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Economic Delusion
by Ajahn Puṇṇadhammo The whole world is currently suffering a major economic crisis, which
has a good chance of being as severe as the depression of the 1930's. Can Buddhist
teachings help us understand what is happening? I would like to suggest one
way in which it can. The financial markets
reflect the cumulative result of millions of individual decisions. Regarding
decisions, The Buddha said that they should never be made on the basis of
greed, anger, fear or delusion. It is obvious how greed and fear have
poisoned the well, but I would like to focus on something a little deeper,
how delusion has worked in creating the present financial collapse. Specifically,
the whole scenario demonstrates the truly amazing power of mental formations
(saṅkhāra) in human history. Money itself is an abstraction. At
some point in the distant past people agreed to believe that this shiny rock
was worth those two cows, even though the real, utilitarian value of a cow is
considerably more than the real, utilitarian value of a shiny rock. Paper
money is an even more refined level of abstraction. This piece of paper with
the queen's face, or a spooky eye-in-the-pyramid design or whatever it might
be, is said to represent so many shiny rocks, which are worth so many cows.
(Eventually, they dropped the fiction about the shiny rocks.) Having gone off the
“gold standard,” such currency is sometimes called “fiat money,” meaning that
the value is established purely by government fiat. This is not really
accurate. A dollar bill doesn't have value because the government or the
central bank says so. It has value because the people believe it does. It is
faith-based currency. It is not surprising that paper money was first used in
Consider what is
happening here; material goods and hours of labour are freely traded for an agreed
convention. Something on the material plane of reality is being surrendered
for something on the purely abstract plane of mental formation, which is void
and without substance. Maybe that eye-in-the-pyramid on the dollar bill is
telling us something. Fast forward to the
dawn of modern capitalism in post-reformation It is significant to observe that stock certificates, bonds and so
forth were often printed with all kinds of elaborate borders, seals,
watermarks and other decorations. This did serve the utilitarian purpose of
making forgery more difficult, but even more importantly, it had a symbolic
function. Much like ritual in religion, it worked to awe the observer that
something special was happening here. It wasn't long before such pieces of
paper were trading for more than their book-value. The stock market, in
it's original manifestation, was not very far removed from its base in
material reality. If you bought a ten percent share in the East India Company
it represented something close to ten percent of the ships and goods of the
Company and entitled you to ten percent of the profits made. The value of the
stock would, in theory, go up only if the Company acquired more ships and
trade goods. Of course mental
formations, although void of substance, have a powerful energy when millions
agree to believe in them. And they also have the tendency to proliferate.
From the earliest days of capitalism the phenomena of “speculative bubbles”
made themselves felt. As company shares traded hands, the value become
divorced from the underlying reality it was supposed to represent. The value
of a share was no longer based on how many ships the company had, it was now
based on what the buyer and seller mutually believed it to be. If the buyer
believed he could later resell it for more to somebody else, he didn't care
about the underlying value. This is sometimes
called the “Greater Fool Principle.” If the value of a company share in terms
of the real goods it represents is, say one hundred dollars, a person would
be a fool to pay one hundred and fifty unless there is a greater fool out
there to whom he can sell it for two hundred. The value of the share becomes
a pure abstraction. You might as well be trading tulip bulbs. Or
“credit-default swaps.” The case of tulip bulbs
is instructive. Seventeenth century The problem, of course,
is that inevitably you run out of fools. Then the whole bubble bursts with
frightening rapidity. The whole thing would be comical if the abstract world
of imaginary numbers on bits of paper or computer disks didn't rebound back
on the real world. Many 17th century Dutch burghers had sold real assets like
land or ships to “invest” in tulip bulbs. Then the inevitable happened and
the tulip market collapsed overnight leaving many people ruined. This is
usually considered the first speculative bubble of the capitalist age. Many, many people today
have put the earnings of their labour into the stock market or other
financial instruments that turned out to pure bubble. Real goods thrown into
an imaginary realm. The disconnect with the underlying real economy has
become complete Now, after several
centuries of elaboration, we are into a fantastic realm of abstractions of
abstractions. Fractional reserve banking creates money which is based on
nothing at all, not even bits of paper. And understanding the levels of
abstraction involved in derivatives is a special science. The “value” of the
derivatives out there is said to be ten or fifteen times the combined GDP of
the whole planet. Tulip bulbs at least made pretty flowers. The imaginary nature of
the financial world is very clearly illustrated when you hear, after a market
