Economic collapse
There is no precise definition of an economic collapse. While some might consider a a severe, prolonged depression with high bankruptcy rates and high unemployment an economic collapse, others would additionally look for a breakdown in normal commerce, such as hyperinfalation, or even a sharp increase in the death rate and perhaps even a decline in population. Often economic collapse is accompanied by social chaos, civil unrest and sometimes a breakdown of law and order.

Cases of economic collapse

Economic collapses often have political as well as financial causes. Because there are so few well documented cases it is difficult to draw any general conclusions about causes. Wars, revolutions, famines and depletion of important resources have been causes. Incompetent governments are another cause, especially when they go bankrupt and resort to money printing, causing hyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...


Hyperinflation and wars cause hording of essentials and a disruption of markets. In some past hyperinflations, workers were paid daily and immediately spent their earnigs on essential goods, which they often used for barter. More stable foreign currencies, silver and gold (usually coins) were held and exchanged in place of local currency.

In some cases embargoes caused severe hardships that could be considered economic collapse. The Union blockade of the Confederate States of America
Confederate States of America
The Confederate States of America was a government set up from 1861 to 1865 by 11 Southern slave states of the United States of America that had declared their secession from the U.S...

 severely damaged the South's economy. The Blockade of Germany during WWI lead to starvation of hundreds of thousands of Germans but did not cause economic collapse. For both the Confederacy and Weimar Germany, the cost of the war was worse than the blockade. Many Southern plantaion owners had their bank accounts confiscated and also all had to free their slaves without compensation. The Germans had to make war reparations
War reparations
War reparations are payments intended to cover damage or injury during a war. Generally, the term war reparations refers to money or goods changing hands, rather than such property transfers as the annexation of land.- History :...


Following defeat in war the conquering country or faction may not accept paper currency of the vanquished, and the paper becomes worthless. (This was the situation of the Confederacy.) Therefore there is a tendency for the public to hold gold and silver during times of war or crisis. Historically this was as coins, foreign or domestic, by the general public. Jewelry was also used as a medium of exchange.

Economic collapse requires some sort of developed economy to begin with. Rural, agrarian economies that operate at subsistence level that are affected by famines and plagues are not normally considered a form of economic collapses.

There is a difference between rather sudden economic collapse and long term economic decline, such as the Roman Empire.

China 1852–70

The Taiping Rebellion
Taiping Rebellion
The Taiping Rebellion was a widespread civil war in southern China from 1850 to 1864, led by heterodox Christian convert Hong Xiuquan, who, having received visions, maintained that he was the younger brother of Jesus Christ, against the ruling Manchu-led Qing Dynasty...

 followed by internal warfare, famines and epidemics caused the deaths of over 100 million and greatly reduced the economy.

Weimar Germany

Following Germany's defeat in World War I
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...

, political instability resulted in murders and assassinations of hundreds of political figures. (See: German Revolution of 1918–1919 and Kapp Putsch
Kapp Putsch
The Kapp Putsch — or more accurately the Kapp-Lüttwitz Putsch — was a 1920 coup attempt during the German Revolution of 1918–1919 aimed at overthrowing the Weimar Republic...

) Germany's finances were heavily strained by the war and reparations in accordance with the Treaty of Versailles
Treaty of Versailles
The Treaty of Versailles was one of the peace treaties at the end of World War I. It ended the state of war between Germany and the Allied Powers. It was signed on 28 June 1919, exactly five years after the assassination of Archduke Franz Ferdinand. The other Central Powers on the German side of...

. Unable to raise enough in taxes to run the government and make war reparations
War reparations
War reparations are payments intended to cover damage or injury during a war. Generally, the term war reparations refers to money or goods changing hands, rather than such property transfers as the annexation of land.- History :...

, the government resorted to printing money which resulted in the great hyperinflation
Inflation in the Weimar Republic
The hyperinflation in the Weimar Republic was a three year period of hyperinflation in Germany between June 1921 and July 1924.- Analysis :...

. One book on the hyperinflation, which includes quotes and a few first hand accounts, is When Money Dies. The hyperinflation eventually ended, but destroyed the wealth of most of her citizens and created a political environment favorable to the Nazi party and the rise of Hitler to power.

