Social Mood Conference  |  Socionomics Foundation
This essay by Robert R. Prechter, Jr. originally appeared in The Elliott Wave Theorist in September 1999 and was reprinted in:

Prechter, Robert R. (2003). Pioneering Studies in Socionomics. Gainesville, Georgia: New Classics Library, pp. 66-75.


Most people think that the economy is a key determinant of stock market behavior. Pages 260 through 264 of The Wave Principle of Human Social Behavior and the New Science of Socionomics1 demonstrate that actually, social mood trends, as reflected by the trends of the stock market, determine the direction of economic activity. Most people think that politics affect the stock market. Pages 272 through 282 in the book show that the social moods, as reflected by the stock market, controls the selection of leaders and therefore the direction and outcome of politics. Most people think that peace and war mightily affect the valuation of stocks. Pages 265 through 270 show that aggregate mood trends, as reflected by stock prices, determine social climates that are conducive to peace or war. The fundamental observation of the new science of socionomics is that social mood, which is patterned according to the Wave Principle, is the generator of social action, be it economic, political or cultural. The key insight of socionomics is that the direction of causality between social mood and social action is precisely the opposite of that which is almost universally presumed; the former dictates the character of the latter, not vice versa.

Most people who attempt to relate demographics to the stock market operate under the standard presumption that, if there is any relationship at all, demographic changes (like changes in politics, economics, cultural events, and so on) would be causal to the trends of the stock market. In reviewing related studies, one finds full agreement on that starting point and utter disagreement thereafter. Of course, in any instance when there is a paucity of data and a researcher has the option of sliding two series around until he finds a fit, it is quite easy to find confluence somewhere.2 With respect to demographics and the stock market, one study, based on a cycle theory, postulates a 20-year lag in the stock market’s reaction to the number of births.3 Another, based on the hypothesis that people in their forties spend and invest more than those in other age groups, shows a 44-to-49-year lag between birth rates and stock price trends from 1956 to the present.4,5 Another researcher disputes this claim, pointing out that the number of 44-to-49-year olds “kept rising right through the 1929[-1932] crash, [which] calls the reliability of the ‘spending wave’ as a stock market indicator into question.” To improve the correlation, he constructs a five-year moving average of the rate of change of a “saver/spender ratio” (in this case, the number of 40-to-49-year-olds divided by the number of 25-to-34-year-olds) that correlates with broad stock trends in the U.S. and Japan since 1948 and 1965 respectively, but not well beforehand.6 At least three studies, including one from academia, argue that there is too little data, too little cross-cultural correspondence and far too much divergence in pre-1956 data to suggest any relationship at all between the stock market and lagged birth trends.7,8,9 It is clear from the disagreement among the proponent studies and the statistical analysis in the opponent studies that there is in fact, as the latter conclude, little or no basis for proposing that there is a causal relationship between demographic trends and later stock market trends. However, that is as far as these studies go, because social researchers cannot imagine a basis for investigating any other correlation.

What all of these studies have in common, despite their wide differences, is the presumption that if there is any causality at all, it is demographics that would be causal to the stock markets trends. This stance reflects the standard misconception of causality, i.e., the idea that social mood, and therefore the stock market, is a slave to “outside” influences. The socionomist understands that this view with respect to demographics, as with every other major social phenomenon, is precisely backwards; the premise is false. Naturally, this false presumption has led, as it has with studies relating stocks to economic or political causation, to utter chaos in the aggregated conclusions, as the wide disagreements catalogued above reveal.

How may we state the correct premise for the purposes of testing its validity? We must start from the socionomic perspective on social causality. We know that social mood, as reflected by the stock market, determines the expansions and contractions in the economy. We know that extremes in social mood, as reflected by extremes the stock market, determine whether a landslide election will favor the incumbent or the challenger. We know that the direction and extent of social mood change, as reflected by the stock market, determine the extent of peace or whether there is a social mindset conducive to the outbreak of war. Is it possible to imagine that social mood also determines demographics? Most people would never pose such a question; I hope to suggest an answer.

