Islam versus Reason and Logic

I recently read Ibn Khaldun’s (1332–1406) The Muqaddimah (also known as Prolegomena) in a Swedish translation and wrote a couple of blog posts about it. Now I find that the full English text of this work is available on the web[1], and therefore I will adapt one of these posts for my non-Scandinavian readers.

My interest in him was triggered by somebody whispering in my ear that he had made some interesting economic observations. And so he has. Long before Arthur Laffer presented his Laffer curve – which says that when taxes become too high, they become counter-productive to the tax collectors, because they lower people’s incentive to work – Ibn Khaldun made the same point. (Laffer actually acknowledges this, and the curve is sometimes called the Laffer-Khaldun curve.)

Or take this paragraph on the subject of division of labor, written a few hundred years before Adam Smith:

[…] the power of the individual human being is not sufficient for him to obtain (the food) he needs, and does not provide him with as much food as he requires to live. Even if we assume an absolute minimum of food –that is, food enough for one day, (a little) wheat, for instance – that amount of food could be obtained only after much preparation such as grinding, kneading, and baking. Each of these three operations requires utensils and tools that can be provided only with the help of several crafts, such as the crafts of the blacksmith, the carpenter, and the potter. Assuming that a man could eat unprepared grain, an even greater number of operations would be necessary in order to obtain the grain: sowing and reaping, and threshing to separate it from the husks of the ear. Each of these operations requires a number of tools and many more crafts than those just mentioned. It is beyond the power of one man alone to do all that, or (even) part of it, by himself. Thus, he cannot do without a combination of many powers from among his fellow beings, if he is to obtain food for himself and for them. Through co­operation, the needs of a number of persons, many times greater than their own (number), can be satisfied. [From the First Prefatory Discussion in chapter 1.]

But Ibn Khaldun was also a devout Muslim; and this is what I will write about here.

As you all know, the “Aristotle Renaissance” in the late Middle Ages took hold in the Arabic world before it reached Europe. The best known names are Ibn Sina (latinized Avicenna; ca 980–1037) and Ibn Rushd (latinized Averroës; 1126–1198). And just as Thomas Aquinas would later claim that Aristotle’s teachings are compatible with Christianity, so those philosophers claimed that they are compatible with Islam.

But there were Muslim philosophers who disagreed. The most well-known is Al-Ghazali (ca 1058–1111), who attacked this view in a book called The Incoherence of the Philosophers – where he claimed that we should not look for causes, because everything that happens in the world happens because God wills it, and no other causal explanation is necessary, and looking for them constitutes heresy. Ibn Rushd answered him in a book called The Incoherence of the Incoherence; but the Muslim world followed Al-Ghazali, and Aristotelianism was abandoned. (I first heard of this in a lecture by Edwin Locke, who dubbed Al-Ghazali a “reverse Aquinas”. It does explain why the Muslim world has since lagged behind the West; but Al-Ghazali would probably say that it lags behind, because God wills it to lag behind.)

Ibn Khaldun was a follower of Al-Ghazali (and a couple of less known philosophers who held the same view). In The Muqaddimah he has a chapter titled

A refutation of philosophy. The corruption of the students of philosophy

… from which I quote[2]:

This and the following (two) sections are important. The sciences (of philosophy, astrology, and alchemy) occur in civilization. They are much cultivated in the cities. The harm they (can) do to religion is great. Therefore, it is necessary that we make it clear what they are about and that we reveal what the right attitude concerning them (should be).

There are (certain) intelligent representatives of the human species who think that the essences and conditions of the whole of existence, both the part of it perceivable by the senses and that beyond sensual perception, as well as the reasons and causes of (those essences and conditions), can be perceived by mental speculation and intellectual reasoning. They also think that the articles of faith are established as correct through (intellectual) speculation and not through tradition, because they belong among the intellectual per­ceptions. Such people are called “philosophers” […]

And later on:

It should be known that the (opinion) the (philosophers) hold is wrong in all its aspects. […] Existence […] is too wide to (be explained by so narrow a view). […] The philosophers, who restrict themselves to affirming the intellect and neglect everything beyond it, are in a way comparable, to physicists who restrict themselves to affirming the body and who disregard (both) soul and intellect in the belief that there is nothing beyond the body in (God’s) wise plan concerning (the world of) existence.


