Economic history of the Ottoman Empire

The Ottoman Empire was an agrarian economy that was labor scarce, land rich and capital-poor. The majority of the population earned their living from small family holdings. This contributed to around 40 percent of taxes for the empire directly as well as indirectly through customs revenues on exports.

Economic historians have long tried to determine how agricultural productivity has varied over time and between societies. The magnitude of variations in productivity is often at the core of such important historical debates as to whether there was an agricultural revolution, when and where it happened, and how the standard of living has varied among societies. Identifying the variations in productivity is also required to be able to determine the divergence of incomes and reversals of fortune in history and to examine the effects of climate, resources, technology, and institutions on productivity.

Cultivator families drew their livelihoods from a complex set of different economic activities and not merely from growing crops. This included growing a variety of crops for their consumption as well as rearing animals for their milk and wool. Some rural families manufactured goods for sale to others, for instance, Balkan villagers traveled to Anatolia and Syria for months to sell their wool cloth.[Note 3] This pattern established for the 18th century had not significantly changed at the beginning of the 20th century.[12] That is not to say that there were no changes in the agrarian sector. Nomads played an important role in the economy, providing animal products, textiles, and transportation. They were troublesome for the state and hard to control – sedentarization programs took place in the 19th century, coinciding with huge influxes of refugees. This dynamic had the effect of a decline in animal rearing by tribes and an increase in cultivation. The rising commercialization of agriculture commencing in the 18th century meant more people began to grow more. With increased urbanization, new markets created greater demand, easily met with the advent of railroads. State policy requiring a greater portion of taxes to be paid in cash influenced the increased production. Finally, increased demand for consumer goods themselves drove an increase in production to pay for the same.[13]

Quataert argues production rose due to some factors. An increase in productivity resulted from irrigation projects, intensive agriculture and integration of modern agricultural tools increasing in use throughout the 19th century. By 1900, tens of thousands of plows, reapers and other agricultural technologies such as combines were found across the Balkan, Anatolian and Arab lands. However, most of the increases in production came from vast areas of land coming under further cultivation. Families began increasing the amount of time at work, bringing fallow land into use. Sharecropping increased utilizing land that had been for animal pasturage. Along with state policy, millions of refugees brought vast tracts of untilled land into production. The empty central Anatolian basin and steppe zone in the Syrian provinces were instances where government agencies gave out smallholdings of land to refugees. This was a recurring pattern across the empire, small landholdings the norm. Foreign holdings remained unusual despite Ottoman political weakness – probably due to strong local and notable resistance and labor shortages. Issawi et al. have argued that division of labor was not possible, is based on religious grounds.[14] Inalcik, however, demonstrates that the division of labor was historically determined and open to change. Agricultural reform programs in the late 19th century saw the state founding agricultural schools, model farms, and education of a self-perpetuating bureaucracy of agrarian specialists focused on increasing agricultural exports. Between 1876 and 1908, the value of agricultural exports just from Anatolia rose by 45 percent whilst tithe proceeds rose by 79 percent.[15]

However, cheap American grain imports undermined agricultural economies across Europe in some cases causing outright economic and political crises.[16]

Domestic trade vastly exceeded international trade in both value and volume though researchers have little in direct measurements.[38] Much of Ottoman history has been based on European archives that did not document the empire's internal trade resulting in it being underestimated.[39]

Quataert illustrates the size of internal trade by considering some examples. The French Ambassador in 1759 commented that total textile imports into the empire would clothe a maximum of 800,000 of a population of at least 20 million. In 1914 less than a quarter of agricultural produce was being exported the rest being consumed internally.[40][41] The early 17th century saw trade in Ottoman-made goods in the Damascus province exceeded five times the value of all foreign-made goods sold there. Finally, amongst the sparse internal trade data are some 1890s statistics for three non-leading cities. The sum value of their interregional trade in the 1890s equaled around 5 percent of total Ottoman international export trade at the time. Given their minor status, cities like Istanbul, Edirne, Salonica, Damascus, Beirut or Aleppo being far greater than all three, this is impressively high. These major trade centers, dozens of medium-sized towns, hundreds of small towns and thousands of villages remain uncounted – it puts into perspective the size of domestic trade.[38]

Two factors that had a major impact on both internal and international trade were wars and government policies. Wars had a major impact on commerce, especially where there were territorial losses that would rip apart Ottoman economic unity, often destroying relationships and patterns that had endured centuries. The role of government policy is more hotly debated – however, most policy-promoted barriers to Ottoman international and internal commerce disappeared or were reduced sharply.[42] However, there appears little to indicate a significant decline in internal trade other than the disruption caused by war and ad-hoc territorial losses.

Global trade increased around sixty-fourfold in the 19th century whereas for the Ottomans it increased around ten to sixteenfold. The exports of cotton alone doubled between 1750 and 1789. The largest increases were recorded from the ports of Smyrna and Salonica in the Balkans. However, they were partially offset by some reductions from Syria and Constantinople. While cotton exports to France and England doubled between the late 17th and late 18th centuries, exports of semi-processed goods to northwest Europe also increased. Whilst the Ottoman market was important to Europe in the 16th century, it was no longer so by 1900. The Ottoman Empire was not shrinking - quite the opposite – however, it was becoming relatively less significant.[24]

As regards trade imbalance, only Constantinople ran an import surplus. Both Lampe and McGowan argue that the empire as a whole, and the Balkans in particular, continued to record an export surplus throughout the period.[Note 6] The balance of trade however moved against the Ottomans from the 18th century onwards. They would re-export high-value luxury goods, mainly silks from the Far East and exported many of its goods. Luxury goods began being imported. Through the 18th century, exports moved to unprocessed goods whilst at the same time commodities were imported from European colonies. Most of these commodities were produced by forced labor undercutting domestic production. However, according to most scholars, a favorable balance of trade still existed at the end of the 18th century.[40] 19th century trade increased multi-fold, however exports remained similar to 18th century levels. Foodstuffs and raw materials were the focus with carpets and raw silk appearing in the 1850s.[44] Although the basket of exports remained generally constant, the relative importance of the goods would vary considerably.

