Visualizing History 

Source: Global Financial Data

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The Theory of Stock Exchange Speculation (1874)

Investing based on…. weather…

Sunday Reads

What we need. Better cooperation between Government and Business.

Before we dive in, just a reminder to check out the new financial history course I launched two weeks ago with guest lectures from world renowned investors, authors, and professors. Over 200 students have already enrolled and started learning the historical context for markets today. Check it out!

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People are angry. Whether it be the viral videos of small business protests this week or the Santelli v. Sorkin smackdown on CNBC… people are angry about the various regional introductions or re-introductions of COVID restrictions.

Despite the positive vaccine news of late, the nation is currently hitting records for daily new COVID-19 cases, and facing the prospects of a decisively fatal winter for businesses that had already been on life support during warmer months (i.e. Retail, Food & Dining, etc.). As cases continue soaring, many cities and states are implementing tighter restrictions on gatherings and shutting down or severely restricting non-essential businesses. For businesses that have barely survived the pandemic thus far, this is devastating.

Double Standards

They say that some things never change, and apparently this applies to politician’s hypocrisy during pandemics; particularly in California. The frustration of many small business owners has only been exacerbated by the double standards and blatant hypocrisy of elected officials over recent weeks. As New York Magazine wrote:

Cabo is probably nice this time of year. Steve Adler, the mayor of Austin, Texas, would know: The Austin American-Statesman reports that he traveled there in November on a private jet, one day after hosting his daughter’s wedding. Adler is a hard worker; he took a break from his trip to record a special video for his constituents. “We need to stay home if you can. This is not the time to relax,” he said. An astute point! But one he clearly struggles to internalize. Upon being found out, Adler defended both vacation and wedding, even though the guest list at the latter event exceeded city recommendations on private gatherings. He eventually apologized…”

The Austin mayor was not alone. Two additional examples of this hypocrisy are found in California, at the same restaurant:

California’s governor, Gavin Newsom, attended a party at the exclusive French Laundry restaurant. A night later, so did London Breed, the mayor of San Francisco. Denver mayor Michael Hancock flew to see family for Thanksgiving — after telling his staff to refrain from all travel.”

As usual, there’s a Puck cartoon that sums it up best:

In his lecture on the history of the US in 5 crashes, CNBC Contributor and bestselling author Scott Nations’ has a section on the various “Heroes & Villains” of each crisis. Well, recently it feels like politicians have been trying their damndest to make it onto that Villains list.

While politics and hypocrisy have been inseparable from time immemorial, it appears that California officials have a specific penchant for disobeying their own policies during pandemics. The Mayor of San Francisco during Spanish Influenza, James Rolph, had a similarly hard time following the mandates he issued to halt the spread of Influenza:

Left: San Francisco Chronicle (November 1918) / Right: The Hulton v. Meehan Boxing Match

Fast forwarding to today, the public’s justified anger over such incidents was best exemplified by a viral video this week of one Los Angeles bar owner that had been forced to shut down her outdoor dining area because of new government policies. The outraged owner compares her bar’s open-air seating with an outdoor dining area for a movie company – just fifteen feet from her bar’s outdoor seating area – that had been allegedly approved by the LA Mayor as ‘safe’. There is no detectable difference between the two outdoor seating areas. I am not sure what the solutions to these important issues are, but I am sure that this blatant example of double-standards is not one of them. I am far from the anti-mask crowd, but something needs to be done to address the fact that thousands upon thousands of small businesses like the bar below are being wiped out during this pandemic.

Tensions Rising

I don’t have specific data to back this up, but it feels like there has been a recent uptick in public protests / pushback against the re-introduction of COVID restrictions, particularly from those in some of the hardest hit industries like Food & Dining. Couple this palpable frustration with examples of politician’s blatantly violating their own restrictions: eventually tensions will spill over. If only we had, you know, a legislature that was capable of accomplishing quite literally anything. Republican or Democrat.

