Mechanistic, Teleological, and Formological Ontologies
By
Dr. Michael K. Green
Department of Philosophy
SUNY-Oneonta, NY USA13820
Research Associate
Socionomics Institute
Gainesville, GA USA 30503
The philosopher supposes that the value of his philosophy lies in the
whole, in the structure; but posterity finds its value in the stone which he
used for building, and which is used many more times after that for
building--better. Thus it finds the value in the fact that the structure can
be destroyed and nevertheless retains value as building materials-Nietzsche (1967,176)
I. Ontology as Regulative Principles of Inquiry
The stock markets of the United States and Europe are on the verge of a major
collapse, which will have severe repercussions for the economy. Current models are
inadequate to predict or understand this due to their ontological assumptions. The aim of
this paper is to propose an alternative to current approaches. Lawson (1997) is correct
when he states that any attempt to live without an ontology commits one to an implicit
and assumed one. Thus, there is the need to become conscious of one's ontological
assumptions. If it is denied that humans have some special insight into the structure of
being and it is also denied that the structure of reality must somehow conform to the
structure of human cognition, then it seems that ontology must not be possible. However,
such dogmatic metaphysics can be avoided while also recognizing the necessity of
metaphysics by changing the perspective from one who claims to have knowledge to one
who is seeking it. Thus, it is within the context of inquiry that ontology has an essential
role. Consequently, if one changes one’s perspective from viewing ontologies as
constitutive of reality to seeing them as regulative principles of inquiry, one can see the
usefulness of ontological inquiry, especially in the social sciences..
II. Ontology and Inquiry
Reality is complex, continuous, fluid, and changeable with many facets and
dimensions. As Dewey (1938) argues, the basic problem scientifically, then, is how to
manage all of this complexity. Filters must be applied to reality in order to construct
theories about it in order to explain how or why something occurs. To do this, one must
bring certain elements to the foreground as significant and assign others to the
background as insignificant or of secondary importance. One cannot begin by collecting
facts and then constructing theories because one can determine what the relevant facts are
only if one has a theory determining what is and is not relevant, and a theoretical
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framework is needed in order to determine this. Theories themselves, though, are made
possible by a basic underlying matrix of inquiry that sets into motion a research program
that provides direction and coherency to inquiry. To generate particular theories, a
researcher operates with this matrix of inquiry, paradigm, or frame of reference, that
assists him in determining what kinds of models are appropriate for the given subject in
order to make the distinction between foreground and background and thereby identify
the relevant facts within a discipline. This matrix determines not only the boundaries of
the subject that the researcher is studying but also how the investigator approaches that
subject. It identifies the constant and recurring aspects of that subject, the relevant
variables, and the important questions. A matrix of inquiry is a prerequisite for theory
construction. It determines the subject matter, methods, principles, and goals of a given
discipline. We at the Socionomics Institute have identified four basic matrices of inquiry
used in the social sciences-- the mechanistic systems, the hierarchical systems, the
directed systems, and the formological systems matrices of inquiry. In the social
sciences, each matrix of inquiry provides a social ontology in terms of which it
conceptualizes the discipline. These need not be conceived of as completing visions of
reality since each highlights different aspects of reality. Instead, they should be seen as
providing complementary accounts of a varied and complex reality. To understand the
ontological principles of each of these matrices of inquiry, one needs to first reflect upon
the nature of ontology.
III. Ontology and the Transcendentals
According to Aristotle (1941a), the aim of metaphysic is to study being insofar as
it is being, but not any special kind of being. Metaphysics was a type of thinking about
thinking. It didn't deal with some special class of being, but attempted to systematize our
thinking about a given discipline. Aristotle spent considerable time in the Metaphysics
thinking about our ways of thinking about change. Translated into the framework of
inquiry, this means that the aim of metaphysics is to determine the principles that
condition and structure inquiry within the study of a particular aspect of being or reality.
