Entrepreneurial Error Does Not Equal Market Failure

Bagus, Philipp and Howden, David and Huerta de Soto Ballester, Jesús (2018): Entrepreneurial Error Does Not Equal Market Failure. Published in: Journal of Business Ethics , Vol. 2, No. 149 (1 May 2018): pp. 433-441.

Abstract

Barnett and Block (forthcoming) 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 not per se lead to clusters of errors in a free market. Finally, we assure that, in contrast to the examples provided by Barnett and Block, maturity mismatching does not imply the creation of two incompatible contracts due to the fungible nature of money.

• Item Type: MPRA Paper
• Language: English
• Keywords: Borrow; lend; deposit; loan; compatible contracts; fungible goods; specific goods; maturity mismatching, fractional-reserve banking, ABCT; banking ethics
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E59 - Other; P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy

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