http://www.theage.com.au/books/2001/04/09/FFXPNQP3BLC.html Capital punishment By GUY RUNDLE Monday 9 April 2001 Open Society: Reforming Global Capitalism, By George Soros, Little, Brown, $30 The Death of Gentlemanly Capitalism, By Philip Augar, Penguin, $45 Nineteen ninety-eight was a great year for economic crisis junkies. Day after day, the financial pages read like instalments of a particularly baroque thriller, as one economy after another tumbled into the dust. First the Thai currency, the baht, fell, and the East Asian banking system followed suit. A hedge fund called Long Term Capital Management - four words, four lies - was caught short by billions of dollars. Russia defaulted on Soviet-era bonds, and issued new bonds to cover, which it then defaulted on. International banks made a deal for part-payment in order to avoid further default. Russia defaulted on it. Meanwhile, the LTCM exposure threatened to call in more than 200billion dollars. At that time it seemed as if the whole international financial system might collapse, but nobody was really clear what into. Given such chaos it was not surprising that many agreed with gloomy investor George Soros, who announced his belief that the system was crisis-ridden, and that ``it was difficult to imagine its collapse but far more difficult to imagine its survival''. Already known as a maverick social commentator, Soros became capitalism's leading Jeremiah, outstripping the most enthusiastic of International Socialists in the breadth and depth of his expectations of crisis. In Open Society, a fully revised version of an earlier work, he pulls back from that position somewhat, but continues to argue for a range of global controls to limit and discipline the market. 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. Soros' pleas for capital controls and Tobin (transaction) taxes is a sort of ``stop me before I invest more'' approach, whose convenient aspect does not deny their basic appeal. Whether the problems of an undemocratic system such as the global market can be solved by recourse to overarching global regulation remains to be seen. It may be that uncoupling local production from global control is the only way to achieve democracy from below if we're interested in getting out of this mess. And if you're interested in how we got into this mess. You might try Philip Augar's volume on the transformation of the London banking world from a relaxed, late-imperial centre into the US-controlled hot zone of the global imperium. Normally Augar is the sort of person one would avoid at parties, but The Death of Gentlemanly Capitalism is interesting for its account of the origins of globalised finance in the successive deregulation of the US system in the mid-'70s - rather than in any Reagan-Thatcher initiative. Sprucely written and cheaper than valerian. Guy Rundle is a co-editor of Arena Magazine. Louis Proyect Marxism mailing list: http://www.marxmail.org/
