20 Times in History that Financial Markets Collapsed
20 Times in History that Financial Markets Collapsed

20 Times in History that Financial Markets Collapsed

Steve - January 19, 2019

Economics, trade, and commerce have been staples of human existence ever since we first emerged from caves and formed communal societies. Originally bartering items of value, humanity quickly evolved currencies to better facilitate the exchange of goods and service. Inevitably, some individuals acquired greater quantities of wealth than others, leading to lending and borrowing according to our individual needs. However, whether due to natural disasters, for example, a poor harvest, or human inducements, such as war, economic situations rarely remain stagnant but instead ever fluctuating. During moments of crisis, economic disruptions – from rising prices, to deflation or inflation, or a lack of available capital – have demonstrated themselves far more capable of bringing a nation to its knees than an invading horde.

20 Times in History that Financial Markets Collapsed
The London Stock Exchange in 1810. Wikimedia Commons.

Here are 20 times in history that the economy catastrophically collapsed:

20 Times in History that Financial Markets Collapsed
Emperor Diocletian (r. 284-305), whose rise to power ended the Crisis of the Third Century and begun The Tetrarchy in 293 CE. Wikimedia Commons.

20. The Crisis of the Third Century saw the fragmentation of the Roman Empire, the ascension of more than two dozen emperors, and nearly caused the collapse of the ancient state

The Crisis of the Third Century (235-284 CE) saw the Roman Empire almost collapse under the pressures of invasion, plague, economic depression, and civil war. Starting with the assassination of Emperor Severus Alexander, the following 50 years saw 26 individuals claiming the title of Imperator and the fragmentation of the political unity of the nation into three. Economic woes began under the Severan emperors, due in part to the enlargement of the army by one quarter and the doubling of military wages, with hyperinflation rampant. Successive emperors, seeking to raise coin quickly to afford the “accession bonus” or risk a military coup, inflated the currency by devaluing coinage through the inclusion of bronze and copper.

The effect of these failed policies was unchecked price rises that almost destroyed the Roman economy. The denarius, a silver coin used for more than 300 years, became so devalued it ceased to be used, whilst taxes were collected in kind rather than currency due to the lack of worth of Roman coinage. Civil unrest intensified this crisis, with the internal trade that sustained the empire breaking down. Rural estates ceased exporting, focusing on self-sufficiency, and cities depopulated as citizens, surrendering their status as free persons and becoming “coloni”, migrated to the countryside in search of work. The crisis only ended with the restoration of stable governance under Diocletian in 284.

20 Times in History that Financial Markets Collapsed
The City of Florence in a woodcut from Hartmann Schedel’s Nuremberg Chronicle (c. 1493). Wikimedia Commons.

19. The leading Florentine banking institutions, the largest and most powerful economic forces in Europe, underwent a calamitous implosion in the 1340s

During the early-13th century, the Republic of Florence was the center of European banking and finance, providing capital to the most powerful rulers of the continent including the Kings of England and France. The Peruzzi was the second largest banking consortium in Europe, enjoying fifteen branches from London to the Middle East and a capitalization of more than 100,000 gold florins, whilst the Compagnia dei Bardi was the greatest, more than fifty percent larger than the Peruzzi. Together, acquiring and maintaining diverse trading networks throughout the world, these companies engaged in what today is known as commodities speculation and high-risk capital loans to facilitate economic activity.

However, unsecured loans to powerful individuals and commodities trading inherently runs the risk of catastrophic failure. In 1343, the Peruzzi consortium suddenly collapsed, suffering a critical drainage of liquid capital and within just two years declared bankruptcy. Suffering from the same economic conditions, with war between France and England in Aquitaine among other harmful factors, the Bardi equally deteriorated and ceased to serve as the foremost institution. It has been alleged the delinquency of Edward III of England was heavily to blame, with Giovanni Villani claiming the monarch owed as much as 900,000 gold florins to the Bardi and 600,000 to the Peruzzi.

20 Times in History that Financial Markets Collapsed
“Les Grandes Misères de la Guerre” (The Great Miseries of War) by Jacques Callot, (c. 1632), depicting the miseries of the Thirty Years’ War. Wikimedia Commons.

