Any Explanation of the Business Cycle Must Necessarily Be a Praxeological (As Opposed to a Psychological) One

Business cycles—so the central message of chapter 22 of Keynes’s General Theory, the “Notes on the Trade Cycle”—are psychologically determined phenomena. This is surely incorrect. A psychological explanation of the business cycle is strictly impossible, and to think of it as an explanation involves a category mistake: Business cycles are obviously real events, experienced by individuals, but experienced by them as occurring outside of them in the world of real goods and real wealth. Beliefs, sentiments, expectations, optimism, and pessimism on the other side are psychological phenomena. One can think of one psychological phenomenon as affecting or influencing another one, but it is impossible to conceive of a psychological phenomenon as having any direct impact on outcomes in the outside world of real things and goods. Only through actions can the course of real events be influenced; and any explanation of the business cycle then must necessarily be a praxeological (as opposed to a psychological) one.

—Hans-Hermann Hoppe, “Theory of Employment, Money, Interest, and the Capitalist Process: The Misesian Case Against Keynes,” in The Economics and Ethics of Private Property: Studies in Political Economy and Philosophy, 2nd ed. (Auburn, AL: Ludwig von Mises Institute, 2006), 167-168.