Does physical capital anchor the spatial distribution of economic activity? If so, how does capital destruction affect local economic activity in the short and the long term? I investigate these questions by examining the 1975 frost that damaged coffee trees in the Brazilian state of Parana. I find that capital destruction can have persistent effects on the spatial distribution of labor. I identify the effects of capital destruction by comparing the evolution of local economies that had different coffee tree densities before the frost. The frost resulted in a large and persistent displacement of agricultural workers. There was a permanent decline of the local coffee industry after the one-time shock, which reduced labor demand as coffee requires more labor than alternative land uses. The results are consistent with a model in which agglomeration economies within the coffee sector lead to multiple spatial equilibria and in which persistent capital investments keep the spatial distribution of the coffee industry from changing.