A Gold Classics Library Selection


Extraordinary Popular Delusions And The Madness Of Crowds

Introduction

by Charles Mackay

Introduction
The Mississippi Scheme
The South Sea Bubble
The Tulipomania
The Alchemists, part 1
The Alchemists, part 2
The Alchemists, part 3


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 Gold Classic Library 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 portrayals of financial madness as recorded by Charles Mackay.

— Michael J. Kosares

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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Britain’s Gold Sales ‘a Reckless Act’
(Sir Peter Tapsell’s speech before the House of Commons, June 16, 1999, on the partial sale of United Kingdom’s gold reserves)

We do not update our Gold Classics Library often, but when we do we try to choose items that have a timeless quality.  This latest selection certainly meets that standard. It comes to us unexpectedly as a by-product of research for the recently published article, The Power of Gold Diversification, and with the kind permission of the United Kingdom Parliamentary Archives.

Photo of Sir Peter Tapsell addressing UK's parliamentMany associate Britain’s sale of nearly 60% of its gold reserves in 1999 with the beginnings of gold’s secular bull market. The government’s rationale for the sale, as explained by then Economic Secretary to the Treasury Patricia Hewitt, was to “achieve a better balance” in its reserves by going to foreign currencies.  Sir Peter Tapsell took the opposite tack.  “The Chancellor [of the Exchequer] may think that he has discovered a new Labour version of the alchemist’s stone,” he argued, “but his dollars, yen and euros will not always glitter in a storm and they will never be mistaken for gold.”

History’s indisputable verdict is that Tapsell was correct and the British government wrong.  The ensuing nearly two decades featured a global financial crisis, low-to-zero-percent interest rates, scrambling central banks, and the consistent depreciation of global currencies against gold. Currencies did not glitter in the storm, and they could not have been mistaken for gold which rose relentlessly from $287 per ounce at the time of his speech to the current price of over $1500 (at one point reaching almost $1900 per ounce in 2011).  Though his speech before the House of Commons failed to stop the sales, it goes down as one of the most eloquent appeals ever made on the merits of gold ownership for nation states and individuals alike.

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Image of row of books at libraryA Gold Classics Library Selection


A Layman’s Guide to Golden Guidelines
for Wise Money Management
Gresham’s Law, Say’s Law, Rule of 72, Marginal Utility, Diminishing Returns, Regression to the Mean, Unintended Consequences, Murphy’s Law, Occam’s Razor, Law of Attraction, Law of Polarity, and more

by R.E. McMaster, former editor of The Reaper newsletter

Ed Stein cartoon graphic of bad money driving good into hiding

There is an old saying that not all that glitters is gold — as in the gold coins many of you have held in your hands. There is another kind of gold that inhabits the practical wisdom of the ages. In today’s “go-get-’em,” “read-it-and-forget-it” world of everyday web browsing, it can be a challenge to separate the run of the mill from the meaningful. It is with that thought in mind we offer this compendium of the rules and laws of finance and investment by long-time market analyst R.E. McMaster. Formerly the writer/editor of the widely-circulated The Reaper newsletter, McMaster is known for his occasional forays into the realm of economic philosophy and history. I think you will agree with me that these skillfully condensed descriptions are indeed meaningful — a wellspring of knowledge worth reading, re-reading and passing along to friends and family, especially the kids and grandkids.

(Illustrations by Ed Stein)

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Who owns and controls the Federal Reserve
by Dr. Edward Flaherty

“Is the Federal Reserve System secretly owned and covertly controlled by powerful foreign banking interests? If so, how? These claims, made chiefly by authors Eustace Mullins (1983) and Gary Kah (1991) and repeated by many others, are quite serious because the Fed is the United States central bank and controls U.S. monetary policy. By changing the supply of money in circulation, the Fed influences interest rates, affecting the mortgage payments of millions of families, causing the financial markets to boom or collapse, and prompting the economy to expand or to stumble into recession. Such awesome power presumably would be used to benefit the U.S. economy. Mullins and Kah both argued that the Federal Reserve Bank of New York is owned by foreigners. Although the New York Fed is just one of twelve Federal Reserve banks, controlling it, they claimed, is tantamount to control of the entire System. Foreigners use their command of the New York Fed to manipulate U.S. monetary policy for their own and, as Kah asserted, to further their global political goals, namely the establishment of the sinister New World Order.” – From the author’s preface.

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A Gold Classics Library Selection


Money and politics in the land of Oz
The extraordinary story behind the extraordinary story of
“The Wonderful Wizard of Oz”

by Professor Quentin Taylor, Rogers State University

Year in, year out, Money and politics in the land of Oz is among our most highly-visited Gold Classics Library selectionsHere is the extraordinary story behind the extraordinary story of ‘The Wonderful Wizard of Oz’.  Most have seen the movie version of this allegorical tale, but few are aware of what the various characters, places and things represented in the mind of Frank Baum, the tale’s author. Though ‘The Wonderful Wizard of Oz’ was written over 100 years ago, the themes will be recognizable to those with an interest in golden matters. While many today consider gold an instrument of financial and personal freedom, in Baum’s tale, it is painted as a villain — the tool of oppression. So, as you are about to see, we have come full circle, and gold has traveled a yellow brick road of its own.

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The Nightmare German Inflation

The surprise is not only the length of time Scientific Market Analysis’ The Nightmare German Inflation has ranked among our most-visited essays, but that it has remained popular even now, when inflation seems a more distant concern. Inflation, though, is never far removed from the minds of many Americans particularly those who remember the inflationary-stagflationary 1970s decade and the dangers it imposed on financial markets and individual investment portfolios. The survivors of the German hyperinflationary debacle of the 1920s did so, as you are about to read, by purchasing gold early in the process. This comprehensive report not only describes how and why the hyperinflation occurred but how various investments performed under those trying circumstances.  There is little doubt it will affect your thinking.

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Gold Seizure
Here’s how it can happen and what you can do about it.

Allow us to make a personal observation and then we will send you on your way to Mr. Ganz’ important and timely analysis. Too many gold owners labor under the false presumption that high-end, high-premium numismatic gold coins are the only way you can protect your holdings against a potential seizure. Many of our prospective clients are pleasantly surprised when they discover that there is a whole genre of pre-1933 gold coins that can be acquired at modest premiums over the gold content and still meet the criteria for exemption Mr. Ganz outlines. As he points out, “rare and unusual” does not necessarily equate to “pricey” or “expensive.” To understand why the words “rare and unusual” are important, we invite you to proceed to the link.

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Fiat Money Inflation in France
How It Came, What It Brought, and How It Ended

Andrew Dickson White ends his classic historical essay on hyperinflation, “Fiat Money Inflation in France,” with one of the more famous lines in economic literature: “There is a lesson in all this which it behooves every thinking man to ponder.” This lesson — that there is a connection between government over-issuance of paper money, inflation and the destruction of middle-class savings — has been so routinely ignored in the modern era that enlightened savers the world over wonder if public officials will ever learn it. In this essay Dickson White explores France’s hyperinflation at the end of the 18th century in exhaustive detail – its politics, its economics and the social consequences which led, in the end, to Napoleon’s rise as emperor.

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