Soros, epistemology and $$$$$$, cash poppers up

Charles Brown CharlesB at CNCL.ci.detroit.mi.us
Fri Apr 13 09:34:16 MDT 2001


Got this from Carl R.

CB

&&&&&&&&

[From "Capital Punishment" by Guy Rundle, a review in The Age of _Open
Society: Reforming Global Capitalism_ by George Soros]

Soros is no pseudo-intellectual business guru, writing his 12 steps to
prosperity and world peace. A Hungarian refugee, he studied with philosopher
Karl Popper in the '40s, and could easily have continued on that track.
Instead he went into the financial world and eventually launched the Quantum
fund, which made billions by the 1980s.

Soros argued that his success in the markets was in part derived from the
training he received in epistemology, the philosophy of knowledge.
Consequently the first part of his book is an attempt to ground a more
developed theory of markets in the basic principles of what we can know.
Soros's point - which has, he acknowledges, been made before - is that
markets are treated by the proponents of their unlimited reign as if they
were natural phenomena, like weather. But they obviously aren't - they're
social phenomena that cannot but be affected by one's interaction with them.

More radically Soros argues, by use of logic notation, that even the
simplest two-participant market rapidly yields random elements that make it
utterly unpredictable. The analogy might be with a game of scissors, rock
and paper. If I know that you always play scissors, I will play rock. But
once you know that I know you play scissors, you'll play paper. But if I
know you know I know ... and on it goes. The key point is that you can never
know what level of analysis the other is making of your moves, so you can
never predict with total reliability that the past will be any guide to the
future.

Soros again acknowledges the non-novelty of this approach, sharing common
ground with game theory and hermeneutics, but he has presented the approach
- which he and others call reflexivity - more clearly than most. More
interestingly, he has derived from this position an explanation of why
rational expectations and market clearing theory is flawed - although his
conflation of the two has attracted criticism. Markets are laws only to
themselves within the closed system of their trades, and any attempt to find
exterior law - in price/earnings ratios, dividends or the like - is going to
get you into trouble.

Soros has profited greatly from the intellectual mediocrity of economics and
finance education and the rigid metaphysical awe with which its graduates
approach markets. He has adapted Popper's principle of falsificationism -
that having a theory disproved by events tells you more than having events
conform to the theory - and says he welcomes finding out that he was wrong,
and could never understand why others didn't feel the same way. He's an
engaging type - a sort of high-finance Woody Allen, perpetually anxious and
incapable of enjoying the ride. He seems to have gained far more pleasure
from his Open Society foundations, which he has established in numerous
formerly communist countries, to assist in the establishment of open,
democratic institutions. They have also served as a staging point for
attacks on those who seek to portray global society and a global market rule
as identical.

Soros' position about his own activities - massive buying and selling during
times when currencies such as the pound and the baht were vulnerable to
speculation - is less secure. While his analytic coolness - he points out
that the problem is the systemic nature of financial instability, not
individual agents within it - is a welcome change to the bourgeois
moralising that accompanies much of the anti-global neoliberalism movement,
it arises in part from an oversimplified view of what a market is. Marx's
later letters to Engels are full of crowing about his gains on the stock
market - when he isn't asking to borrow money - so such an attitude is
hardly novel in capitalism's critics.

But the scale of money movements is so large now that participation in it
amounts to a communicative and political act as much as an economic one, and
adding to the velocity of the market is to add to its legitimacy as a whole.
Given that it could be argued that it is inherently wrong to participate in
such systems - as opposed to investment in, say, fixed property or plant,
which can be assessed on a case-by-case basis.

[Full text:  http://www.theage.com.au/books/2001/04/09/FFXPNQP3BLC.html]

Carl




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