If we accept your second statement as true, I don’t see why the first one is true. If FRB does cause the business cycle, then all that means is that FRB is a very risky business. Caveat emptor. Just because the bank might breach some, or even most, of its contracts does not invalidate the contract made between the bank and its customers. As Hulsmann (2000) put it: “Should fractional reserve banking be outlawed if all parties concerned know what they are doing? No, it should not be, because no law should suppress any foolish activity just because it is foolish.”
If we banned all business practices that might involve a breach of contract, we would effectively ban all commerce.
That being said, I think we should discuss the empirical arguments, while recognizing that they do not affect the legitimacy of FRB.