George Soros Turns (Semi) Austrian: "Why I Agree With (Some Of) Hayek"

Tyler Durden's picture

Why I agree with (some of) Hayek, by George Soros

From Politico

Friedrich Hayek is generally regarded as the apostle of a brand of economics which
holds that the market will assure the optimal allocation of resources —
as long as the government doesn’t interfere. It is a formalized and
mathematical theory, whose two main pillars are the efficient market
hypothesis and the theory of rational expectations.

This is usually called the Chicago School, and it dominates the teaching
of economics in the United States. I call it market fundamentalism.

I have an alternative interpretation
— diametrically opposed to the efficient market hypothesis and rational
expectations. It is built on the twin pillars of fallibility and

I firmly believe these principles are in accordance with Hayek’s ideas.

But we can’t both be right. If I am right, market fundamentalism is
wrong. That means I must be able to show some inconsistency in Hayek’s
ideas, which is what I propose to do.

Let’s start with Hayek’s influence on the twin pillars of my
interpretation. I was a student at the London School of Economics in the
late 1940s and read the great methodological controversy between Karl
Popper and Hayek in Economica, the school’s periodical.

I considered myself a disciple of Popper. But here I was on Hayek’s
side. He inveighed against what he called “scientism” — meaning the
slavish imitation of Newtonian physics. Popper took the opposite
position. He argued in favor of what he called the doctrine of the unity
of science — that the same methods and criteria apply to all scientific

I was drawn to this controversy by my interest in Popper. I had read his
book, “Open Society and its Enemies,” in which he argued that the
inconvertible truth is beyond the reach of the human intellect, and
ideologies that claim to hold this truth are bound to be false.
Therefore, he argued, they can be imposed on society only by repressive

This helped me see the similarity between the Nazi and communist
regimes. Having lived through both in Hungary, it made a great

This led me to Popper’s theory of scientific method. Popper claimed that
scientific theories can never be verified — they can only be falsified.
So their validity is provisional — they must forever remain open to
falsification by testing. This avoids all the problems of needing to
prove scientific theories beyond any doubt and establishes the
importance of testing. Only theories that can be falsified qualify as

While I was admiring the elegance of Popper’s theory, I was also
studying elementary economics. I was struck by a contradiction between
the theory of perfect competition, which postulated perfect knowledge,
with Popper’s theory, which asserted that perfect knowledge was
unattainable. The contradiction could be resolved by recognizing that
economic theory cannot meet the standards of Newtonian physics.

That is why I sided with Hayek — who warned against the slavish
imitation of natural science and took issue with Popper — who asserted
the doctrine of unity of method.

Hayek argued that economic agents base their decisions on their
interpretation of reality, not on reality — and the two are never the

That is what I call fallibility. Hayek also recognized that decisions
based on an imperfect understanding of reality are bound to have
unintended consequences. But Hayek and I drew diametrically opposed
inferences from this insight.

Hayek used it to extol the virtues of the invisible hand of the
marketplace, which was the unintended consequence of economic agents
pursuing their self-interest. I used it to demonstrate the inherent
instability of financial markets.


In my theory of reflexivity I assert that
the thinking of economic agents serves two functions. On the one hand,
they try to understand reality; that is the cognitive function. On the
other, they try to make an impact on the situation. That is the
participating, or manipulative, function.

The two functions connect reality and the participants’ perception of
reality in opposite directions. As long as the two functions work
independently of each other they produce determinate results. When they
operate simultaneously they interfere with each other. That is the case
not only in the financial markets but also in many other social

I call the interference reflexivity. Reflexivity introduces an element
of unquantifiable uncertainty into both the participants’ understanding
and the actual course of events.

This two-way connection works as a feedback loop. The feedback is either
positive or negative. Positive feedback reinforces both the prevailing
trend and the prevailing bias — and leads to a mispricing of financial
assets. Negative feedback corrects the bias. At one extreme lies
equilibrium, at the other are the financial “bubbles.” These occur when
the mispricing goes too far and becomes unsustainable — boom is then
followed by bust.

In the real world, positive and negative feedback are intermingled and
the two extremes are rarely, if ever, reached. Thus the equilibrium
postulated by the efficient market hypothesis turns out to be an extreme
— with little relevance to reality.

Frank Knight was the first to identify the unquantifiable uncertainty
inherent in financial markets. John Maynard Keynes and his followers
elaborated his insight.

Classical economists, by contrast, sought to eliminate the uncertainty
connected with reflexivity from their subject matter. Hayek was one of

The methodological debate in Economica took place in the context of the
larger political controversy over the role of the state in the economy.
Hayek was on one side, Keynes and socialist planners on the other.

