Ibn Khaldun: Economic Growth and Division of Work

Moch. Bukhari Muslim

, Saepullah

, Mujiburrahman

, Abdurrouf

and Supriyadi

Universitas Islam Negri (UIN) Syarif Hidayatullah Jakarta, Indonesia

Institut Ilmu Al Quran (IIQ) Jakarta, Indonesia

Keywords: Division, Expenditure, Exports, Growth, Imports, Income.

Abstract: The purpose of this paper is to discuss the welfare of the state in terms of aspects of economic growth that are

implied in the division of labor. This paper is a qualitative research by narrating data descriptively. As the

main source in this paper is the book Muqaddimah by Ibn Khaldun. The conclusion of this paper is that the

welfare of the state is determined by the balance of state income and expenditure, as well as maximizing the

production of a country, which has implications for the country's economic growth. State revenues and

expenditures are determined by the economic activity of the community which is determined by the balance

of prices. Balance is determined by demand, production costs, increase in tax rates, marginal propensity to

consume, and hoarding by unscrupulous traders. Production maximization is carried out through expertise

that focuses on day-to-day needs, office and army professions.

1 INTRODUCTION

The welfare of a country, according to Ibn Khaldun,

is determined by the amount of income and

expenditure. The greater the income of a country, the

greater the expenditure. The greater a country's

budget for development, the greater the country's

income from various taxes and levies (Khaldun

1993). Ibn Khaldun emphasized that the economic

growth of a country must be pursued together

(Khaldun 1993). Togetherness in the business and

economic fields encourages the creation of various

kinds of economic activities so that it will produce the

benefits that are spent again for economic activities.

This theory is in line with Keynes's opinion about

macroeconomics, when the economy is experiencing

sluggishness, the government must spend a large

budget to provide stimulus so that the economy will

grow.

Ibn Khaldu's main idea is that economics is a

moral science. Ibn Khaldun often criticizes the habits

of rulers who are spree and selfish. This caused the

country's economic collapse (Khaldun 1993). This

shows that economic development must be

accompanied by morality. Because economics is a

moral science. Ibn Khaldun also often criticized the

policies of the authorities who did not take sides with

the people. Like the seizure of people's land to be

given to their cronies. The authorities do not take

sides with the people, but defend the parties closest to

power. Development should provide broad

opportunities for all people. The authorities must

strive to encourage all their people to engage in the

economy and produce (Khaldun 1993). This clearly

shows that economic development must contain

human values. Development must not only be

physical but must be a humanization process.

National development theory which contains the

meaning of human empowerment is in line with Ibn

Khaldu's notion of umra>n (Al-Araki 2006). The

theory of 'umra>n that was built by Ibn Khaldun was

translated as the concept of creating human

civilization or civilization (Al-Araki 2006; Al-

‘Abidi>n n.d.).

National development is an effort to create mutual

prosperity. Ibn Khaldun call it the term al-‘ima>rah

and al-i‘tima>r (Khaldu>n 1993). Ibn Khaldun said

that the achievement of prosperity and advanced

civilization can only be achieved if the productivity

of society is high (Khaldu>n 1993). The size of a

country's prosperity is not determined only by natural

resources, but is determined by the number of

economic activities carried out by the community

(Khaldu>n 1993). Ibn Khaldun warns that if a

development strategy is applied by a country without

involving its people, then they will be reluctant to

Muslim, M., Saepullah, ., Mujiburrahman, ., Abdurrouf, . and Supriyadi, .

Ibn Khaldun: Economic Growth and Division of Work.

DOI: 10.5220/0009920009230928

In Proceedings of the 1st International Conference on Recent Innovations (ICRI 2018), pages 923-928

ISBN: 978-989-758-458-9

923

produce so that it will result in the destruction of the

country (Khaldu>n 1993). This meaning is in line

with human empowerment or human empowerment

as initiated by Sri Edi Swasono. Human

empowerment will actually accelerate development

for mutual prosperity. The more division of labor and

specialization of work, the greater the production

surplus from trade, so that the higher the profit will

be for the country to prosper (Baeck 1994). The more

people who are active and productive in economic

activities, the more economic value added in the

country (Swasono 2010). This is clearly different

from if development only prioritizes economic

growth without increasing the participation of the

community.