[…] we must refrain from studying these things, since such (restraint) falls under (the duty of) the Muslim not to do what does not concern him.

And what about logic?

[…] the science (of logic) is not adequate to achieve the avowed intentions (of the philosophers). In addition, it contains things that are contrary to the religious laws and their obvious meaning. As far as we know, this science has only a single fruit, namely, it sharpens the mind in the orderly presentation of proofs and arguments, so that the habit of excellent and correct arguing is obtained. This is because the orderly process and the solid and exact method of reasoning are as the philosophers have prescribed them in their science of logic. They employ (logic) a good deal in the physical and mathematical sciences as well as in the science that comes after them (metaphysics). Since (logical) arguments are much employed in those sciences in the way they should be employed, the student of them is able to master the habit of exact and correct arguing and deducing. Even if (those sciences) are not adequate to achieve the intentions of the (philosophers), they constitute the soundest norm of (philosophical) speculation that we know of.

Such is the fruit of this craft (of logic). It also affords acquaintance with the doctrines and opinions of the people of the world. One knows what harm it can do. Therefore, the student of it should beware of its pernicious aspects as much as he can. Whoever studies it should do so (only) after he is saturated with the religious law and has studied the interpretation of the Qur’an and jurisprudence. No one who has no knowledge of the Muslim religious sciences should apply himself to it. Without that knowledge, he can hardly remain safe from its pernicious aspects.

God gives success and guidance to the truth. [Italics mine.]

Well, what do you make of this? Obviously, the Muslim, too, should use logic to some extent – it “sharpens his mind in the orderly presentation of proofs and arguments”, and it “affords acquaintance with the doctrines and opinions of the people of the world”. But he also has to know its “pernicious aspects” – so that he does not employ logic in his study of Islam! Then, his mind should be “unsharpened”. But as long as logic is used to refute the use of logic in religious matters, it is OK. The concept of “concept-stealing” comes readily to mind …

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Ibn Khaldun was also in favor of jihad or holy war.[3] Another chapter in his book is titled

Wars and the methods of waging war practiced by the various nations

… and it begins:

Wars and different kinds of fighting have always occurred in the world since God created it. […] It is something natural among human beings. No nation and no race (generation) is free from it. […]

The first (kind of war) usually occurs between neighbor­ing tribes and competing families.

The second (kind of war) – war caused by hostility – is usually found among savage nations living in the desert […] They earn their sustenance with their lances and their livelihood by depriving other people of their possessions. They declare war against those who defend their property against them. They have no further desire for rank and royal authority. Their minds and eyes are set only upon depriving other people of their possessions.

The third (kind of war) is the one the religious law calls “the holy war.”

The fourth (kind of war), finally, is dynastic war against seceders and those who refuse obedience.

These are the four kinds of war The first two are unjust and lawless, the other two are holy and just wars. [Italics mine.]

Jihad is holy and just!

And in chapter 31 he writes:

In the Muslim community, the holy war is a religious duty, because of the universalism of the (Muslim) mission and (the obligation to) convert everybody to Islam either by persuasion or by force. {Italics mine.]

As for the Christians:

It is (for them to choose between) conversion to Islam, payment of the poll tax, or death. [Italics mine.]

It could not be more clearly stated that Islam is not “a religion of peace”.

[1]) Translated by Franz Rosenthal in 1967.

[2]) The words in parentheses in the quotes are added by the translator to make the meaning clearer.

[3]) An old acquaintance of mine who has converted to Islam has explained to me that there are two forms of jihad. There is the “small jihad”, which is waging war to spread Islam; and there is the “big jihad”, which is waging war within one’s own mind against anti-Muslim thoughts and ideas, like selfishness. – Well, to risk one’s life in the holy war – much more then to become a suicide bomber – one first has to uproot selfishness. But why then all those promises of Paradise and threats of Hell? Wishing to avoid coming to Hell in the hereafter is a selfish wish.


