The first person to really meet that demand, Friedman argues, was Roger Babson, who began putting out regular forecasts about the U.S. economy after 1907. Babson was the most obvious huckster of Friedman’s subjects. He was given to faddish beliefs. He was a serial entrepreneur who came up with a host of odd inventions, and he was peculiarly obsessed with Isaac Newton. And his view of the business cycle, which he saw as oscillating regularly between boom and bust, was both simplistic and informed by a highly moralistic notion of excess and punishment. But Babson did two important things, Friedman argues. First, he solidified the notion that there was something called the “U.S. economy” whose different parts were connected to one another in systematic ways. And he popularized the idea that economies were subject to business cycles, about which coherent prognostications could be made. These seem, today, like obvious insights. But at the time, Friedman argues, they were quite new. As he writes, “The economic booms and busts of the previous century were typically ascribed not to any sort of regular business cycle but to fate, the weather, political schemes, divine Providence, or unexpected shocks like new tariffs or earthquakes.”It is relatively easy to keep track of major technological innovations that change our world. Much more difficult is to recognize the turning point when we began to understand the world differently. Cognitive innovation is often as or even more consequential than technological innovation.
In this instance, the cognitive innovation was to look at a portfolio of known facts and suggest that these were not random events but something arising from some underlying pattern of action. While the posited causation might not have actually been understood, the mere recognition that there was more than randomness in play was the critical insight.