The modern relevance of Ibn Khaldun’s Economic Philosophy
“The modern relevance of Ibn Khaldun’s Economic Philosophy” by David Abramsky
We read in the last issue of this journal that “many economists accept that the moderndiscipline of economics is not in a healthy state” (Lawson 2010, p. 1), and that there is“widespread dissatisfactionwith [...] the way economics is taught” (Skidelsky 2010, p. 1). This article seeks to put forward the work of Ibn Khaldun as part of a wider remedy to these shortcomings.
Those thinkers who demonstrated economic thought without even the awareness that they were doing so may have the most unbiased view of what economics is, as well as what it is for. Among these thinkers, there is possibly none more original or perceptive than Ibn Khaldun. Perhaps his greatest innovation was an empiricist approach to the study of economic phenomena. Ibn Khaldun says of his “original science” (Ibn Khaldun 1958, p. 78) of al-umran (roughly, civilization) that “penetrating researchhas shown the way to it. It does not belong to rhetoric.” (Ibid.) Each assertion on the laws that guide the course of human events is confirmed with reference to an historical example. Lacoste notes that “this is why his work seems so extraordinarily modern.” (Lacoste 1984, p. 160)
This approach sets him apart from earlier philosophers whose work included economic consideration, such as the Indian thinker Kautilya, or Greek philosophers such as Xenophon and Aristotle. Ibn Khaldun was familiar with Aristotle’s work, referring to it specifically in the Muqaddimah (Ibn Khaldun 1958). However, he advanced greatly on it by referring a priori principles to the empirical data of history. In this respect his work can be seen as an alternate branch to the modern school, since both built upon the observations of the Ethics. (Langholm 1979)
There are also undoubtedly similarities between Kautilya and Ibn Khaldun, though the latter was not aware of the former. Kautilya’s decree that “collectionof revenue at a season when people were unable to payis forbidden because it injures the source and causes immensetrouble” (Gopal 1935, p. 24), for instance, foreshadows Ibn Khaldun’s discussion of the impact of excessive imposts on cultural enterprise. (Ibn Khaldun 1958) But whereas Kautilya writes in unverified, though often perceptive, axioms such as the one above, Ibn Khaldun follows up his observations with reference to specific examples of over-taxation and its effects on tax revenue in the Abbasid, Ubayyid and Almoravid dynasties. It is this investigative rigor that sets him apart as a new kind of economic observer.
It is in Ibn Khaldun’s empirical methodology that we encounter the clearest way in which his work is relevant to the modern economist. The reason he used it was as a direct response to perceived shortcomings in some of the accounts of contemporary historians, which in turn led to unsound conclusions about the causes of events. Ibn Khaldun identified the rigorous study of historical fact as an essential check on any economic theory.
In the modern field, the limitations of mathematical modeling in explaining and predicting human systems have been widely acknowledged1. Perhaps a greater emphasis on the study of historical events could provide a partial remedy. Lord Skidelsky identifies the prevalence of Chicago School economic principles in undergraduate teaching, and notes that this school rests on assumptions of “perfect information, perfect competition, and completemarkets.”(Skidelsky 2010, p. 1) But Friedman, the pioneer of this school, justified and qualified his premises through groundbreaking and extensive empirical research of markets and their history. (Friedman and Schwartz 1993) For instance, in order to understand the conclusions he reached with regards to the causes and likelihood of financial bubbles, one had to be familiar with the history behind them. For example, inclusion in undergraduate courses of Mackay’s Extraordinary Popular Delusions and the Madness of Crowds, detailing such phenomena from the foundation of the ill-fated South Sea Company in 1711, would be an excellent counter-balance to the potential complacency that mathematical modeling or the seemingly intuitive conclusions of the Chicago school can instill.
Methodology aside, some of Ibn Khaldun’s discussion does seem to presage the classical school of Smith and Ricardo. Oweiss goes so far as to argue that his economic observations make him “the fatherof economics.” (Oweiss 2009, p. 1) This seems a strong claim (perhaps intentionally so) for a thinker who was not widely translated into any European language until the 19th century. (De Slane 1862) In the interests of consistency, it must be acknowledged that just as Ibn Khaldun’s work was a significant advance from that of, for example, Kautilya or Aristotle, because of the added depth and methodological rigor, The Wealth of Nations stands as a far more complete and detailed analysis of markets and commerce. Ibn Khaldun’s definitions of profit, capital and commerce are often cited by those seeking to emphasize his modernity, but on the macroeconomic scale all overarching theories will share basic principles and definitions. However, there are striking parallels on the ‘micro’ scale too. Even in very specific matters, Ibn Khaldun sees to the economic heart of things.