But Hayek subordinated his methodological arguments to his political
bias. That is the source of his inconsistency. In the Economica, he
attacked scientism. But after World War II, when the communist threat
became more acute, he overcame his methodological qualms and became the
apostle of market fundamentalism — with only a mild rebuke for the
excessive use of quantitative methods in his Nobel Prize acceptance

Because he was fighting communism, a scientific theory that proved that
market participants pursuing their self-interest assure the optimum
allocation of resources was too convenient for him to reject. But it was
also too good to be true.

Human beings act on
the basis of their imperfect understanding — and their decisions have
unintended consequences. That makes human affairs less predictable than
natural phenomenon. So Hayek was right in originally opposing scientism.

At the time of the Economica articles, Popper was between Hayek and the
socialist planners. He was just as opposed as Hayek to communism’s
threat to individual liberty, but he advocated what he called piecemeal
social engineering rather than laissez-faire.

Here I sided with Popper. But Popper and Hayek were not that far apart. I
was influenced by both — and I also found fault with both.

By identifying Hayek’s inconsistency and political bias, I do not mean
to demean him — but to improve our understanding of financial markets
and other social phenomena. We are all biased in one way or another and,
with the help of reflexivity, our misconceptions play a major role in
shaping the course of history.

Because perfection is unattainable, it makes all the difference how
close we come to understanding reality. Recognizing that the efficient
market hypothesis and the theory of rational expectations are both a
dead end would be a major step forward.

As in that earlier time, the political controversy on the role of the
state in the economy is raging today. But the standards of political
discourse have greatly deteriorated. The two sides used to engage in
illuminating arguments; now they hardly talk. That is why I was so
pleased to accept this invitation to the Cato Institute.

As I see it, the two sides in the current dispute have each got hold of
one half of the truth. which they proclaim to be the whole truth. It was
the hard right that took the initiative by arguing that the government
is the cause of all our difficulties; and the so-called left, in so far
as it exists, has been forced to defend the need for regulating the
private sector and providing government services.

Though I am often painted as the representative of the far left — and I
am certainly not free of political bias — I recognize that the other
side is half right in claiming that the government is wasteful and
inefficient and ought to function better.

But I also continue to cling to the other half of the truth — namely
that financial markets are inherently unstable and need to be regulated.

Above all, I am profoundly worried that those who proclaim half truths
as the whole truth, whether they are from the left or the right, are
endangering our open society.

Both Hayek and Popper, I believe, would share that concern. Those of us
concerned with the protection of individual liberty ought to work
together to restore the standards of political discourse that used to
enable our democracy to function better.

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Cognitive Dissonance's picture

Now that they have successfully started the avalanche it's time for all the midnight conversions. Let the real money hoarding begin.

Arius's picture

"That is why I was so pleased to accept this invitation to the Cato Institute."

I love it when he appears like a know just happened to pop in...walking right down the street and stopped by...

btw...with all whats going on...none has time to notice over here but it was really a great wedding over in UK of another commoner into the throne...the world is really changing ready or not....

Cognitive Dissonance's picture

I guess the inbreeding experiments were finally judged a failure and they are trying to expand the royal gene pool.

Where's the chlorine when you need it?

Arius's picture

if they are trying to expand the gene pool they would be well advised to include some of your lineal descendants in the potential pool... :-)

Cognitive Dissonance's picture

Now that would really gum up the works.

I say use the chlorine and reboot. In fact I would argue that's exactly what they are doing.

Creed's picture

Soros is an evil fuck, but he aint stupid.


+ about a bajillion there




chumbawamba's picture

He's not so much evil as just self-aggrandizing.  And his "theory" is complete garbage.  His "reflexivity" is just an over-complicated description of the "invisivible hand of the marketplace".

Fuck this stupid Statist fraud.  I say we lop his balls off first.

I am Chumbawamba.

Cognitive Dissonance's picture

I wasn't talking about real money hoarding by Soros, but rather by the rest of the unwashed. I see these first signs of (fake) conversion as an early indicator that the economic washing machine is on the spin cycle and it's out of control. All hands on deck and every man, woman and child for themselves.

SWRichmond's picture

I was personally most revulsed by Soros' crass and unforgivable inclusion of himself in a conversation that had anything to do with Hayek, thereby trying to elevate himself to the same level of credibility.  Just another rich guy running around saying "I'm rich, therefore I'm smart and you should care what I think."

Would any of you like to hear my professional critique of the Theory of General Relativity?  I didn't think so.

Missing_Link's picture

Well said.  Ever since Soros bought the 2008 elections for Obama he's been convinced he's the center of the universe.

macholatte's picture

Here you have it in the very first sentence>>>>

Friedrich Hayek is generally regarded as the apostle of a brand of economics which holds that the market will assure the optimal allocation of resources — as long as the government doesn’t interfere.


That was the way it was then. Today it should read like this:

 " long as the Soros Machine doesn’t interfere."

