The economics profession is notorious for despising the idea of falling prices. Due to the quasi-paper-mache models erected from the coercive hands of government officials, those adulators of their concoctions entice them to render society asunder.
These amusing tools are the IS-LM curves and Cobb-Douglas function which aggregate quantities, assumptions respectively. The most virulent of the former two is the Cobb-Douglas function which agglomerates capital.
Previously, we discussed why this assumption of a large K (capital) cajoles the learner toward the seductive powers of numerical symbols. The superficial idea of agglomerating what the Austrians detail in a latticework of more realistic theory allows the reader to not be persuaded by the theory of math. In essence, the numerate is more wary of the tools which assist in making these assumptions. The innumerate does not understand that the weapon he wields is a plastic sword.
Rothbard goes on to describe the nature of falling prices as a moment in time by which capitalist-entrepreneurs withdraw their capital from the said stage of production and move it into a higher returning stage. Effectively, since price spreads are shrinking--as buying prices get closer to selling prices--the capitalist-entrepreneur is unsatisfied with a smaller rate of return, let alone real rate of return.
Money at all times is either consumed or saved-invested. Never is it the case that money is held outside of this ambit. Both concepts are subjective, as consumption takes place at the present moment. On the other hand, savings-investing is consumption withheld. Hoarding is subjective. Is it the cash held in pockets, or on green dot cards?
During the moment in time in which actors desire withholding consumption, they are contributing to the accumulation of capital elsewhere. For example, holding money in a demand deposit contributes to savings-investing, it is capital not being presently consumed.
Additionally, moving money from one class of securities to another, will make the price spreads of one sector expand, while the others being consumed shrink. For this reason, in being the first buyer, and conversely the last seller, one is able to garner the largest price spread or rate of return.
As prices fall in one market sector, one's purchasing power is enhanced in that same sector. Thus the old adage of buy low, sell high. Rothbard coined this "increasing effective cash balances."
Most importantly, falling prices from a fall in the money stock is associated with the readjustment process. At any point in time that defaults occur, money in the system diminishes. Whether it be at the banking level--where loans can disappear due to inability to pay, bankruptcies at the corporate level--which would lead to a vanishing of demand deposits, or the Federal Reserve Bank intervening (selling off reserves) or raising the monopolized benchmark (which essentially affects the Repo rate).
This readjustment process will only result in what is a weeding out of bad business practices whereon the recrudescence period after that ultimate free market trough is affected. This trough is completely natural on the free market, with freely moving prices--all prices. Prices must fall to their appropriate market level, in accordance with the time preference of human actors.
Allow me to formulate an addendum: a revival in the form of a palliative will not remove the cancer, but only catch the Tower of Babel as it falls, fomenting it's continued growth in it's partially dilapidated state. Hence, bazooka joe reinflates.