War and politics have been the focal point of the downfall of many dominant nations over the course of world history, but poor economic decisions have also led to countries falling, people dying from hunger, and revolutions changing the course of world history.
Niall Ferguson's book, "The Ascent of Money" details the course of economic collapses. The further back the collapse, the less detail there is on the decisions made, the decision makers, and issues surrounding the decisions. But Ferguson does a great job of explaining in detail the effects the collapses had on each particular nation and the global economy.
The development of economic principles and financial methods of accounting for money throughout time are also detailed in "The Ascent of Money", as Ferguson paints a timeline of how economies developed and crashed, and what was learned afterwards.
Ferguson's book was the primary source for the information in this article.
The Medici Bank, a lack of focus by the principal of one of the world's biggest banks leads to its demise
The Medici Bank, during its high point, was one of the most respected banks in the history of the world. The Medici family revolutionized accounting by invoking the ledger system and double entry system of credits and debits, which is essentially still the backbone of an introduction to accounting class at most colleges.
The bank rose to massive size, leading the family to become heavily involved in Florence's and subsequently many parts of Europe's politics, specifically Lorenzo de' Medici. The emergence of politics into the family was eventually one cause of its downfall, as the focus on the bank became less and less. Eventually, high leverage caused fiscal problems for the bank. With the problems growing, the company defrauded the fund that pays for dowries and was conceded to Charles VIII of France in 1494. The entire bank was dissolved.
The bank grew the family's fortune to 122,669 Florin, which fell to 57,930 florin under Lorenzo's rule. That is the modern day equivalent of
Source: "The Ascent of Money"
Price Revolution, Spanish conquistadors import gold and silver at a record pace leading to massive price inflation
In the second half of the 16th century, Spain began importing silver and gold at a rapid pace from Peru. Metals were extremely valuable to Spain but relatively unimportant to the natives, and once Spain conquered the natives they put natives into the mines.
The import provided a huge, unexpected supply of silver and gold to Spain and all of Europe, causing massive price inflation. Inflation and high taxes hurt Spanish industry, and much of the country's wealth was subsequently spent on wars. Spain went bankrupt for the fourth time in 1596, eventually leading to the country losing its position in America to the Dutch, English, and French.
Source: "The Ascent of Money"
Mississippi Bubble, a financial scheme goes bad and taxpayers suffer as the man at fault flees France
John Law was a Scottish economist who established Banque Generale, a private bank which acted as the first ever central bank of France. Additionally, Law also oversaw France's tax collection and minting of money.
Law developed the Compagnie des Indes in 1719, which had a monopoly on both the French tobacco and African slave trades. Due to the fact that the company had a monopoly on two large markets, there was an enormous potential for profits. This led to a large public demand for shares in the company, which eventually pushed its share price far higher than its earnings.
The stock-market boomed along with the company, and the government printed more paper money in order to buy more shares of Law's company. This caused inflation and the company never lived up to the expected profits that initially caused the stock to boom. The stock crashed, as did the stock market around it in France as well as other countries. Law fled France after the crash of his company and the nation's economy, as taxes were raised significantly in order to pay for the debt left behind by the company and bank failed.
It would be eighty years before France again introduced paper to its economy.
Source: "The Ascent of Money"
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