18. During the Thirty Years’ War, the city-states of Germany began minting devalued foreign currency in an effort to elevate their own struggling economies relative to their neighbors

In 1618, the Thirty Years’ War engulfed Europe. Lasting until 1648, during which time an estimated 8,000,000 people died, armies from more than a dozen European states, including France, Sweden, England, and Spain, fought throughout the territory of the Holy Roman Empire. Starting in 1621, city-states of the Holy Roman Empire, desperate to raise revenue to fight the conflict but unable to institute effective taxation, resorted to the debasement of currency. Known as “Kipper und Wipper”, literally “Tripper and See-saw”, referring to the use of tipping scales to identify pure or devalued coinage, coins were mixed with base metals and reissued with a lower value.

City-states, in a selfish attempt to protect themselves at the expense of others, initially did not debase their own currency but that of neighboring regions. Manufacturing low-value imitations of foreign currency, the German states engaged in an early form of economic warfare against one another. An incalculable number of mints were established to produce virtually worthless coins, with children allegedly playing with them in the street rather than spending them. By 1623, the public had discovered the ruse and denounced the practice, whilst governments began to receive their own fake coinage in revenues. Although stopping, it was too late and resulted in widespread financial chaos throughout the region.

20 Times in History that Financial Markets Collapsed
An image from “Verzameling Van Een Meenigte Tulipaanen”, by P. Cos (1637). Wikimedia Commons.

17. The first recorded speculative bubble, the Tulip Mania of 1637 saw the price of a single bulb of the flower exceed ten years income for middle-class Dutch craftsmen

During the Dutch Golden Age, the Dutch, as the leading economic power, enjoyed the highest per capita income in the world. In the early-17th century, futures markets – facilitating contracts to buy specific quantities of a commodity at a predetermined price at an arranged date in the future – began to develop. In a bizarre saga, in early 1637 futures in tulip bulbs skyrocketed in value as people frantically bet on their prospective costs. By February 1637, the cost of a single bulb of the flower ranged between 3,000 and 4,200 Dutch guilders; to place this figure in context, the average annual wage of a skilled craftsman at the time was approximately 300 guilders.

In one recorded transaction, 12 acres of land were offered in exchange for a single tulip bulb. Naturally, this price was ludicrous and an inevitable correction occurred precipitating an economic downturn. Although negatively affecting the Dutch, the incident miraculously did not leave any lasting damage and a swift recovery was possible. Economist today still refer to futures commodities with prices far exceeding their intrinsic value as “tulips”, with various counter-proposals offered for the madness that gripped Dutch financial markets. The most commonly accepted rational explanation is that bankers expected a parliamentary decree permitting voiding futures contracts for a minimal fee, encouraging wild betting on concurrent trends until the legislation was abandoned.

20 Times in History that Financial Markets Collapsed
The siege and capture of Bautzen during The Thirty Years’ War by the Elector of Saxony, John George I, by Matthäus Merian. Wikimedia Commons.

16. The first global crisis, the General Crisis saw a century of sustained economic turmoil and a significant reduction in the human population

A contested term, the “General Crisis” refers to the period between the early-17th and early-18th centuries, during which Europe endured sustained and widespread instability. In addition to the aforementioned events, this period also saw the English Civil War and Glorious Revolution, the collapse of the Ming and rise of the Qing Dynasty in China, insurrections against the Spanish, the War of the Spanish Succession, and the Dutch Revolt. Throughout all of these events, and more, the global economy underwent repeated and prolonged turbulence. Discovery and importation of precious metals, notably silver, from the Americas triggered significant devaluations and inflation.

Furthermore, during this time the population rapidly grew until the mid-century before suffering a critical decline. The population of China fell approximately 50 million between 1600-1644, a decrease of more than 30%, whilst Germany saw between 15-30% population loss during the Thirty Years’ War. This was due in no small part to the Little Ice Age, a period of global cooling which adversely affecting crop production and impeded population growth. Arguably serving as the first global crisis, with Spain’s global empire imploding, the General Crisis saw a century of misery, economic depression, and contraction in human conditions.

20 Times in History that Financial Markets Collapsed
John Law’s camp at Biloxi, Mississippi (c. December 1720). Wikimedia Commons.

