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Starvard University · Markets and Crowds
Tulips, paper money, and stock schemes: what three centuries of manias teach about crowds, prices, and protecting yourself.
Hello, my name is Finn, and I'm going to help you understand this course.
Here it is, explained like you are 10:
Imagine a flower bulb that costs more than a house, or a company that will not tell anyone what it does, and people still line up to buy it. That really happened, more than once. In this course you will meet the crowds who chased tulips in Holland, paper money in Paris, and a famous stock in London, and a boy who learned to read stock prices the way you read weather. You will see why smart people copy each other, why feelings beat facts in a boom, and how to keep a cool head when everyone around you is shouting buy.
This course is a story course with a serious point. Charles Mackay, writing in 1841, collected the great money manias of history and showed that the pattern repeats: a new thing appears, early buyers profit, the crowd piles in, prices stop making sense, and then confidence breaks all at once. You will meet a sailor who ate a fortune for breakfast, a man who rented out his hump as a writing desk to brokers, and a company whose whole business plan was a secret, and you will see how each absurd detail seemed perfectly believable to the people paying for it at the time. Edwin Lefèvre, writing in 1923, told the same story from inside one trader's head, where the enemies were not other people but his own hope and fear.
None of this is a lesson in getting rich, and none of it is financial advice. It is training in recognition. A bubble is hard to see from inside because it feels like good news. After these lessons you will know the old shapes a mania takes, the tricks promoters have always used, and the plain habits, patience, variety, and suspicion of easy riches, that have always protected ordinary people best. The next mania, when it comes, will not announce itself as one.
The whole course in brief
What you will be able to do after this course
The seven lessons
Lesson 1
Charles Mackay opens his 1841 book with a strange observation: whole communities suddenly fix their minds on one object and chase it together, then recover slowly and separately: "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." A crowd is not a collection of fools. It is a collection of normal people copying each other.
Copying is usually sensible. If everyone is running from a building, you run first and ask later. In markets the same instinct misfires. Your neighbour bought a tulip, or a share, and doubled his money. That feels like evidence that he knows something, so you buy too, and your buying pushes the price up for the next person. Soon the price itself becomes the argument: it must be valuable, because look what people pay for it.
Two more forces finish the job. Nobody wants to be the only person left out while friends get rich, and nobody wants to look timid. Even doubters join in, planning to sell to a later buyer before the music stops. That is how manias recruit the intelligent: not by fooling everyone, but by making standing aside feel foolish.
Lesson 2
In 1634 and 1635, Holland went mad for tulips. Mackay records that many people invested a fortune of 100,000 florins in forty roots, and bulbs came to be sold by weight, in perits, a unit smaller than a grain. An Admiral Liefken of 400 perits was worth 4,400 florins. A Semper Augustus of only 200 perits was thought cheap at 5,500 florins. One Amsterdam bulb was bought for 4,600 florins, a new carriage, two grey horses, and a set of harness. A Viceroy bulb changed hands for goods worth 2,500 florins, including four fat oxen, eight fat swine, two hogsheads of wine, and a silver drinking cup.
The most famous victim never bought a bulb. A sailor, rewarded with a red herring by a merchant, spotted a bulb on the counter, took it for an onion, and ate it as a relish with his fish. It was a Semper Augustus worth 3,000 florins. He spent some months in prison for his breakfast.
The end came quickly. Contracts to buy Semper Augustines at 4,000 florins each could not be honoured once the price fell to three or four hundred. Bulbs once worth 6,000 florins could be had for 500, defaulters were announced daily, and the courts refused to treat the bargains as anything but gambling.
Lesson 3
John Law, a Scotsman born in Edinburgh in 1671, persuaded the French regent to let him run a bank and a trading company together. In August 1717 his Mississippi Company was formed with 200,000 shares of 500 livres each, promising riches from Louisiana. While Law controlled his bank, its notes never passed sixty million livres. Once it became the Royal Bank, the regent ordered a thousand million livres of new notes printed. Shares climbed: for 50,000 new shares in 1719 there were 300,000 applications, and crowds besieged Law's house in the Rue de Quincampoix. In February 1720 the government forbade holding more than 500 livres in coin. In May the bank stopped paying out coin, and Law was dismissed.
London copied Paris. South Sea stock stood at 130, rose to 300 while its bill was debated, and by early August 1720 was quoted at 1,000 per cent; by September 2 it had fallen to 700 and kept falling. Around it sprouted bubble companies, including one for a wheel for perpetual motion, and the most honest prospectus ever written: a company "for carrying on an undertaking of great advantage, but nobody to know what it is." Its promoter took 2,000 pounds in deposits in five hours and left for the Continent the same evening.
