Extraordinary Popular Delusions and the Madness of Crowds

by Charles Mackay, LL.D.
FOREWORD TO THE 1980 EDITION

I was doing a term paper on chain letters (of all things) at the Harvard Business
School. My faculty adviser -- right off the top of his head -- suggested I seek out a volume called Popular Delusions and the Madness of Krauts -- published, he said, in 1841. My God, I was impressed. What esoterica! (I was also astonished by the title and surprised to learn that Germans, even back in 1841, were called Krauts -- or that anyone would have called them that on a book jacket.) I subsequently learned that any business professor worth his salt would have had this book at tongue's tip; and that it had to do with the madness of crowds. But for each of us there has to be that first time we learn of this book, that first reading of it. Perhaps this is yours. If so, you will read of alchemists and crusaders, of witches and haunted houses, of stock speculations and fortune-tellers and, to my mind most wonderfully of all, of tulips. Tulips, in the fourth decade of the seventeenth century in Holland, became the object of such insane and unreasoning desire that a single bulb -- about the size and shape of an onion -- could fetch a small fortune on any of the several exchanges that had sprung up to trade them. (Not entirely unlike the mania for certain tiny perforated squares of printed paper with stickum on their backs that exists today.) Not to be missed is Mackay's account of the unfortunate Dutch sailor who, having been sent down to a rich man's kitchen for breakfast, and having a particular taste for onions, actually consumed one of the priceless bulbs in error. As with any true classic, once it is read it is hard to imagine not having known of it -and there is the compulsion to recommend it to others. Thus did financier Bernard Baruch, who claimed his study of this book saved him millions, recommend it in his charming foreword of October 1932. "'Have you ever seen,'" Baruch quoted an unnamed contemporary, "'in some wood, on a sunny quiet day, a cloud of flying midges -- thousands of them -- hovering, apparently motionless, in a sunbeam?...Yes?...Well, did you ever see the whole flight -- each mite apparently preserving its distance from all others -- suddenly move, say three feet, to one side or the other? Well, what made them do that? A breeze? I said a quiet day. But try to recall -- did you ever see them move directly back again in the same unison? Well, what made them do that? Great human mass movements are slower of inception but much more effective.'" Suddenly, as I write this, everyone in New York and California, with the rest of the country perhaps to follow, is on roller skates. I certainly would not call this a form of madness, having just purchased two pairs myself -- nor, at least as of this writing, a "great human mass movement." But all of a sudden there they all are -- on roller skates.

they do not seem to have been big in Mackay's time. "that if." If you read no more of this book than the first hundred pages--on money mania--it will be worth many times its purchase. "I have always thought. even in the general moment of gloom in which this foreword is written. Market mania. two and two still make four. to buck the crowd -. too. under astute management. Not that you must be a stock-trader to benefit from the perspective this book provides.000 percent over the ensuing three to four years would have been common in your portfolio. [It is these 100 pages that are included here. perhaps not coincidentally. marked the absolute bottom of the stock market crash that had begun three years earlier. of the hunchback who supposedly profited handily renting out his hump as a writing table. as various corporate presidents and stock promoters explained over and over.) And there was the mass suicide at Jonestown.Baruch quotes Schiller: "'Anyone taken as an individual is tolerably sensible and reasonable -.. Yet had you had the courage. if only people hadn't panicked. so frenzied had the speculation become. in December of 1974. By late 1974.as a member of a crowd.) Mackay describes Frenchmen "ruining themselves with frantic eagerness.' much of the evil might have been averted. They are missing from his pages. There was "the hustle. oh. equal five. where. But. there are runs on banks and there are fires where. from $6 a share to $140. they would all have escaped with their lives.gains of 500 and 1. It was alchemy of a sort and enough to drive at least one stock.] But back to chain letters. when many begin to wonder if declines will never halt. where large groups of young people learned to dance in lemminglike unison. Wild speculation had driven the Dow Jones Industrial Average to 381 in October of 1929 on the wings of what had been a panic of greed. we had all continuously repeated. "every fool aspired to be a knave.'" There are lynch mobs. and there are crusades. in essence. stocks generally had fallen. Perhaps awaiting the invention of the photocopier. Three years later it had fallen not to 300 or 250 or 200 or 150 or even 75 but to 41.it was stoning the host. on this website in their entirety. was that two and two could. stock prices again began to spiral dizzily.which in a way is what this book is all about -. The month Baruch wrote his foreword. but I suspect that when I do. (Read. slumped. It had become unreasoning fear." And then in the second chapter the lunacy spreads to sober England. Synergy was the new magic word. severe pause. and what it meant. The talk of the town. Unreasoning greed had turned inside out." Baruch reflected on this sorry state of affairs. in two years." not so long ago. Should the government balance its budget? Should the Fed loosen or tighten credit? Read in the very first chapter a tale of money printing and speculation in early eighteenth-century France that should give any deficit spender. even in the very presence of dizzily spiralling [stock] prices. slid.'" In the late 1960s. . Not much later it sold for $1. any easy-money advocate.. (I have never actually seen a lemming. and otherwise eroded in value to depression levels. in 1929. I will see more than one. Mackay says. or at least carbon paper. The crowd had not just left the party -. Similarly. the appropriate abracadabra may be: 'They always did. how they would fit. he at once becomes a blockhead.

no one was left to buy. "society women. postal volume swelled by some 160. New York. forcing many to collapse). if you sold your letter to two people who sold it to four who sold it to eight.000. having nothing to fear but fear itself. college students. It had to be so." as it was called." To get in on the action. taxi drivers and hundreds of others jammed downtown streets." Everybody by now had a letter to sell. in Denver alone. Just last year one rose to national prominence -only this time at $100 a crack.In 1935." To skirt postal regulations. . Missouri. Nonetheless. And if it is not one madness. and points beyond. everyone would be rich. The craze spread across the country (and across the Atlantic). you would surely have more than $100. the "Circle of Gold Memorandum. Andrew Tobias November 1979 NEW YORK CITY . jumping in many places from a dime to five dollars and more. the letter asserted. anywhere there was space. For the longest time no one noticed. As you will read in this marvelous book. seeking vainly for someone to buy their chain letters. went whipping through the media/arts communities of Los Angeles. Once upon a time there was an emperor with no clothes. it will be another. the letters were being passed face to face. the nation panicked and mobbed the banks. it will always be so. Chain letters reappear periodically. Just where all this free money was to come from was not explained. Where was all this free money to come from? And yet against all logic (not to mention several laws).000 pieces of mail a day. waitresses. in Denver. had been turned into "a money-mad maelstrom. Toronto. The Associated Press reported that Springfield. AP reported. There will doubtless be many more. At the end of twelve days. If everyone participated. "sad-faced men and women walked around in a daze . By the following evening. someone composed a "send-a-dime" chain letter that promised to make participants rich. Women shoved each other roughly in a bargain-counter rush on the numerous chain headquarters [that had been established] in drugstores and corridors. nearly a century after Mackay wrote Popular Delusions (and just a short time after. and save time. there have been many naked emperors since. . It never is. Virtually everyone lost his money. and so on.

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