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RADICAL FALLIBILITY The Paradoxical Dynamics of Human and Other Systems, Why They Defeat Attempts at Rational Modelling, and The Self-defeating Nature of All Successful Social Theories

David Brazier Amida Trust 12 Coventry Road Narborough LE19 2GR UK 0116.2867476

An occasional paper published by Amida Trust. Copyright: David Brazier 2009

Introduction When James Lovelock was asked how he would go about detecting life on other planets he said that he would look for signs of negative entropy. Entropy is the tendency for structure to break down into chaos. Natural inanimate systems tend to wind-down. Thus a beach tends to become flat. It is humans or other animals who come along and build sand castles or leave trails across the sand. Life creates structures that resist or reverse the natural tendency toward uniform chaos. There is, however, a radical paradox in this fact. This lies in the fact that such resistance or reversal, to be more than trivial, requires organised effort or structure and structure itself reduces the parameters of freedom and as the parameters of freedom narrow, the living who operate the system come more and more to resemble inanimate components. The more successful we are in asserting our aliveness, the more we create the very conditions that negate it. This essay is concerned with this paradox. In doing so it offers insights that go a long way toward explaining the instability of human institutions and societies. It explains how panic and disintegration are always much closer than we are willing to admit, yet also shows how such denial, and the faith that goes with it, are essential elements in maintaining what stability we do manage. All complex institutions and societies rely upon the formation of mass entrancement that enables the participants to close their minds to the contingency of their situation in order to focus upon getting by and getting on. Nonetheless, the faith that sustains also constitutes delusion that sets up the conditions for disaster. Human action based on conviction commonly generates paradoxical consequences. Theory of this kind is useful to help us to understand society in general and particularly society in periods of shock or transition when the pattern of entrancement weakens and must be renewed. This essay is also an attempt to wean the reader from positivistic assumptions. The main concepts introduced in this essay are as follows: 1

Radical Fallibility: the assertion that in principle and in actuality there are limits to knowledge and that no course of action can be relied upon to go on producing good results indefinitely. Manipulative falsification: the assertion that deliberate action rests upon provisional knowledge yet inevitably tends to destroy the validity of its own knowledge base. Counter-type Advantage: the assertion that social advantage accrues to those who act in ways contrary to the expectations of themselves that have been established in their society so long as these actions are not such as to break the expectation trance. Opacity: the degree to which it is impossible for an investor or social actor to accurately assess the risk involved in a proposed commitment. Speculative Expectation: people act on the basis of expectations that are speculative. Speculative action, in aggregate, normally exceeds reasonable projection because a large number of people acting upon a small expectation in aggregate produce a large effect. Reflexivity: the assertion that in human systems always and in natural ones often there is no way by which independent variables can be established sufficient to determine the working of the system, or, to say the same thing differently, human systems work back upon themselves through feed-back loops and, more importantly, speculative expectation formation. Equilibrium: the tendency of a system to move toward stability over time. Bubble formation: the tendency of any system in which speculative expectation operates to move away from stability into a boom (positive bubble) or crash (negative bubble). The assertion that bubbles are likely in proportion to the degree of opacity and reflexivity in a system. Some of the alleged fallacies that this essay attempts to undermine are: Inevitability of Progress the notion that increasing human knowledge will inevitably bring progress toward general well being and the solution of all problems. Positivistic Knowledge: the idea that only those things that have been 2

empirically demonstrated or logically deduced from what ha been empirically demonstrated can be valid. Rationalism: the notion that rationality on its own provides a reliable basis for decision making. To be rational one has to rely upon axioms and all axioms are subject to radical fallibility. Thus rationality always rests on a faith commitment and cannot be a basis for faith in itself. Thus rationality cannot be unhooked from faith without itself becoming irrational. Social and market Fundamentalism: the notions that the strongest tendency within human societies and institutions is toward stability and correspondence with the supporting reality situation. The assertion is made that not only are human societies inherently unstable, but that they also tend to destroy such reality basis as they were supposed to rely upon. Stability and equilibrium are transient phenomena achieved by staving off the inherent tendency of human activity to self-destruct. Radical Fallibility and Manipulative Falsification All the propositions in this essay are false, including this one. If they are not false now, then they will be at a future time. How close that future time is to the present is proportional to the influence that this writing has. The more influential an idea becomes the more quickly it becomes invalid. Action falsifies. I got this idea while reading George Soros. He believes in radical fallibility. So do I. It was interesting to read how a man of affairs like Soros has struggled with the concepts that happen also to be central to my religious outlook. I am an Amidist and it is a core principle of Amidism, known as the bombu paradigm, that human’s and our products are all frail and vulnerable. Although this principle is intended to be applied to reflections upon one’s personal life, it also has extensive implications philosophically, some of which are explored here. Soros draws on the philosopher Karl Popper. I also find Popper’s work stimulating. Soros’ particular contribution is to highlight the distinction that goes back to Aristotle between theoretical 3

wisdom and practical wisdom. We could call the latter manipulation. Theory is so called because it refers to the attempt to see things from the perspective of the gods (theos) whereas practical knowledge is rule of thumb and derived from experience in practical situations. To put this a different way, people try to understand situations in order to do things. What they do is based upon their understanding, but it is also designed to change the situation. All human action, therefore, is akin to sawing off the branch that you are sitting on. Soros’ essential stroke of genius is to realise that these two processes, understanding and action, work in opposition to one another. Theory and manipulation tend to be mutually negating. We seek knowledge as a basis for power, but in order to have knowledge we must, as far as possible, eschew power and as soon as we have power we use it to change the things that are the foundation of our understanding. As the Taoist’s pointed out, one can only know the world by refraining from meddling in it, but, in practice, we only want to know the world in order to meddle. A theory is valid insofar as it represents and corresponds with what is actually there in the world. Meddling, however, changes the world and so tends to invalidate existing theory. Soros confesses himself to be confused by his own insight, which is not surprising. He calls it reflexivity. He sees reflexivity as the antidote to the extremes of ‘Enlightenment Rationality’ on the one hand and ‘Postmodern Relativism’ on the other. The rationalist believes in the possibility of perfect knowledge and the postmodernist does not think that there is any reality that is independent of consciousness. However, in fact, perfect knowledge is not possible even in principle for beings such as ourselves who are part of the subject matter that knowledge attempts to represent. At the same time, it is not true that there is no reality. Although consciousness distorts our perception of reality, reality still inflicts shocks upon us and can do so because it does have a solid existence independent of our perceptions. We cannot have perfect knowledge because of reflexivity: that is, because we are part of the system that we are trying 4

to study. We are, therefore, always fallible. Humans make decisions and act upon them and these decisions and actions are never fully predictable. An alternative way of stating this, using two terms drawn from existential philosophy, is to say that there is always a potentiality for a clash between one’s eigenwelt and one’s gegenwelt. Eigenwelt refers to the world of meanings that a person holds and lives by whereas gegenwelt is the world of realities that he or she comes up against. A person tries to derive their eigenwelt from experience, that is, from the gegenwelt. However, the person also strives to make the eigenwelt as unitary and coherent as possible. The subject believes that this drive toward unity aids verisimilitude whereas in fact it only leads to increasing self-conviction. The latter has the advantage of imparting confidence which, up to a point, can also, especially in a system ruled by high degrees of speculative expectation, generate self-fulfilling prophecies. However, the greater the confidence the greater the potential for collision since the more coherent the eigenwelt becomes in its internal organisation the more distant it becomes from the gegenwelt that it supposedly represents. Some models are simply too good to be true. Or, again, to put it another way still, Enlightenment Rationalism fails because it omits the element of time and change. Reality does not stay the same. Everything real is contingent. It is worth noting in passing that the philosophers of ancient India would have used language differently and would have said everything is contingent, therefore it is not real. Modern thinking, however, is happy with the idea of things being real yet contingent. We have a less exacting definition of reality than the ancient Indian philosophers. Thus one has to be careful when comparing their ontology with ours. They would have also said, there has to be something that is not contingent, something that is real. We might say, whatever is non-contingent is transcendent. Their ‘real’ is our ‘transcendent’. Our ‘real’ is their ‘emptiness’. This can be confusing. However, to get back to the point, the problem is that much 5

philosophizing ignores the effect of time. Truth is taken to be eternal. Theory is then the attempt to distil eternal truths. However, eternal truths would be non-contingent and, therefore, transcendental. They would not be directly accessible to humans. It follows that theory is never perfect (except, perhaps, if you really are the Theos). Although we can conceive the idea of perfect theory we can never realise it. The distinction between theoretical knowledge and practical wisdom is thus only one of degree. The two limiting factors are firstly our existence as participants in what we are studying and secondly the function of time by which what we are studying is a moving target. Whatever is true even theoretically will not always be so. The greater the degree to which the matter we are studying is itself a function of human activity, the more reflexivity there is at work. Social science is thus more subject to it than physical science. I find this philosophy chimes very well with insights that I have been wrestling with for many years. My own sources also include the paradoxes revealed by the dialectical philosophies of Buddhist thinkers, most notably Nagarjuna. In this essay I do not intend to write a history of thought, but rather to develop the ideas further. Soros became a speculator in the financial markets and made a fortune. He found the money markets a particularly good laboratory for exploring his ideas for three reasons. Firstly, the movement of the market depends upon human action so reflexivity is potent. Secondly, everything is quantified so study is facilitated. Thirdly, it is a domain in which timing is all important. The factor of change is vividly in evidence. Classic economic theory seeks to separate the elements in the fixing of a price or value and arrive at formulae that appear to relate independent variables like supply and demand. It shows how, if we assume supply and demand are independent variables and if we further assume a perfect market situation, there is a natural tendency toward equilibrium. If supply increases, prices will fall, returns will diminish 6