From the 18th century onwards, foreign merchants and Ottoman non-Muslims became dominant in the growing international trade. With increasing affluence, their political significance grew, especially in Syria. Muslim merchants however dominated internal trade and trade between the interior and coastal cities.[Note 7]

Foreign trade, a minor part of the Ottoman economy, became slightly more important towards the end of the 19th century with the rise of protectionism in Europe and producers looking to new markets. Its growth was seen throughout the period under study, particularly the 19th century. Throughout, the balance of payments was roughly on par with no significant long-term deficits or surpluses.

Ottoman bureaucratic and military expenditure was raised by taxation, generally from the agrarian population.[46][47] Pamuk notes considerable variation in monetary policy and practice in different parts of the empire.[47] Although there was monetary regulation, enforcement was often relaxed and little effort was made to control the activities of merchants, moneychangers, and financiers.[Note 8] During the "price revolution" of the 16th century, when inflation took off, there were price increases of around 500 percent[Note 9] from the end of the 15th century to the close of the 17th.[Note 10] However, the problem of inflation did not remain and the 18th century did not witness the problem again.

The 18th century witnessed increasing expenditure for military-related expenditure and the 19th century for both bureaucracy and military. McNeill describes an Ottoman stagnation through center-periphery relations – a moderately taxed center with periphery provinces suffering the burden of costs.[Note 11] Though this analysis may apply to some provinces, like Hungary, recent scholarship has found that most of the financing was through provinces closer to the center.[52] As the empire modernized itself in line with European powers, the role of the central state grew and diversified. In the past, it had contented itself with raising tax revenues and war-making. It increasingly began to address education, health and public works, activities that used to be organized by religious leaders in the communities – this can be argued as being necessary in a rapidly changing world and was a necessary Ottoman response. At the end of the 18th century, there were around 2,000 civil officials ballooning to 35,000 in 1908.[53] Starting in the mid 1800s, the Ottoman military increasingly adopted western technology and methods.[54] Other innovations were increasingly being adopted including the telegraph, railroads and photography, utilised against old mediators who were increasingly marginalised.[Note 12]

Up to 1850, the Ottoman Empire was the only empire to have never contracted foreign debt and its financial situation was generally sound.[55][56] As the 19th century increased the state's financial needs, it knew it could not raise the revenues from taxation or domestic borrowings, so resorted to massive debasement and then issued paper money.[57][58] It had considered European debt, which had surplus funds available for overseas investment, but avoided it aware of the associated dangers of European control.[43][59][60][61] However, the Crimean war of 1853–1856 resulted in the necessity of such debt. Between 1854 and 1881, the Ottoman Empire went through a critical phase of history. Beginning with the first foreign loan in 1854, this process involved sporadic attempts by western powers to impose some control. From 1863 a second and more intense phase began leading to a snowballing effect of accumulated debts. In 1875, with external debt at 242 million Turkish pounds, over half the budgetary expenditures going toward its service, the Ottoman government facing some economic crises declared its inability to make repayments. The fall in tax revenues due to bad harvests and increased expenditure made worse by the costs of suppressing the uprisings in the Balkans hastened the slide into bankruptcy. After negotiations with the European powers, the Public Debt Administration was set up, to which certain revenues were assigned. This arrangement subjected the Ottomans to foreign financial control from which they failed to free themselves, in part because of continued borrowing. In 1914, the Ottoman debt stood at 139.1 million Turkish pounds, and the government was still dependent on European financiers.[62][60][63][64][65][66]

The Ottomans had not yet developed their financial system in line with London and Paris. Since the beginning of the 18th century, the government was aware of the need for a reliable bank. The Galata bankers, as well as the Bank of Constantinople, did not have the capital or competence for such large undertakings.[43][67] As such, Ottoman borrowings followed the Heckscher-Ohlin theorem.

Borrowing spanned two distinct periods, 1854–1876 (see Table 4). The first is the most important resulted in defaults in 1875. Borrowings were normally at 4 to 5 percent of the nominal value of the bond, new issues, however, being sold at prices well below these values netted of commissions involved in the issue, resulting in a much higher effective borrowing rate – coupled with a deteriorating financial situation, the borrowing rate rarely went below 10 percent after 1860.[68]

European involvement began with the creation of the Public Debt Administration, after which a relatively peaceful period meant no wartime expenditures and the budget could be balanced with lower levels of external borrowing. The semi-autonomous Egyptian province also ran up huge debts in the late 19th century resulting in foreign military intervention. With security from the Debt Administration further European capital entered the empire in railroad, port and public utility projects, increasing foreign capital control of the Ottoman economy.[69] The debt burden increased consuming a sizeable chunk of the Ottoman tax revenues – by the early 1910s deficits had begun to grow again with military expenditure growing and another default may have occurred had it not been for the outbreak of the First World War.

The exact amount of annual income the Ottoman government received, is a matter of considerable debate, due to the scantness and ambiguous nature of the primary sources. The following table contains approximate estimates.

• Capitulations of the Ottoman Empire, these were trade agreements with specific countries
• Sick man of Europe
• Socioeconomics of the Ottoman enlargement era
• Ottoman Decline Thesis