Karl G. Karsten

Karl Gustaf Karsten (1891–1968) was an American economist, statistician, businessman, inventor and author, known from his seminal work on graphical methods,[1][2] and economic forecasting.

Karl G. Karsten, 1910

Life and work

Born in Bloomington, Indiana to Gustaf E. and Eleanor S. Daggett Karsten, Karsten received his education as economist and statistician. He was student at the University of Illinois in 1907-1908, and at the University of Chicago in 1908-1909, and obtained his BA from the University of New Mexico in 1911 and from Oxford University in 1914 on a Rhodes Scholarship.[3] From 1914 to 1916 he was graduate student at the Columbia University.[4]

Karsten started his career as Newspaper Reporter and Publicity Agent in New York City in 1916. The next year he settled as independent consulting statistician, and founded Karsten Statistical Laboratory in New Haven, Connecticut.[5] As statistician Karsten was also specialized in unemployment remedies. In 1926 he became president and general manager of the Kardex Institute, a company founded in 1921 by James Rand, Jr. to collect and disseminate information on good business record-keeping and filing practices.[6] Late 1920s Karsten founded the Karsten Forecasts, inc. in New Haven, and early 1930s the Irving Fisher Index Number Institute with Irving Fisher also in New Haven, CT. From 1934 to 1942 he was appointed in multiple federal agencies.[3]

Karsten had joint the Liberal Club of New York and the Anti-Militarism League in the 1910s. In 1917 he married his first wife Elinor Cox, and had a daughter together. In the 1920s Karsten build a summer stack out in Far Rockaway, where the invited Henry Miller and his family in the summer of 1925.[7] Later, he married Helen Tippy.

Work

Since the 1920s Karsten published a series of works on charts and graphs and economic forecasting. He also he invented and patented several information processing devices.

Charts and graphs, 1923

In the 1910s charts and graphs had become a prominent subject in the theoretical discussion of methodology in the social sciences,[8] and Karsten was one of the first to publish a book solely on this topic. Karsten (1923) explained:

In and since the [First World] War the use and developments of charts has been almost phenomenal — so large, indeed, that one able economist who is interested in such things think that we as a country have gone chart-mad. But the development has not been confined to this country, and it has a very solid base in practical utility. There is little question that the chart represents a genuine saving in time and mental effort.[9]

In 1923 he published his most known work "Charts and graphs: An introduction to graphic methods in the control and analysis of statistics." This work was especially focussed on statistics, and years ahead of its time.[10]

It the 1910s statistics and graphs were introduced in production control and management in the US and in Britain.[11] Karsten's work, over 700 page and 500 illustrations, was designed for educational purposes and not as handbook for businessmen. In Britain it inspired Thomas Gerald Rose (1886-1963), who wrote since the 1930s on higher control in management, management accounting and business charts.[12]

The Theory of Quadrature in Economics, 1924/26

In his 1924 "Theory of Quadrature in Economics" Karsten "showed a detailed understanding of how some economic time series could be generated as partial sums of others and that there could, therefore, be a pair of series where one was the cumulation of the other."[13] The basic idea of this quadrature was described by Karsten:

Two forces are said by Mr. Edge to be in quadrature when they trace curves such that the fluctuations of one of the curves correspond to the fluctuations of a curve of the integration or cumulation of the data of the other curve. When a cause-and-effect relation exists between such two phenomena, the first may then be said to be cumulatively affected by the second.[14]

An furthermore:

The quadrature method therefore applies cumulation to obtain a series representing the integral function, and differencing to obtain a series of data representing the derivative.[14]

Karsten suggested in this theory, that "the aim of correlation analysis should ultimately be the recovery of causal connections."[15] The next year Jan Tinbergen confirmed this claim of Karsten in an ongoing discussion.[15]

