THE CROP CYCLE AND THE BUSINESS CYCLE3iS
no outstanding extraneous influences at work which can plausibly be held
responsible. This suggests that there is an inherent instability in our
economic system, a tendency to move in one direction or the other.'1

If the fluctuations that made themselves felt in the flow of an indus-
trialized Western economic life were neither astronomical rhythms in the
motion of the stellar universe, such as the Day Cycle and the Year Cycle,
nor meteorological rhythms in the temperature and circulation of the
atmosphere and the water-jacket of the Earth, such as made themselves
felt in the crop-yield cycle, we have to identify the medium in which
these business cycles were inherent; and, here again, our question is
answered for us by a consensus of the authorities whom we have just
cited as witnesses to the industrial Western economic system's autonomy.
The medium in which the recurrent cycles of expansion and contraction
in an industrial society's business activity revolve is the psychic and
spiritual medium of Human Nature itself.

'Every economic fact has a psychological aspect. The subject matter of
economic science is human behaviour — chiefly conscious and deliberate
behaviour. . . . The psychology of human behaviour is therefore a con-
stituent part of the subject-matter of economics. When we assume that an
entrepreneur will increase his output if demand rises or cost is reduced,
or that workmen will respond to changes in money wages but not so readily
to changes in real wages, or that consumers will buy more of a given
commodity if the price falls and less if they think it will fall further, or that
people will hoard money if the value of money rises — all these assumptions
are assumptions about human behaviour which presuppose a certain state
of mind on the part of the human agents. >z

'Money making for the individual, business prosperity for the nation,
are artificial ends of endeavour imposed by pecuniary institutions. Beneath
one lie the individual's impulsive activities — his maze of instinctive
reactions partly systematised into conscious wants, definite knowledge, and
purposeful efforts. Beneath the other lie the vague and conflicting ideals
of social welfare that members of each generation refashion after their own
images. In this dim inner world lie the ultimate motives and meanings of
action, and from it emerge the wavering standards by which men judge
what is for them worth while.'3

'The "cause," if we wish to use that term, of business cycles ... is to
be found in the habits and customs (institutions) of men which make up
the money economy, with its money and credit, prices, private property,
buying and selling, and so on, all loaded, so to speak, on the industrial
process.'4

In this psychic medium, a sense of uncertainty about the future is a
potent motive force.

'Every economic decision is part of an economic plan which extends

* Haberler, op. cit., p. 10. This passage must, however, be read in the light of one on
the preceding page, in which the author declares his opinion that purely endogenous, as
•well as purely exogenous, explanations of the Business Cycle are unconvincing.
i z Haberler, G.: Prosperity and Depression: A Theoretical Analysis of Cyclical Move-
ments, 3rd ed. (Geneva 1941, League of Nations), p. 144.

, . , , . .

3 Mitchell, W. C.: Business Cycles and their Causes, pp. 190-1.

* Frank, L. K. : 'A Theory of Business Cycles,' in The Quarterly Journal of Economics,
vol. xxxvii, August 1923 (Cambridge, Mass. 1923, Harvard University Press), p. 639,