A few weeks ago in one of my classes, I was reminded by a classmate of Bryan Caplan’s essay on why he’s not an Austrian economist. And recently, I was re-reminded of the problem that Caplan poses with the Austrian theory of the trade cycle, being the following:

In short, the Austrians are assuming that entrepreneurs have strange irrational expectations. Rothbard states this fairly explicitly: “[E]ntrepreneurs are trained to estimate changes and avoid error. They can handle irregular fluctuations, and certainly they should be able to cope with the results of an inflow of gold, results which are roughly predictable…

Why does Rothbard think businessmen are so incompetent at forecasting government policy? He credits them with entrepreneurial foresight about all market-generated conditions, but curiously finds them unable to forecast government policy, or even to avoid falling prey to simple accounting illusions generated by inflation and deflation. … Particularly in interventionist economies, it would seem that natural selection would weed out businesspeople with such a gigantic blind spot. Moreover, even if most businesspeople don’t understand that low interest rates are only temporary, the long-term interest rate will still be a good forecast so long as the professional interest rate speculators don’t make the same mistake.

So, I’ve decided to take it upon myself to explain this seeming paradox. If you’re versed in economic thought, consider this my invitation (or plea) to assist me with editing or refining my essay. Of course all contributors and/or editors will be duly credited for their aid. Let me know how to get in touch with you in the comments section if you’r willing to assist me here. Once I develop a semi-coherent essay, I’ll be in touch.

Thanks in advance for any assistance you might be willing to offer.