The Theory of Income Distribution and Growth - Example

Name: Tutor: Task: Date: Abstract Ibn Khaldun was a 14th century Muslim thinker who had great works on a number of subjects and whose influence on Western thought was significant. His modern philosophies were envisaged as reactions against or as agreements with his personal ideas, especially in the field of economics. His writings particularly on economics, economic surplus as well as on economic-oriented policies are as significant to present-day life just as during his time. As a result, Khaldun was a successful theoretician who analyzed both the society and human behaviour as a whole and as part of a greater humanity. As such, this paper aims at analyzing Ibn Khaldun’s works on economic analysis, his economic-oriented policies and theories and finally drawing out their relevancy to the contemporary society. Background information: Economics as Science in the Islamic State and most significant Scientists: Scores of Muslim scientists accomplished a lot in providing workings of significant scientific, especially in the development economics. A number of them wrote, researched, as well as came up with economic theories that exist up to now and are still applicable to be considered as well as being applied. Among the Muslim scholars who made tremendous work on economic theories of them were: Abu Yusuf (8th century) Abul-Fadl Al-Dimishgi (9th century) Al-Farabi (10th century) Al-Ghazali (11th century) Nasiruddin Tusi (13th century) Ibn Taimiya (14th century) Ibn Khaldun (14th century) Ibn Taimiya (14th century), for instance, came with the price volatility theory which highlighted the ups and downs of market prices. His theory, keenly examined, brings about supply and demand law within the market, which is currently acknowledged as the theory of irony coming from the western world. Taimiya states that the ups and downs are not just as a result of injustices from various parties, but also due to the short production period of a given commodity. Reflected into the current reality, this has turned out to be the standard of insurgency seen from the non-industrial in opposition to the industrial world. Ibn Khalid, on the other hand tackled a number of subjects. His work on economics and economic policies are still relevant these days as they were many years ago (Islamic Economics 1).For instance, according to (Ahmad 1), Ibn Khaldun’s economic thoughts have had a significant influence on the early European scholastics going as far as changing their attitudes towards their past restrictions on markets and trade. (Ahmad 1) justifies further his statement by speculating that indeed Ibn’s thoughts had give rise to this change in approach. Here therefore gave an analyzed various economic issues without bias, aiming to give an idea of what the consequences of such policies would be. Introduction about Ibn Khaldun Ibn Khaldun was born on 1st May 1332 AD and acquired reliable education in a number of fields such as mathematics, Islamic religion, logics, grammar, law, philosophy and poetry. All these added to his influence as a distinguished statesman. Consequently, it is not surprising about his key roles played within the politics of North Africa as well as Spain, where he was introduced to various unusual opportunities in expanding well thought-out judgments as well as analysis of what became obvious (Karatas 1).Adnan Adivar, a Turkish Politician and writer described him as a representative of scientific rebirth. His parents died when he was still 17 and following the tradition of his family, he got into politics. This he attempted despite the turbulent political situation within North Africa, which mandates for high skills in order for one to thrive politically. Ibn Khaldun’s life story is therefore a story of adventure as seen from his life experiences in prison, highest offices as well as falling into exile (Boulakia 1105). Ibn Khaldun: Property Rights (Economic Effect) Ibn Khaldun, centuries in the past dealt determinedly with the issues of property rights along with their impacts on economic progress. He claimed that protection as well as property rights enforcement was to be defended as issues of justice so as to ensure the survival of civilization. According to him, once the motivation to acquire a property is gone, individuals do not strive to acquire. This asserts that the extent at which property rights are violated establishes the extent at which efforts of those intending to do the acquisition slackens. He therefore saw an apparent relation between rights to property and justice and every time violation occurs, it signified the commitment of an unfair act. According to Ibn Khaldun those who violate property rights commit injustice and that injustice ruins civilization (Karatas 1). Ibn Khaldun Economic Analysis: i) Economic surplus Ibn Khaldun dealt with economics and through it tried to understand human behaviour. He pointed out that specialization was a major factor determining economic surplus. According to him, when there is a favorable environment for specialization, entrepreneurs get motivated hence committing themselves to further trade as well as production. According to him, profit appears as the number one motive of economic venture because profit expectation results into production expansion. More over, the coordination as well as the direction of production factors in increasing the economic surplus is often productive in addition to being a costly process that is carried out by entrepreneurs who make an effort to gain from their economic activities (Karatas 1).     