Mandelbrot’s cotton price analysis routed him into the mainstream topic of price change distributions.

Evidence

The pattern that Mandelbrot glimpsed on Houthakker’s blackboard shifted his focus from the distribution of income (a peripheral problem in the mainstream economics of the 1960s) to the distribution of price changes, which as we saw in chapter 2 was becoming a central topic. Mandelbrot started working with cotton prices, taking Houthakker’s price data back to the IBM Research Center at Yorktown Heights “in a box of computer cards” (Gleick 1988, p. 85), obtaining further prices going back to 1880 from the U.S. Department of Agriculture, and analyzing all these data on the powerful IBM 7090 computer at Yorktown Heights. Soon he was working on the prices of wheat and of other grains, on the prices of nineteenth-century railroad stocks, and on interest rates. Everywhere, he found evidence that price changes in “very active speculative markets” (Mandelbrot 1963a, p. 404) followed Levy distributions. — Donald MacKenzie, An Engine, Not a Camera, 488

Categorization

• XREF: Connects to the broader chapter 2 discussion of random walk becoming central in 1960s economics. — connects to: Mandelbrot read Houthakker’s cotton price data as evidence of volatility clustering contradicting normal distributions. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 486