In his 1995 essay “Why I’m not an Austrian Economist” Bryan Caplan takes the Rothbardian opinion of the entrepreneur to task:
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. They could not forecast the results of a credit expansion, because the credit expansion tampered with all their moorings, distorted interest rates and calculations of capital.”[48] Elsewhere, he informs us that: “[S]uccessful entrepreneurs on the market will be precisely those, over the years, who are best equipped to make correct forecasts and use good judgment in analyzing market conditions. Under these conditions, it is absurd to suppose that the entire mass of entrepreneurs will make such errors, unless objective facts of the market are distorted over a considerable period of time. Such distortion will hobble the objective ‘signals’ of the market and mislead the great bulk of entrepreneurs.”[49]
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.
This is an interesting point he raises, and one which I think poses its own paradox. If the effects of inflation could be accurately predicted, inflation would have no ill effect. It would have no positive effect. It could not possibly have any effect. The prices of all goods and services would rise and fall in immediate proportion to the amount of inflationary currency added to the system. Recipients of new money-substitutes would bid “higher” for goods and services, the prices of which had already risen in accurate anticipation of the inflation. And given this conclusion, it seems foolish to support any degree of fiat inflation.
Unless, of course, you concede that inflation does have effects on the prices of goods and services. And it does have effects – this is seen when the recipients of new money-subsitutes are able to bid up the prices of scarce economic resources, above what they otherwise would have been. If inflation has effects, then those effects must be due to incorrect entrepreneurial foresight, precisely the sort of entrepreneurial error that Caplan argues will not (or ought not) occur.
