It isn’t that the “production goes bad” it is that the INVESTMENTS in high orders of production go bad–investments as in NEW capital purchased to INCREASE productive capacity at higher stages of production. So if every single investment made in higher stages went bad (meaning they do not result in actually increading the productive capacity) that would be bad news for investors and it would mean capacity in the higher stages of production had not INCREASED. However, this says nothing about the capital that existed BEFORE the artifical boom. As far as we know (from Rothbard’s story), this capital has been maintained and is in the same condition it was before the boom. He provides NO REASON to think otherwise. So if that is the case, production will not increase (relative to pre-boom levels), but it doesn’t have to decrease either (because our capital structure from before the boom has not been degraded). In other words, NO RECESSION.
You are assuming [though you may not realize it] a world with no scarcity. In other words, you are assuming [though you may not realize it] that newly printed money also creates more physical resources, which is absurd. Let me explain.
Rothbard is describing a situation where consumption has not decreased. Meaning there is no NEW capital. New capital does not fall down from the sky. It does not pop into existence when new money is printed. So where does it come from? From underconsumption. When an economy consumes less, what they do not consume is the NEW capital available for INVESTMENTS. So when consumption is the same, where, oh where, is the NEW capital coming from? Only one answer: From pirating existing capital. That’s why production will eventually decrease.
Peter Boettke, who you quote your other thread as support for you, doesn’t say what you do. He doesn’t say, as you do, that “I am saying that Rothbard’s theory actually DOESN’T explain why recessions happen at all.” Not even close. All he says is that Roth. is different from Garrison in one detail [that is not written in stone that it has to happen in every recession]. In fact he describes Rothbard’s version exactly as I do.
Full quote from Peter B., taken from your own post [emphasis mine, to show exactly where he agrees with me about Rothbard]:
Peter Boettke: Roger Garrison has tried to explain the possibility of comovement [between investment and consumption] due to the artificial nature of the boom which appears to violate the scarcity constraint…in the standard textbook presentation of the Mises-Hayek story we do not see comovement, but the distortion of the structure of production, which is then corrected during the bust phase.
http://www.coordinationproblem.org/2011/01/call-all-economists-lets-answer-a-serious-question.html
BTW I think the guys over in the other thread did a good job refuting you. You obviously disagree.