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February 28, 1997
It always makes me queasy when a successful capitalist uses his wealth and talent to sell anti-capitalism. Not because such behavior is a form of class betrayal, but because it is a species of pull-up-the-ladderism. The anti-capitalist business leader patronizes policies that make it harder for others to achieve the success he enjoys. George Soros billionaire, philanthropist and "financier-philosopher" is the latest in a long line of "progressive" businessmen whose strange notion of gratitude is to attack the system that allowed them to get rich.
In "The Capitalist Threat," (Atlantic Monthly, February 1997) Soros warns that the chief danger to "open societies" today is not the Communist menace, but glorification of capitalism. According to Soros, free markets produce shocking inequalities of wealth, painful business cycles, and dog-eat-dog materialism. Unsurprisingly, he calls for regulation and redistribution to make capitalism safe for democracy.
Soros writes without any apparent awareness of how the Nanny-Welfare State corrodes democracy, producing mountains of debt, a culture of dependency, and an unaccountable bureaucracy. Nor does he give capitalism credit for bringing such marvels as computers, telephones, and automobiles within reach of the common man.
Soros attempts to ground his statist musings in a "new" theory of knowledge. Dubbed "reflexivity," the theory holds that we cannot discover objective truths in morals, politics, or economics, because all social theories influence the phenomena they purport to explain. To avoid self-contradiction (the claim to know that knowledge is impossible), Soros ends up describing his theory as an "article of faith" but let that pass.
The nub of Soros' argument is this. Ignorant of "reflexivity," free market economists proselytize their teachings as science, resulting in laissez-faire becoming the new orthodoxy of the age (would that it were so!). Every orthodoxy is pernicious, because open societies are based on the insight that "nobody has a monopoly on the truth."
Some economists have illicitly claimed for economics the predictive certainty and quantitative precision of natural science. But free-market theorists (e.g., Mises, Hayek) have been among the leading critics of such scientism. Furthermore, free marketers not only recognize, but insist upon the limits of reason the inability of any mind or set of minds to master all relevant economic information.
So why is economics a pseudo-science, according to Soros? Economics depicts the market as an equilibrium system a conceit based on fanciful assumptions such as perfect information, homogeneous products, and numerous participants who individually cannot influence price. In reality, says Soros, markets never reach equilibrium, because markets are reflexive investors can affect the prices to which they respond.
This is silly. The concept of an equilibrium price is a purely heuristic device, intended to clarify how markets clear surpluses and eliminate shortages. It is not a normative standard and is fully consistent with Joseph Schumpeter's insight that efficiency also requires disequilibrium the "creative marketplace destruction" that economic liberty unleashes.
Far from postulating "perfect" competition, laissez-faire advocates eschew this airy construct as a source of interventionist mischief. Attainment of this impossible state of affairs would not even be desirable. "Perfect" information could be achieved only by diverting vast resources from other consumer priorities.
Soros with his billions may be able to afford a more socialistic world; those in need of economic opportunity cannot. Soros pontificates that open societies can no longer define themselves in terms of opposition to Communism. But free societies must always define themselves in opposition to tyranny. Otherwise, they may be tempted to sell their birthright for a mess of potage like the statist claptrap Soros is peddling.
Marlo Lewis is the Vice President for Policy at the Competitive Enterprise Institute.