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

  Refresh
Nov 3, 2013 - 1:01pm

The new world order is just

The new world order is just the old world order saying to the bankers & politicians "Playtime's over! We're taking our ball back!"

tyberious
Nov 3, 2013 - 12:54pm

Sixth

New World Order — Major Terror Attacks — Is Something Coming?

9-11-1990 plus 11 years = 9-11-2001 plus 11 years = 9-11-2012

On Sept. 11, 1990, President George H.W. Bush, in an address before a Joint Session of the U.S. Congress on the Persian Gulf crisis and the federal budget deficit, spoke of a "new world order."

President G.H.W. Bush: Out of these troubled times, our fifth objective -- a new world order -- can emerge: a new era -- freer from the threat of terror, stronger in the pursuit of justice, and more secure in the quest for peace. An era in which the nations of the world, East and West, North and South, can prosper and live in harmony.

On Sept. 11, 2001, the 11th anniversary of President Bush's new-world-order speech to Congress, America experienced the first-ever massive terror attacks on the World Trade Center in New York City and the Pentagon in Washington, D.C.

President G.W. Bush: Good evening. Today, our fellow citizens, our way of life, our very freedom came under attack in a series of deliberate and deadly terrorist acts. The victims were in airplanes, or in their offices; secretaries, businessmen and women, military and federal workers; moms and dads, friends and neighbors. Thousands of lives were suddenly ended by evil, despicable acts of terror.

-----

Tuesday, Sept. 11, 2012, will be the 11th anniversary of the World Trade Center/Pentagon terror attacks.

The new-world-order vision President George H.W. Bush spoke of hasn't happened; as a matter of fact, the world is much more dangerous, especially the Middle East -- Israel's neighborhood -- thanks to political decisions of the United States.

Instead of a new-world free from the threat of terror, the United States experienced a massive Islamic terrorist attack on 9-11-2001, followed by two extremely costly wars in Iraq and Afghanistan and President G.W. Bush's nation building and active promotion of democracy in the Middle East. It also enabled Barack Obama to defeat John McCain in the 2008 U.S. Presidential election.

President Obama and Secretary of State Hillary Clinton have been actively involved in the Arab Spring debacle, which is becoming a hard-line Islamic takeover in country after country in the Middle East. This has led to an unprecedented persecution of Christians and the purging from countries throughout the Middle East, while Israel is facing its most dangerous threats in history. Moreover, under Obama's watch, Iran has aggressively accelerated its nuclear development program.

Unbeknown to these U.S. Presidents, their active roles in the Middle East have led to the rapid acceleration of final-day events and the final battle for Jerusalem (Zechariah 12-14).

Will Sept. 11, 2012, be another historical day?

---

President George H.W. Bush’s new-world order speech to Congress and President George W. Bush’s speech to America

9-11-1990

President George H.W. Bush Address Before a Joint Session of the Congress on the Persian Gulf Crisis and the Federal Budget Deficit

White House transcript excerpt: click here

We stand today at a unique and extraordinary moment. The crisis in the Persian Gulf, as grave as it is, also offers a rare opportunity to move toward an historic period of cooperation.

Out of these troubled times, our fifth objective -- a new world order -- can emerge: a new era -- freer from the threat of terror, stronger in the pursuit of justice, and more secure in the quest for peace. An era in which the nations of the world, East and West, North and South, can prosper and live in harmony.

A hundred generations have searched for this elusive path to peace, while a thousand wars raged across the span of human endeavor. Today that new world is struggling to be born, a world quite different from the one we've known. A world where the rule of law supplants the rule of the jungle. A world in which nations recognize the shared responsibility for freedom and justice. A world where the strong respect the rights of the weak.

This is the vision that I shared with President Gorbachev in Helsinki. He and other leaders from Europe, the Gulf and around the world understand that how we manage this crisis today could shape the future for generations to come.

Once again, Americans have stepped forward to share a tearful goodbye with their families before leaving for a strange and distant shore. At this very moment, they serve together with Arabs, Europeans, Asians and Africans in defense of principle and the dream of a new world order. That's why they sweat and toil in the sand and the heat and the sun.

If they can come together under such adversity, if old adversaries like the Soviet Union and the United States can work in common cause, then surely we who are so fortunate to be in this great Chamber -- Democrats, Republicans, liberals, conservatives -- can come together to fulfill our responsibilities here. Thank you. Good night. And God bless the United States of America.

