Finance needs more history to help with the future

...there can be few fields of human endeavour in which history counts for so little as in the world of finance.
-JK Galbraith

The great economic historian is making the point that finance does not take good account of history in its thinking. This lack of historical context has come back to haunt finance professionals on a regular basis, yet few know what a history of finance means. I don't think there are any courses on the topic taught at major MBA programs. The survey results were from a CFA Institute Magazine article, "Should Financial History Matter to Investors?". In the article, there are references to two roundtables, one in London and the other in Boston on "Financial Market History". All of these articles are disappointing because they do not address what it means to know or learn from history, yet there seems to be a hunger for history.

History is not about just being able to remember facts about past events. Remembering is not enough. Bubbles are not just the result of forgetting the past lesson that investors can take views to extremes. What history should do is tell us about the value of context. Events follow a path because of the broad context of economics, politics, psychology, and technology at time and place. Markets are efficient not because they use all information but because they reflect the views of investors, regulators, policy-makers, and consumers.Unfortunately, the cliche that history does not repeat itself but rhymes does not illuminate the importance of context.

History will often tell us that everything will not turn out in the end. There are bad outcomes. Actions matter. Failure is real. The survivors will tell you otherwise because they are survivors.  The regulation of today was caused by the context of past age. If you forget the savings and loan crisis, you will not be ready for the mortgage crisis. If you do not remember Ponzi, you will be surprised by Madoff. History diminishes the factor of surprise. Of course, there will be surprises, but for the person steeped in history there will be fewer and the cost of being surprised should be reduced.

We are already forgetting the surprise of the Financial crisis because the context of today is just what happened yesterday. I don't know the answer of how to incorporate history in finance but for those who take the time to learn the past the future will be clearer.