F.A.Z. Column by Emanuel Derman : Money Changes Everything?

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Like love, money is everywhere, yet nowhere understood: An approach with Spinoza’s theory of the passions.

          3 Min.

          Some things -- time, love and money for example -- are so familiar it takes a genius to understand their nature. Like a glass door to a conference room, which I once unwittingly walked into so fast that bounced back and fell to the ground accompanied by a loud boom that brought people running from across the entire floor, they are so transparent that one can look only through them, not at them.

          Time is elusive. When my son was a fluent toddler-speaker, quite familiar with the world and already very articulate about the names of objects and feelings, he still confused ‘yesterday’ and ‘tomorrow.’ They represent abstractions, but abstractions of what?

          That’s still a mystery, though Einstein in the early 20th Century took a giant step in pinning down its properties. Before him, everyone unthinkingly assumed that you could talk about two events happening at the same time in different far-apart places, without considering how you would actually confirm that simultaneity. Einstein, with a stranger’s unhabituated eyes that few humans are capable of, brought himself to examine how one would actually coordinate the measurement of length and time in different places. “Insufficient consideration of this circumstance lies at the root of the difficulties …” he wrote in his 1905 paper on relativity.

          One looks always through it, not at it

          Love is also much too familiar. According to Schopenhauer, and who can disagree, it ceaselessly occupies people’s thoughts. “It hourly disturbs the most earnest occupations,” he wrote, pondering why no-one marveled at this. Love, he concludes, was so overwhelmingly important because it was the attractive force responsible for the qualities of next generation. Hence, he deduced, love demands possession, which is why love without possession is no consolation, even if that love be requited. Marriage for love is driven by what is best for the species; marriage for money by what is best for the individuals. A lifelong bachelor himself, he concluded that to marry at all means that either the species or the individual must suffer. No happy solution.

          Like love, money is everywhere, yet nowhere understood. One looks always through it, not at it, and we still await the birth of the Einstein of love and of money. Quotidian economists describe money as a means of exchange and a store of value. It is indeed those things, but are passive and inorganic qualities. To Keynes, in contrast, money was active, organic, a catalyst. It had, in his view, the power to be productive. (Idolatry in all its forms fascinates me, and in yielding the power of creation to the printing press I detect a hint of it, the belief that artifacts, pieces of paper, can become agents rather than a medium.)

          Pain in the service of desire

          Money is a passion, as Spinoza would call it. I once made an attempt, a weak one, to understand money using Spinoza’s theory of the passions. In his Ethics, Spinoza saw that beneath all the passions that toss the minds and bodies of humans lie three primitive visceral states, pain, pleasure and desire. The higher emotions are derivatives, linked through a hierarchy to pain, pleasure and desire, much like a convertible bond derive its value from its dependence on equity levels and interest rates. So, cruelty for Spinoza is a triple derivative, someone’s desire to inflict pain on someone we love. You can find a diagram of the relation of all the higher passions to the primitive visceral ones in my book „Models.Behaving.Badly“, or better yet, read the full difficult description in Spinoza’s masterwork.

          What of the emotional aspect of money? “By the sweat of your brow will you eat bread,” said God to Adam and Eve after the Fall. Money is a byproduct of work. Work is painful and one does it because of the desire to survive, the most fundamental urge. In Spinoza’s scheme, then, work is pain in the service of desire.

          Gold coins and banknotes are then pain crystallized, past pain in the service of survival. But it’s more than that. Money also connotes the pleasure of future security, the squirrel’s winter hoard of nuts. A genuine banknote is links to all three of Spinoza’s primitives, as illustrated in my figure below.


          Money’s link to pain is perhaps crucial. The capacity to experience pain is a sign of life, so much so that doctors testing comatose patients give them up for dead when they cease to respond to pain.

          Tin parachutes for everyone

          For Spinoza, contempt was the feeling inspired by something that reminds us most severely of the qualities it lacks. So it is with financial bailouts, QE3, Zero-interest-rate policies and easily printed money; their lack of a link to historical pain and labor invites scorn and is morally poisonous. Fiat money involves only pleasure and desire, but omits the recognition of pain.

          I am not in favor of austerity for pain’s sake. But a fair life needs risk, reward and failure, or pleasure and pain. I want a world with golden parachutes for no one, and tin parachutes for everyone who needs them.

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