Edward P. Farwell
The Babson Organization
The speaker started with a short survey of Mr. Babson’s work, beginning in 1905, which not only failed in popularity but even met with passive resistance on the part of business due to that constant inertia of the human mind towards novel ideas. In the course of fifteen years this has been happily overcome and Babson charts now command careful and respectful attention, and it may be safely predicted that within another decade they will be regarded as an absolute necessity to every industry.
Mr. Babson’s greatest contribution to graphic statistics is his Law of Equal Reaction, which he was led to discover through a study in England of Sir Isaac Newton’s work, whose Law in his Principia states that “action and reaction are equal and opposite.” Throughout the years of its existence the Babson Organization has always emphasized the need of cooperation with other similar research bodies and Mr. Farwell noticed particularly the valuable work being done by the Harvard Economic Index. Truth cannot be attained by one avenue only, and the more data obtainable the greater possible degree of accuracy in correlation for the purpose of forecasting.
But Mr. Babson sees no reason for changing his fundamental position of fifteen years ago regarding his basic law; much the reverse, every additional phenomenon tends only to confirm it. Variant factors may be added, some may be subtracted and others substituted; this only decreases or increases the relative superficies of areas expressed in terms of Time and Intensity pictorially illustrative of periods of inflation and deflation on either side of the xy-line of norm. This xy-line may, indeed, be corrected on its vertical axis for any given year in order to bring the positive and negative areas into their due complementary proportion, but since this xy-line assumes the law and does not attempt to prove it, the chart shows the average condition of business at any moment of time. Of course, the fluctunational curves of business had been platted by the larger industries anterior to 1905, but what the Babson Organization has accomplished is the assembling and presentation of these data to men of moderate means and with a limited opportunity for research.
Mr. Babson does not believe that charts can develop any rule-of-thumb method for forecasting. In fact he vehemently maintains that his service affords most benefit to those who use their individual business judgment in conjunction with his data. Up to 1906 basic data were founded on two or three leading industries as Bank Clearances (excluding those of N. Y. City), Tonnage of unfilled orders of U. S. Steel, Railroad construction. But with the ceasing of the last mentioned and changing conditions generally, this proved too narrow, and accuracy in charting is now obtained by compositing twelve key industries.
But there is one thing that no chart can take into account and that is the factor of human idiosyncrasy. On the other hand, given a certain coincidence of circumstance howsoever people may react to this condition a correct interpretation of the chart will enable a business man so to determine his future business course that he will be prepared for any sudden dip or take advantage of gradual enhancement without financial dislocation. As for an immediate forecast, it would seem that the post-war adjustment is not yet completed. True, the upward curve has crossed the xy-line to the plus-side but not so permanently. There are yet some aspects of industry still in flux, Immigration, Mechanical production, Tariff and Real Estate, these have still to become stabilized. But the greatest dip of deflation is finished and 1923–1924 will probably show a series of slight oscillations on xy-line gradually rising to
that sound prosperity which is always founded during the latter half of periods of depression.
