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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Bollocks
Nov 4, 2013 - 5:26pm
ancientmoneyHappyNow
Nov 4, 2013 - 4:53pm

@HappyNow re: the truth . . .

"You are are going to be in a world of hurt when you find out the truth."

-----------------------------------------------------------------------------

I prefer to avoid the "world of hurt, so I want to ask, what is the truth? But I won't, cuz I can't handle the truth.

TomMack
Nov 4, 2013 - 4:52pm

Alchemy at Hawaii

black sand: the fire goddess Pele has been creating the world’s newest beach, turning that yellow stuff into black sand.

HappyNow
Nov 4, 2013 - 4:48pm

Oh Yeah?You are are going to

Oh Yeah?

You are are going to be in a world of hurt when you find out the truth.

All of you!

Boswell
Nov 4, 2013 - 4:38pm

Willies Gold

"the White Dragons have a $ Hundred Trillion in gold bars."

Maybe that's using $50,000+/oz future valuation? ;-)

(and I have "Millions$" of silver)

Dagney Taggart
Nov 4, 2013 - 4:37pm

I hope Jim W. and Karen H.

are not co-mingling their multiple realities to agree to such a way-off-the-map quantity of gold. Of course, anything is possible.

https://www.wikihow.com/Make-Gold-in-World-of-Warcraft

This step is critical I hear....

5 At level 80 a good way of making money is getting a character to go to wintergrasp and farm 2x eternal earth eternal fire and eternal shadow. Then buy some saronite bars off the auction house and get an alchemist to transmute them into titanium bars, now you have the mats for 2x titansteel bars, these sell for 150g up. So go to dalaran and /2 "wtb titansteel CD for mats + 20g" there you have it. Also if you can, take a miner to farm the eternals in wintergrasp because you caan find some nice deposits there.

Key Economic Events Week of 8/3

8/3 9:45 ET Markit Manu PMI July
8/3 10:00 ET ISM Manu PMI July
8/3 10:00 ET Construction Spending
8/4 10:00 ET Factory Orders
8/5 8:15 ET ADP employment July
8/5 9:45 ET Markit Service PMI
8/5 10:00 ET ISM Service PMI
8/6 8:30 ET Initial jobless claims
8/7 8:30 ET BLSBS for July
8/7 10:00 ET Wholesale Inventories

fraxinus
Nov 4, 2013 - 4:18pm

Breaking news!

I have just been informed by three leprechauns that I trust, that they have taken possession of the Karen Hudes/Jim Willie gold, and delivered it to Zeus for use in his planned restoration and expansion of Olympus. I guess that kills any possibility that the phantom gold will save the bullion banks' asses, as overwhelming Chinese demand stands in the way of their returning any gold they acquired on lease and then sold. I can't say I blame the banks, though, for grasping at every useful tool to spread disinformation, however idiotic. But Jim Willie has just joined Karen Hudes on my "do not trust list", with my apologies if I have misread him.

buzlightening
Nov 4, 2013 - 4:06pm

Keep your focus turdites!

The really important thing is that the yield on the 10-Year Treasury Note is inching back up. The yield dropped slightly after last week’s FOMC announcement, but that respite was short-lived. Yields have been in an uptrend since May, and this trend is likely to continue. https://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/11/4_W...

The towering inferno of babbling fiat currencies are racing to zero; burning to ashes. A wild fired begun by the dead head feds in a debt gone wild ponzi bonzi scheme of absolute keynesian monetary implosion.

You don't know that then don't buy physical precious metals for this type of long term investing insurance. You want to get rich quick? Buy a powerball lottery ticket, play the paper casino mkts, or throw all your cash; soon to be trash into a wishing well.

Haven't ever bought a powerball ticket. Do not now play the paper ponzi casino of oceans of 13 ways to loose your investment capital. I do make wishes without throwing cash away. You make a wish, then hope it comes true. Then back that hope with a solid plan or give it up. I went with mostly silver eagles; guns and ammo; food and water storage in Jan '08. Have not given up on the plan to insulate myself and family from gov goons gone insanely hell bent wild. Certain a back order on straight jackets on the hill is not far from forth coming.

Orange
Nov 4, 2013 - 4:03pm

The countdown

Final Paragraph

I’m not sure how much more clearly I can be that the “Achilles Heel” of the global financial system is TPTB’s inability to print PHYSICAL gold and silver. The confidence game that is the Ponzi fiat currency regime is rapidly deteriorating; and all that naked shorting PAPER PMs accomplishes is a temporary “can kicking” – which will ultimately end catastrophically, and much sooner than most could imagine. Once the rapidly awakening world realizes there’s no actual gold and silver behind the naked shorted empty promises, the rush for the scarce remaining supply will be as massive as it isquick. We’ve already seen several PHYSICAL supply shortages since 2008 – including two this year alone (in January and April); and in my view, when the “Big One” hits, the opportunity to purchase real money at any price may be permanently ended. And thus, I vehemently reiterate that the time is NOW to protect one’s assets.

https://blog.milesfranklin.com/physical-gold-supply-countdown

Bollocks
Nov 4, 2013 - 3:59pm

ag1969

So, Ayotte wrote to you as "Mr. Ag1969"

I'll write to her next time...

