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The Dangers of Deflation

Originally published in Atlantic Economic Journal

Beginning no later than Mises’s The Theory of Money and Credit in 1912, the causes and consequences of inflation have been a central concern of the Austrian School of Economics. Unfortunately, that has meant relatively few analyses of the problems of deflation from a distinctly Austrian perspective.

Beginning no later than Mises’s The Theory of Money and Credit in 1912, the causes and consequences of inflation have been a central concern of the Austrian School of Economics. Unfortunately, that has meant relatively few analyses of the problems of deflation from a distinctly Austrian perspective. Deflation has dangers of its own, and there are important insights that are unique to the Austrian tradition that can add to our understanding of those dangers. This paper explores those dangers, both at the broad macroeconomic level and at a more microeconomic level by integrating the Austrian theory of capital with the monetary equilibrium theory account of deflation. Austrian concerns about inflation should not lead them to overlook the very real dangers of deflation.

FInd the article at SpringerLink.

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