Historians estimate that between 1521 and 1590 Spain extracted three hundred tons of gold and twenty-seven thousand tons of silver from its American colonies according to Stark in How the West Won. That tripled the stock of silver in Europe and increased the gold supply by 20 percent. The resulting inflation led the Salamancan scholars to discover the quantity theory of money in which, all other things being equal, an increase in the money stock will cause prices to rise proportionally.
The Spanish empire consisted of far more than the Iberian Peninsula minus Portugal. Charles V inherited the power of Europe’s greatest dynasties. As head of the House of Habsburg he ruled over Germany and Austria. From the House of Valois-Bergundy he gained the Netherlands, which at the time included modern Belgium. And with the rule of the House of Trastamara of Castile and Aragon came Spain, Sicily, Sardinia and southern Italy.
But defending and expanding that sprawling empire as well as fending off repeated Ottoman attacks in the east required even more funds than Charles’ ships could haul across the ocean so he acquired huge debts. Charles’ successor and son, Philip II, inherited that debt and in 1556 Philip declared bankruptcy for the first time. He would declare bankruptcy again in 1596, then in 1607, 1627, 1647, and 1653. Each bankruptcy ruined the lenders.
Had Spain enjoyed the manufacturing base of the Dutch it probably still could not have afforded the expense of such a vast and well supplied military as Charles and Philip maintained. But Spain had virtually no manufacturing and trade followed one path, from other nations to Spain. The small amount of manufacturing Spain had before the conquest of the Americas drowned in the deluge of gold and silver pouring in as the wealthy could afford the higher quality goods from elsewhere, especially from the Dutch where most of the Spanish gold washed ashore.
Nor did Spain develop an indigenous merchant class. Foreigners, mostly Italian, conducted most of the import/export business because the Spanish retained the ancient disdain for commerce. Stark wrote in How the West Won, “This was a source of pride among leading Spanish citizens – known as the hidalgos. Manufacturing and commerce were for inferior people and nations, so let others toil for Spain, was how they put it.”
Spain had to import a large amount of its food because of its poor soil and an institution known as the Mesta. The Spanish raised sheep that produced high quality wool which they exported and provided tax revenue to the king. The tax revenue was so important that the king gave the sheep industry preeminence over the property rights of land owners. The sheep herds migrated seasonally north and south to better pastures across lands the shepherds did not own, but the law required land owners to give the sheep free passage, the Mesta. The number of sheep was so large that it prevented farmers from growing crops on the lands in the path of the migrations.
In the armada that sailed for England in 1588, only the soldiers and sailors were Spanish and not all of them. The ships, guns, cannon balls, gunpowder and biscuits were all imported. When a shortage of cannon balls fell on Madrid in 1572, Phillip had to quickly import Italian cannon ball makers because no one in Spain knew how to make them. According to North, quoted in Stark’s How the West Won, Spain’s “economy remained medieval throughout its bid for political dominance. Where it retained political sway, as in the Spanish Netherlands, the economy of the area withered.” Like France, Spain chose to cling to traditional, medieval ways rather than learn from the Dutch and prosper. Instead, it withered into insignificance.
The Ottoman Empire
The other super power of the sixteenth and seventeenth centuries was an Islamic caliphate, the Ottoman Empire, which dominated the Middle East, North Africa and Eastern Europe as no other had since the fall of Rome. In 1688 it attacked Vienna. Had the Ottomans won the battle, they probably would have conquered all of Western Europe as well. Europeans cowered in terror of the empire that curved like a scimitar from Austria around the eastern Mediterranean to Algiers. But in the three centuries that followed, Western Europe and the Ottoman Empire danced a slow economic and military pas de deux until the two had traded places in the nineteenth century. How did it happen? Did the Ottoman Empire disintegrate? Why, today, are the nations that descended from the Ottoman Empire considered ignorant, poor and backward, terms the Ottoman’s had used for Western Europe in 1500?