The theory of economic growth of a nation,

according to Ibn Khaldun experienced five phases of

development. These developments are similar to

those proposed by Rostow. The difference, Ibn

Khaldun alludes to the interference of the authorities

in economic development policies. While Rostow

appeared to propose a theory of growth from the

aspect of history, where the inter-phase will change

by itself without interference from the authorities.

Changes between phases will run naturally (Khaldun

1993; Rostow 1990).

Ibnu Khaldun, according to Sattar, explained that

a country's economic growth experienced three

phases. The first phase is nomadic with the pattern of

life of the people who live by herding, fishing and

hunting. Second phase, life is settled with life as a

farmer. The third phase, urban life is characterized by

a variety of skills, science, industry and art (Sattar

1980). Sattar also explained that Ibn Khaldun had

formulated the principles of political economy.

Economic growth will occur if society has been

organized under solid government that can guarantee

life, strengthen public performance and uphold justice

(Sattar 1980; Khaldun 1993).

The concept of economic growth in a country

described by Ibn Khaldun seems to be more

compatible with the present reality. Like the country

of Indonesia, currently only starting in the third

phase. We have felt the first and second phases. That

is the phase of seizing independence with a free

market economy system. Then the authoritarian phase

and now there has been a lot of development in the

economic field (Andry n.d.).

The problem faced at this time that is the main

problem in this paper is how the welfare of the

country in terms of aspects of economic growth

implied in the division of labor in perspective Ibn

Khaldun. This paper is a qualitative research with

primary data sources is the Muqaddimah Ibn

Khaldun.

2 ECONOMIC GROWTH:

INCOME AND EXPENDITURE

BALANCE

Ibn Khaldun emphasizes that the balance of income

and expenditure determines the economic

development of a country. State Budget (APBN). The

APBN serves as a driver of economic growth. The

amount of a country's APBN can affect inflation

control. Finally it will affect economic growth. Even

economic growth, according to Ibn Khaldun, can be

seen from price stability in the market. Price

fluctuations determine a country's economic growth.

This happens because it is related to the driving factor

of the community to carry out economic activities.

Ibn Khaldun states that if the price of goods in the

market experiences a long decline, it will result in a

decrease in the profit level of the supplier, so that it

cannot accumulate profits to re-invest. The long-term

consequence is that it cannot cover the costs of

production and the expenditure of goods which

eventually the business will fall (Ali 2006; Khaldun

1993). In the modern economy this concept is called

deflation.

The phenomenon of inflation, where the price of

goods tends to rise due to the amount of money

circulating in the community. Then such conditions

will also afflict the community. Inflation and

deflation will threaten the livelihoods and income of

entrepreneurs and the community in general. If that

happens for a long time then the economy will not

experience growth, even the opposite will occur

(Khaldun 1993). Economic growth of a country is

closely related to price stability. Inflation and

deflation are very influential on people's motivation

to carry out economic activities. The negative impacts

of deflation and inflation in the study of modern

economics have in common with what was suggested

by Ibn Khaldun. This shows that Ibn Khaldu's

thinking> has preceded all theories of inflation or

deflation.

Ibn Khaldun also put forward the theory of supply

and demand to create a price balance. Competition

between consumers will affect the demand side.

Another factor that influences the price balance is the

cost of production. The increase in tax rates, excise

ICRI 2018 - International Conference Recent Innovation

924

and other levies will affect the supply side (Khaldun

1993). The theory was inspired by the phenomenon

of rising and falling demand and supply that differed

between city and village residents. Ibn Khaldun

states, if a city is growing rapidly, its economy is

progressing and its population is crowded, then the

supply of staple food is abundant so the supply

increases which results in the cheap price of the staple

goods. So that the phenomenon that occurs is that

staple goods in the city tend to be cheaper, because of

excess inventory (Khaldun 1993).

While luxury goods will experience an increase, it

can be assessed by the theory of demand and supply.

The theory of supply and demand in modern

economic studies is mentioned as an increase in

disposable income among the urban population. In

urban areas often experience excess income so that it

will increase the marginal propensity to consume (the

marginal tendency to consume) of luxury goods. So

as to create new demand. Luxury goods tend to

increase (E. Amalia 2010).

