Soros correctly shows that uncertain,indeterminate, changing expectations of the future ,based on incomplete,limited,and ambiguous knowledge and information,lead to multiple equilibria( and not a unique,single ,stationary ,stable equilibrium around which plus and minus standard deviations of prices cancel themselves out).However,this has already been done.It was done by J M Keynes in 1936 in his General Theory.Keynes's technical analysis was done in chapters 20 and 21 of the GT.Keynes analyzed the interaction and feedback effects of his expected aggregate demand(D) and supply(Z) curves in these chapters in his D-Z model.Unfortunately,no economist in the 20th or 21st century has been able to figure out what it was that Keynes did in these chapters.The main problem for economists is that they are unable to integrate the derivatives,either on pp.283-284 of the GT or in footnote 2 on pp.55-56 of the GT,in order to derive Keynes's Z function,which incorporated profit expectations based on his chapter 26 presentation in his A Treatise on Probability.Keynes's D function incorporates price expectations.The actual results are determined by the chapter 10 Y-multiplier model.Only in the very special case where the expected prices from the D-Z model are equal to the actual prices from the Y-multiplier model, which must then be equal to the optimal prices embedded in the boundary of the Production Possiblities Frontier curve(PPF),will the neoclassical result,under the assumption of perfect and complete knowledge or the assumption that all prices changes in all markets are normally distributed(an assumption rejected by Keynes and proven to be false by Benoit Mandelbrot for over 50 years) actually occur.Soros needs to at least read Keynes's statements on p.xi and pp.293-294 of the GT in order to realize that Keynes is dealing with shifting equilibia and not static,stable ,unique equilibriums.Soros will then realize why his very similar theory has been rejected by ,and will continue to be rejected by,the economics profession in the same way that Keynes's theory was rejected.Soros is correct that the demand and supply curves(agregate demand and aggregate supply curves) are not independent of each other This is due to the fact that "The shape of the supply and demand curves cannot be taken as independently given because both of them incorporate the participants' expectations about events that are shaped by their own expectations.Nowhere is the role of expectations more clearly visible than in financial markets.Buy and sell decisions are based on expectations about future prices'and future prices,in turn,are contigent on present buy and sell prices"(Soros,p. 55).This leads one to conclude that "...how can we act with any degree of confidence when we may be wrong and our actions may have unintended adverse consequences ?"(Soros,p.46).This ,of course,leads to the desire to hold money in order to engage in purely speculative ,short run activities that allow one to avoid the unintended adverse consequences of investing in fixed capital goods in the face of constant financial and technological change over time.This is the conclusion of Keynes's theory of liquidity preference.It REQUIRES that(a) expectations be uncertain and indeterminate over time and (b)incorporates questions about the degree of confidence one has in existing estimates,as well as the disposition of the decision maker(his optimism and/or pessimism,ie.his "animal spirits").
Soros summarizes in the following manner:"I assert that there is a two-way connection between thinking and reality,when it operates simultaneously,introducing an element of uncertainty into the participants' thinking and an element of indeterminacy into the course of events.I call this two way connection reflexivity,and I assert that reflexivity distinguishes unique,historical developments from humdrum,everyday events."( Soros,p.51).Keynes would agree completely.
Soros needs to carefully read the GT(chapters 5,12,19,20,21,and 22) and the A Treatise on Probability( TP;1921-chapters 3,5,6,15,17,20,22,26,29,and 33) in order to show what in his theory is different from Keynes's theory of decision making under conditions of risk,ignorance, and uncertainty(Ellsberg's ambiguity) based on interval estimates of probabilities that are indeterminate.It can then be judged to what degree Soros has improved upon Keynes's approach.
However,Soros should expect that he will receive NO consideration from ANY economist,especially any economist who has been trained to analyze all consumer,producer,and pricing behavior as if it could be modeled as some sort of Normal probability distribution.(joint,bivariate,multivariate,log).
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Top reviews from other countries
Malcolm Rodgers
I loved George Soros's approach towards the reasons people make decisions
Reviewed in the United Kingdom 🇬🇧 on April 4, 2017
