From Ibn Khaldun to Adam Smith; a proof of their conjecture

Abstract

Our first aim in this chapter is to bring together the fundamental conditions of economic growth. As we mentioned at the outset of Part I, we believe they were laid out in a definitive, masterly way by Ibn Khaldun in his Muqaddimah: an introduction to history (1377). Western civilization had to wait four centuries for those conditions to be formulated independently. One of them would be expressed in a most daring and powerful conjecture: we owe it to Adam Smith. It is intimately linked to the very engine of growth we have described in this text: investment, or the accumulation of capital. Smith wrote that whenever individuals try to find the most advantageous use of their capital, they are led to prefer that employment which is most advantageous to society. By doing so, the individual “intends his own gain, and he is in this as in many other cases, led by an invisible hand to promote an end which was no part of his intention” (Smith 1776). Here is what Kenneth Arrow and Frank Hahn had to say about Smith's conjecture: “The notion that a social system moved by independent actions in pursuit of different values is consistent with a final coherent state of balance, and one in which the outcomes may be quite different from those intended by the agents, is surely the most important intellectual contribution that economic thought has made to the general understanding of social processes” (Arrow and Hahn 1971, p. 1). The conjecture is daring: it is not in the least supported by intuition. It is also far reaching because it can steer society away from what might appeal to many: the centralization of decisions, or planning. Our second aim in this chapter will be to convert Smith's conjecture into a theorem. The power and similarity of the messages of Ibn Khaldun and Adam Smith will induce us in a natural way to ask the question of the convergence of ideas and values among civilizations.