The Labor Theory of Value

The labor theory of value was the theory of Adam Smith, David Ricardo and the other classical economists; it was taken over by Karl Marx and forms the basis of his exploitation theory. In its simplest and crudest form it says that the value, and thus the price, of a product is determined by the total amount of labor expended in its production. For example, the value of a loaf of bread is determined, first by the labor expended by the baker in baking it, then by the labor of the miller in grinding the flour, then by the labor of the farmer in growing the corn. And then there is the labor of building a wind-mill or steam-mill, and of constructing a plow. To this then comes the labor of breeding horses or oxen to pull the plow, or, in modern times, to build a tractor. And in the latter case, there is also the labor of making the steel and to extract the iron ore for the steel.

In retrospect I find it slightly mysterious that this theory was accepted for such a long time and by such intelligent persons. It is quite obvious to me that this theory puts the cart before the horse: the products are not valuable because a lot of labor has gone into making them; on the contrary, one expends a lot of labor because one expects the final product to be valuable and because one expects to get a good price for them. If people did not like eating bread at all, it would not get baked, the flour would not be grinded, the corn would not be grown (or at least not for this purpose), etc.

Let me elaborate, and let me begin with some non-economic values. – Economists deal exclusively with economic values, i.e. values that are bought and sold or exchanged in barter. But “value” is a broader concept than just “economic value”; the broadest definition is that given by Ayn Rand: “That which one acts to gain and/or keep.”

For example, if you value your spouse, this has nothing to do with his or her market value or value in exchange, since you do not intend to sell or exchange your spouse. So let me begin with a spouse:

If you have read your Dorothy Sayers, you know that Lord Peter proposed to Harriet Vane for years on end before she finally accepted his proposal and married him. Would anyone say that her value in Lord Peter’s eyes was determined by the number of proposals he made? On the contrary, the number of proposals was determined by the value Lord Peter put on her. (Simple enough?)

Or take a more mundane example: I make my bed once a day, and now and then I vacuum-clean my apartment. Again, would you say that the value of the made-up bed or the tidy apartment is determined by my work? Again, the contrary is true: I see a value in a made-up bed and a tidy apartment, and that is the sole reason I bother to make up my bed and vacuum-clean. (Again: Simple enough?)

Of course, it is not different with economic values.

The labor theory was overturned in 1871, with the publication of Carl Menger’s Principles of Economics (Grundsätze der Volkswirthschaftslehre). In this book Menger makes the fundamental distinction between “goods of first order” (or “consumption goods”) and “goods of higher order” (or “means of production”). In my loaf of bread example, the loaf is a “good of first order”, and the rest are “goods of higher order”. A short quote from Menger is in place:

Human beings experience directly and immediately only needs for goods of first order – that is, for goods that can be used directly fir the satisfaction of their needs. If no requirement for those goods existed, none for goods of higher order could arise. Requirements for goods of higher order are thus dependent upon requirements for goods of first order, and an investigation of the latter constitutes the necessary foundation for the investigation of human requirements in general. (P. 80f.)

Menger puts the horse before the cart! It is the value (or expected value) of the final product – the loaf of bread – that determines how much total labor is expended in all the steps leading up to the final product.

But one should be fair to the classical economists. In the first paragraph I presented the labor theory “in its simplest and crudest form”. But the classical economists recognized several exceptions and modifications of the theory. Take the example of some famous painting, which can be sold at auction for several millions: it would be absurd to say that this price is determined by the painter’s labor, much less then the labor expended on the paint and the canvas. This and similar exceptions were recognized by Ricardo:

There are some commodities, the value of which is determined by their scarcity alone. No labour can increase the quantity of such goods, and therefore their value cannot be lowered by an increased supply. Some rare statues and pictures, scarce books and coins, wines of a peculiar quality, which can be made only from grapes grown on a particular soil, of which there is a very limited quantity, are all of this description. Their value is wholly independent of the quantity of labour originally necessary to produce them, and varies with the varying wealth and inclinations of those who are desirous to possess them. (Principles of Political Economy and Taxation, chapter 1, section 1.)

