Economics

The Amazing Arab Scholar Who Beat Adam Smith by Half a Millennium

Neoclassical economists created a false narrative of the history of economics.

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By Dániel Oláh

In one of the most seminal works in the field of history of economic thought (History of Economic Analysis, 1954), Joseph Schumpeter argued that there is a “Great Gap” in the history of economics. The concept justifies the general ignorance in economics curricula towards economic thinking between early Christian and Scholastic times, emphasizing the lack of relevant positive (“scientific”) economic thinking in this period.

Thanks to this self-created gap the most outstanding islamic figure of the Middle Ages, the Andalusian scholar and politician Ibn Khaldun is neglected in mainstream textbooks (Screpanti and Zamagni 2005, Roncaglia 2005, Rothbard 2006, Blaug 1985). Several of these works often misleadingly start to identify the roots of modern theories with discussing the mercantilists or the Scottish Enlightenment.

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The truth is that these weren’t the beginning of economic thinking at all.

Establishing social science in the 14th century

The biggest merit of Khaldun lies in his revolutionary methodological thinking. He completely rejected the methodology of his ancestors, which made him the first “social scientist […] in the strictest meaning of that term” (Fonseca, 1988). Before Khaldun, the role of islamic historians was limited to transmit knowledge without modifying, editing or adding any remarks to the tradition. They never questioned the validity of stories, but analyzed the credibility of the transmitter quite carefully instead.

Khaldun discarded the practice, stating the need for a new, scientific method which allows thinkers to separate true and fake historical information. But how to achieve that? According to him we should “investigate human social organization” to have “a sound yardstick” helping us to analyze society instead of accepting absurd stories of historians (Khaldun pp. 7-8).

Khaldun highlights that this is a completely new, original and independent science, which hadn’t existed before (Khaldun p. 8).

The stepfather of economics

Khaldunian thinking may be embarassingly familiar to today’s economists. He states that the division of labor serves as the basis for any civilized society and identifies division of labor not only on the factory level but also in a social and international context as well. Khaldun highlights on the example of obtaining grain that division of labor creates surplus value: “Thus, he cannot do without a combination of many powers from among his fellow beings, if he is to obtain food for himself and for them. Through cooperation, the needs of a number of persons, many times greater than their own (number), can be satisfied” (Khaldun p. 87).

His example of the division of production process is completely forgotten by economists and it’s not less expressive than the pin factory of Smith: “such include, for instance, the use of carvings for doors and chairs. Or one skillfully turns and shapes pieces of wood in a lathe, and then one puts these pieces together, so that they appear to the eye to be of one piece” (Khaldun p. 519). What is more: opposed to Smith, Khaldun doesn’t make any distinction between productive and unproductive work.

Based on this it’s easy to understand that Ibn Khaldun presented very similar ideas as Adam Smith, but hundreds of years before the Western philosopher. But Khaldun said even more about the economy.

He analyzed markets which arise based on the division of labor and examined market forces in a simple didactic way which is very similar to the attitude of Alfred Marshall. The invention of supply and demand analysis wasn’t invented in the 19th century: the islamic scholar also described the relationship of demand and supply, and also took the role of inventories and merchandise trade into account. He divided the economy into three parts (production, trade and public sector) since the market prices in his theory include wages, profits and taxes (Boulakia 1971). At the same time he analyzed market for goods, labor and land as well. This structured approach led Khaldun to invent the labor theory of value, which makes the islamic scholar a pre-marxian (or classical) thinker in this sense (Oweiss, 1988).

His idea, that the produced value is zero if the labor input is zero seems surprisingly classical, far ahead of his time.

How neoclassicals created a false story

In the dynamic Khaldunian model of economic development, the government plays a crucial role. Its policies, primarily taxation has a great effect on the development of a civilization. After the nomadic way of life tribes change to sedentary lifestyle, giving birth to urban civilization. The sedentary lifestyle demolishes the original group solidarity and creates a need for a new clientele. Creating a new group identity is costly and needs a new army as well.

So with the deepening of urban civilization, and thanks to the increasing luxurious needs of the dynasty, the ruler has to increase taxes. In the end, tax rates become so high that the economy collapses. “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” (Khaldun p. 352) – writes Khaldun, describing the micro incentives behind taxation as well. On  the other hand, he rejects customs and government involvement in trade since the economic-political power of government is disproportionately large.

These ideas are so unique in the Middle Ages, that even Ronald Reagan quoted Khaldun’s work stating that they had some friends in common, referring to Arthur Laffer. The reason for this was that even Laffer himself regarded Khaldun as a forerunner of supply-side economics and the Laffer-curve, although Khaldunian ideas have not much in common with the Laffer-curve. The reason is that these should be interpreted in time dimension rather than as a policy rule of thumb.

