Prosperity and Depression.pdf

CHAPTER 6"PSYCHOLQGICAL THEORIES"§ I. INTRODUCTIONIt is in a way misleading to speak of " psycholo­PsychoJogica/ gical"explanations of the trade cycle or of particularand economic phases of it. Every economic fact has a psycholofactors.gical aspect. The subject-matter ofeconomic scienceis human behaviour-chiefly conscious and deliberatebehaviour-which can hardly be separated from its psychologicalbasis. The psychology of human behaviour is therefore a constituentpart of the subject-matter of economics. When we assumethat an entrepreneur will increase his output if demand rises orcost is reduced, or that workmen will respond to changes in moneywages but not so readily to changes in real wages, or that consumerswill buy more of a given commodity if the price falls and less ifthey think it will fall further, or that people will hoard money ifthe value of money rises-all these assumptions are assumptionsabout human behaviour which presuppose a certain state of mindon the part ofthe human agents. Propositions about such actionsmay be considered as belonging to the sphereofappliedpsychology:but they also figure continually, whether implicit or expressed, inthe economic theories of the cycle. What, then, distinguishesa " psychological " theory from an " economic" one?There is really no fundamental difference between the" economic"theories already reviewed in these pages and the so-calledcc psychological " theories. Both make assumptions as to economicbehaviour in certain situations. The real difference is sometimesthis~ The" psychological" theories introduce certain assumptions,about typical reactions, mainly on the part ofthe entrepreneur