Le Bon's bonbons (1)

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Sometimes, if you have enjoyed a book, you will find that it is worth your time to look at another book or author suggested by the author of the book you read.  In the last post we learned a little about crowds in The Money Game by Adam Smith.  He quoted from Gustave Le Bon’s 1895 book, The Crowd.  Remarkably, this small book from 115 years ago is still available in print. Some of its references are dated, including comments on what would have been, for Dr. Le Bon, relatively recent events such as the wars conducted by Napoleon and events during the French Revolution.  Nevertheless, Le Bon’s observations on the way crowds come together, their composition and behaviors are as pertinent today as they were at the end of the 19^th century.  He described a crowd as follows:

In its ordinary sense the word “crowd” means a gathering of individuals of whatever nationality, profession, or sex, and whatever be the chances that have brought them together.  From the psychological point of view, the expression “crowd” assumes quite a different signification.  The gathering has thus become what, in the absence of a better expression, I will call an organized crowd, or, if the term is considered preferable, a psychological crowd.  It forms a single being, and is subjected to the law of the mental unity of crowds.

The disappearance of conscious personality and the turning of feelings and thoughts in a definite direction, which are the primary characteristics of a crowd about to become organized, do not always involve the simultaneous presence of a number of individuals on one spot  Thousands of isolated individuals may acquire at certain moments, and under the influence of certain violent emotions – such, for example, as a great national event – the characteristics of a psychological crowd.  The psychological crowd is a provisional being formed of heterogeneous elements, which for a moment are combined, exactly as the cells which constitute a living body form by their reunion a new being which displays characteristics very different from those possessed by each of the cells singly.  What really takes place is a combination followed by the creation of new characteristics, just as in chemistry certain elements, when brought into contact – bases and acids for example – combine to form a new body possessing properties quite different from those of the bodies that served to form it.

It is easy to prove how much the individual forming part of a crowd differs from the isolated individual, but it is less easy to discover the causes of this difference.  To obtain at any rate a glimpse of them it is necessary in the first place to call to mind the truth established by modern psychology, that unconscious phenomena play an altogether preponderating part not only in organic life, but also in the operations of the intelligence.  The conscious life of the mind is of small importance in comparison with its unconscious life.

It is more especially with respect to those unconscious elements which constitute the genius of a race that all the individuals belonging to it resemble each other, while it is principally in respect to the conscious elements of their character – the fruit of education, and yet more of exceptional hereditary conditions – that they differ from each other.  Men the most unlike in the matter of their intelligence possess instincts, passions, and feelings that are very similar.  From the intellectual point of view an abyss may exist between a great mathematician and his bookmaker, but from the point of view of character the difference is most often slight or non-existent.

It is precisely these general qualities of character, governed by forces of which we are unconscious, and possessed by the majority of the normal individuals of a race in much the same degree – it is precisely these qualities, I say, that in crowds become common property.  In the collective mind the intellectual aptitudes of the individuals, and in consequence their individuality, are weakened.  The heterogeneous is swamped by the homogeneous, and the unconscious qualities obtain the upper hand.

All of that seems quite interesting, but, you ask, does it really apply to today’s investors and markets?  With regards to Le Bon’s book, our friend, Adam Smith in The Money Game, answered as follows:

Is all this really relevant?  Remember, we have here a field – securities and their price movements – which is avidly studied by eleven thousand rational security analysts, any number of fervent students and graduate students, and a whole slew of computers.  One hundred thousand rational brokers – registered representatives, as they are called – dispense information to twenty-four million investors.  The whole process is rife with statistics, tables, mathematics and dazzling reasoning.

I guess his answer would be yes.  The number of people interested in securities and their price movements is much larger today than when Mr. Smith wrote those words.  Dr. Le Bon’s crowd of 1895 can still teach us something today.  Given Le Bon’s description of a crowd so far, can you think of one formed in the last year or so?  If you are American, can you say Tea Party?

We will learn just a little more from Doctor Le Bon in the next post.

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The Crowd, A Study of the Popular Mind by Gustave Le Bon (1895) is published by Dover Publications, Inc.  The excerpts from The Money Game