Aristotle identified several such principles. The first is that being is one. In other words,
there has to be a principle of identity by which one can determine whether one has the
same thing or not. Any being that is the subject of inquiry must have some sort of
persistence over time. (Aristotle, 1941a, 723) The second is that being is true. He states,
"we do not know a truth without its cause." (Aristotle, 1941a, 712) Thus, inquiry has to
be grounded. The third principle is that being is good. He states "there must be a science
that investigates the first principles and causes; for the good, i.e., the end, is one of the
causes" (Aristotle, 1941a, 692). The good in this case signifies completeness. Thus, an
inquiry must provide a complete analysis of the object in question. These three principles
gave rise to the claim, made by the Medievals, that being is one, true, and good. The
terms "being," "one," "true," and "good" where called transcendentals not because they
dealt with a type of being that transcended ordinary being but because they transcended
all the categories of specific types of being and thus applied in an analogical sense to all
of being. Now, the Medievals recognized two additional transcendentals. One of them is
"thing." While "being" designates something that is, "thing" identifies something as
having some type of specific determination unique to it. Finally, they added “something"
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to designate the fact that no specification of a thing will exhaust the being of that thing.
There would always be something left over that makes this thing different from other
things. Thus, while "thing" emphasizes the determinations that make something what it
is, "something' emphasizes the distinction between one thing and other things.
Now, throughout the history of philosophy various principles for these different
aspects of being have been identified. Kant (1965) systematized these. However, Kant
himself did not escape the dogmatism of which he accused other philosophers because he
systematized them mainly to ground Newtonian physics. Three of the principles are used
quite evidently by Kant to structure his critical theory. Being is one in virtue of the
Principle of Identity, or of substantiality, which designates the fact that being insofar as it
remains the same persists over time. Kant identifies this with the categorical judgment
and the categorical syllogism and uses this throughout his work. As we've seen, being is
true if it is grounded. As Kant recognizes, truth is grounded by the Principle of Sufficient
reason, which states that for any being must have a reason that justifies it. Kant identifies
this with the hypothetical form of judgment and the hypothetical syllogism. He also uses
this throughout his works as a structuring principle. Finally, being is good because it is
subject to a complete determination. This is governed by the Principle of Excluded
Middle, which posits beings that are mutually exclusive and yet reciprocally determining
in an exhaustive manner. Kant identifies this with the disjunctive judgment and the
disjunctive syllogism, and this serves as an additional structuring principle use quite
conspicuously by Kant.
However, the other transcendentals are used and the principles underlying them
made evident by Kant, though not as clearly as the first three transcendentals. As Kant
recognizes, reason "exhibits a twofold, self-conflicting interest, on the one hand interest
in extent (universality) in respect of genera, and on the other hand in content
(determinateness) in respect of the multiplicity of species.” (1965, 540) In other words,
in the determination of a thing, reason can make use of analysis in which it seeks this
determination in some constituting parts, or it can use synthesis to seek this determination
in some synthesizing whole that brings unity to a manifold of elements. Thus, from the
point of view of inquiry, one can distinguish analytic and synthetic approaches. Thus,
some inquirers seek solutions by breaking down the problematic situation into basic
elements, and some combine elements into to form wholes. Thus, there are ontologies of
wholes and ontologies of parts, which can be seen in physics by comparing Einstein
(1938) with Schroedinger. (1935) The outcome of analysis or synthesis presents the
“thingness” of being by means of a Principle of the Determination of Being. If analysis
is employed, then it can be held that the resulting simples are either all of one kind or are
of many different kinds. Similarly, if synthesis is employed, the outcome of synthesis is
either one unified whole or many unified wholes.
"Something" designates that which is left over from the determination of a being
into a thing. It designates the respect in which one thing is opposed to another. Kant
identified this with the Principle of Noncontradiction. He states that no predicate
contradicting a thing can belong to it. Thus, such a predicate must belong to some other
thing as its determination. Now, Aristotle (1941b) distinguished four types of opposition-contradictories, contraries, privatives, and relatives. The application of one of these by a
given matrix of inquiry gives quite different result, as we shall see. Thus, underlying the
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transcendental of “something” is the Principle of Opposition of which there are four
forms.
The basic principles are of ontology are Methodology (analysis or synthesis),
Determination of Being, Identity, Sufficient Reason, Excluded Middle, and Opposition.