and so supply will fall back. If demand increases, prices will rise, purchasing will become more costly and demand will be inhibited. These rules have the ring of theory. They seem like eternal truths. Modern economics and social policy rely upon them. The idea that markets inevitably tend toward equilibrium gives a sense of something reliable. The idea that the market is something that can be trusted in this way is called ‘market fundamentalism’. Market fundamentalists believe that government intervention (or interference) in the market is always deleterious. The market can be trusted to return to correspondence with ‘underlying realities’ on its own. Reflexivity, however, suggests that classical economics is wrong. Supply and demand are not independent variables. Because humans are conscious discerning beings they are prone to fashion and to panic. Sometimes rising prices make a commodity more desirable and so increase demand rather than lessening it. Sometimes falling prices lead to the conviction that the commodity is worthless and demand slackens. If prices are falling people will hold back from purchasing on the assumption that they will fall further. Classical theory assumes that the market tends toward a rational solution that can be expressed as an equilibrium between impersonal forces. Real markets, however, are not impersonal. Insofar as rationality operates it often does so paradoxically. Classical economics has its use. It is a system with a high degree of internal unity. Those who rely upon it systematically exclude all factors in the gegenwelt - the real world - that disturb the model. Take, for instance, the price of oil. Classical economics suggests that in the long run the price of oil will remain more or less stable and one can point to some evidence for this - more, in fact, than many people give credit to. While, in the early part of the first decade of the current century many people were predicting that oil would soon become unaffordable, in fact, with the economic crash of 2008 the price fell back to match its long term trend once again. This is partly because oil is such a crucial commodity that economies fall into line with oil more readily than oil 7

falls into line with them. It is also because, as with most commodities, there are substitutes. When oil is cheap people use oil. When oil is expensive they turn to solar power, other fossil fuels, and energy conservation so that demand slackens. So far, the classical economist is right and for this reason classical economics is a useful tool. However, if everybody built their economic life in corporations and in nations upon the prediction that the price of oil will be stable in the long run then it would not be. Further, in the real world, the price of oil could, in fact, change radically at any time as a result of factors that cannot be predicted. The discovery of new supplies, changes in technology, wars, cartels, and shifts in other supporting social, political and economic factors are unpredictable. A pandemic disease that halved the world population would cause oil to become very cheap unless it particularly hit the oil producing countries in which case it might make it very expensive. The future is not predictable. Let us look at how this relates to our earlier hypothesis that action falsifies. A person might believe that stock A is a good investment. This means that he believes that the price of stock A will rise. He therefore buys stock A. If a number of other people think similarly and also buy stock A, the price will indeed rise. As the price starts to rise, others will notice and this may cause them to adopt the idea that stock A is a good investment. They buy and the stock rises again. If the value of stocks rested solely on human consciousness, this process could go on indefinitely. However, there is a real world. On the one hand, the value of a stock is simply what people are willing to pay for it. On the other hand, stocks do pay dividends and the higher the price the lower the dividend will be as a proportion of the price. At some point, the stock is likely to stop rising if investors think that they can get a better return by investing their money in stock B. In normal trading, therefore, there is some tendency toward an equilibrium which would be the value at which all stocks are yielding the same percentage return on investment. These two processes, one tending toward equilibrium and there other against it are what create all the uncertainty of the stock market. The tendency toward equilibrium is only one force and it is not 8

always the dominant one. When the other force predominates it generates what is called a bubble. What is true of the stock market in this respect is also true of many other phenomena, including the popularity of certain ideas. As the stock of ideas goes up or down this creates a meta-level feedback loop. People act on their ideas. A bubble in ideas that runs out of kilter with reality can be called a superstition. Discerning what is fact and what is superstition, however, is very difficult. It is relatively easy to discern the superstitions of another age, but to see one’s own is close to being a contradiction of terms. As a broad generalisation, any significant new technological development or ingenious presentation coming to the market is likely to create a bubble. This is true whether it be railways in the nineteenth century or computers in the twentieth. It is also true of ideas, lifestyles, political parties and many other human phenomena. This is because at the early stage nobody knows what the return on such investment is likely to be so the tendency toward equilibrium is weak. The market becomes unstable in such a situation. Another way of saying this is that bubbles develop when there is opacity: when the factor of risk is hard to assess. The Big Bubble Newness is not the only thing that can disguise risk. In recent years a huge bubble has developed in the housing market starting in the USA. This happened because mortgage lenders started to sell on their loans repackaged in ways that made it very difficult for investors to accurately assess what risk they were taking. The details are quite complicated but I will try to explain in as simple a way as I can. Let us consider the mortgage market in two stages. First stage. If institution M lends money to a customer so that that customer can buy a house, M now has a promise of an inflow of money that will continue until the loan and all the accruing interest is paid off. 9

Let’s call that right X. M may now sell X (the right to the flow of money) to institution N. N may sell it again to P and so on. In other words, the right to the cash flow becomes a tradable commodity. There is an element of risk. The risk is that the customer who bought the house might fail to pay and the security that he or she has given, which is usually the house, may turn out not to be worth enough to cover the loss. This element of risk will affect the price in the market of X as a tradable commodity. In normal conditions this risk is small. Second stage. In order to improve the attractiveness of X-type commodities, firms hit on the idea of taking a substantial number of them X1, X2, X3.... and slicing them horizontally. In other words, take a hundred cash flows and bundle them together and then make from them five new financial commodities Y1, Y2, Y3, Y4 and Y5. Y1 is the right to receive the first 20% of all of the money that comes from the hundred loans. Y2 is the right to receive the next 20% and so on. You should be able to see that in normal times, when default on mortgage loans is usually about 3%, that this technique concentrates virtually all of the risk into Y5. Y1, Y2, Y3 and Y4 can now be treated as extremely low risk commodities, on a par virtually with government stocks. Their price will be high in relation to yield because they are safe. Y5 will be a completely different kind of item. It is high risk so the price will be lower. However, risks work both ways. Y5 not only carries the highest risk, it also carries the possibility of high gains. If you buy a Y5 at its lower price and then all the house buyers pay all their mortgage instalments and nobody defaults, you will have made a lot of money. Also, it now becomes possible to bundle together a lot of Y5s and do the same thing again, thus producing Y5(1), Y5(2) etc. Obviously, Y5(5) is a very speculative commodity, but Y5(1) may be passed off as pretty safe. Now these developments were seen as a great aid to market fluidity. Lenders serving the public could bundle up loans and sell them on, thus not having to wait until mortgages were repaid in order to have the money to make more loans. Most of what they were selling looked like safe investment so they could get good prices for it. The only snag in 10

this system is that it is almost impossible for a purchaser of a Y type commodity to have any relationship with the borrowers. Going back to our earlier theory building, this means that the equilibrating force weakens because investors cannot accurately assess long term return. Once this opacity has entered into the system, it starts to be in the interests of institutions like M to lend as much as possible to as many people as possible. Competition between lenders makes this inevitable. As M1, M2, M3 etc. compete to find people willing to borrow, the quality of loans deteriorates. This can go on for a long time before purchasers of Y style investments realise that what they are buying is not of the same quality as it used to be. However, and this is the useful theoretical point for our purposes, it is the very creation of a ‘safe’ investment that has created an ‘unsafe’ situation. By capitalizing upon a superior understanding, the basis of that understanding in fact, in this case the reliability of mortgage repayments, has been undermined. By the time that it starts to be apparent that something is wrong and that the model is out of kilter with reality (because application of the model has changed that reality) a huge amount of credit has already been pumped into the economy which the borrowers have now spent. Nor has it all been spent on houses. As soon as borrowers discovered that borrowing was easier than it used to be, they started to use borrowing against their house to finance all sorts of things. The prosperity of many kinds of shops and on the back of that manufacturers started to depend upon the purchases made with this seemingly limitless supply of credit. So on the back of the housing boom there was a consumer boom. Sometime in 2007, after this had been going on for perhaps ten years or more, the fallacy started to become apparent and it only fully became a public issue in the autumn of 2008. Financial institutions whose asset base consisted substantially of Y type commodities suddenly discovered that much of their holding could prove to be worthless. Y4, 11

and perhaps even Y3, type investments that had been taken to be sound might actually yield no return. Nor was a quick correction possible since the opacity ensured that nobody actually knew what was worth anything and what was not. At this point reflexivity entered the picture in a big way in the form of panic. Nobody knew whether the financial assets they held were worth anything. Further, they did know that the other institutions they were dealing with were in the same position. Institutions thus became immediately unwilling to lend to one another for anything longer than a 24 hour period thus bringing the banking system to a standstill. In 2008 this problem became so severe that governments had to step in, rescue some institutions by partially or fully nationalising them or extending extraordinary credit, and offering guarantees that ordinary members of the public would be protected. Without these measures there would have been a run on the banks and the whole international financial structure would have dissolved in a matter of a month or so. Vigorous and continuing government activity became necessary in order to maintain even a modicum of confidence. Some of this activity was substantive and some merely symbolic, but without it, an even greater loss of confidence would have been inevitable. Meanwhile, back in the real world, ordinary people were suddenly unable to borrow as before. Consequently they stopped spending as before. Consequently shops and factories all slowed down and started experiencing losses. They laid off staff. This meant that ordinary people were not only losing credit facilities, they were losing income. As they had less income they spent even less. As a result, the value of houses fell further. The viability of X and Y type investments became even more suspect. The major economies of the world moved into recession. The orthodoxy that had governed social and economic policy for twenty years was suddenly in complete disarray. Nobody had seen it coming. Return of Keynes 12

