The Physics of Wall Street: a brief History of Predicting the Unpredictable

Primordial Seeds 
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tions. Bachelier spent the first years after the war, from 1919 until 1927, 
as a visiting professor, first in Besançon, then in dijon, and finally in 
rennes. none of these were particularly prestigious universities, but 
they offered him paid teaching positions, which were extremely rare in 
france. finally, in 1927, Bachelier was appointed to a full professorship 
at Besançon, where he taught until he retired in 1937. He lived for nine 
years more, revising and republishing work that he had written earlier 
in his career. But he stopped doing original work. Between the time he 
became a professor and when he died, Bachelier published only one 
new paper.
An event that occurred toward the end of Bachelier’s career, in 1926 
(the year before he finally earned his permanent position), cast a pall 
over his final years as a teacher and may explain why he stopped pub-
lishing. that year, Bachelier applied for a permanent position at dijon, 
where he had been teaching for several years. one of his colleagues, 
in reviewing his work, became confused by Bachelier’s notation. Be-
lieving he had found an error, he sent the document to Paul Lévy, a 
younger but more famous french probability theorist. Lévy, examin-
ing only the page on which the error purportedly appeared, confirmed 
the dijon mathematician’s suspicions. Bachelier was blacklisted from 
dijon. Later, he learned of Lévy’s part in the fiasco and became en-
raged. He circulated a letter claiming that Lévy had intentionally 
blocked his career without understanding his work. Bachelier earned 
his position at Besançon a year later, but the damage had been done 
and questions concerning the legitimacy of much of Bachelier’s work 
remained. Ironically, in 1941, Lévy read Bachelier’s final paper. the 
topic was Brownian motion, which Lévy was also working on. Lévy 
found the paper excellent. He corresponded with Bachelier, returned 
to Bachelier’s earlier work, and discovered that he, not Bachelier, had 
been wrong about the original point — Bachelier’s notation and infor-
mal style had made the paper difficult to follow, but it was essentially 
correct. Lévy wrote to Bachelier and they reconciled, probably some-
time in 1942.
Bachelier’s work is referenced by a number of important math-
ematicians working in probability theory during the early twentieth 
century. But as the exchange with Lévy shows, many of the most in-

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fluential people working in france during Bachelier’s lifetime, includ-
ing people who worked on topics quite close to Bachelier’s specialties, 
were either unaware of him or dismissed his work as unimportant or 
flawed. Given the importance that ideas like his have today, one is left 
to conclude that Bachelier was simply too far ahead of his time. Soon 
after his death, though, his ideas reappeared in the work of Samuelson 
and his students, but also in the work of others who, like Bachelier, 
had come to economics from other fields, such as the mathematician 
Benoît Mandelbrot and the astrophysicist M.f.M. osborne. change 
was afoot in both the academic and financial worlds that would bring 
these later prophets the kind of recognition that Bachelier never en-
joyed while he was alive.
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t h e p h y s i c s o f wa l l s t r e e t

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M
aury osborne’s mother, Amy osborne, was an avid 
gardener. She was also a practical woman. rather than buy 
commercial fertilizer, she would go out to the horse pas-
tures near her home, in norfolk, virginia, to collect manure and bring 
it back for her garden. And she didn’t approve of idleness. Whenever 
she caught one of her sons lazing about, she was quick to assign a job: 
paint the porch, cut the grass, dig a hole to mix up the soil. When 
osborne was young, he liked the jobs. Painting and hole-digging were 
fun enough, and other jobs, like cutting the grass, were unpleasant but 
better than sitting around doing nothing. Whenever he got bored, he 
would go to his mother and ask what he could do, and she would give 
him a job.
one day, she pointed out that the ice truck had just passed. the 
truck was pulled by a horse, which meant that there would be nice big 
piles of manure on the road. “So you go and collect that horse manure 
and mix it up with the hose to make liquid manure and pour it on my 
chrysanthemums,” she told him. osborne didn’t much like this assign-
ment. It was the middle of the day and all of his friends were out and 
Swimming Upstream
c H A P t e r 2

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about, and when they saw him they yelled out and teased him. red-
faced and fuming, he dutifully collected the manure in a big bucket, 
then went back to his house. He pulled out the hose, filled the bucket 
with water, and began to liquefy the manure. It was a gross, smelly job, 
and osborne was feeling irritated and embarrassed at having to do it 
in the first place. then all of a sudden, as he was stirring, the liquefied 
manure splashed out of the bucket and soaked him. It was a major 
turning point: there, covered in fresh horse manure, osborne decided 
that he would never ask anyone what to do again — he would figure 
out what he wanted to do and do that.
As far as his scientific career went, osborne kept his pledge. He was 
initially trained as an astronomer, calculating things like the orbits of 
planets and comets. But he never felt constrained by academic bound-
aries. Shortly before the United States entered World War II, osborne 
left graduate school to work at the naval research Lab (nrL) on 
problems related to underwater sound and explosions. the work had 
very little to do with astronomical observation, but osborne thought 
it would be interesting. Indeed, before the war was over, he took up 
several different projects. In 1944, for example, he wrote a paper on 
the aerodynamics of insect wings. In the 1940s, entomologists had no 
idea why insects could fly. their bodies seemed to be too heavy for the 
amount of lift generated by flapping wings. Well, osborne had some 
time on his hands, and so, instead of asking the navy what he should 
do, he decided he’d spend his time solving the problem of insect flight. 
And he succeeded: he showed, for the first time, that if you took into 
account both the lift produced by insect wings and the drag on the 
wings, you could come up with a pretty good explanation for why in-
sects can fly and how they control their motion.
After World War II, osborne went further still. He approached the 
head of the nrL’s Sound division, where he still worked, and told him 
that anyone working for the government could get their work done 
in two hours a day. Bold words for one’s boss, you might think. But 
osborne pressed further. He said that even two hours of work a day 
was more than he wanted to do for the government. He had a problem 
of his own that he wanted to work on. osborne made it clear that this 
new project had nothing at all to do with naval interests, but he said he 
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t h e p h y s i c s o f wa l l s t r e e t

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