The counterfactual aspect of the business cycle debate

In a wide ranging piece here's a quote from Pete Boettke:

Critics of the Austrian theory of the trade cycle often talk about an "overinvestment theory".  This is often what underlies the discussion of "hangover theories".  But as Mises states clearly: "The essence of the credit-expansion boom is not overinvestment, but investment in wrong lines, i.e., malinvestment." (p. 559)

Also to put things in perspective about the bust phase.  As Mises states: "What catallactics has in mind when asserting that impoverishment is an unavoidable outgrowth of credit expansion is impoverishment as compared with the state of affairs which would have developed in the absence of credit expansion and the boom." (p. 565).  Mises's discussion of impoverishment and catastrophe does not entail a movement back to our pre-modern existence, just that we will experience real losses in a counterfactual sense.

In conversation this point comes up time and time again. "Bust" does not necessarily mean "catastrophe" since it's relative to an alternative future. We do not know, and cannot fully imagine the amount of prosperity that would surround us if the c20th had developed along more market-friendly lines. When people mock Hayek's Road to Serfdom for exaggerating the problems of the slippery slope, they forget the counterfactual. The best article I know of that comes close to capturing this counterfactual is "If men were free to try" by John C. Sparks:

let us suppose you had lived in 1900 and somehow were confronted with the problem of seeking a solution to any one of the following problems:

1. To build and maintain roads adequate for use of conveyances, their operators, and passengers.

2. To increase the average span of life by 30 years.

3. To convey instantly the sound of a voice speaking at one place to any other point or any number of points around the world.

4. To convey instantly the visual replica of an action, such as a presidential inauguration, to men and women in their living rooms all over America.

5. To develop a medical preventive against death from pneumonia.

6. To transport physically a person from Los Angeles to New York in less than four hours.

7. To build a horseless carriage of the qualities and capabilities described in the latest advertising folder of any automobile manufacturer.

Without much doubt you would have selected the first problem as the one easiest of solution. In fact, the other problems would have seemed fantastic and quite likely would have been rejected as the figments of someone’s wild imagination.

Now, let us see which of these problems has been solved to date. Has the easiest problem been solved? No. Have the seemingly fantastic problems been solved? Yes, and we hardly give them a second thought.

Compared to what might have been, compared to what might have been...