"Extraordinary Popular Delusions and the Madness of Crowds" by Charles Mackay: Summary and Review

Charles Mackay believed that whole nations can lose their judgment at the same moment. He also believed that they get it back only slowly, one person at a time. The Scottish journalist and poet set out to prove this with a long series of historical cases. His book first appeared in London in 1841 as Memoirs of Extraordinary Popular Delusions, in three volumes. In 1852 a new edition added the words “and the Madness of Crowds” to the title. Since then, the book has been quoted in almost every stock market crash. Many investors know its stories about tulips and bubbles without ever having opened it.

What kind of book this is

The book is a collection, not a theory. Mackay himself calls it “a miscellany of delusions”. A delusion, in his sense, is a false belief that many people share at the same time and act on. The 1852 edition has two volumes and sixteen chapters. Each chapter tells the story of one delusion, from the Crusades of the Middle Ages to the street slang of London in Mackay’s own day.

The chapters fall into four groups, and this review follows them in order of weight. The first group is about money and fills the first part of the book. The second is about false knowledge, such as alchemy and fortune-telling. The third is about fear and faith, such as the Crusades and the witch trials. The fourth is a set of lighter chapters about fashions and fads. Before these groups, the preface states the idea that holds the whole book together.

People “think in herds” and recover one by one

Mackay’s central claim is short. People copy each other’s beliefs, and when a group goes wrong, it goes wrong together. Mackay states it in one sentence of his preface, which has become the most quoted line of the book.

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.

The sentence has two halves, and the second half is the more interesting one. Going mad is fast and collective. Becoming sane again is slow and individual. In Mackay’s stories, a whole country falls for a scheme within months. But after the crash, each person has to admit the mistake alone, and many never do.

Mackay does not explain this pattern with psychology. He has no theory of why people copy each other. Instead he shows the pattern again and again, and he trusts the reader to see it. This is both the strength and the weakness of the book. The stories are vivid and easy to remember. But the reader gets examples, not an explanation.

Morgan Housel names one cause in “Same as Ever” by Morgan Housel: Summary and Review. Long calm periods make people careless.

Paper money drove France into a frenzy: the Mississippi Scheme

The first chapter tells the story of John Law, a Scottish gambler and financial thinker. In 1716, Law persuaded the government of France to let him found a bank that printed paper money. He then took control of the Mississippi Company, which was meant to trade with the French colony of Louisiana in North America. People could buy shares in the company with the new paper money.

Mackay describes how all of Paris began to speculate. The Rue de Quincampoix, the narrow street where shares were traded, was crowded from morning to night. Houses there rented for more than ten times their normal price. One story says that a man with a hunchback earned good money by letting traders use his back as a writing desk. Mackay himself marks this as a story that “goes” around, not as a proven fact.

The collapse came in 1720. People began to exchange their paper money for gold and silver coins. To stop this, Law’s government did something drastic. In February 1720 it forbade anyone to own more than 500 livres in coins. The trust in paper money broke down completely. Law fled France and died poor in Venice in 1729.

The lesson Mackay draws is about trust. Paper money and shares work only as long as people believe in them. When a whole country believes at once, prices rise far above any real value. When the belief breaks, it breaks for everyone at the same time.

A whole nation gambled on the South Sea Company

The second chapter moves to London in the same year, 1720. The South Sea Company had taken over a large part of the British government’s debt. In return it received trading rights in South America. Its shares rose very fast, and hundreds of new companies tried to profit from the excitement. Mackay calls them “bubbles”, which means companies with almost nothing real behind them.

The most famous example in the book is a company “for carrying on an undertaking of great advantage, but nobody to know what it is”. According to Mackay, its founder collected deposits for a thousand shares in a single day. Then he left for the European continent and was never seen again. The story is hard to believe, and Mackay says so himself. He relies on reports from people who lived at the time.

When the South Sea shares crashed, the public demanded the punishment of the company’s directors. Here Mackay makes his sharpest point. Everyone blamed the directors as robbers. Nobody blamed the greed of the buyers.

This is the most useful idea in the book for a reader today. After every crash, people look for villains. Mackay asks a less comfortable question: why did so many people want to believe?

Tulip bulbs sold for fortunes, says Mackay

The third chapter is the most famous one, and the least reliable. Mackay describes how tulips came to Western Europe from Constantinople in the 16th century. By the 1630s, he writes, rare tulip bulbs in the Dutch Republic sold for enormous sums. He lists the goods that one buyer paid for a single bulb of the variety called Viceroy. The list includes four fat oxen, eight fat pigs, twelve sheep, a thousand pounds of cheese, a bed and a silver cup. Mackay values them at 2,500 florins in total.

According to Mackay, everybody joined the trade. He names nobles, farmers, sailors, maids and even chimney-sweeps. He tells of a sailor who ate a precious bulb because he thought it was an onion. When prices collapsed in 1637, Mackay writes, many families were ruined. The trade of the whole country suffered for years.