The Ottoman Empire lasted from before the Renaissance until World War I. Its influence persists to this day in the Middle Eastern and North African countries that once made up the empire. Many intellectuals in those nations accuse the West, particularly the U.S., of being the rich oppressor of poor nations and the cause of their poverty. But the reality is that, as with France and Spain, neither the Empire nor its descendants developed the principles or institutions that empower economies to grow in the manner that the countries of Western Europe had. Oddly, the Ottoman Empire encouraged free trade with other nations three hundred years before Adam Smith, but within the Empire, the state strangled business with regulations while Sultans exercised arbitrary rule and frequently appropriated private property.
The great obstacle to grasping the cause of the decline in the Ottoman Empire is the myth of the Islamic golden age, very much like the myth of Spain’s golden age. Like the Spanish, the Ottoman’s held commerce in contempt while depending on conquest to acquire the wealth needed for war.
Istanbul
As the sixteenth century faded, the Ottoman Empire retained its position as the wealthiest, most powerful empire of its day. Its capitol, Istanbul, sheltered 1.2 million people of varying races and religions, far more than any European city. It boasted of having over 7,000 mosques, nine hospitals, 1,900 primary schools, 14,500 public baths, hundreds of mansions, the Sultan’s palace, the magnificent Suleymaniye mosque, and the Hagia Sophia church converted into a mosque and an architectural marvel even a millennium after its construction, according to Bernard Lewis’ Istanbul and the Civilization of the Ottoman Empire.
The heart of a rich and growing empire, Instanbul became a magnet for artists, writers, scholars, soldiers, statesmen, merchants and thousands of Jews fleeing Spain. A seventeenth century poet expressed the pride and love that Ottomans felt for their capitol in a lengthy poem. Here is a small excerpt from Lewis’ book:
May God cause Istanbul to flourish
For it is the home of all great affairs.
Birthplace and school of famous men,
The nursery of many nations,
Whatever men of merit there may be
All win their renown in Istanbul.
The heavens may turn about the earth as they will
They will find no city like Istanbul.
Drawing and painting, writing and gilding
Achieve beauty and grace in Istanbul.
However many different arts there may be
All find brilliance and luster in Istanbul.
Because its beauty is so rare a sight
The sea has clasped it in an embrace.
All the arts and all the crafts
Find honor and glory in Istanbul.
In the early 1700’s, the residents of Istanbul consumed 200 tons of grain per day so providing cheap bread for the city’s residents burdened the Sultan, who considered this job too important to leave to the market because shortages in the past had caused the troops to revolt and citizens to riot. The Grand Vizier, whose role was similar to that of a Prime Minister, led an army of bureaucrats who inspected the grain and bread supplies and set prices daily according to Halil Inalcik in An Economic and Social History of the Ottoman Empire.
Honorable wealth
The Ottoman Empire represented the last great Islamic civilization, reaching the peak of its military power and geographic reach under Sultan Suleyman the Magnificent, who ruled between 1520 and 1566. Though German reformer Martin Luther considered the Turkish victories over the Christian armies of Europe God’s punishment for Europe’s sins, he wrote a pamphlet in which he praised Ottoman piety and their efficiency as rulers according to Gregory Miller in his article �
��From Crusades to Homeland Defense.”
Outside of the differences in religion and military power, Europeans and Ottomans had more in common with each other in the sixteenth century than either would have with Europeans of today. Feudalism ruled the countryside of much the Ottoman Empire, while monopolistic guilds dominated city life. Ottoman rulers espoused just one theory of economic development: conquer your neighbor and take his gold. Like the Arabs before them, the Ottomans sought to expand the realm of Islam through war, but confiscating the wealth of conquered people and collecting taxes from new subjects motivated sultans as well, as Inalcik wrote. For similar reasons, Spain subjugated Central and South Americas in order to bring Catholicism to the natives and relieve them of the burden of their gold. For both empires, war provided the means to enrich the ruler and his treasury and enable him to launch more wars to expand the empire further.
