Roger Babson in 1920 (c/o WIKIPEDIA)
2014-09-15 @ 15:30
I don’t suppose many modern people have heard of economist Roger Babson. Jeff Thomas, the author of this recent article (forwarded to me by a friend), certainly has. So has Wikipedia.
If you read the first article (and I hope you will), you’ll see the following focus:
So, was Babson’s prediction [of the start of the Great Depression] a lucky guess? Did he simply observe the bull market and arbitrarily predict the opposite of the trend of the day to see what would happen? Not at all.
Such predictions are not guesswork, nor are they attributable to a vision seen in some crystal ball. Such crashes are entirely predictable. When any major bull market becomes overbought; when too many investors begin buying on margin because they can’t come up with the purchase price for stocks; when they then become even more obsessive and borrow money to buy on margin, the market has become a house of cards, waiting for the slightest breeze to come along.
The Wikipedia article alleges things I’d not heard about Mr. Babson before, chiefly about his unorthodox economic theory:
Babson’s success as an investor was based on unorthodox views of the operation of markets. According to biographer John Mulkern, Babson attributed the business cycle: to Sir Isaac Newton’s law of action and reaction…. His pseudoscientific notion, that the gravity can be used to explain movement in the stock markets. His market forecasting techniques are in articles in Traders World Magazine and the Gravity Research Foundation he founded. [See this PDF.]
It’s possible that Jeff Thomas’ comments speaks to this “heterodoxy”. He may be saying that Babson was not arguing from “action and reaction”, that something quite other was responsible for his success as an economic forecaster.
But is there something both sources are missing? It’s hard to argue with success, true enough, save by vilifying the successful – which is exactly what his contemporaries did. But indeed, Mr. Babson’s insight was not a matter of luck. His understanding of “action and reaction”, whatever else it was, had a moral foundation in universal law.
One person who was an eyewitness to what Roger Babson said and why was Herbert W. Armstrong. Long before he became a modern leader of the Church of God, Mr. Armstrong heard Mr. Babson speak twice, and recounted what Mr. Babson said several times in somewhat different ways. Later the Ambassador College Bible Correspondence Course cited another statement by Mr. Babson which was just as telling. Consider the following citations from the old literature of the Worldwide Church of God:
HWA—AUTOBIOGRAPHY VOLUME 1
In January, 1920, the well-known statistician Roger Babson was the speaker at one of our Association of Commerce luncheons then being held each Wednesday in the Cameo Room of the Morrison Hotel. Through the Advertising Club, a division of Chicago Association of Commerce, I had been a member of the Association for some years.
We were then at the very height of a wave of postwar prosperity.
“Gentlemen,” said Mr. Babson, “we are about to enter the worst business depression that our generation has ever experienced. I advise you all to set your houses in order. I advise against any further plans of expansion until this depression has passed over.”
Seated at tables in that large room were leading bankers and business executives of Chicago. I glanced around. I saw amused smirks animate the faces of many prominent men.
Through the next few months of 1920 business activity continued its boom upswing.
Before the end of 1920, Roger Babson’s predicted depression did strike — with sudden and intense fury. By January, 1921, we had reached and passed its lowest ebb.
“Thermometers on the Wall”
At this time Roger Babson once again was the guest speaker in the Morrison Hotel Cameo Room Association of Commerce luncheon.
“Well, gentlemen,” he said, “you will remember that a year ago I warned you that within one year we would be in the throes of the worst depression our generation has ever seen. I noticed many of you smiling unbelievingly then. Well, that year has rolled around, and here I am again, and here is the depression with me.”
Chicago business leaders were not smiling now. Mr. Babson then proceeded to explain why he knew what was coming and business executives did not.
“It is now mid-winter,” he said. “If I want to know what the temperature is, now, in this room, I go to the wall and look at the thermometer. If I want to know what it has been, up to now, and the existing trend as of the moment, I look at a recording thermometer. But if I want to know what the temperature in this room is going to be, an hour from now, I go to the source which determines future temperatures — I go down to the boiler-room and see what is happening down there. You gentlemen looked at bank clearings, indexes of business activity, stock car loadings, stock market quotations — you looked at the thermometers on the wall; I looked at THE WAY people as a whole were dealing with one another. I looked to the SOURCE which determines future conditions. I have found that that source may be defined in terms of ‘RIGHTEOUSNESS.’ When 51% or more of the whole people are reasonably ‘righteous’ in their dealings with one another, we are heading into increasing prosperity. When 51% of the people become ‘unrighteous’ in their business dealings with their fellows, then we are headed for BAD TIMES ECONOMICALLY!”
I have never forgotten Mr. Babson’s explanation. I hope my readers today may remember and profit by it, too.
