Who is the father of economic sciences?
If you ask this question to scholars, professors and economists; the answer you would get to be Adam Smith mostly, or some will say Ludwig von Mises, Richard Cantillon or Carl Menger. Today, I would like to come up with a new idea : Ibn Khaldun was the real father of economics!
Ibn Khaldun, full name Had Wali ad-Din Abu Zaid Abd ar-Rahman bin Muhammad Ibn Khaldun al-Hadrami al-Ishbili is a scholar, politician, historian and economist. He was born at the year of 1332 at Tunisia and died at Cairo at the age of 73; 1406.
Ibn Khaldun produced so much about economic issues. His magnum opus; Muqaddimah includes so many views about historical and contemporary economic issues; as well as economic theories. Views of Ibn Khaldun on economic issues could be summed up like this;
1-) Tax Policy : Ibn Khaldun’s views on tax policy is so much similar to Hayek. In fact; general views of Ibn Khaldun is so much similar to liberal economic theory.
According to Ibn Khaldun income tax rates should be low, very low. As state decreases the tax rates on goods and services there would be much more economic activity, more trade and more output; so that state would be able to collect more tax revenue. Simple and plain; “lower the tax rates and you collect more tax revenue.”
You would be more than surprised to learn that former US President Ronald Reagan quoted Ibn Khaldun by saying: “I studied economics in college when I was young and I learned there about a man named Ibn Khaldun who lived twelve hundred years ago in Egypt. He said; In the beginning of the empire, tax rates were low and revenue was high. At the end of the empire, when the empire was collapsing, tax rates were high AND the revenue was low.”
And yes, that was before the Islamophobia came into existence.
Ibn Khaldun in his book Muqaddimah ends this chapter claming that high taxes would eventually cause the fall of a government or dynasty;
“It should be known that at the beginning of the dynasty, taxation yields a large revenue from small assessments. At the end of the dynasty, taxation yields a small revenue from large assessments.”
This view is exactly same with the views of liberal economy, supply side economy and Laffer curve, which claims that increases in tax rates initially increase tax revenues, but eventually the increases in tax rates cause a decrease in tax revenues. This occurs as too high a tax rate discourages producers in the economy.
2-) Production : According to Ibn Khaldun; Allah created the mankind and sent to Earth in a form that impossible to live without produce. Mankind has to work, produce and perform to make a living.
The main factor of production is human labor according to Him. He gave labor a greater importance than capital. He sees the labor as the sole reason for income. According to him, the value of a good or service equals to its labor value; how much work was put in etc, not the market value.
3-) Money : Like most of Islamic scholars; Ibn Khaldun regarded money as a means of exchance, a measure of value but not a value itself.
He claims that money should be printed as silver and gold and the value of money should stay stable at all times; that’s why the money should not be printed by governmental instutitions to not to be affected by political fluctuations. He sees the inflation very dangerous because it kills the economy and destroys the hard work of labor. That’s why the government should take necessary precautions to prevent the inflation.
He even came up with a concept of “world money”, one currency for whole world to prevent the inflation, which is a very radical idea even today.
4-) Role of Government in Economy : Ibn Khaldun also discussed the role of state in economic system. According to him the government should not be active on market as an enterpreneur but it should create a comfortable and liberal environment for enterpreneurs.
Ibn Khaldun states that if government fails to do its job; people (businessmen) loses their confidence to future and there would be less economic activities; there would be a reduce in production, commerce, profits and productivity so the government would be able to collect less taxes. Both the government and people will suffer a loss finally.
5-) Private Property : As we digged in the roles of government, Ibn Khaldun also stated that one of the major roles of government is to protect and guarantee the private property.
It is also one of the main objectives of shariah (Islamic law) to protect private property.
Ibn Khaldun stated that protecting the property is also protecting the justice. Private property is one of the core elements of economic development. If government fails to do that, and attacks the private property instead there would be less business investment, enterpreneurs would be discouraged and they would tend to protect what they already have instead creating new jobs. This would eventually harm the society. This could even result in an economic catastrophy.