| During the Industrial Revolution, steady deflation was actually pretty normal -
at least in Britain. The money supply was increasing in line with extraction
and acquisition of precious metals (to which currencies were then tied), but
the population was increasing faster due to advances in sanitation and
agriculture, so the actual value of money stayed nearly constant (increasing
slightly on average).
For the average person, this was just fine. They
knew what money was worth
and talked about it accordingly. Sixpence was
sixpence, and you knew what it
would buy and what you had to do to earn it.
People would run errands to
buy a penn'orth (penny's worth) of sugar.
This
was eventually disrupted by WW1 and then ended by WW2. During both
wars, the
British Government suspended the gold standard in order to fund
the war effort
through printing money - ie. an inflation tax. The cost of WW2
was so extreme
that it proved impossible to reinstate the gold standard
immediately afterwards
- at least not without causing a severe price shock by
way of a large
devaluation.
So we have lived without the gold standard and with inflation
ever since -
along with constant demands for wage and salary increases to keep
up with
the price increases that inflation causes. Probably 99% of industrial
disputes
resulting in strikes (or the threat thereof) are about "pay and
conditions".
They would probably be much less frequent if they only had to
worry about
conditions, with pay being set fairly from the start and not
requiring regular
adjustment.
Economists fear deflation. They fear that if
people can earn money in real
terms by simply hiding their money under the
mattress, investment will cease
and the economy will collapse forthwith. They
forget, of course, that as long
as investment gives a return in numerical
terms, it will also provide a greater
return in real terms than
mattress-stuffing would, and thus there would still
be an incentive to
invest.
To induce mild deflation, it is only necessary for the central banks
to stop
printing new money - or to print only enough to permit some replacement
of
worn-out notes. Nothing more drastic than that is required. Of course it
might also trigger changes in government taxation and spending policies to
fit
within the new regime, which no doubt would require some people who
can
actually add and subtract to do some serious thinking for a change. [ Reply to This | Parent | # ]
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