On the recent season of the show Clarkson’s farm, J.C. goes through great lengths to buy the right pub. As with any sensible buyer, the team does a thorough tear down followed by a big build up before the place is open for business. They survey how the place is built, located, and accessed. In their refresh they ensure that each part of the pub is built with purpose. Even the tractor on the ceiling. The art is in answering the question: How was this place put together?
A data-scientist should be equally fussy. Until we trace how every number was collected, corrected and cleaned, —who measured it, what tool warped it, what assumptions skewed it—we can’t trust the next step in our business to flourish.
Old sound (1925) painting in high resolution by Paul Klee. Original from the Kunstmuseum Basel Museum. Digitally enhanced by rawpixel.
Two load-bearing pillars
While there are many flavors of data science I’m concerned about the analysis that is done in scientific spheres and startups. In this world, the structure held up by two pillars:
How we measure — the trip from reality to raw numbers. Feature extraction.
How we compare — the rules that let those numbers answer a question. Statistics and causality.
Both of these related to having a deep understanding of the data generation process. Each from a different angle. A crack in either pillar and whatever sits on top crumbles. Plots, significance, AI predictions, mean nothing.
How we measure
A misaligned microscope is the digital equivalent of crooked lumber. No amount of massage can birth a photon that never hit the sensor. In fluorescence imaging, the point-spread function tells you how a pin-point of light smears across neighboring pixels; noise reminds you that light itself arrives from and is recorded by at least some randomness. Misjudge either and the cell you call “twice as bright” may be a mirage.
In this data generation process the instrument nuances control what you see. Understanding this enables us to make judgements about what kind of post processing is right and which one may destroy or invent data. For simpler analysis the post processing can stop at cleaner raw data. For developing AI models, this process extends to labeling and analyzing data distributions. Andrew Ng’s approach, in data-centric AI, insists that tightening labels, fixing sensor drift, and writing clear provenance notes often beat fancier models.
How we compare
Now suppose Clarkson were to test a new fertilizer, fresh goat pellets, only on sunny plots. Any bumper harvest that follows says more about sunshine than about the pellets. Sound comparisons begin long before data arrive. A deep understanding of the science behind the experiment is critical before conducting any statistics. The wrong randomization, controls, and lurking confounder eat away at the foundation of statistics.
This information is not in the data. Only understanding how the experiment was designed and which events preclude others enable us to build a model of the world of the experiment. Taking this lightly has large risks for startups with limited budgets and smaller experiments. A false positive result leads to wasted resources while a false negative presents opportunity costs.
The stakes climb quickly. Early in the COVID-19 pandemic, some regions bragged of lower death rates. Age, testing access, and hospital load varied wildly, yet headlines crowned local policies as miracle cures. When later studies re-leveled the footing, the miracles vanished.
Why the pillars get skipped
Speed, habit, and misplaced trust. Leo Breiman warned in 2001 that many analysts chase algorithmic accuracy and skip the question of how the data were generated. What he called the “two cultures.” Today’s tooling tempts us even more: auto-charts, one-click models, pretrained everything. They save time—until they cost us the answer.
The other issue is lack of a culture that communicates and shares a common language. Only in academic training is it possible to train a single person to understand the science, the instrumentation, and the statistics sufficiently that their research may be taken seriously. Even then we prefer peer review. There is no such scope in startups. Tasks and expertise must be split. It falls to the data scientist to ensure clarity and collecting information horizontally. It is the job of the leadership to enable this or accept dumb risks.
Opening day
Clarkson’s pub opening was a monumental task with a thousand details tracked and tackled by an army of experts. Follow the journey from phenomenon to file, guard the twin pillars of measure and compare, and reinforce them up with careful curation and open culture. Do that, and your analysis leaves room for the most important thing: inquiry.
The wave towered over me. Then the sound filled my ears. Not the calm breath of the waves; but it was surf music. I was maybe 3. Song names and artist names were beyond me. There was only the blue-green wave and the twang of the guitar.
I have chased music all my life. Just had to figure out the tools. The record player and the giant speakers taught my first lesson: pressing buttons was joy. In my pursuit I learned in about records, tapes, CDs, mp3, flac, streaming, Napster, torrents, Winamp, VLC, blanks, CD-R/RWs, compression, bit rates, conversion, transfer, backups, VPN, networking, impedance matching, DACs, amplifiers, calibration, ARC, fibre, buying, licensing, and streaming in approximate order.
I discovered that they were called The Ventures by accident. Late in the college years I watched Pulp Fiction and wanted all the music. This one wasn’t quite home but it was the right street. It was surf music.
The hunt was on. Only a notion of the song and the confidence that I would know it when I heard it. I didn’t know the name of the album only that it had a big wave on the cover. It took me the better part of 6 months, on slow DSL, trawling all the sources I knew. Listening for that drum fade-in. Then one day I found it.
It’s been decades since the record player stopped spinning. I’ve moved a dozen times, the records were lost. I am the default A/V guy and love the role. Now I live in one of the surfiest places on the planet, the current still pulls but I walk, don’t run.
I got told off by The Paris Review today. Maybe it wasn’t necessarily directed at me, but as they say in the, now old, new lingo, I felt attacked. You see, recently, drawing on the well of inspiration that is history I succeeded in writing a poem, but not just any poem. I wrote a ghazal.
Those who know me for any amount of time are madeawareofmytasteforwritingpoetry. It’s usually pretty bad but I persist, cause why not. The OG is long gone anyway. The ghazal is an especially ambitious type of poetry to be taken up my someone with my modest talents. To make matters worse, as I learned today, the ghazal is really well suited for the Urdu. For all practical matters, I know only English.
By me! San Diego Botanic Garden, California Poppy (I think).
For anyone with any little interest in love and romance, being born in South Asia is a special kind of blessing. We are lucky to have had Urdu poetry reach its peak here. Urdu is perhaps the perfect medium to transmit mischief, passion, pain, longing, and the myriad other emotions which are handmaidens to big Love. Not any kind of expert, but all my life I’ve consumed shayari, sher, ghazals, whether in mainstream Bollywood or in sparkling corners of the internet.
Armed with the internet, full of inspiration, my trusty editor, Mir ChatGPT, in the other tab. I decided it was time to go all in. The Ghazal was to be written. It was, it follows all the rules, I even make a self reference in the last couplet as is the tradition, but it lacks oomph. A good sher, a good ghazal, should pierce you and make you blush for it’s andaaz, mischief and audacity.
Mine… well, you can read it here yourself, don’t forget to play the tiny desk concert, it is lovely.
Definitely read The Paris Review article for it’s a great take of view from a writer who transfers the styles of poetry in one language to another.
