Ibn Khaldun – The Missing Link in the History of Economics

For years economists have referred to the “Great Gap”, a concept put forth by Joseph Schumpeter, which refers to the lack of positive economic thinking in the period between the early Christian and Scholastic times. This gap is “self-created” for the most part and, unfortunately, justified by many. It is also this very same gap that is responsible for the absence of Ibn Khaldun, the scholar and politician from the Middle Islamic Ages, in today’s modern academic discourse on economic history which is put forth by neo-classical economists. This discourse often starts tracing roots to the Enlightenment or the mercantilists as the beginning of economic thought.

Khaldun was the first “social scientist” in the strictest meaning of that term. Scholars before him dispersed knowledge without transforming it in any way. There was no editing or modification involved. They never criticised or raised questions about the knowledge being transmitted but rather scrutinised the credibility of the transmitter instead. Khaldun rejected this mode and revolutionized methodological thinking.

He stated that there was a need for a new form of empirical thinking which could differentiate between what was historically true and what was not. This could only be achieved by analyzing the human social organisation which can function as a sound yardstick against which society can be analyzed and studied instead of accepting any and every thing that scholars put forth as “stories”.

This all occurred during the 14th century before which this kind of thinking did not exist; it was independent, original and new. 

One finds streams of similar thought in the renowned economist Adam Smith’s works. For Khaldun the division of labour, both social and economic (which are also interrelated), functions as the base for civilized society. It is this division of labour which creates surplus value. Through cooperation and various arrangements of powers in the structure needs and requirements of society can be collectively met. However, his illustrations and explanations of how the production process is complex and divided into a complex structure are forgotten, even though they are no less valuable than Smith’s. The only difference between the both is that Khaldun did not differentiate between productive and unproductive work.

His theory came centuries before Smith’s and, in fact, spoke a lot more about the economy.

He used didactic methods to analyze market and market forces, land, labour and goods, in a way very similar to Alfred Marshall’s; which led to him dividing the market into three sectors – production, trade, and public. He explained the relationship between demand and supply which apparently was not invented until the 19th century. He postulated the labour theory of value long before Marx did, which makes him pre-classical.

Economic development would require the state to play a crucial role, according to his model. Growth of a civilization closely depends on the policies and programs of the government, such as taxation. A military plays a crucial role as society develops from a nomadic to a sedentary form, leading to the birth of urban civilization. Group identity and solidarity also transform along with this. This leads to an increase in taxes. In the end they increase so rapidly and uncontrollably that the economy collapses. In the beginning of a dynasty taxations yield a lot of revenue from small assessments and by the end of the dynasty, it’s the opposite as very little revenue is gained from large assessments. He even anticipated the Keynesian economic theories.

His ideas were rather unique during the Middle Ages but neoclassical thinkers have formed a different historical narrative to justify its existence. For instance, in the connection between the Laffer-curve and Khaldunian thinking, economists like Ronald Reagan draw the former as a “mutual tie” when stating Khaldun in their works. Laffer acknowledges Khaldun as a forerunner in supply-side economic theory and the Laffer-curve itself, when the two did not have much in common.

These interpretations grossly oversimplify and distort history in a way that suits the interpreter’s version of it. There is a direct influence of Evolutionism (the belief that things go through a linear path of development where one stage is succeeded by the next, superior more “evolved” stage; it discredits any alternate modes of horizontal development) which tries to smoothly connect neo-classical thought to this as the more advanced, developed form of economic thinking. Thus, scholars of the past are often erased or ignored from discourse, and in cases where they resurface, crudely integrated into a narrative that suits their purpose.

Khaldun’s methodology is original and revolutionary in the sense that it focuses on abstraction and generalization, one that was way ahead of its time. He addressed questions and issues which are relevant to this day and also something we do not have the answers to even in the 21st century. His theories are historically important because they convey to us the importance of medieval Islamic culture; bridging the relationship between Islamic economics and other schools of thoughts as the common theoretical ancestor. 

We cannot say for certain whether Smith and other economists were or were not influenced by Khaldun. That is another fact lost to this Great Gap; something that remains to be discovered. The formulation of a narrative closer to historical reality is critical in avoiding and repeating the mistakes made throughout time and space in our academic discourse.  It is needed for a more holistic, plural approach towards formulating the history of economics itself.

Originally published by: Evonomics