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Customer Review

on 6 July 2009
Thomas Aquinas defined truth as ad-equation between the thing and the intellect ("adaequatio rei et intellectus"), the ad-equation between reality and thinking. Soros uses three avenues to introduce his, Keynesian it appears now in the present second edition, intuitions between thinking and reality.

Soros wants to be part of the lively debate on how to reshape the world, how to bring about a better world order (page 231), after the crisis whose trigger was the bankruptcy of Lehman Brothers on 15 September 2008. In the past, the US government always intervened when the financial system was threatened (pages 157 and 161). In September 2008, however, says Soros, they let the system collapse (page 161). In the first edition of the book, published before 15 September 2008, Soros did not invoke nor present Keynesianism as a solution. The present second edition adds a Part III, which starts page 155 and ends page 223, to the text, before the (old) conclusion which now starts page 224 and in the first edition started page 153. The trigger of the crisis was the Lehman Brothers' bankruptcy. Soros says the cause of the crisis is not exogenous to the financial system. He says that the crisis was not caused by an external shock (like the 1973 oil crisis) but that it is a crisis of the system itself (page 216). He does not analyse the financial system's flaw. He does not analyse how the financial system is maladapted, or how mal the financial system is adapted to reality. Instead, he uses three avenues to introduce his, Keynesian it appears now in the present second edition, intuitions between thinking and reality:
One, his concept of reflexivity which is based inter alia on an erroneous interpretation of Sir Karl Popper's concept of "fallibility" and on a failure to grasp the purpose of quantum gravity.
Two, his denial that logic can expand the knowledge of truth. Only credit can, for Soros, be expanded.
Three, Lehman Brothers' bankruptcy is conclusive evidence that the efficient market hypothesis has been falsified. Therefore, Soros's intuitive theory of reflexivity is correct. By the same token, the intuitive policy-recommendations of which Keynes had intuitive a-priori knowledge seven decades ago are appropriate to solve the present crisis.

Pythagoras, in the sixth century BC, compared life to the Great Games, where some go to compete for the prize and others go with wares to sell, but the best as spectators; for similarly, in life, some grow up with servile natures, greedy for fame and gain, but the philosopher seeks for truth. Saint Augustine (354 - 430 AD) declared "If I am deceived, I am". "Truth" is "adaequatio rei et intellectus" would add Saint Thomas (1225 - 1274). Before René Descartes, reality was out there. Then man came along to know it. Descartes (1596 - 1650) then says, no truth is not out there and is not ad-equation between the thing and the intellect, truth is in here, truth is in my "cogito". I think ("cogito"), therefore I am ("cogito ergo sum").

Not so for the Enlightenment, says Soros. For the Enlightenment, says Soros, it is with Descartes that reality was out there. By declaring "cogito ergo sum", Descartes made science became possible, thought the Enlightenment, says Soros (page 32) who, the latter, seems nevertheless to be critical of the Enlightenment.

At the end of the day, which will include the second avenue, I will have to wonder whether if Soros were confronted with Thomas's definition of truth, he, Soros, would not say that this is the definition of truth advocated by the Enlightenment. I hope I am wrong on this but, for the moment, I see no way out of this conclusion.

Most authors, even those critical of Descartes, argue that Augustine anticipates Descartes. This reviewer disagrees.

Augustine said:
"If am deceived, I am ("Si fallor, sum"),
For he who is not, cannot be deceived; and if I am deceived, by this same token I am."
This reviewer says that if you are deceived and thus fail, it is reality which tells you that you fail. It is not your thinking, not your "cogito", which tells you that you have failed, but the real-world school of hard knocks which informs of the hard matter that you have failed.

The online etymological dictionaries confirm that the Latin verb "fallere" (from which "fallor" is the first person singular present indicative in the passive voice), "to deceive", is the etymological origin of the English noun "fallibility".