Another factor that is the cause of rising prices for

goods is because of high production costs due to

customs tariffs, taxes and other levies imposed by the

government on goods (Khaldun 1993). Ibn Khaldun

also highlighted the increase in the price of goods

caused by the existence of behavior} ihtika>r or

hoarding by unscrupulous traders (Khaldun 1993).

Another factor that influences the increase in the price

of goods is the cost of distribution. Goods obtained

from areas that are far away will be more expensive

compared to goods produced from local areas. If the

distribution costs are not expensive then the goods

will also be cheap (Khaldun 1993).

According to Ibn Khaldun the price of goods

greatly affects trade. Fair prices are very necessary for

the continuity of trade. Producers will reduce the

production of goods if the selling price is too low,

while prices that are too high will result in low

consumer interest in buying goods. it will cause the

market to become sluggish (Khaldun 1993). This is

where the importance of fair prices in business.

Government oversight is needed to create fair prices

in the community. Not being freed to be wild or

restrained from being bound, but controlled and

supervised. The ruler must be able to accommodate

the interests of producers to obtain reasonable profits

and the interests of consumers to get a fair price.

To prove his theory, Ibn Khaldun gave an

example in the field of agriculture. If the prices of

agricultural products are cheap, it will have a negative

impact on the lives of many parties, ranging from

farmers, rice cultivators, farm laborers, agricultural

processors to the authorities. Farmers will bankrupt

because they do not have profits due to low harvest

prices, even farmers will increase working capital for

the next planting season. The government will also

suffer losses, because the amount of tax that can be

withdrawn from agriculture will decrease. If the state

income from tax is reduced it will affect development

and affect the welfare of the community (Khaldun

1993).

The life of the farmer described by Ibn Khaldun is

not much different from that of farmers in Indonesia

today. Indonesia must import rice even though

Indonesia is known as an agricultural country. The

economic situation of farmers in Indonesia is not

prosperous. Prices of agricultural products such as

rice, corn and soybeans are very cheap. Production

costs cannot be met from the harvest. So that for the

next planting period our farmers must be in debt

(Sunarti and Khomsin, n.d.). The opposite

phenomenon is deflation. Deflation is the process of

decreasing prices in general and continuously in a

certain period (Mankiw 2006). Deflation will have a

negative impact on economic growth. Economic

activity will slow down due to lack of money supply.

The community will reduce or delay spending so that

the price of goods decreases. In the end the producer

will reduce labor or even terminate the work because

there are no items sold. Deflation will result in a

decline in business sector revenues, a decrease in

income and termination of employment.

Unemployment will increase and investment

decreases (Mankiw 2006). The opposite of deflation

is inflation. Ibn Khaldun also stated that if there was

a high increase in the prices of goods, it would also

damage the economy (Khaldun 1993). In the modern

economy inflation is defined by an increase in the

general price level continuously in a certain period

(Rumapea and Haloho 1994). Samuelson defines

inflation briefly, namely the general price increase

(Samuelson and William 2005). Inflation has a

negative impact on economic growth. Inflation will

reduce income, trade becomes sluggish, production

will decrease because of the increasingly expensive

costs and distribution will also be disrupted because

of the high costs so that investment will decrease and

the level of life and welfare of the people decline

(Mankiw 2006). The negative impact of deflation and

inflation raised by Ibn Khaldun is generally the same

as modern macroeconomic studies. This shows that

Ibn Khaldu's thinking> has preceded all theories of

inflation or deflation.

Ibn Khaldun: Economic Growth and Division of Work

925

The demand and supply theory of goods is known

in economics with the terms demand and supply

theory. Ibn Khaldun makes a simple picture of

demand and supply theory. Ibn Khaldun states that if

the demand for goods continues to increase then the

item will occupy a position such as a staple item that

is contested by all people. Conversely, if the demand

for goods tends to decrease then prices will tend to

fall (Khaldun 1993). Demand is influenced by the

level of income, population, desires or tastes, prices

of goods, prices of complementary goods and politics

(Gilarso 2003; Danniel 2004). Ibn Khaldun said that

along with population growth the demand for goods

would increase as well (Khaldun 1993).

Supply, according to Ibn Khaldun, if the price of

goods falls, the producer will reduce production and

the available goods on the market will decrease, to

avoid losses (Khaldun 1993). Another factor that can

increase the price of goods, according to Ibn Khaldun,

is by improving the quality of goods, thus the

Government must encourage producers to produce

good goods to increase selling prices, either through

education or training for entrepreneurs (Khaldun

1993).