One consequence of an economic or social catastrophe is a search for a new doctrine that may restore the comfort that comes from thinking one knows what is going on. The gegenwelt having ripped the prevailing eigenwelt to shreds, the search was on for a new orthodoxy. A few, for instance, saw Marx as finally vindicated. Das Capital is enjoying record sales. Most people who buy it will probably not read it, but it is a token. It can be said that Marx’ theory was that capitalism has inherent internal contradictions and that these would not become fully apparent until the whole world were integrated into one capitalistic system. When the contradictions then became apparent there would be no possibility of escape. The whole world would be caught up in one vast crisis that would lead to a proletarian revolution. Communists have taught Marx’ ideas during a period when capitalism had not achieved such universality and that, it could be said, is why Communism failed. Now, however, we are closer to the position where the world is one capitalistic system and so the current crisis is much more like what Marx predicted. There are currently no signs of the kind of revolution that Marx foresaw, but that does not necessarily mean that he was wrong. One would not expect such a development to be prepublicised. One would expect it rather to emerge out of the necessities of a grim situation. The Marxists could still be proved right. What is more likely is that they have correctly discerned some elements of what is now coming to pass, but that the actual outturn is not yet foreseeable. In a crisis the first reaction is to regress. An upsurge of interest in Marx is one example. It is not, however, the dominant one at the moment. The most recent phase of economic policy had derived from Monetarism. This now being discredited, governments have turned to the immediately previous theory which had been Keynesianism. Keynes’ theory was rather like that of Joseph in his advice to Pharaoh: governments should tax and store in good times and spend in bad ones. Governments the world over, therefore, now determined to borrow and spend as the only possible way out of this crisis. The contraction of the economy would be made good by government spending. When 13

governments ran out of money they would print more. Different countries proposed to spend on different things or in different ways, but everywhere from New York to Beijing the message was more or less the same. This is the position at the time of writing. The question is, will it work? Why might it not? Well, firstly, it might not be enough. The amount of wealth that has already disappeared is vast - perhaps a fifth of all the wealth in the world has proved to be fictional - and stock markets are still fragile, firms are still going bankrupt, people are still losing jobs. Government investment takes time to work through the system and it is difficult to judge whether the amounts that governments are capable of spending will be sufficient to compensate for the huge losses that are appearing. It is like shovelling sand into a pit in a quicksand marsh. Secondly, when governments are committed to spending a lot of money, control over whether that money is well spent becomes exceedingly difficult to achieve. Just as the present catastrophe is ultimately a result of an opacity in the market, so all manner of sharp practices are possible when there are large quantities of cheap money sloshing around. If governments feel that they must spend a lot of money quickly this is bound to be the case. Scandals have already come to light where government money used to shore up banks and save the deposits of members of the public has been used to pay bonuses to rich executives that many hold responsible for the crisis. This sort of thing can seriously erode the social fabric as well as producing a string of secondary bubbles, crashes, and a huge amount of waste. It is arguable that we are now in the midst of a secondary bubble caused by the confidence placed in the speculative idea of government spending. This neo-Keynesian idea, after all, exists in conditions where the consequences are relatively opaque: ideal conditions for bubble formation. Just as the original problem involved credit suppliers searching for things to throw money at, if we now have governments throwing 14

money it could get worse rather than better and do so in some way the specifics of which are, at this stage, impossible to predict. It is precisely the fact that this generates a fertile situation for underhand moves, large scale manipulation, that makes it dangerous. Thirdly, governments might run out of money. In order to finance the trillions of dollars worth of expenditure they have committed to, they may have to print money, indeed, they already are doing. Initially this may seem an attractive option. After all, inflation pressure at at such a time as this is very low. Most governments would currently love to see some signs of inflation as it would indicate that the hole in the quicksand was filling up. Inflation would also be welcome to governments because they are now debtors on a much bigger scale and inflation favours the debtor since it erodes the value of what is owed. On the other hand, all this started with Monetarism which in turn was a corrective to the excesses that result when one prints money too freely. We could just end up back where we started, or worse. While a general reflationary move by governments across the world may be a good move, returning inflation also has problems. When inflation gains momentum currencies become vulnerable to speculative attacks. Currency speculation focusses on particular currencies and isolates them. A run on one or more particular currencies as soon as government seems over-extended is likely. The less reserves a government has the more serious such an attack becomes. Fourthly, while this is an international problem and when its most extreme effects are most blatantly obvious one can expect some international co-operation, but countries remain in competition with one another and do not ultimately have each others’ best interests at heart. The game of international power politics will go on. Russia was no doubt delighted to have an opportunity to put Iceland in its debt and so gain a co-operative partner in the middle of the North Atlantic. China holds enormous dollar reserves and nobody knows how it will use them. The European Union is hardly capable of acting as a unit, yet due to some geographical fundamentals is inexorably if slowly 15

moving into a relatively stronger position in spite of its inherent tendency to self-sabotage. There will be winners and losers or it may be that all will be losers, but some more than others. Each country will try to look after its own advantage, but will do so handicapped by an opacity that, in the political domain is even greater than that that has characterised the economic one. Herein lies the biggest danger. As Soros pointed out, the stock markets are a wonderful arena in which to explore these forces because everything is quantified and the connection with some sort of reality does how through in the medium term, but the same phenomena of bubble and bust occur in the social and political domains where everything remains opaque for much longer, thus creating the conditions in which much greater levels of speculative action are, therefore, inevitable. Experiments on the stock market yield results in a matter of months or years whereas experiments in the socio-political domain take generations to declare themselves. In all, the current economic situation is unstable and still marked by ignorance about what is going on and what is to be done about it. Probably a completely new analysis will emerge as a basis for a new era and probably that new orthodoxy will last for twenty years or a quarter century or so until it is in turn destroyed by its own reflexive effect. The Implosion of Monetarism So, let us try to extend some of the things we see in this all-important present example so as to develop our thinking about radical fallibility and manipulative falsification. To recap, when we have arrived at a theory, we use it as a basis for practical action. Practical action or manipulation means the exercise of power or influence. Power and influence, by definition, change things. Power will be exercised on the basis of a theory until such time as the effect of the power has been such as to render the theory false. This is demonstrated in the stock market phenomena we have just examined.


A bubble develops out of something that at the time is sound and true and therefore works. On the basis of this truth people manipulate. Initially this brings substantial gains. There is real benefit. As this benign situation comes to be appreciated, more and more people try to get in on the act and to thereby share in the benefits. Eventually this collective exercise of power brings about a situation in which the original principle no longer holds true. At this point the bubble bursts. In the bursting of the bubble many people get hurt. Positions that had been built up with care over an extended period are destroyed or unwound in short order and temporarily chaos reigns. In economics this can mean bankruptcy. In politics it can mean war or even the complete collapse of a civilisation. In the 1980s the economic doctrine called Monetarism came into vogue. It is associated at the academic level with Milton Friedmann and in the world of practical politics with Ronald Reagan and Margaret Thatcher. The idea was simple enough. Economies rely upon money. In practice, sophisticated economies run on credit, but credit always has a money base. Credit is trade upon faith in promises that money shall be forth-coming at some specified or unspecified future time. Of course, we can note in passing, that money itself is nowadays a ‘fiduciary issue’ that rests upon a similar collective act of faith and even when money was tied to or even made of gold, the value of gold, a commodity with very little intrinsic use value, rested largely upon purely subjective factors. Nonetheless, leaving these reservations on one side, the monetarists proposed that if one kept control of the money base this would be effective in preventing the excesses of ‘boom and bust’ that have plagued modern economies since the industrial revolution, and, in other forms, all economies back to Pharaoh and beyond. They were right for a time and then they were wrong. The theory did not change, the world did. Monetarism had a few problems defining money and therefore in knowing exactly what it should keep control of, but a number of measures were devised that seemed to give some indication of the 17

extent of the ‘real money’ in circulation. The difficulties of definition, of course, derive from the fact that money is itself a ‘promise to pay’ so one has to try to be clear which promises made by governments do actually qualify as ‘money’ and which are something else. In short order monetarism had a huge effect. Reaganomics and the Thatcher era saw major changes in the industrial activity of the USA, Britain and subsequently other countries. Some industries disappeared. Others became more efficient. Government shrank. Regulation was minimised or repealed. Those in power held to the faith. If the money supply were curbed, a natural discipline would result in lean efficient productivity that would eventually benefit the whole population. There was a lot of pain along the way as many old working practices were scrapped. People lost jobs and found new ones. The world became a different place. It began to look as if the problem had been solved. However, it had not; or, rather, the solution, like any successful idea, laid the basis for a huge economic boom and bust and we are now in the bust phase. How? Economic activity needs currency. Enterprises need liquidity. Employers have to pay wages and bills. There has to be a flow of value tokens of some kind. If the money supply is restricted, people will invent new tokens. If regulation has been scrapped they will have great scope to do so. If they believe that the basic problem has been solved and that by controlling the money supply the government has things under control, then they will believe that safety is guaranteed and so their new creativity can go ahead without caution. The extreme prudence of the belief system that was then becoming universal thus became the foundation for rashness. Credit multiplied into a myriad of new forms. Aided by the use of computers that could arbitrage down to the finest point of decimals and could make practical the bundling together of risks and assets in a wide variety of novel ways, liquidity started to appear out of thin air. If there was a shortage of actual bank notes, no matter, a promise will do. 18

