Earlier quoted context omitted.
It's because at the micro level, investments can be sub-optimal when they could be replaced by better more productive investments. At the aggregate level, the alternative to investment is just economic inactivity. At this level, turning investment into fiat means stopping economic value creation and preventing economy value retention. Unless you really believe that the unemployed would be destroying more than 100% of…
Sorry, but you stated the inexistence of bad investments on aggregate, and you support that extraordinary claim with a rant about stores of value? Anyway, that rant makes no sense. You can't just informally move from real and nominal values at will, as you can't claim that in a population, if everybody lose any amount less than 100% of their wealth, everybody would get richer. Or better, well, you can claim it, you j…
Say you had an isolated farming village where people wanted to save to be able to eat in the winter. It is important that farmers invest their profits into additional production to have something to eat in the winter, even if, because of perdition, the stored crops are only worth 90% of the initial investment required to produce them.
Otherwise, if they instead mandate their government to create a currency that keeps 98% if its real value when other forms of savings available don't, most farmers are going to work, trade part of the crop they don't want to eat to diversify their diet and keep their cash profits to be able to buy something to eat in the winter. They will not produce a crop to store for the winter since it would only return -10% and their central banks promised to keep money at -2% real value.
However, now comes winter and all farmers have cash but few have anything to sell because they didn't reinvest their cash in the production of a stored crop for the winter!
It's going to be difficult for the government to control inflation in such conditions because there will be too few goods for the amount of money people will want to spend. If the government manages to control inflation it will be by depressing the nominal value of the crops of the few farmers who did invest and save a crop for the winter. The central bank might do this by giving high enough interests payment on cash to prevent people from wanting to spend it immediately. In any case, people won't eat much during the winter.
This could all have been prevented if the central bank had kept money devaluating sufficiently and farmers would not have kept their savings as cash but would have reinvested them into an extra crop for the winter and have continued to trade during the winter.
What you call allowing "malinvestment", I call allowing sufficient production or production capacity to fill the needs of the future even if the returns are quite negative on this production.
Note that there are parallels with farmers saving for the winter and a baby boom saving in preparation for retiring and stopping to work.