Reply To: QUESTION: FEAR as a sort of multiplier


First, my apologies for the long delay in addressing your question. I just returned from a vacation without technology.

In economic theories, economists try to discover cause and effect relationships within human action. Doing so requires stipulating a given state of mind of the person acting. The demand curve, for example, stipulates a given preference rank for the good relative to money in the mind of the buyer. Then the law of demand follows logically: only at some lower (higher) price would a person buy more (less) of a good than he actual buys at the market price, ceteris paribus.

Economists are not so bold as to claim to be able to model the human mind, i.e., to have a theory of the cause and effect structure of the human mind itself. For example, how fear rises in a person’s mind. This is a question left to psychology.

An economist who is trying to give an economic-historical (instead of an economic-theoretical) explanation of an event must rely on psychology to add to what can be know from economic theory.

The classic work in this area is Ludwig von Mises’s book, Theory and History: