I first read Extraordinary Popular Delusions and the Madness of Crowds during the internet bubble.  Although I can’t say it made me rich, it kept me from becoming poor.

It is an evergreen book, having been written more than 150 years ago by the Scottish journalist Charles Mackay.  I hate to say it but it only really has three useful chapters, and these are the first three.  The rest of the book simply shows the easy prejudices of mid nineteenth century liberalism.

It could be argued that the first three chapters show the easy prejudices of nineteenth century liberalism as well, but the difference is that the easy prejudices of the nineteenth century liberal is fairly commonplace when looking at the crusades, but it seems revolutionary when looking at today’s economics.

The first chapter is on the Mississippi scheme, in which a Scottish adventurer, John Law, somehow managed to persuade the French state to back the national debt on colonial land in North America, and created such a speculative bubble that it bankrupted the state.  The second chapter talks about the South Sea bubble in which the British state did something very similar one hundred years before the French.  Then there’s a chapter on Tulip mania (although this chapter is often criticised for being altogether too dramatic).

There are two sobering lessons to be learned from these three chapters.  The first is that there are periods of time when the conventional wisdom can be very, very unwise.  The second is that this can keep going far longer than most people think possible.