I guess we can try to find some solace in the fact that we haven’t descended into the levels of chaos depicted in the two headlines below from 1918:

Right: “Say! Young fellow get a mask or go to jail”

However, the parallels between protestors today and the San Francisco Anti-Mask League of 1918 are incredibly similar:

This text could be straight out of today’s newspaper:


While we’ve touched upon a few specific examples of hypocrisy and double standards, the broader underlying theme is how the pandemic is fueling inequality around the world. Some have referred to this as a “K Shaped Recovery”:

Our k-shaped recovery - Delaware Business Now

Just look at the chart below:

Job Losses Largest in Low-Wage Industries

An Inspiration

Plague woodcut - single use

Before we dive into today’s Sunday Reads, I want to end the introduction on a slightly more positive note by sharing the story of Eyam, the 17th century “plague village”. This description of a story on on village’s self-sacrifice comes from the BBC:

“On 1 November 1666 farm worker Abraham Morten gasped his final breath – the last of 260 people to die from bubonic plague in the remote Derbyshire village of Eyam. Their fate had been sealed four months earlier when the entire village made the remarkable decision to quarantine itself in an heroic attempt to halt the spread of the Great Plague. This is the story of the villagers who refused to run.

Abraham was in his late 20s when he died. He was one of 18 Mortens listed as plague victims on the parish register. But the story of the plague in Eyam had begun 14 months earlier, with the arrival of a bale of cloth sent from London, where the disease had already killed thousands of inhabitants. Contained in the bale of damp cloth were fleas carrying the plague.

A tailor’s assistant called George Viccars was said to have opened the bale and hung the cloth in front of the hearth to dry, unwittingly stirring the disease-ridden fleas contained within the parcel. He became the first of the plague’s victims in the village. The pestilence swept through the community. Between September and December 1665, 42 villagers died and by the spring of 1666, many were on the verge of fleeing their homes and livelihoods to save themselves.

It was at this point that the newly appointed rector, William Mompesson, intervened. Believing it his duty to prevent the plague spreading to the nearby towns of Sheffield and Bakewell, he decided the village should be quarantined…

On 24 June 1666, Mompesson told his parishioners that the village must be enclosed, with no-one allowed in or out. He said the Earl of Devonshire, who lived nearby at Chatsworth, had offered to send food and supplies if the villagers agreed to be quarantined.

Mompesson said if they agreed to stay – effectively choosing death – he would do everything in his power to alleviate their suffering and remain with them, telling them he was willing to sacrifice his own life rather than see nearby communities decimated.

Dr Michael Sweet, a wildlife disease specialist at the University of Derby, said: “The decision to quarantine the village meant that human-to-human contact, especially with those outside of the village was basically eliminated which would have certainly significantly reduced the potential of the spread of the pathogen.

“Without the restraint of the villagers many more people, especially from neighbouring villages, would have more than likely have succumbed to the disease. “It is remarkable how effective the isolation was in this instance,” he added.

August 1666 saw the highest number of victims, reaching a peak of five or six deaths a day. The weather was remarkably hot that summer, which meant the fleas were more active, and the pestilence spread unchecked throughout the village. Despite this, hardly anyone broke the cordon; even those who were reluctant to stay saw it through.

The same month, Elizabeth Hancock buried six of her children and her husband close to the family farm. They had all perished in the space of just eight days…It is said people from the nearby village of Stoney Middleton stood on the hill and watched her – too scared to help…

Cucklet Delf

However, the worst of the pestilence was over. The number of cases fell in September and October, and by 1 November the disease had gone. The cordon had worked. During the outbreak, Eyam’s mortality rate was higher than that suffered by the citizens of London as a result of the plague. In just over a year, 260 of the village’s inhabitants, from no fewer than 76 different families, had died. Historians have placed the total population of Eyam at between 350 and 800 before the plague struck.

However, Mompesson knew his actions, and the courage of his parishioners, had probably saved thousands more.

Right, so on to today’s Sunday Reads. This articles in today’s edition are going to focus on the economic consequences of past pandemics and epidemics, and what their impacts on inequality and small businesses were. We will also look at some of the historical examples of government mandated lockdowns, their impact on entrepreneurship / business activity, and much more. So let’s dive in!

