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 www.MoAF.org  |  Spring 2020  |  FINANCIAL HISTORY  23