Inflation of the money supply by government and too much credit creation fostered by government through the federal reserve increase the misallocation of capital. No one knows what the business cycle would actually look like without government interference in the free market because it has never been tried. But no one can misallocate resources or disturb the allocation of resources to a greater extent than government. I agree along with occasional contractions of the money supply causing artificial capital shortages.
Free markets are going to be much closer to a true and proper equilibrium than any other method of allocating resources simply because the largest possible number of participants will be involved in the decisions. And the decision makers will be making those decisions with fewer distractions caused by changes in the supply of money or credit. More decisions, less noise, fewer mistakes and the magnitude of each mistake will be predictably less; by definition, the frequency of the business cyle will be longer and the amplitude less. Most of the adversity of the business cycle is caused by government, not business. And the corrections will be simpler, easier and more beneficial.
There's no denying that the business cycle would be subdued if the government didn't mess with the money supply. But that doesn't change the fact that the business cycle is subdued by unemployment insurance taxes. By taxing employment, the decisions of the decision makers are being skewed towards less hiring during booms. During contractions, the unemployment payouts cause fewer people to become unemployed from ripple effect.