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Ibn Khaldun was an Arab historian. He was born in 27 May 1332 in Tunisia, North Africa. Ibn Khaldun was both a jurist and a Muslim scholar. He is the most important figure in Muslim History in the field of Sociology and History. He added abundantly to the awareness of Civilization. He belonged to a family of scholars and politicians and decided to live up to both expectations. He was a Quranic Hafiz and learned grammar, Jurisprudence, Hadith, poetry and philosophy at an early age.
He had a proficiency in these subjects and was certified for them. His most popular work is the “Muqaddimah” which is a debate about an introduction of philosophy to history in a basic, based on clear patterns in an abstract framework of renowned historical events of his time.
I had chosen Ibn Khaldun because he made available the foundations of different fields of knowledge, in particular the science of civilization. He used scientific criticism to analyse reports of historical events, the sources of these accounts and the techniques used by historians.
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He was the first one to discover that history required research like any other field. His significant contributions to economics, however, should place him in the history of economic thought as a major pioneers, if not the father of economics (a title given to Adam Smith), whose great works were published around four hundred after Ibn Khaldun's death. Ibn Khaldun did not only sowed the seeds of classical economics, be it in production, supply, or cost, but he also lead the way in consumption, demand, and utility which are the pillars of modern economic theory.
Many scientists today believe that social sciences as known today might have never reached to such heights without Ibn Khaldun’s help.
Contributions of the personality to Islamic economics
Ibn khaldun contributed greatly to the field of economics.
All of his economics concepts and theories are related to the society. He analysed history of civilisations on the basis of economics. He defined his socioeconomic theories in a very logical manner starting from the meaning of economics, production, and the role of government in monetary system, currency, prices, and professions to microeconomics of profit, prices, hoarding and means of living. He describes the economy as being comprised of value-adding processes i.e. labour and skills are added to systems and crafts and high value is generated through selling of the product.
Ibn Khaldun highlighted the Islamic Monetary System that the currency/money should have its fundamental value. He said Money is a medium to meet needs of people i.e. money is a medium of exchange. Since ancient times, the coin has become a most common means of payment even though it is not suitable for today. He said that the size of a nation's wealth is not determined by the amount of money it has. The measurement of the value of money must meet certain criteria. This measure must be accepted by all parties as a legal tender and its value decision must be free of all subjective impacts. According to Ibn Khaldun, two metals, in this case gold and silver should be used to measure value. These metals are accepted naturally as money where their value is not influenced by particular variations. Therefore, Ibn Khaldun supports the use of gold and silver as a monetary base i.e. Gold dinar and Silver Dirham.
He also stressed on the fact that the weight and purity of these metal coins should be uniform and strictly followed. As one dinar weight should be one mithqal i.e. equal the weight of 72 grains of barley (almost 4.25 grams) and the weight of 7 dinar should be equivalent to weight of 10 Dirhams which equal 70% of Mithqal or 2.98 grams. According to him these coins must always be used in cases and laws relating to Zakat, marriage (fees), fixed legal penalties, and other things. Hence, Ibn Khaldoun attempts to set a rate of exchange of goods and services. For example, Ibn Khaldoun says when he defines the meaning of trade and its types that trade is a practice to earn money through buying goods at low prices and selling them expensively despite its type. It is therefore just to say that the economic theory of Ibn Khaldoun and its correlation with history and sociology is as important as other theories.
Ibn Khaldoun has focused a lot on work and considers it an important standard for production. He states several concepts such as that and production and work are means to earn a living. Variety of works creates happiness and abundance. Works and civilised workers are valued through their earnings. Ibn khaldun was a practicing Muslim and jurist. He adhered fully to the Islamic teachings and so considers gaining money through witching, talismans or deceit as abnormal means of earningsHe attempts to set foundation for an economy on the basis of productive work and civilisation which is very far away from superstition, personal desires and fraud. According to Ibn Khaldoun, the basic principle of civilisation is proficiency and perfection in basic occupations such as agriculture, manufacturing and trade. He said that people should learn from the history of civilisations which depends on the different professions and their importance and outcomes. He paid particular emphasis on the adoptions of the experimental and applied methods alongside paying attention to role of work the historical rules for building civilisations.
The concept of Islamic microfinance is supported by the concept of social solidarity (Asabiya) Asabiya is the major concept of ibn khaldun relating to the rise and decline of civilisations in history. In the Muqaddimah, Ibn Khaldun emphasizes the importance of having a clear sense of solidarity and that people should identify themselves as part of some group, it can be family or based on ethnic grounds and then give priority to the interests of that group over their own interests. Microfinance in Islamic banks and the concept of solidarity is quite similar and on this basis Islamic banks can do well if they provide financial products i.e. loan etc. to the poor when they need it. Social capital framework of group based lending completely takes in account of social solidarity concept i.e. help your needy group members. Islamic banks today are searching for reliable options to finance the poor and the needy and so Islamic banks can benefit from the concept of social solidarity. The core value of Islamic finance is the justice and benefit of all. Ibn khaldun asserts that justices is the main requirement for the economic as well as spiritual progress of societies and that state should always deal justly. Also Islam emphasises the fact that justice should not only be in the notion of society but should be deeply rooted in all spheres of life starting from individual relationships based on family or profession to the state and its arms. Justice should resonate everywhere.