The economy initiated by Ibn Khaldun which

contains values that are the same as the basis of

Indonesia's economic democracy as outlined in

Article 33 of the 1945 Constitution (UUD 1945), in

the form of togetherness with the principle of kinship.

Production branches that are important for the state

and which affect the lives of many people are

controlled by the state. The earth, water and natural

resources contained therein are controlled by the state

and used for the greatest prosperity of the people. The

national economy is organized based on economic

democracy, togetherness, efficiency in fairness,

sustainability, environmental insight, independence,

and by maintaining the balance of progress and

national economic unity (Swasono 2015)

Sri Edi Swasono also asserted that the explanation

of Article 33 of the first paragraph of the 1945

Constitution emphasized that the economy was not

left free to walk alone. The Indonesian economy must

be formulated together based on deliberation

(Swasono 2015). This article rejects the notion of

market fundamentalism (Swasono 2010a). The free

market is precisely the opposite of Indonesia's

economic democracy. The country's economic

policies must be prepared by the government. The

state must formulate policies in national

development. Development is not left to the will of

the market (Swasono 2015). The interpretation is also

similar to Ibn Khaldu's theory which states that the

state is a large market (al-s>uq al-a‘z}am) or the

parent market (umm al-aswa>q) which must be able

to regulate economic conditions. The government

must be able to regulate the market not regulated by

the market (Khaldun 1993).

3 DIVISION OF WORK TO

CONTROL EXPORTS AND

IMPORTS

The authorities must establish policies to create fair

prices for goods on the market. The authorities must

be fair in determining policies in trade. From the

producer side, it cannot take big profits because

consumers cannot afford the goods they need. This

will have an impact on falling sales. But if the price

is too low, the producer does not get a profit. As a

result producers will reduce the quality of goods, so

consumers will get goods that are not qualified. The

government must create policies that make fair prices

so that all elements in economic activities will not

suffer losses (Khaldun 1993).

The division of labor theory expressed by Ibn

Khaldun was reiterated by Adam Smith (1729-1790

AD) in a concept of division of labor. Adam Smith

stated that labor productivity can be increased

through the division of labor and specialization. But

because humans have the nature of hedonism which

if allowed to develop it will be able to create equal

distribution of wealth when all the needs of human

life have been fulfilled, it needs to be given freedom

and must be eliminated the privileges of certain

groups of people (Deliarnov 1997).

Adam Smith emphasized the importance of work

specialization to achieve a large output from the

economy and increased wealth (Spiegel 1983). Adam

Smith offered the theory (Absolute Advantage),

namely absolute superiority. There is a division of

labor or work specialization, so a country can produce

goods at a low cost compared to other countries, so

that in international trade the country will get an

advantage. So that a country will import goods that

are not their specialty because they are not profitable

due to the more expensive production costs.

Similarly, other countries will do the same so they

will get absolute benefits (Ikbar 2006).

The Division of Labor theory proposed by Adam

Smith is similar to the division of labor described by

Plato. Plato states that a person has a job that will

ICRI 2018 - International Conference Recent Innovation

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naturally suit each individual. Plato states that

humans are destined to do work that suits their talents.

But humans will need other parties to fulfill their

needs. Based on the diversification of work in the

community, they do not need to prepare all their

needs alone. Plato stated that if humans do their work

in accordance with their natural functions, then

productivity will be more, easier and better (Spiegel

1983).

Plato's opinion is based on the division of labor.

Plato explained that there are three types of work that

become different human professions, namely: rulers

or regulators, soldiers or troops and workers. The

difference between Plato and Smith's division of

labor theory that according to Plato the nature of

hedonism must be eroded because humans are created

with different traits and tendencies, if left unchecked

it will be an obstacle to achieving a just and

prosperous society equally. While Adam Smith

agrees more with the nature of hedonism as a human

right, it must be respected and allowed to develop

because it will achieve a balance of prosperity by

itself (Deliarnov 1997).

Adam Smith's labor division theory was

developed again by David Ricardo. Ricardo called it

Comparative Advantage, where two countries that

carry out international transactions have two excess

goods, then the country must carry out production

specialization on goods that have relatively lower

prices than other countries. Ricardo emphasized that

as much as possible for a country to carry out export

and import transactions. Because it will increase state

revenue from large profits and also from high

customs tariffs (L. Amalia 2007). However, in reality

the system developed by Smith and Ricardo about the

Division of Labor only benefited The Haves group.

