Fortune Tellers: The Story of America’s First Economic Forecasters by Walter A. Friedman (review)

Beginning with the story of Evangeline Adams, an astrologer working in New York at the start of the twentieth century, this book tells the story of economic forecasting in the United States through a series of biographies of the leading practitioners. An early example is Roger Babson, whose forecasts were based on the “Newtonian” principle that what comes up must come down, and who was famous for correctly forecasting the Great Crash of 1929. Babson is then compared with Irving Fisher, whose forecasts allegedly rested on his mathematical models of the economy and who was spectacularly wrong in 1929. Outwardly, the Yale professor Fisher was a very different figure from Babson, yet there were remarkable similarities. The third entrepreneur covered is John Moody, who advocated transparency in financial markets, selling information that would reduce the power of insiders, and whose rating system for securities outlived his forecasts. The Harvard Economic Service (HES), a collaboration between Charles Bullock and Warren Persons, was an offshoot of Harvard University’s economics department. It became the focus of an international network extending to several countries in Europe. Finally, there was the collaboration between Wesley Mitchell, founder of the National Bureau of Economic Research (NBER), famed for its meticulous data collection, and Herbert Hoover, secretary of commerce for much of the 1920s before becoming president just before the Great Depression.

An excellent feature of the book is the way it explains the methodological differences between these forecasters. Babson and Fisher started from theory (though I wonder whether the connection between Fisher’s forecasts and his mathematical economic theory was as strong as Friedman suggests), whereas Moody and the HES sought to be inductive (though, as Friedman explains, there was more theory behind the HES forecasts than was claimed). This more than makes up for the occasional remarks with which I would quibble, such as repeating the canard that Keynes was the first to offer an explanation of the Great Depression, or suggesting that “econometrics” amounted to a homogeneous body of ideas.

Friedman discusses the key events of the period, such as the 1907 crisis, the Florida land boom of the 1920s, and the stock market crash of 1929, but there is little on the culture of which these events and those that forecast them were a part. Clearly there was great interest in business and the stock market but how did this fit into a broader cultural history of the period? International comparisons are brought in through Bullock’s attempts to develop an international network of forecasting organizations and there was clearly European interest in his work. Yet it is not clear how far the stories we read here are distinctively American. The book focuses on the supply of forecasts but perhaps more could be said about the demand for forecasts and the extent to which that demand was rooted in peculiarities of American capitalism during this period.

The other topic on which I would like to have seen more is the development of statistics in the United States. I fully understand the focus on forecasting and the themes associated with it such as the dissemination of information about business conditions and the state of individual companies. However, to make sense of this material, I found myself wanting to be told more about the availability of statistics at the time. Perhaps the discussion of Mitchell and Hoover and the NBER in the story could have come earlier, integrated into a more comprehensive discussion of the creation of statistics by federal agencies and private bodies, in order to explain the raw material that forecasters had to work with. GNP is introduced at the very end of the book and Friedman discusses its significance for the measures of economic activity produced by Babson and the HES, but measurement of national income had a history going back before Simon Kuznets and Colin Clark. Having more about this and...