15. One of the earliest examples of an economic bubble, the collapse of the Mississippi Company in 1720 crippled the French economy and precluded efforts to afford repayments on its national debt

The Mississippi Company, founded in 1684, operated as a corporate business monopoly over French colonies in North America and the West Indies. In May 1716, the Banque Générale Privée was created by John Law, with three-quarters of its capital contained in government bills and notes. Purchasing the Mississippi Company in 1717, Law reorganized the business into a joint-stock trading company: the Compagnie d’Occident, becoming Chief Director of the reformulated monopoly. With his bank transforming into the Banque Royale in 1718, and with his notes backed by Louis XV of France, his company rapidly expanded, absorbing the “Company of the East Indies” and “Company of China”.

In order to finance these ventures, Law’s bank began printing more notes than it could back with coinage. However, as part of an agreement between Law and Louis XV, the excessive national debt accrued during the reign of Louis XIV would be financed through the revenues of the Mississippi Valley. Despite efforts to encourage migration to Louisiana, including freeing Parisian prisoners from September 1719 on condition they emigrate to the colony, it remained stagnant. Exaggerating the wealth of Louisiana, Law’s misrepresentations resulted in an overvaluation of company shares until, in late-1720, the bubble burst as the truth emerged. Investors sought en masse to cash in their notes, realizing they were increasingly worthless, whilst Law fled into exile in Belgium.

20 Times in History that Financial Markets Collapsed
The Fall of the Prussian fortress of Kolberg to the Russians in 1761, by A. Kotsebu (c. 1852). Wikimedia Commons.

14. Retaining strong parallels to the 2007-2008 Financial Crisis, the Amsterdam Banking Crisis of 1763 saw rampant speculative trading bankrupt dozens of financial institutions and require a government bailout

On February 10, 1763, the Treaty of Hubertusburg marked the end of the Seven Years’ War. During this conflict, Berlin had established itself as a prominent financial market with Amsterdam bankers acting as the primary sources of credit. Enjoying the profits from staggeringly high grain prices in wartime, numerous institutions, in particular the De Neufville bank, leveraged capital and purchases far beyond safe limits. For example, Neufville bought 1.1 million guilders worth of grain from a Russian syndicate in April 1763. In the aftermath of the war, Frederick of Prussia dumped unused grain into Lower Silesian markets, resulting in a decrease in the cost of wheat by more than 75% in May.

Suddenly responsible for a payment of 700,000 guilders without means of raising the capital, Neufville, who had previously led the frenzied wartime purchases, collapsed. The bankruptcy of the massive bank sent a shock-wave throughout the financial houses of Europe. Debts were called in, brokers were inundated with requests for payment, and the availability of coin dried up. Although the Bank of Amsterdam sought to mitigate the severity of the crisis, issuing emergency lines of credit, within two months more than 30 banking houses had declared bankruptcy with combined debts exceeding 10 million guilders.

20 Times in History that Financial Markets Collapsed
Mir Jafar (left) and his eldest son, Mir Miran (right). Wikimedia Commons.

13. The Bengal Bubble of 1769 almost terminated British control over India, nearly bankrupting the East India Company through the over-valuation of the conquering business enterprise

Robert Clive, Commander-in-Chief of British India, launched a campaign from 1756-57 to conquer Mughal Bengal for the East India Company, with the goal of not only acquiring the territory but also preventing French colonization of India. Successful on both accounts, Clive installed Mir Jafar as Nawab of Bengal to rule as a puppet government for the British company. Claiming the powers to control taxation in the region, the valuation of the East India Company skyrocketed, rising to £284 per stock by 1769. However, this was a dangerous overvaluation, with company expenditures escalating beyond control during this period.

In 1750, the Company employed 3,000 regular troops. To control its newfound possessions this number had increased to 26,000 by 1763, reaching 67,000 by 1778. Following attacks by Hyder Ali, Sultan of the Kingdom of Mysore, in 1769, in addition to the Bengal Famine of 1770 and public revelations regarding atrocities committed by the Company, stock values plummeted. By 1784, stock in the East India Company had dropped in value by over half to £122 causing a crash in the local textile industry. The incident was sufficiently serious that in 1784, with Pitt’s India Act, control over India was brought under the direct supervision of the British Government.

20 Times in History that Financial Markets Collapsed
An engraving of the “Boston Tea Party”, in “The History of North America” by W.D. Cooper (c. 1789). Library of Congress/Wikimedia Commons.