His discussion of labor and its return in different markets is fascinating in this light. Ibn Khaldun identifies the disparity in the preponderance of certain crafts between different markets, observing that “the activities required for the necessities of life [...]exist in every city. But activities required for luxury customsand conditions exist only in cities of a highly developedculture.” (Ibn Khaldun 1958, p. 302) Perhaps this seems obvious to modern readers, but it was not so well-understood that Smith felt it could go unsaid some four hundred years later. In fact, Smith describes the same phenomenon when he writes that “There are some sorts of industry, even of the lowestkind, which can be carried on nowhere but in a greattown. A porter, for example, can find employment andsubsistence in no other place.” (Smith 1776, Bk. 1, Ch. 3, Sec. 1.3.2)
Ibn Khaldun is also aware that identical occupations provide different wages in different places, because prices differ due to the amount of available labor. Again he exemplifies the principle empirically. He cites the difference in judges’ wages between Tlemcen, a small town in Algeria, and Fez, the thriving economic hub of the Maghreb, “the only reasonfor [which] is the difference in labour available in thedifferent cities,” (Ibn Khaldun 1958, Vol. 2, p. 273) which has a knock-on effect on the cost of living. Having already explained the meaning of terms such as labor, profit, capital and commerce, Ibn Khaldun demonstrates an understanding of the impact of the specific market on any transaction.
Ibn Khaldun similarly understood the significance of transportation to the return on goods. He first observes that merchants limit the goods which they transport to those of “medium quality,” which will have the widest customer base, since “if [a merchant]restricts his [transported] goods to those neededonly by a few, it may be impossible for him to sell them,since these few may for some reason find it difficult tobuy them. Then, his business would slump, and he wouldmake no profit.” Further, he notes that the most profit is obtained by the most difficult transportations, such as through the dangerous Sudan or across the long route to the East, made at the least possible expense. Smith similarly explores the increase in feasible commerce enabled between London and Calcutta solely by the availability of reliable water-carriage as opposed to land transport.
There are many parallels of the sorts described above, as Ibn Khaldun goes on to discuss commerce, hoarding, taxation, price fluctuation and many of the other questions which also preoccupied Smith. Oweiss gives a more complete account of this overlap, which attests to the universality of many of Smith’s more general maxims. Ibn Khaldun achieved such insight because he possessed something anachronistic for his time: a truly international and impartial understanding of social science. It was in part the wider prevalence of such an understanding which prompted the birth of pure economic thought in the 18th century. There was no perspective he felt bound to; as a matter of fact, he was highly critical of many aspects of Arabic culture and economic practice. This approach was a result of the philosopher’s unusual life; he travelled constantly, exercising his ambition in numerous fields in many different courts, from Muslim Spain, to the Middle East and North Africa. Rosenthal notes that this “gave him a remarkable detachmentwith respect to the historical events that tookplace before his eyes. In a sense, it enabled him to viewthem as an impartial observer.” (Ibn Khaldun 1958, p. xxxvi)
This is the second major reason why his thought is beneficial to an insightful study of economics in this age. The “autism” and premature specialization of economic teaching that was lamented by Lord Skidelsky can undermine the impartiality that Ibn Khaldun applied to his study. Students are encouraged to focus too soon on very particular and vocational approaches to economics, mostly based on work from the past century coming from the Western hemisphere. The conclusions of these schools of thought are then taken for granted. For example, in the widely used first year textbook Economics: AStudent’s Guide, it is openly acknowledged that “neoclassicaleconomics [...] [has] created the mainstreameconomics that dominates this and most other textbooks.” (Beardshaw, Brewster, Cormack and Ross 2001, p. 705) It then goes on to briefly outline the primary heterodox approaches. The problem is not that priority is given to this school, which deserves its preeminence, but that insufficient acknowledgement of the existence and potential insight of other schools is instilled. In the textbook, this passage acknowledging this emphasis, and detailing alternatives, comes on page 705 and lasts 7 pages. Over the previous 700 pages all the basic principles of economics have already been laid out as though they were scientific givens. This embodies the flaw in attitude of undergraduate economic study. Reading the Muqaddimah instills some of the importance of approaching economic questions with a detachment from orthodoxy and formalism.
However, despite the overlap between Ibn Khaldun’s work and that of later economists, a sentenceby- sentence comparison can be misleading. The similarities should not be overstated. For every sentence in The Wealth of Nations that appears foreshadowed by one in the Muqaddimah, and there are many, there are many more that would have meant little to Ibn Khaldun. This is largely because a detailed account of how a commercial economy functions was never his intention. The aim of his economic investigations was to improve historiography. The economic and social laws he documented were to be applied as a test to future historical accounts, to establish whether they seemed reasonable and should be trusted. This makes the depth and accuracy of his observations even more impressive; to him, they were only a means to an end.
The real relevance of his work lies not in how much credit is due to him for economics as it is today. The simple answer is that, since the major advances on which the modern field is founded were made in ignorance of his work, little credit is due. Equally, how much he ‘got right’ by modern standards is not the best judge of merit. The most value that can be gleaned from his book lies in the incredibly fresh perspective it grants on the field of economics. The economic philosophy of the Muqaddimah provides an excellent counterweight to many of the weaknesses and blind spots in modern economic thought and methodology. Certain attitudes are incredibly hard to remove, and direct controls such as increased and improved regulation must play a large part in response to the crisis we have recently witnessed. However, to avoid future bubbles, both in the financial system and in economic thought itself, the wider study of such works would also be of great value.
Among these false predictions were the continued rise of property values, and the value of what proved to be wholly toxic financial derivatives. See In Modelling Risk, the Human Factor WasLeft Out, published November 4th 2009 in the New York Times for an overview.