The Spanish Flu Pandemic and the U.S. Economy

By John Steele Gordon

The coronavirus pandemic has done great damage to the American economy—and damage that remains fully to be seen. Restaurants, bars, schools and sports events were closed. Air travel almost ceased. The New York Stock Exchange closed its floor (but continued to trade online, where almost all trading already takes place). Manufacturing greatly declined. Fortunately, many people were able to work from home.

The economic impact of the worldwide, if misnamed, Spanish flu pandemic of 1918-19 was very different. That epidemic, the worst of the 20th century, infected about 600 million people, about 27 percent of the world population, and killed perhaps as many as 50 million people. In the United States, the death toll was about 675,000, out of a total population of 105 million.

The death toll of the Spanish flu was far higher than that of the novel coronavirus to date. (It briefly dropped life expectancy by a full 12 years.) The Spanish flu was inherently more lethal, and medical technology was far less advanced a century ago. Ventilators to help the very ill breathe, for instance, did not come into widespread use until the 1950s. But the flu, despite its severity, did not cause the American economy to implode.

There are basically two reasons for that. First, in 1918, World War I was still raging, so there was no question of shutting down American industry until the epidemic passed. Second, a much higher percentage of the population had few financial assets and lived payday to payday at a time when there was little if any safety net. Unemployment insurance didn’t begin until 1932. Many Americans either worked or starved.

Nor did the New York Stock Exchange close its floor. In 1918, of course, that was the only way to trade. The war had been an immense boost to the American economy. The year 1916 still holds the record for the greatest annual increase in the Dow Jones Industrial Average. The profits continued to roll in in 1918, largely maintaining stock prices.

New York City, even more of an economic engine in 1918 than now, acted vigorously to meet the crisis, and with success. Its excess death rate was 30 percent lower than in Boston and 40 percent lower than in Philadelphia. But the city did so in different ways than in the recent crisis.

To a large extent that was due to differences in technology. For instance, while the city did not shutter whole segments of the local economy, it did stagger work hours for different industries in order to reduce crowded rush hours on the city’s subways and elevated lines. Offices opened at 8:40 and closed at 4:30. Wholesalers opened earlier, non-textile manufacturers later.

And unlike many cities, New York kept its school system open. It was felt the children were safer in school, under close supervision. And New York schools had a robust child health care system. Doctors inspected the children every morning and sent those who were ill home. In the days before radio and television, the children were also a means of getting information to the parents on how to stay healthy.

Likewise, modern theaters that were well ventilated were allowed to stay open, again not only to keep the economy going but also as a means of communicating with the audience on how best to deal with the contagion. Audience members who coughed or sneezed, however, were promptly removed.

The crisis had begun in mid-September, and reached its deadliest peak in October, but was over by early November, when deaths from flu and pneumonia returned to normal levels. And the American economy escaped largely unscathed.

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About Author

John Steele Gordon

John Steele Gordon, the ABA Banking Journal's "From the Vault" columnist, is an acclaimed economic historian. His books include An Empire of Wealth, Hamilton’s Blessing and The Great Game.