Converting these basic principles into regulative principles of inquiry, one can obtain a
determination of the subject matter, principles, methods, and goals of a given matrix of
inquiry. In respect to method, a matrix of inquiry can proceed either by synthesis or
analysis. In respect to the subject matter (i.e., the determination of being), it can posit
either one or many basic entities. Combining these, one obtains four basic
determinations of being within four basic matrices of inquiry. If a method of analysis is
employed, then there can be either one or many corresponding simples that result from
analysis. If a method of synthesis is employed, then either one unified whole or many
unified wholes are the outcome of the process. In respect to their principles, then, each of
the above four approaches have different interpretations of the Principles of Identity,
Sufficient Reason, Excluded Middle, and Opposition.
IV. The Systematization of Mechanistic Ontology
The dominant research paradigm in economics is summarized in Table 1. As
Mirowski (1989) shows, theorists in economics adopted this mechanistic framework
wholeheartedly. As he states:
The further one digs, the greater the realization that those neoclassicals did
not imitate physics in a desultory or superficial manner; no, they copied
their models mostly term for term and symbol for symbol, and said so.
(Mirowski, 1989, 3)
Methodologically, mechanism breaks down compounds into elements, the Principle of
Analysis). The end result of analysis is a set of simples that are not capable of further
analysis, at least within the context of a given inquiry. (the Principle of Simplicity)
Thus, it posits both simples and compounds. Compounds then are constituted from the
simples by linear addition so that the whole is merely the sum of its parts. (The Principle
of Summativity or Linear Causality) These basic simples then remain unchangeable in
their inner determinations, which is how they maintain their identity over time. (The
Principle of Identity) Now, mechanism employs contrary opposition as a structuring
principle.(The Principle of Opposition) Consider the opposition between dog and cat.
Each has its own positive determinations that are different from the positive
determinations of the other. Thus, contrary opposition posits a complete opposition
between being and being. (The Principle of Independence) The opposing members are
completely independent of one another, just as, for example, cats and dogs are. However,
these beings can be opposed only if they fall under a higher genus and thus have an
underlying similarity. In this case, they are both types of animals. Thus, the basic
entities have an underlying homogeneity, e.g., they are all forces, even though the force
of one is distinct from the force of the other. (The Principle of Homogeneity) The
Principle of Sufficient Reason is interpreted to mean that the ground for any change must
come from outside the simple.(The Principle of External Causality) Every simple has to
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keeps its specific determinations in order to maintain its identity. Thus, it is not going to
change by any internal dynamics because then it would cease to be what it is and have
contrary qualities. Thus, each simple is passive, and change can only come from the
outside.
Compounds are subject to the same organizing principles. They are the sum of a
set of simples. Those with the same constituting simples are the same compounds (the
Principle of Internal Closure for Compounds). The simples when placed together in a
compound, which must be free from external influences (the Principle of External
Closure for Compounds) so as to maintain its identity, strives to reach a state of
consistency (The Principle of Equilibrium) or nonopposition among the constituting
elements. Any change or deviation from equilibrium can only come from outside of the
system (the Principle of External Causality for Compounds.)
These principles can be seen in the matrix of inquiry of Neoclassical economics
and have been laid bare quite clearly by Lawson (1997) in Economics and Reality. The
Neoclassicists broke down the phenomena into isolated units (the Principle of Analysis).
These units were all the same (the Principle of Homogeneity). They were independent,
self-interested, rational agents with perfect knowledge (the Principle of Independence)
who retained their identity as rational calculators over time (the Principle of
Substantiality or Identity) and who were passive and thus could only be changed from the
outside (The Principle of External Causality). They put them together in a closed system
(the Principle of External Closure), and they then sought equilibrium points (the Principle
of Equilibrium), which were the sum of the buyers and sellers in the market (the Principle
of Linear Causality). Deviations from equilibrium were the result of external forces (the
Principle of External Causality of Compounds), such as the government, acting upon the
system. The only significant fact was the equilibrium point itself and not how the system
arrived at that point. The goal of such an approach is to identify the universal and
invariant changes that occur when a group of simples are placed together so that these
changes can be explained and predicted.
