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The Moving Target

No single person has done more to promote the open society—a society in which free expression and political opposition are protected—over the past thirty years than George Soros. During the Communist era he used his Open Society Foundation to support greater freedom in the Soviet bloc and China. After the Communist system imploded his foundations acted to mitigate the impact of ethnic war in former Yugoslavia. Later they backed reform movements in Georgia and Ukraine, and Soros formed close relationships with the new leaders who emerged, such as President Mikhail Saakashvili of Georgia. This led Russian President Vladimir Putin to accuse him of orchestrating the “color revolutions.”

For many years his global network of foundations has helped people in many countries suffering from persecution—women, gays and lesbians, gypsies, and others—to achieve a secure place in society. In the United States the Open Society Institute has contested current policies on illegal drug use, HIV/AIDS, and health care during terminal illness. More recently it has addressed the ” resource curse”—the damaging effect of sudden oil wealth in developing countries. Soros has also taken a strong stand against US foreign policy, opposing the Iraq war and attacking the “war on terror” as misconceived and counterproductive. Aiming to make the world safe from terrorism and at the same time to entrench American supremacy, the Bush administration has made the world more dangerously unstable while causing a steep decline in American power.

In The Age of Fallibility—his most important book to date and a stark warning of the dangers facing open societies today—Soros attempts to explain this turn of events. Much of the book is a probing reexamination of the conceptual frame that underpins Soros’s activities both as an investor and as a philanthropist; but some of its most interesting passages have to do with Soros’s personal experiences of what he calls “far-from-equilibrium situations”—conditions in which accepted rules of human behavior are suspended or destroyed.

Such a situation came into being with the Nazi invasion of Hungary in 1944, when like other members of the country’s Jewish population Soros and his family faced mortal danger. Soros survived owing to the foresight and courage of his father, Tivadar, who acted decisively to help the family and many others. “It was his finest hour,” Soros writes.1 Tivadar Soros, he writes, was mentally prepared for the collapse of normal life by his time in Siberia after having been taken prisoner by the Russians when serving as a volunteer in the Austro-Hungarian army in World War I. He instilled in his fourteen-year-old son the fact that “there are times when the normal rules do not apply, and if you obey the rules at those times you are liable to perish.” Soros describes this as “the formative experience of my life,” and there can be little doubt that it imbued in him a willingness to depart from established expectations and wipe the slate clean each day that has shaped his career as an investor. At the same time it implanted in him questions that have pursued him ever since. How could human beings be seized by irrationality as so many were in the Nazi period? What are the flaws in human reason that make such “far-from-equilibrium situations” possible?

The range of social and political causes to which Soros has contributed is remarkably wide, but this is not simply a large-scale exercise in philanthropy of the sort that is now commonly practiced by some among the seriously rich. Uniquely, Soros has used his wealth to promote a view of human knowledge and progress that confronts some of the central dilemmas of liberal thought at the present time. In managing his foundations—which he does with the active intensity he brought to his hedge funds—Soros has been guided by a version of Karl Popper’s view of human knowledge. Mainstream Western philosophy has traditionally aimed to secure a foundation for knowledge that is beyond reasonable doubt, but according to Popper we should not seek any such foundation. In science, which Popper sees as the model for all branches of inquiry, false theories are eliminated so that better ones can be developed; but no theory can claim to contain the final truth. Rejecting any method of induction in which past experience is used as a guide to the future, Popper advocated a method of trial and error in which knowledge grows by a process of falsification. Our most rational beliefs are not those that are most strongly verified, but those that have best survived criticism and refutation.

This philosophy is often called “fallibilism”—a term coined by the American pragmatist Charles Sanders Pierce, which has also been applied to describe John Stuart Mill’s theory of knowledge. Popper’s fallibilism is distinctive in rejecting induction, and many philosophers think that in leaving no reason for thinking that we can approach truth it may in the end be closer to skepticism. In contrast, for Popper an acceptance of fallibility facilitates the growth of knowledge and is also the defining feature of a progressive society. As he explained it in The Open Society and Its Enemies (1945), an open society is one whose public policies are formulated and tested as scientific theories, with those that fail being revised or abandoned. Accepting their fallibility and employing trial and error, open societies can bring about a cumulative improvement of human life that parallels the growth of knowledge in science.

Soros has always acknowledged the vital importance to him of Popper’s philosophy, but he is by no means an uncritical disciple. When it is applied to human affairs, he believes, Popper’s theory of fallibility does not go far enough. Popper believed the same methods could be used in natural science and in social inquiry; but we cannot study the human world in the way we study natural objects. Social objects are not like stars or stones, which exist independently of how humans think about them; social objects are partly created by human perceptions and beliefs, and when these perceptions and beliefs change, social objects change with them. This introduces an element of uncertainty into our view of the world that makes us even more prone to error than Popper believed: we can never have objective knowledge of society, if only because our shifting beliefs are continuously changing it.

