Prosperity and Depression.pdf

Chap. 6 U Psych%gica/ Theories" 143and the saver, in certain situations; and these reactions are conventionallycalled psychological t because of their (in a sense) indeterminatecharacter. But the distinction between the writers who giveprominence to these " psychological" factors and the writers sofar reviewed iS t taken as a whole t a distinction of emphasis ratherthan of kind. The" psychological" factors are put forward assupplemental to the monetary and other economic factors and notas altemative elements ofcausation, while on the other hand, thoughthey may be assigned a less prominent place in the chain of causation,they are in no sense overlooked by the majority of writersof the other group.§ z. ANALYSIS OFTH~PSYCHOLOGICAL FACTORIN THE EXPLANATION OF THE BUSINESS CYCLEThe writers who have laid the greatest stress onStress on "psychological" reactions in the -explanation ofexpectations. the various phases of the cycle are KEYNES, 1LAVINGTON,' PIGOU 3 and TAUSSIG. 4Of the writers whose theories have been analysed earlier in thisreport, MITCHELL, ROBERTSON, ROPKE, SPIETHOFF aU attach acertain importance in their system to "psychological " elements.It remains to define more precisely the actions and reactionsin connection with which the operation of "psychological"factors is postulated by these writers in their explanation of thecycle. " Psychological" factors come into consideration ineconomic theory in connection with anticipations and expectations.Static theory and those business-cycle theories which are in themain based on the static hypothesis-of, which the most typicalexponent is perhaps Professor HAYEK-picture the entrepreneur'sdecisions as to the volume, and alterations in the volume, ofoutput and employment as being determined by a comparison ofprices and costs-that is to say, the price of his product orproducts1 General Theory 01 Employment, Interest and Money, London, 1936,Chapter 22 (" Notes on the Trade Cycle ").2 The Trade Cycle, an A ccount of the Causes proauci'ng RhythmicalChanges in tke Activity of Business, London, 1922.3 Industt'ial Fluctuations, 2nd ed., London, 1929.£ Principles oj Economics, 3rd ed., Vol. I, page 393.