Citizens of the Ottoman Empire had few choices for gaining wealth if they were not born into it. Plunder in war, ransom, and bribery were the most respectable means of increasing a man’s wealth, as Baumol wrote in The Free Market Innovation Machine. Only people of the lowest classes lived by commerce. This attitude toward the acquisition of wealth had changed very little by the late Middle Ages in the Ottoman Empire where commerce was viewed, at best, as a neutral vocation according to Inalcik. In Europe, the reputation of commerce continued to rise and ushered in the age of mercantilism as a philosophy of economic development, which was a major improvement over the old theory of government sanctioned plunder. But commerce’s image did not improve among the Ottomans in a corresponding way until the late nineteenth century.
Because the kings and sultans allowed their armies to keep a portion of the wealth of conquered subjects, the nobility in Europe and the Middle East relied upon public wars to enrich their personal treasuries. But between wars, funds would run low due to their extravagant lifestyles. So in peacetime, when the demand for their services on the part of rulers fell off, the nobility would exercise their entrepreneurial skills by launching private wars. These wars, public or private, destroyed wealth in three ways: the armies consumed scarce resources; they hindered the work of productive people; they left poverty, disease and misery in their wake.
Ottoman economic mind
As in Europe, the nobility staffed the military leadership in the Ottoman Empire. What Europeans called peasants, Ottomans called the ra’aya, a word that can be translated as sheep or as citizens, but which accurately describes the attitude of the government toward the common people. To the Ottoman mind, the citizens existed to feed and clothe the military; the military, with the sultan as the head, protected the citizens like a shepherd and expanded the empire. Consequently, the nobility and military were exempted from taxation. During most of the Ottoman empires long dominance, becoming an officer was difficult and the dream of many young men.
Below the military in status were the ulema, or religious leaders, and the government bureaucracy. Ottomans remained ambivalent toward agriculture, the trades and commerce, but considered moneylenders and entertainers as belonging to an evil class of people. Ottoman bureaucrats displayed their disdain for commerce by freely granting trade concessions to Europeans. They usually delegated the negotiations of the concessions to minor officials, some of whom served temporarily. Ottomans prohibited the exportation of gold and silver, the money of the day. Otherwise, they championed free trade three hundred years before Adam Smith, but for different reasons, as Inalcik wrote:
The idea of an economy as a whole and its protection, in physical or economic terms, against competitor nations never seems to have occurred to the Ottomans before the eighteenth century. Apparently, no concern existed for the protection of home industries against foreign products, not even for the traditionally well-established industries such as the Ottoman silk manufacturers of Bursa...Imports were viewed as beneficial to ensure surplus in the market without any other economic consideration.
The author of this quote considered the lack of a mercantilist doctrine in the Ottoman Empire to be one of its weaknesses and a cause of its decline. But as we shall see later, it actually prolonged the life of the Empire by keeping prices low and thereby improving the standard of living of its people.
Islam, the religion of the Empire, dominated economic thought even more than it does today and Islamic doctrine encouraged the Ottoman Empire to establish an early version of what is called today a welfare state. Inalcik wrote, “After all, in the pure Islamic tradition, the state is considered merely a means to promote Islam...The basic orientation ‘is the mutual sharing of the community’s income between the affluent and have-nots.’” The Islamic emphasis on redistribution of income required that the state control the economy. Luxury goods, such as silk, escaped a great deal of regulation because the clerics considered them unimportant. But necessities, such as meat and bread, earned the scrutiny of the highest levels of government. In addition to the Islamic influence, traditional societies knew from experience that overproduction led to low prices, and shortages to high prices. So both producers and consumers demanded that the government regulate the market out of fear of each other and envy of anyone who might succeed more than others. In response, the central government shackled the economy with strict controls, resulting in static economies and limited markets.