Lesson 4
Edwin Lefèvre's 1923 book follows Larry Livingston, a trader modelled on Jesse Livermore, to whom the book is dedicated. Larry starts at fourteen as a quotation board boy, posting prices as the ticker calls them out. Fascinated, he keeps a little notebook of how prices behaved before they rose or fell, testing his patterns against the tape, the printed record of trades. That habit is called tape reading.
His first trade comes from a tip on Burlington stock. He checks his notebook, sees the price acting as it usually did before a rise, pools his money with another boy, and buys in a bucket shop. A bucket shop was a betting parlour for prices: you put up a small margin and bet on the tape, without ever owning a share. Two days later they cashed in, and Larry's share of the profit was 3.12 dollars. By fifteen he had made his first thousand dollars, and the shops soon barred him for winning too often, so he traded under false names.
His hardest rule came later, from watching an old trader named Partridge refuse to sell in a rising market. Larry's verdict: "It never was my thinking that made the big money for me. It was always my sitting." Being right was common. Sitting tight was rare.
Lesson 5
Lefevre's trader is blunt about where losses come from: "The speculator's chief enemies are always boring from within." The three enemies he names are greed, fear, and hope, and they work in a cruel order. Greed starts the trade, because a rising price promises easy money and nobody wants to watch others take it. Then the market decides which of the other two feelings takes over.
When the market goes against you, hope takes charge. You hope each day will be the last bad day, so you hold a losing position too long and lose more than you should. When the market goes your way, fear takes charge instead. You become afraid that tomorrow will steal your profit, so you sell too soon and miss the gain your patience had earned. Hope and fear have simply swapped the jobs they should be doing.
Larry's correction is to reverse the pair on purpose: "Instead of hoping he must fear; instead of fearing he must hope." Fear a small loss early, while it is still small, and hope a genuine gain can grow. Notice that none of this depends on intelligence. The feelings arrive in every trader. The skill is not avoiding the feelings but refusing to let them place the orders.
Lesson 6
No bell rings at the top of a bubble, but the old stories leave a checklist of smells. First, the story replaces the arithmetic. Tulips were priced by weight like jewels, Mississippi shares by dreams of gold in Louisiana, and South Sea stock by rumours of trade that Spain had never granted. When nobody can say what a thing earns, only what it might sell for, be careful.
Second, everyone is talking about it, and buying feels compulsory. In 1636 Holland had tulip notaries and tavern markets; in 1720 Paris, dukes and duchesses queued outside Law's door, and a hunchbacked man rented out his hump as a writing desk to brokers. When servants, celebrities, and your most cautious relative all own the same exciting thing, the crowd is the market.
Third, doubters get mocked, not answered. Robert Walpole warned Parliament against the South Sea scheme in detail and was treated as a croaking raven; benches emptied when he rose to speak. Fourth, credit gets easy and new schemes multiply, each more inventive than the last, including secret ones. Any two of these signs together deserve your suspicion. All four together have, in every century so far, ended the same way.
Lesson 7
This lesson is general education from history, not financial advice, and it starts with the honest line every rule needs: no rule removes risk. People who followed every sensible habit in 1637 or 1720 could still lose money. The rules below only stack the odds and protect your sleep.
Spread what you have across different kinds of things, so that one burst bubble cannot take everything; the Dutch families ruined in tulips were the ones who had converted all their property into flowers. Never borrow to buy something exciting, because borrowed money has a deadline and a falling market does not care about yours. Slow down when you feel urgency. Fear of missing out is a feeling the crowd installs in you, and an opportunity will still be there after a week of thought, while a mania may not.
Decide in advance what you paid, why you bought, and what would make you sell. Be most careful when everyone is talking about an investment at parties and in headlines, and when past gains are the whole argument for buying more. Finally, keep enough of your life, your savings for needs, your work, your friendships, outside the market entirely. The manias in this course ruined the people who had put their whole lives inside them.
Sources
This course is taught from classic texts that are free for anyone to read. Every method in the lessons traces back to one of these books.
Graduation
You have walked through a tulip market, a Paris street jammed with share buyers, and a London alley full of bubble companies, and you have sat with one trader while he fought his own hope and fear. The costumes change every generation; the feelings do not. Keep the checklist, keep your essentials safe, and let other people queue for the undertaking of great advantage that nobody is allowed to know about. Congratulations on finishing.
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A note on accuracy: Much of what you read at Starvard was created with help from AI agents, working alongside people. We check what we can, but we cannot guarantee that everything here is true, current, or complete. If something really matters, your health, your money, a grade, a job, please verify it with a trusted source before you rely on it.