12. The Credit Crisis of 1772 was arguably the foremost underlying cause of the American Revolution, bankrupting southern cotton farmers and demanding restrictive duties in the American colonies

During the 1760s and 1770s, an economic boom, both in Britain and her American colonies, was experienced by many and supported by the ready availability of credit to facilitate expansions. An underlying factor behind banking successes at this time was speculation, which remained highly profitable until June 8, 1772. Alexander Fordyce, a partner in the banking house Neal, James, Fordyce and Down, suddenly lost £300,000 shorting stock in the East India Company and fled to France to avoid repayment. Stimulating panic in the financial markets, the public rushed to withdraw their money whilst banks were forced to call in debts. Those that could not accumulate liquid capital were bankrupted, with at least twenty major institutions shuttered.

Personal bankruptcy in London skyrocketed, rising from 310 between 1764 and 1771, to 484 in 1772, and 556 in 1773. Throughout the American colonies, the crisis was particularly badly felt. Southern plantations had borrowed enormously to finance their activities, with an estimated £2,482,763 of debt held by British merchants in 1776. Moreover, the East India Company, suffering financial ruin and unable to sell its eighteen million pounds of warehoused tea directly in the Americas, lobbied Parliament for the Tea Act. Reducing the price, the Company was granted a monopoly over the American colonies; however, the measure proved highly controversial and became a rallying cry for the American Revolution.

20 Times in History that Financial Markets Collapsed
Portrait of Alexander Hamilton, by John Trumbull (c. 1805). Wikimedia Commons.

11. The Credit Crisis of 1792 saw the newly formed Bank of the United States, helmed by Alexander Hamilton, rescue the fledgling United States from economic demise

With the opening of the Bank of the United States in February 1791, during the initial public offering investors were presented stock at $25. Demand was high and within weeks stock was being traded for as much as $300. Proving unsustainable, the stock corrected and required a financial intervention by Secretary of the Treasury Alexander Hamilton. By December the price of securities once again began to rise, before crashing in March 1792. Causing panic among investors, and occurring simultaneously with a restriction of credit by the Bank, people hurried to withdraw their money from the newly formed institution.

Responding in a similar fashion to 1791, in late-March Hamilton once again authorized the purchase of securities by the Bank. Hamilton also extended an offer to the Bank of New York to purchase $500,000 of securities to encourage the ailing institution to continue to lend during the crisis, with a similar deal made with the Bank of Maryland. Making further purchases in April, markets regained confidence in the national bank and trading stabilized. Hamilton’s stalwart leadership through the crisis is widely regarded by modern economists as the chief reason it did not escalate beyond control, with his use of the national bank now enshrined as a standard economic fail-safe.


20 Times in History that Financial Markets Collapsed
The West front of the United States Capitol. Wikimedia Commons.

10. The Panic of 1796-97, caused in large part by unchecked land speculation concerning the new capital city of Washington D.C., obliterated the savings and wealth of many American families

The economy of the United States remained highly unstable throughout the 1780s and 1790s, enduring frequent crises, rampant inflation, and an absence of public confidence. Speculation ran wild in financial markets, with poor investments on securities wiping out the savings of many middle and working-class Americans. Desperate to recover their fortunes, these financiers turned to land speculation regarding the ongoing construction of the new capital: Washington D.C. Consolidating their holdings into the North American Land Company in 1795, these financiers acquired more than forty percent of building lots in the new city with the hopes of turning an easy profit.

However, European investors were highly wary of land schemes in the United States. The land was of poor quality, whilst the deeds held were unclear and inexact. Unable to raise capital from the continent, these partners began issuing their own notes to creditors which in turn themselves became the subject of financial speculation. Unable to repay loans, one by one these financiers slipped into debtor’s prisons, with Philadelphian Robert Morris having issued $10,000,000 in personal notes to remain afloat by 1797 when his scheme finally collapsed. The bursting of the bubble precipitated an economic downturn that lasted until the new century and led to the Bankruptcy Act of 1800 to protect individuals from debt-related imprisonment.

20 Times in History that Financial Markets Collapsed
“The Battle of Waterloo”, marking the end of the Napoleonic Wars, by William Sadler. Wikimedia Commons.

9. The end of the Napoleonic Wars saw large portions of the world plunge into an economic depression as expensive wartime economies gave way to peacetime price reductions

In the aftermath of the Napoleonic Wars, Europe endured a prolonged period of depression due to the return to peacetime economies. Weavers in the textile industry in England were able to earn as much as 15 shillings for a six-day week in 1803, whilst by 1818 wages had been reduced to less than 5 shillings. Meanwhile, English agriculture suffered enormously, with the aristocracy demanding the imposition of the Corn Laws in 1815 to protect their estates. Instituting protectionist tariffs on foreign imports of grain, the English were forced to buy more expensive, and lower quality, domestic grain.

