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Fortune Tellers

Fortune Tellers: The Story of America's First Economic Forecasters

Walter A. Friedman
Copyright Date: 2014
Pages: 288
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  • Book Info
    Fortune Tellers
    Book Description:

    The period leading up to the Great Depression witnessed the rise of the economic forecasters, pioneers who sought to use the tools of science to predict the future, with the aim of profiting from their forecasts. This book chronicles the lives and careers of the men who defined this first wave of economic fortune tellers, men such as Roger Babson, Irving Fisher, John Moody, C. J. Bullock, and Warren Persons. 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 predict the devastating crash of 1929.

    Walter Friedman paints vivid portraits of entrepreneurs who shared a belief that the rational world of numbers and reason could tame--or at least foresee--the irrational gyrations of the market. Despite their failures, this first generation of economic forecasters helped to make the prediction of economic trends a central economic activity, and shed light on the mechanics of financial markets by providing a range of statistics and information about individual firms. They also raised questions that are still relevant today. What is science and what is merely guesswork in forecasting? What motivates people to buy forecasts? Does the act of forecasting set in motion unforeseen events that can counteract the forecast made?

    Masterful and compelling, Fortune Tellers highlights the risk and uncertainty that are inherent to capitalism itself.

    eISBN: 978-1-4008-4986-4
    Subjects: Economics, Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
    (pp. ix-xiv)
    (pp. 1-11)

    In 1899, astrologer Evangeline Adams moved her business from Boston to New York’s Upper East Side. Adams later wrote that her horoscope had directed her move, but Manhattan also had a greater concentration of her most lucrative and reliable clients: businessmen and investors in securities. When her hotel burned down shortly after her arrival, someone (possibly Adams herself, given her genius for self-promotion) informed the newspapers that she had predicted it the previous day, and she became a celebrity.

    Over the next thirty years, many New Yorkers sought Adams’s advice on market trends, anxious for any insight—however absurd its...

  5. CHAPTER 1 Roger W. Babson: The Rule of Past Patterns
    (pp. 12-50)

    Roger Ward Babson (1875–1967) was an unlikely founder of today’s economic forecasting services. Academic economists tend to dismiss his contributions to the field. John Kenneth Galbraith ridiculed Babson’s forecasting methods as “hocus-pocus” and “mysticism,” and even contemporaries regarded him as a confirmed eccentric.¹ George W. Coleman, a longtime business associate, described Babson in 1929 as “a unique personality, complex and baffling to a high degree,” possessed of a “restless, driving energy.”²

    Babson actively promoted dubious social engineering schemes ranging from the prohibition of alcohol to bizarre dietary reforms and eugenics. He was a serial entrepreneur, starting or acquiring businesses...

  6. CHAPTER 2 Irving Fisher: The Economy as a Mathematical Model
    (pp. 51-85)

    Irving Fisher (1867–1947), Babson’s opponent in 1929, was a prominent forecaster in the early twentieth century, frequently listed in contemporary surveys of leading forecasters in the 1920s.¹ He was also a towering figure in the field of economics, partly because he was among the first to bring high-level mathematics to the discipline and helped form the basis of modern macroeconomics.² As a sign of his stature, in 1924 the Wall Street Journal introduced John Maynard Keynes to its readership as “England’s Irving Fisher.”³ His work on the quantity theory of money, debt deflation, and theories of interest and capital...

  7. CHAPTER 3 John Moody: The Bright Light of Transparency
    (pp. 86-117)

    John Moody (1868–1958) established himself as a leading forecaster in the 1910s and 1920s while building one of the largest business-information companies of the twentieth century. Forecasting was just one of Moody’s interests. His name is best known today in the ratings industry. Moody’s Investors Service became the most influential of the Big Three credit ratings agencies and today is a company of tremendous power and size.¹ His interest in amassing data about the health of individual firms and the securities they offered informed his approach to forecasting, which, in today’s terminology, was more oriented to micro-rather than macroeconomics....

  8. Gallery of Business and Forecasting Charts
    (pp. 118-127)

    Forecasters made use of an array of graphs, charts, and diagrams. The intuitive appeal of the Babsonchart, for instance, with its normal line and its equal periods of “action” and “reaction,” was critical to Roger Babson’s success. In devising a way to represent the economy visually, he was part of a broader effort that was gaining popularity in the early twentieth century. Alternately informative and hackneyed, business charts of all types, showing not only forecasts but a whole range of economic information, proliferated in newsletters, newspapers, and magazines.

    Some charts served mostly to emphasize trends over time in agricultural output,...

  9. CHAPTER 4 C. J. Bullock and Warren Persons: The Harvard ABC Chart
    (pp. 128-165)

    In many ways, Charles Jesse Bullock (1869–1941) and Warren M. Persons (1878–1937) of the Harvard Economic Service created the most influential forecasting agency of the early twentieth century.¹ Prior to its rise, forecasting was largely an entrepreneurial adventure. Roger Babson and John Moody both had a staff working for them, but their agencies were extensions of their personalities. Irving Fisher was a professor at Yale for his entire professional career, but he formed the Index Number Institute, which produced his forecasts, with his own money and operated it out of his basement at 460 Prospect Street.

    The Harvard...

  10. CHAPTER 5 Wesley Mitchell and Herbert Hoover: Forecasting as Policy
    (pp. 166-193)

    This chapter differs from the others in this book in that it does not focus on a private forecasting agency but on the role of the Department of Commerce, and other government agencies, in supporting and promoting forecasting. It examines how the economist Wesley Clair Mitchell (1874–1948) and the engineer and politician Herbert Hoover (1874–1964) attempted to harness the potential of economic forecasting not for private gain or personal advancement but for the benefit of American society. They believed that unexpected boom-bust cycles threatened the very future of the country’s capitalist economy and they sought a remedy. “If...

  11. CHAPTER 6 Visions of the Future
    (pp. 194-208)

    Entrepreneurs created the modern economic forecasting industry in the early decades of the twentieth century, a time when everyone was familiar with economic crises and feared the next “panic.” Forecasting newsletters appealed to those who sought to safeguard their money but also those who sought comfort amid uncertainty. Others, like Herbert Hoover, promoted forecasting as an important step in reducing national inefficiency and unemployment from unanticipated downturns.

    During the 1920s, the field matured as individual forecasters, including academic economists, gained converts for their predictions and their views of how the economy worked. By the end of the decade, the forecasting...

    (pp. 209-212)

    This book was written in a period that evokes earlier crises. When I started it, prior to the 2008 recession, an editor told me that the history of economic forecasting was unlikely to resonate with modern audiences. That seems less of a problem today, given the enduring climate of uncertainty and the wealth of excellent studies bearing on predictions, including, for instance, Nassim Nicholas Taleb’s The Black Swan, Nouriel Roubini and Stephen Mihm’s Crisis Economics, and Andrew Ross Sorkin’s Too Big to Fail—to name only a few books on the current crisis.¹

    Fortune Tellers is a book about a...

    (pp. 213-216)
  14. NOTES
    (pp. 217-260)
  15. INDEX
    (pp. 261-274)