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Extraordinary Popular Delusions And The Madness Of Crowds
by Charles Mackay
1841, 1852

The South Sea Bubble
The Tulipomania
Alchemy, part 1
Alchemy, part 2
Alchemy, part 3
Introduction


INTRODUCTION

Editor's Note: Charles Mackay in his Extraordinary Popular Delusions and Madness of Crowds, written in 1841, unwittingly provides us one of the better studies of modern market behavior. I doubt Mackay would have guessed that his book would be read, digested and taken as revelation by readers in the 21st century. At the same time, he probably would have not been surprised that the pull of the same dark gravity that caused people to throw their fortunes at tulip bulbs in Holland, or land they never had a hope of seeing in the New World, would be omnipresent in the age of computers, instantaneous communication, and the nearly infinite availability of market analysis. The highly successful speculator and gold investor Bernard Baruch put his blessing on this book as one of the secrets to his success on Wall Street.

Said Baruch:

"Have you ever seen 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."

So we bring you Charles Mackay and his Extraordinary Popular Delusions with our own sense of mission. If the rising generations now receiving their education, or even their more jaded elders, find application in their own investment philosophy, then the purpose of this Gilded Opinion entry has been served. Complicated and timelessly revealing, here you will find examples of herd behavior, delusion, mania, craftiness, and financial loss and gain. Solomon taught us that there are no new things under the sun. Mackay teaches us how we might recognize the signs and that the crowd gone mad is a matter to be reckoned with in almost every era.

This book's relevance to gold is simple and straightforward: Gold is the talisman in the portfolio which protects against these occasional bouts of social madness. There is an historical example which illustrates the point. Early 18th century French finance minister, John Law, who perpetrated perhaps the most notorious mania covered by Mackay, ruined the French currency and, with it, the French economy. Needless to say, the citizenry did whatever they could to shelter themselves from the rapidly depreciating paper scrip. Law in one of his final acts before fleeing the country abolished gold and silver coin as a medium of exchange, made gold ownership illegal and closed down the borders to anyone hoping to escape with hard assets.

Needless to say, both Law and the public understood the value of gold under such circumstances. Those who converted their paper early in the process preserved their assets; those who didn't were left penniless.

With that we welcome you to the extraordinary world of Charles Mackay.

-- Michael J. Kosares

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Author's Preface: In reading the history of nations, we find that, like individuals, they have their whims and their peculiarities; their seasons of excitement and recklessness, when they care not what they do. We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that 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...

Money, again, has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper. To trace the history of the most prominent of these delusions is the object of the present pages. 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.

In the present state of civilization, society has often shown itself very prone to run a career of folly from the last-mentioned cases. This infatuation has seized upon whole nations in a most extraordinary manner. France, with her Mississippi madness, set the first great example, and was very soon imitated by England with her South Sea Bubble. At an earlier period, Holland made herself still more ridiculous in the eyes of the world, by the frenzy which came over her people for the love of Tulips. Melancholy as all these delusions were in their ultimate results, their history is most amusing. A more ludicrous and yet painful spectacle, than that which Holland presented in the years 1635 and 1636, or France in 1719 and 1720, can hardly be imagined. Taking them in the order of their importance, we shall commence our history with John Law and the famous Mississippi scheme of the years above mentioned.

- Charles Mackay

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