Modern historians tell a very different story. The historian Anne Goldgar studied the Dutch archives for her book Tulipmania (2007). She found that the trade involved a fairly small group of well-off merchants and collectors. She found few bankruptcies that could be traced to tulips. There was no wider economic crisis.

The prices did rise and fall sharply in early 1637, and some buyers refused to pay. But the picture of a whole nation ruined by flowers comes mainly from moralising pamphlets of the time. Mackay took much of his account from older writers, such as the German scholar Johann Beckmann. He did not check their stories against Dutch records.

So the most quoted chapter of the book is mostly a legend. That does not make it useless. It shows how a good story about a mania can itself spread like a mania.

People pay for false knowledge about gold, the future and health

The next chapters turn from money to knowledge. Mackay tells the long history of the alchemists, people who tried to turn ordinary metals into gold. He covers prophets who predicted the end of the world, fortune-tellers and astrologers. He also writes about the “magnetisers”, healers such as Franz Anton Mesmer, who claimed to cure diseases with an invisible magnetic force.

These delusions have something in common. Each promises control over things people cannot control: wealth, the future, illness. Mackay mocks them, sometimes at length. His chapter on alchemy alone fills about a third of the first volume and becomes repetitive. But the point is clear. People want certainty, and they reward anyone who claims to offer it. A reader today will easily find modern versions of the same promise.

Fear and faith can turn a whole society against innocent people

The second volume contains the darkest chapters. Mackay tells the history of the Crusades as a religious frenzy. He describes the “slow poisoners” of England, Italy and France. His most serious chapter is about the European witch trials.

Here Mackay shows what happens when fear becomes collective. Accusations spread from town to town. Torture produced confessions, and the confessions seemed to prove that witches were real.

Mackay’s preface says that the fear of the devil cost “hundreds of thousands of victims”. Modern historians count far fewer. Most estimates lie between about 40,000 and 60,000 executions in Europe over three centuries. That is still a huge number, and Mackay’s main point stands. But his figure is too high.

Fads and fashions show the same imitation on a small scale

The lighter chapters show the same pattern in harmless forms. Mackay describes London catchphrases that everybody repeated for a few months and then forgot. One was the meaningless word “Quoz”, which people shouted at each other in the streets. Other chapters cover the public admiration of famous thieves, the history of duels, the trade in holy relics, and rules about hair and beards.

These chapters are entertaining but light. Their value is the link they make. A slang word and a financial bubble spread in the same way, through imitation. Only the stakes are different.

How it differs from other books about crowds

Three books help to place Mackay.

• Gustave Le Bon’s The Crowd (first published in French in 1895) tries to do what Mackay does not do: explain crowd behaviour with a theory. Le Bon argues that people in a crowd lose their individual judgment and become open to suggestion. The review “The Crowd” by Gustave Le Bon: Summary and Review shows how far this theory goes and where it fails. Mackay gives the stories, and Le Bon gives a theory.
• Anne Goldgar’s Tulipmania (2007) is the scholarly answer to Mackay’s most famous chapter. It is careful where Mackay is dramatic, and it is the book to read if you want to know what really happened in 1637.
• James Surowiecki’s The Wisdom of Crowds (2004) describes the opposite case. Under some conditions, the average judgment of many people is better than the judgment of most individuals. The Idea What Is the Wisdom of the Crowd? explains these conditions. It also explains how they break down when people copy each other, which is exactly Mackay’s subject.

Mackay’s distinct quality is his range. No other classic book puts bubbles, alchemy, witch trials and street slang side by side. Seeing them together makes the common pattern of imitation hard to miss.

Where it falls short

The book has three weaknesses. The first is its sources. Mackay was a journalist who wrote quickly from older books, and he liked a good story. The tulip chapter is the clearest case, but the witch-trial numbers and several anecdotes are also exaggerated.

The second weakness is that the book explains little. Mackay describes delusions and condemns them, but he rarely asks why they start or why they end. A reader learns to recognise the pattern, not to understand it.

The third weakness is the most ironic one. In the mid-1840s, Mackay edited a newspaper in Glasgow. Britain was then in the middle of the Railway Mania, a huge wave of speculation in railway companies.

The mathematician Andrew Odlyzko studied Mackay’s newspaper articles from these years. He found that Mackay was one of the mania’s most eager supporters. In the 1852 edition, Mackay mentions the Railway Mania only in a short footnote. The author of the most famous book on financial delusions did not recognise one while he was living through it. This may be the strongest support for his own thesis. Knowing the history of bubbles does not protect you from the next one.

How to read it today

The full text is in the public domain and free online, for example at Project Gutenberg. You do not need to read all of it. The two volumes are long, and the chapters differ a lot in quality.

Start with the first three chapters, on the Mississippi Scheme, the South Sea Bubble and the tulips. Read the tulip chapter as a legend, not as history. Then read the chapter on the witch trials. Add the alchemists or the magnetisers if you enjoy the style. The stories also work well as an audiobook, because they are told as stories. Keep a modern account of the tulip mania at hand, so that you enjoy Mackay’s drama without believing all of it.