Review - “Extraordinary Popular Delusions and The Madness of Crowds” by Charles MacKay

137
Sun, Nov 3, 2013 - 12:06pm

I have a necessary library of trading and market related books, both in printed and electronic form. To do things I believe that you need to allocate resources. For investing, one resource is, obviously, money or capital to invest or trade with.

Other things can be equated with money, for they have difficulty in the getting. Power is one – it can be used to seize money from those who have it. Another is knowledge, for with knowledge money can be made or created. A third primary resource is time. It takes time for all things to happen, time to gain power, even a HFT algorithm requires a small amount of time to carry out it’s instructions, and it takes time to learn knowledge.

I’m talking of knowledge today. This is the first of a series of book reviews which more or less could be called my own Recommended Reading List for Traders and Investors. It’s personal and some famous works will be left out, and I assume some minor works will come as surprises, as the prioritization is my own and based on my personal experiences and thoughts.

I had an inner debate about whether the #1 slot should go to MacKay or Lefevre/Livermore, but MacKay wins out because his work transcends trading, or even markets. It is a study of humanity. I expect everyone would benefit to a certain degree from reading this.

Oh, I should mention – Charles MacKay wrote it in 1841. That’s 172 years ago, 50 years after the French revolution, and 20 years before the American Civil War was to be fought.

I add at this point that I have three volumes of this book in my personal collection: A 1980 facsimile of the original, 724 pages in length, an electronic one, and also a new compact (abridged) hardback edition from Harriman House of 2003, 115 pages, and reprinted several times since. So this is an investment classic and still in very high demand, hence the reprints. The main difference between my two paper editions, apart from weight, is that the recent compact volume contains the financial bubbles whereas the original full text describes these however it also recounts other historical manias not related to finance like Fortune-Telling, Duelling, Haunted House, Poisoning and other manias.

I’ll stay with the compact volume for this review seeing as it will be read by investors and traders in the main. The illustrations are representative of my quirky thought process and not intended to be manipulative or imposing a political view. They are merely chosen to transcend the time of writing of the excerpted texts visually.

So what book written back then could be so pertinent today? I must get out of the way and let Charles MacKay's words speak for themselves. Here are some quotes from the first section about John Law and the Mississippi Bubble. You can judge for yourself.

Early on his wisdom was noticed and discussed in the media:

All the small poets and litterateurs of the day poured floods of adulation upon him. According to them, he was the saviour of the country, the tutelary divinity of France; wit was in all his words, goodness in all his looks, and wisdom in all his actions.”

Real assets were sucked in while paper was issued to acquire these items of value:

... It was remarked at this time that Paris had never before been so full of objects of elegance and luxury. Statues, pictures, and tapestries were imported in great quantities from foreign countries, and found a ready market.

All those pretty trifles in the way of furniture and ornament which the French excel in manufacturing were no longer the exclusive playthings of the aristocracy, but were to be found in abundance in the houses of traders and the middle classes in general. Jewellery of the most costly description was brought to Paris as the most favourable mart;”...

The wealth effect is described so well, as is the link between the Sovereign Ruler and Financier:

“...Thus the system continued to flourish till the commencement of the year 1720. The warnings of the parliament, that too great a creation of paper money would, sooner or later, bring the country to bankruptcy, were disregarded. The regent, who knew nothing whatever of the philosophy of finance, thought that a system which had produced such good effects could never be carried to excess. If five hundred millions of paper had been of such advantage, five hundred millions additional would be of still greater advantage. This was the grand error of the regent, and which Law did not attempt to dispel. The extraordinary avidity of the people kept up the delusion; and the higher the price of Indian and Mississippi stock, the more billets de banque were issued to keep pace with it.

