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Real Shock, Monetary Aftershock: The 1906 San Francisco Earthquake and the Panic of 1907

Published online by Cambridge University Press:  31 January 2005

Professor of Economics and Johnson Professor in Teaching, Department of Economics, Scripps College, Claremont, CA 91711. E-mail:
Assistant Professor, Department of Economics, Claremont McKenna College, Claremont, CA 91711, and Faculty Research Fellow, NBER. E-mail:


In April 1906 the San Francisco earthquake and fire caused damage equal to more than 1 percent of GNP. Although the real effect of this shock was localized, it had an international financial impact: large amounts of gold flowed into the country in autumn 1906 as foreign insurers paid claims on their San Francisco policies out of home funds. This outflow prompted the Bank of England to discriminate against American finance bills and, along with other European central banks, to raise interest rates. These policies pushed the United States into recession and set the stage for the Panic of 1907.

San Francisco's $200,000,000 “ash heap” involves complications which will be felt on all financial markets for many months to come [and] the payment of losses sustained … represents a financial undertaking of far-reaching magnitude….The Financial Times [London], 6 July 1906

© 2004 The Economic History Association

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