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Economic history of the Ottoman Empire covers the period 1299–1923. The economic history falls into two distinctive sub periods. The first is the classic era (enlargement), which comprised a closed agricultural economy, showing regional distinctions within the empire. The Second period was the reformation era that comprised state organized reforms, commencing with administrative and political structures through to state and public functions. Change began with military reforms extending to military associated guilds (Ottoman: لنكا) and public craft guilds.
The Ottomans saw military expansion and fiscalism as the main source of wealth, with agriculture seen as more important than manufacture and commerce. Western mercantilists gave more emphasis to manufacture and industry in the wealth-power-wealth equation, moving towards capitalist economics comprising expanding industries and markets whereas the Ottomans continued along the trajectory of territorial expansion, traditional monopolies, conservative land holding and agriculture.[Note 1]
The quality of both land and sea transport was driven primarily by the efforts of the Ottoman administration over this time. As a result, the quality of transport infrastructure varied significantly over time depending on the current administration's efficacy. The story of transport in the empire should not be seen as one of continual improvement. Indeed, the road infrastructure was significantly better in the 16th century than it was in the 18th century.
In Anatolia the Ottomans inherited a network of caravanserai (also known as hans) from the Selçuk Turks that preceded them. It was in the interest of the empire to ensure the safety of couriers and convoys and by extension merchant caravans. The caravanserai network was extended into the Balkans and provided safe lodgings for merchants and their animals.
The Jelali revolts of the 16th and 17th centuries did much to disrupt the land transport network in Anatolia. The empire could no longer ensure the safety of merchants who then had to negotiate safe passage with the local leader of the area they were travelling through. Only in the 18th century with concerted efforts to improve the safety of the caravanserai network and the reorganization of a corps of pass-guards did land transport in Anatolia improve.
The empire did not take an active interest in sea trade preferring a free-market system from which they could draw a tax revenue. However such laissez-faire policies were not always followed. For example, under Hadim Suleyman Pasha's tenure as Grand Vizier till 1544, the Ottoman administration was directly involved in the spice trade with the aim of increasing revenue. However such policies were often repealed by their successors.
The main arenas of maritime activity were: the Aegean and Eastern Mediterranean (main trade: wheat); the Red Sea and Persian Gulf (main trade: spices); the Black Sea (main trade: wheat and lumber); and the Western Mediterranean.
During the 19th century, new technologies radically transformed both travel and communications. Through the invention of the steam engine in Britain, water and land transport revolutionised the conduct of trade and commerce. The steam ship meant journeys became predictable, times shrank and large volumes of goods could be carried more cheaply. Quataert cites the Istanbul-Venice route, a main trade artery, taking anything from fifteen to eighty-one days by sail ship, was reduced to ten days by the steam ship. Sail ships would carry 50 to 100 tonnes. In contrast, steamships could now carry 1,000 tonnes.[Note 2]
With the advent of the steam ship formerly intraversable routes opened up. Rivers that carried cargoes only in one direction could now be traversed both ways bringing innumerable benefits to certain regions. New routes like the Suez Canal were created, prompted by steamships, changing trade demographics across the Near East as trade was rerouted. Quataert's research shows that the volume of trade began to rise over the course of the 19th century. By 1900 sailboats accounted for just 5 percent of ships visiting the Istanbul. However, this 5 percent was greater in number than any year of the 19th century. In 1873 Istanbul handled 4.5 million tons of shipping – this was 10 million tons by 1900. The development of larger ships accelerated the growth of port cities with deep harbours in order to accommodate them. Europeans however owned 0 percent of commercial shipping operating in Ottoman waters. Not all regions benefited from steam ships as rerouting meant trade from Iran, Iraq and Arabia now did not need to go through Istanbul, Aleppo, and even Beirut, leading to losses in these territories.
In terms of transport the Ottoman world could be split into two main regions. The European provinces connected by wheeled transport and the non-wheeled transport of Anatolia and the Arab world. Rail-roads revolutionized land transport profoundly, cutting journey times drastically promoting population movements and changing rural-urban relations. Rail-roads offered cheap and regular transport for bulk goods, allowing for the first time the potential of fertile interior regions to be exploited. When rail-roads were built near these regions agriculture developed rapidly with hundreds of thousands of tons of cereals being shipped in this way. Rail-roads had additional benefits for non-commercial passengers who began using them. 8 million passengers using the 1,054-mile Balkan lines and 7 million using the Anatolian 1,488 miles. Railroads also created a new source of employment for over 13,000 workers by 1911. With low population densities and lack of capital, the Ottomans did not develop extensive rail-road or shipping industries. Most of the capital for rail-roads came from European financiers, which gave them considerable financial control.
