Buried by the Wall Street Crash


As the night draws in and the fire blazes on the half. We warn the children children by telling them stories. Cinderella teaches them. That if you want to leave the party early leave your phone number rather than a piece of designer footwear. But my stories for the education of the grown-ups stories all true Tim offered close. And listen to my cautionary tales Late One evening on the twentieth of December nineteen fifty four. A small group for people sat together in a living room in oak park a suburb of Chicago. Waiting for the end of the world they were led by a woman named aimed. Dorothy Martin who was a conduit for messages from Aliens Will God or both the messages were alarming. Lami at midnight the aliens would land a flying saucer in the backyard and convey the true believers to the safety of a planet named and then that door a cataclysmic flood would destroy much of the world now now at five minutes to midnight. The believers were waiting. Some were disheveled. Since the aliens had demanded they remove all metal from their clothing. Brock lips bottoms even trousers. It had been hastily slashed away by fumbling hands wielding scissors raises some of the group with air out of curiosity others had sacrificed almost everything for this moment that quit their jobs given away their possessions and said farewell to their families. But what distinguishes this particular apocalyptic cult from all the others is that a small team of social scientists. It's led by the world renowned psychologist. Leon festinger had managed to infiltrate it. They were there to witness Nisa. What happened at midnight and in particular? How the group reacted to the appearance or possibly the non on appearance of the aliens gathered around? And I'll tell you another for Sri Times and and I'll tell you all about what happened with Leon. Festinger Dorothy Martin and the aliens in due you course but for a moment. Let's leave them there in Chicago anxiously waiting for the end of days. Because I have another story to tell you you then. It's not a story about crazy cult members but about two economists. Indeed two of the most celebrated economists who who ever lived and what these economists have to do with a UFO cult nineteen fifties Chicago. It's very simple just like Dorothy mountain. What'd they tried to see into the future and trying to see into the future? It's a dangerous business. One of the economists. I won't tell you about Tis the great British polymath. John may not canes you may have heard of him. He's a colossal figure in economics. Overturning the ideas that had gone before him. And then in re-shaping the post war economic system. Many economists still hold themselves Keynesians. Like him or hate him in economics. You can't get get much bigger than John Maynard. Keynes except that in his day you could. When canes I strode the world stage he did so in the shadow of another man in nineteen twenty four? The Wall Street Journal tried to describe John Maynard. Keynes this this up and coming economist. They reached for comparison that everyone in America would've known Keynes said the Journal was England's serving Fisher and Irving Fisher was the most famous economist on the planet but having Fisher wasn't just more famous than canes he was brilliant has warned Nobel Prize winner put it Fuzhou was anywhere from decades. Dude Asians hit of his time. Nine some would say he was the greatest economist who ever lived. But if you're thinking I don't hear much about Irving Fisher these days. You're right. He's not the household name. He was one hundred years ago. If you're wondering why. His reputation faded while Keynes's lived on. That is what our cautionary tale is all about Irving Fisher and John Maynard Keynes. We're very different men in some important ways but they also had a great deal in common. Both were stars at their universities canes at Cambridge in England Fisher at Yale they were both physically impressive. Canes was thin and very tall with piercing eyes Fisher had the broad chest of a competitive rower. They were both skilled writers charismatic speakers to after witnessing canes giving a speech the Canadian diplomat Douglas Lapan was moved to write. I am spellbound. This is the most beautiful creature I have ever listened to does. He belong to our species or is he from some other order and Fisher and canes also both active investors. They weren't just ivory tower economists but men who believed that their mastery of economics comics would enable them to make profitable investments that is where the interest in forecasting came in an academic economist might be contents. It's to describe and explain the economy's past but to make money Fisher in canes would have to catch a glimpse of the economy's future. Let's meet the Young Young Irving Fisher. How much there is I want to do? I always feel that. I haven't time to accomplish what I wish. I want to read much which I want to write a great deal. I want to make money. He's writing from Yale to an old school friend. Money was important important Fisher. His father had died of tuberculosis the very week that had arrived at Yale. The young man needed to scramble for funds throughout his studies. He understood what it wants to struggle financially. While surrounded by wealth at the age of Twenty Six however Fisher found himself with a small fortune at his disposal. He'd married a childhood playmate Margaret Hazzard. who was the daughter of a wealthy industrialist irving and Margaret's wedding was sumptuous enough to be covered by the New York Times with two thousand invited guests three ministers and extravagant lunch and a wedding cake weighing sixty pounds? They commenced a fourteen month European honeymoon and returned to a brand new mansion in new. You haven it had been built in their absence. As a