I paid with the loss of my business to learn the lesson!
What Went Wrong
Said well-known economist, Roger Babson: “The test of a nation is the growth of its people — physically, intellectually, and spiritually. Money and so-called ‘prosperity’ are of very little account … Babylon, Persia, Greece, Rome, Spain, and France all had their turn in being the richest in the world. Instead of saving them, their so-called prosperity ruined them.
“Money will not save us …” Mr. Babson continued, “Only a sane spiritual revival which CHANGES THE DESIRES OF OUR PEOPLE will save us. We must be filled with a desire to render service, to seek strength rather than security, to PUT CHARACTER AHEAD OF PROFITS.”
HWA—AUTOBIOGRAPHY VOLUME 2
(Citing a Co-Worker Letter)
January 20, 1983
Dear Brethren and Co-Workers with Christ:
I have to tell you now that the outlook for the United States and the entire world is bleak and foreboding indeed! Based on world news, observation and personal contacts with world leaders — based on Bible prophecy and a long life of experience, I have to tell you now that the entire world economy is in a drastic nose dive. Civilization itself is stricken with spiritual, moral and economic sickness unto its death — the end of this world!
But there is also good news! There is good news for the Work of God — the best ever! And the big good news (the word gospel means “good news”) is the new civilization — the World Tomorrow — the Kingdom of God — is soon to follow! God’s Church — the living and the dead in Christ — will then emerge into a new world of peace, happiness, abundance, with eternal life.
Bible prophecy shows what soon shall occur — why the world is now sick on its deathbed — why the rising unemployment, the sick economy, the immorality, crime, violence and world evils.
I have seen much of this in ninety years of event-packed experience.
In November, 1919, I was a member of the Chicago Association of Commerce. At a regular weekly membership luncheon, the noted Boston statistician and economist, Roger Babson, was guest speaker. He astonished major bank officials and industrial leaders saying that in one year we would experience the most drastic depression our generation had known. Economic executives ridiculed. We were then in an upward trend of prosperity.
A year later Roger Babson again was our guest speaker. He said, “The year has passed, and I am back and depression is here with me.” There was no ridicule or laughter. Mr. Babson told us why he knew, and why business and financial executives did not.
“When I want to know what the temperature in this room is going to be an hour or two from now I don’t consult the thermometer on the wall. I go to the boiler room and see what is going on down there. I go to the factor that causes the future temperature. You men were looking at bank clearings, retail sales, wholesale indexes, stock car loadings and trends — the thermometers on the wall.” But Mr. Babson said he had learned that when fifty-one percent or more of the people were righteous in their dealings with another, prosperity was just ahead. But when fifty-one percent or more of the people were unrighteous in their dealings, economic depression was coming.
Was Roger Babson right?
The Good News of Tomorrow’s World
Personal from the Editor (Herbert W. Armstrong)
(…) Someone must replace those who retire, quit, die or are fired. Of course, new jobs constantly open as businesses expand, communities grow, buildings are built, and people buy more goods.
Who will obtain these jobs depends on certain basic unseen laws. There are certain economic laws that regulate economic conditions.
I remember vividly the sudden nose-dive depression of 1920. I was then a publishers’ representative in Chicago. I was a member of the Chicago Association of Commerce, through its Advertising Club division.
In early January that year, at the regular midweek Association of Commerce luncheon in the Cameo Room of the Morrison Hotel, the noted business analyst, Roger Babson, was the speaker. He warned the businessmen of Chicago that within less than a year we were going to crash into the most drastic economic depression our generation had seen.
I noticed some important bankers and security brokers smile knowingly in disagreement. They were sure Mr. Babson was wrong.
A year later Mr. Babson was again the speaker at the same Association luncheon.
“I saw some of you businessmen smile, a year ago, when I warned you of the coming economic tragedy,” he said. “Now let me tell you WHY I knew what was coming, and you didn’t. When you want to know what is the temperature in the room, now, you look at the thermometer on the wall. But if you want to know what the temperature WILL BE, an hour or two from now, the thermometer can’t tell you. You go down to the boiler room, or consult the U.S. weather prophet. You look to the factors that DETERMINE conditions, not the thermometer that records conditions after they have occurred. You gentlemen looked at charts of current business activity, at bank clearings, records of freight car loadings, the stock market quotations — the thermometers on the wall.
“But,” he continued, “there are LAWS that GOVERN economic conditions. These laws are the factors which determine what conditions WILL BE, a few months or a year from now. They are the CAUSES.”
Was this concept of “righteousness” – of righteous dealings in business, and by extension in other areas of human life – the basis of Roger Babson’s research on economic “action and reaction”? If so, we had better listen to him as a nation, and see whether unrighteousness is becoming the norm among us.