One of Ludwig von Mises’s most important contributions to economic science was the business cycle theory that he first presented in his Theory of Money and Credit (1981, ch. 19, esp. pp. 338ff.). This theory has been elaborated by Mises himself and received important additions through the hands of Friedrich A. Hayek and Murray N. Rothbard. Yet in its foundations it remains unshaken as from the day of its first publication.
The purpose of this article is threefold. First, we challenge Mises’s theory by arguing that it is not generally and apodictically valid. Therefore, it cannot be part of economic theory which, as Mises himself stated, is a purely logical science of action. Second, we give the outlines of a truly praxeological (and therefore general) theory of error cycles that withstands this specific criticism. And third, Mises’s business cycle theory will be restated in the light of the new approach, that is, it will be interpreted as an instance of a more general theory and thus put on more solid grounds.