Entrepreneurial Error Does Not Equal Market Failure

Philipp Bagus, David Howden, Jesús Huerta de Soto Ballester

Journal of Business Ethics · 2018 · Volume 149 · Issue 2

Abstract

Barnett and Block (2015) claim that Bagus and Howden (2012b) support indirectly the concept of market failure. In this paper, we show that maturity mismatching in an unhampered market may imply entrepreneurial error but cannot be considered a market failure. We demonstrate why fractional-reserve banking leads to business cycles even if there is no central bank and why maturity mismatching does notper selead to clusters of errors in a free market. Finally, in contrast to the examples provided by Barnett and Block, we assure that maturity mismatching does not imply the creation of two incompatible contracts due to the fungible nature of money.

Keywords

Compatible contracts, Maturity mismatching, Fractional-reserve banking, Austrian business cycle, Banking ethics

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