ii) Supply and Demand Ibn Khaldun, centuries ago, hypothesized that prices of various goods as well as services were determined by forces of supply and demand. When goods are in low supply, there is high demand and therefore high prices. The merchants according to Khaldun tend to buy goods where they are low priced and sell them at higher prices where they are in low supply and in high demand. As expected, when goods are abundant, their prices become low and therefore inhabitants of various cities have more than they require. Accordingly, food prices are low as a rule, except for when calamities occur as a result of conditions that affect the supply (Muslim Heritage 1). iii) Monetary Policy On monetary policies, Ibn Khaldun supports a stable policy while opposing authorities’ policies interfering with the currency value. He worries those authorities may ruin money value so as to develop palaces and sponsor mercenary armies. All these processes will result into inflation, with the population losing confidence. He considers such developments of the ruling authorities as unjust and goes on claiming that as the highest policy of the society, protecting money purchasing power ought to be implemented in order for justice to prevail. To make it applicable, he suggested a self-governing monetary body under Chief justice’s authority to control the rulers without fear from interfering with money value as well as corrupting the currency. His independent monetary policy ideas are currently being applied by various nations such as England, Germany and the United States so as lower down inflation as well as come up with a more stable currency for their relevant economies (Muslim Heritage 1).The Federal Reserve, American’s Central Bank, for instance, considered independent since its decisions are not approved by the president or anybody else in the legislative or executive government branches. The Federal is however subject to supervision by the congress, which occasionally reviews its various activities. This ensures that the Federal Reserve works within the agenda of the general economic as well as financial objectives established by the government (Muslim Heritage 1). Ibn states further that the state has significant functions within the social, economic as well as political life of a given nation and this has to be made clear for the society to prosper. For Ibn, the state has therefore a role of coming up with law and order favoring economic activities. Ibn argues that if states over-expand their bureaucracy by overtaxing the economic surplus, trade, production and economic activities are reduced. Consequently, the economic surplus shrinks asserting that excessive power by the state are the major causes of economic decline as they discourage various entrepreneurs from taking part in the economic activities.Ibn’s economic influence can therefore be compared to Thomas Aquinas whose influence on Western thought was also significant. His modern philosophies were also envisaged as reactions against or as agreements with his personal ideas, especially in the field of ethics and natural laws. Ibn Khaldun theories: Labor Theory of Value According to Ibn, labour acts as a source of value and that everything around the globe is obtained through labour. Ibn’s ideas on labour theory, however, had some parallelism when compared to Adam Smith’s. Smith considered labour as the initial price or the original purchase. This means money was paid for all things. Smith further argued that it is only through labour that all the word’s wealth was acquired contrary to Ibn’s ideas on labour. Ibn argues that what is obtained through money or goods is purchased through labour, same as what we obtain through the sweat of our bodies. He argues further that money or goods are only there to keep us away from the toil. This means that that they have the value of a particular labour quantity that we replace for what has the value of similar quantity (Oweiss 1). The value of a given commodity, therefore, to an individual who owns it, and who does not intend to use it or to consume it by himself, but to replace it for other commodities, is equal compared to the labour which is able to obtain it. Labour, in this case, acts as the actual measure of transferable value of goods. According to him, therefore, labour acts as a source of value. It is significant to all earnings as well as capital accumulation. This can, for instance be seen in craft making. Although earnings may come from something else other than craft, profit value as well as acquired capital comprises the value of labour through which it was obtained (Oweiss 1).Adam Smith, however, did not involve the quantification of past labour. He as well did not involve labour needed to create capital to be employed in a commodity production. Contrary to all these, Marxi’s argues that labour does not act as the source of all the wealth but nature is much a source of use values with labour itself being just demonstration of the force of nature. Subjective Value Theory In this theory, Ibn Khaldun refers to utility as the source of value and also as that which determines a given product’s price. This is not different from what Xenophon and Aristotle had before about the utility of goods and their prices. He gave an example of the fluctuating value as well as prices of real estates subsequent to the falling and rising of particular dynasties, making an understandable relation between utility of a real estate and its pricing relevant to the Subjective Value theory (Soofi 7). The theory therefore maintains that things remain valuable in the economic sense i.e. they have exchange value under conditions that they are able to satisfy human wants, therefore desired and that there are not sufficient goods, or just enough, in order for demand to be satisfied. If goods are unlimited in supply then they have no value. According to Ibn therefore, valuable goods of insufficient quantity to meet demand have price contrary to that are sufficient in numbers to demand (they satisfy no wants hence free). This theory was therefore built upon for the purpose of marginalist economics. It contrasts with intrinsic value theories such as labour theory of value which assumes that the value of a thing is dependant on much labour was employed in producing it as argued too by economists like David Ricardo (Soofi 7). The Theory of Income Distribution and Growth In this theory, Ibn Khaldun regards labour as a commodity, and affirms that incomes and profits represent labour value of the recipients. He gives an example of the income derived from a craft by a man as equal to the value of his labour. In this he meant that the genuine wage rate is the same as the insignificant physical labour products in equilibrium. This means the real wage according to this theory equals the insignificant