So this narrative is not only false but illustrates how neoclassical economics forms economic history to justify its existence. These are unhistorical oversimplifications to create the story of a glorious and direct evolution towards neoclassicism as the most developed state of economic thinking.

In this process, scholars of the past are neglected, tried to be integrated into the context of neoclassical history – or both.

Keynesian ideas from the 14th century North-Africa

Finally, the ideas of the muslim philosopher anticipate ideas of Keynesian economic theories as well. Khaldun’s words are telling: “dynasty and government serve as the world’s greatest market place, providing the substance of civilization. Now, if the ruler holds on to property and revenue, or they are lost or not properly used by him, then the property in the possession of the ruler’s entourage will be small. Thus (when they stop spending), business slumps and commercial profits decline because of the shortage of capital”. “ […] Furthermore, money circulates between subjects and ruler, moving back and forth. Now, if the ruler keeps it to himself, it is lost to the subjects” (Khaldun p. 365).

These are strong arguments for government spending in the context of 14th century North-Africa.

Adam Smith as a Khaldunian thinker?

Not only Khaldunian ideas, but the methodology behind them is also truly original, since it relies on abstraction and generalization. Khaldun gives us the economics of 14th century North-Africa and numerous relevant issues. He addresses questions for which we don’t have a single solution even in the 21th century. Khaldun helps us to bridge the gap in history of thought showing the importance of medieval islamic culture. He also helps to understand the relationship between islamic economics and other schools of thought being a theoretical common ancestor.

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It’s not known for certain that Adam Smith or any other classical scholar hadn’t been inspired by Khaldun’s work when developing their own theories. Among others we have to uncover this information – which lost in the Great Gap – as well, in order to discover a new narrative which is closer to reality.

But why do we need a new narrative, rediscovering our past? The answer is simple: to avoid such superficial beliefs that Adam Smith (or Ibn Khaldun) is the father of economics, the development of economics started in the New Age to culminate in neoclassical thought, Khaldun already invented the Laffer-curve, the financial market effectively regulates itself or a big government is always bad for the economy – among others. Economists have to exercise self-reflection: the crisis of 2008 proved that gaps in the mainstream transform easily into policy mistakes.

With a new, more plural approach to history of thought the Alzheimer’s disease of mainstream economics can be cured which is badly needed in the 21th century.

References

Al-Hamdi, M. T. 2006. “Ibn Khaldun: The Father of the Division of Labor”. Conference lecture in Madrid (http://www.uned.es/congreso-ibn-khaldun/pdf/09%20Mohamed%20Alhamdi.pdf; accessed: 14 May 2017)

Blaug, M. 1985. Economic Theory in Retrospect. Cambridge: Cambridge University Press.

Boulakia, J. D. C. 1971. “Ibn Khaldún: A Fourteenth-Century Economist”, Journal of Political Economy 79. No. 5: 1105-1118.

Khaldun, Ibn. 1377. The Muqaddimah: An Introduction to History. Translated by Franz Rosenthal. Online version: https://asadullahali.files.wordpress.com/2012/10/ibn_khaldun-al_muqaddimah.pdf (accessed: 10 March 2017)

Oweiss, I. M. 1988. “Ibn Khaldún, Father of Economics”. In Arab Civilization: Challenges and Responses, edited by Oweiss, I. M. – Atiyeh, G. N. New York: State University of New York Press.

Roncaglia, A. 2005. The Wealth of Ideas. A History of Economic Thought. Cambridge: Cambridge University Press.

Rothbard, M. N. 2006. Economic Thought Before Adam Smith. An Austrian Perspective on the History of Economic Thought. Brookfield Vt: Edward Elgar Publishing Ltd.

Schumpeter, J. A. 1954. History of Economic Analyis. London: Allen & Unwin.


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  • What’s the history of ideas here? Where did Ibn Khaldun the germs of his ideas from?

    Start here: https://en.m.wikipedia.org/wiki/Ibn_Khaldun

  • Louis Mosar

    As a friend of mine pointed out, this is a picture that is used to depict Ibn Al Haytham and not Ibn Khaldun.

  • Jan de Jonge

    This reads like a conspiracy theory. Schumpeter mentions Ibn Khalun twice as a historian, not as a forerunner of economic theorists. When he was, as told in this article, he was more a forerunner of the Mercantilists than of Adam Smith with his emphasis on rulers collecting taxes. I don’t see any connection with Keynes. Of course when the ruler hoards the tax income, the economy will suffer. More probably he did spend it on warfare, which also harmed the economy.
    The connection with neo-classical economics is a mystery. Economic science didn’t end with neo-classical theory; thereafter we have seen Keynesian theory, the neo-classical net-keynesian synthesis, monetary theory, New Classical theory and now post-keynesianism has taken the floor.
    The belief in unregulated markets has gone. Etc.