When printing was invented, Europe suddenly had access to all the books that had existed until that point in history. This included everything from mystical texts to astronomical observations. Having no guides to judge quality, some people went off on the deep end. Giordano Bruno is sometimes referred to as the forefather of modern cosmology. He was not. An extreme case, he took mystical click-bait, mixed it with the then-contemporary Copernican theories, and, without any data, invented the infinite universe. Eventually, culture adapted and people started to compare and organize all the data. This act of orienting and place-making led to the scientific revolution.Printing created too much information and we had to learn how to handle it. Today we are in a similar position.
Berry Pickers (1873) by Winslow Homer. Original from The National Gallery of Art. Digitally enhanced by rawpixel.
Still in the early days of the internet we sometimes lost the ability to tell signal from noise. Recently Hank Green posted this video where he makes his thesis that we aren’t addicted to content, but are instead starving for information. This strikes me as true.
The companies behind the social internet drown us in noise with just enough signal to keep you coming back. That signal, that hit, is a hint at information that provides orientation. Opportunities for conversation and belief challenging interactions are difficult to experience. As explored in a previous post, as humans are geographical creatures. Phones and the internet are a real part of our environment. Without sufficient places for orientation, we are left glassy eyed, lost. To see why that ‘information hunger’ feels so visceral, consider the simple ladder that links raw signal to a basic survival drive:
Signal → Information → Orientation → Biology
Signal is any pattern in the environment—visual, auditory, textual—that stands out from background noise. On social platforms this might be a headline, a notification badge, or an unexpected data point.
Information is signal that has been parsed and interpreted. Your brain (or a community) attaches meaning and relevance: “This headline matters to my work,” or “That data point contradicts my belief.”
Orientation is what information enables: a clearer, updated internal map of “where I stand and what to do next.” It answers “How does this fit with what I already know?” and “Which way should I move—intellectually, emotionally, physically?”
Biological need is the evolutionary pressure behind all of this: organisms that build accurate mental maps survive. Humans feel discomfort when our maps are fuzzy (disorientation) and relief or pleasure when new information sharpens them.
A few years ago, my corner of the internet got into waldenponding and promptly logged off. Just kidding. The failure of modern waldenponding makes it clear that this move of turning away from the social internet is not the answer. That would be like giving up on books because there were too many of them. The internet and the social internet in general do provide opportunities Instead, engaging with curiosity allows us to orient ourselves. Having an information shaped content diet opens up a path to a healthier mind. While society learns to put on the right kind of controls as we have on sugar and tobacco, how can we learn to have fun on the internet?
The hunt for knowledge and discovery, even of trivia is immensely enjoyable. Socratic problem solving is a team sport. Everyone has narrow views of the world and our thinking may be based on shaky knowledge. Social internet has so far made our eagerness to win the top emotion in online discourse, Socratic inquiry can transform that into collaborative inquiry. To arrive at better knowledge we must be willing to talk, listen, challenge, and accept. It is only by comparing notes that we open up a topic, a space, for exploration. Each of us and our thoughts are a place in the world. Places create orientation and orientation has the potential to create progress. While progress may not be guaranteed, not engaging in inquiry guarantees disorientation and formlessness.
While printing turned information into data, the social internet has turned information into noise. Social internet companies have tuned our culture to produce low signal-to-noise “content”. As Hank Green put it, we do hunger for information. We hunger because information is orientation. Orientation is a primal biological need to help us navigate our physics-virtual environment. The internet is a place where people share freely and welcome warm interactions. To turn away from the internet because of the culture tuning is the wrong move. The internet has too much to give, engaging from a posture of inquiry is the way. Inquiry satisfies that inner need for place creation and orientation.
This post continuesthe series on Socratic Thinking, turning the space-and-place lens inward to examine the mind itself. Human minds can be thought of as an imperfect place with the ability to create their own insta-places to navigate ambiguity.
On the Trail (1889) by Winslow Homer. Original from The National Gallery of Art. Digitally enhanced by rawpixel.
Exploration in any real or conceptual space needs navigational markers with sufficient meaning. Humans are biologically predisposed to seek out and use navigational markers. This tendency is rooted in our neural architecture, emerges early in life, and is shared with other animals, reflecting its deep evolutionary origins 1,2 . Even the simplest of life performing chemotaxis uses the signal-field of food to navigate.
When you’re microscopic, the territory is the map; at human scale, we externalise those cues as landmarks—then mirror the process inside our heads. Just as cells follow chemical gradients, our thoughts follow self-made landmarks, yet these landmarks are vaporous.
From the outside our mind is a single place, it is our identity. Probe closer and our identity is nebulous and dissolves the way a city dissolves into smaller and smaller places the closer you look. We use our identity to create the first stable place in the world and then use other places to navigate life. However, these places come from unreliable sources, our internal and external environments. How do we know the places are even real, and do we have the knowledge to trust their reality? Well, we don’t. We can’t judge our mental landmarks false. Callard calls this normative self-blindness: the built-in refusal to saw off the branch we stand on.
Normative self-blindness is a trick to gloss over details and keep moving. Insta-places are conjured from our experience and are treated as solid no matter how poorly they are tied down by actual knowledge. We can accept that a place was loosely formed in the past, an error, or is not yet well defined in the future, is unknown. However, in the moment, the places exist and we use them to see.
Understanding and accepting that our minds work this way is a key tenet of Socratic Thinking. It makes adopting the posture of inquiry much easier. Socratic inquiry begins by admitting that everyone’s guiding landmarks may be made of semi-solid smoke.
1Chan, Edgar, Oliver Baumann, Mark A. Bellgrove, and Jason B. Mattingley. “From Objects to Landmarks: The Function of Visual Location Information in Spatial Navigation.” Frontiers in Psychology 3 (2012). https://doi.org/10.3389/fpsyg.2012.00304
“A farmer has to cut down trees to create space for his farmstead and fields. Yet once the farm is established it becomes an ordered world of meaning—a place—and beyond it is the forest and space.” — Yi-Fu Tuan
Thinking itself is place-making: the act of converting undifferentiated possibility into navigable meaning.
A place comes into being the moment we interrupt undifferentiated space. Place-making is fundamentally an act of interruption. Space is thought of as possibility but is unavailable without the signposts of place. When a place is created we impose a way of looking, being, and acting on the space of choice. The place you pick to navigate your space defines the identity you will inhabit during your quest. Every tool is a micro-place: it frames what can be thought and forecloses alternative moves. They enforce the kind of thoughts that can be had, the type of exploration that can be done, and configures space in an opinionated way.
Two-masted Schooner with Dory (1894) by Winslow Homer. Original from The Smithsonian. Digitally enhanced by rawpixel.
Picking a tool commits us to a world view. Consider the space of ‘good TV shows’. Family, friends and culture have made the choice of what good means. When Netflix suggests shows it uses your watching history as a probe to create place so that every individual is always watching ‘good’ shows. The pure possibility space of the search bar is disrupted by the suggestions provided.
