced and in turn welfare reduced.

According to him, prices move in the same direction as output. A rise in growth would imply a rise in prices. Prices in general reflect the state of expenditure in the market. More expenditure means more demand. He made an accurate observation of the structure of prices. Not all prices rise in the same manner. Some prices such as the prices of basic food items decline due to growth in the economy. However, when the supply is growing at a faster rate than demand than prices decline. The price of luxuries is rising because people are demanding more of these.

The industry leads the civilization. It is related with intellect. So new and better quality commodities fetch a higher price. Skilled labor is limited, and thus demands higher wages. So Khaldun gave a dynamic analysis of prices.

 

  Effect of Taxes on Prices

Taxes when imposed above the normal rates affect the prices of necessities in particular. Ibn Khaldun said that by raising the tax rates the governments do not get more revenues. This is because a rise in taxes discourages production. On the other hand reduced taxes encourage production and raise revenues. (Laffer Curve)

 

Role of the Public Sector 

Public sector is an enterprize established by the government. The government should only administer the society. If the government enters the economic activity it will cause disturbance.

The World Bank report in 1989 for Privatization, acknowledged that Ibn Khaldun was the first proponent of privatization. The Holy Prophet (PBUH) mentioned 3 sectors of public ownership; water,  fire and free grazing land. These could translate into water and energy sectors. So the state should not engage itself in buying and selling. This establishes a monopoly. The state is to protect the people from monopolies.


 

                             A Tribute to Ibn Khaldun - A Tunisian stamp. Khaldun's picture can also be seen on the Tunisian currency.            

 


By: M. Laeeq-ur-Rehman Khan