Not only affecting England, the “Panic of 1819” is generally attributed to the post-Napoleonic depression. A recovery in European agriculture and industry led to a sudden decline in export profits for American farmers and traders. This transition, in turn, resulted in the Second Bank of the United States foreclosing on heavily mortgaged farms and businesses as repayments faltered. Unemployment spiked, with the American nation developing a prolonged and sincere dislike of banking institutions that would precipitate major political upheaval throughout the following decades, notably Jacksonian populism.

20 Times in History that Financial Markets Collapsed
Satirical cartoon protesting the introduction of paper money, called “The Old Lady of Threadneedle St”, personifying the Bank of England being ravished by British Prime Minister William Pitt the Younger, by James Gillray (c. 1797). Wikimedia Commons.

8. Another product of monetary policies during the Napoleonic War, the Panic of 1825 saw stock markets plummet and cripple the English financial markets

In the course of the Napoleonic Wars, the nations of Europe embarked on monetary policies founded heavily upon debt. This was no truer than for Great Britain, which amassed an enormous national debt to finance its campaigns, sufficiently large that it demanded the introduction of the first income tax in 1798. In 1825, this speculation and borrowing barrelled to a conclusion, culminating in a stock market crash. Six London banks, in addition to sixty county banks in England, were forced to close, with only an infusion of gold from the Banque de France saving the Bank of England itself from ruin.

The first modern economic crisis not attributable to external events, the precise causes of the panic are still debated. Some economists, like Ricardo, blamed the Bank of England’s ignorant pursuit of a policy of deflation which aggravated the already painful transition from a wartime to peacetime economy. Others have highlighted excessive speculation in Latin American markets, in particular sizable investments made in the fictitious country of Poyais invented by con artist Gregor MacGregor. Meanwhile, modern economists continue to explore the impact of the diversification of European economies at this time, a natural product of the early industrialization process.

20 Times in History that Financial Markets Collapsed
President Andrew Jackson’s decision to revoke the charter of the Second Bank of America was a leading cause of the severity of the Panic of 1837. Portrait by Ralph E. W. Earl (c. 1837). Wikimedia Commons.

7. The Panic of 1837 saw a seven-year-long American economic recession begin, with as much as 25 percent of the population rendered unemployed due to the rise of interest rates

Following a period of economic expansion during the mid-1830s, in large part due to rising prices of land, cotton, and slaves in the United States, with said expansions financed by British loans, in 1836 the Bank of England increased interest rates from three to five percent. Compelled to follow suit, American banks likewise raised interest rates and decreased the availability of loans. The knock-on effect of this increase was a collapse in the price of cotton by 25 percent between February and March 1837, upon which the southern states were economically dependent. Exacerbating the situation, in 1832 President Andrew Jackson had vetoed the rechartering of the Second Bank of the United States.

With no national bank, and with state banks lending at unsafe levels, the rise in interest rates resulted in the drying up of available capital across America. On May 10, 1837, New York banks suspended redemption of promissory notes at full face value. Kickstarting a domino effect, banks throughout the nation collapsed, businesses defaulted, and thousands were rendered destitute. Lasting for a full seven years, the recession was widespread and far-reaching, with unemployment reaching levels as high as 25 percent in some regions and the American economy only recovering well into the 1840s.

20 Times in History that Financial Markets Collapsed
Bank run on the Seamen’s Savings’ Bank during the Panic of 1857, from a wood engraving (c. 31 October 1857). Wikimedia Commons.

6. Arguably the world’s first global financial crisis, the decline of the Californian gold rush in the late 1850s resulted in railway stock speculation imploding and dragging the U.S. economy down with it

By the early-1850s the United States was enjoying a period of significant prosperity, with the discovery of precious metals during the gold rush greatly increasing the supply of money. However, with the decline of gold mining during the mid-1850s banking institutions became increasingly cautious of loans in the Western United States and many refused to accept western paper currency. Meanwhile, the railway industry entered into a stock bubble boom during the 1850s, peaking in July 1857, with banks offering substantial loans to dozens of emerging but unproven companies. This period of rampant borrowing came to a head in August and September 1857, when N.H. Wolfe and Company and the Ohio Life Insurance and Trust Company collapsed.