wedding present from Margaret's father was furnished with a library a music room and spacious offices If marrying your childhood sweetheart sounds a little too wholesome. I'm just getting started. There are three things as you need to know about Irving Fisher. The first is that he was a health fanatic. He abstained from alcohol. Tobacco meat tea coffee and chocolate one. Dinner guest enjoyed his hospitality while noting his quirkiness well I eight right through my succession of delicious courses. He he dined on a vegetable and a raw egg. He founded the life Extension Institute and persuaded. William Taft who just just stepped down as president to be its chairman in one thousand nine hundred fifteen. When he was nearly fifty years old he published a book titled How to Live How to live? Now that some real ambition it was a huge bestseller freakonomics of its day and from a modern perspective. It's hilarious Larry's. I advocate a son bath commonsense must dictate its intensity and duration. It is important to practice thorough massification chewing going to the point of natural involuntary swallowing. He even adds a discussion of the correct angle between the feet while walking about seven or eight degrees of out towing in each foot and there's a short section on eugenics which really hasn't aged well but while it's easy to laugh how to live if is in many ways as far ahead of its time as fishes economic analysis describing exercises preaching mindfulness and at a time when the majority of doctors says with smokers correctly warning that tobacco causes cancer. The second thing you need to know about irving was that he believed in the power of rational commodified analysis in the modern study of scientific clothing. There is a new unit. The CLO- This is a technical unit for measuring warming. Power of clothing. There's also the money that's the third thing you need to know. Having Fisher was rich and not just because of his wife's wife's inheritance making money was a matter of pride for Fisher there. Were the book royalties from how to live. There were his inventions most notably a forerunner runner of the ROLODEX. Away of organizing business cards. He sold that invention to a stationary company for six hundred sixty thousand dollars in cash in many millions of dollars in today's terms Fisher turned his academic research into a major business. Operation called the Index Number Institute. It sold data forecasts and analysis as syndicated package to newspapers across the United States. He called it Irving Fisher's business page with such a platform Fisher was able to evangelize about his approach to investment which broadly speaking was to bet on American growth by buying shares in the new new industrial corporations using borrowed money. Such burrowing is called leverage since it magnifies both profits and losses but during the nineteen twenties stock market investors had few losses to worry about share. Prices were soaring Fisher wrote to his old childhood friend to inform him that he's I'm Bishen had been fulfilled. We are all making a lot of money in the summer of Nineteen Twenty Nine Irving Fisher was a bestselling author inventor data. Pioneer friend of presence entrepreneur health campaigner syndicated columnist calmest and the greatest academic economists of his generation and in that summer of one thousand nine hundred ninety nine a millionaire. Many Times over Irving having Fisher was able to boast to his son that a renovation of the family mansion had been paid for not by the hazard family money but by Irving ooh Fisher himself that achievement. Matter to him Fisher's own father hadn't lived to see his seventeen year old boy grow into one of the most respected figures of the age as irving and his son watched a mansion reshaped before them he could perhaps apps be forgiven his pride and now a word from our sponsor. Let's talk about about transfer wise. The one stop shop for sending spending and receiving money internationally picture it. 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Keynes was the ultimate insider as a schoolboy. He was educated at Eton College. Just like Britain's first prime minister nineteen of a since like his father. He became a senior academic. A fellow of King's College. The most spectacular of all Cambridge colleges his his job during the first world. War was managing both debt and currency on behalf of the British Empire. He'd barely turned thirty canoe. Everyone he whispered in the ear of prime ministers he had the inside track on whatever was going on in the British economy. The Bank of England. Here I just wanted to let you know that interest rates will be rising Tamara but this child old of the British establishment was a very different person to his American rival Irving Fisher. He loved fine wines and rich food. He gambled monte-carlo is sex. Life was more like nineteen seventies pop star in a nineteen hundreds economist bisexual. poly-amorous eventually settling down. Not with his childhood sweetheart with a Russian Ballerina. One of Keynes's ex-boyfriends was the best man at their wedding and canes was adventurous interest in other ways to in nineteen eighteen for example as the first World War was raging and the German army was camped outside Paris. Canes caught caught wind of the fact that in Paris. The Great French impressionist artist. Edgar Degas was about to auction his vast collection of pieces by from from his greatest nineteenth century. Painters and so- canes embarked on and Insane Adventure. I he spoke to the Chancellor of the Exchequer. Yeah the UK's Senior Treasury minister asking for a phone for purchasing art twenty thousand pounds. That's millions in today's money may okay not at the first occasion that I've ever known you in favor of any expenditure won't so ever remember. The British Treasury was four years