Like algorithmic curation, Socratic dialogue also interrupts space, it is interrogation as cartography. Socratic thinking is also an act of interruption and making concrete what was nebulous. It’s asking us to specify which show, if we claim to love TV. Socratic thinking (henceforth referred to as just thinking) starts by probing that which does not need questioning, the answers that are obvious the ones that everyone knows. This may seem foreign at first glance but we do this all the time, say we make a list of our favorite TV shows, someone always says you are missing this or that show and that this list is completely wrong. This kind of disagreement leads to the shared quest of answering the question, ‘What is it to be entertained?’.
Thinking pursues knowledge through the act of stabilizing answers to such questions by creating places in those unexamined areas. Discussion allows us to map. There is usually no well defined answer for such questions, if there were, they would simply be problems that we could solve with a google search. The quest stops when the parties involved are satisfied that they have arrived at an answer. Thinking is the act of place-making by taking something that was ungraspable and tying it down with knowledge. Place is, after all, an “ordered world of meaning” and we can use these places to create home bases from which to explore.
Even without other people simply engaging with the reality of the universe is sufficient for thought. Places are stable systems which provide a surface on which your thoughts and hypothesis can be tested. Even if there is no other person around and you’re simply engaged with looking at the world can uncover a new truth tied down by knowledge.
Thinking is the process of updating beliefs based on the mini places that make up the space that you’re interrogating. Each place is a noisy pointer to the underlying truth, and each updating of belief allows you to get closer to the knowledge you seek.
I had the strangest conversation with my son today. There used to be a time when computers never made a mistake. It was always the user that was in error. The computer did exactly what you asked it to do. If something went wrong it was you, the user, that didn’t know what you wanted. After decades of that being etched in today I found myself telling him that computers make mistakes, you have to check if the computer has done the right thing and that is actually ok. A computer that hallucinates also provides a surface for exploration and seeking answers to questions.
Boys Wading (1873) by Winslow Homer. Original public domain image from National Gallery of Art
In her book, Open Socrates, Agnes Callard draws our attention to the differences between problems and questions. I’ll get to those in a bit, but the fundamental realization I had was that until recently all we could use computers (CPUs, spreadsheets, internet) for was solving problems. This started all the way back with Alan Turing when he designed the Turing test. He turned the question of what is it to think into the problem of how do you detect thought. As Callard mentions, LLMs smash the Turing test but we still can’t quite accept the result as proof of thinking. What is thinking then? What are problems? What are questions? How do we answer questions?
Problems are barriers that stand in your way when you are trying to do something. You want to train a deep learning algorithm to write poetry, how to get training data is a problem. You want something soothing for lunch, getting the recipe for congee is the problem. The critical point here is that as soon as you have the solution, the data, the recipe, the problem disappears. This is the role of technology.
When we work with computers to solve problems we are essentially handing off the task to the computer without caring that the computer wants to or even can want to write poetry or have a nice lunch. So we ask the LLM to write code, we command google to give us a congee recipe. Problems don’t need a shared purpose, only methods to solve them to our satisfaction. Being perpetually dissatisfied with existing answers is the stance of science.
Science and technology are thus tools to move towards dealing with questions. Unlike problems which dissolve when you solve them, questions give you a new understanding of the world. The thing with asking questions is that there is no established way, at least in your current state, to solve them. Thus asking a question is the first step of starting a quest. In terms of science the quest is better understanding of something and you use technology along the way to dissolve problems that stand in your way.
AI lets us explore questions with, rather than merely through, computers. Granted that most common use of AI is still to solve problems, LLMs and their ability to do back and forth chat in natural language does provide the affordance to ask questions. Especially, the kind that seem to come pre-answered because we are operating from a posture where not having an answer would dissolve the posture altogether.
The Socratic Co-pilot
As a scientist, the question “what is it to be a good scientist?” comes pre answered for me. Until I am asked this question I have not really thought about it but rush to provide answers. Scientists conduct experiments carefully, they know how to do use statistics, they publish papers and so on. However, this still does not answer what it is to be a good scientist. Playing this out with an AI, I assert “rigorous statistics,” the AI counters with an anecdote on John Snow’s cholera map and I’m forced to pivot. None of these by themselves answers the root question, but it allows generation of some problems which can be answered or agreed on. This is knowledge.
Knowledge draws boundaries, or as I have explored earlier, creates places around the space that you wish to explore. In the space of “being a good scientist”, we can agree that the use the scientific method is an important factor. Depending on who you are, this could be the end of quest.
Even if no methodology exists for a given problem, simply approaching any problem with an inquisitive posture creates a method, however crude. In his book What Is It Like to Be a Bat? Thomas Nagel tackles an impossible to solve problem but a great question, through the process of a thought experiment. If I were to undertake this, I may try to click in a dark room, hang upside down. Okay, maybe not the last bit, but only maybe. Even this crude approach has now put me in the zone to answer the problem. Importantly my flapping about has created surface area where others can criticize, as Nagel was. Perhaps future brain-computer-interface chips will actually enable us to be a bat. However, lacking such technology, this is better than nothing as long as you are interested in inquiring about the bat-ness.
This kind of inquiry, this pursuit of answering questions is thinking. Specifically, as Callard puts it, thinking is “a social quest for better answers to the sorts of questions that show up for us already answered”. Breaking that down further it’s social because it’s done with a partner who disagrees with you because they have their own views about the question. It’s a quest because the both parties are seeking knowledge. The last bit about questions being already answered is worth exploring a bit.
Why bother answering questions you already have answers to? This is trivial to refute when you know nothing about a subject. For example let’s say you knew nothing about gravity and your answer to why you are stuck to the earth cause we are beings of the soil and to the soil we must go, the soil always calls us. If that is the worldview then you already have the answer. The only way to arrive at a better answer, gravity, is to have someone question you on the matter. Refuting specific points based on their own points of view. This may come in the form of a conversation, a textbook, a speech etc. I suspect this social role may soon be played by AI.
Obviously hallucinations themselves aren’t great but the ability to hallucinate is. In the coming years I expect AI will gain significant amounts of knowledge access not just in the form of training but in the form of reference databases containing data broadly accepted as knowledge. In the process we will probably have to undergo significant social pains to agree on what Established Knowledge constitutes. Such a system will enable LLMs to play the role of Socrates and help the user avoid falsehoods by questioning the beliefs held by the user.
Until now computers couldn’t play this role because there wasn’t enough “humanness” involved. In the bat example, a bat cannot serve as Socrates or as the interlocutor to a human partner because there isn’t a shared world view. LLMs, trained on human generated knowledge would have enough in common to provide a normative mirror. The AI comes with the added benefit of having both infinite patience and no internal urge to be right. This would allow the quest to provide an answer that is satisfactory to the user searching at every level of understanding. LLMs can be useful even before they gain the ability to access established knowledge. Simply by providing a surface on which to hang questions the user can become adept at the art of inquiry.