How Pandemics Past and Present Fuel The Rise of Large Companies

The people of Tournai bury victims of the Black Death, c.1353

Many of us will be familiar with the fact that while the Black Death wreaked carnage across Europe in the mid 14th century, the plague was also beneficial to those peasants that survived because of their increased bargaining power. Put simply, everyone was dead and farmland still needed to be tilled, so Lords were desperate to find laborers. Peasants suddenly had some leverage at the negotiating table. However, this article looks at the longer term impact of the Black Death, and specifically how it solidified the gap between large corporation and small businesses. There are many parallels to what is unfolding today as a result of COVID-19.

“In June 1348, people in England began reporting mysterious symptoms. They started off as mild and vague: headaches, aches, and nausea. This was followed by painful black lumps, or buboes, growing in the armpits and groin, which gave the disease its name: bubonic plague. The last stage was a high fever, and then death….

The Black Death killed between a third and a half of the population of Europe and the Near East. This huge number of deaths was accompanied by general economic devastation. With a third of the workforce dead, the crops could not be harvested and communities fell apart. One in ten villages in England (and in Tuscany and other regions) were lost and never re-founded. Houses fell into the ground and were covered by grass and earth, leaving only the church behind. If you ever see a church or chapel all alone in a field, you are probably looking at the last remains of one of Europe’s lost villages…

Because another, less often remarked, consequence of the Black Death was the rise of wealthy entrepreneurs and business-government links. It goes without saying that not all developments in the years 1350-1500 can be attributed to the Black Death. But it was certainly one of many moving parts that led to the emergence of new forms of entrepreneurial behaviour. Although the Black Death caused short-term losses for Europe’s largest companies, in the long term, it played a part in the concentration of their assets, gain of a greater share of the market and influence with governments.

This has strong parallels with the current situation in many countries across the world. While small companies rely upon government support to prevent them collapsing, many others – mainly the much larger ones involved in home delivery – are profiting handsomely from the new trading conditions.

The mid-14th century economy is too removed from the size, speed, and interconnectedness of the modern market to give exact comparisons. But we can certainly see parallels with the way that the Black Death strengthened the power of the state and, in the long term, accelerated the domination of key markets by a handful of large companies.”

Spanish Flu & The Original Zoom: Telephones

E-Commerce (?)

Distanced Learning

“In Long Beach, California, kids who were quarantined at home were guinea pigs for an early form of remote education. “The pupils in the high school there are doing home study work and holding regular telephonic conversation with their instructors,” reported the Oakland Tribune.”

The problem with the telephone and Spanish Influenza, however, was that many of the crucial switchboard operators facilitating phone calls kept catching Spanish Flu! It reached the point where companies were placing ads to its users pleading with them to only phone if it was truly necessary, and reduce call volume:

In a 1918 edition of the New York Times, the newspaper perfectly summarized the adoption of this new technology in a way that still rings true today:

Less than forty years ago the telephone was an amusing toy, and not for twenty years after that did it cease to be the luxury of the richNow it is become an invaluable implement in daily use, direct or indirect, by all except a small part of our population. Now, nobody can understand how we lived without it, and its value is [certainly] inestimable.”

A Bizarre Vaccine Story

This story comes from Bryan Taylor, Chief Economist at Global Financial Data:

“With the anticipation of a vaccine putting an end to the Covid Pandemic, I’m reminded of the fate of the “trente Immortelles de Geneve”, the thirty immortals of Geneva and the impact they had on financial markets back in the 1780s.

During the 1700s, France had accumulated a lot of debt and one way that France funded these debts were through tontines, which were life annuities.  The government would issue a life annuity and pay a fixed amount of money to the recipient each year until they died.   The longer the recipients lived, the more money they would receive from the French government.