Figure 1 shows stock market prices plotted against total births from 1909 to the present. The data is shown with no lag. The first thing to notice is that there is a fairly noticeable correlation between the two sets of data.

Why would births and the stock market trend together, if they do at all? Sometimes answers can be found in subtleties. Notice that the deepest low in births this century came in 1933, the year after the deepest low in the stock market this century. Notice that the second most important low in births occurred again in 1975, one year after the second most important stock market low of this century. Why would there be a one-year lag? Well, can you think of any activity that always precedes a birth by about a year? If so, could this activity be correlated directly with people’s moods and therefore the trend and level of the stock market? Chapter 14 of The Wave Principle of Human Social Behavior characterizes a rising social mood trend as correlating, among other things, with “friskiness, daring and confidence,” a falling trend with “somberness, defensiveness and fear.” We now have a tenuous basis for a socionomic hypothesis regarding demographic trends. When aggregate feelings of friskiness, daring and confidence wax, people engage in more sexual activity with the aim of having children. When these feelings wane, so does the desire for generating offspring. It takes about nine months between the procreative impulse and a child’s birth, which is why, at least at market bottoms, annual data on births lag annual data on the stock market by one year. Figure 2 shows the same data, lagged by one year to reflect conceptions. The result is not an extrapolation or theory, nor is it the result of elaborate exercises in data fitting, as we find so often with hypotheses that demographics drive the economy. We know that a procreative decision or impulse is required nine months prior to a birth, so there is no theoretical presumption in repositioning and renaming this data.10 Now the two major lows line up exactly.

Let’s investigate the relationship at market tops. As you can see from the slash marks imposed upon Figure 2, the rate of procreation has declined prior to major tops in the Dow Jones Industrial Average. This is precisely the same behavior exhibited by indicators of market breath and rates of change for stock averages, which always peak and begin declining before the major blue-chip averages top out. To visualize the similarity, let’s graph the relationship between procreative activity and the success of the broad stock market, not just the blue chips.

A stock market indicator known as the advance-decline line records the cumulative trading activity of all stocks on the New York Stock Exchange that have advanced and declined each day. It reflects trends of stock prices throughout the country, even down to smaller local companies. In other words, it reflects, more deeply and broadly than the DJIA, the breadth of overall corporate success and thus the overall mood, which is the engine of buying and selling among all stocks. Presumably, the a-d line would therefore better reflect the mood of a broad segment of the population that might be tempted to a procreative decision, not just the mood of people who influence the trend of advancing blue chip stocks. Figure 3 shows the same procreation data plotted against the advance-decline line. As you can see, this correlation is far tighter. In light of this relationship, one might be excused for concluding that during the twentieth century, the stock market’s advance-decline line (despite its imperfections in this role) has been a fairly accurate ongoing real-time reflection of the number of U.S. couples that are engaging in procreation.

This contemporaneous relationship holds for all of the available data in both series, which is far more time than the lagged data: 73 years as opposed to only 43 years. Thus, there is a stronger correlation between these two sets of data than there is in any argument involving a multi-decade lag. Therefore, if you think that the popular “spenders” correlation is valid simply by how it looks when graphed from 1956 to the present, then you must accord this relationship nearly twice the validity on longevity alone. What’s more, its expression is restricted only by a lack of breadth data prior to 1926 and of birth data prior to 1909, not a glaring divergence from the hypothesis as is encountered with the lagged data prior to the 1950s. Thus, unlike the demographics-as-first-cause argument, all available data supports the socionomic conclusion, and none contradicts it.

It is at least possible to suggest, based on this limited evidence, that human social mood, the engine that drives the stock market, also regulates aggregate impulses to procreate. This engine is fired by the interactive limbic systems of people, which are impulsively driven. If there is any connection between demographics and the stock market, then, it is that social mood, as reflected by stock market trends and levels, determines demographics, not the other way around. Like all socionomic observations, this one reveals the proper direction of causality, which is the opposite of the one that forms the false premise and foundation of most economic and sociological study.