On astute individuals hedging to protect against the inflationary loss this next quote reads like it was written both next year and in the 1930s, some 92 years after Mackay published his book:

“ ... In February 1720 an edict was published,

which, instead of restoring the credit of the paper, as was intended, destroyed it irrecoverably, and drove the country to the very brink of revolution. By this famous edict it was forbidden to any person whatever to have more than five hundred livres (20l.) of coin in his possession, under pain of a heavy fine, and confiscation of the sums found. It was also forbidden to buy up jewellery, plate, and precious stones, and informers were encouraged to make search for offenders, by the promise of one-half the amount they might discover. The whole country sent up a cry of distress at this unheard-of tyranny. The most odious persecution daily took place. The privacy of families was violated by the intrusion of informers and their agents. The most virtuous and honest were denounced for the crime of having been seen with”

And that is just the section about John Law!

I do not wish to spoil with excessive quotation, only two more, but the sections about the South-Sea Bubble and the Tulipomania are just as archaic distant history, and at the same time they describe exactly what is going on around us today in our Central Bank- Politician-Banking controlled present day world.

So to finish this review, I excerpt two short and memorable pieces – first from Charles Mackay’s 1st 1841 edition and another from his preface to the edition of 1852, written 160 years ago: “... millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first. We see one nation suddenly seized, from its highest to its lowest members, with a fierce desire of military glory; another as suddenly becoming crazed upon a religious scruple; and neither of them recovering its senses until it has shed rivers of blood and sowed a harvest of groans and tears, to be reaped by its posterity.” .....

Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”

And that last passage, Dear Reader, is as up to date as they come. If there is a"required reading list" for investors and traders, this text which has endured nearly two hundred years and still remains so appropriate to modern life's financial intrigues surely deserves the number one position on that list.

Resources:

Publishers' Page for this book: https://www.harriman-house.com/book/view/556/investing/charles-mackay/extraordinary-popular-delusions-and-the-madness-of-crowds/

Available in printed, and electronic versions

Argentus Maximus

.

The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author can be found here: RhythmNPrice.

About the Author

  137 Comments

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silver66
Nov 5, 2013 - 11:21pm

Good to see you 57goldtop

I guess it takes marketing man Suzuki to get you back and pointing out the inconvenient details

Silver66

57Goldtop
Nov 5, 2013 - 8:07am

Suzuki

And, in the ultimate example of using state to steal money, the Ontario government is offering FREE SOLAR systems. That's right! Call for the details.

When you call, Suzuki's foundation answers the phone and gets paid a fee for every call by the seriously bankrupt Ontario government.

Hey, isn't it time the teachers ask for another raise?

benque
Nov 5, 2013 - 7:37am

Suzuki etc

For decades now I have been denouncing suzuki as a fraud, ever since I first noticed that like the old stereotypical dishonest evangelicals, he was pushing his guilt trip "it's all YOUR fault". Same thing that worked for the ozone layer nuts.

Then, of course, when he jumped on the Al Gore bandwagon, and looked like he was in toady heaven, I was thoroughly disgusted.

But, like all critical thinking, exposure of popular frauds is not politically correct with my generation of lazy flagellants "you must wear the hair shirt for me, as I'm busy watching Dancing with the fools, and stuffing my face".

So glad to see that old crook fouling up in public.

As for Fukushima, for me, the jury is still out.

Now if only silver blocked alpha and beta particles as well as lead, we could all wear silver panties and have the nicest smelling, radiation free crotches in the entire world.

Hammer
Nov 5, 2013 - 5:37am
Hammer
Nov 5, 2013 - 5:18am
Spartacus Rex
Nov 5, 2013 - 12:57am

@ meluaufeet & abguy4 Re: JW & Karen Hudes

While I suspect that it is possible that Jim Willie may suffer from a mild case of paranoia, leading him to not only take steps to hide his personal identity, as well as perhaps deliberately throwing out some totally unreal and outlandish allegations so that TPTB would simply write him off as a kook and surmising that no one will take seriously, ergo allowing him to sleep at night without worrying about being neutralized.