into fighting the most devastating war the planet had yet seen the Canes New House against his way. My picture coup was a well into fair carried out in a day and a half before anyone. Anyone had time to reflect on what they were doing. I think the chancellor was very much amused my wanting to buy pictures and eventually let me have my way as a sort of a joke luke. Some joke escorted by destroyers and a silver airship watching overhead canes crossed the channel to firms with the director of London's National Gallery. Who'd shaved off his moustache so that nobody recognized him? And just as daggers. Auction begins the German Jam. An artillery starts up some people panic and hurry out. Canes Pounces Buying Twenty seven pieces at rock bottom prices for the National National Gallery and he buys a few himself including Suzanne which these days would be regarded as better by than anything the National Gallery Director to chose it costs canes just three hundred seventy pounds then flee back to the English Channel and Cross home with a convoy convoy of hospital ships exhausted after his nonstop adventure canes calls in on some friends. I've got in my suitcase. It was too commit to carry. So I've left it in the ditch behind the gate. What Irving Fisher would have made it at all? I do not know yet like Fisher. Keynes was also pursuing an investment career. It wasn't just an art. He set up what some historians described as the first hedge fund to speculate on currency movements. He raised money from rich friends. And from his own father to whom he made the not entirely reassuring comment win or lose this high stakes. Gambling amuses me. Initially canes made money fast but then a brief spasm in the currency markets wiped out his phoned in nineteen twenty won't quit but he went back as investors including his own father an awesome to trust him with more of money. I am not in a position to risk any capital capital myself. Having quite exhausted my resources remember. This is John Maynard. Keynes the man who persuaded a wartime in government to speculate in a Parisian art auction. The man a Canadian diplomat mistook for an angel. I anticipate very substantial prophets with very a good probability if you are prepared to stand the racket for a couple of months. Of course. They gave him the money he wanted. Canes was back in profit by nineteen twenty two you so having made a small fortune lost it and made it again. Canes turned to the vast investments of his own college king's Cambridge Canes persuaded his fellow academics to let him adopt a radical money-making strategy. He would forecast. Booms comes in recessions and move in and out of different economic sectors accordingly. Such an approach makes sense only if you actually can forecast most recessions. Canes was the leading economists in the country and a man who remember would get friendly phone calls from the Bank of England if anyone could see into the future of the British economy it was John Maynard Keynes by late nineteen thousand nine both Irving Fisher Asia and John Maynard. Keynes were rich famous respected and standing on the brink of a financial precipice. The Cataclysmic Wall Street crash followed by the Great Depression. The worst peace-time economic calamity to before the Western world and the two greatest is to columnists of the age Fisher and canes both of them failed to see it coming Experts don't have a stellar reputation for forecasting in nineteen eighty seven. The young Canadian born psychologist named Philip tedtalk became curious about the entire prognostication racket. Tet Lock had been interviewing Cold War experts and he soon found himself frustrated by their wildly different predictions their refusal to change their minds when they were wrong and the endless endless excuses for their forecasting failures. Ted Talks response was patient. Painstaking and quietly brilliant. He began to collect act forecasts from almost three hundred. Experts eventually accumulating twenty seven thousand five hundred predictions. He focused on politics. Listen geopolitics throwing a few questions. From areas such as economics Ted talks sought clearly defined questions enabling him with the benefit of hindsight site to pronounce each forecast right or wrong then tedtalk simply waited while results rolled in eighteen years. Ted Talk published his conclusions in two thousand and five in a subtle and scholarly book expert Political Judgment Coun- that his his experts were terrible forecasters both in the simple sense that what they predicted often didn't happen. And in the sense that the experts had little idea of when they should be confident and when they admit that they didn't have a clue expert forecasts. Were barely more accurate than chimpanzees throwing darts most people hearing about Ted talks research simply conclude that either the world is too complex forecast or the experts are too who stupid to forecast it over on April Fools Day in twenty thirteen full days. I received an email from Philip deadlock inviting me to join what he described as a major new research program. It was funded by the. US intelligence services is this program continued and expanded Tet locks long running study in the form of a forecasting tournament. You would simply log onto a website. Give your best judgement about matters. You may be following anyway and update that judgment if and when you feel it should be when time passes and forecasts are judged you compare your results results with those of others. More than twenty thousand people signed up some professionals and some amateurs tetlow and his colleagues ran experiments on this army army of volunteers giving them different kinds of training or assembling them into teams to see if that helped. I didn't join in a told myself I was too busy. I I suppose I was chickening out too but the fundamental