  • BharatP

    The Arthashastra, was written by Chanakya in the 3rd century BCE, and the scope included Politics, Nature of government, law, civil and criminal court systems, ethics, economics, markets and trade, the methods for screening ministers, diplomacy, theories of war, nature of peace and duties/obligations of a king.

    • go_chap

      The Arthashastra won’t get credit because Islam is the new flavour of the month in the West. Maybe if wealthy Indian business men start donating money to Georgetown University (a major Catholic university in the US), or Harvard or other universities to proselytize Hinduism or Buddhism then maybe, just maybe. There has been so many writing debunking the Golden Age of Islam and exposing the blatant co-opting of scientific discovery by non-Islam (written by Arab scholars themselves) that the article is embarrassing.

      • BharatP

        I don’t believe the author has that kind of bias – this is probably his field of study and based on the information he has, Ibn Khaldun is probably the first social scientist he has known.

        It might be worthwhile noting here:
        1. The arabs (Baghdad) must be given credit for documenting and dissemenating this information to the rest of the western world (China had closed up and India went toward the east).
        2. Besides, the Arthashastra, the writings of Confucius (which were probably older) and Sun Tzu also covered social sciences. There probably are many other such people who are still unknown.

  • Ishi Crew

    i predated khaldun. i was writing economics and econophysics in 14000 BC.i think i was plagiarzied.,

    • moresteps

      unfortunately adam and eve used the fig leafs you wrote on for other purposes and no trace has been found of your text. sorry.

  • David Colander

    Not all mainstream history of thought books leave him out. For example, my history of thought book with Harry Landreth discusses Ibn Khaldun and Abu Hamid al-Ghazali as examples of the many Arab-Islamic writers on economics that have been close to forgotten. We also discuss Guan Zhong, the Chinese philosopher economist, whose insights into the workings of the market (700 BC) predated other known discussions.

    • go_chap

      Its ironic that you should name a Chinese scholar’s economic analysis which predates Ibn Kaldun by about 1300 years, while the author is lamenting “exclusion” of Kaldun from current discourse!!

  • Dick Burkhart

    Read Petrun Turchin’s great book on “War and Peace and War”, where he develops Ibn Kahldun’s concept of “assabiya”, or social cohesion, as a key factor in the rise and fall of empires (along with their economies). Some of the quotes above hint at this concept, which totally destroys the current ideology of deregulated free market capitalism, which by its very nature eventually creates extreme inequality and discord.

  • Frawsen

    The term “Arab” in your title Mr Oláh is also another misconception. Ibn Khaldun was an eminent Berber intellectual.
    The ignorance of the history of the land of the Berbers by non-North Africans, contributes unfortunately to the oppression of this population by the regimes in place in the North African countries by the regimes in these ten (10) countries – Libya, Tunisia, Algeria, Morocco, Chad, Niger, Mali, Mauritania, Western Shara and finally Spain (Spain because the Guanches on the Canaria Island are Berbers).

    • Abu Shamil

      He was an Arab get over it. You can see the reference to his lineage in Wikipedia!

      • Frawsen

        Just let me know who wrote the text in Wikipedia. 😊
        He born with another name and changed his name to Ibn khaldun. The Berbers use to adapt the the era they live in. St Augustinus has also a Roman name and had even moved to Rome as he become a bishop and philosopher.

        • Abu Shamil

          So we have a guy who is saying that he is an Arab, but naaaa, we have to listen to you yaaapp some non sense!

          • Frawsen

            Mr Abu Abu,
            Be son to Abu and keep quite!
            The Berbers are Not Arabs. The era of Abdunacer of Egypt is over. The unity destroying all else then Arabs within what he called the “Arab nation with one langue and one religion” showed to cost others then the Arabs – such as Kurds, the Berbers and so on – a lot and that is not a democracy.
            So in the Berbers land at the time of Ibn Khaldun had to (were obliged to) take an Arab name. So all the Berbers were Arabs by name.
            Believe what you wish. Good luck!

          • Abu Shamil

            I am an Abu to you! Try quitting my on my face you dumb nationalist low life scum! You are probably a yahoodi, most berbers speak and understand Arabic but you clearly demonstrate you are dumb as they come. It was not Berber lands, there were Muslims from all over the place, not some nationalist scum try to prove the size of his pecker with empty nationalism.

