“The only function of economic forecasting is to make astrology look respectable”, famously remarked John Kenneth Galbraith. “Professional” fortune tellers and clairvoyant have accompanied mankind, receiving great respect, throughout the ages. Therefore, one can say, it was only a matter of time also for a “professional” economic soothsaying to emerge, especially in the shadow of a galloping American Capitalism.
In 1899, an astrologer Evangeline Adams moved her business from Boston to New York, a city full of her most lucrative and reliable clients: investors in securities and businessmen. Over the next thirty years, many New Yorkers sought Adams’s advice on market trends, anxious for any insight that might help them evade the ravages of economic turbulence. Even in her own time, many regarded Adams as a fraud and scam artist, but that did not stop her to assert she predicted the stock market crash of 1929.
Fortune Tellers: The Story of America’s First Economic Forecasters, by Walter Friedman (Harvard Business School) is a very interesting and well-crafted book about entrepreneurs who, like Evangeline Adams, identified a business opportunity in the anxiety about the economic future that pervaded the early 20th century. The period leading up to the Great Depression witnessed the rise of the economic forecasters, who sought to use the tools of science to predict the future, with the aim of profiting from their forecasts. Unlike Adams, that has prophesied after reading the stars, the entrepreneurs profiled in this book have read research papers in statistics and economics, on which they apparently have based their predictions, claiming to systematic scientific insight.
This book vividly describes the first generation of economic forecasters in the US and the methods they created to predict the future of the economy. They competed to sell their distinctive methods of prediction to investors and businesses, and thrived in the boom years that followed World War I. Yet, almost to a man, they failed to foresee the devastating crash of 1929. Despite their failures, this first generation of economic forecasters, who shared a belief that the rational world of numbers could tame the irrational gyrations of the market, helped to make the prediction of economic and market trends a central economic activity.
Friedman explains that the individuals profiled in this book were chosen in part because of their contemporary significance—Roger Babson, for example, boasted the greatest circulation for his forecasting newsletter—but also because they each understood the logic of capitalism differently. Each one looked at a growing amount of information on the U.S. economy on prices, manufacturing output, crop production, interest rates, and other statistics. Each came up with different ways to harness these data to pierce the mysteries of the future, whether by looking at historical trends, analogies, and expectations or by other methods. Each of the forecasters, too, had a different view of science—the intellectual and practical approach that would help eliminate uncertainty from the economy.
This award-winning book is a great read. This is not just a series of biographical narratives, but a skillful study that crosses the boundaries between the history of economic thought and cultural history of the American capitalism. This socio-historical portrait of the origins of “professional” economic forecasting contributes to our deepening understanding of the formation, articulation and diffusion of economics, as a knowledge and a practice. (Open access to the introduction)
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[…] to financial markets, makes prediction impossible. Empirically, this critique has been around even longer. In 1933, economist Alfred Cowles published an article that tested the attempt to forecast stock […]