Social capital will help smooth the flow of information in the market and so it will help prevent problems of adverse selection and moral hazards in the credit market. Adverse selection when a financial institution do not give loan to a particular based on his lack of reliability to pay and moral hazard is when the borrower do things which make him very difficult to return the money to the lender.it also expands the options of recovering money from the borrower whereas as usual in conventional settings it puts al of of burden through high cost on the legal system to solve such disputes. Therefore, social capital may allow poor borrowers to engage in financial markets where uncertainly and financial are there. The discussion of group-based lending scheme in the light of social capital concept is very important for a successful architecture and implementation of Islamic microfinance program. Indeed, Islamic banks may emulate the various approaches of group-based lending scheme in articulating their Islamic microfinance or any efforts to provide Islamic banking products and services to the poor.it is strongly believed that unless Islamic banks takes steps to include the poor in their frontier their all noble socioeconomic aims of reducing inequality, poverty alleviation. Equitable wealth management may never come true.
Ibn khaldun emphasised much on the concept of profit and sustenance. He started this with a very basis explanation that everyone tries to get things which he need and want and all men are alike in this. Whatever he gets means the other one is denied that thing only on the basis of consideration i.e. he gives something in return. He further said that when man is above any weakness and has control of himself then he strive to earn profit to meet his need as commanded by Allah Almighty to earn in halal manner in order to spend on your needs and ask only God for sustenance. Ibn khaldun divided the earnings into two categories i.e. Ribh and Kasb. Ribh is when a man works for himself, make products and sell it to others. Thus the cost here includes the cost of raw materials and the natural resources. Kasb mean when the man works for himself. Ribh may mean either profit or gross earnings depending upon the situation. Here, ribh means gross earnings because in the sale price of an object the cost of raw material and natural resources are included. Ibn khaldun made it clear that whether it be ribh or kasb both are earnings which are realised through the value of the labour i.e. his efforts without it would not have been possible. According to Ibn Khaldun even though the value of object include the cost of raw materials and natural resources but it is only through the work of labour that the value and the wealth expands. Opposite will occur if there is less human effort in the making of any object. He place greater emphasis on the extra effort of labourers which later came to be known as marginal productivity of labour which simply means extra output generated by employing one more unit of labour. Thus his core point is that state and societies should value the effort of labour justly and give them their required fair return. His labour effort theory gave rise to cities which was his insight after carefully observing the civilisations that civilisation consider it as a focal point. Man obtains some profit without any effort for example the rain water that make fields grow and benefit the man but these things are only casual and related and his own efforts must be in conjunction with the latter benefit .His earning will make up his means of living if they corresponds to his needs i.e. what he earns matches his needs .But it will be capital accumulation if his earnings are greater than his needs and a surplus is created .When the money or gain accrued is used for others or the benefit returns to other who use it to satisfy their own needs then this is called sustenance. The Prophet said: "The only thing you (really) possess of your property is what you ate, and have thus destroyed; or what you wore, and have thus worn out; or what you gave as charity, and have thus spent. Ibn khaldun emphasised that profits results from the effort to acquire things and the intention to acquire it whereas Sustenance requires only effort and no intentionIbn Khaldun presented the unprecedented explanation for the factors behind the differences in earnings of labour. They may be due to skills difference, market size, location, expertise or work. And it may also be based on the extent to which the king and his governors procure the final product. The demand for a labour exceeds its available supply, as its certain type becomes more precious, then its earnings must rise.
High profits in one job attract others to it which will finally lead to an increase in its available supply so lower profits through price decrease. This explains Ibn Khaldun's original and intuitive analysis of long-term adjustments between one occupation and another and within occupations Government interventionIbn khaldun disagrees with the intervention of state or authorities in which they act as a trader, buys good at lower prices and then waits for the opportunity to sell it at high prices when there is a need of the product. According to him this the unlawful act and this lead to rise and fall of countries and empires.
A further important concept ibn khaldun emphasizes is the proficiency of crafts, habits and skills. According to him these takes place after a society is established and the level of success of a society can be judged by just examining these three thoughts. In its early stages a society is nomadic and is mainly focused on survival, whereas a society at a further stage is inactive, with greater achievement in crafts. A society with the former culture and established politics is expected to have great achievements in crafts and technology.Ibn Khaldun defined commerce as the process of buying things at a low price and selling it at a higher price. He emphasised that Commerce is a regular way of generating return. Though most of it techniques are tricky designed to generate margin from the difference between the selling and the purchase price. This surplus enables him to earn a profit. Therefore, the law allows astute in commerce, since commerce contains an element of gambling. It does not however means that we take property of others without giving them anything in return. Therefore, it is allowed.