Older forms of transport did not disappear with the arrival of steam. The businesses and animals used previously to transport goods between regions found new work in moving goods to and from trunk lines. The Aegean areas alone had over 10,000 camels working to supply local rail-roads. Ankara station had a thousand camels at a time waiting to unload goods. Furthermore, additional territories traversed by rail-roads encouraged development and improved agriculture. Like sailing vessels, land transport contributed to and invigorated trade and commerce across the empire.
The Ottoman Empire was an agrarian economy, labour scarce, land rich and capital poor. Majority of the population earned their living from small family holdings and this contributed to around 40 percent of taxes for the empire directly as well as indirectly through customs revenues on exports.
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 own consumption as well as rearing animals for their milk and wool. Some rural families manufactured goods for sale to others, for instance Balkan villagers travelled 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. 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 urbanisation, 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.
Quataert argues production rose due to a number of factors. An increase in productivity resulted from irrigation projects, intensive agriculture and utilisation 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 utilising 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 parcelled 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 labour shortages. Issawi et al. have argued that division of labour was not possible, being based on religious grounds. Inalcik however demonstrates that division of labour 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 per cent whilst tithe proceeds rose by 79 percent.
However, cheap American grain imports undermined agricultural economies across Europe in some cases causing outright economic and political crises.
No formal system had emerged to organize manufacturing in medieval Anatolia. The closest such organization that can be identified is the Ahi Brotherhood, a religious organization that followed the Sufi tradition of Islam during the 13th and 14th centuries. Most of the members were merchants and craftsmen and viewed taking pride in their work as part and parcel of their adherence to Islam. However, the organization was not a professional organization and should not be confused with the professional guilds that emerge later.
It is not clear when or how various guilds emerged. What is known for sure is that by 1580 guilds had become a well established aspect of contemporary Ottoman society. This is evidenced by the Surname of 1582 which was a description of the procession to celebrate the circumcision of Murad III's son Mehmed. The guilds were organizations that were responsible for the maintenance of standards,
Whilst looking at Ottoman manufacture, a significant area of technology transfer, Quataert argues one must not only look at large factories but also the small workshops:
“One will find then find that Ottoman industry was not a “dying, unadaptive, unevolving sector...”
[but] vital, creative, evolving and diverse”.
Over the 19th century, a shift occurred to rural female labour with guild organized urban-based male labour less important. The global markets for Ottoman goods fell somewhat with certain sectors expanding. However, any changes were compensated by an increase in domestic consumption and demand. Mechanized production even at its peak remained an insignificant portion of total output. The lack of capital, as in other areas of the economy, deterred the mechanization of production. Nonetheless, a number of factories did emerge in Istanbul, Ottoman Europe and Anatolia. In the 1830s steam powered silk reeling factories emerged in Salonica, Edirne, West Anatolia and the Lebanon.
Under the late 18th century fine textiles, hand-made yarns and leathers were in high demand outside the empire. However, these declined by the early 19th century and half a century later production for export re-emerged in the form of raw silk and oriental carpets. The two industries alone employed 100,000 persons in 1914 two-thirds in carpet-making for European and American buyers. Most workers were women and girls, receiving wages that were amongst the lowest in the manufacturing sector. Much of the manufacturing shifted to the urban areas during the 18th century, in order to benefit from the lower rural costs and wages.
Guilds operating prior to the 18th century did see a decline through the 18th and 19th centuries. Guilds provided some form of security in prices, restricting production and controlling quality and provided support to members who hit hard times. However, with market forces driving down prices their importance declined, and with the Janissaries as their backers, being disbanded by Mahmut II in 1826, their fate was sealed.
By far the majority of producers targeted the 26 million domestic consumers who often lived in adjacent provinces to the producer. Analysing these producers is difficult, as they did not belong to organizations that left records.
Manufacturing through the period 1600–1914 witnessed remarkable continuities in the loci of manufacturing; industrial centers flourishing in the 17th century were often still active in 1914. Manufacturing initially struggled against Asian and then European competition in the 18th and 19th centuries whereby handicraft industries were displaced by cheaper industrially produced imports.[Note 4] However, manufacturing achieved surprising output levels, with the decline of some industries being more than compensated by the rise of new industries. Decline of handicrafts production saw a shift of output move to agricultural commodity production and other manufacturing output.[Note 5]
In the early 19th century, Ottoman Egypt had an advanced economy, with a per-capita income comparable to that of leading Western European countries such as France, and higher than the overall average income of Europe and Japan. Economic historian Jean Barou estimated that, in terms of 1960 dollars, Egypt in 1800 had a per-capita income of $232 ($1,025 in 1990 dollars). In comparison, per-capita income in terms of 1960 dollars for France in 1800 was $240 ($1,060 in 1990 dollars), for Eastern Europe in 1800 was $177 ($782 in 1990 dollars), and for Japan in 1800 was $180 ($795 in 1990 dollars). In addition to Egypt, other parts of the Ottoman Empire, particularly Syria and southeastern Anatolia, also had a highly productive manufacturing sector that was evolving in the 19th century.