International trade, therefore, does not bring mutual

prosperity but only benefits unilaterally (Stiglitz

2006).

The Absolute Advantage theory developed by

Adam Smith and Comparative Advantage that

Ricardo initiated was discussed by Ibn Khaldun. Ibn

Khaldun states that every country has a specificity or

specialization in producing an item. Ibn Khaldun

gives rules and restrictions so that the division of

labor can be achieved perfectly. These limits are low

customs tariffs and balanced control of export and

import trade followed by an emphasis on the nature

of hedonism (Khaldun 1993).

Ibn Khaldun states that every type of economic

activity requires people who have special skills to do

so. Ibn Khaldun also stated that someone who has

become an expert in a profession will find it difficult

to become another profession (Khaldun 1993). Ibn

Khaldun wants to emphasize that everyone must have

one skill that becomes his profession and continues to

be developed. This shows that a production process

requires the sharing of expertise and skills. The goal

is to achieve maximum production results. However,

the nature of human hedonism must be cleansed

(Khaldun 1993).

Ibn Khaldun also revealed the division of the

profession in society. As Plato divided the work into

three groups, Ibn Khaldun also divided the work done

by the community into three groups, namely: work

that focuses on the daily needs of the day, both basic

and additional needs. Jobs that focus on everyday

human needs such as farmers, slaughterers,

carpenters, blacksmiths and so on. The second group

is the office profession, such as writers, teachers,

singers and printing. The third group is the profession

as an army and includes employees (Khaldun 1993).

The division of this profession is almost the same as

the division that was presented by Plato.

Ibn Khaldun also stated that the combination and

variation of work would create better productivity. In

addition, the main factor in achieving the balance of

output in production is the nature of ‘as} abiyyah or

mutual awareness between groups to work together to

meet economic needs (Khaldun 1993). This theory is

to eliminate selfishness and greed. So that

cooperation with economic prosperity will be felt by

all layers. Ibn Khaldun also gave an example of

effective division of labor. For example in the field of

agriculture, it turns out that not only farmers do

economic activities but other fields. Other production

factors such as blacksmiths, hoe makers, plow makers

and tractor factories will also run. Equitable division

of labor will produce maximum production so that the

country will achieve self-sufficiency in goods and at

the same time have excess supply. So that the country

can export goods abroad. Then international trade

will emerge. Even distribution of work will lead to

production efficiency. Because it will reduce

production costs so that product prices will be more

competitive when entering the market. This division

of labor theory will be able to create economic growth

in the country. Improving the country's economy

must be supported by boosting the domestic

production side. So that there will be self-sufficiency

and can export abroad. The proceeds from exports

will increase the country's foreign exchange so that

the balance of payments will be positive. Finally, the

Ibn Khaldun: Economic Growth and Division of Work

927

country's wealth will increase and the economy will

grow (E. Amalia 2010).

4 CONCLUSIONS

The finding in this paper is that Ibn Khaldun

emphasized that the welfare of a country is

determined by income and expenditure of the state

budget. State revenues affect the amount of

expenditure, and affect the state budget for

development, so that the balance of income and

expenditure determines the economic growth of a

country.

Economic growth is determined by price stability

in the market, which is influenced by the driving

factors of the community to carry out economic

activities. These factors are inflation and deflation,

which are influenced by supply and demand to create

a price balance. The government needs to pay

attention to the balance of prices. Price balance needs

to pay attention to competition between consumers

will affect the demand side, production costs, increase

in tax rates, marginal propensity to consume,

hoarding by unscrupulous traders.

Ibn Khaldun also emphasized that the welfare of

a country can be achieved through maximizing the

production of the country. Production maximization

can be achieved through the expertise that must be

possessed to maximize production. The expertise

needed in a country is focused on day-to-day needs,

office and army professions.

Combination and variation of work will create

better productivity. In addition, the main factor in

achieving the balance of output in production is the

nature of sifat as} abiyyah (nationalism) or mutual

awareness among groups to work together to meet

economic needs. The biggest problem is that

the

nature of human hedonism must be cleansed.

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