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First published Thu Feb 17, 2011; substantive revision Thu Oct 20, 2016

http://plato.stanford.edu/entries/twotruths-india/

INTRO EXCERPT: The theory of the two truths has a twenty-five century long history behind it. It has its origin in the sixth century BCE India with the emergence of the Siddhārtha Gautama. It is said, according to the Pitāpūtrasamāgama-sūtra, Siddhārtha became a buddha “awakened one” because he fully understood the meaning of the two truths—conventional truth (saṁvṛti-satya) and ultimate truth (paramārtha-satya)—and that the reality of all the objects of knowledge, the text says, is exhaustively comprised of the two truths (Sde Dge, dkon brtsegs nga, 60b). The theory of the two truths, according to the Samādhirāja-sūtra, is a unique contribution made by the Buddha towards Indian philosophy. This text states: “the knower of the world, without hearing it from others, taught that there are the two truths” (Sde dge, mdo-sde da 174b–210b). Nāgārjuna, in his Mūlamadhyamakakārikā [MMK], attributes the two truths to the Buddha as follows: “the Dharma taught by the buddhas is precisely based on the two truths: a truth of mundane conventions and a truth of the ultimate” ([MMK] 24:8).

The Madhyamaka philosophers claim the theory of the two truths is the heart of the Buddha's philosophy. According to them it serves as the mirror reflecting the core message of the Buddha's teachings and the massive philosophical literature it inspired. At the heart of the theory of the two truths is the Buddha's ever poignant existential and soteriological concerns about the reality of things and of life. Nirvāṇa, ultimate freedom from the suffering conditioned by desires, is only ever achieved, according to the theory of the two truths, from a correct understanding of two truths. Knowledge of the conventional truth informs us how things are conventionally, and thus grounds our epistemic practice in its proper linguistic and conceptual framework. Knowledge of the ultimate truth informs us of how things really are ultimately, and so takes our minds beyond the bounds of conceptual and linguistic coventions.

In theory of the two truths, as we know it today, may be unknown to the earliest start of Buddhist thought in India. Contemporary scholarship suggests that the Buddha himself may not have made any explicit reference to the two truths. The early textual materials such as Pali Nikāyas and āgamas ascribe to the Buddha does not make explicit mention of the distinction of the two truths. Recent studies also suggest that the two truths distinction is an innovation on the part of the Abhidhamma which came into prominence originally as a heuristic device useful for later interpreters to reconcile apparent inconsistent statements in the Buddha's teachings (Karunadasa, 2006: 1; 1996: 25-6 and n.139, The Cowherds, 2011; 5). This distinction is however not entirely disconnected from the Buddha's teachings. The antecedent hermeneutic distinctions drawn in the Aṅguttara Nikāya (AN II.60) between two linguistic concepts (paññatti) – nitattha (Skt. nitārtha) and neyyatta (Skt. neyārtha) – provides us a useful insight into the rationale basis from which later develops the formulation of the two truths distinction. This latter pair of terms deals with the hermeneutic strategies explaining the purported meaning of the Buddhist scriptural statements. Nitattha is a statement the meaning of which is "drawn out" (nita-attha), definitive and explicit, taken as its stands, and neyyattha is a statement the meaning of which is "to be drawn out" (neyya-attha) and interpretive (Karunadasa, 1996: 25). The commentary (Aṅguttaranikāya Aṭṭhakatah II.118) on the Aṅguttara Nikāya II.60 explores nitattha/neyyattha distinction's connection with the sammuti/paramattha distinction. This simple heuristic device however stimulated rich philosophical exchanges amongst the Buddhist philosophers and practitioners, not to mention the exchanges with traditional Hindu thinkers. The exchange of different ideas and views of the two truths between the early Buddhists, among other factors, gave birth to Buddhism as the philosophy we know today. The transformation of the two truths theory from a simple hermeneutic strategy to a complex system of thought with highly sophisticated ontological, epistemological and semantic theories blurring a clear methodological distinction between "reality" and "truth". As always two terms – reality and truth – are expressed with one Sanskrit term satya; often reality/truth are seen as having an interchangeable usage and meaning. This philosophical development is perhaps the most significant contribution resulting from the schisms the Buddhism experienced after the Buddha passed away (ca. 380 BCE). Various schools with varying interpretations of the Buddha's words soon appeared in Buddhism, which resulted in rich and vibrant philosophical and hermeutic atmosphere.

In later years, Sarvāstivādin (Vaibhāṣika) and Sautrāntika, Madhyamaka (from the first century CE onwards) and Yogācāra (ca. sixth century CE onwards) became the dominant schools. Our investigation of the theory of the two truths will briefly focus on how these schools have received, interpreted and understood it. Although all these schools regard the theory of two truths as the centrepiece of the Buddha's philosophy, all have nevertheless adopted very different approaches to the theory. As we shall see each understood and interpreted the two truths in different ways, and are often fundamentaly and radically opposed to each other....
I think that the two-truths idea arises from the anatta (no-self) idea. In the Samyutta Nikaya we read of a female monastic named Vajira arguing with Mara (the Buddhist devil, a tempter figure):

"Why now do you assume 'a being'?
Mara, is that your view?
This is a heap of sheer formations.
Here no being is found.
Just as, with an assemblage of parts,
The word 'chariot' is used
So when the aggregates exist
There is the convention, 'a being'." (SN 5:10)

In the Milindapanha, King Milinda (believed to have been the historical Indo-Greek king Menander) asks the monk Nagasena his name. Nagasena replies that his family uses the name 'Nagasena', but "Nagasena' is only a name, since no person is got at here". Milinda naturally wants to know, if Nagasena is not found among existing things, who is this in front of him that he's talking to. Nagasena uses the same chariot-part analogy that Vajira used, arguing that the wheels aren't the chariot, the axle isn't the chariot, none of the chariot's parts constitutes the hypothetical chariot substance. Milinda agrees that 'chariot' is just a word applied to all of the parts assembled together. Nagasena continues,
  
"It is well. You, sire, understand a chariot. Even so, it is for me sire, because the hair of the head... (a list of body parts follows)...and because of the brain in the head, and because of material shape and feeling and perception and the habitual tendencies and consciousness that 'Nagasena' exists as a denotation, appellation, designation, as a current usage, merely as a name. But ultimately, the person is not got at here." (Milindapanha II.1)

It seems to me that the two-truths doctrine is already implicit in what Vajira and Nagasena are saying. There are referring expressions that refer to things that possess their own substantial existence. And there are referring expressions that purport to refer to substantial things, but only do so conventionally. These latter ('Nagasena', 'chariot') don't name 'Nagasena' or 'chariot' substances at all. That doesn't mean that we can't say true things about people or chariots (hence the "two truths" or two kinds of truths idea), only that we mustn't misunderstand them metaphysically.

It's an early kind of nominalist mereology I guess, turned into a religious doctrine. Who would have ever predicted that?

I think that part of the motivation was that the Buddha and his early followers might have been arguing against the idea found in the roughly contemporary earlier Upanishads that there's an eternal essence inside each of us, identified as our true self, and that the religious task that leads to salvation is to discover and identify with it, to discover the divine within and to stop identifying with our always changing phenomenal selves. The Buddha wanted to argue instead for a different kind of salvation very unlike apotheosis.