Investing in the Classics

Berkeley’s Three Dialogues between Hylas and Philonous: On Idealism

Please note that for the purposes of this analysis, I use the Robert Merrihew Adams translation of Berkeley’s Three Dialogues between Hylas and Philonous.


George Berkeley was an 18th century Anglo-Irish philosopher whose most noteworthy accomplishment was the advancement of a theory he called “immaterialism” (which is now referred to as “subjective idealism”). His theory denies the existence of material substance and instead contends that familiar objects like tables and chairs are only ideas in the minds of perceivers, and as a result cannot exist without being perceived. In other words, if a tree falls in the middle of the forest and no one is around, not only does it not make a sound, there is no tree to begin with. In his Three Dialogues between Hylas and Philonous, Berkeley critiques the views of his predecessors, particularly Descartes, Malebranche, and Locke. Although few, if any, people today are idealists like Berkeley was, he was nonetheless influential for later philosophers, influencing both Hume and Kant, and even to an extent, Einstein. Berkeley’s idealism can teach investors today the important lesson of skepticism towards external appearances and representations.

In this book, Berkeley’s views are represented by Philonous (Greek: “lover of mind”), while Hylas (Greek: “matter”) embodies the Irish thinker’s opponents, in particular John Locke. In the first of the three dialogues, Hylas holds a position of naïve realism, according to which we perceive material objects themselves, directly. Against this position, Philonous attempts to argue that the sensible qualities—the qualities immediately perceived by sense—must be ideal (originating and existing only in the mind), rather than belonging to material objects. In essence, Berkeley asserts the people do not have direct, tangible, epistemic access to the external world as everything is mediated by our sensory apparatus, which is inherently a mental/ideal conception. For investors, I argue that it is too easy to be lured into a false sense of understanding or security in one’s analysis. The most obvious instance is being deceived by one’s trust in management, auditors, and financial statements. On a deeper level, an investor can read thousands of pages on a particular company, but it is nevertheless a mediated experience. While one might be inclined to believe that they truly understand a particular business, in reality they only can have a limited and abstracted understanding of the business, for real businesses, especially large capitalization businesses, are far too complex to be fully and infallibly comprehended by the human intellect.


Philonous begins his first argument by contending that sensible qualities such as heat are not distinct from pleasure or pain. Pleasure and pain, Philonous argues, are allowed by all to be merely in the mind; therefore the same must be true for the sensible qualities. Berkeley writes:

Phil. – Upon putting your hand near the fire, do you perceive one simple uniform sensation, or two distinct sensations?

Hyl. – But one simple sensation

Phil. – Is not the heat immediately perceived?

Hyl. – It is.

Phil. – And the pain?

Hyl. True.

Phil. – Seeing therefore they are both immediately perceived at the same time, the fire affects you only with one simple uncompounded idea, it follows that this same simple idea is both the intense heat immediately perceived, and the pain; and consequently, that the intense heat immediately perceived, is nothing distinct from a particular sort of pain” (First Dialogue).

Despite several reasonable objections to Berkeley’s argument, it does raise an interest point about the nature of observation. Namely, that many of our observations are shaped by one’s self and that it is hard to discern what is intrinsic to the object of study, which is a business in the case of investors, and what is the result of one’s own faculties, which may include one’s prior experiences. The more extreme conclusion that Berkeley is actually arguing for, is that all information is sensory, and none of it is a result of material objects that exist outside of us. For investors, this would be akin to the idea that our understanding of businesses from company filings, news, and the like, is indubitably abstracted from the business itself. Therefore, investors ought to realize that their ability to understand these businesses is inherently constrained.


To build on his argument, Philonous invokes relativity arguments to suggest that because sensory qualities are relative to the perceiver, e.g. what is hot to one hand may be cold to the other and what is sweet to one person may be bitter to another, they cannot belong to mind-independent material objects, for such objects could not bear contradictory qualities. Berkeley writes:

“Phil – … that which at other times seems sweet, shall to a distempered palate appear bitter. And nothing can be plainer, than that diverse persons perceive different tastes in the same food, since that which one man delights in, another abhors. And how could this be, if the taste was something really inherent in the food?