The failure of these two mega-companies sent ripples throughout the worldwide economy. The $7,000,000 liabilities of Ohio Life were quickly found to not be unique to that particular institution and, with the sinking of the SS Central America and its cargo of gold, New York banks were unable to provide further loans. Rapidly extending beyond banking, farmers across America were hit by a shortage of capital. Grain prices, reaching $2.19 per bushel in 1855, collapsed to just $0.80 by 1858, whilst Britain was forced to abandon the fiduciary issue instituted in 1844 to prevent financial crises and print devalued paper money.

20 Times in History that Financial Markets Collapsed
An advertisement for the twine binder version of the McCormick reaper, as printed on the front page of The Abilene Reflector, Kansas (c. May 29, 1884). Wikimedia Commons.

5. Facing competition from all sides, English agriculture was the victim of the opening up of the American Midwest, with the price of wheat halving and the amount of farmland decimated in the British Isles

The repeal of the protectionist Corn Laws in 1846 in Great Britain was supposed to usher in a period of free trade and, consequently, lower prices. However, due to the Crimean and American Civil War, in addition to technological advances, English agriculture instead experienced a golden age. Despite this, the opening of the American Midwest by the Homestead Act (1862) and the development of railways eventually opened European markets to a surplus of American crops during the 1870s. Cheap trans-Atlantic transport, dropping from 37 shillings per ton in 1880 to 14 shilling by 1884, overwhelmed complacent English farmers.

Coupled with poor harvests in the late 1870s, English agriculture entered into a depression. The price of wheat in Britain fell from 56 shillings a quarter in 1867-71 to just 27 shillings and threepence by 1894-98. Areas of land used for cereal equally declined, decreasing by approximately 22 percent, whilst the amount of wheat-growing land fell by almost half by the turn of the century. Precipitating a dramatic migration from rural to urban areas, English cities exploded in population as people packed in desperately seeking employment. It would not be until after the Second World War that British agriculture would reach comparable levels of production and profitability again.

20 Times in History that Financial Markets Collapsed
The run on the Fourth National Bank, New York City in 1873, from Frank Leslie’s “Illustrated Newspaper” (c. October 4, 1873). Wikimedia Commons.

4. Originally labeled the “Great Depression” due to its severity, the Long Depression of 1873 lasted over two decades including a record 65-month long economic contraction in the United States

Following a decade of widespread growth, fueled by the Second Industrial Revolution and the return of peace to Europe and North America, 1873 saw the beginning of a worldwide and widespread recession. Starting with the “Panic of 1873”, a financial crisis brought about primarily by unchecked speculative investments, liquid capital was rapidly drained from markets. In New York City, between September and October 1873, bank reserves dropped from more than $50 million to less than $17 million. Lasting until 1879 in the U.S., during which time the American economy continually contracted, more than 18,000 businesses in the United States were forced to declare bankruptcy.

Lasting more than a decade longer in Europe, the saga encompassed several economic disasters each worthy of the label “crisis” in their own right. The “Panic of 1884” saw more than 10,000 small businesses collapse, whilst the “Panic of 1890” induced the bankruptcy of the Baring Bank due to excessive speculative investments in Argentina. The “Panic of 1893”, lasting until 1897 with the eventual end of the Long Depression, saw the emergence of the Free Silver Movement in an effort to restore stability to financial markets in addition to the closure of more than 500 banks and 15,000 businesses. Returning to the United States, unemployment in Pennsylvania climbed to 25%, 35% in New York, and 43% in Michigan.

20 Times in History that Financial Markets Collapsed
Wall Street, New York City, during the bank panic in October 1907. Wikimedia Commons.

3. Also known as the “Knickerbocker Crisis”, the Panic of 1907 saw the New York Stock Exchange plummet due to the lack of a national banking infrastructure

Following on from President Jackson’s abolition of the Bank of the United States, America remained without a national bank through the “Panic of 1907”. With the Hepburn Act restricting maximum railway rates by law in July 1906, stocks in railway companies rapidly declined. Falling an initial 17.5 percent between September 1906 and March 1907, financial fears spread throughout the summer until, in October, the stock markets crashed. Across a three-week period, starting in mid-October, the value of the New York Stock Exchange fell almost 50%. Panic spread throughout the country as consumers rushed to withdraw their money from banks.

