5 Ridiculous Economic Collapses These days, with all the pundits preaching doom and the impending collapse of society into some kind of Mad Max style wasteland, it's easy for us to imagine that the economy is as unhealthy as it's ever been. But any historian would give you a hard backhanded smack for even saying that out loud. History is full of economic idiocy, and here are five economic collapses that make 2010 feel like the Renaissance.
5. Tulip Mania
Every Christmas, there's some "hot toy" that has parents standing in line in the wee hours of the morning, getting in fistfights, and paying 10 times retail on eBay--all for something the kid will get bored with a week later. But of course it's not about the kid, it's about the hunt.
The toy becomes valuable to them only because it is valuable to other people. It's a self-sustaining cycle of irrational stupidity.
But that phenomenon isn't new. In fact, a consumer craze (over flowers, of all things) created the very first recorded economic bubble, almost 400 years ago.
In the 1600s the tulip was still pretty new to the Netherlands, and they quickly became a Beanie Baby-style "must-have" item among people who had too much money to spend.
Now, as with most plants, tulips have a very specific growing season, so they weren't available to buy year round. But the Dutch wanted assurances right the hell now that they would own a tulip by year's end, so suppliers set up a futures market, which basically meant that in the off-season people could buy tulip IOUs to be exchanged for real tulips when said tulips actually grew.
And then people started playing the market and inflating the prices and, well, it was just a matter of time until things got really, really stupid.
What Went Wrong?At the peak of trading in the early months of 1637, the futures market had gotten so out of hand that even a single tulip bulb had become ridiculously valuable. While no one really agrees just how insane the prices became, it's understood that some bulbs were trading for at least 10 times the annual wage of a skilled craftsman. That's 10 years' salary for one, solitary flower that just goes into the garden and sits there.
Eventually a whole lot of people stopped and said, "What the fuck are we doing?" and the bubble burst, the price of tulips falling back down to sane levels. The downside is that a whole bunch of people had locked themselves into tulip contracts during the height of the craze, and were therefore committed to handing over the family fortune for something that was worth about a buck fifty.
4. The Mississippi Bubble
As ridiculous as the tulip thing sounds, at least those were physical objects that existed, and that people weren't throwing their money away on a purely imaginary idea.
Which brings us to France's Mississippi bubble.
In 1715, King Louis XIV of France finally keeled over and died of exhaustion from screwing France's economy for 72 years straight. Louis had also exhausted France's supply of gold via a series of costly wars and the small matter of having built himself a gilded palace that Liberace described as "a bit tacky."
By the time he was done, there wasn't enough gold left to sustain the minting of new coins.
A shrewd economist named John Law leapt to the aid of the nation by proposing a new concept he called a "bank", at which people could trade their heavy and primitive gold for colorful and exciting bank notes that were just as valuable, but easier to hide under mattresses and in bras.
What Went Wrong?Unfortunately, the newly appointed regent of France didn't understand economics worth a damn, specifically the rule that money is supposed to represent things that are, you know, valuable. You can't circulate more money than can actually be exchanged for things of real value. They printed so much money that it represented five times more wealth than France actually had.
It wasn't long before the people became suspicious that they were actually walking around with their pockets full of Monopoly money. John Law knew he had to make a move, so he told everybody about an exciting new investment opportunity: the French colony of Louisiana in the not-yet-United-States.
After all, he said, just think of the piles of gold, precious gems and Mardi Gras beads that were sure to just be littering the Mississippi river. The people could invest their money in the venture, so that not only would the government obtain more concrete wealth, but it could quietly dispose of the ridiculous surplus of paper money and pretend the whole thing never happened.
Of course, it turned out Louisiana was a wretched, inhospitable swamp. Instead of fields of rubies, rivers aflow with diamonds and mountains made of solid gold, all the French found along the Mississippi were alligators, giant rats and a whole lot of gumbo.
Unfortunately the people of France had already invested their life savings in Louisiana shares, and were sitting around with big dumb smiles on their faces waiting for the ships to return to port laden with their promised riches.
When word got out that the only gold to be found in Louisiana was inside the mouths of hillbillies, people quickly offloaded their shares for a fraction of the original price, then trampled each other to death to run to the bank to change their paper money back into gold before it ran out and their notes became worthless.
3. The South Sea Bubble
At around the same time France was getting screwed over, Britain was also feeling the sting of government overspending. They looked at what was happening on the mainland with interest and decided that they would attempt a similar scheme, but haughtily pledged that they were too smart to fall into the same pitfalls that their old enemy had encountered. And they were right. Sadly, they just found different traps to impale their economy on.
It was well known in Europe that, unlike the smelly armpit of North America that was the Louisiana bayou, there really was a shitload of gold to be had further South. There was so much gold there that the Aztecs actually valued feathers more highly. Someone just needed to go over there and trawl through the garbage bins of Tenochtitlan.
Cue the formation of the South Sea Company, which the British government granted exclusive trading rights to the whole of the super rich continent of South America. It came as no surprise that when shares in the company hit the market, they were snatched up in no time by eager speculators.
Rich and poor, everybody opened their wallets until basically the entire GDP of Britain was locked up in the South Sea Company's bank vaults. All they had to do was wait for the gold to come sailing in!