And the modifications? One thing that struck me about the “simple and crude” version was this: In a primitive society much less labor was expended on the loaf of bread than today. The miller might grind the flour by hand, and the farmer would use a simple wooden plough; there would be no mills or tractors. Then, according to the labor theory, the loaf would be that much cheaper, and the loaf in today’s advanced civilization would be, by comparison, extremely expensive. But this sounds absurd; and the answer to this absurdity is that capital accumulation and labor-saving machinery make it possible to produce many more loaves, and this makes them cheaper. And this, too, is recognized by Ricardo:

The principle that the quantity of labour bestowed on the production of commodities regulates their relative value, [is] considerably modified by the employment of machinery and other fixed and durable capital. (Chapter 1, section 4.)

And there are other modifications having to do with the time factor and the rate of profit. For example, Ricardo writes in the same section:

All commodities which are produced by very valuable machinery, or in very valuable buildings, or which require a great length of time before they can be brought to market, would fall in relative value, while all those which were chiefly produced by labour, or which would be speedily brought to market, would rise in relative value.


… commodities which have the same quantity of labour bestowed on their production will differ in exchangeable value if they cannot be brought to market in the same time.

And in the next section:

Every rise of wages, therefore, or, which is the same thing, every fall of profits, would lower the relative value of those commodities which were produced with a capital of a durable nature, and would proportionally elevate those which were produced with capital more perishable. A fall of wages would have precisely the contrary effect.

But those exceptions and modifications do not save the labor theory of value. I would say that the actual truth lies precisely in those exceptions and modifications.

Simple enough? I hope so; and I hope I have not made it more complex than it really is.

(You can read Ricardo on line here. And I can also recommend chapter 11, part C (p. 473–498) of Capitalism: A Treatise on Economics, where George Reisman sifts the wheat from the chaff in the theories of Smith and Ricardo. And if you understand Swedish, there is also a Swedish blog post on this subject.)

Kindle Book by George Reisman

George Reisman has just published a Kindle book called Warren Buffett, Class Warfare and the Exploitation Theory. It is only 59 pages long and consists of two parts: first, his Open Letter to Warren Buffett, and second, an excerpt from Capitalism: A Treatise on Economics, dealing with the same subject. Especially for those unfamiliar with George Reisman’s theories, this is an excellent introduction. (Those familiar with his theories may enjoy it, too.)

Reisman’s identification of the “primacy of profits” principle is certainly one of the most important discoveries in the history of economic thought. At least since the days of Adam Smith it has been taken for granted that the original income was wages and that profits are a deduction from wages. Reisman shows that the exact opposite is true. In the “early and rude state”, as Adam Smith calls it, no wages were paid at all, and all income was profits; the rate of profit was 100%. It was only with the advent of the first capitalists – people who hired workers to help them and invested in buying tools from others rather than making their own tools – that wages (and other money outlays) came into existence. Since that time the rate of profit has steadily been lowered and is today, in our fairly advanced capitalist society, only a few percent. And this is what, over the centuries, has improved our standard of living to unprecedented heights.

Also, this is a truly original discovery – at least, I have not seen it anywhere in the writings of other economists (and I only read good economists). It is a pity that too few, so far, have paid attention to this principle.

Much of what Reisman writes can be found, explicitly or implicitly, in Mises and his other predecessors. But this principle, along with his “net consumption/net investment theory”, is a new insight.

(For Scandinavian speaking readers, I have tried to present the “primacy of profits” principle in an essay called George Reisman: Why Do We Need Him? – George Reisman, of course, has not read this essay, so any mistakes are my own responsibility. But I don’t think I have made any mistakes.)

Update August 10: Now also on Amazon. (Also read Wladimir Kraus’ Amazon review.)

