Financial Advice: Inflation’s Oops Baby

What is financial advice, anyway?

I went looking for timeless wisdom on wealth. All I found was flux. Financial advice, it turns out, was always changing. The modern version is quite young, its birth a total accident.

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In the ancient world, few people got ahead. Exceptions proved the rule. Sure, you could join the Roman legions and retire, but only by dodging swords for twenty-five years. After the Black Plague, with most workers dead, survivors negotiated land ownership. But to do this, you had to survive the black plague. Normally, life ended where it began.¹ Money did not grow. Working harder served no purpose. Where would you Go Ahead to?

Christian Europe initially deemed getting ahead immoral. Even in permissive Amsterdam², where things really got going, bankers were denied communion until 1658 alongside brothel keepers. It was sinful to make money on the sale of your house. Moving up was against the rules.

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Then came capitalism. Life improved. The more some moved ahead, the more others believed they could, too. Striving got you somewhere.

“Go Ahead!” became the American theme by the early 1800s. Should you move west? Go Ahead! Start a business? Go Ahead! Buy stocks? Well, don’t go crazy. The real trick was “Work! Work! Work!” said Frederick Douglass in the most popular speech in his own lifetime, which was not What to the Slave is the Fourth of July?, but Self-Made Men. “Our mottos are ‘Look ahead’ and ‘Go Ahead!’ . . . Every man has his chance. If he cannot be President he can, at least, be prosperous.” Rags-to-riches was finally on offer.

But how? On untraveled trails, guides are few. “A person needs to live one life in this world to know how to live,” complained a man who went broke in the 1840s, “& when learned it is too late to be of any avail to us³.” Going up was new, advice on climbing rare. The prequels to financial advice were “Improvement Manuals.”

For about 200 years, there really wasn’t financial advice as we know it today, just a lot of thoughts on getting better.

Farm improvement came first. Modern get-rich guides don’t include chapters like “Liquid Manures and their Profitable Use.” Guidebooks for making old farms thrive, which exploded on the scene in the 1700s and 1800s, did. Few people bought stocks, but the “Surprising Profits in Ducks⁴” (real title) could turn your nineteenth-century life around.

The most avid improvers were women. I say “housewife manual” and you say “Down with the Patriarchy!” Pinterest is littered with misogynist examples, like “The Good Wife’s Guide” from 1955’s Housekeeping Monthly. This patronizing piece of chauvinism includes pearls like “a good wife knows her place.” You binged Mad Men. You know how it was.

Only it wasn’t. There was no magazine called Housekeeping Monthly and “The Good Wife’s Guide” is a hoax. Housewife manuals, meanwhile, were the most financially sophisticated improvement books in early American history. On the wife, not the husband, rested the burden of managing a modern capitalist family. The two main objects of a wife, the very real Housekeeper’s Book explained in 1837⁵, were “the comfort of her family, and the care of her purse.” She held the financial fate of the family in her hands.

A wife was a harried human spreadsheet paying bills, balancing account ledgers, and keeping figures running in her head all while in constant states of interruption from children and meal preparation. The popular The American Business Woman dealt with everything from family budgets to investing profitably in mortgages. The moment a successful housewife managed to safeguard more capital than projected expenses, another guide proclaimed, “She is a capitalist.”⁶

Men needed improving, too. Their most famous manual, Benjamin Franklin’s Advice to a Young Tradesman, was long on character and vague on specifics. “He that gets all he can honestly, and saves all he gets . . . will certainly become RICH” sounds good, but Franklin never told you how. Don’t buy to impress others, don’t smoke opium, never co-sign a friend’s loans—that was as detailed as most got.⁷

The final improvement was safety. The single largest creator of improvement pamphlets were insurance companies.⁸ Because improved houses, workers, families, and people were a lot less risky to cover, the late nineteenth century was littered with pamphlets on how to live life cleaner, safer, and better than ever before.

Consider the insurance company. Largely hated today, they were nineteenth-century family heroes. The path upward was covered in oil. The slightest misstep sent generations sliding to the bottom. Housefires, work accidents, and family deaths shattered the dreams of many climbers. Insurance made striving safer.

If a parent died, life insurance fended off starvation. Railway workers gobbled up accident insurance when it arrived in the 1840s. Fire insurance rebuilt family homes in Chicago (1871) and San Francisco (1906) after both burned to the ground. By 1900, no responsible person would be without insurance. There was roughly one policy for every American family because the improved family was better off not risking total failure. Getting better meant protecting against losing the progress you’d made, and everyday people were excited to protect their place in the great Go Ahead line. Workers spent more on insurance than on alcohol⁹, which is still true today if you don’t join a wine club.

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If improvement wasn’t your thing, you could always try to get rich quick. Popular manuals on making fortunes in stocks bubbled up occasionally. They grew and lived alongside improvement culture the same way day trading YouTube channels coexist in a world with Goldman Sachs. It wasn’t what responsible people did, but some people weren’t trying to be responsible. Newspapers warned these pamphlets spread a disease, especially among men: “speculitis.”¹⁰

The easiest places to catch speculitis were bucket shops, bars that posted up-to-date stock prices via the newly invented stock ticker. Stocks were too expensive for working people to buy, so patrons instead placed wagers on the prices going up or down. To stop losing business, real bars bought tickers so customers could check stock prices and make private bets on the side.