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Key Economic Events Week of 8/3

8/3 9:45 ET Markit Manu PMI July
8/3 10:00 ET ISM Manu PMI July
8/3 10:00 ET Construction Spending
8/4 10:00 ET Factory Orders
8/5 8:15 ET ADP employment July
8/5 9:45 ET Markit Service PMI
8/5 10:00 ET ISM Service PMI
8/6 8:30 ET Initial jobless claims
8/7 8:30 ET BLSBS for July
8/7 10:00 ET Wholesale Inventories

Key Economic Events Week of 7/27

7/27 8:30 ET Durable Goods
7/28 9:00 ET Case-Shiller home prices
7/29 8:30 ET Advance trade in goods
7/29 2:00 ET FOMC Fedlines
7/29 2:30 ET CGP presser
7/30 8:30 ET Q2 GDP first guess
7/31 8:30 ET Personal Income and Spending
7/31 8:30 ET Core inflation
7/31 9:45 ET Chicago PMI

Key Economic Events Week of 7/20

7/21 8:30 ET Chicago Fed
7/21 2:00 ET Senate vote on Judy Shelton
7/22 10:00 ET Existing home sales
7/23 8:30 ET Jobless claims
7/23 10:00 ET Leading Economic Indicators
7/24 9:45 ET Markit flash PMIs for July

Key Economic Events Week of 7/13

7/13 11:30 ET Goon Williams speech
7/13 1:00 ET Goon Kaplan speech
7/14 8:30 ET CPI for June
7/14 2:30 ET Goon Bullard speech
7/15 8:30 ET Empire State and Import Price Idx
7/15 9:15 ET Cap Ute and Ind Prod
7/16 8:30 ET Retail Sales and Philly Fed
7/16 11:00 ET Goon Williams again
7/17 8:30 ET Housing Starts and Permits

Key Economic Events Week of 7/6

7/6 9:45 ET Markit Service PMI
7/6 10:00 ET ISM Service PMI
7/7 10:00 ET Job openings
7/9 8:30 ET Initial jobless claims
7/9 10:00 ET Wholesale inventories
7/10 8:30 ET PPI for June

Key Economic Events Week of 6/29

6/30 9:00 ET Case-Shiller home prices
6/30 9:45 ET Chicago PMI
6/30 10:00 ET Consumer Confidence
6/30 12:30 ET CGP and SSHW to Capitol Hill
7/1 8:15 ET ADP Employment
7/1 9:45 ET Markit Manu PMI
7/1 10:00 ET ISM Manu PMI
7/1 2:00 ET June FOMC minutes
7/2 8:30 ET BLSBS
7/2 10:00 ET Factory Orders

Key Economic Events Week of 6/22

6/22 8:30 ET Chicago Fed
6/22 10:00 ET Existing home sales
6/23 9:45 ET Markit flash PMIs for June
6/23 10:00 ET New home sales
6/25 8:30 ET Q1 GDP final guess
6/25 8:30 ET Durable Goods
6/26 8:30 ET Pers Inc and Spending
6/26 8:30 ET Core inflation

Key Economic Events Week of 6/15

6/16 8:30 ET Retail Sales
6/16 8:30 ET Cap Ute and Ind Prod
6/16 10:00 ET Chief Goon Powell US Senate
6/16 4:00 pm ET Goon Chlamydia speech
6/17 8:30 ET Housing Starts
6/17 12:00 ET Chief Goon Powell US House
6/18 8:30 ET Initial Jobless Claims
6/18 8:30 ET Philly Fed
6/19 8:30 ET Current Account Deficit
6/19 1:00 pm ET CGP and Mester conference

Key Economic Events Week of 6/8

6/9 10:00 ET Job openings
6/9 10:00 ET Wholesale inventories
6/10 8:30 ET CPI for May
6/10 2:00 ET FOMC Fedlines
6/10 2:30 ET CGP presser
6/11 8:30 ET Initial jobless claims
6/11 8:30 ET PPI for May
6/12 8:30 ET Import price index
6/12 10:00 ET Consumer sentiment

Key Economic Events Week of 5/25

5/26 8:30 ET Chicago Fed
5/26 10:00 ET Consumer Confidence
5/27 2:00 ET Fed Beige Book
5/28 8:30 ET Q2 GDP 2nd guess
5/28 8:30 ET Durable Goods
5/29 8:30 ET Pers Inc and Cons Spend
5/29 8:30 ET Core Inflation
5/29 9:45 ET Chicago PMI

Forum Discussion

by argentus maximus, 1 hour 2 min ago
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by Steve S, Aug 7, 2020 - 1:59pm
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