None of this was surprising to Khaldun. He was a firm believer in the will to power, noting that
human beings need someone to act as a restraining influence and mediator in every social organization, in order to keep the members from fighting with each other. That person must, by necessity, have superiority over the others in the matter of group feeling. If not, his power to exercise a restraining influence could not materialize.
Once such a person was recognized, as Muhammad had been in Medina, he became a leader, and “leadership means being a chieftain, and the leader is obeyed, but he has no power to force others to accept his rulings.” But Khaldun understood that the mere existence of such a leader was likely to move society swiftly along the slippery slope. Indeed, “When a person sharing in the group feeling had reached the rank of chieftain and commands obedience, and when he then finds the way open toward superiority and the use of force, he follows that way.” Thus, because group feeling was not endowed equally on all people, it tended to inexorably lead to royal authority, which “means superiority and power by rule of force.”
However, once in power the rulers of the new dynasty “will not need much group feeling to maintain their power. It is as if obedience to the government were a divinely revealed book that cannot be changed or opposed.” So, in line with his generational theory, Khaldun argued that the rulers of a dynasty started to distance themselves from those who had helped them into power and to forge relationships with new groups within their empire. This was an intrinsic part of creating an empire once you had conquered new lands. These lands were already occupied and often controlled by local elites and notables, so new dynasties had to come to some sort of agreement with them and obtain their loyalty or face constant rebellion. As the dynasty changed its nature and asabiyyah eroded, despotism emerged, or in Khaldun’s words, “With the disappearance of Arab group feeling and the annihilation of the Arab race and complete destruction of Arabism the Caliphate lost its identity. The form of government remained royal authority pure and simple.” The consequences of this were simple too:
The restraining influence of religion had weakened. The restraining influence of government and group was needed… .
Royal authority requires superiority and force … The decisions of the ruler will therefore, as a rule, deviate from what is right. They will be ruinous to the worldly affairs of the people under his control, since, as a rule, he forces them to execute his intentions and desires, which it may be beyond their ability to do… . Disobedience makes itself noticeable and leads to trouble and bloodshed.
Here Khaldun hints at some of the economic implications of the creation of a new dynasty. Early on with the power of group feeling and the “restraining influence of religion,” prosperity was a potential. But later, when “royal authority” consolidated itself, economic policies would be “ruinous to the worldly affairs of the people.” Nowhere were the economic implications of Khaldun’s generational theory more evident than in his discussion of taxation, which we turn to next.
Ibn Khaldun Discovers the Laffer Curve
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.
With this statement Khaldun anticipated Reaganomics, the economic doctrines that were promulgated by the American president Ronald Reagan in the early 1980s. One of the plinths of Reaganomics was first sketched out on a napkin in the Two Continents Restaurant in Washington, D.C., by the economist Arthur Laffer. Laffer was trying to explain to Republican rising stars Donald Rumsfeld and Dick Cheney and the journalist Jude Wanniski what he regarded as a basic principle of fiscal policy: the hump-shaped relationship between the tax rate levied by the government and the amount of tax revenues. When tax rates are low, an increase in the rate tends to increase tax revenues for the simple reason that the government takes a greater share of everyone’s incomes. However, as the tax rate starts to get too high, it chokes off incentives to work hard, exert effort, and invest because the gains created by all these activities are being taken away by the government. As a result, when tax rates get punitively high, not only economic activity but even tax revenues start falling. This is clear to see in the extreme cases where the tax rate approaches 100 percent, so that the government takes everything and very little incentive is left to generate income; despite the very high tax rates, there won’t be any tax revenues. Wanniski named this hump-shaped relationship the Laffer curve in honor of the man who had sketched it out. The exciting implication for Rumsfeld and Cheney was the prospect that you could reduce tax rates while increasing tax revenues as people responded to the more powerful incentives created by lower taxes—the biggest win-win situation of all time, which quickly came to be incorporated into President Reagan’s economic policy.
Needless to say, in a world where real tax rates are quite a bit lower than 100 percent, such as in the United States when Reagan became president, whether or not tax cuts actually increase tax revenues is open to doubt.
Khaldun’s analysis of the economic dynamics created in the Middle East was on firmer empirical grounds, and his idea of the Laffer curve was somewhat different from the one that Laffer explained to Rumsfeld and Cheney. It was based on his generational theory. To start with, a new dynasty, since it still has asabiyyah, “imposes only the taxes as are stipulated by religious law, such as charity taxes, the land tax, and the poll tax.” This had beneficial effects on the economy because “when tax assessments and imposts upon the subjects are low, the latter have the energy and desire to do things. Cultural enterprises grow and increase … When cultural enterprises grow … the tax revenue, which is the sum total of the individual assessments increases.”
Here Khaldun points out that low taxes stimulate economic activity, what he calls “cultural enterprises,” and this leads, as in the Laffer curve, to buoyant tax returns. The evidence suggests that this is exactly what happened in the wake of the Arab conquests. The Umayyads brought together a large area under one language, one religion, and one system of government, with a common legal system that flowed from Muhammad’s teachings. The first and most obvious economic impact of this megastate was an expansion of trade and mercantile activities. Muhammad, after all, had started life as a trader. The geographer al-Muqaddasi compiled a tenth-century list of the items exchanged between Baghdad and Khorasan-Transoxania, in what is now northeastern Iran. The list starts with “11 different items of clothing and garments, including veils and turbans, all made of expensive cloth, sometime silk, sometime plain cloth as well as bracelets, clothing of hair of superior yarn, iron” from Naysabur, and “cloth, silk brocade of inferior quality, taffeta, raisins, syrup, steel, pistachios and confections” from Harat, and goes on for pages until “silver-coloured fabrics [simgun], and Samarqandi stuffs, large copper vessels, artistic goblets, tents, stirrups, bridle-heads and straps” from Samarqand. This trade was accompanied by a vast amount of travel, the most powerful image of which was perhaps the annual pilgrimage to Mecca, the hadj, which brought hundreds of thousands of believers together from all across the empire, and provided a huge opportunity not just for piety, but also for trading.