Hyl. – I acknowledge I know not how” (First Dialogue).

Berkeley argues that the attributes which we credit to be intrinsic to material objects are really just ideal conceptions of our metal-sensory apparatus. Otherwise, it would be illogical to say that sugar is intrinsically sweet if it is possible that it tastes bitter to some people. Berkeley shows through his relativity argument, although not explicitly, that diverse people bring their past ‘baggage’ with them that colors how they see the world. Berkeley, through Philonous, says:

“Phil – … is it not evident, they must see particles less than their own bodies, which will present them with a far different view in each object, from that which strikes our senses? Even our own eyes do not always represent objects to us after the same manner. In the jaundice, everyone knows that all things seem yellow” (First Dialogue).

For investors, temperaments and past experiences certainly, although subtly, influence the way by which one processes information and goes about investing. One particular example would be confirmation biases, by which an investor might have had success in a particular industry, whether it be a result of solid analysis or sheer luck, and they consequently believe that they have an innate penchant for success in that industry. One can often fool themselves into idealizing their ability in this way.


Later on in the first dialogue, Berkeley makes the connection to experience specifically, as he writes:

“Phil – … For instance, when I hear a coach drive along the streets, immediately I perceive only the sound; but from the experience I have had that such a sound is connected with a coach, I am said to hear the coach. It is nevertheless evident, that in truth and strictness, nothing can be heard but sound: and the coach is not then properly perceived by sense, but suggested from experience. So likewise when we are said to see a red-hot bar of iron” (First Dialogue).

Berkeley’s example of ‘seeing a red-hot bar of iron’ is illustrative of an even more dangerous thing that investors often do without notice. We unconsciously allow our experience to ‘fill in the blanks’ when the information one perceives is incomplete. This can be very dangerous because it can lead to largely unfounded assumptions.


Philonous proceeds to argue that perceived ‘innate qualities’ of these material objects cannot be innate. He argues that clouds, for example, appear to have many different colors depending on the light of the day, whether it is dawn, noon, or dusk. Berkeley writes:

“Phil –  … From all which, should it not seem to follow, that all colors are equally apparent, and that none of those which we perceive are really inherent in any outward object?

Hyl. – It should.

Phil. – The point will be past all doubt, if you consider, that in case colors were real properties or affections inherent in external bodies, that could admit of no alteration, without some change wrought in the very bodies themselves… The same thing happens upon viewing an object in various degrees of light. And what is more known, than that the same bodies appear differently colored by candle-light from what they do in the open day?” (First Dialogue).

Nothing external, Berkeley argues, actually exists outside the mind, rather all of existence is mind-dependent. While this conclusion is quite radical, as it is perceived both at his time and in contemporary philosophy, there are nonetheless valuable perspectives to be gained from it. For investors today, the radical conclusion is that one perceives all information through their mental apparatus and can never achieve a complete nor unbiased understanding of that which one researches, no matter how many pages nor years spent studying. There is certainly an element of truth to this, though I think the more important conclusion is that every investor needs to have some humility for they can be infallible.


However, I think there is another noteworthy conclusion to draw from the aforementioned example of differing lights effect on perception. Not only does one’s own temperament and past experiences shape the way one colors the world, so to do the state of affairs at the time of perception.  That is to say, differing market conditions can affect the way investors interpret otherwise similar information in the same way the different lighting makes clouds look different in color. Ultimately, Berkeley’s main argument that all reality is mind-dependent is too radical, metaphysically speaking. Nevertheless, I think his implicit epistemic notion that all information is mediated by one’s mental-sensory apparatus is nonetheless a very valuable lesson for investors. One can never have absolute faith in the information that they read nor can they have an absolute understanding of a business. One ought to be aware of their biases and caution themselves from being too hasty in processing information, less one makes a dangerous assumption unknowingly. In this way, a prudent investor will avoid unintentional and careless errors.

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