Learning from History: Influenza and the Economy

[Originally published in the spring of 2020]

In October 1918, the so-called Spanish Flu killed 195,000 Americans -- the nation had just 103 million at the time. What happened to the US economy? Nothing. The Spanish flu killed many young and productive workers -- something that had a real effect on the US economy, but the economy kept growing. It was more than a year later that the economy suffered a brief, sharp deflation blamed on (1) wages dropping due to an increased supply of labor as soldiers returned after WW1, (2) dropping prices for agricultural products due to the end of the war. It lasted 18 months and was followed by the spectacular economy of the 1920s.

Fast forward to 2020. This time, government caused a severe recession, then manufactured currency and distributed it in the hope this would trick people into spending money. When this falls short, as it seems likely to do, it will manufacture more money.

That was the solution employed in Germany when it was unable to pay reparations after WW1. When the German Government didn't pay the reparations, France took over the industry and Germany told workers to give no aid -- and paid them not to work. The result: a hyperinflation and a financial collapse.

The German currency lost about half its value during WWI -- but when the war ended, the value of the currency declined at a faster and faster rate -- going from about 8 marks to the US dollar in 1918 to about 4 quadrillion marks to the dollar by 1924.

The intervention and the expansion of the US Government launched the Great Depression and maintained it for a decade. This time, confidence in the belief that government is the solution to all ills, economic difficulties may go on longer.