Demographics and the Socionomic Hypothesis
Socionomics differs from conventional economics and sociology in one crucial aspect: It recognizes that social causality is precisely the opposite of the standard presumption. Most researchers begin with the presumption that the economy, politics, peace and war, demographics, and all kinds of other cultural events and situations influence people’s thinking, and therefore the social mood, and therefore the trend of the stock market. Socionomics recognizes that the social mood is endogenous and patterned, the result of cooperating impulsive human limbic systems. The result is a patterned series of waves of human social mood, which in turn determine the character of social and cultural events, including economics, politics, demographics, peace, war, fashion and culture. When the socionomic premise is adopted, the proper correlation among various cultural and societal trends becomes readily apparent. For the first time, the various products of human interaction make sense together. This result is in dramatic contrast to the chaotic sea of uncertainty and cross-inapplicability that pervades the fields of economics and sociology today.

The demographic data presented here, while they are too limited for a firm conclusion, are nevertheless undeniably compatible with the socionomic hypothesis. Humans inherited a primitive pre-rational portion of their brains that engages in impulsive mentation11 and controls activities crucial to animal survival such as herding, the selection of leaders, fighting and mating. Because of the demonstrated commonality among all these activities in our graphs of economic, political and cultural activity, it appears that this portion of the brain actually generates a single mood-regulating impulse, which is the basis for unity in the trends and aggregate character of these activities. Since the stock market is the most accurate sociometer we have, one need hardly be surprised that these data show a tight correlation between its trends and the procreative impulse. If further studies show that the demographic correlation described in Figure 3 holds over the centuries and throughout cultures, they will strengthen our socionomic hypothesis that social mood trends are the genesis of demographic trends.

While the procreative impulse appears to result from feelings of “daring, friskiness and confidence,” one must not presume that the latter term rests upon rationality regarding the wisdom of having children. The key word is feelings, which originate in the limbic system. It might seem attractive to argue that people have fewer children because when the economy contracts, they restrain themselves due to poverty and the cost of child rearing. If this thought entered your mind, you were exercising (probably in seconds; am I right?) the conventional style of rationalization. We should not be surprised that sociologists rationalize the practicality factor in the opposite way when they declare that people in poor countries must be having many children in the quest to produce more family workers or have someone around to take care of them in their old age. On one hand, they opine that poverty induces people to restrict child-bearing, and on the other, they say that it induces people to expand it. Needless to say, contradiction has never halted conventional theorizing about social causality. Traditional thinking makes people naturally offer such event-causal arguments. They are, however, anti-socionomic and assuredly wrong.

Is it reasonable that people respond to a contracting economy by having fewer children? First, as you can see in Figure 2, rises and falls in the conception rate coincide with rises and falls in the advance-decline line, which is a register of social mood. This correlation means that trends in conceptions significantly precede expansions and contractions in the economy, which lag the a-d line, usually by years. Most noticeably, the lows in procreation coincide with stock market lows, not economic lows, which follow shortly thereafter. For example, procreative activity bottomed in 1932 with the stock market, not in 1933 with the economy. This chronology contradicts the conventional explanation. Second, as it happens, we have some data on the subject of procreative causality. In ancient Rome, Augustus Caesar tried to make couples poorer if they refused to produce the desired number of children. Here is the result:

In 18 B.C., Augustus passed a series of laws that are often referred to as his “social” or “moral” reforms, in which he regulated, or tried to regulate, marriage and procreation. These laws made adultery a criminal offence for the first time. He also passed laws encouraging couples to have children, mainly through large tax penalties on those who did not. These laws…didnt work…the divorce rate did not notably go down, the birth rate did not notably go up.12

In other words, practicality for the couples involved has little to do with decisions for or against procreation. Such responses support my case that impulsion has everything to do with it.

In the social aggregate, increasing procreation results from increasing feelings of confidence more so than with actual family economics. In the aggregate, procreative decisions, like stock-buying decisions and leader selection, are more commonly impulsive/emotional than meditative/rational. In the case of procreation, they are the result of couples in a state of excitement agreeing either, “Let’s have a baby!” or “Let’s risk sex that could lead to conception!” Any associated discussion by prospective parents is undertaken mostly to rationalize an impulsive desire that they cannot actually explain.

