Beyond Public Finance: Towards Constitutional Political Economy of Pakistan—VII  Before Buchanan & Laffer: Muslim foundations of public finance & political economy

The Part VI of this series argued that Pakistan cannot escape dependency merely by improving tax administration. Better value added taxation, digital integration and fiscal coordination are necessary, but they cannot substitute for constitutional restraints, accountable government and dismantling of systems of privilege.

The same intellectual caution must be applied to the history of economic thought. Conventional accounts often move from Greek philosophy to European scholasticism, mercantilism, Adam Smith and modern economics, leaving several centuries of Muslim intellectual activity in an unexplained gap. This omission creates the false impression that systematic thinking about taxation, markets, money, public expenditure, state responsibility and economic justice developed almost exclusively in the West.

Muslim scholars did not describe their work as “economics” in the modern sense. Economic questions appeared within jurisprudence, ethics, administration, history and political philosophy. Imposing contemporary categories upon them would be anachronistic. Excluding their contributions from the history of economic ideas is equally indefensible. Modern scholarship has documented a substantial body of Muslim economic thought that conventional textbooks have frequently overlooked.

The purpose is not to replace a Western monopoly with a Muslim one. Knowledge has always travelled across cultures as common heritage of mankind. Muslim thinkers drew upon Islamic sources, practical experience and Greek, Persian, Roman and Indian traditions. Their works were subsequently transmitted, debated and transformed in other intellectual settings. The proper objective is to restore missing pages to a shared human history.

One of the earliest important works on public revenue was Abu Yusuf’s Kitab al-Kharaj. It did not treat taxation as a ruler’s unrestricted right to maximise extraction. Tax liability had to take account of productive capacity, conditions of the land and the taxpayer’s ability to bear the burden.

Abu Yusuf preferred proportional agricultural taxation where a fixed assessment would become oppressive in a poor harvest and unduly favourable during exceptional production. He insisted that collectors should be honest, collection economical and taxpayers treated justly. He opposed arrangements capable of turning revenue collection into tyranny and also emphasised irrigation, transportation and other infrastructure necessary for production.

This was more than tax administration. It was an early recognition that revenue depends upon institutions, incentives and the conduct of public officials. A tax may be lawful in form and oppressive in operation. The character of the collector, method of assessment and use of revenue are therefore integral to the legitimacy of taxation. Pakistan’s fiscal debate still struggles to absorb this elementary insight.

In the Land of Pure, tax laws are judged by the amounts they collect, while blocked refunds, arbitrary demands, compliance costs and damage to productive capacity are treated as secondary matters. Revenue obtained by weakening the taxpayer is celebrated as administrative success. Abu Yusuf’s approach reverses the perspective: the state must preserve the source from which sustainable revenue arises.

Al-Ghazali examined markets, exchange, specialisation, division of labour, money and the interdependence of economic activities. He explained that production of even an ordinary item required the cooperation of numerous workers performing specialised functions. His examples involving bread and needle-making appeared centuries before Adam Smith’s famous pin factory.

He also recognised that markets emerge from mutual need and voluntary exchange, while public authority remains necessary to maintain justice and prevent harmful practices. Economic development was not separated from education, security, infrastructure and public welfare. Prosperity, justice and legitimate political authority formed parts of an interdependent social order.

This understanding is richer than the artificial contest often presented between state and market. Markets require rules, trust, reliable money and protection against fraud. The state must provide these conditions without converting regulation into a mechanism for distributing arbitrary favours.

Ibn Taymiyyah similarly distinguished between price increases produced by changes in supply and demand and those caused by injustice, hoarding or monopoly. Not every increase in price justified administrative interference. Market forces had to be understood before intervention was attempted.

Intervention became necessary where concentrated power allowed monopolists to exploit the public. Ibn Taymiyyah therefore combined recognition of market mechanisms with restraint upon abuse—an approach far removed from both indiscriminate price control and unregulated private coercion.

Pakistan repeatedly swings between these extremes. Governments interfere through administered prices, selective subsidies and discretionary regulation, while tolerating cartels, protected industries and barriers to competition. The result is not a free market or an effective developmental state. It is a negotiated market in which access to authority frequently determines economic advantage.

Al-Maqrizi’s analysis of monetary debasement and inflation provides another striking antecedent. Writing in the context of monetary disorder, scarcity and maladministration, he connected the excessive issue of inferior money with rising prices, disruption of exchange and hardship for the population. Ibn Taymiyyah had also warned that circulation of currencies with different intrinsic values could drive better money out of use.

