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Capital Markets Finance Library

Extraordinary Popular Delusions and the Madness of Crowds

Charles Mackay (1841)

Why Read It?

  • Examines the psychology of crowds and mass mania throughout history, including many of the classic scams, financial bubbles, mass hysteria, and deceptions that have characterized the business world and beyond.

  • At once a gripping thriller and fascinating historical document, the book discusses the underlying processes that lead markets into boom-and-bust cycles that still occur today.

  • Considers why people form into irrational groups when they engage in collective action.


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Getting Started

Extraordinary Popular Delusions and the Madness of Crowds is a seminal work in the development of understanding crowd psychology. It provides an overview of the great financial manias and irrational behavior in other areas of life, focusing on the fads, delusions, crazes, panics, and buying binges that originally arise from seemingly rational ideas. It is often cited as the best book ever written about market psychology.

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Charles Mackay (1814–1889) was a Scottish journalist, poet, author, and songwriter. He worked on The Morning Chronicle, and then was editor of The Glasgow Argus. He moved to London to work on The Illustrated London News, becoming its editor in 1852. He was also a correspondent for The Times during the American Civil War.

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  • Describes in detail what drove a range of infamous financial manias, focusing on John Law’s Mississippi Scheme, the South Sea Bubble, and the tulip mania of the 17th century.

  • Shows how the Mississippi Company bubble was created by issuing new shares in the company and printing private banknotes as part of a plan to restructure France’s national debt. But with nothing solid to support the price, the shares eventually collapsed.

  • Discusses how speculation around the South Sea Bubble was encouraged by the early success of investors in the Mississippi scheme.

  • Was the first book to analyze the famous case of tulip mania in The Netherlands, recounting the astounding prices fetched by tulip bulbs due to speculative hysteria.

  • Examines other instances of mass hysteria and delusion, including the witch mania in New England, the Crusades, alchemy, the philosopher’s stone, the prophecies of Nostradamus, the Rosicrucians, and millennialism.


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  • Lays bare crowd psychology and motivation, and how the cycle of boom and bust is helped by the provision of easy credit with the intention of maintaining a boom.

  • Shows how history repeats itself, with destructive consequences, but that busts can be avoided by understanding the patterns involved and the greed that promotes mass panics in business and finance, politics, and superstitions.

  • Discusses the nature of bubbles and the conditions needed to bring them about, and how they act as a method for transferring wealth from the many to the few.


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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.

Money, again, has often been a cause of the delusion of the multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper.

Of all the offspring of Time, Error is the most ancient, and is so old and familiar an acquaintance, that Truth, when discovered, comes upon most of us like an intruder, and meets the intruder’s welcome.

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Further reading


  • Chancellor, Edward. Devil Take the Hindmost: A History of Financial Speculation. New York: Farrar, Straus, Giroux, 1999. Examines the development of stock exchanges and speculative manias through history; it also coves some of the same topics, such as tulip mania and the Mississippi and South Sea bubbles.
  • Le Bon, Gustave. The Crowd: A Study of the Popular Mind. London: Ernest Benn, 1896. Le Bon’s classic book on mass psychology. Written in an entertaining style, it was an influence on Freud’s work on group behavior.

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