Interference is what Soros is really good at. So the rest of his thesis is just irrelevant mumbo jumbo.




High Plains Drifter's picture

glenn beck, says that soros is the man with the plan behind trump. trump is really a democrat and they are just playing games........and to think, all of those idiotic tea party people saying they like trump. what fools , the amerikans are.......

chumbawamba's picture

Yeah, vote for the other guy that will be presented as your alternate choice, because I'm sure that guy will fix everything.

I am Chumbawamba.

Imminent Crucible's picture

Soros begins with a lie, deliberately confusing Hayek's efficiency of free markets with "Efficient Market Hypothesis".  If he starts with a lie, you know he'll end with a theft.

What a despicable human being.

Cognitive Dissonance's picture

For the elite lies and lying is simply a commodity to be used, traded and replenished. It's not personal.........unless you're on the wrong end of the lie.

macholatte's picture

"All that is needed for evil to triumph is for good men to do nothing."   - -Edmund Burke

"History is written by the victors." -Machiavelli

"Those who cannot remember the past are condemned to repeat it." -George Santayana (1863-1952),



AnAnonymous's picture

For the elite lies and lying is simply a commodity to be used, traded and replenished. It's not personal.........unless you're on the wrong end of the lie.


Because the common US citizen behaves differently?

There is no discontinuity between the US elite and its US base. Only resentment by some US citizens who wish they were elite or are no longer part of the US base.

Sean7k's picture

I had to laugh at his explanation of equilibrium and bubbles being the two extremes. I guess he just shot past deflation- the actual opposite to a bubble/inflation. Equilibrium is in the middle big guy- probably why they call it equilibrium.

Of course, that would have shot his whole argument down- guess that's why he framed it in those terms. 

Have to love it when these socialists tie together communism and efficient allocation of markets. Free markets- communism- boo!

Government equals control and control is the polar opposite of liberty. You can't have freedom and government. 

Regulation? When has that ever worked? Really, except for the Soro's of the world. They write the regulations via their paid assistants (congressman, presidents, supreme court justices), have them administered and upheld as law. This is totalitarian rule by the wealthy painted as democracy.

Soros, you couldn't hold a candle to Hayek. But then, I don't hear too many people proclaiming that besides you- jerk.

RichardP's picture

You can't have freedom and government.

That is a seriously uninformed statement, and too general to boot.

There is no such thing as absolute freedom, so the only thing we can discuss is constrained freedom, and then define the term:  freedom from what?  Or freedom to do what?  Society is group interaction, with each group trying to gain an advantage over the other.  Thus, freedom for one group generally means lack of freedom for another group.  In creating and imposing rules, governments create freedoms for some groups at the expense of curtailing freedoms for others.

Examples:  With no traffic rules, gridlock results fairly quickly and no one is free to move.  With traffic rules enforced, everybody is free to get from Point A to Point B with relative ease.  Child labor laws create freedom for the child to be a child.  Business looses the freedom to exploit cheap labor.  Interstate commerce law create freedom for businesses to know what to expect when doing business in multiple states.  There are many more examples.

Sean7k's picture

Actually, there is such a thing as absolute freedom. However, it is difficult to attain in a world of government. Thus, my statement. It assumes you can identify polar opposites and apply reason to the reality for most people or constrained freedom. 

Here, you miss the mark. Governmnet cannot create freedom. It can only impose law. There is never freedom in the law, there is only control of varying degrees and for various people.

Examples: traffic rules have nothing to do with government. Any group of people can come up with a set of rules and agree to employ them- sans a police power. In fact, that is where AAA came from, along with the use of signs and general rules of the road. Unfortunately, governmnet has determined that there are opportunities for taxation and fees causing driving to become part freedom and part concern for the lurking taxman.

Child labor laws forced families to change their economic structure as wages were lost. While workplace conditions improved for children, it made them less employable and caused the family to make difficult decisions about how to care for them. Employers found new groups to take advantage of- immigrants and prison labor. The children then were forced to attend a mandatory education system where they were inculcated with propaganda and a declining quality of learning. There is little freedom in ignorance.

Interstate commerce laws do nothing more than enrich one group at the expense of another. They have been further utilized to accumulate power in the federal branch at the expense of the states. While it has been used to benefit those who suffered from racism, etc. , in general, it has merely amassed power and restrained freedom.

You suffer from a common ailment or illusion: that government is necessary. Outside of providing some form of common defense, there is not one social action that cannot be provided by citizens acting in community. 

All governments are run by a small minority for their own benefit. The police power of the state never lessens, it only grows. Consequently, your freedoms disappear with it. You may enjoy being told what you can say or watch. What your children will learn and how. Lied to about history and events. Taxed and fee'd to the point where half your earnings are confiscated. Emails intercepted and phone calls listened to. Gropped at airports. Eating poisoned food, breathing poisoned air and drinking poisoned water. Told what you can do on your property, a property you can never own. You may even enjoy the manipulation of markets and the protection of bankers with YOUR tax dollars. 

