was doing a term paper on chain letters (of all things) at the Harvard Business School. My
faculty adviser -- right off the top of his head -- suggested I seek out a volume called Popular
Delusions and the Madness of Krauts -- published, he said, in 1841. My God, I
was impressed. What esoterica! (I was also astonished by the title and surprised to learn
that Germans, even back in 1841, were called Krauts -- or that anyone would have called
them that on a book jacket.) I subsequently learned that any business professor
worth his salt would have had this book at tongue's tip; and that it had to do with the
madness of crowds. But for each of us there has to be that first time we learn of
this book, that first reading of it. Perhaps this is yours.
If so, you will read of alchemists and crusaders, of witches and haunted houses, of
stock speculations and fortune-tellers and, to my mind most wonderfully of all, of tulips.
Tulips, in the fourth decade of the seventeenth century in Holland, became the object of
such insane and unreasoning desire that a single bulb -- about the size and shape of an
onion -- could fetch a small fortune on any of the several exchanges that had sprung up to
trade them. (Not entirely unlike the mania for certain tiny perforated squares of printed
paper with stickum on their backs that exists today.) Not to be missed is Mackay's account
of the unfortunate Dutch sailor who, having been sent down to a rich man's kitchen for
breakfast, and having a particular taste for onions, actually consumed one of the
priceless bulbs in error.
As with any true classic, once it is read it is hard to imagine not having known of it
-- and there is the compulsion to recommend it to others. Thus did financier Bernard
Baruch, who claimed his study of this book saved him millions, recommend it in his
charming foreword of October 1932.
"'Have you ever seen,'" Baruch quoted an unnamed contemporary, "'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.'"
Suddenly, as I write this, everyone in New York and California, with the rest of the
country perhaps to follow, is on roller skates. I certainly would not call this a form of
madness, having just purchased two pairs myself -- nor, at least as of this writing, a
"great human mass movement." But all of a sudden there they all are -- on roller
Baruch quotes Schiller: "'Anyone taken as an individual is tolerably sensible and
reasonable -- as a member of a crowd, he at once becomes a blockhead.'" There are
lynch mobs. and there are crusades; there are runs on banks and there are fires where, if
only people hadn't panicked, they would all have escaped with their lives. There was
"the hustle," not so long ago, where large groups of young people learned to
dance in lemminglike unison. (I have never actually seen a lemming, but I suspect that
when I do, I will see more than one.) And there was the mass suicide at Jonestown.
The month Baruch wrote his foreword, perhaps not coincidentally, marked the absolute
bottom of the stock market crash that had begun three years earlier, in 1929. Wild
speculation had driven the Dow Jones Industrial Average to 381 in October of 1929 on the
wings of what had been a panic of greed. Three years later it had fallen not to 300 or 250
or 200 or 150 or even 75 but to 41. Unreasoning greed had turned inside out. It had
become unreasoning fear.
"I have always thought," Baruch reflected on this sorry state of affairs,
"that if... even in the very presence of dizzily spiralling [stock] prices, we had
all continuously repeated, two and two still make four,' much of the evil might
have been averted. Similarly, even in the general moment of gloom in which this foreword
is written, when many begin to wonder if declines will never halt, the appropriate
abracadabra may be: 'They always did.'"
In the late 1960s, stock prices again began to spiral dizzily. Market mania. Synergy
was the new magic word, and what it meant, in essence, as various corporate presidents
and stock promoters explained over and over, was that two and two could, under astute
management, equal five. It was alchemy of a sort and enough to drive at least one
stock, in two years, from $6 a share to $140. The talk of the town. Not much later it sold
By late 1974, stocks generally had fallen, slumped, slid, and otherwise eroded in value
to depression levels. The crowd had not just left the party -- it was stoning the host.
Yet had you had the courage, in December of 1974, to buck the crowd -- which in a way is
what this book is all about -- gains of 500 and 1,000 percent over the ensuing three to
four years would have been common in your portfolio.
Not that you must be a stock-trader to benefit from the perspective this book provides.
Should the government balance its budget? Should the Fed loosen or tighten credit? Read in
the very first chapter a tale of money printing and speculation in early
eighteenth-century France that should give any deficit spender, any easy-money advocate,
severe pause. (Read, too, of the hunchback who supposedly profited handily renting out his
hump as a writing table, so frenzied had the speculation become.) Mackay describes
Frenchmen "ruining themselves with frantic eagerness." And then in the second
chapter the lunacy spreads to sober England, where, Mackay says, "every fool aspired
to be a knave." If you read no more of this book than the first hundred pages--on
money mania--it will be worth many times its purchase. [It is these 100 pages that are
included here, on this website in their entirety.]
But back to chain letters. Perhaps awaiting the invention of the photocopier, or at
least carbon paper, they do not seem to have been big in Mackay's time. They are missing
from his pages. But, oh, how they would fit.
In 1935, in Denver, nearly a century after Mackay wrote Popular Delusions (and
just a short time after, having nothing to fear but fear itself, the nation panicked and
mobbed the banks, forcing many to collapse), someone composed a "send-a-dime"
chain letter that promised to make participants rich. Just where all this free money was
to come from was not explained. It never is. Nonetheless, in Denver alone, postal volume
swelled by some 160,000 pieces of mail a day. The craze spread across the country (and
across the Atlantic), jumping in many places from a dime to five dollars and more. The
Associated Press reported that Springfield, Missouri, had been turned into "a
money-mad maelstrom." To get in on the action, "society women, waitresses,
college students, taxi drivers and hundreds of others jammed downtown streets. Women
shoved each other roughly in a bargain-counter rush on the numerous chain headquarters
[that had been established] in drugstores and corridors, anywhere there was space."
To skirt postal regulations, and save time, the letters were being passed face to face. By
the following evening, AP reported, "sad-faced men and women walked around in a daze
. . . seeking vainly for someone to buy their chain letters." Everybody by now had a
letter to sell; no one was left to buy.
Chain letters reappear periodically. Just last year one rose to national prominence --
only this time at $100 a crack. At the end of twelve days, the letter asserted, if you
sold your letter to two people who sold it to four who sold it to eight, and so on, you
would surely have more than $100,000. If everyone participated, everyone would be
rich. Where was all this free money to come from? And yet against all logic (not to
mention several laws), the "Circle of Gold Memorandum," as it was called, went
whipping through the media/arts communities of Los Angeles, New York, Toronto, and points
beyond. Virtually everyone lost his money. It had to be so; it will always be so. And if
it is not one madness, it will be another.
Once upon a time there was an emperor with no clothes. For the longest time no one noticed.
As you will read in this marvelous book, there have been many naked emperors since.
There will doubtless be many more.
NEW YORK CITY