《《Soros SpeechBerlin INET2016》.pdfVIP

INET Lunch, Berlin 2012 Ever since the Crash of 2008 there has been a widespread recognition, both among economists and the general public, that economic theory has failed. But there is no similar consensus, even among participants of this conference, on the nature and implications of that failure. As a sponsor of INET I am delighted because it shows that INET is open to widely different strands of new economic thinking. But I am not only a sponsor; I am also the proponent of an alternative interpretation of financial markets and today that is what I should like to talk about. I believe that the failure is more profound than generally recognized. It goes back to the foundations of economic theory. Economics tried to model itself on Newtonian physics. It sought to establish universally and timelessly 1 BerlinINET2012Lc9.doc At4/ 11/2012(lf/tb) valid laws that govern reality. But economics is a social science and there is a fundamental difference between the natural and social sciences. Social phenomena have thinking participants who base their decisions on imperfect knowledge. That is what economic theory has tried to ignore. Scientific method needs an independent criterion, by which the truth or validity of its theories can be judged. Natural phenomena constitute such a criterion; social phenomena do not. That is because natural phenomena consist of facts that unfold independently of the scientific statements that relate to them. The facts then serve as objective evidence by which the validity of scientific theories can be judged. That has enabled natural science to produce amazing results. Social events, by contrast, have thinking participants who have a will of their own. They are not detached observers 2 BerlinINET2012Lc9.doc