Austrian economists such as F. A. Hayek advocate the idea that malinvestment occurs due to the combination of fractional reserve banking and artificially low interest rates sending out misleading relative price signals which eventually necessitate a corrective contraction – a boom followed by a bust.
[1] In the Austrian business cycle theory and all its different frameworks, the actual definition of malinvestment is the same: an investment with high potential that loses value.
[3] The classification of a malinvestment only applies when there is an increased amount of credit which causes it to become worthless.
[5] In 1940, Ludwig von Mises wrote, "The popularity of inflation and credit expansion, the ultimate source of the repeated attempts to render people prosperous by credit expansion, and thus the cause of the cyclical fluctuations of business, manifests itself clearly in the customary terminology.
Its unavoidable aftermath, the readjustment of conditions to the real data of the market, is called crisis, slump, bad business, depression.