There are no booms and busts in the free market.  I repeat, there are no booms and busts in the free market.  The cycle is generated by intervention in the free market.  Specifically, credit expansion.  Interest charged on loans isn’t some arbitrary number made up by a greedy capitalist.  Nor is it something that can be lowered at will.  Interest rates are based on how much money is available.  More money is available if the rate is low.  Money available is scarce if it’s high.

Sadly, the interest rate does get lowered at will.  This wouldn’t be done if people understood how awful this is.  We can chalk this up to poor education—very poor.  This sets the stage for the boom .People think there’s more money available than there is.  This supposed money saved up will be available for the future, but it’s not.  Money is borrowed for projects people think will yield a profit in the future.  When those projects fail, the bust comes.

A natural rate of interest will shift money to projects that are demanded at that time.  If people are consuming right now, money won’t be used for a longer-range project.  The interest rate will reflect that.  People are consuming right now so there isn’t much money available for loans.  This means the interest rates will be higher.  Entrepreneurs won’t take out a loan with a high interest rate because they know the project won’t be profitable.  Artificially low interest rates distort that.

Credit expansion does more than create a boom and bust.  It’s a way to take money directly from your bank account.  This is done without you knowing it’s happening.  The interest rate is artificially lowered so the state is more likely to borrow money.  It’s not available so the difference gets printed.  More of the medium of exchange doesn’t mean there’s more of everything else.  It’s just more dollars chasing the same amount of goods.  This is equivalent to taking money directly from your bank account.

The entrepreneurs were misled by the artificially low interest rates.  This created the boom and bust.  In addition, money was taken directly from your bank account—secretly.  This can’t happen under 100% banking.  That implies a natural interest rate.  Yes, entrepreneurs will still make mistakes.  However, they don’t all make mistakes at the same time.  Booms and busts will come to an end.  Covert parasitism will come to an end.  This can only happen if the masses understand what’s happening.

Reference

Murray Rothbard; Austrian School Business Cycle Theory