In the meantime, most economic writers erroneously defined wealth in terms of money rather than relating it to endowments of productive resources. While Ibn Khaldun deserves credit for his original treatment of labour specialization and wealth, it is his theory of taxation that has cemented his position in the history of economic thought. His emphasis was on how a society's living standards could be affected, either for better or worse, by state policies. As time passes and kings succeed each other, they lose their tribal habits in favor of more civilized ones. But the effects on business of this rise in taxation make themselves felt.
Consequently production falls off, and with it the yield of taxation.
This argument can be summarized in a graph, as illustrated by the hypothetical example in Figure A, where a state's average tax rate and total tax revenue are portrayed on the horizontal and vertical axes respectively. At first, successive increases in the tax rate also raise tax revenue. Ibn Khaldun believed that the rightward movement along this curve was a natural part of the gradual decay of dynasties. As each generation of rulers desired to live in greater luxury, tax rates would be continually raised until the dynasty reached the point where tax revenues began to decrease. Once this happened, the dynasty's military resources would be reduced, inviting attack by outsiders or revolt by the ruler's own subjects.