Many fell prey.¹¹ “Investment guides” were just sales brochures for dangerous or illegal ideas. The highly advertised 1907 booklet The Law of Financial Success ends after 108 pages of inspirational stories, with a pitch to buy poorly capitalized western gold mines. Another scheme captured 40,000 people as “Investors,” who were sent regular account statements showing Madoff-like returns to encourage more contributions. Clients’ names were found by the U.S. Postal Service on a “Suckers List.” Selling the fantasy of imaginary compound interest procreating non-existent “Generational Wealth” is at least 200 years old. These ideas, though, were hardly mainstream. They sold alongside Dream Books, which told you how to interpret your sleep to pick lottery numbers. Speculitis was more gambling addiction than financial planning.

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By about 1900, Americans finally understood which steps of the improvement ladder went up. There was no “financial advice” industry as we have it today, just clearly labeled steps everyone knew to take. The first was a small savings in a charity bank or insurance company, rarely more than $100.¹²

Step 2 was insurance.¹³ Even poor families carried life, accident, and fire policies. Step 3 was buying a home. Step 4 was using side hustles like raising chickens or renting rooms to pay the house off early. Step 5 varied, but was usually lending mortgages to neighbors, buying rental property, investing in local loan companies, or buying better tools for your trade.

What not to do was equally clear: don’t catch speculitis. The stock market was “the quickest and surest means of getting rid of money that is known¹⁴,” one writer said. Not a single published word, other than ads and scams, said differently. Few Americans thought about themselves as having a financial life outside of being farmers, mill workers, or shopkeepers. Getting ahead was a local event. Their primary investment was in improving themselves.

Americans finally knew just how to move up in their great Go Ahead country. There were rungs on the ladder. You took steps in the correct order.

And then, the ladder fell over.

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Inside the Cracker Barrel restaurants dotting interstate highways are shops of fetishized nostalgia reminding us that flannel was once stylish and soda didn’t always have corn syrup. Look no further than the Pages of Time book series once sold there. The price of a gallon of milk in 1912? Just $0.24. As of this writing it is $4.33. The cost of milk has gone up 1,700 percent¹⁵ since the year my grandfather was born.

Now, go backward 100 years.

The price of milk in 1812, when Napoleon ruled France . . .

$0.24 . . .

to the penny—the price of milk 100 years later. For over a century, inflation was functionally 0 percent.¹⁶

Then came the First World War.

To fund it, the federal government asked Americans to buy Liberty Bonds. Citizens dutifully agreed: rich, poor, young, old. The solidarity of the bond campaign is hard to imagine today. Churches held joint services to fundraise. Employers released workers for rallies. Former President Taft’s niece climbed up one rung of a fire ladder for every $500 donated, giving excited investors a look up her dress. It was all very patriotic.

Bond investments were sound. Roughly 4 percent against no inflation meant a real 4 percent return. Americans could make money, do their duty, and see up famous women’s skirts all at the same time.

Then came inflation. Remember the start of Covid-19, when no one under forty had seen inflation? This was worse. No one alive, no mother, grandmother, or great grandmother, had ever seen prices rise.

In just five years, prices went up 8 percent, then 18 percent, 17 percent, 15 percent, and finally 15 percent again. For reference, Covid inflation was 1 percent, 5 percent, 8 percent, 4 percent, and 3 percent.

Prices doubled. Family budgeting manuals pined for “some years ago, when the dollar was worth 100 cents¹⁷.” No one knew what to do.

Patriotic bond buyers took incredible losses; 4 percent against double-digit inflation was spitting into the wind. Most Americans’ first large-scale market investment plummeted in value. Meanwhile the stock market boomed, going up over 50 percent in a single year. By 1920, the facade of safe investments crumbled, and with it any heed paid to the “stocks are gambling” aphorisms against speculitis. If the world was leaping ahead, your incremental improvements were tiny steps toward the poor house. To beat the market, join it. By the late 1920s, more than one in four American households owned some kind of stock.¹⁸

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Americans had no idea what they were doing, but they were doing it anyway. The 1920s became Investment Pentecost. Everyone spoke in strange tongues: rate tables, preferred shares, common stock, mining certificates, railway mortgages. The everyday person was baptized in a sea of capitalist opportunities. “Perhaps never in the history of the world has so much been said on the subject,” opined one of the many brand new investor guides in 1919.¹⁹

The financial-advice genre was midwifed by a generation groping to beat inflation. Every type of financial advice alive today arrived in that moment. There has been nothing new since. The first financial-independence–retire-early book appeared in 1919. It sold out. Learn-at-home investment courses were first offered in 1922. Readers gobbled up books by Charles Dow, father of the Dow Jones Index, because they claimed to discern scientific patterns in stock charts. Goldbugs hoarded precious metals. The groundbreaking ideas that won the 2002 Nobel Prize in Economics (behavioral economics) were all contained in a single chapter, “Personality in Investment,” in 1921’s Financial Independence at Fifty²⁰. We live today in the world the Great War left behind.

Most importantly, Edgar Smith wrote Common Stocks as Long Term Investments. Smith took a random sample of equities and backtested them. Held long enough, they beat bonds. To a generation warned off such sin and burned anyway, no one felt inclined to check his math. Smith’s book “threw a bombshell into the investing word²¹,” causing the bull market to take off. The more people flooded into stocks, the more stock prices went up. Smith’s readers made his argument come true throughout the 1920s.

Americans mastered the lessons of the past just in time to be completely wrong. They thought they were learning from old mistakes. Courses now corrected, with true north pointing at Wall Street, they went hurtling toward 1929 and the greatest stock market crash ever.