Queen Anne was on the throne. Work had just started on Blenheim Palace in honour of John Churchill’s victories over Louis XIV’s French armies in the war of Spanish succession. The union between England and Scotland was imminent.
1706 is how far economic historians have to look back to find a slump bigger than the one that now threatens the country as a result of the Covid-19 pandemic.
The country was very different then. The development of a new merchant class was under way, symbolised by the founding of the Lloyds of London insurance market 20 years earlier and the Bank of England eight years after that. But the country was still primarily agricultural – many of the innovations that drove the Industrial Revolution were still decades away. Wars were expensive and strained economies. So while 1706 saw victory over the French at the battle of Ramillies, it also saw a 15% plunge in national output – an even more severe contraction than the 14% the Bank of England is expecting this year.
The economy was at the mercy of the weather. Three years after the slump of 1706, the country was in trouble again due to the Great Frost of 1709. It helped trigger a 14% drop in activity – a much more severe setback than the pricking of the South Sea Bubble in 1720.
Three centuries ago the success or failure of the harvest had a profound effect on the rate of growth. It was only the movement of population from the countryside to the cities and the development of a modern industrial society that made growth less sensitive to meteorological events.
In the past two centuries, downturns have tended to be associated with the scaling back of production after wars, action taken to counteract inflationary booms, or policy mistakes.
The Covid-19 slump is the first in a very long time to have been caused by nature.