V. The Systematization of Marx's Teleological Ontology
The Teleological Matrix is summarized in Table 2. Marx's approach coming out
of the Platonic-Hegelian tradition uses synthesis instead of analysis. Thus, it posits that
reality consists of wholes instead of elements. In its principle of determination, it posits
one unified whole. The identity of this whole is constituted by its organic unity in which
all of the components fit together in a harmonious and mutually supportive state that is
free from conflict. Instead of being driven by the Principle of External Cause, an organic
whole is driven by the Principle of Internal Cause. Forces internal to the whole drive it to
change so that changes are not the result of external forces acting upon the system but of
the internal dynamics of the whole. This matrix of inquiry is based on the opposition
between privatives and positives. Such an opposition posits an opposition between being
and nonbeing within a subject, for example, sight and blindness (as lack of sight) in the
eyes. Internally generated change is the result of the movement from the lack of some
attribute to its complete or full realization within the subject through the various degrees
of partial realization. The identity of the underlying subject pushes the movement toward
the creation of one unified whole through a process of synthesis. Collingwood (1933
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)develops the underlying logic of this system quite clearly, and Plato's Divided Line
provides an example of this. It begins with appearances or images and then moves up to
the things of which those images are images. Things provide the unity behind the
multiplicity of appearances of one thing. Above this is the level of forms, which provide
the unity behind the multiplicity of the various things as each thing is trying to become
the complete form of that thing by overcoming or removing all imperfections and
limitations, i.e., privations, that are preventing this complete realization. Finally, there is
the Idea of the Good, which provides unity to the multiplicity of different forms as they
are all approximations of this one true and complete reality. This one is the ultimate and
abiding subject in Plato’s theory. Privations or lacks drive the movement up from
appearances to the One. Lawson's (1997) critical realist ontology has similarities with
this Platonic structure. He moves from experiences to the events of which these are
experiences to the underlying structures that create or cause these experiences. However,
it turns out that the underlying structures that represent complete or full realizations of a
kind of entity, e.g. pure oxygen, themselves only have meanings within the confines of a
system.
This approach modifies the Principle of Excluded Middle because privative
opposition allows for the overlapping of various stages of privation. Consequently, it
does not posit a group of completely independent, mutually exclusive type of entities.
However, as things differ in degree as they move up the scale of being, they come also to
differ in kind so that one level of being excludes another level within the whole so the
Principle of Excluded Middle is reinstated as the nonreducibility of the various levels of
being.
One of Marx's great insights was that society was better likened to an organism
than to a machine, and Marx made full use of organic metaphors in the development and
elaboration of his system. While the principles of machines are abstract and analytical,
the principles of organisms are concrete and synthetic. Instead of reducing all of society
to a collection of self-interested social atoms, Marx saw that society was a plurality of
heterogeneous processes--forces of production, relations of production, social and
political institutions, and forms of social consciousness. He saw that these different
elements interact with each other in mutually supportive as well as mutually antagonist
manners. However, they tend to work toward the creation of an integrated whole in
which the various processes mutually support one another. Thus, individuals are not
what they are outside of the system of social relations of which they are apart. These
social relations condition, proscribe, and circumscribe their actions. Human beings are
essentially social beings. He rejects the abstract conception of human beings as
nonsocial, rational, and self-interested agents.
In this social ontology, society is a dynamic whole that goes through a sequences
of stages. This process is the result of the autonomous activity of the whole and not a
response to external forces acting upon the system from the outside. As a result of this
process, there is a tendency for society to move toward a condition of integration among
its component social processes. Forms of thought, social and political institutions, and
economic processes tend to move toward a condition in which they mutually support one
another. However, not all of these processes are equally basic. Economic processes are
more basic and are the driving force behind social change. Economic processes produce
disruptions in society that destroy the integration and unity of the constituent processes.
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If this disruption is too much, then the society is not able to compensate, its integration is
destroyed, and it falls apart. If the disruption is not beyond the compensatory capabilities
of the society, then the society moves toward a new state of integration or unity. This
occurs by the amplification of processes that are compatible with the innovations in the
economic form of life of the society and the suppression of those that are incompatible
with it.
