The (non-)Transition to Impersonal Exchange Institutions in Ottoman Istanbul

• In Event: Beyond Europe: Long-Run Development Across Late Modernizers in Eurasia

Abstract

Widespread impersonal exchange—exchange with unknown relations—is one of the hallmarks of the modern economy. Yet, most exchange remained personal in the Middle East until the late 19th century. Why was this case? In this paper, we first document the relative paucity of impersonal exchange in Ottoman Istanbul from 1600-1850. We employ a new dataset of credit transactions in which the locations of borrowers and lenders are geocoded. We find that the distance between borrowers and lenders decreased over time, indicating that lending became more personal. We suggest that an institutional change in financial markets explains this pattern. Beginning in the mid-18th century, a financial innovation known as gedik—which permitted tradable shares of fruitful assets—provided a relatively safe outlet for excess capital. Since there were no financial institutions such as banks that could overcome asymmetric information problems inherent in impersonal lending, gediks drove risky impersonal loans out of the market.

Authors

• Timur Kuran, Duke University

• Jared Rubin, Chapman University