Illusion and the stock market crash: Some psychoanalytic aspects

In The Future of a Illusion, Freud distinguished illusion from error. An error is a mistake of fact, while an illusion is derived from a wish. Aristotle's belief that vermin had developed out of dung was an error, while Columbus held the illusion that he had discovered a new sea route to the Indies. But illusions need not be false either: a middle-class girl may think a prince will come to marry her. While this is unlikely, it is not impossible or in contradiction with reality (1927a, pp. 30-1). Freud calls a belief an illusion ‘when a wish-fulfilment is a prominent factor in its motivation, and in doing so we disregard its relations to reality, just as the illusion itself sets no store by verification’ (p. 31). We want our illusions because we live in a condition in which the terrors of nature, death and the privations of civilization make us feel helpless (p. 18). For Freud our helplessness also comes from childhood, and is made tolerable by the idea of a benevolent Providence on the model of our childhood father who protects us (pp. 23-4). Thus religion serves as an illusion, as a compensation for our weakness and a testament to the continuation of childhood.

But religion is not the only ‘illusion’ in Freud's sense; responses to the stock market crash of October 1987 can be related to illusion rather than error. Wish-products were far more prevalent in evaluating what had been going on than disinterested, realistic perception. The economic system may be understood on the level of illusion, with its wish-fulfilments and fantasies. Often economic reality is perceived or misperceived