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R. N. ELLIOTT ON SOCIAL 
MOOD AND SOCIAL CHANGE

MICHAEL K. GREEN


 


Name: Michael K. Green, Philosopher, (b. Monette, Mo., U.S.A., 1951). 

Address: Department of Philosophy, State University of New York at Oneonta, Oneonta, NY 13820, USA 

E-mail: greenmk@oneonta.edu

Fields of interest: Social theory, applied ethics, history of philosophy, ethical theory (also computers, computer-aided instruction, anthropology).

Awards: Phi Beta Kappa, Director of Socionomics Institute.

Publications and/or Exhibitions: 

(1991) Law, forms of life, and metaphysical metaphors, In: Action and Agency, Edited by Roberta Kevelson, New York: Peter Lang, 139-161. 

(1992) Fairness in hierarchial and entrepreneurial firms, Journal of Business Ethics, 11, 877-882.

(1994) Cultural Themes in European Philosophy, Law, and Economics, History of European Ideas, 19, Nos. 4-6, 805-810. 

(1994) Images of justice, International Journal for the Semiotics of Law, 7, No. 21, 241-251. 

(1995) Issues in Native American Cultural Identity (editor), Center for the Semiotic Study of Law, Politics, and Government, NY: Peter Lang.
 
 

Abstract: Nineteenth century physicists called into question the mechanistic approach of Newtonian physics, which was based on atomism, reductionism, the unity of the sciences, and the primacy of external causality, by developing various field theories. Developments in thermodynamics also called into question the reductive approach of mechanism. R. N. Elliott, an American social thinker who lived from 1871 to 1948, applied the principles of the new physics, i.e., holism, waves, pluralism, and internal self-organization, to society in order to develop an alternative to social mechanism. He though that mass psychology, impelled by emotion and not reason, was the driving force of human society and that these emotional waves swept through society in a five-wave sequence. According to Elliott, the most direct and detailed measure of these moods is provided by aggregate stock market prices. His work is consistent with the work of Mary Douglas and her followers in cultural theory.
 
 

R. N. Elliott was an American social thinker who lived from 1871 to 1948. Just as nineteenth century physics called into question the mechanistic views of Newtonian physics, so Elliott called into question the application of such mechanistic models to society. 

According to mechanism, an entity consists of fundamental particles or atoms. Any whole within a given discipline is merely the sum of its parts. Thus, the proper procedure is to analyze a whole into its fundamental parts and then sum those parts to constitute the whole. Further, all disciplines can ultimately be resolved into a single discipline, physics, so that the doctrine of the unity of the sciences is also fundamental to mechanism. Finally, according to mechanism, the universe is basically inert so that atoms change only as a result of outside forces acting upon them. Newton formulated these laws of external causality in his three laws of motion. Thus, atomism, reductionism, the unity of the sciences, and the primacy of external causality are the four pillars of mechanism.

A key to Elliot's alternative intellectual orientation can be found in his praise of the work of Marconi, the inventor of the radio. Marconi's work was the result of a series of century-long challenges to the mechanistic conception of the universe and seemed to vindicate a field theory over an atomistic one. The first challenge to mechanism came when Young proposed the wave theory of light, which, by the middle of the nineteenth century, was widely accepted. The second challenge came from developments in electromagnetic theory. The work of Ohm, Faraday, and Maxwell further developed a field theory as an alternative to mechanism. Faraday rejected the atomic theory of matter in favor of a field theory. Maxwell developed the electromagnetic theory of light, and Hertz provided experimental verification of Maxwell's theories as well as the fundamental discoveries upon which the development of radio broadcasting and radar were based. Hertz produced and detected waves over short distances. Marconi's achievement was to produce and detect such waves over long distances. This laid the foundations for radio. His work seemed to vindicate the concept of a field over that of particles. Elliott's work extended the field concepts of this revolutionary new philosophy, as Einstein and Infeld (1938, p. 125) called it, to society.

The rise of thermodynamics in the nineteenth century also called into question some of the tenants of mechanism. As a result of the work of Carnot, Clausius, and Kelvin, the first and second laws of thermodynamics were formulated. These describe the behavior of complex systems in more holistic terms. As a result of this work, it was shown that macro-states could be used to describe a complex system and that these could be accounted for in terms of macro-variables that did not make reference to the atomistic constituents of the complex system. Indeed, any given macro-state is compatible with many different microstates and thus is not uniquely determined by a single microstate. Thus, the properties of wholes could be studied in and of themselves since they have properties of their own that were not merely the sum of their constituents. This left it open to study the properties of fields and systems independently of their parts. 

Applying the above innovations from physics to social theory, Elliott developed a conception of society based upon systems as wholes and upon field concepts. His significant innovation at this point was to develop a method for identifying and studying the properties of wholes that cannot be reduced to the properties of their constituents. Philosophically, Elliott's conception of a system is similar to Spinoza's approach to organic systems. Like Elliott, Spinoza thought that a whole should be viewed as a whole and not as a mechanical interplay of constituting parts. As Jonas (1973, p. 269) states in his explication of Spinoza's theory, a whole is "the sustained sequence of states of a unified plurality, with only the form of its union enduring while the parts come and go". Thus, a whole maintains its identity by maintaining a certain form or pattern. As was the case with electromagnetic phenomena, this form or pattern was, for Elliott, given by a wave structure. By developing a procedure for identifying the properties of wholes in terms of wave structure, Elliott rejected the reductionism of mechanism.