Without a national bank to regulate and provide emergency liquidity, financier J.P. Morgan offered considerable sums of his own money in an effort to save the American banking system from total collapse. Joined by other New York institutions, Morgan saved the nation from economic implosion and by November the crisis had been averted in the short-term. The incident triggered a conceptual shift in financial perceptions within the political classes of the United States, leading to the creation of the independent Federal Reserve in 1913, as well as the reconstitution of the Bank of the United States in the same year, in an effort to preclude a recurrence.

20 Times in History that Financial Markets Collapsed
A 1919 parade in Washington, D.C. for soldiers returning home after World War I. The upheaval associated with the transition from a wartime to peacetime economy was a key contributing factor to the economic depression between 1920 and 1921. Wikimedia Commons.

2. Readjusting for a return to peacetime economics, the Depression of 1920-21 saw the struggle to incorporate millions of veterans back into the American economy

During wartime, national economies become highly tailored to the requirements of their respective states. Factories focus production on military priorities over commodities, whilst labor pools shrink driving up wages. Following the Armistice and the end of the First World War, the U.S. economy was still in the midst of an economic realignment when millions of soldiers returned from Europe. In 1920 alone, the American labor force increased by 1.6 million, or 4.1%, resulting in these repatriated troops suffering reduced wages due to an over-saturation. The administration of Woodrow Wilson was slow to respond to the emerging crisis, resulting in the election of Warren Harding in 1920 with future-President Herbert Hoover as Commerce Secretary.

Hoover sought to take control over the situation, instituting emergency tariffs on imported agricultural products to protect American farmers as well as factory goods. Hoover also encouraged, successfully, the reduction of income taxes to aide with economic recovery and redevelopment. Despite these effective measures, the deflationary recession lasted for almost two years, with unemployment peaking in 1921 at 11.7%. However, with the end of the recession the United States entered into a period of enormous economic prosperity: the Roaring Twenties, during which time the American economy steadily boomed.

20 Times in History that Financial Markets Collapsed
A crowd gathering on Wall Street after the 1929 crash, New York City. Wikimedia Commons.

1. The most devastating stock market crash in the history of modern economics, the Wall Street Crash of 1929 signaled the start of the 12 years long Great Depression that would only end with the start of the Second World War

Between October 24 to October 29, 1929, known colloquially as “Black Thursday” and “Black Tuesday”, the New York Stock Exchange plummeted collapsed in historic fashion. The most devastating collapse in economic history, in the opening hours of trading on Black Thursday the market lost 11 percent of its value. Decreasing faster than could be responded to, some financiers, including the Rockefellers, attempted to buy stocks in an attempt to shore up confidence. Ultimately unsuccessful, stocks continued to fall dramatically, dropping 13% on October 28 and 12% on the 29th, with a total of $30 billion wiped from existence across just those two days.

Crippling the financial industry, businesses were rendered without access to capital, beginning to falter, and by 1931 an average of 133 companies ceased operations per day. The consequences of the Wall Street Crash laid the foundations for the Great Depression. Lasting until the late-1930s, the worldwide gross domestic product fell by approximately 15%, international trade decreased by more than 50%, and unemployment rose above 25% in the United States. The financial ruin wrought by the crisis undercut any positive gains since the First World War, whilst the instability and turmoil caused created the political conditions for the rise of Nazism in Europe and onslaught of the Second World War.


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“British Agriculture 1875-1914”, P.J. Perry, Routledge Publishing (1973)

“Great Depression of 1873-1896”, Forrest Capie and Geoffrey Wood, Routledge Publishing (1997)

“The Panic of 1907: Lessons Learned from the Market’s Perfect Storm”, Robert F. Bruner and Sean D. Carr, John Wiley & Sons (2007)

“The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance”, Ron Chernow, Grove Press (1990)

“A Behavioral Explanation for Nominal Wage Rigidity During the Great Depression”, Antony Patrick O’Brien, The Quarterly Journal of Economics, Vol. 104, No. 4. Oxford University Press (Nov. 1989)

“1929: The Year of the Great Crash”, William K. Kilingaman, Harper & Row (1989)

“The Stock Market Crash of 1929”, Gordon V. Axon, Mason & Lipscomb Publishers (1974)