Mises's analysis of interventionism is devastating. Each intervention creates dislocations that politicians then seek to fix with further interventions, in a cumulative process that leads either back to a free market or forward to complete socialism. Price controls cause shortages, which lead to rationing and then to production controls, which require allocation of inputs, eventually encompassing the entire economy. The unstable nature of interventionism means it cannot be a permanent system—it's transitional, either toward freedom or toward complete state control. This is why piecemeal intervention is so dangerous: it appears moderate but contains the logic of totalitarianism.

Interventions suppress entrepreneurial discovery by blocking price signals that would otherwise alert entrepreneurs to profit opportunities. When prices are controlled, potential profits from reallocating resources are either eliminated (if prices are fixed exactly right) or converted into non-price competition (if prices are fixed wrong). Entrepreneurs direct their energies toward political lobbying rather than genuine value creation. The black markets that emerge under intervention are entrepreneurial responses to suppressed opportunities, but they operate at higher cost due to illegality. Thus intervention reduces both the quantity and quality of entrepreneurship, slowing economic progress.

The key insight is that intervention disrupts the information-transmission function of prices. When government fixes a price below the market level, it destroys the signal that communicates scarcity. Shortages result, not because scarcity has increased, but because the price signal has been jammed. The adaptive adjustments that market prices would have triggered—economizing on the scarce good, developing substitutes, expanding production—don't occur. The result is systematic misallocation of resources. Interventionism thus doesn't just reduce economic efficiency in a static sense—it disrupts the dynamic adjustment processes that market economies use to respond to changing conditions.

Mises's business cycle theory is the crown jewel of Austrian economics. Credit expansion by the banking system, especially a central bank, artificially lowers interest rates, misleading entrepreneurs into starting longer-term, more capital-intensive projects than the real saving in the economy can support. The boom must bust because the real resources to complete these projects don't exist—the low interest rates were a false signal. The depression is the necessary correction, reallocating resources from the malinvested sectors to sustainable uses. Government attempts to prevent or shorten depressions through fiscal stimulus or further monetary expansion only delay and worsen the necessary adjustment.

The cycle represents systematic entrepreneurial error induced by government intervention in money and credit. During the boom, entrepreneurs make what appear to be profitable investments based on distorted price signals. These aren't random mistakes—they're systematic errors caused by the false information conveyed by manipulated interest rates. The depression is the correction of these errors through entrepreneurial discovery of the true state of affairs. Attempts to prop up failing investments delay this discovery process, prolonging the depression. Sound money policy would prevent these systematic errors by allowing market interest rates to reflect real time preferences and capital availability.

The key to understanding the business cycle is recognizing that credit expansion distorts the structure of production, not just the overall price level. The artificially low interest rates make long-term investments appear profitable, drawing resources into capital goods industries. But consumer time preferences haven't actually changed—people aren't really willing to save more. When the inflation slows or stops, interest rates rise, revealing that the investment boom was unsustainable. The specific capital goods created during the boom may be worthless because they don't fit with actual consumer preferences. This is why the depression is necessary and why fiscal stimulus is counterproductive.