A common argument against Austrian theory, writes Brian Stanley, is that entrepreneurs are too smart to be fooled by Fed intervention. The argument claims that entrepreneurs recognize the Fed actions and ignore the Fed by proceeding as if the interest rates were where they would be if they were set by the free market and not by Fed intervention. If this contention is true, the business cycle theory is wrong in its conclusions about what causes the boom and bust cycle. In fact, it isn’t possible to determine what the natural rate should be. Small businesses particularly can’t be expected to recognize and react to Fed intervention, and there is no evidence that even large, sophisticated businesses can perform any relevant and meaningfully accurate calculations and forecasts.
