Mackay and popular delusions
The Wall Street Journal pointed out on Saturday that Charles Mackay would not be surprised by our present economic crisis. He described three economic bubbles In Extraordinary Popular Delusions and the Madness of Crowds in 1841.
Mackay concluded that "even the most intelligent investors are vulnerable to. . .frenzies of irrational exuberance".
But even irrational exuberance didn't singlehandedly create the economic disaster of our times. If this account is accurate, profound and widespread dishonesty among bankers, hedge fund managers, analysts and rating agencies is also to blame.
They wanted to make money and they didn't care how. They refused to look honestly at their books and financial instruments. They sold what they suspected or knew was rotten. They refused to be accountable. They shifted financial losses off their shoulders to their shareholders - and now to the taxpayers.
They have hurt many people.
A free economy depends on trust and trust depends on honesty and honesty is a cultural attitude, shared by a whole people. The people who lack this attitude are not prosperous.
Honesty, as I think Mackay would agree, is not the madness of crowds. It is the wisdom of crowds. It remains wisdom in Britain today.
Born in Perth in 1814, Mackay was educated at the Caledonian Asylum, which had been founded to provide a home and education for children in London who had been orphaned by the Napoleonic Wars. He went on to make a rather unusual career combination - he was both a popular song writer and a newspaper editor.