This approach is historical, as history was the story of societies that tend toward
integration and then have that unity disrupted so that it must move toward a new unity.
According to Marx, this leads to a movement from primitive to more advanced forms of
production. This process is tending toward the realization of a state in which the whole
exists for the sake of each of individual and the individual exist for the sake of the whole,
the freedom and realization of each is a condition for the freedom and realization of all.
According to Marx, societies go through periods of instability as well as periods of
stability. Disequilibrium as well as equilibrium states occur.
VI. The Systematization of the Formological Ontology
Both of the previous matrices can, within certain contexts, provide useful tools for
understanding some parts of social reality. However, there is a fundamental component
of our sociality that each of these misses by filtering it out. The formological matrix of
inquiry captures this and has special relevance to our current situation. This matrix of
inquiry is summarized in Table 3. Both the mechanistic and the teleological matrices of
inquiry have been subject to elaborate conceptual and experimental elaborations. They
have inspired some of the best and some of the worse research in the last two hundred
years. However, this third matrix of inquiry has existed as a minor current within
Western thought. With the Marxists tradition, it makes use of a method of synthesis
instead of analysis. Whereas the teleological matrix of inquiry, though, posits a whole
that closes in upon itself in order to find unity, the formological system posits open
systems that reaches out to what is external to it. Thus, it too makes wholes primary.
However, instead of positing the movement toward one unified whole, there are,
according to its specification of being, many unified wholes. Developments of this can
be found in Spinoza's concept of an organism, which is a whole that remains a whole by
taking in matter, energy, and information from the external environment and maintaining
a pattern or form as this material flows through it. Thus, it is called a formological
system. It maintains its identity by means of forms and cycles that manifest a certain
structure or organization. This view also posits a principle of internal change. The whole
constitutes and maintains itself through its interactions with its environment and thus
change comes basically from inside the whole. External forces are taken into the whole
only upon terms that are set by the whole itself. In contrast to the other matrices of
inquiry, the formological matrix posits a relative opposition existing among its beings.
This is a type of opposition in which each of the components has its own set of positive
determinations. Thus, it is a contrast between being and being. However, the two beings
do not completely exclude one another but are instead interdependent. Thus, a brother
and a sister exhibit relative opposition. Each has its own being given by its gender
characteristics. Yet, they are not the same. They are opposed in terms of these
determinations. However, they are still interdependent since the sister is a sister only
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relative to the brother and the brother is a brother only relative to the sister. These two
exist in dynamic tension. If the tension is disrupted and goes to far in the direction of the
brother so that there are only brothers, then the relationship is destroyed. Similarly, if it
goes too far in the direction of sisters and there are only sisters, then the relationship is
destroyed. A formological system posits a dynamic type of relative opposition in which
it grows by forming an ever-increasing set of mutually reinforcing interrelationships.
Thus, this approach develops an alternative interpretation of the Principle of Excluded
Middle. Wholes are constituted by the interplay of polar forces. The two extreme states
of a polarity exclude one another. Yet, neither side can be extinguished. Thus,
increasing movement to one side generates opposing forces that then reverse the
movement so that it moves toward the other extreme of the polarity. Sorokin (1957) in
his sociology recognized this as a principle of limit that governs social phenomena.
Holling’s (2002) work on panarchy, which was developed from a study of
development with an ecosystem instead of development within a species, illustrates a
formological system and provides an analogous set of principles that can be applied to the
understanding of society. Traditional ecologists make a distinction between the
exploitative and the conservative stages of ecological succession. The exploitative stage
is the stage of rapid growth representing the colonization of recently disturbed areas.