A promise to pay at a later date can be traded and, with modern electronic means, trade can become very rapid. Everything started to run on credit. The monetarists had foreseen that ‘speed of circulation’ was a critical variable in an economy, but nobody foresaw quite how fast that speed could get or the extent to which credit and its derivatives could replicate money and so subvert the basic theory. Or, if they had then the theory would not have become popular and none of this would have happened. But something else undoubtedly would. Of course, what is astonishing is that the bubble grew as huge as it did. The theory was designed to end bubbles. The practice based upon it generated one of the biggest bubbles ever seen. At the level of metatheory that we are here exploring, that is exactly what one would expect, except that, in practice, the theory also predicts that we do not expect it in particular cases and that is why it works. Theoretical knowledge and the practical wisdom derived from it work against one another. Generally economic bubbles grow in a few years and burst over a few weeks or months. This time it grew over three decades and the bursting will occupy several years at least. Estimates of the amount of wealth that will disappear in that period are currently around a trillion dollars in the USA alone and probably as much again in the rest of the world, an almost unthinkable amount that will almost certainly prove to have been an under-estimate. The consequences of this unwinding will be very painful and will not be simply economic. Social attitudes will change and with them social structures. Many institutions that formerly were held in reverent respect are already commonly now regarded with contempt. These include many of our time hallowed political institutions. A true theory generates practical wisdom that changes the world and renders the theory obsolete. Some rationalists will at this point object that surely we cannot destroy a good theory. If the theory fails it must have been wrong from the beginning. From the perspective of theory, which, remember, is the perspective of the gods, that might be so, but no living person ever has, ever did have, or ever will have that 19

perspective. We live inside the system. Since we live inside it, we cannot have the kind of knowledge that rationalists are inclined to declare to be the only real knowledge. If that is the only real knowledge, then there is none. Our practical knowledge includes our knowledge of ourselves and as we gain that knowledge we become by that very gain different beings from the ones we were when the knowledge was formulated. In particular, as soon as we have something that we take to be knowledge we start to act upon it. People are what they do. What they do is a function of what they know. What they know is supposed to correspond with what is there in the real world, but as people act so the real world not only becomes, but is already, a different place. Thus, the manipulative function interferes with and even negates the cognitive function. This is why the world of action is full of paradoxes. Who would have thought that the political hawk, Richard Nixon, would be the one to bring the Vietnam War to a close and reestablish diplomatic relations with Communist China? Who would have thought that capitalist America would generate a huge state apparatus for regulating the economy? Who would have thought that the arch anti-socialist George Bush would be the American president to borrow and spend on such an unprecedented scale as one saw in the closing days of his tenure of office? Who would have thought that communism in Russia or China would have led to the mega-capitalistic actions of the last ten years or that the communist take-over in Vietnam would yield the most deregulated free-enterprise economy on the planet? And so on and on. People express themselves disappointed in Tony Blair, but if one understands reflexivity it comes as no surprise that a massive Labour victory in Britain should lead to denationalisation, militarism, utilitarianism in education and a host of other supposedly non-socialist developments. This is the nature of the world. Enlightened to Ignorance We are still a long way from accepting the implications of the impossibility of final knowledge, or even from working out what they 20

are, and even if we manage to do so, then acting upon that knowledge will surely change them. We are still to a large degree under the mesmeric sway of the Enlightenment ideal that there will be no limits to our acquisition of knowledge and that as a result of this process all problems will eventually be solved. That this idea is an outright act of blind faith is something that few can grasp. That it is probably wrong is, for many, a heresy too shocking to be acceptable. The Enlightenment ideal led to the rise of Logical Positivism and the Vienna School a hundred years ago and it is enjoying a renewed vogue through the polemical writings of various contemporary popular writers who advance a fundamentalist atheism and rationalism. Positivism asserts that only empirical statements that can be verified are meaningful and only those that have been verified can count as truths and be a valid basis for action. Though this principle is both false and self-contradictory, its attraction lies firstly in its apparent ability to simplify and secondly in its being in opposition to religious ideas that some hold responsible for conflict in the world. The actual world, however, has more built in uncertainty and paradox than Positivism allows for. Popper demonstrated that nothing can be proved empirically. The manner in which science progresses is through the putting forward of propositions that can be tested. Testing does not prove them right, but it may prove them wrong. What we consider to be the corpus of scientific knowledge is that body of propositions that are of the nature to be disprovable in principle that have not been disproved yet in practice. The greater the effort that has been made to disprove something and failed to disprove it the more confident we are of the truth of the proposition, but there is no way to eliminate the possibility, even for the seemingly best established scientific ‘truth’ that a contrary instance may show up tomorrow that invalidates it. Further, action on the basis of a proposition held to be undisputable generally tends to undermine the basis upon which the proposition rests. In science the bubbles build over a longer time span because humans are less directly involved but when a Copernican or Einsteinian shift occurs the change is massive indeed. 21

Surely it is not the case that action on the basis of Ptolemy’s theory has made it wrong. Surely it is simply the case that Copernicus was right and Ptolemy was wrong all along and that it just took time to realise this. That is the enlightenment way of looking at things. In fact, however, a theory is not just an impersonal description of facts out there. It always in some way refers to our relationship to those facts. What was at stake in the dispute about the ideas of Copernicus and Galileo was not just the absolute movements of bodies in the heavens, but also what was to count as knowledge. Science as we know it is the application of a set of rules to the interpretation of empirical phenomena. The phenomena may be objective, but the rules are not. Ptolemy’s system relied upon the notion of harmony of the spheres. It embodied an ideal about the nature of the world. This ideal gave people a sense of security. This security provided the backdrop for the work of those early scientists whose work destroyed the ideal. Eventually, after a painful transition, a new ideal evolved which was the harmony provided by rationalism, and this was then translated into new rules for the validation of knowledge and gave us the scientific method as we had it until Einstein came along. Even today, however, the real nature of this method is not appreciated by most people. Logical positivism suffers from a number of logical problems. For instance, the proposition that ‘no statement can be considered meaningful that is not either a tautology or an assertion that can be empirically tested’ runs into the difficulty that it is itself a statement that is neither a tautology nor a proposition that can be empirically tested and so, by its own criterion, should be considered meaningless. It is itself a demonstration of the fact that humans do consider meaningful many propositions that do not fall within its definition. Put simply, it is wrong. However, it does enshrine an ideal as dear to many people as the harmony of the spheres was to our ancestors. It, and its derivatives, can also suffer empirical problems. Richard Dawkins, for instance, rests a great deal upon evolution. He wants to 22

pit evolution against religion as a way of demonstrating the superiority of positivistic science over metaphysics. To do this he asserts that evolution is a sufficient explanation for progress and the arising of all goodness. The results of evolution, apparently, are good and all that is good comes from evolution. This extends not only to the evolution of species, but, apparently to social phenomena as well. Dawkins has to assert this because otherwise there remains room for religion and science to play separate complementary parts catering for different social needs. He has to show that there can be a scientific approach to goodness and to do this he settles for evolution. Now, evolution is a slightly dubious standard bearer as a prime example of scientific theory since it is difficult to see it as theory in the strict sense since it would in principle be a difficult theory to disprove. Let us leave that objection aside for the minute, however, because there is a bigger problem. The problem is that if evolution consistently yields good things and if evolution accounts for all social phenomena then one has to admit empirically that one of the social phenomena that comes closest to ubiquity is religion. Virtually all societies have it. By Dawkins theory, therefore, it must be a product of evolution and, therefore, a jolly good thing. This conclusion is, of course, rather unsettling to Dawkins’ general thesis and he bends over backwards to try to avoid it, but cannot actually do so. Popper is a better philosopher than Dawkins. His philosophy can be seen to also spring out of the Enlightenment project. However, it is itself a classic example of the kind of paradox we are here examining. Strict application of logic leads one inevitably to the conclusion that nothing can be known with certainty. Dawkins tries to circumvent this problem by talking about probabilities, but he is trying to argue for a universe that is not probabilistic so this again has internal contradiction whereas Popper is willing to take on this implication. Even in empirical physical science certainty is in principle not possible. How much more so in social science where the problem of reflexivity is so much more acute.


Social Science and the Open Society One of the implicit and sometimes explicit goals of the Enlightenment project has been to provide a science of society, or, if you prefer, to make the study of society scientific. Many thinkers of widely differing ideologies have tried to pass off their social philosophies as science. These would include Marx as well as Friedmann. Soros believes that the kind of science that deals with inanimate objects and forces is not just different in degree but different in kind from social science because of reflexivity. He retains an Enlightenment perspective for physical science. When we study society, however, we are part of what we are studying. Even our studying is part of what we are studying. This makes the reflexivity problem much more pervasive and consequential, though I would argue that it is not absent from physical science either as physical science is not just what is ‘there’ but rather is the evolution of our knowledge of what is there and that inevitably, being a human product, has reflexivity built in. This shows even at the most fundamental level. Science relies, for instance, upon measurement and in many situations measurement alters the thing studied. There have been many reflections upon the problems that this introduces into the nature of scientific ‘knowledge’, from Einstein on. In human science, however, I do agree that the problem is more immediate and on a much greater scale. Measurement of human activity provokes substantive changes in the behaviour of those studied. Furthermore, the degree of complexity of human behaviour and the intrinsic unreachability of human internal states means that ‘measurement’ here generally means measurement of ‘performance indicators rather than of ‘the thing itself’. However, systems of social administration that rely upon performance indicators almost invariably generate distortions in service delivery. As soon as people in the system know which ‘representative’ elements are being considered to be performance indicators they concentrate on those elements to the exclusion of other considerations. This means that the elements in question very quickly cease to be representative. The measurements then become invalid but not before their use has 24