The Ottomans controlled production in much the same way as the Europeans did, through guilds licensed by the state that filled the role of modern unions. The bureaucracy determined which guilds would produce which products, how much guilds could produce, the content and quality of the products, and the prices they could charge. Production outside of a guild was illegal and subject to heavy penalties. For example, at the end of the fifteenth century, guilds in Bursa defied state regulators and gave in to popular demand by producing cheaper silks for common people. The state reacted by passing new regulations defining the quality and amount of silk and dye that could be used for a variety of cloths. In 1485, Sultan Bayezid II outlawed the printing press, a ban which lasted throughout the empire for the next three centuries. In other words, the Ottomans employed the methods of the Great Colbert a century before him.
Islamic doctrine required a tax on the most productive people in the Empire, Christians and Jews. The Ottomans continued a practice begun in the early days of Islamic expansion under the Arabs of offering conquered people three choices: convert to Islam, die, or pay a heavy tax in order to remain non-Muslim. In 1475, this tax on Christians and Jews contributed 45 percent of the total budget of the Empire according to Inalcik. Non-Muslims paid this tax in addition to the heavy tax burden required of all citizens. Of total state revenue in 1475, 81 percent came from the predominantly Christian Rumeli, or Eastern European provinces of the empire. By 1740, the tax on non-Muslims had fallen to 40 percent of the total as a result of conversions to Islam, Inalcik wrote. The percentage supplied by non-Muslims might have fallen more severely had not the government begun to limit conversions.
Ottoman superiority
Ottomans felt a strong sense of superiority over every other culture they encountered, and for good reason. Their military had recently defeated the remnant of the ancient Byzantine Empire, the Christian standard bearer in the region for over a thousand years, when the Turkish army of eighty thousand overwhelmed the seven thousand defenders of Constantinople. In 1526, the Turks destroyed the entire Hungarian army in a battle lasting just two hours. Suleyman’s army laid siege to Vienna in 1529. Though the Austrians forced him to withdraw, they knew the reprieve was temporary.
The Ottoman military defeated their opponents so often that Europeans went into battle expecting to lose. Europeans erupted in jubilant celebration after rare victories. In 1571, when a European navy defeated an Ottoman fleet in the Gulf of Patras in Greece, King James VI of Scotland (later James I of England), wrote a long, ecstatic poem about the victory. All of Europe rejoiced. To the Turks, however, it was a minor affair. When the sultan asked his vizier about the cost of rebuilding the su
nken fleet, the vizier commented that the wealth of the sultan’s treasury was so vast that he could supply a new navy with silver anchors and silk sails if he wished, Lewis wrote in What Went Wrong.
Still, the Turks had lost 210 ships sunk or captured to the Europeans’ twenty ships. The defeat revealed a weakness in Ottoman culture that would prove to be an omen of the Empire’s decline: several of the captured ships belonged to admirals and European sailors found hidden in them fortunes in gold coins. Fearing confiscation of their wealth at home by powerful enemies in the government, the admirals had no choice but take all of their wealth with them into battle. “The Ottoman sultan, like the emperor of China, claimed ownership of everything; whenever either of them needed funds, ‘confiscation of the property of wealthy subjects was entirely in order,’ as the economist William K. Baumol observed,” Stark wrote in How the West Won. If the wealth of admirals was in danger, how much more would the middle class and peasants have suffered from a lack of security for their property?
Ottomans regarded their culture as the definition of civilization and they found little outside it that interested them. They considered their religion to be the final and perfect revelation from God, superseding Judaism and Christianity. They believed that European science had begun by translating the works of Islamic scholars from Arabic while the Ottomans had pushed astronomy, medicine, mathematics, engineering and the arts to loftier levels. As the great historian of the Middle East Bernard Lewis wrote in What Went Wrong, Islam “had achieved the highest level so far in human history in the arts and sciences of civilization...medieval Europe was a pupil and in a sense dependent on the Islamic word.”
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