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

538 Money, Bank Credit, and Economic Cyclesfrom knowledge of specific conditions with respect to time andplace, and entrepreneurs may well discover significant opportunitiesfor profit in each historical process of credit expansion,despite their theoretical knowledge of the processeswhich inexorably lead to a depression, a stage they may quitelegitimately expect to escape from, due to their superiorknowledge as to when the first symptoms of the recession willappear. Gerald P. O’Driscoll and Mario J. Rizzo make a similarobservation:Though entrepreneurs understand this [theory] at anabstract (or macro-) level, they cannot predict the exact featuresof the next cyclical expansion and contraction. That is,they do not know how the unique aspects of one cyclicalepisode will differ from the last such episode or from the“average” cycle. They lack the ability to make micro-predictions,. . . even though they can predict the general sequenceof events that will occur. These entrepreneurs have no reasonto foreswear the temporary profits to be garnered in aninflationary episode. In the end, of course, all profits arepurely temporary. And each individual investment opportunitycarries with it a risk. For one thing, other entrepreneursmay be quicker. Or so many may have perceived anopportunity that there is a temporary excess supply at somepoint in the future. 43phenomena of the depression. It would be too late for any ofthem to avoid being victimized. If it were possible to calculatethe future state of the market, the future would not be uncertain.There would be neither entrepreneurial loss nor profit. What peopleexpect from the economists is beyond the power of anymortal man. (Italics added)43 Gerald P. O’Driscoll and Mario J. Rizzo, The Economics of Time and Ignorance,p. 222. Further criticism of the theory of rational expectationsappears in Gerald P. O’Driscoll’s article, “Rational Expectations, Politicsand Stagflation,” chapter 7 of the book, Time, Uncertainty and Disequilibrium:Exploration of Austrian Themes, Mario J. Rizzo, ed. (Lexigton, Mass.:Lexington Books, 1979), pp. 153–76. Along the same lines, Roger Garrisonhas remarked:Feedback loops, multiple alternatives for inputs, and multipleuses of outputs . . . are complexities [that] preclude the hedgingagainst crisis and downturn on a sufficiently widespread