So the next time you have a chat with your pet AI understand that it starts as a session of pure space. Each word we put in ties down the AI to specific vantage points to help us explore. Go ahead—pick a question you think you’ve already answered and let the machine argue with you.
The decline of the Ottoman Empire from the reign of Süleyman the Magnificent (1520–1566) through the 1800s was closely intertwined with its financial system. A combination of internal fiscal instruments – such as the timar land-tenure system, tax farming (iltizam), coinage debasements, and halting reform efforts – and external financial dependencies – including capitulatory trade agreements, foreign loans, and reliance on European capital – weakened the empire’s economic foundations. This report examines how these financial tools contributed to Ottoman decline, and compares the Ottoman fiscal system with contemporaneous innovations in Venice, the Dutch Republic, England, and the Habsburg Empire. By analyzing public debt management, state banking institutions, military finance, and credit markets, we highlight how European states developed resilient “fiscal-military” systems that gave them economic and military leverage over the ailing Ottoman state. The analysis is supported by historical and academic sources, and a comparative table summarizes key differences.
Art Nouveau Flower pattern stencil print in oriental style. 1914 edition of Samarkande: 20 Compositions en couleurs dans le Style oriental” (Samarkand: 20 Color Compositions in the Oriental Style) by E. A. Séguy
Ottoman Internal Financial Instruments and Fiscal Challenges (16th–18th Centuries)
The Timar System and the Rise of Tax Farming
Under Süleyman I, the Ottoman Empire’s finances appeared robust. A pillar of the classical system was the timar: land grants to cavalry officers (sipahis) who collected taxes in return for military service. This decentralized feudal revenue system initially provided a steady supply of troops at low direct cost to the central treasury. However, by the late 16th century, signs of strain emerged. As the empire’s territorial expansion stalled and inflation eroded fixed revenues, the timar system began to break down. Many timar lands were seized by powerful elites and effectively converted into private estates, depriving the state of both manpower and revenue that these lands once provided.
To raise immediate cash, the government increasingly turned to tax farming (iltizam). Instead of collecting taxes directly, the treasury auctioned the right to collect provincial taxes to the highest bidder, who paid the state an upfront sum and then extracted revenues from the populace. While this provided short-term infusions of money, it incentivized farmers to maximize extraction over short tenures rather than sustainably manage resources. Observers noted that holders of timars and tax farms began to “exploit [revenues] as rapidly as possible, rather than as long-term holdings”, often abusing taxpayers and neglecting future productivity. In the late 17th century, the Ottoman state attempted a reform by instituting life-term tax farms (malikâne) to encourage longer-term investment in tax sources. Yet, corruption frequently allowed influential holders to secure hereditary control or turn tax farms into tax-exempt waqf endowments, “without any further obligations to the state”. This erosion of central authority over revenue reduced the funds available for the army and administration, contributing to imperial weakness.
Monetary Debasement, Inflation and Fiscal Crisis
When taxation and timar revenues proved insufficient, the Ottomans resorted to another expedient: monetary debasement. Successive sultans debased the silver coinage (akçe and later kuruş) by reducing its precious metal content, effectively raising nominal revenue at the cost of inflation. This policy had precedent – as early as the 15th century, Sultan Mehmed II used periodic debasements to fund his campaigns – but it became especially damaging in the late 16th and 17th centuries. The influx of New World silver into Europe drove up prices (the “Price Revolution”), and the Ottoman akçe’s value plummeted in international trade. In response, the treasury sharply debased the coinage in the late 1500s, triggering rapid inflation that disrupted the economy. Contemporary accounts describe how by the 1580s–1590s, prices for basic goods soared while soldiers’ and officials’ salaries (paid in debased coin) lost purchasing power. Indeed, “the treasury…began to meet its obligations by debasing the coinage,” but “all those depending on salaries found themselves underpaid,” leading to further corruption and unrest. Unpaid or underpaid Janissaries reacted with riots and mutinies, and provincial revolts (such as the Celali rebellions) had economic hardship as a backdrop.
Throughout the 17th and 18th centuries, fiscally motivated debasements were frequent, especially in wartime. Each debasement provided a short-lived budgetary fix but undermined long-term confidence in the currency. Notably, during the centralizing reforms of Sultan Mahmud II (r. 1808–1839), the empire carried out the “largest debasement ever in Ottoman history” – the silver content of the kuruş was reduced by over 80% between 1808 and 1844. The exchange rate of the kuruş to the British pound sterling collapsed from 18:1 to roughly 110:1 in that period. This caused steep inflation and hit fixed-income groups (bureaucrats, ulema, and especially the Janissary corps) the hardest. By the 19th century, it became clear that constant debasement was unsustainable – in 1844 the Ottoman government finally overhauled the coinage, adopting a bimetallic standard and stable gold-backed Ottoman lira, to restore credibility. Yet by then, decades of inflation had eroded popular trust and fiscal stability.
Public Finances and Attempts at Reform
Ottoman public finance in this era struggled to adapt to new realities. The empire’s traditional revenue system had been sufficient during the 16th-century expansion, but proved inadequate against rising military costs and economic change. Crucially, the Ottoman state did not develop a funded public debt system in the early modern period akin to those in Europe. Islamic law’s discouragement of interest limited formal public borrowing, and instead the treasury relied on informal loans from Galata bankers and advance payments from tax farmers. Only in the late 18th century did the Ottomans introduce a domestic debt instrument: the esham (shares in lifelong tax annuities). First issued in 1775 after a costly war with Russia, the esham allowed investors to pre-pay a sum to the treasury in exchange for a lifelong annual income from specific tax revenues. In essence, this was an Ottoman form of life annuity or bond. While the esham system marked a step towards modern public borrowing, it remained limited in scale and was structured to avoid explicit interest, thus offering less flexibility than European bonds.
Fiscal reform efforts gained urgency in the early 19th century. Selim III (r. 1789–1807) and Mahmud II attempted to recentralize tax collection and curb abuses by powerful provincial ayans (notables). After destroying the Janissary corps in 1826, Mahmud II pursued financial centralization, including abolishing most tax farms and trying to collect taxes through salaried officials. These reforms, alongside the 1840s Tanzimat reforms (which promulgated a more equitable tax system and budgets), did modestly improve state revenues. In fact, the central government’s tax revenue as a share of GDP, which had languished around an estimated 3% in the early 19th century, rose to over 10% after mid-19th century centralizing reforms. Despite this improvement, it was a belated catch-up. As one study notes, “most European states had experienced significant increases in revenues during the early modern era… while Ottoman revenues were in fact declining” in the eighteenth century. Thus, even the 19th-century Ottoman revenue gains were “the results of delayed political and fiscal centralization”. By the time the Ottomans built a modern finance system, it was under great external pressure and hampered by the empire’s accumulated weaknesses.
