Economic collapse

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An economic collapse is a devastating breakdown of a national, regional, or territorial economy. It is essentially a severe economic depression.

A full or near-full economic collapse is often quickly followed by months, years, or even decades of economic depression, social chaos, and civil unrest. In past history, such outcomes have eventually been corrected, at least in part, by recovery measures implemented by the government. Some economists (i.e. the Austrian School, in particular Ludwig von Mises), believe that government intervention and over-regulation of the economy can lead to the conditions for collapse. The most obvious example of such a development is the 1929 Stock Market Crash. According to John Maynard Keynes, this episode was caused by a virtual absence of government involvement in the economy.

By contrast, the Indian philosopher P.R. Sarkar and his disciple Dr. Ravi Batra, 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 in asset prices, a liquidity crisis, insolvency and collapse. Government efforts to inject liquidity into the finanical 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. The government efforts may then avoid high levels of unemployment at the cost of high inflation. At worst, both high unemployment and high inflation are experienced, such as was the case in the Weimar Republic in the early 1930s. Eventually, the system absorbs the losses but after considerable suffering by the general population. Nevertheless, capitalism has weathered such storms because of its inherent dynamism.

During the 1980s, the Eastern Bloc, which relied on a stagnant form of state capitalism, experienced a decade-long period of stagflation, and eventual collapse from which it did not recover, culminating with revolutions and the fall of communist regimes throughout Central and Eastern Europe and eventually in the Soviet Union.