Theoretical History

"in order to understand the October [1929] crash, one needed to explain why it would have been sensible for investors to be highly optimistic in September 1929, and somewhat pessimistic in November 1929." -- Scott Sumner, The Midas Paradox, pp. 60-61

Again, Sumner is introducing his conclusions as a criterion for what facts will be acceptable. Of course, no one embarks on an attempt to explain some historical episode with a "blank slate": every effort at understanding is an effort to understand better what is to some extent already understood. There is nothing wrong with Sumner starting with the hypothesis that investors were "sensible" in September 1929, and seeing if it holds up. But here Sumner posits their being sensible, not as a conjecture to be explored, but as a given which any explanation must incorporate. And given that is a pre-condition he has placed on any acceptable explanation of what occurred, it is inevitable that the end result of his inquiry will be that they were, indeed, sensible.

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