'Assume that a product P (which can be a producers’ good or a consumers’ good) is produced by three complementary factors, X, Y, and Z. These are all higher-order producers’ goods. Since supplies of goods are quantitatively definable, and since in nature quantitative causes lead to quantitatively observable effects, we are always in a position to say that: a quantities of X, combined with b quantities of Y, and c quantities of Z, lead to p quantities of the product P.
Now let us assume that we hold the quantitative amounts b and c unchanged. The amounts a and therefore p are free to vary. The value of a yielding the maximum p/a, i.e., the maximum average return of product to the facto, is called the optimum amount of X. The law of returns states that with the quantity of complementary factors held constant, there always exists some optimum amount of the varying factor. As the amount of the varying factor decreases or increases from the optimum, p/a, the average unit product declines. The quantitative extent of that decline depends on the concrete conditions of each case. As the supply of the varying factor increases, just below this optimum, the average return of product to the varying factor is increasing; after the optimum it is decreasing. These may be called states of increasing returns and decreasing returns to the factor, with the maximum return at the optimum point.’
Ok, when I first started this thread I had no clue what Rothbard was talking about; this took me some time at first but I think I get it now.
Basically, I think Rothbard is saying that if we take a factor used in the production of a product that there is an optimum amount of the factor that can be used to maximise the production of the product in relation to the factor itself. Too much of the factor and we have overproduction and too little, we have underproduction. So, for instance, the optimal amount of knifes used to prepare a sandwich would be one knife. Without a knife, it is impossible to slice the sandwich. With two knifes we have an unnecessary amount of knifes; the factor has increased but no more sandwiches are being made (in relation to the amount of knifes). There has also been an unnecessary cost expenditure for that additional knife (money spent on knife and the labour required to manufacture the steel in the preparation of the knife and subsequent transportation, etc. must also be considered) and no additional amount of sandwiches made despite the cost of that additional knife. With one knife we have all the knifes we need to prepare the sandwich.
Hence, when the factor is either increased or decreased above/below the optimum amount, the returns are minimised.
Am I correct? Cheers.
p.s. Rothbard is a good writer 