(Lawrence W. Reed, Money Metals News Service) By the start of the 20th Century, governments and their diplomats around the world dubbed the (Turkish) Ottoman Empire “the sick man of Europe.”
Conventional wisdom, reflected in high school and college history texts to this day, cites these contributing factors in the 500-year decline of what was once one of the biggest and most powerful domains in the world: a failure to industrialize and modernize; internal strife; conflict with neighbors, particularly Russia; and siding with Germany in World War I.
All those factors played a role in the Empire’s formal end in 1922, when it was dismantled. The smaller nation of Turkey emerged in its place. But historians, who often prefer to tell history in political and military terms, probably underestimate the role of currency debasement (a.k.a. inflation) in the demise of the Ottomans.
The British economist John Maynard Keynes, in one of his few lucid moments, offered a candid assessment of the practice:
By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.
The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth…There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.
As the medium of exchange, money is at least one side of every non-barter transaction. Ruin the money and you’ll ruin the economy. Ruin the economy and you’ll ruin the country.
Ottoman rulers routinely engaged in the debasement of money. They did it for hundreds of years by reducing the size and precious metal content of their coins, most notably the silver kuruş, also known as the piastre. They issued gold coins, too, but fixed the gold/silver ratio in a fashion that triggered Gresham’s Law and drove gold into hiding.
Much of the 18th Century saw a relative monetary stability before debasement and inflation resumed. When they had finally ruined the kuruş in the early 19th Century, the Ottomans introduced a new currency, the lira, and screwed it up too.
Then, in the decades before World War I, they tried two different fiat (unbacked) paper money issues and—you guessed it—mismanaged them both into oblivion.
The periodic financial crises created by Ottoman debasement make for fascinating reading if you know where to look (see below). Those crises often produced political upheavals and revolts. Space permits me to focus on just one of those episodes, the Beylerbeyi event of 1589. It was the first major debasement-induced rebellion in the Empire, and for the Ottomans, it was pretty much a long downhill road from there.
It all started with a war, when the Ottomans stupidly decided in 1578 to attack the neighboring Safavid Empire (roughly corresponding to today’s Iran). The venture proved too costly to finance through taxation and borrowing alone, so the Sultan, Murad III, reduced the precious metal in the coinage to cover his government’s budget deficits. Prices soared.
Ordinary people felt the brunt of the inflation, but they didn’t have the means to do much about it. However, the elite infantry, known as the “janissaries,” certainly did. They are considered history’s first standing army to be furnished with firearms, and they didn’t like what inflation did to their salaries. In real terms, their pay fell by about half during the war.
The janissaries demanded a big increase in their salaries, as well as the execution of the state’s Treasurer and another official (the Beylerbeyi) who had advised the Sultan to debase the currency. Murad III capitulated, raised the salaries, and stood by while the janissaries executed his Treasurer and advisor.
The revolt ended with the regime weakened, but subsequent sultans learned little from the episode. In the half century following the Beylerbeyi revolt, reports Hakan Berument, prices rose fivefold. Currency debasement became an Ottoman hobby during most of the next 300 years.
Now you know yet another good reason why the Ottoman Empire no longer exists.
Sources and additional information:
- The Ottoman Monetary Crisis of 1585 Revisited by Baki Tezcan
- Ottoman Coins and Currency at the End of Empire by Tyler Rossi
- Osman’s Dream: The History of the Ottoman Empire by Caroline Finkel
- A Monetary History of the Ottoman Empire by Sevket Pamuk
- Inflation Dynamics and Its Sources in the Ottoman Empire, 1586-1913 by Hakan Beremunt
Lawrence W. Reed is FEE’s President Emeritus, Humphreys Family Senior Fellow, and Ron Manners Global Ambassador for Liberty, having served for nearly 11 years as FEE’s president (2008-2019). He is the author of the 2020 book, Was Jesus a Socialist? as well as Real Heroes: Incredible True Stories of Courage, Character, and Conviction and Excuse Me, Professor: Challenging the Myths of Progressivism.
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