Muqaddimah - Economics

Economics

See also Islamic economic jurisprudence

When civilization increases, the available labor again increases. In turn, luxury again increases in correspondence with the increasing profit, and the customs and needs of luxury increase. Crafts are created to obtain luxury products. The value realized from them increases, and, as a result, profits are again multiplied in the town. Production there is thriving even more than before. And so it goes with the second and third increase. All the additional labor serves luxury and wealth, in contrast to the original labor that served the necessity of life.

Ibn Khaldun on economic growth

Businesses owned by responsible and organized merchants shall eventually surpass those owned by wealthy rulers.

Ibn Khaldun on economic growth and the ideals of Plato

Ibn Khaldun wrote on economic and political theory in the Muqaddimah, relating his thoughts on asabiyya to the division of labor: the greater the social cohesion, the more complex the division may be, the greater the economic growth.

Ibn Khaldun noted that growth and development positively stimulate both supply and demand, and that the forces of supply and demand are what determine the prices of goods. He also noted macroeconomic forces of population growth, human capital development, and technological developments effects on development. Ibn Khaldun held that population growth was a function of wealth.

Ibn Khaldun understood that money served as a standard of value, a medium of exchange, and a preserver of value, though he did not realize that the value of gold and silver changed based on the forces of supply and demand. Ibn Khaldun also introduced the labor theory of value. He described labor as the source of value, necessary for all earnings and capital accumulation, obvious in the case of craft. He argued that even if earning “results from something other than a craft, the value of the resulting profit and acquired (capital) must (also) include the value of the labor by which it was obtained. Without labor, it would not have been acquired.”

His theory of asabiyyah has often been compared to modern Keynesian economics, with Ibn Khaldun's theory clearly containing the concept of the multiplier. A crucial difference, however, is that whereas for John Maynard Keynes it is the middle class's greater propensity to save that is to blame for economic depression, for Ibn Khaldun it is the governmental propensity to save at times when investment opportunities do not take up the slack which leads to aggregate demand.

Another modern economic theory anticipated by Ibn Khaldun is supply-side economics. He "argued that high taxes were often a factor in causing empires to collapse, with the result that lower revenue was collected from high rates." He wrote:

"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."