Money makes people do weird things. It’s always been that way. You’d think with all the high-tech gadgets and instant information we have in 2026, we’d be smarter than the people who traded their life savings for a single flower bulb in the 1630s. Honestly? We aren't. We just have faster ways to lose our shirts.
Charles Mackay wrote the definitive book on this back in 1841. He called it Extraordinary Popular Delusions and the Madness of Crowds. It’s a long title for a simple, terrifying idea: when people get together in a group, they lose their individual sanity and start acting like a single, panicked, or greedy animal.
Mackay wasn't just some dry historian. He was a journalist who saw how easily people were tricked by "get rich quick" schemes and end-of-the-world prophecies. He looked at the Mississippi Scheme, the South Sea Bubble, and the infamous Tulip Mania. He saw a pattern. People see their neighbors getting rich, they get jealous, and they jump into the fire right before the floor falls out. It's a cycle that repeats every few decades, whether we're talking about Dutch flowers or digital coins.
The Tulip That Broke the Netherlands
Tulip Mania is the poster child for financial insanity. In the early 17th century, the tulip was a status symbol in Holland. But it wasn't just any tulip. People obsessed over "broken" bulbs—flowers with striped patterns caused by a virus (though they didn't know it was a virus at the time). They looked exotic. They looked expensive.
Prices didn't just go up; they exploded. At the peak, a single bulb of the Semper Augustus variety was reportedly worth more than a luxury house in Amsterdam. People were trading land, livestock, and jewelry for a root that would eventually rot.
Why? Because they thought the price would always go up. That's the core of the Madness of Crowds. It's the "Greater Fool Theory" in action. You don't buy the bulb because you love the flower; you buy it because you're certain some other idiot will pay you twice as much for it tomorrow.
Then, one day in February 1637, the buyers just... stopped. In Haarlem, a group of traders couldn't find a buyer at a routine auction. Panic spread like wildfire. Within days, bulbs that were worth a fortune became practically worthless. Families were ruined. The economy didn't fully collapse, but the psychological scar remained for generations. It’s a reminder that value is often just a collective hallucination.
Why Our Brains Love a Good Delusion
You might be wondering why we haven't evolved past this. You’d think our prefrontal cortex would kick in and say, "Hey, maybe this pet rock/crypto-token/housing-bubble isn't worth my retirement fund."
It doesn't work that way. Humans are social creatures.
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Neuroscience tells us that social exclusion actually triggers the same parts of the brain as physical pain. When you see everyone else winning, your brain interprets your "missing out" as a literal threat to your survival. This is FOMO before we had a catchy acronym for it.
The Alchemy of the Crowd
When you're alone, you might be skeptical. You might look at a pitch for a new investment and see the holes in the logic. But put yourself in a room—or a Discord server, or a subreddit—with 10,000 other people screaming about how "this is the future," and your skepticism melts.
The crowd provides validation. If everyone else is doing it, it must be right. Right?
Wrong. Mackay famously noted that "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." That’s the kicker. The madness is collective, but the realization of the mistake is a lonely, quiet, and often very expensive experience.
The South Sea Bubble: When the Government Gets Involved
If you think these delusions are just for "uneducated" people, look at the South Sea Bubble of 1720. Even Isaac Newton—literally one of the smartest humans to ever live—lost a fortune.
The South Sea Company was granted a monopoly to trade with South America. The problem? Spain controlled South America, so there was almost no actual trading happening. But that didn't stop the company from talking a big game. They hyped up their stock, offered easy credit to buyers, and even bribed members of the British Parliament.
Newton reportedly said, "I can calculate the motions of the heavenly bodies, but not the madness of people." He sold his shares early for a profit, saw his friends getting even richer as the price kept climbing, jumped back in at the peak, and lost about £20,000. In today’s money, that’s millions.
This wasn't just a market correction. It was a societal breakdown. When the bubble burst, the British government had to step in to prevent a total revolution. It shows that Extraordinary Popular Delusions and the Madness of Crowds isn't just a quirk of history; it’s a systemic risk.
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Modern Echoes: From Beanie Babies to Meme Stocks
We like to think we're more sophisticated than the folks in the 1700s. We have the SEC, we have financial news, we have "expert" analysts.
