Popular Delusions and Perpetual Madness

This morning visited the Gutenberg Project to seek out the truest book about people and money ever written, Charles Mackay's "Popular Delusions and the Madness of Crowds." The Project is trying out a new format, EPUB. The beta version seems to work pretty well with Adobe Digital Editions, though copying text is iffy. "Popular Delusions" is said to remind us that human nature and human greed never change. That's not necessarily so. Investor foolishness may actually be on the increase. Consider the following, from Mackay's description of all the little stock bubbles that popped up in London's Exchange Alley at the time of the South Sea Bubble:

But the most absurd and preposterous of all, and which showed, more completely than any other, the utter madness of the people, was one, started by an unknown adventurer, entitled "company for carrying on an undertaking of great advantage, but nobody to know what it is." Were not the fact stated by scores of credible witnesses, it would be impossible to believe that any person could have been duped by such a project. The man of genius who essayed this bold and successful inroad upon public credulity, merely stated in his prospectus that the required capital was half a million, in five thousand shares of 100 pounds each, deposit 2 pounds per share. Each subscriber, paying his deposit, would be entitled to 100 pounds per annum per share. How this immense profit was to be obtained, he did not condescend to inform them at that time, but promised, that in a month full particulars should be duly announced, and a call made for the remaining 98 pounds of the subscription. Next morning, at nine o'clock, this great man opened an office in Cornhill. Crowds of people beset his door, and when he shut up at three o'clock, he found that no less than one thousand shares had been subscribed for, and the deposits paid. He was thus, in five hours, the winner of 2,000 pounds. He was philosopher enough to be contented with his venture, and set off the same evening for the Continent. He was never heard of again.

Writing in 1841, Mackay assumed his readers would recognize that investing in "blind pools," as such ventures came to be known on Wall Street, was the height of folly. Today? Blind pools known as hedge funds attract presumably sophisticated investors, pension funds and endowments. In recent years they sold particularly well as Madoff funds. "In the present state of civilization," Mackay wrote, "society has often shown itself very prone to run a career of folly…. Melancholy as all these delusions were in their ultimate results, their history is most amusing." Excuse us if we don't laugh, Mr. Mackay. We're too deep in melancholy.