ABSTRACT
This chapter outlines how a workable and falsifiable theory of finance might be approached. Before doing so, one needs briefly to remind themselves of the current state of the investment industry; to consider an alternative theory of "reflexivity" in financial markets, as developed by George Soros; and also to look at the issue of "liquidity". The vast scale of the sums involved in today's institutionalised finance, very little of which is connected to long-term investment, provides the backdrop for an understanding of George Soros's own theory of reflexivity. The wider macroeconomic problem here is that the pooled savings which are accumulating are being withdrawn from present consumption, and not being used for new investment, creating future growth. One practical response to the evident deficiencies and costs of institutionalised investment has been the shift in recent years to completely "passive" forms of investment, which make no pretence to select individual company stocks, or to time short-term price movements.
