Digital Knowledge at Babson

ACTION AND REACTION

Roger Babson was early impressed by the reality and effects of the business cycle. His first job in investment banking after graduation from M.I.T. was found at the tail end of the depression of the 1890’s, and he was in New York to witness the crash of March, 1907, when prices dropped from an average of 111 to 60 in a week. As an investment advisor, and with deep concern for the impact of crashes on the average investor, Babson was interested in predicting and, if possible, controlling shifts in the business cycle. With the help of Professor George F. Swain, head of the Civil engineering course at M.I.T., he developed the Babsonchart to track important economic indicators. It was Professor Swain who suggested that Sir Isaac Newton’s third Law of Motion might apply in economics as in the physical sciences. On the premise that for every action there is an equal and opposite reaction, the Babsonchart assumed that the duration and severity of a depression would be directly dependent upon the duration and extent of the preceding boom. Success with the Babsonchart encouraged Babson to apply the same Law of Action and Reaction in every area of life, from human emotions to politics. It became a fundamental principle of his life, and Sir Isaac Newton became a continuing interest for him and his wife, who became a collector of Newtonia.