          • buddy

            Humans are all originally African by DNA analysis anyway so your point is mute and your insult merely show your lack of education and civility. Try harder.

    • Lamia Boukhris

      You are correct. The Arab tribes were raiding north Africa (Beni hilal).. savages from arabia.. and ibn khaldoun had a lot to say about them. North African civilisation with the berbers and carthage and the Romans was a lot more advanced and educated compared to these savages.

  • Levi Russell

    Very interesting stuff.

    You could also cite the late medieval School of Salamanca:

    https://www.mruniversity.com/courses/great-economists-classical-economics-and-its-forerunners/school-salamanca

  • Wolf Kirchmeir

    The only economic law is, What we trade is income and spending for us
    both. Or, for a money economy, “My spending is your income, your spending is my income.”
    Everything else is psychology. Khaldun’s insights are implicitly about psychology, ie, about avlues and beliefs. To get a better udnerstanding of economic behaviour, it would be a good idea for economists to study the many different economic systems that humans have invented. IOW, anthropology. All ecoonomic systems are after all solutions to the same problem: How to produce and distribute the goods and services needed and desired by the community. BTW, economic behaviour isn’t even human-specific: animal studies show that exchange of goods and services is one of several bonding mechanisms in many social species.

  • Sirine Zouari

    I’m sorry but there is a detail that you have to correct, he is not arab!!! He is Amazigh (berber) !!!! There is a difference !!

    • Abu Shamil

      No he was an Arab, he was descendent of Yeminite Arab who was a companion of Prophet Muhammad (pbuh). We Muslim need to fight against nationalist revisionism that is raising its head like hydra (Balochi, Kurd, Amazigh, Berber etc). This new wave of nationalism is instigated some by our own fault, some by western intervention. Prophet (pbuh) said to tell those who cling to this asabiya (nationalism) to ‘bite their father’s penis’.

  • Eric Berman

    Well, we need to go back in time even farther, to the Holy Scripture which the great western religions all venerate: Adam and Eve hit upon the first division of labor, sending Cain out to till the soil and Adam to guard the flock, also leading, as we know, to the first labor violence. The rest is Economics, as our Andalusian friend Ibn Khaldun surely knew.

  • M.Tahir Firaz

    The comments section here is interesting (your can ignore irony inherent in my own comment): one set of people discuss Khaldun’s ethnicity (was he Arab or Berber?), another set discusses his contribution to economic analysis, and how and why western economic literature ignored him; yet another says it is Muslim appeasement “new flavour”; not to be left behind, another set discusses the image accompanying this article, saying it is Al-Haytham’s and not Ibn-Khuldun’s image, as if any of these images truely represent any of those two personalities.

  • JohnDBaptist

    Supply side economics is to the field of economics as Christian Fundamentalism is to the field of Christianity.

  • Lamia Boukhris
  • Lamia Boukhris

    Ibn khaldoun talking about Arabs. Fyi he was Tunisian not andalusian and definitely not arab.
    Here is what he says about them: The (139) reason for this is that (the Arabs) are a savage nation, fully accustomed to savagery and the things that cause it. Savagery has become their character and nature. They enjoy it, because it means freedom from authority and no subservience to leadership. Such a natural disposition is the negation and antithesis of civilization. All the customary activities of the Arabs lead to travel and movement. This is the antithesis and negation of stationariness, which produces civilization. For instance, the Arabs need stones to set them up as supports for their cooking pots. So, they take them from buildings which they tear down to get the stones, and use them for that purpose. Wood, too, is needed by them for props for their tents and for use as tent poles for their dwellings. So, they tear down roofs toget the wood for that purpose. The very nature of their existence is the negation of building, which is the basis of civilization. This is the case with them quite generally.

    Furthermore, it is their nature to plunder whatever other people possess. Their sustenance lies wherever the shadow of their lances falls. They recognize no limit in taking the possessions of other people. Whenever their eyes fall upon some property, furnishings, or utensils, they take it. When they acquire superiority androyal authority, they have complete power to plunder (as they please). There no longer exists any political (power) to protect property, and civilization is ruined.

    Furthermore, since they use force to make craftsmen and professional workers do their work, they do not see any value in it and do not pay them for it. Now, as we shall mention, (140) labour is the real basis of profit. When labor is not appreciated and is done for nothing, the hope for profit vanishes, and no (productive) work is done. The sedentary population disperses, and civilization decays.