George Reisman himself mails me:

I was especially gratified that you stressed the primacy-of-profits doctrine. I consider it extremely important and also relatively simple, but almost everyone seems to ignore it or just not get it. So I’m extra glad that you both get it and stress it.

Yes, I think this principle is simple, once one has grasped it. But someone has to be the first to grasp it, and this someone was George Reisman. I would not have been able to arrive at it on my own.

Paul Krugman’s Dishonesty

One should not expect honesty from Paul Krugman, but this blog post takes the price.

Krugman starts out by trying to be funny:

One line I’ve been seeing in various places, including comments here, is the claim that the real way to deal with Wall Street is laissez-faire economics: no more bailouts! On this view, policy makers should raise their right hand in the air, place their left hand on a copy of Atlas Shrugged, and swear in the name of A is A that they will never again step in to rescue failing banks. And all will be well with the world.

And then goes on:

First of all, bank regulation is important even in the absence of bailouts. Don’t trust me, trust Adam Smith. Scotland invented modern banking; it also invented modern banking crises; and Smith, having witnessed such a crisis, favored bank regulations.

And then quotes Smith as follows:

Such regulations may, no doubt, be considered as in some respect a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as or the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed.

Krugman doesn’t supply a page reference for this quote, and with good reason. If people read this quote in its context, they would quickly see through Krugman. (If anyone wants to look it up, it is on p. 308 of the Cannan edition of Wealth of Nations.)

If one bothers to read the whole chapter, or at least the surrounding paragraphs, one would know what kind of restrictions Smith has in mind: they are all about restraining the issue of paper money! What view of paper money could be farther away from Krugman’s views on this subject?

So what does Smith say? This is the very next paragraph in Wealth of Nations:

A paper money consisting in bank notes, issued by people of undoubted credit, payable upon demand without any condition, and in fact always readily paid as soon as presented, is, in every respect, equal in value to gold and silver money; since gold and silver money can at any time be had for it. Whatever is either bought or sold for such paper, must necessarily be bought as cheap as it could have been for gold and silver.

In simpler words: Bank notes with 100% gold or silver backing are as good as gold or silver. What about notes with less than 100% backing? One paragraph later:

It would be otherwise, indeed, with a paper money consisting in promissory notes, of which the immediate payment depended, in any respect, either upon the good will of those who issued them; or upon a condition which the holder of the notes might not always have it in his power to fulfil; or of which the payment was not exigible till after a certain number of years, and which in the mean time bore no interest. Such a paper money would, no doubt, fall more or less below the value of gold and silver, according as the difficulty or uncertainty of obtaining immediate payment was supposed to be greater or less; or according to the greater or less distance of time at which payment was exigible. [“Exigible” is an old word which, according to my dictionary, means “able to be exacted; demandable; requirable”.]

Again in simpler words: Bank notes with less than 100% backing (or where the gold/silver backing for some reason is uncertain) are not as good as gold or silver.

So how can modern Keynesians – who dismiss gold as a “barbarous relic” – invoke Adam Smith and pretend he was on their side? Krugman is simply counting on his readers’ ignorance.

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It is a fashionable game among “social liberals” to quote Adam Smith out of context in order to insinuate that he was in favor of interventionist measures. Here is another example, which I routinely encounter in Sweden. They take the following quote (from p. 128 in the Cannan edition):

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

This sentence is taken to mean that Adam Smith was well aware of “market failures” and would approve of such interventions as price controls and anti-trust laws. But in this case, they do not even bother to ignore some earlier or later paragraphs in Smith’s text; they ignore the very next sentences in the same paragraph:

It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though they cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary. [Emphasis added.]

Smith then goes on to describe in some details how such assemblies are rendered necessary. But the main point here is that Smith advocates less government intervention, not more.

(Scandinavian readers may read this essay of mine on this subject from 1982.)

Late update (April 6, 2012): Stuart Hayashi blogged on this subject on the same date this was published with a link to this post. I didn’t see this until today.