The Great Depression of the 1930s

While agruably not a true economic collapse, the decade of the 1930s witnessed the most severe world wide economic contraction
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

 since the start of the Industrial Revolution
Industrial Revolution
The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the social, economic and cultural conditions of the times...

. In the USA, the Depression began in the summer of 1929, soon followed by the stock market crash of October 1929
Wall Street Crash of 1929
The Wall Street Crash of 1929 , also known as the Great Crash, and the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and duration of its fallout...

. American stock prices continued to decline in fits and starts until they hit bottom in July 1932. In the first quarter of 1933, the banking system broke down
Emergency Banking Act
The Emergency Banking Act was an act of the United States Congress spearheaded by President Franklin D. Roosevelt during the Great Depression. It was passed on March 9, 1933...

: asset prices had collapsed, bank lending had largely ceased, a quarter of the American work force was unemployed, and real GDP per capita in 1933 was 29% below its 1929 value. The ensuing rapid recovery was interrupted by a major recession in 1937-38. The USA fully recovered by 1941, the eve of its entry in World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

, which gave rise to a boom as dramatic as the Depression that preceded it.

While there were numerous bank failures during the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

, most banks in developed countries survived, as did most currencies and governments. The most significant monetary change during the depression was the demise of the gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...

 by most nations. In the U.S., the dollar was redeemable in gold until 1933 when U.S. citizens were forced to turn over their gold for fiat currency (See: Executive Order 6102
Executive Order 6102
Executive Order 6102 is an Executive Order signed on April 5, 1933, by U.S. President Franklin D. Roosevelt "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States"...

) and were forbidden to own monetary gold for the next four decades. Subsequently gold was revalued from $20 per ounce to $35 per ounce. U.S. dollars remained redeemable in gold by foreigners until 1971. Gold ownership was legalized in the U.S. in 1974, but not with legal tender status.

As bad as the Great Depression was, it took place during a period of high productivity growth, which caused real wages to rise. The high unemployment was partly a result of the productivity gains, allowing the number of hours of the standard work week to be cut while restoring economic output to previous levels after a few years. Workers who remained employed saw their real hourly earnings rise because wages remained constant while prices fell; however, overall earnings remained relatively constant bacause of the reduced work week.

Economic collapse of Soviet Communism

During the 1980s, the Eastern Bloc
Eastern bloc
The term Eastern Bloc or Communist Bloc refers to the former communist states of Eastern and Central Europe, generally the Soviet Union and the countries of the Warsaw Pact...

, which relied on a stagnant form of plan economy, experienced a decade-long period of stagflation
In economics, stagflation is a situation in which the inflation rate is high and the economic growth rate slows down and unemployment remains steadily high...

, and eventual collapse from which it did not recover, culminating with revolutions and the fall of communist regimes throughout Central
Central Europe
Central Europe or alternatively Middle Europe is a region of the European continent lying between the variously defined areas of Eastern and Western Europe...

 and Eastern Europe
Eastern Europe
Eastern Europe is the eastern part of Europe. The term has widely disparate geopolitical, geographical, cultural and socioeconomic readings, which makes it highly context-dependent and even volatile, and there are "almost as many definitions of Eastern Europe as there are scholars of the region"...

 and eventually in the Soviet Union
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....

. The process was accompanied by a gradual but important easing of restrictions on economic and political behaviour in the late 1980s, including in the satellite states.

The collapse in the USSR was characterized by an increase in the death rate, especially by men over 50, with alcoholism a major cause. There was also an increase in violent crime and murder. The Russian population peaked in the 1990s and is lower today than two decades ago. See: Demographics of Russia
Demographics of Russia
The demographics of Russia is about the demographic features of the population of the Russian Federation, including population growth, population density, ethnic composition, education level, health, economic status, and other aspects of the population....

A first hand account of conditions during the economic collapse was told by Dmitry Orlov, a former USSR citizen who became a U.S. citizen, but returned to Russia for a time during the crisis.
Russian financial crisis of 1998

After more or less stabilizing after the disintegration of the USSR, a severe financial crisis took place in the Russian Federation in August 1998. It was caused by low oil prices and government expenditure cuts after the end of the Cold War
Cold War
The Cold War was the continuing state from roughly 1946 to 1991 of political conflict, military tension, proxy wars, and economic competition between the Communist World—primarily the Soviet Union and its satellite states and allies—and the powers of the Western world, primarily the United States...