Your concept of freedom is exactly what the government would have you believe.

i-dog's picture

+1, again. Nicely done.

Actually, I see an opportunity for a Free State (an oxymoron, I know, but I'll stick with it for the purpose of illustration) that could be created with the breakup of the former USA.

Let's say the states on the 'left coast' were to form a "perfect union" of high taxation welfare states ... and the states on the 'right coast' were to form a "perfect union" of plantations, slave labour, modest or no taxation, massive tariffs and an aggressive military [again].

That would leave some states in the 'centre' to form a chain of free 'states' - from North Dakota to Texas - with no government and totally free trade and travel between each other and the left and right coasts. Competing service providers would cater for everything from banking, currencies and communications to garbage collection and road maintenance. Workers and investors from Mexico and Canada would also be welcome.

Defence would be adequately catered for with a few strategically hidden nukes that would discourage the left coast from looting and the right coast from colonising ... such nukes maintained by voluntary funding from those citizens who were actually concerned about an invasion from either side. (But what would invaders achieve ... with no tax base and bureaucracy for the left coast to raid and a well-armed populace to resist colonists from the right coast?)

Just some instant thoughts.

blunderdog's picture

I think if you want to dismantle the USA, just do it right and forget all that federated talk of states.

i-dog's picture

That's my preference, too. But there will always be the raghead-fearing warmongers who will never let go of a government that doesn't have an offensive military capability, and socialists who will never let go of a nanny state, and some (like me) who want government out of the picture altogether. Problem solved ... rather than another 2 centuries of trying to get everyone on the same page under a single government!

mdwagner's picture

The only thing we need to be protected from is monopolies.  We also have the added problem of government shifting risk to taxpayers which protects the free-market regulator of failure.

Baptiste Say's picture

Name a monopoly that came to exist without the government.


Only one most can think of is De Beers and even then it is not valid because there is a huge amount of government approvals needed to open a mine, where approvals are needed corruption exists.

punishmentnotrevenge's picture

Nothing to see here folks!  Keep moving..., Oh look a royal wedding, Oh look the Trump said Fuck! Never mind the rednecks in the South the'll be ah-right. Gold 1550, Silver approaching 50 and oil still cruzin!  Oh yeah the frikin loony at .95 on the dollar.  Nothing wrong, nope we're good!


punishmentnotrevenge's picture

Nothing to see here folks!  Keep moving..., Oh look a royal wedding, Oh look the Trump said Fuck! Never mind the rednecks in the South the'll be ah-right. Gold 1550, Silver approaching 50 and oil still cruzin!  Oh yeah the frikin loony at .95 on the dollar.  Nothing wrong, nope we're good!


ambrosiac's picture


> Though I am often painted as the representative of the far left




bania's picture

Where does Palpatine find the time to write this stuff?

BobPaulson's picture

You're implying he wrote this?

Doode's picture

If you read any of his books - which were amazingingly on point about markets you could easily tell it was in fact written by Soros. Stylistically identical to all of this previous work.

dark pools of soros's picture

he speaks it and his lesser demon minions scribe his words using debt prisoner soul's as ink 

Pool Shark's picture


Never underestimate the power of a Sith...


Mongo's picture

What a SOB.



Confuchius's picture

Anything sikos sez is bound to be a sick joke.

redpill's picture

but but but it was the COMMUNISTS!!!

Dr. No's picture

Said Chancellor Palpatine to the Senate in hopes of gaining support for his initiatives.

bob_dabolina's picture

This is positive. Moving towards the Austrian school of econ. 

Now if only we could turn him from being a staunch communist to a liberatrian the world would be a better place.

ATM's picture

Communists??? - No.

Arogant, authoritarian, fuckhead - yes. 

Spitzer's picture

How did Jim Rogers and the ugly fuck ever get along ?

Confuchius's picture

Now we've found the perfect boy?friend for Blythe...

Ropingdown's picture

Rogers and Soros worked together during a period in which both men wanted one thing, to make money trading, lots of it.  Soros is now in his Seeking Intellectual Repute phase, in which he seeks to construct theories that reveal a basis for his prior success.  The need he has is to be esteemed for something other than jumping big on the mispriced currencies and bonds of weak governments.  He wants to be Marx now, no longer Beria, just taking out currencies and shooting them.  He wants to explain why they had to be shot.

Creed's picture

 He wants to be Marx now, no longer Beria, just taking out currencies and shooting them.  He wants to explain why they had to be shot.



very nice


since you seem to know a lot about him, did his original fortune stem from his activities in hauling Jews out for the Nazis? or was that family money or derived from later good works