Holistic Finance

January 9, 2011

I have discussed the problem of reductionist thinking, grounded in the Enlightenment, in the past. Nowhere is reductionist thinking more in force than in finance. Derivatives disaggregate risk into component parts, and then atomized parts are reconstructed into new wholes using securitization. This process goes on, with greater and greater leverage applied until it collapses as we have recently learned. Reductionist thinking allowed most to miss the inevitability of this outcome. Holistic understanding would have seen the weakening resiliency, the connections to the real economy, and the unjust, long run societal implications for the bottom 90% of the planet. Visit Iceland or Ireland for details. Healthcare has made great strides with holistic thinking. This is not to suggest the rejection of (reductionist) specialization. A man with a heart attack wants to see a heart specialist. Holistic health understands the need to comprehend the whole system as well as the constituent parts. I received a Christmas present from Sid Staunton, a financial pioneer and new friend. It was Dee Hock’s book, One From Many. Hock is the genius founder of Visa, and visionary leader who developed and implemented the idea of a “chaordic” organization. Chaordic means operating at the boundary of chaos and order. The book begins with a quote from the brilliant quantum physicist, David Bohm. In 1980, Bohm had already comprehended the complex relationship between wholes and fragments in a field beyond the comprehension of feeble minds such as mine. Hock applied Bohm’s understanding to the design of enterprise. Our task now is to apply these insights into the entire system of economics and finance. Despite all the complexity and perception of technological prowess, we in finance are slow and hopelessly old school. We have nothing approaching the understanding Bohm found thirty years ago. We fail to see the financial system as a subsystem of the economic system, which in turn must be seen as subject to the limits of the finite biosphere. We fail to comprehend the feedback loops to society and social justice. Anyone who cares about social justice and fiscal responsibility must be in favor or aggressive financial reform, the likes of which we have not seen, for financial crises are the greatest cause of expansive debt to GDP ratios, unemployment, and numerous related social injustices. We have not connected the dots. We have no holistic finance. Developing holistic finance will require much creativity and hard work. It will not be easy. But even we in finance may soon discover in a “flash of understanding” as Bohm suggests, the irrelevance of our whole way of thinking. To be confused about what is different is to be confused about everything. Thus, it is not an accident that our fragmentary form of thought is leading to such a widespread range of crises, social, political, economic, ecological, psychological, in the individual and in society as a whole…To develop new insights into fragmentation and wholeness requires a creative work even more difficult than that needed to make fundamental new discoveries in science, or great and original works of art. Suddenly, in a flash of understanding, one may see the irrelevance of one’s whole way of thinking…along with a different approach in which all the elements fit in a new order and in a new structure.

– David Bohm