26A005 Delightful Deflation by Jim Davies, 2/3/2026

For all our lives, we've known only prices that increase, year after year. That's called "inflation", though strictly it's price inflation. The currency supply is increased by more than the rise in goods and services produced, so prices go up. That's inevitable; imagine that production was flat, with 0% change, but that 5% more money was created by the Fed. Then about a year later, prices would hike by 5% as the new money trickles down. Obvious, to any who turn off the TV and think about it.

Conversely imagine that we worked more efficiently and produced 3% more stuff, while the supply of money remained constant; in that case next year would see average prices fall by 3%. We've never known that, but it's called "deflation."

Issuing more bogus money is all done by the FedGov, because it brings them nine useful benefits, as a 2023 ZGBlog explained. Otherwise, inflation is a pain; in particular it motivates purchases now (before prices rise) instead of later, and renders contracts for future payments imprecise.

Deflation will do the opposite, after government has imploded.

Then, as noted at the end of the recent ZGBlog A Magic Money Mystery, money will take the form of gold and silver, which cannot be printed. There will be some mined, which could cause 1% or 2% increase in its supply - though the market may also prefer Bitcoin, whose supply will be fixed altogether. Either way, money supply will be close to constant.

Simultaneously, production will rise. A rate of about 3% a year is "normal", and after the rats' nest of business regulation has been swept away I expect it to be much more than that; probably over 10% a year as was the case when China abandoned Communist control of business.

Suppose production growth settles down to 5% a year, to be very conservative, while as above the money supply increases by 1%. Then the inflation rate will be (1 - 5 =) -4% a year; negative! Or to flip the sum, there would be a deflation rate of 4% a year. Now check the effects.

First, we'll buy things today only if needed today; other "wants" will be postponed until the price has fallen! Next year a $100 item will go for $96 and the year later $92.16, so why hurry? A 4% deflation rate will slash prices in half every 17 years. How d'ya like them apples?

Does that means our living standards will double about every 17 years? - not quite, because wages, salaries and profits will be nominally lower as well as prices. But still, the net effect will be that living standards will rise at a rate higher than ever previously seen.

It gets better. Since we have reason to postpone some purchases, we'll have money to invest instead; and that brings extra benefit. It attracts to the investor whatever dividend is earned, and it provides capital for the creation of new enterprises producing new goods and services and of course jobs; that is, the whole economy is boosted.

This isn't just theory. To a lesser extent (because government still interfered with trade, albeit much less than today) America in the 19th Century enjoyed just such prosperity. Money was pegged to silver, so its supply grew by about 2% a year, while production rose by about 2.5% a year - meaning there was an average deflation of about 0.5% a year, for those 100 years. The result was that in 1900 prices of staple commodities were 60% lower than in 1800. Even that modest deflation produced the most amazing rise in widely distributed wealth in all human history.