The instruments have changed. Modern states no longer depend upon metallic coins in the same manner. The underlying warning remains relevant: governments cannot conceal fiscal disorder indefinitely through manipulation of money. Inflation transfers resources without transparent legislative approval and imposes its harshest burden upon those least able to protect their savings and incomes.

The most comprehensive contribution came from Ibn Khaldun. His Muqaddimah connected taxation with state formation, political authority, incentives, production, public expenditure, urban development, elite luxury and dynastic decline.

Ibn Khaldun observed that during the earlier stages of a dynasty, moderate assessments could generate substantial revenue because economic activity remained vigorous. As ruling establishments expanded, expenditure increased and elites became accustomed to luxury, new taxes and higher rates were imposed. Productive incentives weakened, the tax base contracted and larger assessments produced smaller revenues.

Arthur Laffer expressly acknowledged this antecedent in 2004, writing: “The Laffer Curve, by the way, was not invented by me”. He immediately referred to Ibn Khaldun’s analysis of high assessments and declining revenue. Laffer also mentioned other predecessors, so historical accuracy requires us to describe Ibn Khaldun as a major antecedent rather than the sole originator of the idea.

Reducing Ibn Khaldun to the Laffer Curve would nevertheless diminish his contribution. His argument was not merely that tax cuts might increase revenue. He was describing a broader political and institutional cycle. As the ruling establishment becomes more expensive, it seeks additional revenue. As taxation becomes oppressive, incentives and production decline. As productive activity contracts, the government raises burdens further. The state eventually consumes the economic foundations upon which its authority depends.

This is Constitutional Political Economy centuries before the term was coined—not in its modern mathematical or contractual form, but in its central concern with how political institutions and incentives shape fiscal outcomes.

Pakistan’s experience gives Ibn Khaldun’s analysis disturbing contemporary relevance. The state protects privileges, expands non-developmental expenditure, borrows to meet recurring obligations and imposes additional burdens upon documented and productive sectors. Each revenue shortfall produces new withholding provisions, levies, minimum taxes and advance collections. The failure of one coercive measure becomes the justification for another.

A wider normative framework also emerges from the Islamic intellectual tradition. There is no need to reproduce or mechanically cite scriptural verses in a newspaper discussion. The underlying principles can be expressed in universal constitutional language: justice in public burdens; accountability of those exercising authority; consultation in collective decision-making; protection against arbitrary appropriation; honest measurement in exchange; fulfilment of public trusts; wider circulation of wealth; protection of vulnerable persons; and restraint upon unjust enrichment.

These principles do not offer a ready-made tax code for a modern federation. They provide standards by which fiscal institutions can be judged.

A tax cannot be defended merely because Parliament has enacted it. Its constitutional legitimacy also depends upon equality, rational classification, due process, protection of property, representative consent and use of public resources for legitimate purposes. Revenue collection divorced from these values becomes fiscal coercion.

Modern CPE, particularly the work of James Buchanan, contributes powerful analytical tools for examining the rules under which political decisions are made. Richard Abel Musgrave remains indispensable for understanding allocation, distribution and stabilisation. Douglas North explains how formal and informal institutions shape incentives and long-term performance.

Their contributions should be studied alongside, rather than instead of, Abu Yusuf, Al-Ghazali, Ibn Taymiyyah, Al-Maqrizi and Ibn Khaldun.

The West has no monopoly over reason. Muslim societies have no monopoly over justice. The common task is to recover and critically examine every intellectual tradition capable of helping humanity restrain power, promote production and organise public resources fairly. Pakistan’s tragedy is not that it lacks intellectual inheritance. It is that its rulers repeatedly invoke inherited ideals while constructing fiscal institutions that contradict them.

In the next part, we shall examine taxation, power and constitutional incentives in Pakistan, and ask whether parliamentary enactment alone can legitimise taxes designed through executive convenience, delegated legislation and unequal political bargaining.

[To be continued]

Postscript

Professor Ehtisham Ahmad has clarified that the paper discussed in Part VI was only a preliminary outline circulated for initial comments and not a final monograph. Our purpose in engaging with it was to initiate a serious and constructive debate on Pakistan’s constitutional political economy, not to question his scholarship or cause him any personal hurt. We deeply regret that our intervention was perceived otherwise and have already conveyed an unqualified apology to him for any unintended distress. We also extend our sincere wishes and prayers for the speedy recovery of his wife, who is presently unwell.

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Dr. Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds an LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996.