physical product of labour. Ibn Khaldun further identifies the role of circulating capital to productive processes. Ibn offers elements of income distribution theory that seems somehow resembling the insignificant productivity theory of income distribution. However, according to Soofi (1995) one is only able to recognize the origin of his theory through his connection of value of labour and income of the labourer.In this, Ibn was even able to distinguish between wage incomes alongside profit incomes. Theories of Economic Development and Forty-year Cycles Ibn had a significant theory of economic cycles. In this theory, Ibn Khaldun first enlightened that enhanced productivity occurs from specialization, labour division as well as exchange. He affirmed that enhanced productivity along with exchange improved the community’s welfare by enabling members to satisfy their respective needs therefore allowing them to obtain luxury commodities as well. He argued that human beings, individually, are not able to satisfy all their life necessities and those human beings have to work together for their civilization (Soofi 9). He argued further that what was obtained through group co-operation satisfies the needs of many people and many times greater than themselves. In addition, he argued that if labour of a given town is distributed as per the needs of the inhabitants, a minimum of that given labour is required. As a result, it is utilized to ensure conditions as well as customs of luxury in addition to satisfying the inhabitants’ needs of other towns too. This means the other towns are able to import what they need from those who have in excess through either exchange or by purchasing. Increased expenditures on luxury commodities further results into higher production of luxury commodities, stimulates new industries, as well as motivating people to join in the manufacturing of luxury products. All these processes form dynamic processes that are similar to the concept of expenditure multiplier. Ibn Khaldun, therefore saw demand as critical to determining the national income as well as economic growth (Soofi 10).In economics, Khaldun’s ideas covers all the foundation of present economic thoughts that range from microeconomics to international trade.Ibn’s concepts are interconnected to each other, making it difficult for one to understand a concept without getting to know basic ideas about the others. His ideas have without a doubt played significant role in Andalucía economic progress. Monetary Theory Ibn Khaldun clearly referred to money in terms of its various functions as a measure as well as store of value. In this theory, he had an insight on the role of money in commodity circulation. Contrary to the modern money theory, Ibn argued that money presence does not motivate economic growth, but the profit motive, social organization efforts as well as capital use. These determine trade volume hence the quantity of money circulating. In this theory, Ibn reveals his understanding of the transactions demand for money. He argues that the demand for real balances only changes with expansion in the economic activity level, and that rising demand for the nominal balance is commonly due to the inflationary pressure. He however does not deem inflation as purely a monetary phenomenon; but for him, demand pull as well as the cost push were the inflation causes. In general, Ibn’s monetary theory reveals his understanding of the functions of money, roles played by money in circulation as well as money transaction demand. He however failed to point out how money affected the general economic activities (Muslim Heritage 1). In this, Ibn gives a rough idea of current political economies. He describes them as made up of value-adding processes, for instance labour along with skills are added to various techniques in order to acquire higher value. He also brings out a clear distinction between sustenance and profits as seen in present political economy terms, excesses and that which is required for classes’ reproduction. Conclusion: Ibn Khaldun’s in our daily life As a result of Ibn’s great sense and knowledge of history, his keen observation of human nature, times and places, he employed insightful experiential investigation to analysis therefore coming up with creative economic thoughts. He left significant contributions in history especially in the economics domain (Muslim Heritage 1). He undoubtedly verified breath as well as depth in his treatment of value along with its relationship with labour, his analysis on the capital accumulation theory and its relationship with the rise as well as the fall of dynasties; his insights on dynamics of supply, prices, profits, and demand; his handling of the subject of money and the roles of various governments; his amazing taxation theory, and several economic subjects. His exceptional contribution to the general field of economics has put him within the history of economic thought as a major predecessor (Oweiss 6). References Ahmad, I. Islam and the Medieval Progenitors of Austrian: A Paper for the Durrell Institute Fall 1995 Conference, retrieved on November 17 from http://www.minaret.org/austrian.htm,1995 (1) Boulakia, J.D.Ibn Khaldun: A Fourteenth-Century Economist, A Journal of Political Economy, University of Chicago Press, 1971 (5) 1105-1118 Islamic Economics. Contribution of Muslim Scientists to Economic Development, 2009 (1) Karatas, S, K.The Economic Theory of Ibn Khaldun and the Rise and Fall of Nations, retrieved on October 21 from http://www.muslimheritage.com/topics/default.cfm?ArticleID=600, 2006 (1) Muslim Heritage, 2009, The Economic Theory of Ibn Khaldun, retrieved on October 21 from http://english.islammessage.com/articledetails.aspx?articleId=919, 2009 (1) Oweiss, J.D.Ibn Khaldun, Father of Economics, retrieved on October 21 from http://www.ccee.edu.uy/ensenian/cathistpen/IBN%20KHALDUN,%20FATHER%20OF%20ECONOMICS.pdf, 2003 (1-7) Oweiss, I.M.Tunisia: Study - Ibn Khaldun, Father of Economics, retrieved on October 21 from http://allafrica.com/stories/200905150190.html, 2009 (1-4) Soofi, A. Economics of Ibn Khaldun: Revisited, retrieved on October 21 from http://www.uwplatt.edu/~soofi/khaldun2.pdf, 1995 (1-22) Read More