However, Karen Hudes is either:

A) a deliberately planted Manchurian Candidate dis-informer shill for the Banksters;

B) the epitome of an edumacated idiot; Or

C) completely out of her flippin mind!

The fact that the commercial front ( Hutchinson Wampoa) for communist China’s People’s Liberation Army just recently bagged 1 Chase Manhattan Plaza, home to the largest commercial vault on Planet Earth, which itself could not even begin to hold a mere fraction of the “170,000 Tons of Gold” which Ms. Hudes asininely alleges to presently being stored at the Bank of Hawaii.

Excuse me, but WTH?

Gee, that bullion must be being held in Bank of Hawaii’s “Deep Storage” Gold Vault which is presently masquerading as the Muana Loa Volcano, and of course all of that "170,000 Tons of Gold" is obviously in liquid/molten form then, Right?

Because this is what a visualization of 166,000 Tons of Gold Bars looks like:

and this is what 166,000 Tons of Gold looks like if it were melted into a single cube:

[Visuals by: https://demonocracy.info/infographics/world/gold/gold.html]

Sure the Bank of Hawaii otherwise has a normal traditional Vault that size, Right?

Seriously Ms. Hudes, Get Real or get some Psychiatric Help.
KarankawaDagney Taggart
Nov 4, 2013 - 9:11pm

I think both Karen and Jim W. are telling people what they think

I've seen how much Karen has learned in the last year or so as she's gained more information.

I respect her knowledge in her area of expertise, but also respect the fact she's only human. I'm not a Hero Worshiper, and like the term Chris Duane has brought back to the forefront. "Listen to all, but follow none."

I posted an interview she did that was posted today on the DOTS forum for anyone interested.

Sheetrocker
Nov 4, 2013 - 8:51pm

@ argentus

@argentus maximus.......Terrific post. History repeating itself again and again.

@ redwood.......I agree 100%. It's way beyond tedious. I no longer pay any attention to the "wise men" or "good guys". I just wish I had smartened up as quick as you did.

Despite knowing that many who followed their advice have taken a severe beating, I have seen no sign of contrition or word of apology from any of them. They continue their shameless pumping without skipping a beat. Endless predictions of "the end is near". None of them have any credibility left with me.

As someone else stated, possibly on another thread, "you can only cry 'wolf' so many times". Will they be right someday? Probably. But timing is everything.

As I have stated before, as bad as it would be, I think our only hope is for the wheels to fall off this shitwagon as soon as possible.

Look at the state this country is in right now. It gets more tyrannical and oppressive by the day.

Couple this from Mr. Fix....... Oh wait, I think I got it! You mean that 65 million

low-information

voters who don't pay taxes and get free stuff from

taxpayers and

stuck us again with the most corrupt

administration

ever , covertly created by, run by, and pandering to, globalist criminals

bent on destroying the US Constitution, national sovereignty, and Bill of Rights

-------in American history?"

with this from argentus maximus....... By this famous edict it was forbidden to any person whatever to have more than five hundred livres (20l.) of coin in his possession, under pain of a heavy fine, and confiscation of the sums found. It was also forbidden to buy up jewellery, plate, and precious stones, and informers were encouraged to make search for offenders, by the promise of one-half the amount they might discover. The whole country sent up a cry of distress at this unheard-of tyranny. The most odious persecution daily took place. The privacy of families was violated by the intrusion of informers and their agents. The most virtuous and honest were denounced for the crime of having been seen with”

Do you really think they're going to let you keep it?

@abguy4.......Good stuff. Claims by the supposed good guys" get wilder and wilder. Who are we to trust?

@ Happy Now.......Please share the truth. You have just as much credibility as anyone else.

Visit the FAQ page to learn how to track your last read comment, add images, embed videos, tweets, and animated gifs, and more.

donnojackshitBollocks
Nov 4, 2013 - 8:19pm
AlienEyes
Nov 4, 2013 - 6:46pm

@ Bongo Jim

Ahhhh, no.

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