. Other nations of the former Soviet Union also experienced economic collapse, although a number of crises also involved armed conflicts, like in the break-away region Chechnya
The Chechen Republic , commonly referred to as Chechnya , also spelled Chechnia or Chechenia, sometimes referred to as Ichkeria , is a federal subject of Russia . It is located in the southeastern part of Europe in the Northern Caucasus mountains. The capital of the republic is the city of Grozny...

. Despite a crackdown on the oligarchs
Business oligarch
Business oligarch is a near-synonym of the term "business magnate", borrowed by the English speaking and western media from post-Soviet parlance to describe the huge, fast-acquired wealth of some businessmen of the former Soviet republics during the privatization in Russia and other post-Soviet...

 and allegations of a clampdown on the freedom of the media and political opposition, the Russian economy has made a significant recovery in the past decade due in part to proceeds from the sale of oil and gas in neighboring countries, notably in Europe. In the autumn of 2008, Russia suffered a renewed collapse of confidence in its financial markets.

The default by Russia on its government bonds in 1998 led to the collapse of highly leveraged hedge fund
Hedge fund
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...

 Long Term Capital Management, which threatened the world financial system. The U.S. Federal Reserve organized a bailout of LTCM which turned it over to a banking consortium.

Present economic trends

Rep. Paul Kanjorski on the near collapse:

“On Thursday [the 18th], at about 11 o’clock in the morning, the Federal Reserve noticed a tremendous drawdown of money market accounts in the United States to a tune of $550 billion being drawn out in a matter of an hour or two. The Treasury opened up its window to help. They pumped $105 billion into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks.
They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn’t be further panic and there. And that’s what actually happened. If they had not done that their estimation was that by two o’clock that afternoon, $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.
Now we talked at that time about what would have happened if that happened. It would have been the end of our economic system and our political system as we know it.”

The Baltic states, once showing strong GDP growth (Baltic Tiger
Baltic Tiger
Baltic Tiger is a term used to refer to any of the three Baltic states of Estonia, Latvia, and Lithuania during their periods of economic boom, which started after the year 2000 and continued until 2006–2007...

), started to experience economic downturn since the late 2008. In Latvia, the GDP has declined more than 20% since 2008, one of the worst recessions on record.

Theories of economic collapse

Neo-classical economic theory does not offer a theory of economic collapse. Rather, the insights it offers concerning economic collapse are that they result from exogenous shocks, mismanagement of monetary policy or failures of regulation and supervision of lending practices. Other schools of economic thought, however, offer fundamental theories of such economic phenomena.

Austrian school

Some economists (i.e. the Austrian School
Austrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...

, in particular Ludwig von Mises
Ludwig von Mises
Ludwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...

), believe that government intervention and over-regulation of the economy can lead to the conditions for collapse. In particular, Austrian theoretical research has been focused on such problems emanating from socialist forms of economic organization. This however is not a theory of economic collapse involving the breakdown of freely functioning financial markets. Rather the focus is on economic malfunction and crisis emanating from state control.

Georgist explanation

In his posthumous work "The Science of Political Economy" published in 1905 Henry George
Georgism is an economic philosophy and ideology that holds that people own what they create, but that things found in nature, most importantly land, belong equally to all...

 traced the many financial crises in the USA in the 19th century to bank lending practices linked to asset bubbles in the market for land. As land is a scarce resource, it lends itself to such speculation. The speculative bubble bursts when the banks run out of money and can no longer lend for such speculative investments. Bank insolvencies follow as the asset price drops and speculators are unable to pay back the loans. This is similar to subsequent speculative bubbles in other asset markets, including equity and mortgages. In short, this is not a theory of economic collapse proper but an explanation of shortcomings in bank lending as a cause of financial crisis and economic collapse.

George was concerned that land hoarding by the wealthy, as in India, would lead to extreme poverty like he witnessed when he traveled there as a young man working on a merchant ship. George described his observations and theory in his best selling work "Progress and Poverty.

Sarkar's Theory

The Indian philosopher P.R. Sarkar and his disciple Dr. Ravi Batra
Ravi Batra
Raveendra Nath "Ravi" Batra is an Indian-American economist, author, and professor at Southern Methodist University. Batra is the author of six international bestsellers, two of which appeared on The New York Times Best Seller list...

