The Signs of Business, Innovation and Investment

They never saw it coming; no one saw the signs. That is what economists and bankers told lawmakers about the economic meltdown. While we remain in uncertain territory as evidenced by todays market activity, it seems timely that I have recently concluded a study of trade and economics, the data of which I have only begun to analyze.

I often claim that achieving or growing one's own knowledge of a particular domain, say of capital investment, is a matter of reading, synthesizing and analyzing the signs, or more so becoming literate with the signs, entities and relationships governing the particular state of affairs -whatever that may entail. That claim is not so outrageous and it is entirely a matter of systematic factor analysis ranging over those relationships.

When the signs are not only numerical and countable but linguistic, psychological, perhaps unbelievable and only arbitrarily classifiable, most statistical methods and computerized forms of factor analysis breakdown. That is where semiotic analysis comes in.

Semiotics allows us to model the systematic relationships of an ideal model and measure deviations from the ideal. Semiotics involves both a synthesis and an analysis of the interconnections of essential parts. This sort of synthesis and analysis is very useful for identifying relationships, predicting trends and for correcting errors in judgment.

Semiotics is literally the science of sign systems. To understand this utility, let's first review the framework of a semiotic sign system in the tradition of Swiss linguist Ferdinand Saussure and the American engineer, philosopher, mathematician and logician, Charles S. Pierce.

The figure above shows how signs or symbols link to causal relations. According to investment analysts James Pruett, the obfuscation of value becomes predominant in “bubbles” where there is a loss of referents and the sign-values assigned to goods or services become arbitrary. Three cases of semiotic analysis by Pruett --the stock market, the housing industry and the commodities market-- are each identified by an image below with the time-frame of Pruett's analysis.

To highlight the results, I will begin by describing a semiotic model where the imputed relationship underlying the economic market model is the exchange of capital. Participation is clearly motivated by profit --the subject or sense of the relationships represented here-- where the object in each model below, is represented by an image above:

Engagement and confidence in the stock market presumes a level playing field of rules (part of the referent) that ensures everyone trades fairly and above board. There are recognizable elements of a semiotic balance where everyone feels comfortable and is confident in their own moves. But in the period 1999-2000 when the NASDEQ market reached the height of it value, it did so through a sort of false guidance and psychic disorder. The “bubble” it created eventually burst. This can be illustrated, understood and analyzed as a semiotic dissociation between the subject and the referent of the relationship where the reliance on technical analysis and the fundamentals was abolished in favor of arbitrarily assigned values. Inside participants made gobs of money while the public, through retirement savings, was left paying the cost of the psychotic exuberance.

What were the obviously very smart participants thinking that made them abandon fundamental principles? Similarly:

It seems the question here is: Who was not hurt? Likewise, for the oil market, where gas prices increased:

What happens in such cases is that the value cannot be supported for long, and; as they say, the “bubble” bursts. Now using this semiotic analysis, I hope you can see that the bubble metaphor is misleading if you think that it refers to an inflationary period and its end. It is interpreted that way but the semiotic analysis reveals it really is some kind of psychic fog where arbitrary values gain undue credibility. When it's over, institutions and traders once again return to the fundamentals and a level playing field.

In reality, the fundamentals never changed. People were misled to trust in other signs. Either greed kicked in, or some kind of psychic balm came over them, causing them to abandon fundamental rules and signs and ignore the fact that someone was going to get hurt. In the housing market, there was an influx of people who perhaps did not know better or actually had rational motivation to buy --accounting for some of the upset in that market.

Nonetheless, now that you can see how widespread wrong-headed thinking is in the context of the economy and investments in markets, we can turn to investment in the future of American culture. Do we want to remain lost in a fog of arbitrary values? Can we admit that we have lost touch with the fundamental principles of thought and the value of cultivated thinkers mindful of the elementary authority of one's own clear thinking, in the same way as people loose touch with the fundamentals in the wake of run-away prices?

We can fix dissociative thinking with education and training and with algorithms that are immune to the experiential effects that affect the psychology of persons and crowds –those that appear to be part-and-parcel of the psychology of individual cognitive process and its downstream partner, human collective consciousness.

I want to turn the topic now, from the semiotic study of markets, to the topics of culture, knowledge, innovation and ideas. It seems many people admit the twisted idea that innovation is dependent on the economy and economic models while the opposite is true. The motive for new or innovative ideas may be profit, but the profit is compounded upon personal work-or-time saving or social growth as much or more than capital gain. The imputed relationship is not based in capital exchange. It takes no capital at all to generate an innovative and profitable idea. Therefore, we have the same semiotic framework identifying slightly different relationships.

Technical literacy is the medium of invention and here it is modeled as the imputed relation to innovative ideas, discovery and invention. Literacy can be defined simply as the ability to read and write. But that definition hides the implications of reading and writing. Reading is also the ability to process information. The reading of situations involves a further refined cognitive processing, evoking keen and attentive cognitive and intellectual skills. If we then qualify this sort of literacy further by preceding it with the adjective technical, it extends the sense to an even more refined appreciation of reading and writing. If one takes technical literacy to the extreme, it could be defined as the competency for understanding a subject.

The members here understand innovation very well. What object and referent do members suppose belongs in this model of the semiotic system of innovation?

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Comment by Ken Ewell on June 7, 2010 at 5:28pm: Thank you Joshua, and I agree that not all new processes, machines, manufactures, or compositions of matter are equally useful. This is one reason that a semiotic representation or image is useful. It is not a composition of matter in as much as it is a composition of (largely invariant) relationships.

Patents and some form of market advantage or exclusivity can cause change (innovation) and create profits for participants. It makes good sense that we take intellectual property (IP) as the object that symbolizes that relationship as depicted in the updated image below:

I happen to know from personal experience that one patent can be used as reference to a second and subsequent patents. So it seems that the patent (the novel/original invention/not the form of protection) could be and in some sense is a referent as well. But it is not a comprehensive one, in light of what you already noticed, to wit, not all new or novel inventions are equally useful.

It's also not fit for semiosis because it limits experience to past experience in the sense of an experience-action-process model. That is, we are informed by experience and our actions are sometimes motivated by experience. We are also informed and motivated by physical and biological processes as well as psychological processes. I mean natural processes of course, not artificial, invented or manufactured processes. Patent as referent does not allow for otherwise unrelated discovery.

So, now that the patent or IP is ruled out as the referent; it may be easier to consider what might be so that it balances innovation, profits and such other achievements considered equal in value and grounded in technical literacy. What is it that fulfills the role of the referent in the semitotic model of innovation above?

Comment by Joshua R. Brown on June 7, 2010 at 11:35am: Ken,

Thanks for briefly introducing me to some of the signs of semiotics. It appears to offer a thought provoking structure for understanding such systems. Regarding a semiotic system of innovation, these concepts are band new to me, but I will take a stab at it. Perhaps in some contexts patents are objects which stand for the referents of technical competence and market exclusivity. Unfortunately, I think patents can be poor referents for social or business utility. Not all new processes, machines, manufactures, or compositions of matter are equally useful.

-Josh