Psychlogical Theories of the Cycle

As long ago as 2003, in response to some Austrians whom I saw mocking "psychological" takes on the business cycle, I was stressing that there is no reason to view structural or monetary theories and psychological theories as rivals: they can complement each other, as Roger and I argued in the paper linked to above.

But, once again, Gottfried Haberler beat me there:

"But the distinction between the writers who give prominence to these 'psychological' factors and the writers so far reviewed is, taken as a whole, a distinction of emphasis rather than of kind. The 'psychological' factors are put forward as supplemental to the monetary and other economic factors and not as alternative elements of causation, while on the other hand they are in no sense overlooked by the writers of the other group, or most of them, though they may be assigned a less prominent place in the chain of causation." -- Prosperity and Depression, p. 150


  1. Dear Professor Callahan,

    I would like to take advantage of that post to ask you a question. I understand you were an austrian-school economist associated with the Mises Institute, before breaking with them.
    Does that mean that you changed your views on economic analysis, and that you repudiate your former works ? I mean, if I want to read you book on economics for real people, does it still represent your thoughts ? Or you just altered your political philosophy ?

    Thank you.

    1. I update my views all the time. I don't think I would say I've "repudiated" my earlier views, just improved them.

  2. I hope the Mises Institute didn't screw you over badly. It's a shame that they lost such a great economist, but blind dogma and worship of any economic figure is not healthy in any sense and does a great disservice to their legacy, in my opinion. Such idolatry serves as a distraction from the issues that actually matter and a source of division within the economics community.


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