    Furthermore, (the Arabs) are not concerned with laws. (They are not concerned) to deter people from misdeeds or to protect some against the others. They care only for the property that they might take away from people through looting and imposts. When they have obtained that, they have no interest in anything further, such as taking care of (people), looking after their interests, or forcing them not to commit misdeeds. They often level fines on property, because they want to get some advantage, some tax, or profit out of it. This is their custom. It does not help to prevent misdeeds or to deter those who undertake to commit (misdeeds). On the contrary, it increases (misdeeds), because as compared to getting what one wants, the (possible financial) loss (through fines) is insignificant.(141)

    Under the rule of (the Arabs), the subjects live as in a state of anarchy, without law. Anarchy destroys mankind and ruins civilization, since, as we have stated, the existence of royal authority is a natural quality of man. It alone guarantees their existence and social organization. That was mentioned above at the beginning of the chapter.(142)

    Furthermore, (every Arab) is eager to be the leader. Scarcely a one of them would cede his power to another, even to his his father, his brother, or the eldest (most important) member of his family. That happens only in rare cases and pressure of considerations of decency. There are numerous authorities and amirs among them. The subjects have to obey many masters in connection with the control of taxation and law. Civilization, thus, decays and is wiped out.

    ‘Abd-al-Malik asked one Arab who had come to him on an embassy about al-Hajjaj. He wanted him to praise al Hajjaj for his good political leadership (for the benefit of) civilization. But the Arab said: “When I left him, he was acting unjustly all by himself.” (142a)

    It is noteworthy how civilization always collapsed in places the Arabs took over and conquered, and how such settlements were depopulated and the (very) earth there turned into something that was no (longer) earth. The Yemen where (the Arabs) live is in ruins, except for a few cities. Persian civilization in the Arab ‘Iraq is likewise completely ruined. The same applies to contemporary Syria. When the Banu Hilal and the Banu Sulaym pushed through (from their homeland) to Ifrigiyah and the Maghrib in (the beginning of) the fifth [eleventh] century and struggled there for three hundred and fifty years, they attached themselves to (the country), and the flat territory in (the Maghrib) was completely ruined. Formerly, the whole region between the Sudan and the Mediterranean had been settled. This (fact) is attested by the relics of civilization there, such as monuments, architectural sculpture, and the visible remains of villages and hamlets.

  • Egmont Kakarot-Handtke

    The long genealogical tree of economic storytelling
    Comment on Dániel Oláh on ‘The Amazing Arab Scholar Who Beat Adam Smith by Half a Millennium’

    Dániel Oláh reports: “The biggest merit of Khaldun lies in his revolutionary methodological thinking. … Based on this it’s easy to understand that Ibn Khaldun presented very similar ideas as Adam Smith, but hundreds of years before the Western philosopher. But Khaldun said even more about the economy. He analyzed markets which arise based on the division of labor and examined market forces in a simple didactic way which is very similar to the attitude of Alfred Marshall. The invention of supply and demand analysis wasn’t invented in the 19th century …”

    The fault of this argument lies in the fact that economics is, to begin with, NOT a social science.#1 Worse, to define economics as a social science has been the foundational blunder. Worst, not to realize this until this day is the very proof of utter scientific incompetence of the representative economist.

    Adam Smith was NOT a scientist but a storyteller: “… he had no such ambitions; in fact he disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along. (Schumpeter)

    Schumpeter had to argue against the plain fact that the supply and demand story is not much better than the commonsensical story of how the sun travels from east to west over the firmament: “The primitive apparatus of the theory of supply and demand is scientific. But the scientific achievement is so modest, and common sense and scientific knowledge are logically such close neighbors in this case, that any assertion about the precise point at which the one turned into the other must of necessity remain arbitrary.”

    Neither Smith nor Marshall ever rose above the level of proto-scientific storytelling.#2 The same holds true for Ibn Khaldun. To put this in perspective is not to deny that Ibn Khaldun marked a progress in comparison to his precursors who limited themselves “to transmit knowledge without modifying, editing or adding any remarks to the tradition.”

    Ibn Khaldun deserves credit as a forerunner of Adam Smith. But Smith was more a political blatherer than a scientist. So Ibn Khaldun is not the forerunner of economics as a science. The current state of economics is this: the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. With the pluralism of provable false theories economics sits squarely at the proto-scientific level.#3

    See part 2

  • Masroor

    Algazel mentioned it even before Ibn khaldoun
    from Nassim Nicholas Taleb’s post from 2011
    “Algazel (a.k.a. Al Ghazali, الغزالی), the Arab (Arabic language) philosopher who figured out “Hume’s problem” ~700 years before Hume) also spelled out Adam Smith’s “pin factory” ~650 years before Smith. I am convinced that Adam Smith merely repeated Algazel’s idea as Arab philosophers were well-known in Latin translation. ”
    https://www.facebook.com/13012333374/posts/10150327251133375