, hold that the "concentration of wealth in few hands" and "stoppages in the rolling of money" are root causes of such crisis of capitalism. The concentration of wealth engenders an euphoric phase accompanied by rising asset prices and further excesses which are eventually followed by a correction
Market trends
A market trend is a putative tendency of a financial market to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames...

 in asset prices, a liquidity crisis
Liquidity crisis
In financial economics, liquidity is a catch-all term that may refer to several different yet closely related concepts. Among other things, it may refer to Asset Market liquidity In financial economics, liquidity is a catch-all term that may refer to several different yet closely related...

, insolvency
Insolvency means the inability to pay one's debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.Business insolvency is defined in two different ways:...

 and collapse. Government efforts to inject liquidity into the financial system or bolster demand can postpone the crisis but not avoid it. At best, a trade-off is seen to exist between unemployment and inflation. In the Great Depression of 1930s, mass unemployment developed along with deflation in the USA. Some believe that expansionary economic policies may be able to avoid high levels of unemployment but at the cost of high inflation. However, high inflation and high unemployment brought the Weimar Republic
Weimar Republic
The Weimar Republic is the name given by historians to the parliamentary republic established in 1919 in Germany to replace the imperial form of government...

 to its knees in the early 1930s. While the economic system may eventually absorb the losses, it does so only after considerable suffering by the general population. Unlike Communism, capitalism has so far weathered such storms because its inherent dynamic properties have eventually engendered a recovery. However, should a sufficiently traumatic collapse occur, it could serve to reduce the legitimacy of capitalism and lead to upheaval and radical societal changes
The Downfall of Capitalism and Communism
The Downfall of Capitalism and Communism is a major work by Ravi Batra in the field of historical evolution, published in 1978. The book's full title is The Downfall of Capitalism and Communism: A New Study of History...


Neo-Malthusian theory

In The Limits to Growth (1972), a series of computerized economic models were run that simulated population growth, natural resources and pollution, under various assumptions. These models typically show that economic growth will eventually turn negative in the 21st Century as population outgrows food supply, natural resources become scarce and pollution becomes intolerable.

See: Malthusian catastrophe
Malthusian catastrophe
A Malthusian catastrophe was originally foreseen to be a forced return to subsistence-level conditions once population growth had outpaced agricultural production...

This school of thought is associated with Ecological economics
Ecological economics
Image:Sustainable development.svg|right|The three pillars of sustainability. Clickable.|275px|thumbpoly 138 194 148 219 164 240 182 257 219 277 263 291 261 311 264 331 272 351 283 366 300 383 316 394 287 408 261 417 224 424 182 426 154 423 119 415 87 403 58 385 40 368 24 347 17 328 13 309 16 286 26...


Economic disaster

An economic disaster is a widespread disruption or collapse of a national or regional economy, due to natural causes
Nature, in the broadest sense, is equivalent to the natural world, physical world, or material world. "Nature" refers to the phenomena of the physical world, and also to life in general...

, such as hurricanes, volcanic eruptions
2. Bedrock3. Conduit 4. Base5. Sill6. Dike7. Layers of ash emitted by the volcano8. Flank| 9. Layers of lava emitted by the volcano10. Throat11. Parasitic cone12. Lava flow13. Vent14. Crater15...

 or drought
A drought is an extended period of months or years when a region notes a deficiency in its water supply. Generally, this occurs when a region receives consistently below average precipitation. It can have a substantial impact on the ecosystem and agriculture of the affected region...

s, resulting in famine
A famine is a widespread scarcity of food, caused by several factors including crop failure, overpopulation, or government policies. This phenomenon is usually accompanied or followed by regional malnutrition, starvation, epidemic, and increased mortality. Every continent in the world has...

 or plague
A pandemic is an epidemic of infectious disease that is spreading through human populations across a large region; for instance multiple continents, or even worldwide. A widespread endemic disease that is stable in terms of how many people are getting sick from it is not a pandemic...

s. Some of these occurrences are short-lived, while others may last for years. Economic disasters are different from economic collapses due to human agency or economic forces, such as imbalances in the stock market
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...

 or mistakes in the conduct of monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...