But look at the late 1990s. The Beanie Baby craze saw people treating stuffed animals like blue-chip stocks. People were literally fighting in the aisles of Hallmark stores for "rare" bears. There are stories of divorce proceedings where the couple had to sit on the floor of a courtroom and divide their Beanie Baby collection under the supervision of a judge.
Fast forward to the Dot-com bubble. Then the 2008 housing crisis. Then the recent NFT and meme-stock mania.
The technology changes, but the psychology is identical. The "delusion" starts with a grain of truth. Tulips were pretty. The internet did change the world. Blockchain is a neat technology. But the madness happens when the narrative takes over and the math stops mattering.
How to Tell if You're in a Crowd Madness
So, how do you know if you're part of an Extraordinary Popular Delusion right now? It’s hard to see the bubble when you’re inside the soap. But there are red flags.
- The "New Era" Narrative: If you hear people saying "this time it's different" or "the old rules of economics don't apply anymore," run. The old rules always apply eventually. Gravity hasn't been defeated yet.
- Extreme Complexity: If you ask someone how an investment makes money and they give you a 20-minute explanation involving "synergy," "disruption," or "algorithmic stabilization" that you still don't understand, it’s probably a house of cards.
- Moral Superiority: When a trend becomes a "movement," things get dangerous. If people get angry at you for questioning the value of an asset—calling you a "hater" or saying you "just don't get it"—you're looking at crowd madness, not a market.
- Sudden Wealth for Boring People: When your cousin who has never held a job suddenly buys a Lamborghini because of a "tip" he got on TikTok, the end is near.
The Dark Side: Delusions Beyond Money
Mackay didn't just write about money. He wrote about the Crusades, witch hunts, and haunted houses.
Delusions aren't always about greed. Sometimes they're about fear. The Great Witch Heats of the 16th and 17th centuries were a form of crowd madness that resulted in the deaths of thousands of innocent people. It starts with a local rumor, gains steam through fear, and eventually becomes a self-sustaining cycle where anyone who points out the insanity is accused of being a witch themselves.
We see this today in the way misinformation spreads online. A single false tweet can trigger a wave of panic or outrage that results in real-world consequences. The digital crowd is faster and more aggressive than any mob Mackay ever encountered in the streets of London.
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Moving Forward Without Losing Your Mind
The reality is that we are all susceptible to Extraordinary Popular Delusions and the Madness of Crowds. Our brains are literally wired for it. We want to belong, we want to be successful, and we want to feel like we have inside information that others don't.
But you can protect yourself.
Practice Radical Skepticism
If an opportunity feels like a once-in-a-lifetime chance to get rich without effort, it’s a trap. Every single time. Real wealth and real progress are usually boring and slow.
Limit Your Social Echo Chambers
If everyone you follow on social media is saying the same thing, you're in a bubble. Actively seek out people who disagree with you. Read the "bear case" for every "bull case."
Check the History
Read Mackay’s book. It’s in the public domain. It’s free. Reading about the South Sea Bubble while you’re tempted to buy into the latest hype will give you the perspective you need to stay grounded.
Wait 48 Hours
Crowd madness thrives on urgency. "Buy now or miss out!" is the rallying cry of the delusion. If you step away from the screen or the crowd for two days, the dopamine hit usually wears off, and you can see the situation for what it actually is.
Focus on Utility, Not Price
Ask yourself: "If I couldn't sell this to someone else for five years, would I still want to own it?" If the answer is no, you're not investing; you're gambling on the madness of others.
The next big delusion is already starting somewhere. It might be in AI, it might be in real estate, or it might be in something we haven't even named yet. The world changes, but human nature is a constant. Stay skeptical, stay quiet, and remember that just because everyone is running in one direction doesn't mean there isn't a cliff at the end of the path.
Practical Next Steps
- Audit your "hype" exposure: Take a look at your social media feeds. If more than 50% of the content is promising "life-changing" gains or pushing a specific narrative, it's time to mute some accounts.
- Study the "Lull" periods: Don't just look at when bubbles burst; look at what happens in the five years after. This provides a realistic view of the long-term damage crowd madness does to personal finances.
- Diversify your social circles: Talk to people outside of your industry or tax bracket. The "madness" is often localized to specific groups. Fresh perspectives act as a sanity check.
- Maintain a "Cooling Off" fund: If you must participate in a high-risk trend, limit it to an amount of money you would literally be okay with burning in a trash can. Because in a popular delusion, that's often what ends up happening.