Financial History Issue 133 (Spring 2020) | Page 25
Officers of the Seattle Police Department wearing masks during the Spanish influenza pandemic, December 1918.
securities holders—individuals such as
President Washington and institutions
such as the Bank of New York—were
wealthy enough to relocate, leaving most
of the suffering and death to the laboring
classes and the poor. In 1793, if securities
prices fell or were unavailable in Philadel-
phia, an investor could sell in New York,
which had no epidemic and where mar-
kets remained open. Such cross-market
arbitrages prevented crashes in a city hit
by an epidemic.
In short, the decentralized nature of
securities trading systems, along with dif-
ferent attitudes toward death and limits
on governmental powers, minimized the
financial and economic fallout of public-
health crises. All early American investors
had to fear was the epidemic itself, not lost
liquidity or government-mandated shut-
downs of large sectors of the economy.
Spanish Flu Pandemic (1918–1920)
This worldwide pandemic was quite dif-
ferent from earlier localized epidemics.
Across the world, the flu killed about 40
million people, or 2% of the world’s popu-
lation. Since it is estimated that a third
of that population became infected, the
death rate for those infected was about 6%.
In the United States, about 550,000
died of the flu, or half a percent of the US
population. A first, mild wave of infections
came in the spring of 1918, followed by
a more deadly one from September 1918
to January 1919. One of those killed was
Frederick Trump, grandfather of Presi-
dent Donald Trump. President Woodrow
Wilson caught the flu but survived, albeit
impaired, as did Walt Disney, General John
Pershing and the leaders of France and the
UK, Clemenceau and Lloyd George.
World War I was in its last year in 1918,
and movements of soldiers internation-
ally and domestically helped to spread the
flu virus. The overlap of the war and the
pandemic makes it difficult to isolate the
economic and financial effects of each.
But economist Robert Barro and collabo-
rators took a stab at separating the war
and flu effects by means of econometric
analysis. They estimated that both war and
flu depressed real GDP growth and con-
sumption spending, and raised inflation
in both the world and the United States.
The flu was less important than the war in
these outcomes, but not insignificant.
They found for the United States that
the flu by itself reduced real stock returns
by seven percentage points and returns
on short-term government debt by 3.5
percentage points, while it raised inflation
by five percentage points. These results
are broadly consistent with the Dow Jones
average increasing in nominal terms by
10.5% in 1918, when the CPI inflation rate
was above 15%, and both annual real GDP
growth overall and per capita being less
than 1% during the years 1918–19.
Asian Flu Pandemic (1957–1958)
This pandemic began in China in late
1956 or early 1957, and by the summer of
1957 it began to spread around the world.
Ultimately, it would kill an estimated 1-2
million people. By October, it was in full
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