reason that I didn't participate was because Ted talks work had already persuaded me that the forecasting task was impossible. But it wasn't. This vast new tournament identified a select group of people whose forecasts while by no means perfect perfect. Were vastly better than the DART throwing chimp. Standard Ted talk with an uncharacteristic touch of hyperbole called them super forecasters so what makes a super forecaster. The super forecasters are what psychologists call actively open minded thinkers these people who didn't cling to tightly to a single approach who were comfortable abandoning an old view in the light of fresh evidence or new arguments and who who embraced disagreements with others. As an opportunity to learn the secret super forecasting it's a willingness to change your mind it getting out of the Rut and stay in creative is easier said than done especially with a busy schedule after. You're done listening to this episode of Cautionary Tales. I implore you you to join skill share and take one of the thousands of classes that are offered from writing to graphic design or illustration is even a class on how to make the perfect grilled cheese skill. Share is an online learning community. The Creator in all of US Ne'er classes are on demand. Said you you can learn at your own pace join. The millions of students already learning on skill share and get two months free. You sign up at skill. Share DOT DOT com slash tales at two home said unlimited access to thousands of classes. Free get started today. I I heading to skill. SHARE DOT com slash tales. T. A. L. E. X. dot com slash towns Philip tat locks work on super forecasting has rightly attracted a huge amount of attention. But I think there's a message in that work that's often overlooked a willingness to change. Your mind doesn't just help. You make better forecasts. It helps helps you cope with failed predictions to. Let's return to John. Maynard Keynes Than Irving Fisher. Both of them remember had persuaded swayed themselves. That their expertise in economics should lead to investment success. Both of them were wrong. The Stock Market Crash of nineteen twenty. Nine court each of them by surprise both lost a lot of money yet. Here's a curious fact. Despite his failure canes denied a millionaire and perhaps the most celebrated economist in the World Fisher may basically the same mistake yet. Yet it ruined both his finances and his reputation why the difference in their fortunes in a way. The answer is ridiculously a simple. Canes changed his mind and changed his investment strategy. Fisher change neither but that only oh knee raises a deeper question. Why did Keynes Change while Fisher? Didn't canes had lost one fortune in nineteen twenty and survived the experience by nine hundred twenty nine before the crash. He was again pondering his shortcomings his investment strategy based on the assumption that he could predict the ups and downs of the business. Cycle wasn't working out. He started thinking about how to change. Changes Approach Canes Lost More than eighty percent of his net worth in nineteen twenty nine but even afterwards he was still rich and short. He had plenty of evidence that had made a mistake. He had experience of making mistakes in the past and bouncing back and he was still comfortably off. Why Not Change Range by the Early Nineteen Thirties? Canes had abandoned business cycle forecasting entirely the greatest economist in the world had decided he. He just couldn't do it well enough to make money as time goes on. I get more and more convinced that the right method investments is to put fairly large sums into enterprises enterprises which one thing one knows something about and in the management of which one thoroughly believes forget. What the economy's doing just find great eight companies and invest for the long term and if that approach sounds familiar it's most famously associated with Warren Buffett? The world's richest investor her that a man who loves to quote John Maynard Keynes. Keynes is rightly viewed today as a successful investor. At King's college he recovered from the poor performance of the early years he secured high returns with modest risks outperforming. The stock market is a whole many times over. It's an impressive reward for being able to change your mind. Having Fisher Fisher was in a very different situation Irving Fisher's business page had graced newspapers across the country when things turned sour Fisher was a scapegoat in in front of the entire United States. The New York Times reported that the bubble had been blamed on. US Treasury Secretary Mellon former President Coolidge judge and Professor Irving Fisher of Yale and Professor Irving Fisher of Yale was in deep financial trouble. The fact that his investments it's were made using leverage meant that both gains and losses were magnified. What had seemed like brilliant before the crash was catastrophic? Afterwards Woods Fisher was staring in the face of bankruptcy the loss of his house his businesses everything for example one of fishes major investments. I was in the stationery company Remington Rand. It was fifty eight dollars a share before the crash dropping to twenty dollars within a few months at that point Fisher borrowed more money to invest but the share price kept falling all the way to one dollar you can imagine his desperation nation but surely being in such a tight spot would have made Fisher more likely to adapt his strategy. Not Necessarily I've received another message. Everyone gets your overcoats and stand by. Hi Okay Okay okay. Everyone sit quietly in the living room. We shall act as if this were just an ordinary gathering of friends. Let's remember Dorothy Martin. UFO called Nave persuaded themselves that the world is about to be flooded and that they will be saved at midnight take