There also exists an offset correlation between aggregate procreation and aggregate prosperity per se because prosperity results from the shared feelings of increasing confidence that also spur the procreative impulse. This socionomic perspective reveals why the trends of the economy lag trends in both the stock market and procreation. As is the case with all socionomic observations, one must realize that the economy is not an isolated outside force that independently influences procreative decisions. Like interest rates, politics and war, the economy is the result of human interaction; it is an intimately intertwined element of the human social experience, not an isolated outside cause.

Trend Divergence and Practical Application
As you can see in Figure 2, conceptions fell persistently against rising stock market averages in 1920-1929 and again in 1956-1966, i.e., in the ten years prior to the top of waves V of (III) and III of (V) respectively, the two biggest tops of this century. After each of those periods, aggregate stock prices rapidly joined the trend of procreation on the downside. We might be tempted to suggest cavalierly that, like waning market breadth and velocity, waning procreative activity is a sentiment-based “sell signal” for the stock market because only the extremity of bullishness at an approaching major market top could make people more interested in stocks than in sex. It’s a good line for speeches, anyway. However, I believe, based on our graphs relating stock trends to political trends as well as Figure 3, that it is more accurate to postulate an intimate and contemporaneous relationship between the limbic system’s impulses both to procreate and to herd.13 In relating sociometers, it is important to compare apples to apples; national procreation rates track the broad public’s mood, which is better reflected by the a-d line than by the much narrower Dow. These two trends rarely diverge. Regardless of our hypothesis, the same type of trend divergence that occurred prior to previous major market tops is again in evidence from 1989 to 1999, portending a social mood reversal of like magnitude.■


1 Prechter, Robert R., Jr. (1999). The Wave Principle of Human Social Behavior and the New Science of Socionomics. Gainesville, GA: New Classics Library.
2 With 180 years of data, I can slide graphs of the U.S. immigration rate and aggregate inflation-adjusted stock prices to show a tight 100-year period of correlation with a 20-year lead, a 35-year period of correlation with a 2-year lead, a 90-year period of correlation with a 20-year lag, and a 67-year period of correlation with an 80-year lag. One can construct a plausible “theory” to go with at least three of them.
3 Berry, Brian. (1991). Long Wave Rhythms in Economic Development and Political Behavior. Baltimore: Johns Hopkins University Press.
4 Dent, Harry S. (1993). The Great Boom Ahead. New York: Hyperion.
5 Dent, Harry S. (1998). The Roaring 2000s. New York: Simon & Schuster.
6 Carder, John. (1997, September). Encyclopedia of Historical Charts. Boulder, CO: Topline Graphics.
7 Bank Credit Analyst. (1997, January and 1999, March). Toronto.
8 Holt, Derek. (1997, June 20). Royal Bank of Canada, as quoted on Bloomberg.
9 Poterba, James M. (1998, October). “Population Age Structure and Asset Returns: An Empirical Investigation.” Cambridge: Massachusetts Institute of Technology.
10 Obviously this extrapolation does not account for multiple births (twins, triplets, etc.), which would slightly reduce the conception numbers, or abortions, which would increase them. Abortions are not necessarily a factor, as sexual activity risking unwanted conception might increase because abortions are legally available, so the sum of aborted fetuses might equal the sum of conceptions that would not otherwise have taken place. Anyone who wants to take the time to refine the birth data to more precisely reflect procreative decisions is welcome to do so.
11 MacLean, Paul. (1990). The Triune Brain in Evolution. New York: Plenum Press.
12 Vandiver, Elizabeth. (n.d.). “The Aeneid of Virgil.” Course Number: 303, Lecture 3, The Teaching Company audio tape.
13 Indeed, procreation may be seen as herding in the sense that it increases the size of the herd. Further, because procreation undergoes long social trends, engaging in it or refraining from it may be an expression of herding for many people, who may be spurred to action or non-action by the spectacle of increasing or decreasing childbirths among their relatives, neighbors and friends.

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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