Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

Additional Considerations on the Theory of the Business Cycle 477social realm is always “historical,” i.e., it consists of extremelycomplex events in which innumerable “variables” areinvolved. It is not possible to observe these variables directly;we can only interpret them in light of a prior theory. Furthermoreboth events (with their infinite complexity) and theirspecific structure vary from one situation to another, andhence, though the typical, underlying forces of greatest significancemay be considered the same, their specific historicalnature varies substantially from one particular case toanother.Each theory of the cycle will determine a different selectionand interpretation of historical events, and this factgives great significance to the prior establishment, bymethodological procedures other than positivist ones, ofmost interesting byproducts of this debate. The very factors whichmake socialism an intellectual error (the impossibility of obtaining thenecessary practical information in a centralized way, for example) actuallyexplain why it is not possible in economics to directly observeempirical events, nor to empirically test any theory, nor in short, tomake specific predictions with respect to the time and place of futureevents. This is because the object of research in economics consists of theideas and knowledge which human beings possess and create in connectionwith their actions, and this information changes constantly, ishighly complex and cannot be measured, observed nor grasped by a scientist(nor by a central planning agency). If it were possible to measuresocial events and empirically test economic theories, socialism would bepossible. The very factors which make socialism impossible demonstratethat positivist methodology is inapplicable. Thus “events” in thesocial realm, given their “spiritual” nature, can only be interpreted froma historical perspective, and this always requires a prior theory. Formore on these controversial and thought-provoking issues, see the 33bibliographical sources mentioned in our article, “Método y crisis en laciencia económica,” and especially Mises’s book, Theory and History(New Haven, Conn.: Yale University Press, 1957), Hayek’s article, “TheFacts of the Social Sciences,” in Individualism and Economic Order, pp.57–76, and The Counter-Revolution of Science (Glencoe, Ill.: Free Press,1952; Indianapolis, Ind.: Liberty Press, 1979). A favorable and unbiasedexplanation of the Austrian methodological paradigm appears in BruceCaldwell, Beyond Positivism: Economic Methodology in the Twentieth Century(London: George Allen and Unwin, 1982; 2nd ed., London: Routledge,1994), esp. pp. 117–38.