A Letter to George Soros

1998. Inspired by Soros’ writings in which he criticises capitalism and introduces the concept of reflexibility. I’m afraid he didn’t have time to read this.

Dear Sir,

As a new user of Internet I found there a couple of interesting writings dealing with the issue I’ve been working on. Among the most inspiring were your writings The Theory of Reflexibility and The Capitalist Threat. When you read this writing, the open net sure works for the open society.

From my point of view the reflexibility and participant’s bias are reality and the concepts of them a good help to understand how the fundaments of social systems change, which cannot be explained in terms of conventional economics, psychology or natural science. You are entering a new field of science and there are not many – if any – professionals there. This must be the main reason your theory hasn’t received much of a serious consideration. The theory of reflexibility reveals a possibility to develop the basic rules of a social system and this is as strange a thought today as the thought of developing physical systems was before Newton. The failure of Marx’s theory still haunts people’s minds.

Nevertheless, I believe you should hold to your first, intuitive thought of the universal reflexibility. At least I think, for example, that even when an insignificant price changes, there is always a factor which makes calculations with market numbers like they were scientific truth, though they are only promises which are affected by the factor. The fact that there are long ”normal” periods without chaos follows from the system’s ability to absorb separate bankruptcies and from the reflexibility’s ability to lower as well as rise the prices.

However, the situation changes when there is an ideological gradient which presses the participants’ bias to one direction so that it grows little by little unsustainable. As an example you mention the rise and fall of the Soviet system. From the very beginning the hierarchical system produced official numbers and regulations describing the ”reality” of the system inclined to one direction. The obedience to those ideologically based ”facts” directed people to acts which caused the official truth to diverge more and more from the people’s truth. The system used well known methods to ”discipline” and to neglect the divergence and the situation looked stable for a long time. After the crash the official numbers and regulations were rubbed out and the new situation had a totally different character. The destruction was so complete because the closed society succeeded to hide the results of reflexibility so long and the divergence grew enormous.

As you know, the present situation in Russia still is everything but open. There are many ideological groups fighting each other and the same reflexibility works in every one of them producing ”facts” until the gap between those facts and peoples’ facts widens too much, the most distorted groups collapse and new groups emerge.

This is how I see your three conditions of reflexibility as different stages of one. I don’t know how this reasoning suits your thoughts, but I find this view interesting because it links reflexibility to ideology and the ”openness” of a society. Actually, I believe the reflexibility gains its practical meaning only by ideology, whatever ”size”, which presses the distortion to one direction.

Today, the crucial issue is the capitalist threat: is the (capitalist) free market a neutral system which only oscillates, or is it an ideological system which produces ”facts” increasingly diverging from reality because of those ”facts”? Are the numbers of financial market as a whole diverging from the people’s values until the financial system collapses, or do they correct themselves in peace ? Does the current widening of the prosperity gap, with all its consequences, lead to a crisis followed by a different world and different economic practices, or does the gap only oscillate? The prevailing wisdom is, like you stated, that the market tends towards equilibrium and there is no reason to worry. I understood that you disagree and certainly I do.

Now to a revolutionary thought, which I hope fascinates you. According to schoolbooks there are certain conditions (from generation to generation repeated) needed for perfect competition or neutral market: perfect knowledge, easily divisible products and numerous undependable participants free to act on the market. In the books the next sentence tells that those conditions doesn’t exist in the real world and from the next paragraph on, perfect competition is called free market meaning however something quite different. I am a slow man in many ways and here I ask, why such a hurry. Let’s stop at the fundaments for a while. Are the terms in question adequate to state neutral market? Are they essential to the demand-supply problem, which is the main concern of economics? I have to answer ”no” to both questions.

The reason to this is, that however perfect knowledge, easily divisible products and numerous free participants there are on the market, the participants are human beings buying and selling things. And under such conditions the totally free market is impossible even in theory. If a man is free to choose to whom he sells, a man is not free to choose from whom he buys and vice versa. The fundamental freedom can only be on one side, in selling or in buying. This analysis is necessary to understand the true market, because only it brings the concept of mind and the concepts of supply and demand into the picture!