External Financial Dependencies and their Impact
Capitulations: Trade Privileges and Lost Revenues
From the 16th century onward, the Ottomans granted Capitulations – treaties giving European merchants and diplomats special privileges in Ottoman territories. Süleyman I’s agreements with France (1536) and later capitulations to other powers allowed foreign merchants low fixed customs duties (often around 3%) and extraterritorial legal rights. In the short term, these deals aimed to encourage trade and secure alliances. However, over the long term, capitulations created an unequal trading regime that undercut Ottoman finances. European merchants (and local non-Muslim intermediaries under European protection) flooded the Ottoman market with cheap imported manufactures, but Ottoman authorities were largely unable to increase tariffs beyond the low rates locked in by capitulatory treaties. By the 18th century, this meant that Ottoman craft guilds and industries, operating under strict price controls, could not compete with European goods entering “without restriction because of the Capitulations”, leading to “traditional Ottoman industry [falling] into rapid decline.”. The empire not only suffered deindustrialization but also missed out on potential tariff revenues that European states were capitalizing on. Capitulations thus constrained the Ottoman fiscal base, making the state increasingly dependent on domestic agrarian taxes (already strained by tax farming inefficiencies) while trade revenues stagnated.
Furthermore, capitulatory privileges exempted foreigners (and their local protégés) from many local taxes and even from the jurisdiction of Ottoman courts. This fostered a quasi-colonial economic environment in ports like İzmir and Alexandria. Foreign consuls often extended protection to Ottoman Christians and Jews, who in turn dominated lucrative export-import businesses at the expense of Muslim merchants. The overall effect was a drain on Ottoman financial sovereignty: the empire’s role in global commerce shifted from that of a controller (as it had been on the Silk Road before 1600) to largely a supplier of raw materials and consumer of European goods, with little ability to regulate commerce for its own treasury’s benefit.
Reliance on Foreign Loans and European Capital
In the mid-19th century, the Ottoman Empire’s fiscal troubles pushed it into external borrowing – a new and perilous dependency. The first major foreign loan was taken in 1854, during the Crimean War, to finance military expenses. Over the next two decades, Istanbul floated dozens of loans from European creditors (primarily British and French banks), often on onerous terms. By 1875 the nominal public debt had swollen to £200 million, an immense sum for the Ottoman budget. Annual interest and amortization payments reached £12 million – consuming “more than half of the national revenue.” In other words, over 50% of Ottoman state income was absorbed just by servicing debt, a clearly unsustainable burden. In that same year (1875), facing a global financial downturn and domestic fiscal shortfalls, the Ottoman government defaulted on its debt payments, admitting it could only cover half the interest due. This financial collapse precipitated an international intervention in Ottoman finances.
Creditors from the major European powers forced the empire to accept the Ottoman Public Debt Administration (OPDA) in 1881. This institution, run largely by European appointees, took control of key Ottoman revenue streams (such as the salt tax, tobacco tax, and customs duties) to ensure debt repayment at the source. Effectively, the OPDA meant partial control of state finances by European creditors until World War I. While this arrangement restored the Ottoman government’s creditworthiness (allowing it to borrow again at lower interest rates in subsequent years), it deeply compromised Ottoman sovereignty. European financial oversight dictated budget priorities, with creditor interests often trumping the empire’s domestic needs.
Beyond sovereign debt, European capital penetrated the Ottoman economy via direct investments: railways, ports, mining concessions, and the establishment of the Ottoman Bank (1856) which was British-French controlled and served as a quasi-central bank. The Ottomans were thus integrated into European capital markets but on unequal terms – mostly as debtors and as a zone of investment for outside interests. By the late 19th century, the empire was locked in a cycle of dependency: needing foreign loans to fund reforms or military expenditure, but those very loans leading to foreign supervision and further loss of revenue autonomy. This external financial reliance was both a symptom of the Ottoman decline and a cause of its acceleration, as the empire’s inability to independently mobilize resources left it vulnerable to diplomatic and economic pressure from the Great Powers.
European Fiscal Innovations vs. the Ottoman System
Early modern Europe witnessed a “financial revolution” in statecraft that the Ottoman Empire largely missed until it was too late. European states developed new financial instruments and institutions – from permanent public debts to central banks and sophisticated credit markets – which underpinned their rise in power. Below, we compare the Ottoman financial system to those of Venice, the Dutch Republic, England, and the Habsburg monarchy, emphasizing public debt management, banking, military finance, and credit markets. The contrast reveals how European innovations yielded greater fiscal resilience and military-economic leverage.
Public Debt and Credit Markets: Ottoman Lag vs. European Innovation
One of the starkest differences was in public debt management. Unlike the Ottomans, who avoided long-term interest-bearing debt until the late 18th century, several European states had developed perpetual public debts centuries earlier:
Venice: Pioneered public borrowing as early as the 12th–13th centuries. The Venetian Republic’s government issued prestiti (forced loans from wealthy citizens) which evolved into transferable government bonds. By 1261 Venice had reorganized its debt into the Monte Vecchio, and set a standard interest rate of 5% on these perpetual bonds. For roughly a century the rate held steady, indicating investor confidence. A secondary market for Venetian bonds flourished by the late 1200s – nobles traded them and used them as dowry assets, with prices publicly quoted. The state even established a sinking fund to buy back bonds when prices fell, shoring up the market. These practices made Venice’s credit extremely robust for the era; historians have dubbed the prestiti the first “AAA” government bonds for their reliability. Venice thus could finance costly wars (against Genoa, the Ottomans, etc.) by floating debt rather than resorting to debasement or ruinous taxation. This early financial sophistication eluded the Ottoman Empire, which lacked a comparable credit instrument during its 16th-century heyday and long after.
Dutch Republic: During its war of independence (1568–1648) against Habsburg Spain, the Netherlands (especially the province of Holland) developed a modern system of public finance. The Dutch raised enormous sums via voluntary bonds, backed by new permanent taxes. By the mid-17th century the Dutch Republic was able to borrow at remarkably low interest rates – around 5%, dropping to 4% by the 1660s. Dutch public bonds (including annuities called losrenten and lijfrenten) were widely held by a large investor base, and the interest rates were “equal to, or lower than, the lowest interest returns available in the private sector.” In fact, the Dutch essentially introduced the concept of perpetual, interest-only national debt: the government often paid only interest and could postpone principal redemption indefinitely, allowing it to “spend according to its needs without practical limit”. This extraordinary credit capacity enabled the tiny Dutch Republic to field armies and navies in excess of what its tax revenue alone could support. By the late 17th century, Amsterdam had become the financial capital of Europe – Dutch financiers not only funded their own state but also started investing heavily in other nations’ debts. In comparison, the Ottoman Empire’s nascent attempts at internal borrowing (like the esham of 1775) were timid and expensive, and the empire had to pay much higher effective interest when it finally issued Eurobonds in the 1850s (often borrowing at 8–12% when underwriting costs are included). The absence of a deep domestic credit market left the Ottomans fiscally brittle.
