This past month I’ve been re-reading Schopenhauer’s later works and to my surprise many of his ideas can be applied, by analogy, to modern day financial markets. His dialogue on religion, particularly struck me because of how similar the positive arguments for religion were in his time, to the current arguments in favor of big finance. It almost seems to me that finance has stolen the limelight from religion, and in the process usurped all the intellectually erroneous arguments for religion in support of modern day financial myths.

One specific example is the use by modern finance of the pragmatic approach to religion. It suffices to frame the pragmatic view of religion simply as follows: Religious pragmatism basically believes that without religion there would be no morality and society would collapse. This ethical view of the foundation religion, while false, is still held by many religious people, which is why moral transgressions by deeply religious people often times seems so shocking (they wouldn’t be, of course, if people understood that religion and ethics are two entirely separate spheres of human activity).

Stepping back from religion, I think most of us are now quite familiar with the pragmatic approach to finance, which is simply that if without high finance, i.e. the creation of and speculation in “imaginary” securities, we could not have a well-functioning economy and society. This argument, of course, laid the foundation for the ludicrous multi-trillion dollar bailout of large financial companies during the financial crisis.

Of course, numerous modern day counterexamples can be given to the “Save finance or else!” meme (in fact I believe that the counter examples, prove exactly the opposite: No bail out and less finance equals a stronger economy and society). However, I think that showing the intellectual errors of this meme is perhaps a better way to go.

For that we’ll need to go quickly back to religion. The basic reason why religion cannot be supported by ethics, i.e. one needs religion to keep society ethical, is because to merely discuss the issue presupposes a definition of ethics. For instance, to even debate whether God is good or evil, assumes some definition of good and evil. One could, of course write an entire book on this concept, but it suffices to say that religion and ethics are clearly two separate intellectual spheres. Quite simply, people, and by extension society, could be ethical without religion, because ethical concepts already exist without religion. Religion may of course, provide other benefits to an individual or society, which are beyond the scope of this post, but ethics is surely not one of them.

The same line of reasoning can be applied to the “save finance or else” argument. The basic error, of course, is that nearly all aspects of finance presuppose an economy, so that the collapse of finance cannot possibly lead to a dissolution of our economy or our society. Interestingly, while ethics can exist without religion, and vice versa, it should be clear that most finance cannot exist without an economy. This is because without an economy, there would be nothing to finance. For example, if there were no such thing as houses, there could have been no mortgage market or subprime mortgage meltdown. If there were no loans to real businesses, there could be no CDS market. Even more simply, if there was no economy, there would be no need for a means of exchange, and absolutely no need for money or finance.

At this point, I should mention that I believe quite strongly that Wall Street invents worthless securities on a daily basis, so that in essence one does not need an economy for certain aspects of modern day financial markets. One simply needs a “market maker”, and a belief that the securities have some value. But this position also implies, perhaps even more strongly, that the downfall of finance would have no effect on the real economy, because many financial instruments have absolutely nothing to do with the economy in the first place. How can their collapse, therefore, have any effect on the economy?

Based on the above, I think it should be clear that our economy and society provide the basis for finance and not vice versa. And even when a real economy is missing, Wall Street can simply invent a tradeable financial instrument based on nothing other than as a reference to the instrument itself. Taken together, it is obvious that the economy would do perfectly fine without the large financial institutions and high finance. Of course, given the current structure of society, certain economic relationships would cease to exist with the downfall of big finance, however, these economic relationships could be easily, and quickly, replaced, if needed, by a different set of social and economic principles.

All in all, it should be clear that the claim that society cannot function without finance, is merely an empty threat, used by the priests of high finance to enrich themselves at the expense of others in society. Doesn’t this sound familiar to the way religion was used for centuries?