distorted the system itself almost always in dysfunctional ways. All the systems by which a society seeks to regulate its activity change that activity, usually for the worse. While a society is wedded to regulation this generates a bubble. New regulations are introduced to try to deal with the dysfunctions and these new regulations generate even worse dysfunction and so on. Popper saw his declaration of the impossibility of certainty as a support to his view of the desirability of an ‘open society’. Enlightenment thinking alone does not guarantee an open society. Revolutionary and totalitarian societies are generally also nowadays based upon fairly positivistic assumptions. Unless the leading regime can claim to a superior knowledge, be it dialectical materialism or materialist liberalism, fascism or monotheism, there can be no intellectual basis for the claim that that group should lead. A claim that one is scientific can be just as effective as a claim to divine right, no more valid, and just as generative of bubbles. Popper, therefore, suggests that the impossibility of final knowledge provides a firmer indicator of the desirability of an open society in which there is room for competition between ideas. We can see then that although Popper is making a claim to describe the nature of science, he is not blind nor immune to the social implications of what he is advocating. His search for truth is no more disinterested than that of anybody else. Soros’ analysis of this issue is interesting. He writes: “To guard against the dangers of manipulation, the concept of open society originally formulated by Karl Popper needs to be modified in an important respect. What Popper took for granted needs to be introduced as an explicit requirement. Popper assumed that the purpose of critical thinking is to gain a better understanding of reality. That is true in science but not in politics. The primary purpose of political discourse is to gain power and to stay in power. Those who fail to recognise this are unlikely to be in power. The only way in which politicians can be persuaded to pay more respect to reality is by the electorate 25

insisting on it, rewarding those whom it considers truthful and insightful, and punishing those who engage in deliberate deception. In other words, the electorate needs to be more committed to the pursuit of truth than it is at present. Without such a commitment, democratic politics will not produce the desired results. An open society can only be as virtuous as the people living in it.� (Soros G. 2008. The New Paradigm for Financial Markets. London: Public Affairs / Perseus. p.39) Now while I agree with the general sentiment that Soros is trying to express here, almost all the specific assertions in his analysis are surely incorrect. Soros as we have already seen acknowledges that there is a reflexive relationship between knowledge and action, critical thinking and power manipulation. Here, however, he himself falls back upon Enlightenment ideals, abandoning the reality that he has so carefully tried to clarify. Politicians are not solely concerned with hanging on to power, they want the power in order to do things and they want knowledge in order to know what to do and how to do it. The pursuit of truth is never totally disinterested, except for the gods, perhaps. This is as true for the electorate as it is for the politicians. The idea of a political actor who is disinterestedly interested in truth is an Enlightenment fantasy. If the open society is desirable it must be so because it offers the best option given political actors of the kind that actually populate this world, not falsely idealised ones. The idea of the disinterested actor is as much a fantasy as the rational market or economic equilibrium theory. One wonders why Soros abandons his central points so easily at this stage of his argument. The pull of Enlightenment thinking still has him in its gravitational field. Reflexivity and Trial and Error An open society is one in which different ideas compete. How do they compete? By the process of trial and error. This is more complex than it at first appears. From an Enlightenment perspective one might think of politics as rather like a scientific experiment. Many people might like to see it this way. A theory emerges. An attempt is made to put it into 26

practice. It either thrives or fails. That way we know whether the theory was true or not. In reality it is not that simple and the reason once again is reflexivity, but the kind of complex reflexivity that actually occurs in complex human systems. On the simple model one might now think both communism and monetarism to have been disproved. Each was tested on a fairly large scale and each in the end imploded. From what we have said earlier, however, it may not be the case that either theory was false at the time when it was first implemented. What made it false was the undertow created by its success. In the society that Lenin or Mao inherited, their respective brands of communism worked. It is just that as they worked they changed the society until it was no longer the kind of society in which communism worked. If communism makes peasants more prosperous they do not want to go on being communists. The same is true of monetarism. How? It is not just that the theory gets tested on a static set of social facts that can be taken as given and unchanging; there are several other processes at work. Firstly, the existence of political moves supposedly based on the theory provokes others to try to manipulate the system to their advantage. This is generally regarded as cheating. So we can say that every political system generates its own species of cheating and this cheating has a cumulative effect. The labelling of it as cheating is an attempt to render it non-evidential, a strategy of deliberate ignorance. This systematic ignorance keeps the system of ideology intact for a time, amplifies opacity, increases the bubble and inevitably sews the seeds of that system’s decay and eventual demise. Secondly, a leader who is publically committed to an ideology will find it easier to pursue moves contrary to that ideology than ones congruent with it. There is, therefore, often, and, I venture to say, normally, action going on at the very hub of every revolution that is counter-revolutionary. Since both these factors are characteristic of the normal case, one is at a loss to say whether they should be counted 27

as part of the live trial of the theory or whether they should lead us to say that the theory was never really tried. Let me give an example of the counter-ideological action phenomenon to make the matter clearer. Charles De Gaulle in his last period in office was elected to lead the French in their struggle against the independence movement in Algeria. What did De Gaulle do? He granted Algeria independence. He was, perhaps, the only person who could have done it, certainly the only one who could have carried the French people with him in such a move so readily. Why? Because he was par excellence the warrior. If a socialist leader had tried to grant independence to Algeria he would have been booed and ridiculed and called weak. When De Gaulle proposed exactly the same thing it was accepted. People felt that if even De Gaulle was for Algerian independence then that was the end of the matter. If a right wing leader introduces a left leaning policy she will have the support of her own party and the opposition. If she introduces a right leaning policy she will, at best, only have her own stalwarts behind her and nobody will be listening because everybody has discounted and made allowance for her acting that way already. The same applies the other way around for leftist leaders. The social and political reward for acting in a counter-intuitive manner are substantial. Add to this firstly the fact that in the thicket of detail that surrounds any real political act there is often considerable difficulty in discerning exactly what policy is most congruent to a particular abstract philosophy and secondly the psychological function of rationalisation, and we find that it is not uncommon for a leader to not even realise that it is he who has in fact implemented the undoing of his own supposed ideology. Thus political peaceniks in power make wars and hawks enact cease-fires, democrats support tyrannies, monetarists fuel the credit supply, socialists introduce ‘internal market mechanisms’, internationalists pursue ‘socialism in one country’ and free marketeers nationalise banks and bail-out failing industries. Can we in this situation ever say that a political philosophy was ever 28

really tried? Yes and no. In the sense that is meant by the scientific experiment analogy the answer is clearly no. Real communism never happened nor did real monetarism, real imperialism, real internationalism, real globalization or any of the others. In the sense that these philosophies have all enjoyed their vogue and what happened happened - and it would wouldn’t it? - the answer is yes. However, the sense in which the answer is yes is not the sense in which the question was originally put. The sense in which it was put is the positivistic one of asking whether we can test whether the philosophical theory is true, meaning does it have a valid correspondence with the empirical world. What our analysis suggests is that the empirical world is a moving target and that the act of testing the theory, any theory, inevitably so alters the world that it is impossible ever to know whether the theory did have a valid correspondence with the world in which it was invented. All that we actually know is that the implementation of any such theory destroys the world that it supposedly represented and creates a new one in which the theory will, sooner or later, fail. To conclude that ‘communism does not work’, or ‘monetarism does not work’, or democracy, or monarchy, or imperialism, or free trade or whatever is to not understand how the world works. People will always try to understand and when they think they do understand they will act and those actions will precipitate changes that render the original understanding void eventually. Acting Against One’s Own Philosophy We have seen that there are rewards for acting against one’s own philosophy. This is particularly obvious in the case of the politician operating in a democratic environment, but since we are all affected by the opinions others have of us the same principle applies to everybody. One of the reasons that a politician is likely to act contrary to his philosophy is that it is more important for him to win and stay in power than for him to be true to his principles. This generalisation is slightly 29

diluted when politicians have fixed terms of office and when the institutional structure is such that their future after leaving office may no longer be in politics. This is one reason why US presidents tend to be less popular in their second term than in their first. Since they are going to have to leave office they have less to lose and so are more likely to remain closer to their principles which, by that stage in the cycle, are, in any case, likely to be becoming less representational of the real world, given that that world has been changed by their incumbency. This instance is exceptional, but it is important because of the extreme power that the US presidential office carries with it. Most politicians do not intend to retire if they can avoid it. They are, therefore, more likely to act in ways counter to the expectation that they have created of themselves and to do so for longer. It is an open question, however, which of these courses is preferable. The position of the politician is, however, only an instance of the position of everybody. We all live in society. Each person creates expectations in others about how she will behave. These expectations are then factored into her group’s implicit model of society. Once they are established and have been implicitly discounted, there will open up opportunities for her to make gains by acting in ways that confound the expectation. Expectation itself, however, is generally not obliterated by just one or two contrary examples or misfit instances. A successful social operator establishes an identity within a group by adopting an implicit or explicit philosophy that enables others to form expectations of her future behaviour and then, once those expectations have been discounted, that is, once others are acting upon the assumption that they know what she will do, acting differently often enough to pick up gains but not so often as to confound the expectation completely. It is remarkable, however, how far a person can go in a direction contrary to their supposed principles before anybody registers the fact that those principles no longer hold. Politicians are, almost by definition, successful social operators so it is not surprising that we see this phenomenon exemplified in their careers.


