Chapter

Ibn-Khaldun on Privatization: Commercial Activity on the Part of the Government Is Harmful to the Subjects and Ruinous to Tax Revenue

Editor(s):
Saíd El-Naggar
Published Date:
June 1989
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Author(s)
Ibn- Khaldun

The Muquaddimah (Introduction to History) (AD 1377), Chapter 40

It should be known that a state may find itself financially in straits, as we have mentioned before, on account of its luxury and the number of (its luxurious) habits and on account of its expenditures and the insufficiency of the tax revenue to pay for its need and expenditures. It may need more money and higher revenues. Then it sometimes imposes customs duties on the commercial activities of its subjects….

Sometimes, the government itself may engage in commerce and agriculture, from desire to increase its revenues. It sees that merchants and farmers make great profits and have plenty of property. The government sees that their gains correspond to the capital they invest. Therefore, it starts to acquire livestock and fields in order to cultivate them for profit, purchase goods, and enter business and expose itself to fluctuations of the market. It thinks that this will improve its revenues and increase its profits. However, this is a great error. It causes harm to the subjects in many ways. First, farmers and merchants will find it difficult to buy livestock and merchandise and to procure cheaply the things that belong to farming and commerce. The subjects, all of them, have the same or approximately the same amount of wealth. Competition between them already exhausts, or comes close to exhausting, their financial resources. Now, when the government which has so much more money than they, competes with them, scarcely a single one of them will any longer be able to obtain the things he wants, and everybody will become worried and unhappy….

Most of the revenue from taxes comes from farmers and merchants, especially once customs duties have been introduced and the tax revenue has been augmented by means of them. Thus, when the farmer gives up agriculture and the merchant goes out of business, the revenue from taxes vanishes altogether or becomes dangerously low.

Were the government to compare the revenue from taxes with the small profits it reaps from trading itself it would find the latter negligible in comparison with the former. Even if its trading were profitable, it would still deprive it of a good deal of its revenue from taxes, so far as commerce is concerned. It is unlikely that customs duties might be levied on the government’s own commercial activities. If, however, the same deals were made by others and not by the government, the customs duties levied in connection with them would be included in the tax total.

Furthermore, the trading of the government may cause the destruction of civilization and, through the destruction and decrease of civilization, the disintegration of the state. When the subjects can no longer make their capital larger through agriculture and commerce, it will decrease and disappear as the result of expenditures. This will ruin their situation….

This should be known that the government finances can be increased and its resources improved only through the revenue from taxes. The latter can be in turn increased only through the equitable treatment of people with property and regard to them. This makes their hopes rise, and they have the incentive to start making their capital bear fruit and grow. This in turn increases the government’s revenue in taxes. Other measures taken by the government in way of engaging in commerce or agriculture soon turn out to be harmful to the subjects, ruinous to the revenues, and destructive of civilization.

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