Whereas for, Sir Karl Popper, we are fallible because our adaptation to the natural environment is never optimal and always imperfect. (Popper, "All life is problem solving", Routledge, 1999, p. 70),
Soros says, page 16 of book which is hereby being reviewed, that he disagrees with Popper's Thesis of the Unity of Scientific Method, i.e., the thesis that the same methods and criteria apply both in the natural and social sciences. He disagrees because, for him, Soros, the social sciences deal with events that have thinking participants. These participants base their decisions on their imperfect understanding. And their "fallibility", - Soros is using this noun in another meaning than Popper (Soros does not speak about maladaptation to the natural environment) -, creates a difficulty for the understanding of social institutions which is absent in the case of natural phenomena. Therefore, says Soros page 17, the social sciences need to use "somewhat" different methods from the natural sciences. He concedes, page 222, that the distinction between those two kinds of sciences is not an easy one.

And in this way, I landed in the first avenue which Soros uses to introduce his, Keynesian it appears now in the present second edition, intuitions between thinking and reality.

Soros's main purpose in writing this book is to demonstrate the validity and importance of "reflexivity" (page 224) as the element which justifies that the social sciences should use "somewhat" different methods from the natural sciences. "Reflexivity" is a two-way connection between the participants' thinking and the situation in which they participate (page 8). For Soros, knowledge is represented by true statements. But statements and facts do not exist independently of each other (page 8). This results, on the one hand, in the participants not being able to base their decisions on knowledge alone (page 6) and, on the other hand, in misconceptions playing an important role in the shaping of human history (page 216), Sir Karl Popper having demonstrated that ultimate truth is beyond human reach (page 37).

Soros's contention is that machines need to be well formed in order to survive, that is, they must do the job for which they were designed. Social institutions are different, he says. They may not serve their purpose well, yet they may survive. Markets may be maladaptive, this reviewer would say "maladapted", indefinitely (page 220),

Soros says that reflexivity can be compared to John L. Austin's and John Searle's speech acts (page 38) and has some resemblance to Heisenberg's uncertainty principle in quantum physics (page 30 - 31).

The "theory" of speech acts says that we create social reality by engaging in speech acts, which are the vehicle through which people commit themselves to one another.
Searle himself insisted, however, on the fact that realism entails that facts exist independently of language and interpretation (George P. Fletcher, "Law", in: Barry Smith (ed.), "John Searle", Cambridge University Press, 2003, 85, p. 86).
This means that when Soros argues page 32 that reality is not something independently given that can be fully understood by making statements about it, Soros is extracting himself from any qualification as a realist which he confirms on page 34 by saying that the separation of thinking and reality is a fallacy, one of the fertile fallacies which abound in history.

Werner Heisenberg's uncertainty principle says that it is not possible to be exactly sure of both the position and the velocity of a particle; the more accurately one is known, the less accurately the other can be known.
For Soros, Heisenberg's uncertainty principle should thus destroy knowledge. Soros does however not say that people do not base their decisions upon knowledge because knowledge has been destroyed by the uncertainty principle.
Soros says that decisions need not to be based on knowledge to produce the desired results and that people base their decision not only on facts, but also on intentions and expectations about the future (page 4).

Instead of letting the uncertainty principle destroying knowledge, Soros lets the method of the social sciences destroy the physical sciences.

Scientists know that the uncertainty principle which explains what happens on microscopic (atomic, quantum) scales is incompatible with Eistein's 1915 general theory of relativity, an expansion of his 1905 special theory of relativity (E=MC2) which corrects and extends Newtonian gravitation, especially at the macroscopic level of stars or planets, to include the effect of gravitation on the shape of space and the flow of time. And scientists are trying to reconcile those theories whose principles lie uncomfortably with each other into a theory of "quantum gravity".

No, in accordance with his theory that the social sciences, including metaphysics I suppose, need to use "somewhat" different methods from the natural sciences, Soros stops at the apparent contradiction of Heisenberg's uncertainty principle.

Soros thinks one can be in the Pythagorian position of the philosopher, thus in the position of a spectator, only in exceptional circumstances. This is because we not only want to understand the world in which we live, but also want to make an impact on it to our advantage (page 3). The Pythagorian assumption of the spectator is therefore only justified, in the very exceptional circumstances where the participants make a special effort to keep the two functions apart.


The second avenue through which Soros wants to introduce his Keynesian intuitions between thinking and reality is that he says that he accepts the correspondence theory of the truth (page 8).

Now, the correspondence of truth is based on Thomas's definition of the truth, as ad-equation between the intellect (or thinking) and the thing (or reality).

