Charles Mackay's Extraordinary Popular Delusions: Some Second Thoughts


One of the most famous books on finance is Charles Mackay's Extraordinary Popular Delusions. It has been required reading by Goldman Sachs, recommended as a cornerstone by Michael Lewis, and saved Bernard Baruch before the 1929 crash. It was first published in 1841. Eleven years later after some success, it went into a second edition; the text was cut, illustrations were commissioned, and the title beefed up with, "The Madness of Crowds".

Whether among general readers, or dedicated collectors, its reputation has gone from strength to strength. In auction the price of the three volume first edition has been bid up 1,000% in the last ten years.

It is considered one of the first books in the field of social science, an attempt to describe the phenomena of mass belief and human gullibility with examples from every field of human pursuit, which later proved to be illusory. There is little overarching theory. Mackay's concerns are encyclopedic. In the text he discusses many activities like alchemy, witchcraft, haunted houses, crusades duels, magnetism, and mad speculation (money mania); their raison d'etre fuelled by those periodic outbreaks of mass irrationality and self willed delusion—in other words, Keynes' "animal spirits". 

Few readers today progress beyond the first volume which describes the first big three financial bubbles of Tulip Mania, the Mississippi Scheme with John Law, and the South Sea Bubble. The latter had reached a climax in 1720. For many, its effects had been so cataclysmic that it would stick in the collective memory for years. Today we are in the grip of the same deliberations, the echoes from our recent debt crisis no less loud. As he did, we look to the past in order to divine the future, and writers will always be needed to put a perspective on both. Mackay did just that. He will be associated with the study of crowd psychology, with successors like Gustave Le Bon's La Psychologie Des Foules and Elias Canetti's Crowds and Power. For this reason his work is widely and rightly feted. 

There were other contemporaries who covered the same events (Odlyzko): "For example in 1840, William Smyth, a professor at the University of Cambridge published his Lectures on Modern History, based on material presented to generations of students. This book which went through five printings by 1858 provided much better, although briefer and less colorful, coverage of both the South Sea Bubble and the Mississippi Scheme than Mackay did." Smyth might have been good on the facts but provided little in the way of understanding or illumination in attempting to describe them. 

During his lifetime Mackay was extraordinarily prodigious, and successful. He produced over thirty volumes of songs, poems, novels and essays, linguistic studies, took time to edit the Glasgow Argus, and in 1852 moved to the Illustrated London News, where he rapidly increased circulation from 40,000 to 60,000 copies a year. He was a fierce proponent of the free market, was taken up with combating the Corn Laws in his editorials, and became a champion of railway expansion throughout the British Isles.

It is somewhat ironic that while Popular Delusions pricked various bubbles in the past, according to Odlyzko, he was immune to the follies of the Railway boom going on around him. In fact he was its ardent champion: "We think the alarmists are in error, and that there is no reason whatever to fear for any legitimate railway speculation – or that this country has miscalculated its own strength in entering with so much vigour and enthusiasm into so many grand schemes of internal improvement." In the second edition of 1852, he barely acknowledges the appalling devastation left in its wake after the climax in 1846. 

It may be ungenerous to speak ill of the dead, and one might even mark it down to youthful impetuosity, (Popular Delusions was written in his late twenties), but there remain further aspects to this work which require closer attention regarding its authenticity, and particularly its origin. My contention is that Mackay lucked out, and in order to fill public demand hammered out a potboiler as fast as the ink would dry. For example the chapter on Tulip Mania has been lifted wholesale from Johann Beckmann's, History of Inventions (German ed. 1777). Worse, what was hidden, concealed under the cloak of anonymity belongs to another author who was likely plagiarized, and until now has never been recognized for his contribution and foresight.

Let us call his name ---- blank.

The title reads: Sketches of Imposture, Deception, and Credulity.

It was published by Thomas Tegg in 1837, reprinted in 1840. Neither edition mentions the author, Richard Alfred Davenport. What could be more fertile ground for Mackay and his publisher? Davenport's book was shorter, anonymous and a good seller. Something on the same lines with a bigger print run in two, then three volumes, written by a new boy might turn out to be a blockbuster, on the back of such recent success.

These two works shared many of the same issues, dwelt on similar subjects, including alchemy, mesmerism, superstition, holy relics and financial bubbles.

On the title page, Davenport quotes Shakespeare:

 "The earth has Bubbles, as the water hath, and these are of them." 

Then Watts: "The prejudice of credulity may, in some measure, be cured by learning to set a high value on truth."

He understands desire's role in the human mind; its overwhelming presence in action: " Many, and even contradictory, causes might be assigned for the constant disposition towards credulity; the mind is prone to believe that for which it most anxiously wishes; difficulties vanish in desire, which thus becomes frequently the main cause of success…This is seen in times of popular excitement, when an assertion quite at variance with common sense or experience will run like a wild-fire through a city and be productive of most serious results….".

On the South Sea Bubble (chapter 18): "Public credulity founded on the inordinate desire of gain never exhibited in a stronger point of view than by the fatal belief in the South Sea scheme, which to the credulous adventurer, was made to appear a royal road to El Dorado…. The South Sea scheme produced a kind of delirium in England, and was, in a manner, a second act to one, which took place a short time before on the Continent. Sir John Blunt, in fact, took his hint from Law's famous Mississippi Scheme, which in the preceding years, had raised such a ferment in France, and entailed ruin on thousands of families there". 

It's a pity because if Davenport had put his name to his book, he might have been better remembered. He wrote it for Thomas Tegg, who in publishing terms was at the bottom of the food chain, dealing in remainders. Perhaps Davenport didn't want this association championed. Certainly Sketches was a poor and cheap production. It was printed in the smallest size, a 12mo, and was numbered 63 in Tegg's series of The Family Library. No wonder it got supplanted, and then lost in the mist of time.

Mackay on the other hand was always front of the pack. In terms of the material, he simply expanded many of the other accounts, cleverly parceled them up, and got lucky with a voracious public. He was also, given his later successes, a great self promoter. Was he best of breed? Probably not. He was better known. That's what counts, today even more than then. At least that's what the price is telling us, and as you know in the markets, the price is never wrong.

Christopher Dennistoun collects and deals in rare books on the stock market, and if you're interested, can be reached at [email protected].