England (Britain): England was a latecomer compared to Italy or the Netherlands, but by the 18th century it surpassed them through what historians call the Financial Revolution. After 1688, the English state, now constrained by Parliament, established the Bank of England (1694) and began issuing a funded National Debt. The Bank of England’s creation was pivotal: previously English monarchs had to borrow from private lenders at up to 30% interest, but with the Bank’s formation (and its initial £1.2 million loan to the government at 8%), the state’s credit vastly improved. The Bank intermediated between investors and the state, creating a liquid market for government bonds. By the mid-18th century, Britain was selling long-term bonds at 3%–5% interest, comparable to the Dutch rates, and far below the cost of capital for the Ottomans. Each major war saw Britain’s national debt mount: from about 22% of GDP in 1700 to an staggering ~155% of GDP on the eve of the Napoleonic Wars. Yet Britain never defaulted; instead it serviced the debt via regular taxation and enjoyed access to “large pools of financing [as] a strategic advantage over its rivals.” In effect, Britain could wage war on credit, deferring the costs over decades, whereas the Ottoman Empire – lacking such credit mechanisms – often had to either curtail military operations or resort to desperate measures like debasing currency when funds ran out. The concept of marketable, liquid government debt, which Britain and the Dutch mastered, was largely absent in the Ottoman fiscal arsenal until the very end, when it came under foreign tutelage.
Habsburg Empire (Austria): The Habsburg monarchy (Austria and its Central European territories) offers a intermediate case. In the 16th–17th centuries, the Habsburgs’ finances were quite strained; they relied on a patchwork of estate contributions, high-interest loans from Italian and German bankers, and often fell into arrears or partial defaults (the Spanish Habsburgs famously went bankrupt several times in the 16th century). However, the constant Ottoman threat and wars in Europe forced Habsburg Austria to attempt fiscal reforms. By the 18th century, Maria Theresa and Joseph II introduced more centralized taxes and began to institutionalize public credit. For example, after the Seven Years’ War (1756–1763) inflicted massive costs, the Austrian treasury had to service a huge war debt that “for the remainder of Maria Theresa’s reign” dominated policy. This led to the creation of the Vienna Stadtbank and other instruments to consolidate and manage debt. The Habsburgs never achieved the low interest rates of Britain or Holland – their credit was seen as riskier – but by the early 19th century Austria had a central bank (established 1816) and an increasing tax base. Still, compared to Britain’s ~8% of GDP tax intake in the eighteenth century, Habsburg taxes were lower and its debt less sustainable, contributing to Austria’s financial crisis and default in 1811 during the Napoleonic Wars. In sum, the Habsburgs did move toward the European model of funded debt and fiscal centralization, but more slowly and with frequent setbacks. Tellingly, even this partial modernization was more than what the Ottomans managed until very late – by which time the Habsburgs (and other European states) could draw on British subsidies or international loans in their wars against the Ottomans.
State Banking and Monetary Institutions
European advances in banking and monetary policy also contrasted with Ottoman practices:
Venice and Italy: Venice established one of the first public banks, the Banco di Rialto in 1587, followed by the Banco del Giro. These were primarily banks of deposit and transfer, created to stabilize the currency and facilitate trade payments. While not “central banks” lending to the state, they enhanced Venice’s financial infrastructure by providing a stable credit system for merchants. Italian city-states like Genoa and Florence had earlier innovations (e.g. Genoa’s Bank of St. George managed state debt). The Ottomans, by contrast, had no equivalent public banking institution in the classical period. Money changing and credit were left to private sarraf (moneylenders), often from minority communities, operating without a unified regulatory framework. This meant higher transaction costs and interest rates for the Ottoman government when it needed short-term credit.
Dutch Republic: The Amsterdam Wisselbank (Exchange Bank) founded in 1609 was a crucial institution. It was a city-owned bank that accepted deposits of coin and allowed cashless transfers, greatly simplifying trade finance. It helped keep the Dutch currency stable and became a hub for European bullion trading. Though the Wisselbank did not directly finance government debt, its sound operations underpinned Amsterdam’s role as a financial center and increased confidence in Dutch financial instruments. The Ottomans, lacking such a bank, faced chronic currency instability (periodic debasements, as discussed) and could not as effectively mobilize the wealth of their merchants for state purposes.
England: The Bank of England (est. 1694) was revolutionary because it combined central banking functions with public debt management. In return for lending to the state, the Bank was granted note-issuing powers, effectively creating a paper money backed by government debt. Over the 18th century, the Bank became the lender of last resort and war financier for Britain. It coordinated with the Treasury to manage the national debt and stabilize the financial system (for instance, during crises it intervenated to shore up confidence). The Ottoman Empire did not establish a comparable institution until the mid-19th century, and even then the Ottoman Bank (originally founded 1856, reconstituted as the Imperial Ottoman Bank in 1863) was operated by British and French interests. The Ottoman Bank issued banknotes and acted as treasury banker, but its policy was often aligned with protecting European creditors’ interests, not purely the Ottoman economy. Without an independent central bank, the Ottoman state lacked tools to conduct monetary policy or to readily raise short-term funds in emergencies – tools that Britain used to great effect.
Monetary Stability: By the 19th century, most Western European states adopted gold or bimetallic standards, ensuring stable currencies which helped attract investment and keep borrowing costs low. Britain, for example, was effectively on a gold standard by the early 19th century and enjoyed low inflation. The Ottomans only stabilized their currency with the 1844 reform (switching from the debased kuruş to a new gold lira). Before that, continuous debasements had caused such price chaos that, as noted, economic actors in the empire were well aware of “who gained and who lost” from each coinage change. The relative stability of European currencies (especially the Dutch gulden and British pound) versus the chronic Ottoman currency crises further enhanced investor trust in European financial instruments and distrust in Ottoman ones. This divergence was self-reinforcing: stable money allowed Europeans to sustain large standing armies and navies (paid in reliable currency), whereas the Ottoman armed forces were frequently restive over debased pay.
Taxation, Military Finance, and Expenditure
Underpinning debt and banking was the ability to extract revenue. European states gradually built more effective tax systems than the Ottoman Empire:
By the 18th century, Britain and France had developed professional fiscal bureaucracies that directly collected customs, excises, and land taxes, largely eliminating tax farming. Britain’s tax revenue reached about 8–12% of GDP in the late 18th century, among the highest in Europe, funding both debt interest and a worldwide war effort. The Ottoman central government, even after reforms, collected around 3–5% of GDP in taxes until much later. This lower tax base meant fewer resources for the military. The Ottomans still relied heavily on provincial elites to raise troops and funds, whereas European monarchies could tap national wealth through centralized taxes.
