There is no precise definition when it comes to financial or economic collapse. The term is often used to describe a variety of bad economic conditions such as severe and prolonged depression along with high bankruptcy and unemployment rates; a breakdown in normal commerce due to hyperinflation; or even a sharp increase in the death rate caused by a bad economy. Major historical economic collapses have had both political and financial causes such as trade deficits, wars, revolutions, famines, depletion of resources and incompetent governments, and the symptoms present themselves in many different ways. If you think the latest global financial crisis was a bad one, check out some of these historical financial collapses that had major consequences.
Tulip Mania, 1636-37
In the mid-1500s, the tulip arrived in the Netherlands and, due to its uniquely intense petal colour, quickly became a very important status symbol to the newly independent country. Over a short period of time, the flower became a coveted luxury item and many varieties were cultivated, soon reaching a price that would have cost a skilled tradesman 5 years of salary just to afford a single bulb. Tulip mania reached its peak in 1636-37 when, unexpectedly, buyers failed to show up at a routine bulb auction. Despite the best efforts of traders to prop up demands, the market for tulips evaporated with bulbs fetching one-hundredth the amount they did just the day before. Tulip mania to this day is thought to be the first speculative bubble that burst and had disastrous consequences.
Weimar Germany, 1921-1924
After Germany’s defeat in World War I, the political instability of the country resulted in the murders and assassinations of hundreds of political figures. The war had heavily strained the nation’s finances, so in order to raise enough money in taxes to run the government and make war reparations, the government resorted to printing new money. The resulting hyperinflation destroyed the wealth of most of Germany’s citizens and created a political environment that favoured the Nazi Party.
The Great Depression, 1930s
The decade of the 1930s saw the most severe worldwide economic contraction since the beginning of the Industrial Revolution. In North America, the depression began in the summer of 1929 and was soon followed by the stock market crash in October, when stock prices began a rapid decline and hit rock bottom in 1932. Soon enough, the banking system broke down, asset prices collapsed, bank lending ceased, it was harder for people to be buying shares or trading shares, a quarter of the workforce was unemployed, and the GDP per capita plummeted by 29%. By 1941, North America was fully recovered thanks to World War II, which gave rise to a boom that was even more dramatic than the recession itself.
Argentine Economic Crisis, 1999-2002
The Argentinean economy was destabilised in the 1980s when the Latin American Crisis struck. Since Argentina was an import-dependent country, the high inflation rates of converting pesos into dollars led people to lose confidence in their currency while the government spent generously on itself and ignored the country’s crumbling industrial infrastructure. During this time, the country was in its third year of economic decline, but the government failed to devalue the Peso, which made matters worse. As the government began freezing people’s bank accounts, protests erupted throughout the country. After the fall of the government, the next few years saw a lot of work put into revaluing the Peso, eventually getting it back to where it needed to be.