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|Malinvestment is an investment in wrong lines of production, which inevitably leads to wasted capital and economic losses, subsequently requiring the reallocation of resources to more productive uses. "Wrong" in this sense means "incorrect" or "mistaken" from the point of view of the real long-term needs and demands of the economy, if those needs and demands were expressed with the correct price signals in the free market. Austrians believe systemic malinvestments occur because of unnecessary and counterproductive intervention in the free market, distorting price signals and misleading investors and entrepreneurs. For Austrians, prices are an essential information channel through which market participants communicate their demands and cause resources to be allocated to satisfy these demands appropriately. If the government or banks distort, confuse or mislead investors and market participants by not permitting the price mechanism to work, malinvestment will be the inevitable result.
Malinvestment results from the inability of investors to foresee correctly, at the time of investment, either the future pattern of consumer demand, or the future availability of more efficient means for satisfying consumer demand. Malinvestment is always the result of the inability of human beings to foresee future conditions correctly. However, such errors are most frequently compounded by inflation misleading market participants. (more...)
| Today in history
|December 22 (add):
- 1807 – The Embargo Act, forbidding trade with all foreign countries, is passed by the U.S. Congress, at the urging of President Thomas Jefferson.
- 1809 – The Non-Intercourse Act, lifting the Embargo Act except for the United Kingdom and France, is passed by the U.S. Congress.
- 1851 – The first freight train is operated in Roorkee, India.
- 1920 – The GOELRO economic development plan is adopted by the 8th Congress of Soviets of the Russian SFSR.
- 1937 – The Lincoln Tunnel opens to traffic in New York City.
- 1942 – World War II: Adolf Hitler signs the order to develop the V-2 rocket as a weapon.
- 1964 – First flight of the SR-71 (Blackbird).
- 1978 – The pivotal Third Plenum of the 11th National Congress of the Communist Party of China is held in Beijing, with Deng Xiaoping reversing Mao-era policies to pursue a program for Chinese economic reform.
- 1989 – Berlin's Brandenburg Gate re-opens after nearly 30 years, effectively ending the division of East and West Germany.
- 2001 – Richard Reid attempts to destroy a passenger airliner by igniting explosives hidden in his shoes aboard American Airlines Flight 63.
- 2010 – The repeal of the Don't Ask Don't Tell policy, the 17-year-old policy banning on homosexuals serving openly in the United States military, is signed into law by President Barack Obama.