Injecting more fiat money into the economy creates an artificial boom.  The boom period is not good for the economy.  It’s a period of distortion due to investments in the wrong areas.  Areas where there isn’t sufficient demand.  Its artificial demand created by the injection of new fiat money.  The injection kindles the boom and furthers artificial demand.  The bust is a reorganization so investments meet demands.

There is not an overinvestment.  Rather, its investment in the wrong areas.  New currency injected into the market gives the appearance of more capital goods available.  However, there is not and the new currency chases capital goods in the wrong avenues.  More capital goods don’t magically spring into existence.  The boom must fail, sooner or later.  The bust will be worse the longer this goes on.  The currency could breakdown entirely.

The entire economy is in the “position of a master-builder whose task it is to erect a building out of a limited supply of building materials.  If this man overestimates the quantity of the available supply, he drafts a plan for the execution of which the means at his disposal are not sufficient…discovers later in the progress of the construction that he lacks the materials needed for the completion of the structure.  It is obvious that our master-builder’s fault was not overinvestment, but an inappropriate employment of the means at his disposal.”

The master builder would’ve been better off if he discovered his lack of materials sooner than later.  He can redesign the building if he discovers it right away.  He’ll have to tear it down if he discovers it at the end.  A constant injection of new currency is like allowing the master builder to go on thinking he has more materials available than he does.  States around the world perpetuate the lie that more materials are available than there are.

The injection of new currency will increase the prices the most where the artificial demand is created.  There are counteracting tendencies in prices.  The price may not rise with inflation.  However, it’s nearly inevitable that prices will rise.  Entrepreneurs wouldn’t embark on certain projects if demand wasn’t distorted.  There may be profits, but these are short lived and fictitious.  Demand must return to normal.

Reference

Ludwig von Mises; Human Action