Next thing is to find that especially in money using economy, selling and buying are not symmetric acts in the sense of power and ideology. The owner or the seller of a product has more power than the buyer, because the owner has something real but the buyer has only money, a promise printed on paper. Selling is from above and buying is from beneath. The conclusion is that an economic system based on freedom to sell is an inclined system and it forms hierarchies of owners producing biased ”facts”, numbers and contracts tending to strengthen owners’ power and ideology. The only thing needed for that is the seller’s freedom to choose clients and to include classifying contracts into prices. Because the present capitalism is such a system, in spite of many exceptional practices, the global free market doesn’t converge and the capitalist threat is real. The basic unbalance in capitalism is between supply and demand and it is not as great as in socialism where the unbalance includes also the political power. The separate manifestations of capitalistic unbalance can for a long time be ”neutralized” by numbers and other ”facts” the system produces to make calculations correct. That is why capitalism seems stable –just like socialism did twenty years ago. Anyhow all the time the supply side grows in power to allocate resources to itself. If my theory is right, this continues until the majority of capitalist calculations and contracts are defeated either by an unintended chaos or an intentional way.

It is still more interesting that according to this view the opposite to capitalism is not socialism, a government regulated economy, but an economy based on freedom to buy, in other words an economy where every buyer is free to buy anything he wants from anyone he wants at the same price the seller is selling it to others. The government is not the opponent to economic freedom but a part of the same more or less free system, just a special case of a market participant selling rights, privileges and duties to citizens and organizations.

What kind of economic practices and institutions emerge from ”freedom to buy” principle is an exiting and broad question producing some clear and some less clear answers. As examples I can mention two things. Firstly in the open economy, as I call it to distinguish it from the capitalistic free economy, all knowledge concerning money: prices, possessions etc. are open to everyone. This is demanded not only by the equal participation on the market but by the nature of money as a social, public promise. Secondly in the open economy there is only one kind of corporation having the same rights and duties as individuals; the corporation is its owners, i.e. for example taxed via its owners by the same principle a working man is taxed; also every corporation having a different set of owners is a separate participant on the open market; which means that corporations cannot own other corporations. Some practices of the open economy, like the basic income, are already widely discussed issues. Nevertheless they haven’t got the critical mass to change the system or even people’s thoughts. In my opinion this is because such attempts haven’t yet found their ideological home, which is not capitalism nor socialism nor anything in between but open economy, the wholly different principle.

As a result of above mentioned and other practices, the open economy is supposed to work according to the theory. The power of multinational companies diminishes, the prosperity gap narrows, the competition pressure weakens and the environmental strain decreases. All this happens without increasing government interference; on the contrary, it may be the only way to decrease it. What open economy needs is a wide agreement to prohibit certain capitalistic and socialistic practices which build and support hierarchies causing resources to move upwards, just like capitalism needs wide agreements to prohibit ordinary robbery and thievery.

I think you are deeply right in your article The Capitalist Threat that in a society without boundaries the only place the shared values can be found is the concept of the open society itself. And to fulfill this role, the concept of the open society needs to be redefined. However, for the reason told above, I cannot share the view of the open society occupying the middle ground. In my opinion there is no open society without open economy, the economy which is based on freedom from beneath, just like democracy is the political system based on freedom from beneath.

Of course this is just a theory but as an engineer I know it is impossible to understand and change the world without theories. Also I believe science is a fallible system without many truths but better and worse theories. And comparing my theory of the open economy to theories of capitalism and socialism, as far as there are such theories, there is no doubt that this theory lies on a much stronger basis and explains far better what has happened in the world; thanks to developing the theory on the basis including the human mind (for example free to decide how to trade). Why shouldn’t it explain also the future better than the old theories?

For me this is a thrilling question and I keep wondering why it doesn’t thrill others. I first stated the main lines of my whole theory of the open society in the book Uusi Yhteiskuntajaerjestelmae (The New Social System) in 1987. It sold a few hundred copies in Finland and received practically no critical examination. At the same time people are grieving the old theories’ inability to treat new problems! I hope the indifference is caused by the participant’s bias to think the ”facts” built by common believes to be invariable truth. If so, the change of thinking is only a matter of time, however long. So I am now writing a new book concentrating on the open economy, and also trying to contact people sharing same kind of thoughts. That is why I was so delighted to find that you, having both substance and authority to state big questions to wide audiences, want to defend mind based economics against ”Newtonian” economics. I am most willing to help you in that defense.

Yours faithfully,

Matti Hyrylainen

Finland

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