Popular Delusions, Or: The Stupidity of Others

Charles Mackay, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds.

3rd edition, published in 1856 in London by G. Routledge & Co.

In the 19th century, a journalist compiled a collection of famous cases of people being terribly stupid. Or, to put it more precisely, cases of very large groups of people getting carried away with something at the same time. These ‘popular delusions’ were popular indeed with readers at the time. In German, there is a perfect word to describe the main reason this book probably sold so well back then: ‘Schadenfreude’, meaning a feeling of pleasure or satisfaction when something bad happens to someone else. After all, few things make people happier than believing they’re cleverer than everyone else. Nowadays, the book is often used to discuss financial market theories and crowd psychology.

Charles Mackay (1814–1889) was a Scottish writer, poet, songwriter and journalist. He was educated, spoke multiple languages and had lived abroad in Europe for a long time. After starting work at an early age as a journalist, he became an editor at several London newspapers. Among these was the Illustrated London News, the first illustrated weekly newspaper in the world. However, his greatest success – and the reason we still know his name today – is this book: Memoirs of Extraordinary Popular Delusions and the Madness of Crowds. It is considered one of the first studies of crowd psychology and is it the only book by Mackay that is still printed today.

The Fascination For ‘Mass Hysteria’

In the 19th century, England was shaped above all else by industrialisation. Factories promised new jobs, thousands upon thousands surged to the cities, urban populations increased explosively. Never before had people been seen in such numbers. They worked packed closely together in dark factory halls and demonstrated in narrow streets for better wages. This gave rise to a sudden fascination for the phenomenon of crowds. People enjoyed reading about cases of so-called ‘mass hysteria’ – for example, in the stories told by Charles Mackay.

In several entertainingly written volumes, he recounts stories about relics, the crusades, witch hunts, fortune telling, alchemy and haunted houses. What all these phenomena have in common is a significant number of people all believing in something that later turns out to be wrong or unfounded, at least after the Enlightenment of the 18th century. You’d be right for thinking that all of these things being lumped together in one book seems rather problematic. On the other hand, we have to remember that the book is not meant to be an academic essay – it is intended to entertain.

The Mississippi Bubble and Tulip Mania: The First Stock Market Crashes in History

The chapters on financial topics are especially detailed and interesting from a modern perspective: with the Mississippi Bubble (1720), the South Sea Bubble (also 1720) and Tulip Mania (1630s), Charles Mackay analysed three early financial crises. All three cases were understood at the time to be enormous speculative bubbles that emerged on European stock markets and which, when they burst, had serious negative consequences for investors and financial markets. How could this happen? Well for one thing, lots of people wanted a quick and easy way to get rich, meaning that they underestimated the risks of the investment.

Herd Stupidity or Swarm Intelligence?

This satirical card alludes to the South Sea Bubble. The inscription warns: ‘The Headlong Fools Plunge into South Sea Water./ But the Sly Long-heads Wade with Caution after/ The First are Drowning but the Wise Last / Venture no Deeper than the knees or Waist.’

If you’re already a bit familiar with the history of financial markets, then you’ve probably noticed that I’ve simplified it a lot. That’s partly because the actual historical entanglements are ridiculously complicated and partly because the nature and significance of these speculative bubbles are still hotly debated by economists today. In this context, experts still like to cite Mackay’s bestseller, as do behavioural psychologists. The modern term for what Mackay is describing is ‘herd stupidity’, that is, the theory that, on average, people make worse decisions in groups than they do as individuals. However, there is now the theory of ‘swarm intelligence’ as well, which claims the opposite.

Whether or not the author wrote this book because he wanted to understand the human psyche remains a mystery. There is another, more likely explanation: it simply sold brilliantly well. People delight in the stupidity of others – that is as true now as it was back then. YouTube is full of video compilations of the biggest ‘fails’ and a show entitled ‘The top 10 biggest fails of human history’ would be guaranteed to get good ratings.

A Clever Marketing Strategy

It’s clear from the foreword of the first edition that Mackay had business interests in mind right from the start. He writes that if the first volume sells well, he will immediately follow it up with a second; after all, human stupidity is infinite and wouldn’t fit into a single book anyway. And that’s exactly what happened. The first book of 1841 sold well and in 1852, he produced the second, extended edition. This edition was published by the National Illustrated Library, a publisher that was well-known for offering products that were suitable for the mass market. For one thing, the books were cheap. For another, they contained plenty of pictures, which meant it was also interesting for an audience that could barely read or write. The second illustrated version quickly led to a third, with reprints in 1856, 1869 and 1892. Even in the 20th and 21st century, the bestseller has been reprinted many times.

Of course, interest in historical texts always particularly flares up when recent events give them a new, modern relevance. In 1929, the world market collapsed; in 1932, a new edition was printed. In 2008, the housing bubble burst in the USA; in 2010, Penguin Classics launched a new abridged version. After all, what makes historical books so fascinating is the fact that they not only teach us something about the past, but also open up a new perspective into the present. And perhaps there’s also something comforting about knowing that people have been making stupid decisions for centuries – and will probably continue to do so in the future.

 

Other Things You Might Be Interested in:

If you want to know about these financial crises in more detail: Ursula Kampmann wrote an article for Bookophile about the history of the South Sea Company.

The magazine ‘Spektrum’ also published an article recently about the Mississippi Bubble (in German) entitled ‘1720 – The Year Of The First Big Crash’.

Marshall Goldsmith outlines the lessons we can learn from Mackay’s book and explains how to recognise a speculative bubble at an early stage.

You can read the complete first edition of Charles Mackay’s ‘Memoirs of Extraordinary Popular Delusions’ here.