Boumans (2004) recalls, that "Karsten ... had touched 'not without merit' on the problem of causal relations, had shown the existence of cumulative relations between the three Harvard barometer indices, which he interpreted as causal relationships. In the first place, he found, using correlation analysis, that the cumulative values of the Harvard B-index parallel those of the Harvard A- index, with a lag of 3 ... Second, he found the empirical relationship that the C-index was a cumulative of bot the A and B indices ... Thus according to Karsten (1926:417), the B-index was the 'generating force' of the three; the other two indices depended upon, and were derived from, changes in the business index."[15]

Scientific forecasting, 1931

Kasten had founded Karsten Statistical Laboratory in New Haven, Connecticut, specifically to develop so called "barometers", to theoretically forecasts business conditions. Lhabitant (2011) explained that these forecasts included "barometers of volume of trade, of building activity, of interest rates, of the wholesale price level, of indices of certain industries, of railroad stocks, of public utility stocks, of steel stocks, of oil stocks, of automobile stocks, and of store stocks."[16]

His 1931 Scientific forecasting was based on Karsten's experience as stock market analyst, and was written as a handbook for stockbrokers. This work on scientific forecasting focussed on the methods and application to practical business and to stock market operations, and relied on the techniques of the economic barometers.

According to Keuzenkamp (1987) "Karsten was fairly optimistic about his abilities to make prognoses, but, as he had to admit , 'at the present time this investigation can not account for economic changes which are wholly due to the element of mob-, crowd- or herd-psychology'.[17] In general, however, Karsten's conclusion is that these psychological factors are relatively unimportant, which leads him to find reason to state that his results support "economic determinism". There is only one exception: the stock market. Of course it is not surprising that Karsten was moderate with claims about stock market prediction, so shortly after the generally unexpected crash of 1929."[18]

Selected publications

Articles, a selection:

  • Karsten, Karl G. "The theory of quadrature in economics." Journal of the American Statistical Association 19.145 (1924): 14-29.
  • Karsten, Karl G. "The Harvard Business Indexes—A New Interpretation." Journal of the American Statistical Association. 21.156 (1926): 399-418.

Patents

Patents, a selection:

References
  1. Funkhouser, H. Gray (1937). "Historical development of the graphical representation of statistical data". Osiris. 3: 269–404. doi:10.1086/368480. S2CID 145013441.
  2. Cleveland, William S. The elements of graphing data. Monterey, CA: Wadsworth Advanced Books and Software, 1985.
  3. Indiana authors and their books, 1917-1966. (1974), p. 334
  4. The alumni directory of the University of New Mexico, 1892-1918, Bulletin of the University of New Mexico. No 91, April 1918. p. 13.
  5. Geoffrey Poitras (2007). Pioneers of Financial Economics: Twentieth-century contributions. p. 55.
  6. Ingham, Biographical Dictionary of American Business Leaders, 1983.
  7. Robert Ferguson (2012). Henry Miller: A Life, p. 90.
  8. Armatte, M. "Cycles and barometers: Historical insights into the relationship between an object and its measurement." Papers and proceedings of the colloquium on the history of business-cycle analysis, Office for Official Publications of the European Community, Luxemburg. 2003.
  9. Karsten (1923, p. xxxvii)
  10. Erik Arnberger. Handbuch der thematischen Kartographie. Deuticke, 1966. p, 42
  11. Boyns, Trevor. "The development of managerial control in British firms, c. 1880-c. 1940." Journées d'Histoire de la Comptabilité et du Management. 2010.
  12. Rose, Thomas Gerald. Business charts. Pitman & Sons, 1957.
  13. Mills, Terence, and Kerry Patterson. Modelling the Trend: The Historical Origins of Some Modern Methods and Ideas Archived 2014-12-27 at the Wayback Machine. No. em-dp2013-03. Henley Business School, Reading University, 2013. p. 11.
  14. Karsten, (1924, p. 14), as cited in Mills & Patterson (2013, p. 11).
  15. Marcel Boumans (2004). How Economists Model the World Into Numbers. p. 34
  16. François-Serge Lhabitant (2011). Handbook of Hedge Funds. p. 14
  17. Karsten (1931, p. 23)
  18. Keuzenkamp, Hugo A. The prehistory of rational expectations. Tilburg University, No. 1989-31. 1989. p. 11
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