Linklist: September 16, 2011

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Richard Florida edits: The Atlantic Cities, a new site with lots of content.

Andrew Odlyzko's 4th in his series on the Railway Mania: Charles Mackay’s own extraordinary popular delusions and the Railway Mania

"Abstract. Charles Mackay’s book Extraordinary Popular Delusions and the Madness of Crowds enjoys extraordinarily high renown in the financial industry and among the press and the public. It also has an extraordinarily low reputation among historians.

This paper argues that Mackay’s sins of commission were dwarfed by his sins of omission. He lived through several giant investment manias in Britain, yet he did not discuss them in his books. An investigation of Mackay’s newspaper writings shows that he was one of the most ardent cheerleaders for the Railway Mania, the greatest and most destructive of these episodes of extreme investor exuberance.


Mackay’s story provides another example of a renowned expert on bubbles who decides that “this time is different.” His moves through a sequence of delusions help explain the length and damage of the Railway Mania. He was a free market and technology enthusiast, and faced many issues that are important today, such as government ownership or regulation, interconnection, standardization, structural separation, and analogs to net neutrality. A crushing national debt and high unemployment in an economy pulling out of a deep depression (and in perceived danger of falling into another one) were very important in shaping attitudes towards railway expansion. The analogies and contrasts between Mackay’s time and ours are instructive."

1 Comment

Extraordinary Popular Delusions is well worth reading.

Mackay's own challenged thinking about his contemporary circumstances shows just how difficult hubris can be to avoid. In my 30 plus years of following the stock market I have seen too many supposed analysts claim, "this time it's different." Mackay seems to be another one of them. None of that diminishes his observations in my opinion, it just shows how complicated life is, and how tricky and fleeting knowledge can be.

David Levinson

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This page contains a single entry by David Levinson published on September 16, 2011 10:32 AM.

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