Social Mood Conference | Socionomics Foundation
By Alan Hall, originally published in the October 2008 European Financial Forecast

Socialism is suddenly a hot topic. In Japan, young people are joining the Japanese Communist Party in “droves.” In Russia, there is renewed reverence for Stalin. Latin American leftists are “gloating over Comrade Bush’s Bailout,” which one paper described as “the biggest socialist act since the New Deal.” In the U.S. presidential campaign, John McCain has seized upon Barack Obama’s comment about “spreading the wealth” as reminiscent of Europe’s socialist policies.

The timing of this is no accident. We observe that history’s dominant examples of socialism spring from the major bear markets that follow financial manias. The free-market ideas that support the bull market and lead to mania are challenged after the mania’s collapse. Also, when social mood turns strongly negative, the nature of social desire changes: from desire for power over nature to desire for power over people. This new desire eventually restricts free markets and individual liberty. The U.S. bailouts are just the first such signal of rejection of free-market principles.

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The 1989 Elliott Wave Theorist Special Report “A Turn in the Tidal Wave,” describes the political shift away from individual liberty:

In a formalization of the negative mood within a bear market, one or more of the new parties is likely to represent ideals inimical to individual liberty (such as socialist, racist, fascist or fundamentalist). In some cases, such as in Russia in the ‘teens, Germany in the ’thirties, China in the late ’forties, Cambodia in the ’seventies, and Iran in the late ’seventies, such parties have achieved power.

Figure 1 shows a brief history of socialism plotted against three centuries of British equity prices. The data show four manias, each reversed, and each followed by stronger expressions of socialism, which appear near the lows of waves (a), (c) and (e).

  1. Adam Smith was a political economist and moral philosopher regarded as the father of modern economics. In 1759, observing the social despair in the aftermath of the South Sea Bubble, Smith wrote “The Theory of Moral Sentiments,” which contains the first mention of his famous “invisible hand” metaphor. Read in context, that passage describes the apparent benefits to society of people behaving in their own interests. But, it also contains ideas that Marx and others used to expand socialistic ideology a century later:

    The rich…divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants… [Emphasis added]

  2. In 1843 Paris, Karl Marx studied the ideas of Hegel, Smith, Engels and others while he lived through the bear market that followed the Panic of 1825 and observed its effects on the working class. Between 1847 and 1867 he wrote several major books that formed the ideological foundation for socialism to take over Russia in 1917.
  3. The 1920s boom and 1929 crash led to the global Great Depression, and from 1929 to 1949, socialism took over “nearly half of the earth’s population, in Germany, Italy, Eastern Europe and China.” (The Elliott Wave Theorist, September 2001) In the grip of that bear market, Marx’s utopian ideas were twisted into Stalin’s Great Purges, leaving some 30 million Russians dead. This period marked both the end of Grand Supercycle wave IV and the zenith of socialism to date.
  4. When the Soviet Union collapsed in 1991 during a pullback within a global bull market, socialism was seen as a failure. Today, in the much larger bear-market aftermath of the Great Credit Mania, the reigning economic philosophy of capitalism is being questioned. If history is a guide, we can postulate that this bear market should gestate radical ideas that eventually develop into a new iteration of socialist ideology.

The ideas of Adam Smith have become talking points in today’s bailout debate. On October 10, the UK’s Gordon Brown said that Smith “had a moral sense that we all share some sort of responsibility for each other….” And on October 27, the New Yorker pointed out that Obama’s “spread the wealth” comment can be traced to a quote from “The Wealth of Nations,” Smith’s seminal 1776 treatise on free-market capitalism:

It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.

Conservatives decry the bailouts as socialistic, while the socialist-party candidate for the U.S. presidency says they are capitalistic. The fact that socialism has once again emerged as a prominent topic in global dialogue gives us a clue about the relative size of today’s bear market.

The Merriam Webster dictionary says that socialism advocates “collective or governmental ownership and administration of the means of production and distribution of goods.” The bank bailouts certainly qualify as such, and while they look more like desperate attempts to bolster eroding confidence and maintain capitalism’s shaky status quo, socialism has gotten a foot in the door at a time when the crowd is likely to open it wider.

The core expression of negative social mood — the shift from desire for power over nature to desire for power over people — is likely to intensify. Already visible in Britain’s rapid adoption of widespread citizen surveillance, this desire leads to a socialistic mindset and authoritarianism. We are in the early stages of a cycle that could see socialism dominate much of the planet, with technology enabling a more subtle and pervasive Big Brother than that of the Soviets.■

Socionomics InstituteThe Socionomist is a monthly online magazine designed to help readers see and capitalize on the waves of social mood that contantly occur throughout the world. It is published by the Socionomics Institute, Robert R. Prechter, president; Matt Lampert, editor-in-chief; Alyssa Hayden, editor; Alan Hall and Chuck Thompson, staff writers; Dave Allman and Pete Kendall, editorial direction; Chuck Thompson, production; Ben Hall, proofreader.

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Most economists, historians and sociologists presume that events determine society’s mood. But socionomics hypothesizes the opposite: that social mood regulates the character of social events. The events of history—such as investment booms and busts, political events, macroeconomic trends and even peace and war—are the products of a naturally occurring pattern of social-mood fluctuation. Such events, therefore, are not randomly distributed, as is commonly believed, but are in fact probabilistically predictable. Socionomics also posits that the stock market is the best available meter of a society’s aggregate mood, that news is irrelevant to social mood, and that financial and economic decision-making are fundamentally different in that financial decisions are motivated by the herding impulse while economic choices are guided by supply and demand. For more information about socionomic theory, see (1) the text, The Wave Principle of Human Social Behavior © 1999, by Robert Prechter; (2) the introductory documentary History's Hidden Engine; (3) the video Toward a New Science of Social Prediction, Prechter’s 2004 speech before the London School of Economics in which he presents evidence to support his socionomic hypothesis; and (4) the Socionomics Institute’s website, At no time will the Socionomics Institute make specific recommendations about a course of action for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended.

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