Patterns of economic collapse

I've recently discovered some consistent patterns throughout history that explain how economies collapse. Two books in particular have been very helpful for putting our current recession into a historical context:
  • Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism by Kevin Phillips
  • The Great Wave: Price Revolutions and the Rhythm of History by David Hackett Fischer

Governments, religions and corporations are all tempted to expand beyond their means of sustainability. They become over-extended by over-reaching their practical limitations. They become over-bearing to those who are getting subjugated, manipulated and coerced. Human rights of everyone get over-ruled by property rights of the elite. World domination becomes the objective of the over-zealous endeavor. While the expansion succeeds, the market for goods, services and financing expands dramatically. Profitability and prosperity abounds. The beneficiaries get deluded into thinking they are on the right track with no end in sight. For example:
  • The Roman empire extending as far as Gaul until Egyptian papyrus exporters cut off shipments and left the Roman government unable to communicate with outlying regions.
  • Inca and Aztec empires covering meso American until small bands of Spanish conquistadors captured their kings and incapacitated the citizens.
  • The Catholic Church maintaining a vast empire of monasteries throughout medieval Europe until the printing of bibles in vernacular languages undermined their absolute authority.
  • The Hapsburg empire, Maritime Belgium, and Imperial Great Britain maintaining colonies until their over-expansion on borrowed money collapsed their financial system.

As these domineering endeavors become over-extended, their collapse becomes imminent. They lose resilience as they become rigid, obsessed and self-righteous. They make enemies and lose allies. They alienate their loyal subjects who previously submitted to being over-ruled. They become over-dependent on a single source of sustenance, control, authority or exclusivity that can be cut off by a small act of aggression. They rely too much on credit, finance and patronage as their weakening economy generates less tax revenue and middle class prosperity. Prices then soar and real income then declines for hard-working wage earners. The gap widens between rich and poor. Democratic processes become more aristocratic, exploitative and manipulative of powerlessness.

The resemblance to our current globalization and financial system is haunting. Fortunately there are also patterns for rebounding and resilience that I'll explore next.

1 comment:

  1. Ah, collapse... now you are talking my language.

    Before you move on to resilience/rebound (and there is plenty of great stuff to be read - Transition Culture, the Re-localisation movement, John Robb's "Global Guerillas") you should dwell a bit more on the other causes of collapse in our current situation - climate change and Peak Oil. I'd say oil is the "single source of sustenance etc." in the current system.

    After reading Jared Diamond's "Collapse: How Societies Choose to Fail or Succeed", James Howard Kunstler's "The Long Emergency", Richard Heinberg's "Peak Everything: Waking Up to the Century of Declines", John Michael Greer's "The Long Descent: A User's Guide to the End of the Industrial Age" and similar titles I'd be curious to see if you still maintain your sense of optimism about us pulling out of collapse this time.

    And before you leave the economy I suggest you read up on how money is created as debt and the fractional reserve banking system. Chris Martenson's Crash Course - - is a good primer.