Is Deflation a Threat?

If we follow a hands-off policy, the majority of experts tell us, the banking industry, the financial markets, and much of the rest of the economy will be wiped away in a bottomless deflationary spiral.

The present essay argues that this is a half-truth. It is true that without further government intervention there would be a deflationary spiral. It is not true that this spiral would be bottomless and wipe out the economy. It would not be a mortal threat to the lives and the welfare of the general population. It destroys essentially those companies and industries that live a parasitical existence at the expense of the rest of the economy, and which owe their existence to our present fiat money system. Even in the short run, therefore, deflation reduces our real incomes only within rather narrow limits. And it will clear the ground for very substantial growth rates in the medium and long run.

We should not be afraid of deflation. We should love it as much as our liberty.

read the entire paper (pdf)