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

Swimming Upstream 
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wanted to work on it anyway. And amazingly, his boss said, “Go right 
ahead.”
osborne remained at the nrL for nearly thirty more years, but 
from that conversation on, he worked exclusively on his own projects. 
In most cases, these projects had little or no direct bearing on the navy, 
and yet the nrL continued to support him throughout his career. the 
work ran the gamut from foundational problems in general relativity 
and quantum mechanics to studies of deep ocean currents. But his 
most influential work, the work for which he is best known today, was 
on another topic entirely. In 1959, osborne published a paper entitled 
“Brownian Motion in the Stock Market.” though Bachelier had writ-
ten on this very subject sixty years earlier, his work was still essen-
tially unknown to physicists or financiers (aside from a few people in 
Samuelson’s circle). to readers of osborne’s paper, the suggestion that 
physics had something to say about finance was entirely novel. And it 
wasn’t long before people in academia and on Wall Street began to take 
notice.
Any way you look at it, Bachelier’s work was genius. As a physicist, he 
anticipated some of einstein’s most influential early work — work that 
would later be used to definitively prove the existence of atoms and 
usher in a new era in science and technology. As a mathematician, he 
developed probability theory and the theory of random processes to 
such a high level that it would take three decades for other mathemati-
cians to catch up. And as a mathematical analyst of financial markets, 
Bachelier was simply without peer. It is exceptionally rare in any field 
for someone to present so mature a theory with so little precedent. In 
a just world, Bachelier would be to finance what newton is to phys-
ics. But Bachelier’s life was a shambles, in large part because academia 
couldn’t countenance so original a thinker.
Just a few short decades later, though, Maury osborne was thriv-
ing in a government-sponsored lab. He could work on anything he 
liked, in whatever style he liked, without facing any of the institutional 
resistance that plagued Bachelier throughout his career. Bachelier and 
osborne had much in common: both were incredibly creative; both 
had the originality to find questions that hadn’t occurred to previous 

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researchers and the technical skills to make them tractable. But when 
osborne happened on the same problem that Bachelier had addressed 
in his thesis — the problem of predicting stock prices — and proceeded 
to work out a remarkably similar solution, he did so in a completely 
different environment. “Brownian Motion in the Stock Market” was an 
unusual article. But in the United States in 1959, it was acceptable, even 
encouraged, for a physicist of osborne’s station to work on such prob-
lems. As osborne put it, “Physicists essentially could do no wrong.” 
Why had things changed?
nylon. American women were first introduced to nylon at the 1939 
new York World’s fair, and they were smitten. A year later, on May 15, 
1940, when nylon stockings went on sale in new York, 780,000 pairs 
were sold on the first day, and 40 million pairs by the end of the week. 
At year’s end, du Pont, the company that invented and manufactured 
nylon, had sold 64 million pairs of nylon stockings in the United States 
alone. nylon was strong and lightweight. It tended to shed dirt and it 
was water resistant, unlike silk, which was the preferred material for 
hosiery before nylon hit the scene. Plus, it was much cheaper than 
either silk or wool. As the Philadelphia Record put it, nylon was “more 
revolutionary than [a] martian attack.”
But nylon had revolutionary consequences far beyond women’s 
fashion or fetishists’ lounges. the initiative at du Pont that led to the 
invention of nylon — along with a handful of other research programs 
begun in the 1930s by companies such as Southern california edison, 
General electric, and Sperry Gyroscope company, and universities 
such as Stanford and Berkeley — quietly ushered in a new research 
culture in the United States.
In the mid-1920s, du Pont was a decentralized organization, with 
a handful of largely independent departments, each of which had its 
own large research division. there was also a small central research 
unit, essentially a holdover from an earlier period in du Pont’s history, 
headed by a man named charles Stine. Stine faced a problem. With so 
many large, focused research groups at the company, each performing 
whatever services its respective department required, the need for an 
additional research body was shaky at best. If the central research unit 
was going to survive, never mind grow, Stine needed to articulate a 
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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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