Investors in Geneva took advantage of these annuities by buying them in the name of thirty girls from good families whom the investors expected to have a very long life.  During the 1700s, smallpox was raging through Europe and was causing a quarter of deaths. In 1774, Benjamin Jesty tested a vaccine which would make people immune to smallpox.  Mortality tables had been published in London in 1661 and mortality tables were published for Geneva in 1777.  It was anticipated that the use of a smallpox vaccine would increase the average life span by three years, increasing the cash flow to the holders of the life annuities.

In 1763, the Parliament of Paris had banned inoculating against smallpox, fearing that it would thwart the will of God or worsen the pandemic. Jacques Necker became the finance minister of Louis XVI in 1775 and in 1777 he began issuing life annuities that paid 10% interest.  France had gotten involved in the American revolutionary war and was aiding America to help them fight against the British.  France 530 million livres in three years, of which 386 million was borrowed through life annuities. The anticipation was that the average “life expectancy”, a term newly invented by Nicolas Bernoulli, the brother of the mathematician Daniel Bernoulli, would be twenty years.

However, the investors in Geneva wanted to get sixty years of returns, not just twenty.  They found young girls aged four to fourteen.  The bankers agreed to pay for their medical care in order to maximize the return on their “investments.”  Besides, it was a matter of local pride that their girls would live long and maximize the return to their investors.  And so it was.  Only 2 of the 30 girls died within 20 years and on average, the girls lived to be 63.

The life annuities led to conflict among the revolutionaries in France.  On 8 Thermidor, Year II (July 26, 1794), a violent controversy erupted over the cost of the life annuities which the government then anticipated would cost them triple the original amount. This controversy was instrumental in leading to the eventual downfall of Robespierre, who was guillotined two days later.  Unfortunately for France, Robespierre did not have a life annuity.

In 1793, the life annuities were converted to a negotiated conversion scale.  The bankers succeeded and the revolutionaries failed.”

Pandemics Change Cities: Municipal Spending and Voter Extremism in Germany: 1918-1933

Spanish flu – Raikeswood camp

Funeral of some of the 47 German prisoners who were victims of the Spanish flu pandemic at Raikeswood Camp (July / August 1918)

This Federal Reserve article studies an extreme example of the political fallout occurring following a pandemic: Germany and the rise of the Third Reich.

“This paper uses several historical data-sets from Germany to show that influenza mortality in 1918-1920 was correlated with (i) lower per-capita spending, especially on services consumed by the young, in the following decade and (ii) the share of votes received by extremist parties in 1932 and 1933…

Evidence suggests that the deaths brought about by the influenza pandemic of 1918-1920 may have shaped German society going forward. Regional variation in influenza mortality was related to subsequent city spending on various amenities for its population. Cities that saw a greater share of their population die due to influenza spent less, per-capita, going forward. Perhaps more importantly, influenza deaths themselves are correlated with the share of votes won by extremists, specifically the extremist National Socialist party.This effect dominates many other effects and is persistent even when controlling for the influences of local unemployment, city spending, population changes brought about by the war, and local demographics, or when instrumenting for influenza mortality.

The results are possibly a consequence of changes in societal preferences following a pandemic. In particular, the pandemic may have interacted with existing deep seated anti-Semitism / anti-outsider sentiment, which was further fed by national socialist propaganda that linked diseases to minorities. Given a number of econometric challenges, care must be taken in the interpretation  f the results. Nevertheless, this study offers a novel contribution to the discussion surrounding the long-term effects of pandemics.”

Pandemics & Epidemics: Financial and Economic Effects

The excerpt below is from the Museum of American Finance’s collection on Pandemics & Epidemics: Financial and Economic Effects:

‘During the first seven weeks of 2020, despite ominous news from China, Italy and Iran about the spread of the COVID-19 virus, US stock indexes hit new all-time highs. Then, in little more than a month, the market crashed. By March 23, the Dow Industrials dropped 37%; the S&P 500, 34%; and the NASDAQ Composite, 30%. It seemed that the markets suddenly realized that the virus’s spread to the United States would cause widespread business shutdowns, closings of schools and universities, and stay-at-home orders from public officials. More than 20 million American workers, a seventh of the labor force, would apply for unemployment benefits between mid-March and mid-April. All of that happened. A major recession, if not a depression, seemed imminent.