Habsburg Austria lagged Britain/France but still increased its fiscal intake over time through centralized customs (the 1775 Austrian customs union) and new land taxes, despite resistance from nobles. In the critical wars of the late 17th century (Great Turkish War) and early 18th century, Austria’s ability to levy extraordinary war taxes (and receive foreign subsidies) helped it field armies that eventually outmatched the Ottomans. For example, by mobilizing the resources of the relatively prosperous Bohemian and Austrian lands, the Habsburgs could maintain a steady military pressure that the Ottomans, facing a bankrupt treasury and restive provinces, struggled to counter.
The Dutch Republic famously imposed very heavy taxes (especially excise taxes on consumption) to pay for its defense. In Holland, taxpayers bore burdens that astonished contemporaries but were accepted as the price of freedom from Spain. The Dutch could spend a high proportion of national income on their military (in the 17th century) without courting immediate fiscal collapse, thanks to a combination of high taxes and cheap debt. The Ottomans, in contrast, often had to reduce military campaigns due to lack of funds or resort to emergency measures (like seizing the properties of deceased officials or levying arbitrary surcharges) which had deleterious political effects.
In terms of military finance, the European states’ financial superiority translated directly into greater resilience and reach:
War Financing: Britain in the 18th century is a prime example – it fought numerous expensive wars (War of Spanish Succession, Seven Years’ War, Napoleonic Wars) by issuing debt and increasing taxes primarily to service that debt, not to pay war costs upfront. By one estimate, “until 1799 Britain’s eighteenth-century wars were financed by incurring debt; taxes were increased simply to pay the interest”. This model allowed Britain to mobilize resources far exceeding its annual revenue, something the Ottomans could not do. When the Ottoman Empire engaged in protracted conflicts (such as the 1768–1774 war with Russia or the 1877–78 war), it quickly exhausted available funds, leading to delayed soldier salaries, mutinies, and desperation measures (like the 1875 foreign debt moratorium). European powers could fight longer and rebound faster. For instance, after the costly Crimean War (1853–56), Britain and France absorbed the debt and moved on, whereas the Ottomans were left financially prostrate, having borrowed heavily during the war and then struggling to pay thereafter.
Resilience to Shocks: European states also proved more resilient to economic shocks from war. As Karaman and Pamuk observe, the centralized European fiscal-military states “captured increasing shares of resources as taxes” and “enjoyed greater capacity to deal with domestic and external challenges,” even being “able to shield their economies better against wars.”. In practice, this meant that even when wars caused debt spikes or temporary economic dislocation in Europe, the state’s credit and administrative structures kept the economy functioning. In the Ottoman case, wars often led to economic breakdown – for example, the 1877–78 Russo-Turkish war pushed the already indebted empire into severe default and an eventual foreign-controlled financial regime.
Military-Technical Edge: The superior financing of European powers enabled sustained investment in military technology and infrastructure – shipyards, firearms production, and later railways and telegraphs – which the Ottomans, with their strained budgets, struggled to match. The British Royal Navy, the Dutch fleet, or Austrian artillery could be expanded and modernized continuously through funded expenditures, whereas the Ottomans often fell behind in weaponry when they could not afford updates. By the 19th century, the Ottomans tried to modernize their army and navy, but had to rely on foreign credit and expertise to do so, further entangling them with European financiers.
Comparative Fiscal-Military Indicators (Ottoman Empire vs. Selected European States)
To summarize the key differences, the table below contrasts the Ottoman financial system with those of Venice, the Dutch Republic, England (Great Britain), and the Habsburg Austrian Empire in the early modern period. It highlights how innovations in public debt, banking, and taxation gave European states a marked advantage:
Aspect (16th–18th c.)
Ottoman Empire (1520s–1800s)
Venice (Italian states)
Dutch Republic (17th c.)
England/Britain (18th c.)
Habsburg Empire (Austria)
Taxation & Revenue
Relied on timar feudal levies and tax farming; central revenue ~3% of GDP until 19th c. reforms. Tax collection often privatized (iltizam), leading to inefficiencies and corruption.
Mix of direct taxes and trade duties; efficient bureaucracy for a city-state. Could impose extraordinary taxes during wars (e.g. assessed on wealth). Per capita tax burden high during conflicts, but Venice’s rich trade helped revenue.
Heavy excise and property taxes by provinces (Holland) to fund war. Very high tax burden accepted; Holland’s taxes perhaps 10%+ of provincial income. Decentralized but effective – taxes were permanent and serviced debt.
Centralized tax system after 1688; tax revenue ~8–12% of GDP in 18th c, collected via professional customs and excise offices (e.g. on tea, sugar, land tax). High per-capita taxes (especially compared to Ottomans), fueling military spending.
Patchwork of regional taxes; had to negotiate with nobility (especially in Hungary). 18th c. reforms introduced new land and customs taxes. Tax revenue grew but remained lower than Britain/France. Much revenue consumed servicing past debts.
Public Debt
No permanent national debt until late 18th c. Introduced esham annuities in 1770s (life-income shares), but scale was small. Relied on ad hoc local loans and, post-1854, foreign loans (which reached £200 million by 1875). Defaulted in 1875; European-controlled OPDA managed revenues after 1881.
Perpetual bonds (prestiti) from 13th c. at 5% interest. Debt widely held, actively traded; Venice maintained investor confidence with buy-backs and reliable interest payments. Enabled long-term war financing without debasing currency.
Funded national debt from late 16th c. Provinces (esp. Holland) issued bonds at 6–8%, later <5%. By 17th c., Dutch debt was immense but sustainable – interest-only loans, no set maturity. Dutch credit reputation so strong that they financed other nations too.
Permanent national debt after 1694. Sold bonds (consols) at 3–6%; interest paid from dedicated taxes. National debt rose dramatically (155% of GDP by 1800s) but was serviced reliably. Bank of England helped manage debt issuance. No default; high credit allowed Britain to fund global wars on unprecedented scale.
Borrowed through loans from bankers and public bonds mostly in late 18th c. Austria had no central debt market early on – used Anticipations (short-term notes) and some annuities. War of Austrian Succession and Seven Years’ War led to large debts; by 1760s debt servicing was a major budget item. Did not achieve as low interest rates as Britain/Dutch (Austrian bonds often ~6–7%+). Defaulted in 1811 amid Napoleonic pressure.
Banking Institutions
No central bank until mid-19th c. (Imperial Ottoman Bank under European management). Money lending by private sarraf; frequent coin debasements instead of note issue. Introduced paper money (kaime) in 1840s but it quickly depreciated. Lacked lender of last resort – financial crises were common in war.
