History’s Worst Depressions and Recessions
Throughout history, we’ve experienced a number of recessions and depressions as the economy ebbs and flows. A recession is typically defined as a period of negative business growth lasting two consecutive quarters, characterized by a lowering of the GDP (gross domestic product), decreased investment spending, household incomes and business profits and an increase in bankruptcies and unemployment.
A depression is virtually the same as a recession, only longer lasting. Economists joke that a recession is when your neighbor loses his job; a depression is when you lose your job. Economic downturns are no laughing matter however, and can have very real and long-lasting negative impacts on our society. Here are some of the most severe recessions and depressions that have occurred over the centuries.
Crisis of the Third Century
It’s incredible to think that while a depression may seem like it would be a modern problem; economic downturns were occurring as far back as the Third Century. In the days of the Roman Empire, plagues, famine, and warring tribes were all impacting society and combined with the collapse of their economy, which at the time was built mostly on coins, it nearly brought down the Empire entirely.
In order to maintain a large army, soldiers were paid handsomely and each seceding emperor was forced to dole out “accession bonuses” in order to maintain loyalty. They did so by inflating the silver coinage with less valuable metals like bronze and copper, which devalued the coins and heightened the cost of living. By the end of the third century, silver coins had next to no value and bartering became the popular means of acquiring goods.
Citizens were unable to pay their crushing taxes with worthless coins, and civil unrest became widespread; trade routes became dangerous, city dwellers fled to the country to become more self-sustaining, and the economy became more localized as it continued to be throughout the Middle Ages. While the Roman Empire didn’t collapse entirely, its grip on its citizens was loosened and its once magnificent reign was never the same again.
Europe’s first ever investment crash was unbelievably, caused by the devaluing of a flower. During the Dutch Golden Age at the start of the 17th Century, tulips were considered a sign of success and status in a time of economic growth that followed their war of independence from Spain.
Brought over from the Ottoman Empire, tulips were unlike any flower Europeans had seen before with their intense colors and many varieties and despite their high cost, even ordinary tulip bulbs were bought and sold by the pound. A number of farmers and merchants abandoned their former trades to become tulip brokers in hopes of profiting from the boom. Despite the high demand and increasing number of buyers, the tulip trade could, literally, only grow so fast; tulips take seven years to grow from seed and a single bulb can only produce two to three clones at most.
Tulip mania reached its peak around 1636 when an entire house could be purchased for a mere three bulbs. Although the exact cause of the tulip’s downfall isn’t known, historians think it may have been from a deal in Haarlem that went sour when buyers refused to pay, or perhaps people simply woke up to the outrageous prices they were paying for flowers once a plague quickly swept the country. Whatever the cause, tulips became worthless and the many brokerages that had opened during the craze were in ruin, signifying the end of Tulip Mania.
The Long Depression
Originally known as the Great Depression, until the depression of the 1930s occurred, The Long Depression took place between 1873 and 1879 and its effects were mostly felt in Europe and the United States. Up until 1873, the European economy was booming thanks to the second industrial revolution. Germany was successfully reunified after the Franco-Prussian War and they, along with Great Britain, France and Italy were exporting and investing in more railways than ever before.
Preparations for the 1873 World Exhibition in Vienna also meant a growth in infrastructure investing and the German capital quickly ascended to being a major economic center. Growth seemed exponential until the market suddenly crashed in a fall that shook the world and forced the Vienna Stock Exchange to temporarily close.
The United States, which had been experiencing a similar growth following the American Civil war, was also hit with a downturn when the bank, that had been one of the biggest financers of the war and the following Reconstruction era, Jay Cooke & Company, went bankrupt. Widespread panic broke out, resulting in the closure of 98 banks, 89 railroad companies and 18,000 other businesses.