See also

  • Crisis of capitalism
  • Currency crisis
    Currency crisis
    A currency crisis, which is also called a balance-of-payments crisis, is a sudden devaluation of a currency caused by chronic balance-of-payments deficits which usually ends in a speculative attack in the foreign exchange market. It occurs when the value of a currency changes quickly, undermining...

  • Dependency ratio
    Dependency ratio
    In economics and geography the dependency ratio is an age-population ratio of those typically not in the labor force and those typically in the labor force...

  • Devaluation
    Devaluation is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged....

  • Economic bubble
    Economic bubble
    An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"...

  • Hindenburg omen
    Hindenburg omen
    The Hindenburg Omen is a technical analysis pattern that is said to portend a stock market crash. It is named after the Hindenburg disaster of May 6, 1937, during which the German Zeppelin Hindenburg was destroyed.- History :...

  • Homelessness
    Homelessness describes the condition of people without a regular dwelling. People who are homeless are unable or unwilling to acquire and maintain regular, safe, and adequate housing, or lack "fixed, regular, and adequate night-time residence." The legal definition of "homeless" varies from country...

  • Hyperinflation
    In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...

  • Liquidity crisis
    Liquidity crisis
    In financial economics, liquidity is a catch-all term that may refer to several different yet closely related concepts. Among other things, it may refer to Asset Market liquidity In financial economics, liquidity is a catch-all term that may refer to several different yet closely related...

  • Pensions crisis
    Pensions crisis
    The pensions crisis is a predicted difficulty in paying for corporate, state and federal pensions in the U.S. and Europe, due to a difference between pension obligations and the resources set aside to fund them. Shifting demographics are causing a lower ratio of workers per retiree, while retirees...

  • Rare disasters
    Rare disasters
    Rare disasters are economic events that are infrequent and large in magnitude, having a negative effect on an economy. Rare disasters are important because they provide an explanation of the equity premium puzzle, the behavior of interest rates, and other economic phenomena.The parameters for a...

  • Societal collapse
    Societal collapse
    Societal collapse broadly includes both quite abrupt societal failures typified by collapses , as well as more extended gradual declines of superpowers...

  • Stock market crash
    Stock market crash
    A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors...

  • Survivalism
    Survivalism is a movement of individuals or groups who are actively preparing for future possible disruptions in local, regional, national, or international social or political order...

  • Unemployment
    Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

  • Irish Famine (1740–1741)
  • Great Famine (Ireland)
  • Panic of 1837
    Panic of 1837
    The Panic of 1837 was a financial crisis or market correction in the United States built on a speculative fever. The end of the Second Bank of the United States had produced a period of runaway inflation, but on May 10, 1837 in New York City, every bank began to accept payment only in specie ,...

  • Panic of 1873
    Panic of 1873
    The Panic of 1873 triggered a severe international economic depression in both Europe and the United States that lasted until 1879, and even longer in some countries. The depression was known as the Great Depression until the 1930s, but is now known as the Long Depression...

  • Panic of 1893
    Panic of 1893
    The Panic of 1893 was a serious economic depression in the United States that began in 1893. Similar to the Panic of 1873, this panic was marked by the collapse of railroad overbuilding and shaky railroad financing which set off a series of bank failures...

  • Panic of 1907
    Panic of 1907
    The Panic of 1907, also known as the 1907 Bankers' Panic, was a financial crisis that occurred in the United States when the New York Stock Exchange fell almost 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, and there were numerous runs on...

  • 1997 Asian Financial Crisis
  • Soviet famine of 1932–1933
  • Bengal famine of 1943
    Bengal famine of 1943
    The Bengal famine of 1943 struck the Bengal. Province of pre-partition India. Estimates are that between 1.5 and 4 million people died of starvation, malnutrition and disease, out of Bengal’s 60.3 million population, half of them dying from disease after food became available in December 1943 As...

  • Great Depression
    Great Depression
    The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

     (approximately 1928–1937)
  • Late 2000s recession
    Late 2000s recession
    The late-2000s recession, sometimes referred to as the Great Recession or Lesser Depression or Long Recession, is a severe ongoing global economic problem that began in December 2007 and took a particularly sharp downward turn in September 2008. The Great Recession has affected the entire world...

  • List of stock market crashes

External links

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