Not only is the above the case, but it is something that we all recognise in an unconscious way. What do I mean by ‘unconscious’ here? I mean that we recognise and commonly actually welcome it without admitting to ourselves or each other that it is happening. When a person with a reputation for toughness acts kindly we tell ourselves that that proves that he is really tough. When a person with a reputation for softness acts tough we tell ourselves that that shows just how kindhearted they are since they can even indulge in ‘tough love’. We do not assume that our previous categorisation of the person needs to change until a very large amount of evidence has accumulated. The on-looker tends to assume that there is a reality that can be grasped theoretically that does not change over time concerning the nature of each of the people in view. The ‘nature’ is substantively made up of assessments of what the person can be expected to do. A person is ‘responsible’ if one thinks that they can be entrusted with a task, and they are ‘sociable’ if one thinks they will perform well at a party, and so on. What we call a person’s nature is mostly made up of what we think they will do in the future. The actual future remains unknown, however. What they will do is a function of circumstance, of course, but also of the working theory held by the actor and this theory includes her assessments of the assessments she believes others have formed of what she is likely to do. If you think that I am honest then I have a better chance of stealing from you and getting away with it then if you think that I am a thief. Similarly, if I know that you think that I am a thief, I may never need to actually steal anything in order to maintain my position as a person others should be wary of. Reflexivity is multi-layered. The way to win a game is commonly to play an unexpected move. Further, there are some specific forms of opacity that are peculiar to democracies. One is the hypocrisy xamined elsewhere in this essay over the valuation of persons where meritocracy sits uneasily with equality and, in practice, plutocracy becomes a powerful force and the vestiges of former aristocracy do often remain potent, none of which 31

can be spoken of too directly or fully addressed. The more ‘democratic’ an electoral system becomes, the more people have to be informed and this costs money. This means commonly that the more democratic the system is the more plutocratic the operation is, and so on. Further, just as it is the case that there is advantage to the individual in acting in a counter-type manner, so similar advantages accrue to nations. The very word ‘politic’ implies a certain ‘economy with the truth’. Thus the British publc could nevr know whether British troops went to southern Iraq because Britain “stood shoulder to shoulder” with our ally the USA, the official line, or whether British troops went because the British government did not trust the US government to look after British interests. Nor can they know whether British withdrawal was a sign that social objectives had been achieved in Iraq as declared or simply that there was now confidence in Westminster that oil would not stop flowing to British ports. Some things politicians cannot say in public. The public can thus never know the whole story, especially in matters affecting foreign affairs. They always involve deception and to let the public in on what the deception is is also to tell the party that one is deceiving. In an autocracy this does not matter because the public has no part in the decision making. In a democracy, however, the government always has to carry its more politic manoeuvres on at least two fronts simultaneously and the judgement that the public makes of it at the polls has to be based on false information. Thus, what is now called ‘spin’ is not just the means by which politicians seek always to put themselves in a good light, it is also an essential ingredient of the political process. It remains, however, a potent form of opacity that is consequential in all the ways examined in this paper. The Stock Market Game Let us go back to the stock market situation. Implicit in what Soros is saying is, I think, the idea that the stock market is less like a single organism with long term characteristics (good or bad) than it is like a game with two teams of players. These teams are called the investors and the regulators. One reason that this is not commonly understood is 32

that most people think that the regulators are the referees, not players. In fact there are two ‘levels’ of game. In the game between investors, the regulators are, inter alia, referees. There is, however, a bigger game being played between the investors as a whole and the regulators in their social function. This is an asymmetric game in that the moves and powers available to one side are quite different to those available to the other side. Asymmetric competition, in politics as in economics, is the dynamic that actually determines the major outlines of our social world and much of this asymmetric competition or conflict is never brought to the light of day: it is a covert process in which much of the time both parties have investment in maintaining opacity and it is therefore precisely the kind of environment in which bubble formation is rife. In this big game it is important that nobody ever win. Winning is disastrous. If the regulators win we have an extreme form of socialism in which market activity dies out. If the investors win we have a form of laissez-faire so extreme that it degenerates into criminality and racketeering. Neither is very good at generating wealth. The extreme of socialism leads to stagnation through a total loss of the flexibility that markets provide. The extreme of laissez-faire leads to an anarchic situation in which criminality takes over and actors have to arm themselves against one another. Keeping these extremes in mind is helpful. They are the limit positions: the endpoints of the swing. The equilibrium point that matters in markets is not the equilibrium beloved of economists where supply and demand balance, but the notional mid-point in the swings of the game between investors and regulators. A swing too far in either direction impedes play. However, it is in the nature of games that each side tries to win. In the stock market, therefore, we have a situation in which each of the main teams is acting in a manner calculated to destroy the game by bringing it to an end. Open society depends upon neither succeeding. The investors will try everything to find a way around the regulatory regime, whatever it may be at a given time. This is how the great credit scam bubble has come about. Regulators will, in normal circumstances, do 33

everything they can to try to ensure perfect behaviour on the part of investors even though perfect behaviour would eliminate profit possibilities and so make it uninviting for investors to play. Why would it be uninviting? If investors and markets behaved perfectly then the classic market equilibrium situation would indeed prevail. There would then be no room for the arbitrage that brings markets to life. If stock market players behaved like the notional totally rational investors that populate economic text books, they would never make fortunes and could be replaced by computers. The thing that makes markets exciting is the fact that there are always some margins within which an unexpected move may pay off. As the double meaning of the word ‘sharp’ implies, the boundary between market genius and delinquency is always a fine point. Investors are constantly on the look-out for possibilities to create new arbitrage possibilities and this includes the creation of new investment instruments. This ensures that the market remains dynamic and that the job of the regulator is never finished. What an investor sees as a promising development, the regulator may see as a loop-hole. The question of when cheating is really cheating, however, does not operate solely in stock markets. It is a universal social question. We are looking at the stock market example because it is easier to discern in that artificial environment than it is in the forums of society at large, but it operates everywhere just the same. When we look at the markets as a game in this way we can see that throughout the period that began with Margaret Thatcher and Ronald Reagan, the regulators have been playing under a handicap. The prevailing political philosophy was against them. The result has been that the game has swung to the other side. Some pretty sharp practice has gone unchecked, especially in the American real estate market, in credit cards, in insurance, and in several other parts of the market. We have come close to the anarchic endgame. If the game did not have to reckon with an external reality, that is, if it did not have to reckon with the real economy, then a complete breakdown might have occurred 34

and very nearly did. As it is we have come closer than at any time since 1929. This is basically because a strong anti-regulatory consensus has prevailed in political circles for three decades. The destructive consequences of going this far are only now becoming clear. The real danger, however, is that we shall now swing to the opposite extreme. Reagonomics is now in disgrace. There are shrill calls for tighter regulation and more government intervention. The likelihood is that this will bias the game in the opposite direction, perhaps for the next several decades. This could well lead to sluggish economic performance in the world as a whole for years to come. The Current Bias Although we are now seeing a great unwinding, it is a halting affair. Markets fall. The government announces a rescue package. Markets rally. A few days later markets fall. The government responds with interest rate cuts. Markets rally. A few days later markets fall again. Politicians hold an international conference and promise to tackle the problems and markets rally, but soon fall again. So it goes on. The current bias is a continuing belief that government has the capacity to get this under control. Whether this belief is valid or not is an open question: in other words, there is opacity. What is not unclear is the fact that this belief does affect investment decisions and this belief is in the ascendancy. The special character of the last three decades has been the progress of deregulation. This has been possible because there has been put about the idea that government is ultimately in control. In Monetarism seemed to lie the key to ultimate government control. This is the paradox. Monetarism told us that deregulation did not represent a risk because government control of the money supply would provide the ultimate guarantee that however delinquent investors became all would come right in the end. What it did not reveal was that the end could have something in common with a Shakespeare tragedy in which the last scene unfolds inexorably from what has gone before, yet 35

arrives suddenly, and in a short burst of high drama transforms most of the key players into corpses on the stage. Monetarism may now be a failing philosophy, but the touching confidence that government can still make everything alright remains substantially intact. Markets depend upon confidence. While the progress of the deregulated economy has destroyed confidence in many of the key elements in the economic system to such a degree that banks hardly dare even to lend to one another any more, the one lynchpin element of faith, belief in the magical powers of government, still remains. This, of course, is a prime example of exactly the kind of irony that this essay is dedicated to exposing. The philosophy of minimal government has brought us to the point where the only faith that we still cling to is faith in the power of government. And this faith may be misplaced. It is possible that the scale of the losses that this crash will cause may be so huge that they are actually beyond the scope of government to master. When wealth greater than a country’s whole annual gross national product simply disappears, it may be more than government can handle, or it may not: we shall see. However, here too reflexivity plays a crucial part. If people continue to believe that government can do it, then that faith may just be enough to ensure sufficient economic activity continues for it to come true. However, insofar as faith in government is true and people act upon that faith our meta-theory suggests that, to that extent, that faith will, in time, be proven groundless. Although it may be true right now that government intervention is the most expeditious method of mastering the present crisis, that action may inexorably lead to the undermining of government in the longer run. Let’s run through that again. Even now, even after the collapse of so much credit, the economy still relies upon faith. People do not go to work unless they trust that they will get paid, at least eventually. People do not invest unless they trust there will be a return one day. People do not use money unless they think it is worth something. At the core of all these separate acts of faith that keep people performing 36

economic acts is a faith that in the last resort the state has the power to make most of these things happen if necessary. However, the state’s ability to fulfil this expectation rests upon its receipts of taxes and its control of social institutions that are manned by those same people. If they believe enough to go on going to work, paying taxes and investing, albeit to a reduced degree, then the state might indeed just be able to get together the wherewithal to save the day. If not, not. Now that the idea that state control of the money supply guarantees that all will be well has gone, the state has to perform new tricks to ensure that belief in its magic stays alive. It will have to be much more active than formerly. Herein, however, lie further dangers. An active state makes mistakes and these undermine the vital element of faith. The American government is already showing signs of vacillation and that is not surprising because in reality nobody knows what to do. Invocation of Keynesian economics helps to provide a semblance that what is being done is not really just a succession of panic measures, but history may well judge the matter otherwise. There is an interesting distinction between what is happening in America and in China. The Chinese supposedly communist regime has adopted an approach even closer to what Keynes prescribed by deciding to inject large amounts of money into infrastructure projects hoping to stimulate a demand led recovery as workers spend the wages they earn working on those projects whereas the supposedly capitalist West has tended to go for the more socialistic approach of propping up the institutions. This, of course, is yet another irony of the kind that we are now used to. Will either approach work? There is certainly room for caution in response to this question. Propping up the institutions that have created the mess is an inherently dubious practice that could easily lose public support as it runs against natural justice, involves spending large amounts of public money on assets that may well prove to be valueless and could easily prove to be a bubble in reverse since it is difficult to see where would be the end of the queue of enterprises in line for hand-outs. On the other hand, the Chinese approach is itself a 37