delivering them safely to Planet Clarion and remember too that the psychologist. Leon festinger has infiltrated the cult. His researchers searches were there that night to observe what happened. FESTINGER had a striking prediction that when the aliens didn't appear many cultists wouldn't be discouraged by the clear failure of Mrs Martens Prophecy or feel angry and betrayed. Instead they would redouble efforts to believe Another reporter no doubt. Just hang up. Art Preparations cannot be interrupted. We'll call them later. If we have anything for the clock pass MIC national acid a couple of minutes. back-off is look at the other clock and I said it myself this afternoon and it's not midnight yet one minute to midnight on the street. You're at midnight. The aliens did not appear. Nobody said a word. One of the more casual cult members bruce who'd expressed skepticism before picked up his coat and hat and walked out no comment. We we have nothing to tell you. People tried to make sense of what was happening or rather not happening. The theories grew ever wilder. People were confused exhausted hosted Leon festinger observers. Tried to ask why the saucer hadn't come group. Didn't want to talk about it and then at four o'clock in the morning Dorothy. Martin put her face in her hands and began to weep one of his researches step outside for some air and discuss the situation with leading cult member. I've had a long way to go I've given given up just about everything Everyti- burned every bridge. Turn my back on the world. I CAN'T AFFORD TO DOUBT I. I have to believe and they went back inside but at four forty five. Am Dorothy Martin. With hand shaking and picked up a pencil and began to write. It was she said a new message. The cause of the faith shown owned by that small group of people the Earth had been spared destruction. A higher power would save not only the small Colt but the entire human race at this the cultists acquired new fervor going out to greet the door and tell people the good news news. They suddenly became evangelists issuing statements to the press. Ravin batting them away. Dr Is this the first time you've called the newspaper yourself. Oh yes. This is the first time I've ever called them. I've never had anything to tell them before. But now I feel it's urgent. I can't we should call the Associated Press on the United Press. This thing is pretty important so very big thing bigger than just one newspaper. I don't I don't think the Creator would want this to be an exclusive story not definitely not own correct. It's it's gotta be everybody for everybody. Grug yes festinger had been right. His view that the cultists would redouble their efforts to believe in the face of failure was based on a theory. He called cognitive dissonance. Ascendance cognitive dissonance predicts that people will start to squirm when they hold contradictory thoughts such as it's worth quitting my the job in order to be collected by aliens and the aliens did not show up. People often deny the obvious in order to reduce is the discomfort and the more suffering people have put themselves through on behalf of a belief the more likely they are to cling onto it otherwise olot plot suffering would seem ridiculous. Would it not fasting. Gas Theory applies perfectly to to poor Irving Fisher in the nineteen thirties. He believed himself to be a man of logic and reason and yet he was deeply indebted that the most famous financial basket case in the country in fact if people today no just warm thing about Irving Fisher. It's this two weeks before the Wall Street crash began he was quoted by The New York Times. Stocks have reached what looks like a permanently imminently high plateau. How'd you back away from that? Fisher went deeper and deeper in debt to the taxman and to his brokers towards the end of his life he was a marginalized figure a widower an easy target for scam artists and their get rich quick schemes. Because he was always on the lookout for a way to revive his fortune he never did. Although canes had much in common with Fisher he was a different kind of character recall. Keynes's common his father this high stakes gambling. Dan Uses me the Monte-carlo Gambler knew all along but wall investing was a fascinating game. It was a game nonetheless and one shouldn't taken unlucky. Throw of the dice too much to heart. When his investments flopped he tried something else Fisher and canes died within a few months of each other not long after the end of the Second World War Fisher had become irrelevant? Canes Haynes was the most influential economist on the planet fresh from shaping the World Bank the IMF and the entire global financial system looking back canes reflected. My only regret is that I have not drunk more champagne in my life. But he's remembered far more for the words that he probably never said nevertheless lived by them when my information changes I ultimate conclusions. And what do you do sir. If only taught that lesson to Irving Fisher you've been listening to cautionary tales if you'd like to find out more about the ideas in this episode including links thanks to our sources the show notes on my website. Tim Halford Dot Com. Cautionary Tales is written and presented by me. Tim Harford our produces are Ryan Deli and Marilyn Rust. The sound designer and mixer was Pascal wise who also composed the amazing music. Starring starring in this season are Alan Cumming. Archie pange rb Toby Stevens and Russell Tovey alongside Enzo Celente at Gahan Melanie Gutteridge Messiah Monroe and Rufus Right and introducing Malcolm Bradwell. Thanks to the team at Pushkin Industries Julia Julia baton had a fain meal. Abell Colleen Yori Jacob Weisberg and of course the mighty Malcolm Dodwell and thanks to my colleagues at the Financial Financial Times

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