Organisms that prosper in this stage, called r-strategists, have extensive dispersal abilities
and rapid growth to succeed under conditions of great uncertainty. In a new and
unpredictable environment, they prosper because of their opportunism, their lack of
specialization, and their rapid growth rates. However, by colonizing an area, they
eventually make the environment more predictable and thus pave the way for the kstrategists. In the conservative phase the r-strategists are replaced by k-strategists, who
have slower growth rates and who become more specialized so as to divide and sequester
resources to protect them from competition. They prosper because they are more
efficient at harvesting resources in an orderly and crowded environment. However,
Holling identifies two other phases of this cycles of ecological succession--collapse and
reorganization. As the k-strategists develop, they become more and more specialized and
the parts of the system more and more interconnected. It, thus, becomes more and more
fragile and unstable until it collapses. In primary succession, bare rocks are first
colonized by lichens and bacteria. A lichen is a fungus and an algae in symbiotic
relationship. It may absorb certain mineral nutrients from the substrates on which it
grows, but it is generally self-reliant in feeding itself through photosynthesis in the algal
cells. As a by-product of their life activities, they create a small amount of soil. This is
colonized by mosses. These do not have roots and require little soil. As these plants live
and die, the soil continues to develop until r-strategists can grow in it. Thus, biological
succession consists of self-reliant small-scale collaborators that prepare the way for the
competitive r-strategists, which in turn prepare the way for the k-strategists. The system
becomes too interdependent and collapses and, then, the whole process begins again.
Using Thompson et al.'s development of cultural theory in terms of the group/grid
polarities, Janssen (2002) argues that the equivalent change in human communities is
from community, to markets, to hierarchy, and then to collapse. A community consists of
a group of mutually supporting individuals. Markets are based upon competitive
individuals linked by contracts, and hierarchies are based upon relationships of command
and control. These cycles occur on various time scales so that within larger-scale cycles
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there are smaller ones. Applying this to human society, the problem of economics
becomes the social construction of attitudes and approaches toward uncertainty. Society
is multipolar, and social change occurs as individuals move toward or away from certain
socially constructed attitudes toward uncertainty.
Such growth exhibits the familiar sigmoid-shape of the logistic curve. In
chemistry, this is the curve of the autocatalytic reaction in which the reaction product
accelerates its own production, and in biology it is the equations of Verhulst, which
describe the growth of populations under conditions of limited resources. A complete
cycle depicts a series of logistic escalations (Coren 1995), in which there are a series of
logistic curves built upon one another. What is at work, then, is self-organized criticality
in which interdependencies are established on larger and larger scales. (Sornette, 2003)
Such systems follow a nonlinear dynamics. As Elliott (1994) discovered and Prechter
(1999) has explained, such nonlinear patterns can be identified in the stock market. The
stock market provides a ready means by which these logistic escalations can be identified
and studied. Formological systems conserve form, and Elliott used the stock market to
identify the form of social phenomena. He found that social movements have a wavelike structure of expansion and contraction corresponding to the logistic escalation
described above. Waves that unfold in the direction of the trend unfold in five stages,
while waves that unfold against the main trend unfold in three stages. For example, in an
up-trend, Wave 1 is expansive. It is followed by Wave 2, which retraces part of the
progress of Wave 1. This is followed by Wave 3, which is another expansive wave that
is followed by a Wave 4 correction. Finally, the sequence is completed by a Wave 5
expansion. Each of the corrective waves has a three-stage structure, which in the case of
an up-trend would be a down-up-down sequence. (Figure 1)
VII. Predictions of the Formological Model
One advantage of the formological approach over the other approaches is that the
it makes some very specific predictions that are specifically relevant to the current
situation of the world economy. Since the market is an expression of the social
construction of optimism and pessimism toward an uncertain situation, sentiment
indicators and wave structure are used to analyze the market and to make forecasts.
In January 2000, five waves up were probably completed from the 1974 low.
(Figure 2) Thus, there should be a correction at least as large as the 1969 to 74
correction. However, five waves from the Depression low in 1932 up were probably also
completed at that time. (Figure 3) Thus, there should be a correction and subsequent
economic turmoil similar to the Great Depression. This model currently indicates that we
are at a most precarious stage in the current economic cycle. Five waves down have been
completed from the January 2000 top in the Dow to the October 2002 low. Now, since
Waves unfold on different time scales, this five-wave sequence constitutes one wave
down. Since the October low, the market has been in a Wave 2 correction. (Figure 4) As
of June 2003, stock market sentiment was the most one-sidedly bullish that it has been in
eleven years. Barron's Big Money Polls showed that 60% of professionals are bullish.
