A few months ago Keynesian economist Paul Krugman wrote a piece criticizing Bitcoin. He compared it to gold and argued that Bitcoin would lead to “hoarding, deflation, and depression.” In the Keynesian world a lack of inflation = deflation = depression.
Deflation is commonly feared, but as Jon explains “Deflation is not a problem in the traditional monetary system and it will not be a problem in the bitcoin economy.”
“Contrary to the central banking and political class insistence that deflation must be prevented at all costs, an economy with a monetary unit that increases in value over time provides significant economic benefits such as near zero interest rates and increasing demand through lower prices. Let’s look at some remarks from leading thinkers on deflation.”
Jon’s piece includes some excellent quotes from Doug Casey…
“Deflation is actually a good thing, because in a deflation prices drop and money becomes more valuable, so deflation encourages people to save money. Deflation rewards the prudent saver and punishes the profligate borrower. The way a society, like an individual, becomes wealthy is by producing more than it consumes. In other words, by saving, not borrowing. And during a deflation, when money becomes more valuable, everybody wants money. They want to save. Whereas during an inflation, you want to get rid of the money. You want to consume. You want to spend. But you don’t become wealthy by spending and consuming; you become wealthy by producing and saving.”
And German economist and of Deflation and Liberty Jörg Guido Hülsmann …
“Deflation is not inherently bad, and that it is therefore far from being obvious that a wise monetary policy should seek to prevent it, or dampen its effects, at any price. Deflation creates a great number of losers, and many of these losers are perfectly innocent people who have just not been wise enough to anticipate the event. But deflation also creates many winners, and it also punishes many ‘political entrepreneurs’ who had thrived on their intimate connections to those who control the production of fiat money.
Deflation puts a break–at the very least a temporary break–on the further concentration and consolidation of power in the hands of the federal government and in particular in the executive branch. It dampens the growth of the welfare state, if it does not lead to its outright implosion. In short, deflation is at least potentially a great liberating force. It not only brings the inflated monetary system back to rock bottom, it brings the entire society back in touch with the real world, because it destroys the economic basis of the social engineers, spin doctors, and brain washers.”
The piece can be read in its entirety here.