Philosophy - French Rationalism

French Rationalism

Locke influenced the philosophes of the French Enlightenment.

Deism - sought to formulate a rational religion based on Descartes’ concept of a mathematical universe, Newton’s laws of physics; Copernican theory of the planets and Locke’s view of experience as the only valid foundation of knowledge.

Voltaire, Francois Marie Arouet (1694-1778) - believed in a finite God with powers so limited that they could not eliminate evil, opposed religious institutions, fought for political liberty and individual freedom.

Dennis Diderot (1713-1784) - editor of the French Encyclopaedia.

Jean Jacques Rousseau (1712-1778) - advocated equal rights for all citizens under a democratic scheme of social contract, insisted upon the neutral goodness of human nature, appealed not to any intellectual basis for conduct, but to each persons feelings and sentiments.

Man is “born free, and everywhere he is found in chains,” civilisation is responsible.

- we must return to the simplicities of nature to determine the most natural mode of State.

Philosophy - Continental Rationalism

Continental Rationalists

Scientific method - inductive method whereby the accumulation and interpretation of specific facts led to the discovery of a universal principle or law of nature.

- according to Bacon “knowledge is power”, man’s salvation is to be found in knowledge, through science nature may be brought under man’s control (conditions harmful to man, ameliorate).

- Bacon lost sight of the enormous significance that mathematics held for the symbolic understanding of the cosmic order (he had a passionate desire for utility and the practical application of knowledge).

Galileo applied mathematics to empirical facts about motion, synthesized Being and Becoming.

Rationalist philosophy: truth is derived from reason; reason is superior to and independent of sense experience; knowledge is deducible from a priori concepts.

Empiricism - knowledge depends upon experience

Descartes - founded analytic geometry, trained in scholastic philosophy, Catholic

Cartesian rules (1) never accept anything as true which is not known clearly and distinctly to be true (2) subdivide complex problems into many simpler parts   (3) arrange ideas in an orderly sequence from the simplest to the most complex  (4) take everything into account, omit no details.

Cartesian ethics  (1) obey the laws and customs of the nation, your religious faith and avoid extremes of behaviour  (2) stand by the convictions you have formed  (3) adapt yourself to the situation and the environment  (4) carefully choose your life work which will be best for you.

- he felt the revealed truths of theology transcend human reason.

cogito ergo sum - I think, therefore I am

- everything is subject to doubt except the fact of doubting itself; since doubting is an act of thinking it proves one’s existence; to doubt is to think and to think is to exist.

Innate idea - an idea which does not require sense experience as a basis for its validity.

Proof of God’s existence - (1) how can (a finite Being) conceive of God (the infinite) unless that idea was given to me by some substance  in reality infinite,  (2) The act of defining God as real and perfect implies an existent Being (God’s existence follows from his essence).

Cartesian metaphysical dualism - mind (thinking substance) and matter (occupation of space)

- CMD confronted serious difficulty in attempting to explain the interaction between two completely heterogeneous substances (mind and matter).

occasionalists: posited the theory that on those occasions when the mind interacts with the body, or vice versa, it is  a divine agency that brings about the changes.

Pascal’s religious wager - either you accept God’s existence or you don’t.  If you cast your lot on the side of God, then you have nothing to lose in this life and everything to gain in the life after; but if you deny God’s reality then you jeopardize yourself for all eternity should the case turn out that God exists [it is a 50/50 proposition].

Benedict Spinoza (1632-77) - Jewish philosopher; both human nature and the natural work are governed by fixed scientific laws (in the same way as geometrical figures); all true ideas are ultimately substance, nothing is external to God, eternal and infinite.

- mind and body are one and the same substance; substance is the ultimate ontological reality.

Psychophysical parallelism - whatever effects the mind also affects the body, et vice versa.

- man’s goal is toward an intellectual love of God.

Leibniz (1646-1716) - tried to build a bridge between scientific and theological methods of inquiry.

- the universe is teleological because it realises the goals set forth by God, but is mechanical because physical nature operates like a mechanism impelled and controlled by specific, efficient causes.

- philosophers should use words as accurately and logically as mathematicians use numbers.

- principle of sufficient reason “nothing happens without a reason”

- law of continuity “everything goes by steps in nature, nothing by leaps”

- space and time were phenomenal things and not genuine realities.

Panpsychism - all reality is based upon force or activity, also vitalism.

monad: denotes the force or activity constituting the essence of reality (substance)

Pre-established harmony: mind and body operate in perfect unison, without being connected

ontology = the study of ultimate Being or existence

natural theology - the study of the nature and existence of God

Christian Wolff (1679-1754) systematized the philosophy of Leibniz

Continental rationalism primary thesis was that knowledge is derived from reason, true knowledge is inborn (innate) because the intellect has at its disposal certain principles of reasoning.

A Developing Thought - Traditional Security Analysis as Scholastic Philosophy

In the same way traditional security analysis sought to justify rationally, ie. put a structure around, what the marketplace already accepted so Scholasticism sought to justify rationally what the church had already accepted.

The main schools of thought during the scholastic period were universalia ante rem (essence precedes existence) and universalia post rem (existence precedes essence) arguing over what came first or what comes first, essence or existence. The same can be applied to security analysis with regard to whether fundamental value comes first or market price comes first.

In the ethical/moral realm scholastics guiding light was summum bonum (absolute good) as the yard stick for devining whether something was good (a relative value basis). In security analysis there is the implied belief that there is some fundamental/intrinsic value based upon some as yet unknown future set of cash flows discounted at an appropriate rate that equals an assets true value (absolute value) which can then be compared to its current market price to determine whether it is undervalued or overvalued.

This is still a developing thought, but one I hope to explore a little more in the future.

Likewise, modern finance (Modern Portfolio Theory, Efficient Markets, CAPM) may be equated with the philosophy trends of the enlightenment (especially Hume's rationalism), and recent developments in finance practice (HFT, quantification, algos) may be equated with quantum physics or existentialism.