What Went Wrong?There was of course the small detail that South America was largely owned and controlled by Spain. And when Britain politely asked to send their ships over to retrieve all of that spare garbage-gold, Spain said no.
The people of Britain thought for some reason that the King of Spain had recently decided to grant their British BFFs permanent unlimited use of their trading ports, which turned out to be a slight exaggeration. What the King actually said was that the South Sea Company could send over a single ship and then get the hell out. This wasn't secret information, but the masses chose to believe the ridiculous rumor over the documented truth, because it just made so much more sense that Spain would let them have all of the gold they wanted, for free.
When it eventually became abundantly clear that they had all been cripplingly retarded, shouts of "Buy! Buy!" turned quickly into screams of "Sell this flaming turd now!" and the stock plummeted. Most people couldn't give their shares away now, when just a week past they'd mortgaged their homes and sold all of their possessions just to have a hand in the "can't miss" company. This single venture completely crippled the British economy, and an entire generation nearly went bankrupt.
2. Diocletian's "Solution"
By the beginning of the fourth century AD, The Roman Empire resembled Marlon Brando in his waning years; a ghost of its former self, bloated and unstable. The new emperor Diocletian inherited the throne amidst a series of unpopular wars, a wrecked economy and an empire teetering on the edge of ruin.
Faced with the burden of having to fix Rome's economic woes, Diocletian decided what the system needed was a little bit of batshit insanity.
What Went Wrong?Diocletian introduced a new currency that was literally worth less than the material it was printed on. If you're not clear why that's a problem, it'd be like if you found out that a $1 gold coin actually had $2 with of gold in it, and that you could thus double your money by just melting down your money and selling it at a pawn shop.
Of course, if the pawn shop paid you in gold coins, they would be giving you back twice as much gold as you just gave them. By stamping something, say "one dollar," on the coin, it actually lowered the value of the metal by half.
It gets worse. Although his advisers undoubtedly urged him to take a break from fixing Rome for just a little while, Diocletian decided to control inflation by introducing the "Edict on Maximum Prices," which essentially established a price ceiling for every single tradable good in the empire. This meant that merchants could not legally sell their togas, slaves and toga-wearing slaves beyond a certain arbitrary price, even if that meant it cost more to manufacture those things than you'd make selling them.
Yes, he actually implemented a policy that a small child could have spotted the flaws in.
Two things saved the system from total collapse: First, huge chunks of the empire simply refused to follow the laws, figuring they were all part of some huge practical joke the emperor was playing. Second, Diocletian became the first Roman emperor to ever voluntarily leave office, having the wisdom to realize the whole thing really was kicking his ass.
1. Easter Island
Pop quiz: What is the most ridiculous thing you can think of that could cause an entire civilization to collapse? Did anyone say "gigantic stone heads"? Because that's exactly what caused the near-extinction of the Rapa Nui people on Easter Island more than 350 years ago.
Recent archaeological records have shown that the population of native peoples on Easter Island was in full swing as recently as 1600. But sometime between then and 1722 (when the island was first discovered by European explorers) the once flourishing society had suddenly collapsed, and its entire population relegated to a tiny starving few.
Nobody could understand how a healthy society of people could vanish in just a hundred years, but the bigger mystery was the disappearance of all the trees. Soil samples reveal that the barren Easter Island was once rich in resources: Robust forests and fertile land that allowed the Rapa Nui civilization to thrive for so long.
What Went Wrong?They cut it all down.
Wait a second. Didn't ancient peoples live in harmony with their ecosystem? Like the Native Americans, and the blue people from Avatar? They weren't like the greedy Captain Planet villains we have today, right?
Well, no doubt the inhabitants of Easter Island understood the importance of nature, but something else was far more important to them: carving and moving hundreds of gigantic stone heads around for no reason.
We can only speculate as to what led the Rapa Nui people to convert every red cent of their island bounty into a bunch of dopey-looking rocks. Perhaps they were a status symbol, or an offering unto a god. Maybe they were just determined to keep carving that thing until they got it right. But most scholars seem to agree that the stone heads were far and away the most significant factor in the civilization's collapse.
The Rapa Nui usually carved the heads out of huge boulders in quarries, but apparently they didn't just want a quarry full of stone heads. They wanted stone heads that stared imposingly over their rose gardens. After beating their protesting common sense into submission, they decided that apparently the only reliable way to move something that weighed over a hundred tons was to cut down trees and roll the cumbersome things along atop the felled logs. With each new statue completed, down came another chunk of forest until -- after almost 1000 statues were made -- there was literally no tree left alive.
When the forest was gone, the soil eroded and a devastating game of dominoes took over that eventually reduced the Rapa Nui to cannibalism, and inevitable eradication.
Think about that. At some point, a guy actually looked upon the last tree in existence, and made the conscious decision to cut that bastard down. What was he thinking? That surely there were more trees elsewhere on the island? That they would all grow back?
But of course, we know what he was thinking; we still see it today. "Environment? Sure, I care about the environment. I'll be happy to discuss that with you after I cut down this here tree." The big picture is just an abstract idea; you need the tree now. It's so hard for humans to connect the two.
And so the islanders' mortal obsession with long faces, big chins, and little hats made of rock is now forever on display... so that dudes in loud shirts can take pictures of themselves wackily humping the grim stone mouths of heads more famous than the entire society they murdered. |
