Emperor Soros’s new clothes

Matthew Lynn

10 May 2008

Matthew Lynn says hedge-fund pioneer and currency speculator George Soros is still a brilliant player of markets — but as a philosopher, frankly, he’s incomprehensible

Now he had a platform to become a writer and public thinker. From the late 1990s onwards, Soros started predicting the demise of the capitalist economic system with monotonous regularity. In 1998 he published The Crisis of Global Capitalism, which declared that unfettered capitalism is ‘a bigger danger to an open society than socialism’, and that financial markets ‘behave more like wrecking balls than a pendulum’. As it turned out, 1998 marked the beginning of a decade-long boom, but no matter. Since then, a succession of Soros tomes have made roughly the same point. ‘An unleashed and unhinged financial industry is wreaking havoc with the economy,’ he writes in the latest. ‘It needs to be reined in.’

At the heart of his argument is the concept of ‘reflexivity’, which means that ‘our thinking actively influences the events in which we participate and about which we think,’ according to his own definition. He makes very grand claims for the theory, linking it to quantum mechanics (from which the Quantum Fund gets its name), and attempting to establish that it explains not just the markets but, well, pretty much everything. At the core is the notion that what we think about things changes according to the way events unfold. The trouble is, it’s a pretty mundane thought, dressed up in a lot of pseudo-philosophical language. Certainly, no one would pretend that the financial markets weren’t affected by moods and emotions. But Soros piles layer upon layer of meaning on this basically quite commonplace observation. ‘Usually there are several reflexive processes going on at the same time, interfering with each other and producing irregular shapes,’ he argues in the new book.

Well, maybe. More interesting, in fact, is what his books say about Soros. He remains a brilliant investor: indeed this year, Institutional Investor ranked him the second most successful in the world, adding another $2.9 billion to his fortune. But even Soros admits that ‘reflexivity’ doesn’t often help him make financial decisions. In fact, he is more often guided by his back pain, which turns out to be remarkably prescient about financial trouble ahead. ‘To what extent my financial success was due to my philosophy is a moot question because the salient feature of my theory is that it does not yield any firm predictions,’ he concedes. ‘I used to suffer from backaches and other psychosomatic ailments, and I received as many useful signals from my backaches as from my theory.’

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Alan Scott

May 8th, 2008 6:41pm Report this comment

Soros is obviously a man of great intelligence, strategical analytical capacity etc. Would have made a good Roman Emperor in the time of Justinian, perhaps. But his confusion of the worth of financial skills - and in him,there can be no doubt about that - with philosophy or the understanding of or empathy with the human condition, is evidence of his Cyclopean condition. And I yield to noone in my admiration of his philanthropical activities.
It is yet again a reflection of our celebrity obsessed culture - that a person who excels in one sphere is automatically assumed to be competent to act in/ pronounce upon/be listened to in other spheres.

Fredd Kambo

May 9th, 2008 2:08pm Report this comment

George Soros did not invent the hedge fund industry. Alfred Winslow Jones did so in 1949, including the practice of charging the fee of 20% of performance. Hedge funds were in fact quite popular in the 1960s, a popularity that declined in the following decades. It could be argued that Soros and men like him ignited their resurgence to the fashinable status they enjoy today. A philosopher, he is not however.

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