-----

9-11-2001

Statement by the President in His Address to the Nation

Transcript: click here

THE PRESIDENT: Good evening. Today, our fellow citizens, our way of life, our very freedom came under attack in a series of deliberate and deadly terrorist acts. The victims were in airplanes, or in their offices; secretaries, businessmen and women, military and federal workers; moms and dads, friends and neighbors. Thousands of lives were suddenly ended by evil, despicable acts of terror.

The pictures of airplanes flying into buildings, fires burning, huge structures collapsing, have filled us with disbelief, terrible sadness, and a quiet, unyielding anger. These acts of mass murder were intended to frighten our nation into chaos and retreat. But they have failed; our country is strong.

A great people have been moved to defend a great nation. Terrorist attacks can shake the foundations of our biggest buildings, but they cannot touch the foundation of America. These acts shattered steel, but they cannot dent the steel of American resolve.

America was targeted for attack because we're the brightest beacon for freedom and opportunity in the world. And no one will keep that light from shining.

Today, our nation saw evil, the very worst of human nature. And we responded with the best of America -- with the daring of our rescue workers, with the caring for strangers and neighbors who came to give blood and help in any way they could.

Immediately following the first attack, I implemented our government's emergency response plans. Our military is powerful, and it's prepared. Our emergency teams are working in New York City and Washington, D.C. to help with local rescue efforts.

Our first priority is to get help to those who have been injured, and to take every precaution to protect our citizens at home and around the world from further attacks.

The functions of our government continue without interruption. Federal agencies in Washington, which had to be evacuated today, are reopening for essential personnel tonight, and will be open for business tomorrow. Our financial institutions remain strong, and the American economy will be open for business, as well.

The search is underway for those who are behind these evil acts. I've directed the full resources of our intelligence and law enforcement communities to find those responsible and to bring them to justice. We will make no distinction between the terrorists who committed these acts and those who harbor them.

I appreciate so very much the members of Congress who have joined me in strongly condemning these attacks. And on behalf of the American people, I thank the many world leaders who have called to offer their condolences and assistance. America and our friends and allies join with all those who want peace and security in the world, and we stand together to win the war against terrorism.

Tonight, I ask for your prayers for all those who grieve, for the children whose worlds have been shattered, for all whose sense of safety and security has been threatened. And I pray they will be comforted by a power greater than any of us, spoken through the ages in Psalm 23: "Even though I walk through the valley of the shadow of death, I fear no evil, for You are with me."

This is a day when all Americans from every walk of life unite in our resolve for justice and peace. America has stood down enemies before, and we will do so this time. None of us will ever forget this day. Yet, we go forward to defend freedom and all that is good and just in our world.

Thank you. Good night, and God bless America.

SilverSurfers
Nov 3, 2013 - 12:38pm

Me four

Market mania got the better of me, 4th!!!!

After FDR did his foul deed, the banksters went to work, and through WWII and through vietam, the US got the "residual" affects of a gold standard, where FRNs deficit spending actually added to GDP, and thus used to "conquer" the world. But a funny thing happened on the way to the printing presses, FRNs got saturated, and no longer have any bang per buck. Argument could be had, that fiat printing served its usefulness. Its time has come. Basic delusions persist, it wont go down easily.

Up Up and Away - Hot air Balloons
Dagney Taggart
Nov 3, 2013 - 12:34pm

Fifth

"Out of these troubled times, our fifth objectivea New World Order — can emerge..." - George H.W. Bush, 9/11/91

Mr. Fix
Nov 3, 2013 - 12:31pm

2nd!

I think most of society is delusional, but of course, most of society thinks that I am delusional.

Time will tell who's right.

Speaking of Time, that magazine cover should be entitled “The committee to enslave the world”.

Thanks, Argentus Maximus.

Have a wonderful day.

Okay Louie , now you're just bragging, and I'm jealous, I missed it by about a second.

If I was first, I would brag too.

Louie
Nov 3, 2013 - 12:27pm

First! First! First! First! FIRST FIRST FIRSTFIRSTFIRST!!!!

FIRST!!

What could be better than cheap silver over the weekend?

How about a FIRST at TF Metals Report!

First, first, first, first first!

Have we all gone mad in the desire to be first?

Dyna mo hum
Nov 3, 2013 - 12:21pm

Me

#3

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