downturn, that so many billion or trillion dollars of wealth have
disappeared. That “wealth” was never there in the first place. What has
disappeared is the agreed upon mass delusion that such wealth existed. It will be interesting to see what happens next. So far the world
leaders seem to be reacting out of panic and fear. The first response was to
pump astronomical sums of borrowed (imaginary) money into the bubble in a mad
attempt to keep it inflated. The Stadtholder is buying all the tulip bulbs
with money borrowed from The state, really the
community as a whole, has now become the greatest fool, the fool of last
resort. The question is, what effect will all this movement of imaginary
numbers have on the real world of work, clothes, food and housing? Real goods
will probably become scarcer for most people either through higher taxes to
repay the stupendous debt load or through hyper-inflation of the currency to
eliminate the debt that way. There will be pain, material existence will
become bleaker and harder and all because of the shifting fantasies of purely
imaginary conventions. In the various schemes
to restart the big Ponzi scheme, you keep hearing the phrase, “restore
investor confidence.” That gives the game away; the goal right now is to get
people believing once again in the magic money tree. Eventually, we will have
to face the need to get the real economy of goods and services working. It
may have to wait until the bubble economy collapses back to it's natural
state. Then there may be a general realization that you can't get something
for nothing, no matter how inflated the imaginary numbers are. The case of Bernie
Madoff's busted Ponzi scheme is an example of the whole picture in miniature.
He rode high for a long time, playing on the greed of investors by paying
dividends culled from new investors. This is the greater fool principle par
excellence. Of course, and inevitably, he ran out of fools and the whole
house of cards came crashing down. But was what he did so very different, in
principle, from what the most respected banking establishments have been
doing for three hundred years? Fractional reserve banking allows banks to loan
out several times more money than they actually have and only works so long
as everyone doesn't withdraw their deposits at once. It is hard to see this
as anything more than an elaborate ponzi scheme. The whole financial world is
structured on these principles. If the collapse is as
complete as it looks like being at the moment, there will inevitably be a
restructuring of the world economy. What shape will it take? What shape
should it take? I don't have the slightest idea. I've long ago stopped
believing in political utopias; this is samsara, after all, it's supposed to
be broken. It might be worthwhile,
though, to consider some basic values. Capitalism, at least before it
switched from managing production to flim-flam schemes, worked pretty good in
some respects. It did keep a very complex economy moving on a global scale,
and that is no mean feat. However, it was not so good at other things, very
important things. It has no built-in mechanism to conserve the natural
environment, and that is starting to become critical. It was never very good
at distributing goods to those who needed them most, and in recent decades
the gap between the richest and the poorest has been growing. And it requires
continual growth to function properly, and in the long term that is
unsustainable in a closed system like the planet earth. When thinking about an
economic order, we should remember what an economy is for; human comfort and
health primarily and the satisfaction of lawful sense pleasures secondarily.
The first priority should be to make sure that every person gets the
sufficiency of a decent life, i.e. the four requisites of food, shelter,
clothing and medicine. After that, the surplus should be rewarded to those
who are most energetic and creative in producing wealth for the general
community, certainly not to those who are most clever at manipulating mental
abstractions like derivatives and futures. In other words, reward production
and creation, not speculation. In any case, we are in
for some changes, but that's always been the case. Forest Hermitage Renovations In March the old roof of the Forest Hermitage, where the BPS was
founded and where its editors have resided and worked, was replaced with a
new one. For years the current BPS editor has endured white ant and woodworm
droppings falling on his head. An inspection of the roof beams revealed that
many of them had been badly eaten by the bugs and were in need of
replacement. The asbestos cement sheets on the roof were badly eroded too,
causing leaks. The roof's condition is not surprising as the Forest Hermitage
is about 80 years old, which in the tropics is a long time. Other parts of
the building are also in need of renovation, which will be carried out later.
After the builders took off the old roof, the hermitage was without a
roof for a week. Heavy rain would have been a disaster. Despite delays, and
threatening clouds and lightning, it fortunately did not rain until one day
after the roof sheets had been put on. This rain—the first after an unusually
long dry period lasting six weeks—poured down when the Buddha's tooth relic
in the Temple of the Tooth was shown for the first time in five years—an
auspicious occasion attracting hundreds of thousands of people to Kandy.
Prior to the roof restoration, from last August to January, a
meditation hut or kuti was constructed with the financial help of supporters
in
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