Elliott identified a five-wave sequence that he thought was a fundamental pattern of nature. In a growth wave, wave 1 consists of an initial expansion. Wave 2 is a partial retracement of wave 1. This is followed by wave 3, which is often a strong growth spurt. Wave 4 consists of a partial retracement of wave 3. Finally, wave 5 constitutes the last and final growth spurt of the system. At this point, the growth has reached its maximum point. Then a decline begins, which partially retraces the whole progress of the previous five-wave expansion. The first wave, wave A, of the retracement is a downward thrust. This is followed by wave B, which is an upward thrust that corrects the first wave down. Finally, there is the third wave down, wave C, which completes the correction of the five-wave sequence. The process is then ready to begin another five-wave expansion period (Elliott, Jan. 16, 1940, pp. 156-158).

Elliott applied the principles of holism, waves, pluralism and internal self-organization independently of external causes to develop an understanding of human society. Elliott thought that mass psychology, impelled by emotion and not reason, was the driving force of human society. Thus, the waves that passed through society were emotional moods (Elliott, Apr. 20, 1943, p. 182; See, also Dec. 15, 1939, p. 146; Oct. 1, 1940, p. 162; Dec. 15, 1942, p. 109; and 1942, p. 171). Such waves of emotion express themselves in all sorts of social phenomena. However, according to Elliott, the most direct and detailed measure of these moods is provided by aggregate stock market prices. Elliott (Apr. 20, 1943, p. 182) states that stocks are "an emotional human activity", and the New York Stock Exchange because of "its marvelous machinery and organization reflect psychology immediately and to perfection" (Aug. 6, 1945, p. 137). Investment decisions are typically not made by a rational assessment of risks and rewards but by relying upon others and what they are doing. As Prechter (1999, p. 153) states, investors "are driven to follow the herd because they do not have firsthand knowledge adequate to form an independent conviction, which makes them seek wisdom in numbers". Because such movements are emotionally based, they can give rise to what people perceive (usually after the fact) as "abnormal markets" in which there is extreme irrational exuberance (Elliott, Apr. 20, 1943, p. 182). Under such conditions, individuals are overly optimistic and take on excessive risks, which leads to an economic crisis of over-investment. This is what happened in the late 1920s. After being financially burned in the economic collapse following a period of over-optimism, the crowd then goes to the opposite extreme and becomes extremely pessimistic and risk-averse. As a result, economic conditions stagnate, as they did in the 1930s. Elliott's biggest challenge to modern economics, though, may be that the one-dimensional conception of human being that underlies traditional economic theory is flawed because it ignores the emotional side of human existence. 

Elliott's work is consistent with the work in cultural theory by Mary Douglas and her students. Human beings are social animals who find meaning through identification with others. Identification with others requires acceptance by others, and this in turn requires that an individual adopt the preferences of his/her target group and that he/she behave accordingly. Social acceptance and identification with a group brings with it a set of preferences and a set of social relations consistent with those preferences. Preferences and social relations act in a self-reinforcing manner so as to form a consistent whole among groups of self-organizing individuals. This is true of people's perception and assumption of risk, which is also socially constructed. Thompson et al. (1990, pp. 25ff) identify four socially constructed perceptions of risk. According to cultural theory, social changes are due to the movement of people from one of these orientations to another. What the work of Elliott suggests is that there is a pattern to such movement and that the movement toward these ways of life can reach extremes.

Though it is under attack, the primary hypothesis today purporting to explain the behavior of financial markets is the Efficient Market Hypothesis. This holds that the decisions of all market participants are always informed and rational so that investment values are equilibrated immediately. This theory finds it difficult to account for the irrational exuberance that leads to stock market bubbles, such as the one in 1720, the one in 1929, and the current one that is unraveling before our very eyes. During such times when assets are overpriced, investors should be selling instead of buying. Nor can it account for times of extreme pessimism in which investors withdraw wholesale from the markets at the very time that assets are underpriced and they should be buying instead of selling. Proponents of "Behavioral Finance" have pointed out that since the market is supposed to reach "equilibrium" efficiently, this theory cannot account for what some would call "far-from-equilibrium states". Elliott would say that the very idea of equilibrium is erroneous in the social setting and that every level of financial valuation is no more than a point along the continuum of mood change. For Elliott, both of these purported states, and those in between, are part of the natural ebb and flow of social mood. 
 
 

References
 

Douglas, Mary (1985) Risk Acceptability According to the Social Sciences, New York: Russell Sage Foundation.

Einstein, Albert and Infeld, Leopold (1938) The Evolution of Physics, New York: Simon and Schuster.

Elliott, R. N. (Dec 15, 1939) Selection of trading mediums, In: Prechter, Robert, Jr., editor (1993) R. N. Elliott's Market Letters (1938-1946), Gainesville, GA: New Classics Library, p. 146.

Elliott, R. N. (Jan. 16, 1940) Educational bulletin B: Cycles, Ibid., pp. 156-159. 

Elliott, R. N. (Oct. 1, 1940) The basis of the wave principle, Ibid, pp. 162-167.

Elliott, R.N. (Dec.14, 1942) Interpretative letter No. 25: The 13-year triangle, Ibid., pp. 109-112.

Elliott, R.N. (1942) Educational bulletin N: The measurement of mass psychology, Ibid., pp.171-173.

Elliott, R. N. (Apr. 20, 1943) Educational bulletin Q: Psychology, Ibid., pp. 182-185.

Elliott, R. N. (Aug. 6, 1945) Interpretative letter No. 34: Psychology, Ibid., pp. 137-139.

Jonas, Hans, (1973) Spinoza and the theory of organism, In: Spinoza, A Collection of Critical Essays, Edited by Marjorie Grene, Garden City, N.Y.: Anchor Books, 1973, p. 269ff.

Prechter, Robert, Jr. (1999) The Wave Principle of Human Social Behavior and The New Science of Socionomics, Gainesville, GA: New Classics Library.

Thompson, Michael, Ellis, Richard, and Wildavsky, Aaron (1990) Cultural Theory, Boulder: Westview Press.
 


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