Verçin: Ottoman collapse rooted in property rights over debt

WISE NEWS PRESS / ANKARA, TÜRKİYE

Economic analyst Mehmet Ali Verçin argues that the Ottoman Empire's financial downfall was primarily caused by the absence of legal property rights and structural flaws rather than the mere accumulation of debt.

In his latest analysis, Verçin highlights that while European states were evolving into tools that protected capital owners, the Ottoman state continued to suppress private wealth. This divergence, he claims, deprived the Empire of an autonomous financial class capable of balancing and supporting the state's fiscal needs, eventually leading to a total collapse of the imperial economy.

The failure of structural reforms

Verçin traces the roots of the crisis back to the 1774 Treaty of Küçük Kaynarca. While Europe empowered its private sector through legal guarantees, the Ottomans chose to liquidate local authorities (Ayans) and confiscate their wealth under Sultan Mahmud II. This "path dependency" focused on centralizing existing taxes rather than fostering new capital.

By 1840, the state was financially exhausted, having already pre-sold agricultural and customs revenues. Without a domestic capital base to borrow from, the Empire was forced to look abroad, but Galata bankers remained hesitant due to a lack of trust in the state's legal protections for property.

The Crimean War as a financial catalyst

The Crimean War (1854–1856) provided a temporary "window of opportunity" for Ottoman finances. With Britain and France as allies against Russia, the Empire gained access to international credit markets on terms previously unimaginable.

"It was a 'godsend' for the state," Verçin notes. The Ottomans issued 3 billion USD in bonds, backed by Egyptian tax revenues, followed by another 5 billion USD guaranteed by the ports of Beirut and Izmir. By the end of the war, the state had successfully borrowed over 7.5 billion USD (in adjusted 2026 values), allowing it to pay arrears and modernize the military.

The 1875 bankruptcy and debt ratios

The transition from the Edict of Reform (1856) to the First Constitutional Era (1876) marked the peak of borrowing. By 1875, the state could no longer even pay the interest on its loans. The "Ramadan Decree" declared a five-year moratorium on debt payments.

Verçin provides a stark comparison of the 1875 debt levels using a simplified formula where 1 million Ottoman Lira (OL) is roughly 1 billion USD. At the time of bankruptcy, the state’s debt was 220 billion USD, while its revenue was only 15 billion USD.

To put this in perspective, Verçin notes that if the current Turkish state in 2026 had a similar ratio with its 600 billion USD revenue, the total debt would be a staggering 8.82 trillion USD. Fortunately, the 2025 debt levels remain significantly lower at approximately 310 billion USD.

From Düyun-ı Umumiye to the Republic's legacy

The formation of the Public Debt Administration (Düyun-ı Umumiye) in 1881 saw creditors write off 100 billion USD of the debt in exchange for direct control over certain tax revenues. This system persisted until the First World War. Following the War of Independence, the Treaty of Lausanne partitioned the debt among successor states, with the Republic of Turkey assuming 62.5% of the total.

The final settlement in 1933 reduced the remaining 100 billion USD debt to just 8 billion USD due to the devaluation of the French Franc and the 1929 Great Depression. The young and impoverished Republic paid the final installment of these Ottoman debts in 1954. Verçin concludes that the ultimate lesson is that it was not the loans themselves that destroyed the Empire, but a distorted economic structure that made borrowing an unavoidable necessity.

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