Ibn Khaldun: Taxes, Cities and the Rise and Fall of States

The fourteenth-century North African scholar whose ideas on labour, taxation and the cycles of dynasties anticipated later economics.

Ibn Khaldun was born in Tunis in 1332 and worked as a scholar, judge and government official across North Africa and Spain. His great work, the Muqaddimah, meaning “introduction”, was written as the opening to a history of the world. It became famous in its own right as a pioneering study of society, history and economics.

Labour creates wealth

Ibn Khaldun argued that human labour is the source of wealth and profit. He wrote about how the division of labour and cooperation among people in cities allow them to produce far more than they could alone. These ideas foreshadowed themes later developed by European economists such as Adam Smith.

Taxes and revenue

One of his best-known observations concerns taxation. He noted that at the start of a dynasty, tax rates are low but revenue is high, because low taxes encourage people to work and trade. Later, rulers grow accustomed to luxury and raise taxes. Higher rates discourage economic activity, and revenue eventually falls.

This idea, that very high tax rates can reduce total revenue, is similar to what later became known as the Laffer curve, popularised in the 1970s. The economist Arthur Laffer himself credited Ibn Khaldun as an early source.

The shrinking tax base

Imagine a ruler who doubles the tax on market traders. At first, revenue rises. But over time, some traders stop working, others move away, and some hide their trade. The number of taxed transactions shrinks so much that total revenue ends up lower than before. Ibn Khaldun described a pattern like this over six centuries ago.

The cycle of dynasties

Ibn Khaldun developed the concept of asabiyyah, often translated as social cohesion or group solidarity. He argued that groups with strong cohesion, often from harsh desert or rural backgrounds, could conquer and found dynasties. Over generations, comfort and luxury in cities weakened this cohesion, rulers became more distant and extravagant, and the dynasty declined until a new group replaced it.

Legacy

Ibn Khaldun is often described as a forerunner of sociology, economics and the study of history as a science. His emphasis on evidence, cause and effect, and the links between economics, politics and society continues to attract scholars today.

Assuming economics began in eighteenth-century Europe

Modern economics took shape in Europe in the eighteenth and nineteenth centuries, but thinkers in India, the Islamic world, China and ancient Greece wrote insightfully about wealth, trade and taxes much earlier. Ibn Khaldun is one of the clearest examples.

Key takeaways

Ibn Khaldun, born in Tunis in 1332, wrote the Muqaddimah.
He argued that labour and cooperation are the sources of wealth.
He observed that very high taxes can reduce total revenue, an idea later linked to the Laffer curve.
His concept of social cohesion explained the rise and fall of dynasties.