Soros calls this relationship “reflexivity,” and argues that it undermines standard economic theories. Believers in laissez faire—or market fundamentalists, as Soros sometimes calls them—claim that when left to their own devices markets tend to equilibrium. But as Soros rightly notes, this theory “is just as much a perversion of supposedly scientific verities as Marxism-Leninism is.”2 Since they are created and run by fallible human beings, markets have a built-in tendency to overshoot and collapse in recurrent cycles of boom and bust. It is not only that our prevailing economic theories may be mistaken. Rather, they are bound to give a distorted picture of social reality. For example, money is not something that can be measured unproblematically in the way physical processes can be. It is embodied in human practices, which may change when it is known that an attempt at measurement is being made. When we act on a theory about society we always risk altering the reality to which the theory refers. As a result of this fact—which Soros terms “radical fallibility”—the condition of coordination postulated in economic models of equilibrium, which rests on an assumption of perfect knowledge, is not even a theoretical possibility.

Soros believes this insight into reflexivity has been vitally important in his investment career; but his extraordinary success, which includes remarkable financial results over long periods and developing the hedge fund model of investment beyond anything that existed before, may owe more to his early experiences and his intuitive gifts than to his theoretical beliefs. That does not mean his insight may not, in essence, be sound.

In a well-known critique the Nobel Prize winner Robert Solow argued that Soros neglects well-established theories of disequilibrium while his account of the boom-bust process “is not a theory at all.”3 No doubt Solow is right that many economists have questioned equilibrium models—most obviously John Maynard Keynes, who identified a large-scale breakdown of equilibrium in his analysis of the Great Depression.4 It is also true that Soros is not always consistent in his account of how reflexivity operates, sometimes referring to the paradoxes that arise when we try to predict our own behavior, sometimes to the dynamic interactions that occur in public settings where others are influenced by what we do or say, and sometimes to self-reinforcing shifts of mood of the kind that have been studied in the psychology of crowds. When in The Age of Fallibility Soros illustrates the workings of reflexivity in financial markets he refers to all of these processes without clearly distinguishing them, and it would be clarifying if he could do so in future writings.

Even so, it seems to me Soros is right to think that the fact of reflexivity implies a basic limitation in our knowledge of the social world. Like other aspects of human life, economic activity is shaped by volatile beliefs. The goal of natural science is to develop theories that contain universal laws; but the social sciences deal with unique historical processes, and the shifts of human beliefs cannot be expressed in such laws. To object to Soros’s account of reflexivity on the ground that it is not a consistent theory is to miss the central point, which is that theories of the kind that have been developed in natural science are not possible in the study of society.

Soros is not alone in thinking that the phenomenon of reflexivity limits the ambitions of the social sciences. Philosophers such as Ludwig Wittgenstein and Peter Winch have thought likewise, as have hermeneutic theorists such as Alfred Schutz and Charles Taylor and sociologists such as Anthony Giddens. All these thinkers accept that the project of a unified science—which was central in the Vienna School of Logical Positivism, and which, despite his hostility to that school, Popper shared—breaks down when it is applied to the human world. In also rejecting this project Soros has moved away from Popper’s philosophy, but he continues to share Popper’s belief that progress can be achieved in ethics and politics by using the methods of science. Like Popper he assumes that when public policies prove to be ineffective or disastrous the reason can only be that they embody mistaken hypotheses, whose errors can be corrected by criticism. This assumption is central to Popper’s brand of rationalism, and it also shapes much of Soros’s analysis of the failings of the Bush administration. The trouble is that the view of the world expressed in Bush’s foreign policies may not be formed from beliefs that can be falsified.

In an earlier book, The Bubble of American Supremacy (2004), for example, Soros noted that the outlines of the Bush doctrine were set out in a 1997 mission statement of the neoconservative Project for the New American Century.5 Noting that at the close of the twentieth century the United States was the world’s preeminent power, the signers proposed a number of policies aiming to entrench this position. Soros argued that as a result of these policies the United States entered

  1. 1

    Tivador Soros recounts his experiences in Masquerade: Dancing Around Death in Nazi-Occupied Hungary (Arcade, 2001).

  2. 2

    George Soros, “The Capitalist Threat,” The Atlantic Monthly, February 1997, pp. 45–58.

  3. 3

    Robert M. Solow, “The Amateur,” The New Republic, February 8, 1999, p. 29.

  4. 4

    In The Age of Fallibility (footnote on pp. 11–12), Soros acknowledges that a number of important twentieth-century economists “recognized that knowledge is imperfect and that this leads to fundamental difficulties in defining economic rationality,” and mentions F.A. Hayek, J.M. Keynes, and Frank Knight as examples.

  5. 5

    The text of the mission statement, signed by Dick Cheney, Paul Wolfowitz, and Donald Rumsfeld, is reprinted in The Bubble of American Supremacy: Correcting the Misuse of American Power (Public Affairs, 2004), pp. 5–7.

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