The investor sentiment measured by Investors Intelligence was above 70% for three
weeks, the sentiment of independent investors as measured by the American Association
9
Of Independent Investors was 55% bullish, and Shiller's Valuation Confidence Index was
at all time highs.
Currently, various sentiment indicators show the extent of optimism as
individuals are convinced that the worst is over and it is safe to get back into the waters
and, in the words of Dory from Finding Nemo, (which encapsulated and expressed this
increasing optimism and thus was the top-grossing film of 2003) "keep on swimming."
The first is net new cash flows into stock mutual funds. (Figure 5) You can see that this
is approaching the levels of the 2000 high. Also, as can be seen, it doesn't follow that
high cash flows into stock mutual are bullish for the stock market. Such extremes
indicate market tops. The second is the Investors Intelligence Advisory Sentiment,
which, as you can see has been climbing since the October low. (Figure 6) In fact, on
February 25, 2004 was 74 percent, significantly higher than it was even at the top in
2000. The third, is the Daily Sentiment Index, which has been reaching extreme levels
by making an all-time high on a 10-day moving average basis. (Figure 7) The fourth is
the CBOE Put/Call Ratio, which indicates heavy call buying. (Figure 8) ISEE data
focuses only on calls and puts bought by customers. This includes everyone from
individuals to hedge funds and money managers. However, it excludes professional
traders like market makers and the proprietary trading desks of Wall Street firms because
their option transactions often are not the result of a directional bias and are established
merely to hedge decisions in other markets. The ISE Dispersion Index has also hit an
extreme. (Figure 8) Finally, the S&P US Industrial Speculative Grade Credit Index,
which measures investors’ propensity for risk. (Figure 9) In January it broke out of a
year-long downtrend, indicating that investor's tolerance for risk is changing.
Taking these sentiment indicators together with the Elliott Wave count indicates
that Wave 2 will soon end and a devastating Wave 3 will begin, catching almost all by
surprise. The barracudas, anglerfish, and sharks of Wall Street are far from done. To
change metaphors, the bear has been in hibernation, and it has yet to have unleashed its
full fury. After the completion of Wave 2, which is nearly complete, a Wave 3 decline
follows, which is typically the sharpest and most devastating decline in a five-wave
sequence. This will further undermine confidence and lead people to reduce further their
consumption and investment in a self-amplifying cycle that will have devastating
consequences for the economy and the society as a whole. Although the analysis has
focused on the American market, the European markets in similarly in a Wave 2 bounce.
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Collingwood , R.G. 1933. An Essay on Philosophical Method. Oxford: Oxford
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11
Table 1
Mechanistic Matrix of Inquiry
Method
Identity
Opposition
Completion
(Analysis)
(Permanence)
(Contraries)
(Excluded Middle)
Sufficient Reason
Unchangeableness
Homogeneity
Independence
Passivity
Internal Closure
Equilibrium
External Closure
External Change
I. Elements
Simplicity
II. Compounds
Summativity
12
Table 2
Teleological Matrix of Inquiry
Method
Identity
Opposition
Completion
(Analysis)
(Permanence)
(Privation)
(Excluded Middle)
Whole
Organic Unity
Of One Unified
Whole
IncompleteComplete
Levels of Reality
13
Sufficient Reason
Internal Principle of Change
Table 3
Formological Matrix of Inquiry
Method
Identity
Opposition
Completion
(Synthesis)
(Form)
(Relative)
(Excluded Middle)
Processes
Of an
Open System
Patterns of
Waves
and
Cycles
Interdependencies
From
Self-reinforcing
Positive Feedback
Polarities
Optimism
vs.
Pessimism
14
Sufficient Reason
Internally Self-organizing
Figure 1
15
Figure 2
16
Figure 3
17
Figure 4
18
Figure 5
19
Figure 6
20
Figure 7
21
Figure 8
22
Figure 9
23