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A Catastrophe That Changed the World

On this day in economic and business history...

"All San Francisco May Burn" -- The New York Times, April 19, 1906, the day after the earthquake:

At midnight the fire still roars. Fleeing inhabitants can see from miles around the pillars of fire towering skyward. The crash of falling ruins and the muffled reports of the exploding dynamite reach the ear at regular intervals. ...

The exact loss of life never will be known. Hundreds have been incinerated. Tonight the city resembles one vast shambles with the red glare of the fire throwing shadows across the worn and panic-stricken faces of the homeless.

"Earthquake and Flames Bring Death and Ruin to City of San Francisco" -- The Washington Post, April 19, 1906:

The greatest earthquake disaster in the history of the United States visited San Francisco early yesterday morning. The earthquake was followed by a fire which was still burning at 2 a.m. today, and which has covered most of the affected area.

It is impossible now to say anything definite of the loss of life.

"The San Francisco Horror" -- Chicago Daily Tribune, April 19, 1906:

Chicago extends her sympathy to San Francisco. The world was generous to Chicago in the days of 1871. San Francisco relatively has suffered more than Chicago did, and needs help. All America will answer and Chicago will not let the other cities outdo her in generosity. San Francisco will rise again more splendid than ever. The Golden Gate can never lose its commercial importance, and it is impossible that there should not be a great city there. But there is no city now, except as it may be found in the courage, pride, and self-confidence of the people who once lived in San Francisco.

Source: The New York Times, April 19, 1906.

The ultimate casualty reports from the devastating San Francisco earthquake of April 18, 1906 were later revised upward to 3,000 out of an estimated population of 400,000. More than half the city's population was made homeless by a fire that raged for three days and destroyed 28,000 buildings. In contemporary terms, monetary losses of at least $400 million represented more than 1% of the entire national GDP. By this measure, the earthquake was by far the most economically devastating disaster ever to strike the U.S.

The earthquake occurred at the beginning of one of the Dow Jones Industrial Average's (DJINDICES: ^DJI  ) most damaging bear markets and was a contributing factor to the recession and widespread bank failures that led to the Panic of 1907. An economics paper by Professors Kerry Odell and Marc Weidenmier of Scripps College makes the case that the requirements of a gold-standard economy forced London insurers (the primary agents of most San Francisco insurance policies) to shift significant gold reserves to the U.S. as they paid out claims. As a result of its tighter gold supply, the Bank of England raised interest rates on American financing, which reversed the outflows by 1907 and led to a short but sharp recession in the U.S.

The recession and its attendant panic, only solved by the personal intervention of financier J. P. Morgan, would lead to the creation of the Federal Reserve. Would any of this have happened without San Francisco's utter destruction?

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