Economic cycle and entrepreneurship: two sides of the same coin

Abstract

Introduction: Over time, various theories of the business cycle have been developed by authors from different schools of thought. Most of these theories attempt to explain the causes, phases, and effects that the business cycle has on the economy.

Objective: This paper analyzes the bidirectional relationship between business cycles and entrepreneurship from the perspective of the Austrian School. Its objective is to demonstrate that both phenomena are interdependent: cycles distort the market signals that guide entrepreneurs, while entrepreneurial action modulates the effects of economic fluctuations through spontaneous adjustment processes.

Method: The methodology combines a theoretical review of Austrian authors (Mises, Hayek, Rothbard) with a graphical-conceptual analysis of mechanisms such as the productive structure, the market for loanable funds, and the role of the central bank. The theoretical review integrates two pillars: the theory of the business cycle based on artificial credit expansion and its impact on the interest rate, and the theory of entrepreneurship as a coordinating force of the market.

Results: The main results reveal that: cycles originate from monetary interventions that artificially reduce the gross interest rate, generating malinvestment in productive stages distant from consumption; entrepreneurship is distorted by false price signals during booms, leading to massive errors in capital allocation; during recessionary phases, the most perceptive entrepreneurs correct imbalances through economic recalculation and reallocation of resources toward real demands; and the price system acts as a discovery mechanism that allows entrepreneurs to adapt to cyclical phases, albeit with social costs during the adjustment.

Conclusion: It is concluded that economic recovery depends critically on entrepreneurial capacity to reinterpret market conditions and reorient productive factors, highlighting the importance of avoiding interventions that alter price signals.