According to Osho, yes: madhouses arise from the very idea of God propagated by priests. Belief in a punitive deity breeds guilt; guilt forces unnatural repression and perversion; such distortion culminates in madness, requiring asylums. Pagans and wild animals—without God and repression—remain sane; only in 'zoos' like monasteries and nunneries does insanity and aberration flourish, sustained by a church–psychoanalyst loop.
He says the idea of God makes people feel guilty, that guilt twists natural life into madness, and without that idea there’d be no madhouses.
From the Discourses
Passages where Osho speaks to this question — each links to the complete discourse.
Question: OUR BELOVED MASTER, SEKITO SAID: "MY TEACHING, WHICH HAS COME DOWN FROM THE ANCIENT BUDDHAS, IS NOT DEPENDENT ON MEDITATION OR ON DILIGENT APPLICATION OF ANY KIND. "WHEN YOU ATTAIN THE INSIGHT AS ATTAINED BY THE BUDDHA, YOU REALIZE THAT NO-MIND IS BUDDHA, AND BUDDHA IS NO-MIND; THAT NO-MIND, BUDDHA, SENTIENT BEINGS, BODHI, AND KLESA, ARE OF ONE AND THE SAME SUBSTANCE WHILE THEY VARY IN NAMES. "YOU SHOULD KNOW THAT YOUR OWN NO-MIND ESSENCE IS NEITHER SUBJECT TO ANNIHILATION NOR ETERNALLY SUBSISTING, IS NEITHER PURE NOR DEFILED. IT REMAINS PERFECTLY UNDISTURBED AND SELF-SUFFICIENT. THE SAME IS SO WITH THE WISE AND THE IGNORANT. YOUR NO-MIND ESSENCE IS NOT LIMITED IN ITS WORKING, AND IS NOT INCLUDED IN THE CATEGORY OF MIND, CONSCIOUSNESS, OR THOUGHT. "THE THREE WORLDS OF DESIRE, FORM, AND NO-FORM, AND THE SIX PATHS OF EXISTENCE ARE NO MORE THAN MANIFESTATIONS OF YOUR MIND ITSELF.
Question: BELOVED OSHO, ONCE, WHEN TOZAN WAS TRAVELING WITH ANOTHER MONK, THEY SAW A VEGETABLE LEAF FLOATING DOWN A VALLEY STREAM. TOZAN SAID, "IF THERE WERE NO-ONE IN THE DEEP MOUNTAINS, HOW COULD THERE BE A VEGETABLE LEAF HERE? IF WE GO UPSTREAM WE MIGHT FIND A WAYFARER STAYING THERE." MAKING THEIR WAY THROUGH THE BRUSH AND GOING SEVERAL MILES UP THE VALLEY, THEY SUDDENLY SAW THE STRANGE-LOOKING, EMACIATED FIGURE OF A MAN. IT WAS MASTER RYUZAN. HIS NAME MEANT "DRAGON MOUNTAIN," AND HE WAS ALSO KNOWN AS YINSHAN, MEANING, "HIDDEN IN THE MOUNTAINS." TOZAN AND THE OTHER MONK PUT DOWN THEIR BUNDLES AND GREETED RYUZAN. RYUZAN THEN SAID, "THERE IS NO ROAD ON THIS MOUNTAIN -- HOW DID YOU GET HERE?" TOZAN SAID, "LEAVING ASIDE THE FACT THAT THERE IS NO ROAD, WHERE DID YOU ENTER?" RYUZAN SAID, "I DIDN'T COME BY CLOUDS OR WATER.
Do you feel, Osho, that all this is pathological or sociological in origin—an outcome of our education, perhaps of religion, society, or administration?
I hold that we should regard society as the machine and the individual as the life. To save the individual—even if society collapses—no worry! It won’t be that society vanishes; this society will pass, and a new society will take its place. When the individual becomes the center of education, the thousand kinds of pathology and mental illness that arise will diminish greatly. The social diseases we see—theft, murders, suicides—will also diminish greatly. What happens now is not visible to us. For example, across the world women commit many suicides. The cause is not women’s nature; the cause is the slavery imposed upon women. Slavery reaches a point where death seems better than life. In India, widows became satis; it was merely giving suicide a religious form, granting it a social sanction—nothing else. We created such a painful condition for widows that dying always seemed better to them. If widows…
Maneesha's question:
It is really megalomania. If God is not there, there is every possibility that anybody who has an egoistic mind will move to the other extreme. First he was kneeling down before God. Now knowing there is no God, he moves to the other extreme. Now he declares, "I am God." God has to be there. But this is the experience of one who only knows the mind and not anything beyond it. As you move beyond the mind, you are no more. There is no one to declare, "I am the son of God," or, "I am God." There is no one to declare, "I am the savior of mankind," or, "I am a prophet," or, "I am the reincarnation of God." All these people are simply insane. And you have been worshipping insane people because they declared themselves to be God. All these so-called founders of religion needed…
Osho, in some ancient time, Khidr, the master of Moses, warned that after a certain date the quality of all the water in the world would change, and whoever drank it would go mad. Only those who put aside a little water and drank only that would remain sane. Only one person paid attention to Khidr’s warning. He set aside a little water.
After the appointed date, exactly what Khidr had said came to pass. Except for this one man, all the villagers went mad. But when he spoke with people, he discovered that everyone thought he was the mad one. Gradually, his loneliness among the mad became unbearable, and he too drank the new water. Then he even forgot that he had saved some pure water. And the villagers began to say that the one madman among them had also become sane. Osho, please be gracious and explain to us in detail the purport of this Sufi tale. The event from which you got that experience will never occur again. Nothing in this world occurs twice. There is no repetition here. Every moment is new—every bud is new, every morning’s dew is new—so each instant is new. You bring old rubbish into this newness—that’s the mischief. Become new yourself; remain, like a…