classic way to create a bubble of the old-fashioned sort. Hastily contrived Government projects are liable to become inefficient and to provide manifold opportunities for corrupt practice. Of course, it is also possible that what we are witnessing may, with the hindsight of observers centuries into the future, be seen as the ending of the nation state system that has dominated world politics for the past three hundred years at least. We currently have a situation in which there is both a swing back toward state intervention driven by the belief that only governments are big enough to tackle economic crises and also a widespread public distain for politicians and political institutions generally. Although the currently swelling bubble is the idea that the state must regulate, when this particular bubble bursts it is hard to predict where things will go. A simple swing of the pendulum back to laissez-faire is unlikely given the disgrace that now surrounds (relatively) unregulated capitalism. Some will seek to discern here another stage in a longer term trend. Although the fortunes of the state have waxed and waned, it is possible to see the twentieth century as the time when corporate forms of organisation other than the nation state became a major force to be reckoned with. These include both multinational commercial bodies and inter- or supra-governmental agencies. As the twentieth century drew to a close, religion, another international force, also came back into the political arena on a scale not seen for a long time. If the bubble in the principle of state regulation bursts, what new forms of organisation will humankind look to? The answer is unclear, to say the least. Nonetheless, there certainly is evidence that humans are groping toward some kind of organisation that is larger scale than the nation state, at the same time as an opposing trend toward localism is also coming to the fore. When Simon Bolivar’s armies liberated South America he could see the need for the area that had formerly been under Spanish control, from Venezuela to Bolivia, the country that came to bear his name, to operate as a single political unit. He died a disappointed man as he saw the new countries that he had fought to 38

liberate soon going to war with each other. In his last days he reflected ruefully, “Those in the service of the revolution have ploughed the sea�. In the current reorganisation of international power forced by the economic crisis of 2008, the former Portuguese territories now called Brasil, found a place in the G20 group that for the present rules the international economic scene while the former Spanish territories did not. Only big units can wield that kind of power. Are such big units the shape of things to come? The Game in Society as a Whole As Soros says, the stock market is a fascinating laboratory for the examination of social processes. It is a microcosm. The game between investors and regulators is simply a specific instance of the game between the citizenry and the government. The prevalence of the ideals of democracy obscure this fundamental dynamic. Democracy implies that the citizenry are the government. In fact, however, society relies upon the dynamic provided by their opposition. What democracy does is not to abolish this opposition but to institutionalise the reflexivity in it. Whether this really makes that reflexivity work more efficiently is an open question. Earlier I introduced the game model as preferable to the equilibrium model. One reason that I prefer the game model is that we are all used to understanding the reflexivity in a combative game, like chess or tennis, say, where constant revision of previous assumptions is the norm. Another is that in a game it is never over til its over. Outcomes are not predictable and upsets are quite common. We have seen that a bubble develops in situations where the proequilibrium tendency in a social situation is inhibited in some way and that a common way that this can happen is through the introduction of some degree of opacity that makes risk assessment difficult. These principles do not apply only to stock markets. They are the stuff of all social decision making. Humans are followers of fashion, or, to put the same thing another way, bubbles can develop in any area of social life. 39

Often these are of no particular consequence. If they result in widespread transient popularity of haircuts that imitate a particular popular music star or in the rise to prominence of a sporting activity for a time it probably does not change the course of history. If, however, it leads to widespread discrimination against and persecution of followers of a particular religion or members of a racial group or to mass migration, then it might well do so. The latter phenomena are also bubbles and are caused by ignorance or opacity in just the same way as credit disequilibria are. It does not take much for a different racial group or members of any semi-definable social category to come to be perceived to represent an indeterminate risk. Once persecution begins then there is a real likelihood that the behaviour of the group in question will change in ways that increase rather than diminish the perceived risk. Persecution thus escalates. A bubble occurs. It may be short or long lived. In phenomena of this kind there is no guarantee that a reality factor will show up in a sufficiently unavoidable form to stop the rot. Where such misfortunes blow over it may be more a result of energy being diverted into some other obsession that catches public attention. The caste system of India, for instance, has involved systematic institutionalised persecution that has continued for thousands of years. The cost to the collective wealth and well-being of the society over that period must have been enormous. This cost has, however, still not become so unavoidably obvious on a sufficiently widespread scale to bring the prejudice to an end. This example and many others illustrate the fact that a tendency toward equality cannot be relied upon to be a natural phenomenon. In fact, it appears to be the case that in times of peace, broadly speaking, inequality is more likely to increase than to decrease. Social equality could be regarded as a kind of equilibrium position in society and inequalities would then be seen as departures from the long term norm. Such equilibrium is might be the natural result of entropy, but humans are not entropic. They only become entropic when they start to act in the manner of machines. One way of acting 40

like a machine is to be completely rational on the basis of a single principle, such as material self-interest. Thus classical theories of economics and society are actually theories of what happens when people cease to be people and start to act like programable automatons. While humans do act like that for portions of time and under some transient conditions, that is not how they act all the time and that is not how they act when at their best. Statistics is another method used to dehumanise people by seeking to even out the idiosyncrasies of individuals. However, most actual societies show tendencies in keeping with Lovelock’s assumption that life is counter-entropic. They show substantial trends toward increasing inequality that are self reinforcing and have all the characteristics that we have identified for bubbles. They spring out of opacity. This includes ignorance of the real position of those who suffer; ignorance of the real level of risk that they represent, and ignorance of the long term return on the behaviour pattern that has become established and is progressively exacerbated. If we continue to extend our comparison with what we have discovered by treating the stock market as a simplified microcosm for society as a whole then we might conclude that the true equilibrium position would not actually be equality, which would be like a position in which all stocks cost the same, but rather a position in which each person was attributed a status and reward that accurately reflected their value and risk to the society as a whole. When we start to think in this way we can see even more clearly the bubble nature of prejudice phenomena. In racial or sexual or other forms of social discrimination it is not so much that equality is abolished as that the value of one section of the population undergoes an inordinate diminution. It is a negative bubble. We can equally see that there are positive bubbles. Some sections of the population are lauded to a degree that is far above their actual value to the society. This is not to say that establishing the true or real value of an individual is at all easy. It is even more difficult than establishing the true or real value of an investment in the stock market. Nonetheless, in the market, the assessments that investors 41

make of whether something is undervalued or overvalued is a factor that plays a major part in their decision making. We can deduce that, implicitly if not explicitly, this is also true in society as a whole. We are all, all the time, making decisions about where and how and in what and, most particularly, in whom, to invest our limited time, energy, and activity. The commitments that we make are based upon an implicit assessment of values. This means that through the collective action of many people, people themselves come to have valuations attached to them. What we mean by the value attaching to a person is more difficult to describe than the value that we attach to a stock since the latter have price tags attached to them. Nonetheless, social decision making is substantially a function of decisions about what value is to be attached to particular others. There are two important points now to be considered that seriously complicate this analysis. The first is the effect of a democratic ethos. The rise of democracy as a social ideal, asserting as it does that all persons shall be regarded as equal, has created a taboo that inhibits the open or direct examination of the value that people place on other people. If a person says something that implies that he values one person more than another, the invocation of the notion of democracy may swiftly force him to retract. This does not mean that he ceases to make such value assessments, merely that he is no longer capable of speaking of them openly. This creates a massive opacity in human affairs and, as we have already seen, opacity tends to generate bubbles. At the same time, we have to note that society without differential valuation of persons is almost certainly impossible. It would be like a market regulation that required all prices to be the same which is a contradiction of terms: such would not be a market. Consequently, even the most avowedly democratic countries have socially approved ways of valuing people. In fact, and here comes the inevitable paradox, the more democratic a country is the greater the tendency for scales of meritocratic assessment to be formalised. This is because, in a democracy, people need special permission to do what they are going 42

to do anyway which is to make differential valuation of people. The drawback, however, is that as soon as such assessment scales have been systematized and brought into the arena of public validation they become subject to a second process that further complicates the opacity. This second process is inauthentic compliance. Once one has a set of, say, educational awards, that supposedly indicate the ability of an individual in activity X, then people will set about trying to get the award by whatever means is most efficient for them. Since the award is likely to be made upon the basis of a sample of the candidate’s behaviour, as soon as candidates find out what bit of their behaviour is to be sampled, the astute course will become to concentrate on that small area. This is the problem of performance indicators once again. Put simply, this means that students become more interested in obtaining a piece of paper that validates them in skill X than they are in actually acquiring that skill. Pretty soon, the awards become a poor indicator of actual ability and the small number of people who really dedicate themselves to activity X may actually not have the time or inclination to go through the academic validation procedure and so will be delegitimised. Further, it will become lucrative to be part of the social process whereby such validation is granted. Educational institutions will suffer a pressure to perform economically and in effect, over time, credentials will tend to become commodities purchased for money. A social system that needs to value people differentially while holding to a democratic ethos thus almost inevitably generates credentialising systems that militate against true education. Thus, the procedures introduced with the intention of legitimating assessment of the worth of persons actually tend to make it opaque. This produces bubbles in the domain of the rise and fall of particular professions. It also creates bubbles in the academic and other assessment generating domains. They too are in competition with one another, do not really have a very precise handle on what they are measuring, and are in a poor position to foresee the results of the systems that they do create. I am not suggesting that there is any easy 43

