In the wake of the 2008 financial crisis, economics has undergone a searching debate about its philosophical foundations. George Soros, founder of the Institute for New Economic Thinking, has been a long-standing critic of orthodox economic ideas of human rationality and perfectly efficient markets.
The current issue of Journal of Economic Methodology, the leading peer-reviewed journal on the philosophical foundations and methodological practice of economics, is a special issue devoted to Mr Soros’s theory of reflexivity.
In it he articulates his most recent thinking on reflexivity and fallibility, the role of those concepts in social science, and their contribution to events such as the 2008 financial crisis and euro crisis. The issue also contains contributions, responses and critiques from 18 leading scholars in economics and the history and philosophy of science, including Eric Beinhocker, Director of the Institute for New Economic Thinking at the Oxford Martin School (INET Oxford).
In 1987 Mr Soros published his first book The Alchemy of Finance arguing that markets and economies rather than being rational and efficient are reflexive and fallible, making them subject to deep uncertainty and capable of phenomena such as bubbles and crashes. In a series of books and articles over the following decades he explored the implications of his ideas for economics and public policy. While his theory generated significant interest in the financial community, particularly given his success as an investor, it was largely ignored by mainstream academic economists.
But more recently as economists have looked to reform their field and create a new post-crisis economics they have begun to seriously engage with Soros’s theory. At the INET 2012 annual conference in Berlin, he gave a plenary speech at the German Foreign Ministry titled “Challenging the Foundations of Economic Thinking” in front of an international audience of more than 300 leading economists and policy practitioners that set off a vibrant debate throughout the conference.
That debate caught the attention of the editors of the Journal of Economic Methodology, Prof. Wade Hands of the University of Puget Sound, and Prof. John Davis of Marquette University. They decided to convene a symposium to further explore Mr. Soros’s ideas and their implications for economics. They invited Mr. Soros to contribute a new article and 18 leading scholars to respond. The journal symposium was further supported by two international workshops on reflexivity convened at Central European University and chaired by Eric Beinhocker.
There was much vigorous and productive debate between the scholars participating in both the symposium and workshops on the definition, meaning and implications of reflexivity. But there was also a strong consensus that Mr Soros’s work has raised a set of fundamental issues about the philosophical foundations of social science and that economists must grapple with those issues if we are to truly understand how the economy works and prevent or minimise future crises.