Ibne khaldun concluded that both excessive high and excessively low prices are dangerous for markets and economy.it is therefore advised that states do not hold prices of things artificially low through the use of subsidies and benefits to producers or keep prices high through taxation. Simply the state should not make prices at extremes through intervention. Such policies are dangerous for the economy as low priced goods will go out of the market because. Ibn Khaldun also concluded that excessively high prices will not be well-suited with market growth. As the high-priced t is be not profitable enough for producers to produce and sell them due to no incentive. The policy of excessively high pricing also disrupts the market due to low demand and so low revenue will be generated and therefore not sustainable. Ibn khaldun laid down the basic of ideas and concepts abut price difference from the optimum price which later came to be known as disequilibrium analysis in modern economic theoryHe also mentioned several reasons which cause the price level to go up such as increase in aggregate demand, limited supply or restrictions and increase in the cost of production which includes all of its components including a sales tax imposed by state. After thoroughly reading his theories as above it becomes clear that he is referring to the demand pull and cost push inflation as we call it today. In fact, he was the first philosopher in history to identify the causes of increase in price level of a good or the general price level in the economy.
Through commerce return is generated from the margin. When the person stores the grain or any other food item for the purpose of gaining in future from the price increase destroys the opportunity of people who do commerce. The reason is that people need these items for their basic needs and so have to pay the amount. Therefore they become adherent to these manipulations and continue doing it (their souls cling to their money). This is simply the person is taking money of some person without giving him anything in return. This is what Hazrat Muhammad PBUH meant when he mentioned those people who take other’s property without giving him anything in return. In this particular case, it is not a question of (taking money) giving nothing in return. Still, people adhere to (the money spent for food); they had to spend it and had no possible alternatives available, which is a in a way coercion. For things that are traded apart from food item foodstuffs and provisions, people have no convincing need.it is merely the satisfaction of desires and wants for which they do it. On such, they spend their money voluntarily and willingly, and they have no desire after the money they have paid. Thus, the person known to be a hoarder is persecuted by the combined psychic powers of the people whose money he takes away. Therefore, he loses his profit.
Ibn Khaldun introduced the concept Laffer curve as popularly known nowadays. This shows that as government try to increase tax rates initially it increase their total revenue as the tax rate is not so high and the government spend this on the population welfare. But as tax rate increase the government revenue falls because the higher tax rate is disincentive for producer and it take away most of their profit so they produces less and employ less worker which in turn reduces national income and therefore lower taxes are received.Ibn-Khaldun explained the tax choices and their sociological impacts on the basis of a dialectal approach. He explained these in the analogy of the king who used to rule at his time. When the king comes to power through wars and sacrifices he is strong and collect lower taxes which he spends wisely but as times goes on he loves to spend more on luxuries and try to become more civilised whereas he was more of a nomadic previously. So the king increases taxes only to materialise his worldly wishes and luxuries but he forgets its impact on the population and the economic activity and so loses through lower revenues as businesses decrease and so incomes. This analysis draws similarity from modern economic concept known as Laffer curve. Economist Laffer does not claim that he has himself invented the concept keeping in mind that the idea was present in Ibn Khaldun work many years before and, more lately, John Keynes.
Ibn khaldun theories was based on his time when there were ruler (Kings) who had complete control of the country i. e. imperialism where people could not question the ruler. Ruler considered it their right to have authority unlike nowadays where democracy prevails where each person has the right to defend his rights and they are the one who bring a new government through elections. at that time ruler imposed high taxes for their personal luxuries and intervened in private sector economics which made the situation worse so he theorized that government should not intervene. But now there is a very different time where some form of government intervention is necessary otherwise economy will collapse. For example the 2008 financial crisis in which bank did excessive lending without screening on mortgages through Collaterised debt obligations and the economy crashed. If government was not there to bail out some major companies like AIG then it would be a disaster. Thus before studying Ibn khaldun his time period must also give considerationHe proposed the concept of free market and no government intervention and there would be free trade but here interdependency prevails. One country is dependent on other for its imports and exports and in this process there will be some who will lose and other who will win. He stressed on the fact that acquiring thing without giving anything in return must not be lawful. Here I think much detail and clarification is required as to what constitutes this ad judgment in other matters like usury.
As we analyse the economic theories of Ibn khaldun we begin to realise that they are all somewhat similar to theories we are studying now. This shows the relevance of Ibn Khaldun such that many great economist after him build on his theories like the Laffer curve, disequilibrium analysis and marginal productivity of labour . In that ways Ibn Khaldun can be called as the father of Economics. Furthermore he is more useful and relevant to the Muslim Ummah because as he was Muslim jurist and he made theories on basis of Islamic law and referred to Quran and hadiths saying many times. He is the most relevant to the Islamic banking industry as many concepts have been or can be utilised by them including the Islamic microfinance. The most interesting part is that he relate economic to society and does not consider as a means to an end in itself.
Ibn Khaldun And His Contributions to Islamic Banking And Finance Sector. (2024, Feb 25). Retrieved from https://studymoose.com/ibn-khaldun-and-his-contributions-to-islamic-banking-and-finance-sector-essay
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