way out of this situation. It would be no more possible to avoid than it is possible to avoid stock market bubbles. A well regulated market probably is the most efficient way of managing supply and distribution of needed scarce resources, but it is full of problems and hazards. The same is true a fortiori of social situations where nothing so simple as a price to market can be used to evaluate the units in the system. What is apparent is that the more opacity there is the greater the distortion and dysfunction and the stronger the ideology, be it democracy, meritocracy or whatever, the greater that opacity is likely to become. I said that there were two factors to consider. Having looked once again at systematic opacity, let us turn to the second, for a minute. This is also already familiar to us. It is reflexivity. In the stock market what is being evaluated are stocks. In society at large, to a great degree the most consequential assessments are assessments of persons and groups or categories of people. I am sure that you can immediately see that this means that the reflexivity at work in such a system is near total. The crucial variable in society is how we evaluate people and we are simultaneously people being evaluated by processes in which we also participate as determinant actors. Where we have opacity as an institutionally built in as well as ideologically sponsored ubiquitous reality coupled to near total reflexivity then we have near perfect conditions for the development of bubble phenomena. That is the nature of contemporary supposedly democratic society. The closer it approaches to the implementation of its ideal, the stronger becomes the likelihood of its self-destruction. Back to the Gods for a Minute This is because the anti-equilibriating forces of opacity and reflexivity work against the ‘reality situation’. The reality situation, remember, is the way things might be seen by disinterested observers. In the stock market it is what is sometimes called the ‘real economy’. The real economy is the concrete matter that factories exist, people do go to work, products are produced, ships and planes carry them about the world, crops do grow in some places and cannot grow in others, 44

minerals are mined and so on. It can be asked whether the value of a stock, say a share in a copper mining company, reflects the economic reality. This question means asking whether the price means something in the real world. This is easiest to understand by thinking what it would mean if the price did not represent reality. If a copper mine share sells in the market for one hundred pounds, but the company in question only has mines that are completely worked out so that it actually has no copper then this share value does not represent economic reality. The same would be true if even though there were copper in the ground, it was in practice impossible or prohibitively expensive to transport it to places where the mineral could be sold to those who might use it in manufacturing industry. Or again, it would be true if although the copper was there and could be transported and sold if obtained, it was actually impossible to get the metal out of the ground for some reason such as civil war. One can see from these examples, that reference back to the real economy is an important matter in evaluating a stock. It is meaningful to talk about the ‘real value’ of the stock and mean by that term a value that would accurately reflect those economic realities. A stock might be considered over-valued in the examples given above. On the other hand it might be undervalued if the amount of copper in the ground had been under-estimated, a new mining technique was just about to come on-line that would make extraction quicker and easier, if transport difficulties were diminishing and so on. So ‘real value’ is a meaningful concept and from it come notions of under and over-valuation and all three ideas are very useful. None of this means, however, that real values can easily be established in practice. It is always a matter of judgement. These judgements are based on information, but the degree of opacity is never zero and is often quite high. Who really knows how much copper is still in the ground or what technology might appear next year? Many of the crucial factors reside in domains that are hard to assess. Further they are in most cases contingent and often reflexive. If the price is high it is more likely that technology will develop faster in that area. There is opacity and reflexivity between the 45

very factors that make up the real economy which is supposedly the most reliable and anti-bubble mechanism in the system. The copper stock price will go up if extraction becomes easier and cheaper, but the technology to make it so is a result of the commitment of research time, energy and money and that commitment is more likely to be made if the stock price goes up. The stock price will rise if new reserves are found, but prospecting for new reserves will be stimulated by the stock price rising. The price will rise if transport systems improve, but they are most likely to improve if there is money to be made from improving them. So it goes on. Even the ‘real economy’ is full of reflexivity and opacity. None of this, however, means that getting copper out of the ground is not a difficult and costly business that can only be done when resources are available in the form of labour, machinery, organisation and a market in which the commodity can ultimately be sold. The real economy is not non-existent, it is simply subject to the same disequilibrating forces that all other large scale human organisation is prone to. From the perspective of the gods it looks simple. There is copper in the ground. There is a demand for it. Demand calls for a supply. Mining activity will follow. Supply and demand will tend toward an equilibrium point and a steady supply of commodity to market will result yielding a return to investors that is in line with returns that they could have obtained by investing in other comparable activities. On the stock market floor, however, panic is always just over the horizon and the horizon is never far away. The same is true in society as a whole. It has been remarked that all societies are only a few meals away from revolution and it is remarkable how fast things can change. The fact is that most people are and would be quite incapable of functioning if they based their lives on a realistic assessment of the risks in which they are involved, either personally or collectively, day to day. Society has a huge vested interest in maintaining faith that things will not change too much too soon. The regularity of social life relies upon deferred gratification and 46

that is an act of trust. Without the necessary faith to oil the wheels, all social institutions would grind to a halt over night. When the fact that we live close to the brink of a high cliff becomes more than usually apparent, as it did during the financial crisis of 2008 or the political crisis of the Cuba confrontation between Kennedy and Kruschev, the first priority has to be to restore faith. Somehow people have to be led to believe that it will be alright because if they believe it then it might be but if they do not believe it then it will not be. Just as bubbles are based on misguided faith, so stability is also based on a faith that can hardly be said to rest on certainties. Final Words Although our essay has ranged over a number of real life phenomena in the economic an political fields, our purpose has centrally been to bring forward a number of concepts. Central among these are the ideas of bubble formation through action based on speculative expectation in conditions of opacity and reflexivity that are ubiquitous, as well as counter-type advantage and manipulative falsification that lead to reversals and make prophecy a self-defeating undertaking. All this suggests that fallibility is radical, that is, it is built into the very roots of the human situation. All attempts by humans to glean knowledge of their place in the scheme of things set such processes in motion. The human quest for certainty is doomed from the start. Classical approaches that give rationality centre stage are thus as fertile a ground for self-deception as any system of belief in super-natural agency or any other set of ideas that could gain a hegemonic position in any conceivable human culture and models of reality that isolate factors from the feedback loops to which they are subject in the real world lead to a false sense of security. The tendency toward equilibrium in human systems is only at most half of the picture and actually describes situations where humans have substantially ceased to act in a sentient manner. The more human people become the more counter-entropic they become. However, as any ‘knowledge’ starts to yield evidence of ‘success’ bubbles form.


There is a certain sense of security to be had from those models in which the human participants act like automatons, but they do not represent real life. In fact, more precisely, they do not represent life: they represent humans acting as machine parts, cogs. This is one of the pitfalls of rationalism: rationalism assumes actors who act in a rational, and therefore predictable, manner. Living beings are not predictable, not least because they realise, intuitively if not consciously, that acting in a counter-type fashion has advantages. We have, however, also seen that appreciation of this paradigm of radical fallibility need not lead to a destruction of all valuing nor to despair and apathy. It is actually simply a call for a higher level of realism than one commonly encounters and a greater willingness that the limits of what can be known be acknowledged. In the rough and tumble of the market place and the political arena this would be too much to demand, but in the domain of philosophy and more distanced analysis, surely such a perspective has its place and is not too much to ask. Even in the market place it has its uses, as successful operators like Soros demonstrate. Consideration of these principles can and does bring personal advantage. However, beyond the merely personal, there is a social and historical dimension. If we are going to create a better, more compassionate world, then the real challenge is not that of devising a world suitable for perfected people to live in, whether the perfection in question is envisaged as ethical rectitude, spiritual enlightenment or eighteenth century rationalism, but that of considering how such improvement might come about in a world populated by human beings of the type that actually exist complete with the kinds of social, political and economic processes that do actually occur amongst them. Is such realism too difficult to think about? Surely we must make the attempt. It is easy enough to produce schemes for social revolution or reform that rest upon a reform of the individual, but that is like designing a building to be built from materials that do not actually exist. Further, it commonly amounts, even in its idealistic forms, to depriving people of 48

their humanity. This is why critics of utopianism see it as a gateway to tyranny, and point to many actual historical examples where the attempt to create a ‘perfect’ society has led to carnage and oppression. The kind of socialism that was attempted in the Soviet Union probably failed because it required people to not be ordinary people. This then meant that the state had to develop an oppressive apparatus to continually pressure people to be something that did not come at all naturally to them. Even though many of the ideals espoused were attractive, the result was oppressive and undesirable. Society evolves and changes. The processes outlined in this essay are part of such evolution. Those who would be philosopher kings or queens are not charged with devising a perfect blueprint for a final condition of the good society, but with managing an ever unfolding process. Finalist blueprints are recipes for disaster. This is just as true of blueprints that are replete with words like freedom, democracy, and rationality as it is of ones using terms like proletariat, socialism and dictatorship. Even Robinson Crusoe’s island was a changing situation. We should have more hope of understanding and learning to work artistically with such processes as actually occur than of entrusting ourselves to a planners dream. What can we take away with us from this exploration? Perhaps we can learn to be more acute in discerning the kinds of process that create opacity. We can certainly learn to discern reflexivity. We can develop a habit of looking for the undertow of social developments. We can appreciate the counter-entropic nature of humans and this appreciation can extend to valuing their divergent, creative and counter-type initiatives. We can learn to develop thinking that is dynamic and synergistic rather than static or idealist. We can continue to use positivistic ideas so long as we acknowledge their inevitable contingency and limitations. We can be more trusting while also being more alert to the possibility of reversals. Overall, however, what is being pointed to and asked for here is not so much the establishment of a new check-list for the would-be social theorist as a new style of 49

thinking about society and the people in it. A style that as Schumacher suggested, operates “as if people matter.�


David Brazier, in addition to his interest in social affairs and sociological processes, is author of seven books principally on Buddhism and psychotherapy and of many other writings, founder of the Amida Trust, head of the Amida-shu spiritual community, doctor of philosophy, teacher, therapist, social innovator, traveller, inventor of pandramatics, gardener, woodsman, poet, critic, communitarian, and internationalist. He is known as a spiritual leader, an interpreter of Buddhist psychology to professional audiences, and an innovator in psychotherapeutic method.

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Radical Fallibility  

A paper on the dynamics of human society

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