Then, in response to the crisis, the Federal Reserve, Congress and the Trump administration implemented a number of unprecedented monetary and fiscal measures to alleviate the public-health and economic crises. By mid-April, as the numbers of infections and deaths from the virus mounted daily, the markets staged a sharp recovery. In less than a month, from the March lows the Dow rose 30%, the S&P 29% and the NASDAQ 26%. Justified or not—only time will tell—the markets’ collective wisdom seemed to think that the virus would soon go away and the government’s drastic measures would soon bring a sharp economic recovery.

Is this what typically happens during epidemics and pandemics? Because they don’t occur often anymore, most people have not experienced them and don’t have a clue as to what is typical. But they have happened often enough in history, which can offer some guidance. Here, seeking that guidance, we examine a number, but by no means all, of the epidemics and pandemics that have occurred over the course of US history.’

The post covers a combination of 5 pandemics and epidemics in the United States:

1798 Yellow Fever Epidemic

‘Outbreaks of yellow fever were an almost annual occurrence in the decade 1795-1804 and reached epidemic proportions in New York similar to Philadelphia’s outbreak five years earlier from July to October 1798. Some 2,100 of the city’s population of about 35,000 died of the fever that year. The toll included prominent citizens such as Anti-Federalist Melancton Smith and printer Thomas Greenleaf. Street vendors hawked “Coffins—coffins of all sizes.” Many of the dead were buried in mass graves on what is now the site of Washington Square Park, which then was on the outskirts of the city.’

1832 Cholera Epidemic

‘When cholera broke out in 1832, New York City’s population had increased to 250,000, many of them recent immigrants living below 14th Street. The epidemic killed some 3,500, a mortality rate equivalent to more than 100,000 when applied to the city’s current population. When it peaked in Manhattan in July, President Andrew Jackson was in the process of vetoing Congress’s bill to re-charter the second Bank of the United States and completely repaying the US national debt.’

1858 Scarlet Fever Epidemic

‘Scarlet fever, nee scarlatina, killed 2,089 people, almost all younger than 16 years old, in Massachusetts between December 1858 and December 1859. According to the 1860 Census, the population of the state was about 1.2 million, of whom about 350,000 were under 16. Some of the children were employed, but the labor force exceeded 450,000, so the shock was more emotional than economic.’

1918 Spanish Flu

‘This worldwide pandemic was quite different from earlier localized epidemics. Across the world, the flu killed about 40 million people, or 2% of the world’s population. Since it is estimated that a third of that population became infected, the death rate for those infected was about 6%.’

1957 Asian Flu Pandemic

‘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 swing in the United States. The first wave that fall affected mostly school children, and some schools were closed. But few children died. A second wave in early 1958 was more deadly, affecting in particular pregnant women and elderly people with pre-existing conditions. Estimated US deaths ranged from 70,000 to 116,000.’

Property Speculation After the Black Death

“The Triumph of Death”, Pieter Bruegel the Elder, 1562

Speculating in real estate following the Black Death, which wiped out 1/3 of Europe’s population, may be the ultimate example of “distressed investing.” This article offers insights on the developing speculative market for real estate assets following the economic and societal upheaval stemming from the Black Death.

“This article re-examines the late medieval market in freehold land, the extent to which it was governed by market forces as opposed to political or social constraints, and how this contributed to the commercialization of the late medieval English economy. We employ a valuable new resource for study of this topic in the form of an extensive dataset on late medieval English freehold property transactions. Through analysis of this data, we examine how the level of market activity (the number of sales) and the nature of the properties (the relative proportions of different types of asset) varied across regions and over time. In particular, we consider the impact of exogenous factors and the effects of growing commercialization. We argue that peaks of activity following periods of crisis (Great Famine and Black Death) indicate that property ownership became open to market speculation. In so doing, we present an important new perspective on the long-term evolution of the medieval English property market.”