Investing in the Classics

Machiavelli’s Discourses on Livy: On Excited Multitudes

Please note that for the purposes of this analysis, I use the Harvey C. Mansfield and Nathan Tarcov translation of Machiavelli’s Discourses on Livy


Machiavelli’s Discourses on Livy is his treatise on republican governments in which he subtly and not so subtle argues for the merits of democratic republics, such as the Athenian democracy and the Roman Republic, over aristocratic republics and oligarchies, such as Sparta and Venice. In the process of convincing his aristocratic readers of the merits of the people (Italian: popolo) as opposed to the nobles, Machiavelli delves into the psychology of mass decision making and mob mentality. Machiavelli’s analysis remains relevant for investors today as the financial markets share many similar characteristics with his description.


Machiavelli begins this section of the discourse beginning with the deficits of the people. Using the example of Appius Claudius, a young Roman noble and tyrant who deceived the people into giving him absolute authority under the pretense of seeking to reform the republic, to illustrate how the people can be corrupted. He writes, “One also notes in the matter of the Decemvirate how easily men are corrupted and make themselves assume a contrary nature, however good and well brought up” (Book I.42). This is an obvious but important concession, Machiavelli starts by admitting that people are not perfect and can be corrupted in their opinion. Machiavelli asserts that “I believe it proceeds from men’s being very much deceived in general things, not so much in particulars” (Book I.47). Machiavelli argues that the people are apt to discern reality when they are close enough to touch it, this he refers to as particulars. But in regards to generalities, the people can be deceived by the appearance of a thing, especially when they can only see but not touch it. Machiavelli makes a similar argument in The Prince, which I highlighted in an earlier analysis.


Machiavelli illustrates his assertion that men are deceived by generalities as opposed to particulars which several examples. For the sake of brevity I will discuss one of them. In the Roman Republic there were two humors, the nobles and the plebs. Machiavelli asserts that the nobles’ humor was to oppress the plebs and the plebs humor was not to be oppressed by the nobles. While each humor had their own legislative body, the plebs were not eligible to office as a consul, Rome’s executive. The nobles used the consulate to oppress the plebs. With this background, Machiavelli writes:

“When the Roman people, as was said above, was disgusted with the consular name and wished for plebeian men to be able to made consuls or for their authority to be diminished, the nobility, so as not to blemish the consular authority either with one thing or with the other, took a middle way and was content that four tribunes with consular power, who could be plebeians as well as nobles, be created. The plebs was content with this, as it appears to it to eliminate the consulate and to get its part in this highest rank. From this arose a notable case, for coming to the creation of these tribunes and being able to create all plebeians, the Roman people created all nobles” (Book I.47).

This is a rather remarkable event and good illustration of Machiavelli’s aforementioned argument. The Roman plebs were opposed to the oppression of the consulate and wished to hold office in the new executive body. However the nobles did not wish to cede power, therefore they created a new office composed of not one or two, but four “tribunes” who had the same power of the consuls. Moreover, when the people had the opportunity to elect four plebs among them to this office they voted for four nobles instead. Thus the people were deceived by the nobles; though they got particular reforms, they were generally deceived by the nobles into thinking they were better off. Similarly for investors today, the markets can be easily taken by the generality, or appearance, of a thing. This leads to individual security’s mispricing as well as periods of irrational exuberance, such as the dot-com, housing, and social media bubbles, among others.


Machiavelli continues his discourse stating that the consequence of people’s ability to be deceived is that many times they will in fact desire their own ruin. Machiavelli uses the example of Veii to illustrate this. Machiavelli’s narrative begins along the following lines: after the Romans conquered the city of Veientes, the Roman plebs thought that they would improve their lot if half of Rome’s inhabitants go inhabit the Veii. Machiavelli writes:

“This thing appeared to the Senate [the nobles] and to the wisest Romans so useless and harmful that they freely said they would rather suffer death than consent to such a decision. So, as this thing come to dispute, the plebs was so much inflamed against the Senate that it would have come to arms and blood if the Senate had not made itself a shield of some old and esteemed citizens, reverence for whom checked the plebs, which did not proceed further with its insolence. Here many things have to be noted. The first is that many times, deceived by a false image of good, the people desires its own ruin; and if it is not made aware that that is bad and what the good is, by someone in whom it has faith, infinite dangers and harms are brought” (Book I.53).