Early public banks (Banco di Rialto, 1587) for transfers, not note-issuing. Stable gold ducat currency (Venetian ducat renowned for purity). Banking families (e.g. the Mocenigo firm) and state banks funded trade and helped manage Venice’s debt.
Amsterdam Exchange Bank (1609) – stabilized the currency (florin), facilitated international trade payments. Though it didn’t lend to government, its soundness boosted overall financial system. Amsterdam also had a vibrant stock exchange (VOC shares, etc.), deepening capital markets.
Bank of England (1694) – a true central bank: issued banknotes, managed government accounts, and lent to the state. Provided an institutional mechanism for large war loans at low rates. Also, a network of private banks and the burgeoning London Stock Exchange (18th c.) created a sophisticated financial sector.
Wiener Stadtbank (1705) created to consolidate Austrian debt and issue banknotes, but trust was limited. Reforms in 1760s–70s improved the Vienna bank; finally Austrian National Bank founded 1816 to stabilize currency after wartime inflation. Overall, Habsburg banking was less developed; they often depended on foreign bankers (Genoese, Jewish court bankers) for loans.
Military Funding & Leverage
Relied on timar feudal levies for cavalry (declining after 17th c.) and irregular troops. Cash-strapped treasury often fell behind on soldier pay, causing revolts. War efforts had to be curtailed when funds dried up. Could not sustain long campaigns against well-funded European coalitions. By late 19th c., required foreign aid (e.g. British-French funds in Crimean War) to field modern armies.
As a maritime power, Venice funded its navy and mercenaries via debt and commercial profits. Could rapidly outfit fleets by leveraging state credit. However, limited manpower and heavy debt from protracted wars (like War of Candia) eventually strained Venice, contributing to its decline by 18th c. (whereas larger nations outspent it).
Maintained one of the largest fleets and armies (proportionate to population) in 17th c. Financed 80-year war with Spain and wars against France primarily through debt. Dutch financial strength often exceeded its military-population base, allowing it to punch above its weight. However, by late 18th c., overextension of credit to other nations and economic stagnation weakened Dutch military leverage.
Could finance lengthy wars through a combination of high taxes and debt. For example, during the Seven Years’ War and Napoleonic Wars, Britain spent far more (subsidizing allies, fielding a global navy) than its rivals, without collapse. Ready credit meant Britain could recover from setbacks (e.g. funding another coalition after a defeat). This fiscal resilience was a decisive factor in its military victories.
Significant military forces, but financing was precarious. Frequently had to rely on subsidies (e.g. from Britain) to sustain war against France or Ottomans. Fiscal strains meant Habsburg armies occasionally mutinied for pay, and wartime inflation hit Austrian society hard. Still, by leveraging credit later and undertaking reforms, Austria managed to stay in great-power contests (e.g. it raised large armies in 1787–91 and 1809 due to improved taxation). Its leverage increased only when aided by the broader European financial system (loans/subsidies).
Sources: Ottoman and European fiscal data synthesized from Karaman & Pamuk, Pamuk, Britannica and historical sources.
Outcomes: European Leverage and Ottoman Vulnerability
By the nineteenth century, these fiscal contrasts translated into a profound power imbalance. European states had become true “fiscal-military” states – a term describing how they could harness their economies for war through efficient taxation and credit. They not only raised more money, but did so in ways that minimized disruption. For instance, Britain’s ability to borrow allowed it to keep domestic taxes at tolerable levels during war (shifting much of the cost to future repayments), whereas the Ottomans, unable to borrow enough, often resorted to immediate heavy taxes and debasements that disrupted their economy and alienated subjects. European economies were also better “shielded” from war due to these fiscal mechanisms – production and trade could continue, even expand, while the state drew on accumulated capital. In the Ottoman case, wars and fiscal crises fed each other in a vicious cycle: military defeats cut revenue sources and forced higher extraordinary levies, which then provoked rebellions and further defeats.
Moreover, European financial leverage had a diplomatic dimension. Cash-poor regimes like the Ottomans often fell under the influence of creditor nations. This was evident in how Britain and France used loans as tools of influence in the Ottoman Empire (for example, controlling how loan funds were spent on reforms, or using debt negotiations to extract political concessions). In the era of imperialism, debt could be as potent as armies: after 1881, the Ottoman government effectively needed European creditor consent for much of its spending, limiting its freedom to act independently on the world stage. European powers could also finance proxy wars or support allies (e.g. Russia or Austria) against the Ottomans, knowing their fiscal capacity exceeded that of the sultan’s treasury. In sum, financial modernization gave European states a form of “soft power” and endurance that the Ottomans lacked.
Conclusion
Financial instruments and institutions played a crucial role in the Ottoman Empire’s long decline. Internally, the empire’s reliance on short-term fiscal fixes – tax farming that undermined future revenues, coin debasement that fueled inflation, and only late and limited adoption of modern public debt – left the Ottoman state increasingly incapable of meeting the challenges of a changing world. Periodic reform efforts could not fully reverse the systemic weaknesses in revenue collection and monetary stability. Externally, the Ottomans gradually fell prey to the credit and capital of industrializing Europe: capitulatory trade regimes eroded the Ottoman economic base, and dependence on foreign loans led to a loss of financial sovereignty. By the late 19th century, the empire was as much a ward of European bondholders as it was an independent polity.
In contrast, contemporaneous European powers developed financial tools that gave them resilience in the face of war and crisis. Venice’s early bond market, the Dutch Republic’s low-interest loans and massive capital pools, England’s powerful combination of the Bank of England and funded debt, and even the Habsburgs’ strides in centralizing finance all enabled these states to project power more effectively. They became capable of mobilizing far greater resources per capita and sustaining conflict over longer periods than the Ottomans could. As one comparative study notes, European central states “captured increasing shares of resources as taxes” and thereby “enjoyed greater capacity to deal with…challenges” and to buffer their economies in wartime. This fiscal-military superiority translated into military victories and colonial expansions at Ottoman expense.
In summary, the story of the Ottoman Empire from Süleyman the Magnificent to the 19th century cannot be told without its financial fallibilities. The empire’s fiscal instruments, once adequate for a conquering realm, proved outdated against the new financial powers of Europe. While Ottoman reformers recognized the need to modernize (adopting new budgets, borrowing techniques, and currency reforms in the 19th century), these changes came late and under duress. The comparative evidence suggests that it was not destiny but institutions and choices that set the Ottoman Empire on a different path. In the crucible of early modern geopolitics, ducats, guilders, and pounds could be as decisive as cannons. Financial innovation became a key source of power – one that the Ottomans, for various reasons, did not fully harness in time, contributing significantly to their decline in the face of ascendant European states.
Aneesh Sathe 