Rules, Contracts and Law Enforcement in the Ottoman Empire

This chapter presents the main purpose of the study that focuses on the role of institutions and law over the economic performance of the Ottoman Empire during the early modern period. In this sense, tax-farming institutions and the legal structure of the Ottoman Empire are at the center of this study. A long-standing assumption of the recent literature is that efficient institutions in establishing cooperation are achieved to direct financial resources toward productive activities. The economic growth and divergence follow the evolution of institutions. On the other hand, our results show that the Ottoman rulers lost their absolute power during the evolution of tax-farming institutions. The long-standing presumptions argue that the Ottoman sultans as other Muslim rulers had absolute power for several reasons, the game-theoretical perspective shows that contractual relations could not satisfy neither Pareto efficiency nor Pareto inefficient equilibrium(s) or outcome(s). Instead, the Ottoman Empire is between these two equilibria due to the lack of absolute power of the state. It is shown that the powerful groups achieved to limit the power of the state, or the institutional structure promoted partial rule of law in the Ottoman Empire. The partial rule of law, however, entails limited economic growth according to competing European societies.

This chapter discusses the role of institutions and the rule of law in a historical context. The recent literature on the role of institutions argues that better economic performances emerged from welfare-enhancing institutions and efficient mechanisms during the pre-industrial period. This period is characterized by the domination of decentralized institutions in the economic structure of both Western European societies and the Ottoman Empire. The early modern period has also been characterized by contractual relations between the rulers (kings, lords, princes, sultans, etc.) and powerful groups. The cooperation among contracting parties has been a major driving force of economic progress. The theoretical background based on the rule of law context has included historical and institutional literature. This literature has been crucial to understanding how some societies solved credible commitment and the law enforcement problems and how others failed over time. Furthermore, the literature has presented how institutions did change over time. The theoretical background has shown that the Ottoman Empire developed institutions, and these institutions emerged for the same purpose under the rules of the game. We have shown that the institutional change that emerged in the Ottoman Empire is compatible with collective action theories.

This chapter focuses on studies of the historical background of the structure of law in the Ottoman Empire. Although the recent literature examines the relationship between the rule of law and the power of Muslim rulers in Islamic societies, the Ottoman Empire had a different and complex legal structure during the pre-industrial period. We show that the rules were enforced under two different laws: Sharia Law (Religious Law) and Urfi Law (Sultanic Law). The rules in Sharia Law are fixed and difficult to change. The Urfi Law, however, consists of rules that can be changed by the willingness of the sultans. Ottoman sultans only could change the rules of law within traditions. Limited ability to change the rules allows decisions to evolve over time. Thus, the third chapter focuses on the evolutionary process in judicial decisions and changing rules regarding the Urfi Law, surrounding contractual relations within the tax-farming institutions.

This chapter focuses certainly on economic indicators to examine the economic performance of the Ottoman Empire during the pre-industrial period. Despite the lack of data for developing economies before industrialization, tax revenues provide sufficient information to understand long-term economic performances. The estimates made by Maddison Project provide other economic data based on per capita GDP levels of the Ottoman Empire, from the beginning of the sixteenth century to the nineteenth century. The historical evidence shows that the tax-farming institutions surrounded a substantial part of tax revenues in the Ottoman Empire. The efficiency of these institutions determines the level of tax revenues. Their effectiveness allows a comparative analysis of the institutions of societies through per capita tax revenues.

This chapter presents a descriptive analysis of the tax-farming contracts, including prices, annual payments, actual and intended durations, between 1500 and 1800. The prices and annual payments given in contracts are in Ottoman currencies, and they reflect nominal values. To obtain more accurate data, each variable will be converted into real values in terms of silver with the prices of 1913. This chapter, however, has focused on two different variables from tax-farming contracts. The differences between intended and actual durations have formed first explicit data in examining the failure of the contractual relations. The findings have shown that a substantial proportion of tax-farming contracts had been terminated before the intended duration due to the exogenous shocks and endogenous dynamics. The theoretical background has suggested that deteriorated monitoring mechanisms and partial institutional change entailed commitment problems in contractual relations. Changing rules have been inadequate to solve commitment problems. The motivation of the central authority in maximizing revenues through auction mechanisms has directed agents to transfer their financial resources toward tax-farming contracts. The findings have also suggested that agents were mostly willing to take tax-farming contracts for political privileges. In sum, collusion among high-ranking bureaucrats of the central authority and agents has entailed contracts to change hands frequently. The second explicit data employed within this chapter have supported the assumptions over the differences between intended and actual durations. Our sample has presented that only 1/3 of tax-farming contracts had increasing prices during the auctions. The prices of other contracts have remained at the same level or decreased during the auctions. The recent literature has overlooked these two economic data that emerged from tax-farming contracts. The literature has considered this problem as a loss of state revenues in the long run. This study, however, has suggested that the rule of law for elites emerged within the institutional environment, and the judges played a crucial role in establishing this through judicial bias. Furthermore, it has been argued that the judges had enough motivation to promote the rule of law for elites.

This chapter gives a game-theoretical model of tax-farming contracts to examine the level of the rule of law in the Ottoman Empire. We employ tools from Prisoner’s Dilemma game for two reasons. First, the PD game is a simple embodiment of establishing cooperation in contractual relations. In this sense, the PD game generates the basis of our theoretical perspective to analyze equilibrium(s) and outcome(s) as well as the rule of law. Secondly, the assumptions of the PD game are compatible with the payoffs proposed from primary sources based on tax-farming contracts and court records. The game-theoretical model has suggested that once a contractual arrangement emerged between the central authority and the agent, the strategies of contracting parties were mostly defection. Thus, a Nash Equilibrium(s) has emerged within the institutional environment. Game theory has argued that Nash equilibrium(s) is Pareto inferior, and the Pareto optimum outcomes are based on cooperation among contracting parties. The main reason is that selective and partial institutional change entailed failure to establish a competitive structure within the institutional environment. The structure of law and the role of judicial/religious-based agents had limited the institutional change to protect their interests in contractual relations. In terms of the rule of law, this study has argued that the Ottoman Empire became a typical example of a “limited access order”. The structure of law and its judges, however, had prevented agents from developing mechanisms in limiting the coercive power of the central authority. The judicial/religious-based agents had used their influence to maintain the institutional structure as it did.

This chapter includes two different parts. First, it examines each chapter in brief. Secondly, a general discussion is given on why the institutional structure of the Ottoman Empire caused failures through presented arguments in previous chapters. The findings and arguments of this study have provided a contribution to the early modern Ottoman Empire in different ways. First, institutional change should be considered as a cause of long-run divergence in comparison with European societies. Secondly, the argument of the recent literature over coercive power of the central authority in contractual relations is inadequate in explaining the failure in contractual relations. If this argument is valid, then the prices of contracts would be in an increasing trend in the long term. The failure, in this sense, has emerged from the role of judicial/religious-based agents and their efforts to protect their interests within the institutional environment. Consequently, the divergence should be examined through economic institutions as well as non-economic institutions, particularly during the early modern period.