Machiavelli’s analysis is insightful as usual. He illustrates through historical examples instances where the people are deceived by a generality, usually regarding short-term gains, that would or does lead to their ruin. Machiavelli points out to his readers that the people can be corrected when they err, though it is not easy. It requires their chastening by someone who is revered. Machiavelli say that “there is no more steady or more necessary remedy for checking an excited multitude than the presence of one man who because of his presence appears and is reverend” (Book I.54). In modern financial markets, one finds that the markets often are deceived by securities offering short-term gains or in times of panic. There are sagacious individuals who remain the voices of reason, such as Buffet, Klarman, Marks, and Singer, during these times. However, my own intuition, readings of history, and limited experience tells me that the ever growing soundbite culture continues to erode the role of the voices of reason in markets and irrational exuberance appears to worsen with each cycle.


In diagnosing the psychology of the mob, or the “excited multitude” as he calls it, Machiavelli’s analysis yields plenty of insights. He states, “For the multitude is often bold in speaking against the decisions of their prince; then, when they look the penalty in the face, not trusting one another, they run to obey” (Book I.57).  Machiavelli is apt to point out that what makes the multitude excited is that they become irrational for they act without regard to the risks they are taking and the corresponding consequences. Thus when the multitude faces punishment it crumbles. Similarly, modern financial markets go through a cycle; irrational exuberance sows the seeds of rising asset prices and bubbles, once the bubble bursts and everyone realizes their oversized risk exposure they collectively flee and panic ensues. Machiavelli continues stating:

“For on one side there is nothing more formidable than an unshackled multitude without a head, and, on the other side, there is nothing weaker; for even though it has arms in hand, it is easy to put it down provided that you have a stronghold that enables you to escape the first trust. For when the spirits of men are cooled a little and each sees he has t return to his home, they begin to doubt themselves and to think of their safety, either by taking flight or by coming to accord” (Book I.57).

Machiavelli makes an important distinction; shackled versus unshackled. The unshackled multitude is the multitude that acts without any ties to laws and order, and therefore tend to disregard reason. The unshackled multitude is both formidable and weak because it is built on a poor foundation. It tends to have a strong, but not lasting impact. Similarly, market trends not built upon sound economic fundamentals, such as bubbles, have a large but fleeting effect.


Up to this point Machiavelli focuses on the detriments of the people’s ability to make wise decisions. However, Machiavelli is a crafty and brilliant writer; he carefully turns the weaknesses and his criticisms of the people in order to shed light on their merits. This arises from Machiavelli’s distinction between the shackled and unshackled multitudes. Machiavelli argues that the unshackled multitude is no worse than an unshackled prince, rather it is at least somewhat better. Moreover, the shackled multitude is the best arbiter and legislator for they can remain virtuous for a long time, whereas shackled princes are few and far between. In his defense of the virtues of the multitude, Machiavelli says “I say, thus, that all men particularly, and especially princes, can be accused of that defect of which the writers accuse the multitude; for everyone who is not regulated by laws would make the same errors as the unshackled multitude” (Book I.58). Moreover, even an unshackled multitude can be dispelled from their irrationality, however Machiavelli asserts that this is not possible to a wicked prince. Machiavelli states, “For a licentious and tumultuous people can be spoken to by a good man, and it can easily be returned to the good way; there is no one who can speak to a wicked prince, nor is there any remedy other than steel” (Book I.58).


Machiavelli elicits the virtues of the people in their ability to judge when presented multiple opinions. He writes:

“As to judging things, if a people hears two orators who incline to different sides, when they are equal virtue, very few times does one see it not take up the better opinion, and not persuaded of the truth it hears. If it errs in mighty things or those that appear useful, as is said above, often a prince errs too in his own passions, which are more than those of people. It is also seen in its choice of magistrates to make a better choice by far than a prince” (Book I.58).

Machiavelli argues that when the people are shackled by laws and reason, they make better decisions than most individuals for the diversity of perspectives dissuades the passions from influencing decisions. This argument supports the notion that in the long-term the people eventually come to the correct decision most of the time. The problem is that not all multitudes are shackled. For investors, financial markets are subject to the psychology of multitudes. In the short-term, unshackled multitudes arise from time to time, but they lack a solid foundation and do not last. Therefore, in the long-term financial markets tend to converge as the multitude overcomes the generalities and realizes the particulars.

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