Basic realism rests however not only on the correspondence theory of the truth, but also on respect for facts of how the world is and how it work. (Barry Smith, "John Searle: from Speech Acts to Social reality" in: Barry Smith (ed.), "John Searle", Cambridge University Press, 2003, 1, p. 2)

Once realism has been accepted as a starting point, once it has been accepted that the real can be caught by thought, one can and must trust discursive thought as a truthful representation of reality, to the extent that reason elaborates or expands its primary knowledge of the real through reasoning in accordance with its own laws. It is the task of the science of logic to describe the laws with which reason has to comply when it, reason, is reasoning in order to expand its knowledge of the truth (see my review of Friedrich August von Hayek's "Contra Keynes and Cambridge", over at Amazon.com).

Soros denies, however, that logic can expand the knowledge of truth because, page 34, we are liable to overexploit it and extend (or expand) it to areas where it no longer applies. Translate: there are no laws of logic which tell you which expansions of knowledge are valid and which expansions are not valid.

Only credit can lawfully (and legally) be expanded, i.e. only money can be created out thin air by central and non-central banks, says Soros. Instead of outlawing all money creation out of thin air, Soros wants only credit expansion by non-central banks to be regulated. Soros even adds in Part III, page 188, that creating additional money supply is the right response to the collapse of credit. He wants the economy first to be pumped full of money to make up for the collapse of credit and then he wants, when credit begins to flow again, the liquidity to be miraculously drained out of the system almost as fast as it was injected (page 192).

His argument is that credit creation is a human construct and that it is maladapted to reality. He forgets that under the gold standard, which is not a human construct, credit expansion is not possible.

He does not call for the repeal of the financial system because he refuses to accept the unity of the scientific method. It is a social construct and can thus continue in existence even if it is maladapted.

Soros says, page 31-32, that knowledge requires statements that correspond to the facts. To establish correspondence statements and facts have to be treated as separate categories.

Hence, he says, the pursuit of knowledge leads to the separation of thinking and reality. On page 34 he says however that the separation of thinking and reality is a fallacy, one of the fertile fallacies which abound in history. The reason why it is a fallacy is that reality is not independently given that can be fully understood by making statements about it (page 32).

No, Thomas said that truth, or knowledge (of ... truth) if you want, is ad-equation, not separation, between thinking (or the intellect) and reality (or the thing).


This separation between thinking and reality explains why after the 15 September 2008 Lehman Brothers bankruptcy, Soros felt compelled to publish a second edition of the book by adding a Part III. In that Part III, Soros now argues page 170 that, whereas the people living though the Great Depression in the 1930s did not have John Maynard Keynes's book "The General Theory of Employment, Interest and Money" at their disposal because it was published only in 1936, we have it at our disposal from the outset.

In my review of Friedrich August von Hayek's "Contra Keynes and Cambridge" over at Amazon.com, I said that in "The General Theory", Mr Keynes, outlines his intuitive policy-recommendations of which he had a-priori intuitive knowledge and presented them then as the conclusions from premises based on, or inferred from, principles which are fundamentally contradicted by experience.

By writing the second edition of the presently reviewed book, Soros is recognising that he did not need Keynes before Lehman Brothers' bankruptcy, bankruptcy which "conclusively" "falsifies" the efficient market hypothesis, says Soros (page 165). There is indeed a flaw in the equilibrium theory (page 72). Therefore, page 74, the paradigm that financial markets tend towards equilibrium must be adjusted, we must renounce the unity of methods (page 75) and, page 76, adopt the ... intuitive theory of reflexivity.

Sir Karl Popper's not-so-intuitive criterion of "falsifiability" says that a theory is part of empirical science if and only if it [possibly] conflicts with possible experiences and is therefore in principle falsifiable by experience. (Popper, "All life is problem solving", Routledge, 1999, p. 16)

Soros, on the other hand, intuitively knows that banking system, which, as we have seen, will have been pumped full of money and from which the "liquidity" will then have been miraculously drained out, will not be allowed to collapse exactly because this caused the Great Depression. Soros does not elaborate on who or what will prevent the banking system from collapsing.

Soros intuitively knows that maladapted and ... fraudulent social institutions, such as irredeemable, at least unbacked, paper money and fractional-reserve banking, can survive forever.
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