Never done a blog before. If you want to know more about me, look at www.emanuelderman.com…. Bombs away.

The other night I went to see a production of part I of Goethe’s Faust on East 13th Street, in which Mephistopheles spoke the following lines to a serious student:

“Dear friend, all theory is gray, And green the golden tree of life.”

As soon as I heard the quote it resonated. I googled it later, and of course it’s resonated with millions of people before.

I think Goethe was referring to theories of living, which are necessarily monochromatic and dull when compared with the booming buzzing complexity of life itself. Any theory of living is in the end a devious way of coping with the anxiety produced by all that color.

I wouldn’t call theories in the physical sciences ‘gray’; I’d call them ‘black and white’. I suppose the aim of the physical sciences is to construct a black and white theory, clearly cut and easy to articulate, that, despite its black-and-whiteness, can produce enough complexity and color to explain large parts of the world. The theory of phase transitions is like that — complexity out of repeated simplicity — and so is the Mandelbrot set and the behavior of some cellular automata. Maxwell’s equations, too: unexpected richness out of simple beginnings.

Recently William Gass, who wrote an entire book called “On Being Blue,” wrote in the New York Times on the 150th birthday of Freud that “Freud employed a strategy worthy of Spinoza. He would look for the solution in the same realm where the problem was…. If his patients were in mental pain, he would look for a mental cause.” Psychoanalysis tried to explain colorful mental phenomena with colorful mental concepts.

What’s the right color for financial theories? The right quality can change: in the old days, biology had to be descriptive; then, it could be both descriptive and molecular; now, it can also be computational. For human psyches, both mythological/words and molecular/drugs are appropriate, one complementing the other. Theories in finance are still pretty much gray. Black and white doesn’t yet produce quite enough realistic complexity, but the mythology (“head and shoulders,” “the market dropped in response to rising oil prices”) isn’t too convincing either. I don’t have a good solution, but it should involve the large scale and the small scale in a complementary way.