I’m not an economist (if I was, I could probably answer this question myself) so I may not be using the right term. When I say speculation, I’m talking about buying a thing with the intent of selling that same thing at a future date for a higher price than you paid for it. This is opposed to the idea of buying a thing because you want to own it or use it yourself or improve it so it becomes more valuable.
So has there ever been an economic crash that didn’t involve speculation?
Wars often result in economic crashes. Consider Gaza.
Interesting question. Speculators always exist, so technically no crash could not involve speculation. And crash is not a good descriptor. The U.S has seen 48 technical recessions, and the early ones happened every couple of years and are mostly forgotten, even by textbooks. I’d say most of the later ones - post-Civil War - had a large core of speculation fueling them.
If you look at the experiences of other countries, then there are many examples. The German hyperinflation of the early 1920s was caused by Germany not being able to pay off its impossible war debts and thereupon printing larger and larger amounts of worthless currency. The highest was 100 trillion ℳ, and that’s not even the world record. (Zimbabwe had 100 quintillion.)
I question whether this is accurate. I don’t feel the war debt was impossible. It’s just that Germany didn’t want to pay it. So the German government deliberately crashed its own economy with hyperinflation so the allied countries would change the debt. It was not a wise decision because the hyperinflation caused more problems than the reparations had.
The question really depends on what you mean by “crash”. What crashed? Every economy features some degree of speculation about the future price of assets. When that confidence is lost, then asset prices crash. So by definition an asset crash is a collapse in speculative confidence.
If I understand the OP question right, you’re asking if there’s ever been an economic crash that wasn’t preceded by excessive speculation, i.e. a bubble. This would need to involve some sort of external factor like a war, pandemic, ruinous government policy, or kinks in the supply chain for materials or energy. But there again, speculators would react to these signals and run for liquidity, causing a collapse in assets, which magnifies the severity of everything else.
So I think the answer to the OP has to be “no”. While there are crashes that were not necessary caused by speculation, all of them involve some change in speculative sentiment, though the speculation may not necessarily have been excessive or irresponsible.
I don’t think so.
As for the OP every crash is by definition a period where valuations change abruptly. To find out that this is the case you need at least one person buying something from another. The fact that this other person still has something to sell means he was speculating, if you feel inclined to blame him. What is trading, what is speculating? What is investing, what is speculating? What is saving, what is hoarding with the intent to speculate?
Your question cannot be answered before we agree on what speculation is.
I acknowledge my point was vague, even to myself.
But I was reading a book which was describing several economic crashes and I felt the common factor was the speculation I described. People were buying an asset solely in the anticipation that the price would go up and they could resell if at a higher price than they had paid.
This belief obviously cannot be true. Prices cannot keep rising indefinitely. At some point, the prices will not rise any further and the last people who bought the asset will not be able to resell for a profit. So it seems that any economic situation where speculation becomes an issue is inevitably heading towards a crash.
But as people have pointed out, not all economic crashes arise from this type of speculation. Some crashes are caused by political decisions or some economic issue unrelated to speculation. So trying to control speculation would not eliminate crashes.
The Currency collapse of 33 AD might qualify
Seems to have been due to a political decision involving bank regulation, causing a credit crunch. There were certainly speculators around, but they didn’t cause this one (I think)
The story of Mansa Musa in Cairo could also qualify. There was no speculation involved, he just spent more gold than the market could absorb:
Musa went on Hajj to Mecca in 1324, traveling with an enormous entourage and a vast supply of gold. En route he spent time in Cairo, where his lavish gift-giving is said to have noticeably affected the value of gold in Egypt and garnered the attention of the wider Muslim world.
I would challenge whether “crash” is really the right word for a gradual GDP decline caused by exogenous factors. It happens more promptly than anybody prefers, because we’d prefer that it didn’t happen at all, but it’s a lot less sudden than the collapse of a speculative bubble.
A big part of the reason that speculative bubbles are so nasty is the way they cause a run on liquidity and threaten the underlying plumbing of banking, lending, etc which causes many things to go very badly very quickly, hence a “crash”. For exogenous declines, they usually don’t happen so abruply. So while I’d agree that not every economic decline can be blamed on speculation, everything that can be considered an actual “crash” has speculation at its root.
Controlling speculation definitely can prevent crashes. This is part of why we had the Glass-Steagall act, to isolate the underlying financial plumbing of the system from the more speculative investment sector, so that the liquidity systems underpinning our financial system don’t get too entangled with investments that could put them at risk if things go bad. I’m not sure how much can be done to prevent people from making speculative investments, but there are definitely things we can do to prevent banks from taking on too much system-threatening risk.
A lot depends on how you define a “crash”, I expect. There’s a lot of ghost towns that died because they were dependent on a resource like a gold mine that simply ran out. And besides wars, places have suffered major economic decline due to natural disasters and plagues. The Black Death caused a major economic decline, for example (as much as people like to push the idea that it was good for labor in the long run, that didn’t help those living and dying during it).
EDIT: I think that speculation stands out because it’s so obviously an artificial reason for a crash. Nobody needs to ask why the economy of a town crashes if a volcano obliterates it or half the population die from disease. But speculation is about people metaphorically running off a cliff out of greed and dragging everyone else with them.
Representing Zimbabwe here! Our crazy economic crash was not caused by speculation, but instead by the relatively weak government at the time giving in to demands to pay “war veterans”, some of whom actually participated in the Rhodesian bush war that led to Independence. Some of whom were clearly too young to have participated.
Perhaps (on second thoughts) demanding promised payout is actually speculation?
But record keeping in a guerrilla war is shaky at best, and Mugabe needed their political support… so he bankrupted the country.
Obviously that had a happy end for everyone. /s
I believe we come second, though, to Venezuela.
Somewhere, I have a few trillion dollar bills, that I picked up in a ditch by the road… they were that valuable. It is like the story of Bill Gates seeing a dollar on the road, the time it would take him to bend over and pick it up would actually cost him money…