In 1819, Egypt under Muhammad Ali began programs of state-sponsored industrialization, which included setting up factories for weapons production, an iron foundry, large-scale cotton cultivation, mills for ginning, spinning and weaving of cotton, and enterprises for agricultural processing. By the early 1830s, Egypt had 30 cotton mills, employing about 30,000 workers. In the early 19th century, Egypt had the world's fifth most productive cotton industry, in terms of the number of spindles per capita. The industry was initially driven by machinery that relied on traditional energy sources, such as animal power, water wheels, and windmills, which were also the principle energy sources in Western Europe up until around 1870. While steam power had been experimented with in Ottoman Egypt by engineer Taqi ad-Din Muhammad ibn Ma'ruf in 1551, when he invented a steam jack driven by a rudimentary steam turbine, it was under Muhammad Ali of Egypt in the early 19th century that steam engines were introduced to Egyptian industrial manufacturing.
While there was a lack of coal deposits in Egypt, prospectors searched for coal deposits there, and manufactured boilers which were installed in Egyptian industries such as ironworks, textile manufacturing, paper mills and hulling mills. Coal was also imported from overseas, at similar prices to what imported coal cost in France, until the 1830s, when Egypt gained access to coal sources in Lebanon, which had a yearly coal output of 4,000 tons. Compared to Western Europe, Egypt also had superior agriculture and an efficient transport network through the Nile. Economic historian Jean Batou argues that the necessary economic conditions for rapid industrialization existed in Egypt during the 1820s–1830s, as well as for the adoption of oil as a potential energy source for its steam engines later in the 19th century.
Following the death of Muhammad Ali in 1849, his industrialization programs fell into decline, after which, according to historian Zachary Lockman, “Egypt was well on its way to full integration into a European-dominated world market as supplier of a single raw material, cotton.” He argues that, had Egypt succeeded in its industrialization programs, “it might have shared with Japan [or the United States] the distinction of achieving autonomous capitalist development and preserving its independence.”
Economic historian Paul Bairoch argues that free trade contributed to deindustrialization in the Ottoman Empire. In contrast to the protectionism of China, Japan, and Spain, the Ottoman Empire had a liberal trade policy, open to foreign imports. This has origins in capitulations of the Ottoman Empire, dating back to the first commercial treaties signed with France in 1536 and taken further with capitulations in 1673 and 1740, which lowered duties to 3% for imports and exports. The liberal Ottoman policies were praised by British economists such as J. R. McCulloch in his Dictionary of Commerce (1834), but later criticized by British politicians such as Prime Minister Benjamin Disraeli, who cited the Ottoman Empire as "an instance of the injury done by unrestrained competition" in the 1846 Corn Laws debate:
There has been free trade in Turkey, and what has it produced? It has destroyed some of the finest manufactures of the world. As late as 1812 these manufactures existed; but they have been destroyed. That was the consequences of competition in Turkey, and its effects have been as pernicious as the effects of the contrary principle in Spain.
Domestic trade vastly exceeded international trade in both value and volume though researchers have little in direct measurements. Much of Ottoman history has been based on European archives that did not document the empire's internal trade resulting in it being underestimated.
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. 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. Their sum value of their interregional trade in the 1890s equalled 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 centres, dozens of medium-sized towns, hundreds of small towns and thousands of villages remains uncounted – it puts into perspective the size of domestic trade.
Two factors that had major impact on both internal and international trade were wars and government policies. Wars had 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. However, there appears little to indicate a significant decline in internal trade other than 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. 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 in fact – however it was becoming relatively less significant.
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 own 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 slave labour undercutting domestic production. However, according to most scholars, a favourable balance of trade still existed at the end of the 18th century. 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. Although the basket of exports remained generally constant, 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. Pamuk notes considerable variation in monetary policy and practice in different parts of the empire. 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. McNeil describes an Ottoman stagnation through centre-periphery relations – a moderately taxed centre 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 centre. 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 organised 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. The Ottoman military increasingly adopted western military technologies and methods, increasing army personnel of 120,000 in 1837 to over 120,000 in the 1880s. 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. 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. It had considered European debt, which had surplus funds available for overseas investment, but avoided it aware of the associated dangers of European control. However, the Crimean war of 1853–1856 resulted in the necessity of such debt.[Note 13]
The Ottomans had not yet developed their own 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. 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.
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. 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.