These are well-worn fallacies. First, falling prices do not cause hoarding--demand for goods will increase if anything. Mild deflation is actually the sign of a healthy economy, competition, and technological innovation. Just look at the consumer electronics industry. Why do people buy iPads when they know a cheaper and better one will come along in the next couple years? According to your theory, wouldn't they just sit on their money?
The second fallacy is that 'hoarding' (long term saving, in other words) is a problem for an economy. It simply demonstrates a longer term time preference, which is actually necessary for larger and more complex uses of capital which can often take 10-20 years of investment and planning to pay off. It is axiomatic that the only purpose for hoarding cash is to eventually spend it. Trying to eliminate this 'problem' by confiscating wealth through inflation is both short-sighted and immoral.
Deflation is almost invariably a sign of economic distress. This can easily be observed historically.
By the way the term I think you mean is "quantity demanded" with respect to price, "demand" is invariant to price.
Under deflation average income decreases. It's not like everyone is suddenly richer. Your employer gets less money, and so has to pay you less, or lay off a portion of their workforce. The price of labor is a price like any other.
Assuming a fixed money supply, hoarding currency will cause deflation. Hoarding currency takes money out of the money supply. Saving by making investments is different; the money is still participating in the economy. Deflation discourages investment in useful activity. If you can earn a 5% rate of return just for already having money, why bother with a investment could return 5% or less?
America had steady deflation during a period of massive economic expansion in the late 1800s.
Deflation is only a sign of distress historically when preceded by government-induced monetary expansion. A boom causes a bust.
Wages are sticky so moderate deflation strongly benefits workers. Both wages and savings will gradually increase in purchasing power. Inflation punishes the lower classes disproportionately for the same reasons. It is the primary driver of income inequality in the world.
That anyone has been convinced a massive counterfeiting scheme in their currency is doing them a favor is a monumental feat of propaganda.
> Inflation punishes the lower classes disproportionately for the same reasons. It is the primary driver of income inequality in the world.
If that was true, then economies that use gold and silver as currency, and where there isn't a large supply of new money, there wouldn't be much income inequality. But there was plenty of income inequality in ancient Rome, and in most ancient despotisms. So I suspect your hypothesis is wrong.
"The problem of debasement in the Roman economy appears to be pervasive, although the severity of the debasement often paralleled the strength or weakness of the Empire."
Political authoritarianism, corruption, direct taxation, seizure, and military plunder are also effective ways for a ruling class to steal from the rest, so you can certainly have terrible inequality in societies with sound currency, but inflation is the most efficient and covert method, and has been the most popular way for governments and their corporate allies to gain at the expense of the world's poor and middle class in the last 100 years.
The deflationary periods in the 1800s correlate exactly with economic shocks during that time, especially the panic of 1837 and the Long Depression. If you think deflation is associated with growth you are simply wrong.
"The Great Deflation or the Great Sag refers to the period from 1870 until 1890 in which world prices of goods, materials and labor decreased.This had a negative effect on established industrial economies such as Great Britain while simultaneously allowing incredible growth in the United States which was just beginning to industrialize. Deflation has historically been more associated with recession, than growth, but this is one of the few sustained periods of deflationary growth in the history of the United States."
"Deflation is almost invariably a sign of economic distress."
Perhaps deflation isn't traditionally associated with growth, but it clearly can be and has been in history. Note 'one of the few'. Deflationary growth isn't that rare of a phenomenon in history, though its rarity will be inversely proportional to the prevalence of central banking, monetary expansion, and economic authoritarianism. The market's had an uphill battle.
In general, deflations associated with recessions will also be associated with reckless monetary expansion. Including this form of deflation in statistics can be misleading. Its cause is entirely different from the cause of gradual, moderate deflation as the natural result of an expanding economy with limited currency.
I feel like you're being pedantic. The key point is that the causal relationship between the deflationary periods and the associated recessions is in doubt.
> According to your theory, wouldn't they just sit on their money?
No, because they gain utility from the use of their iPad for the next couple years which they deem to be greater than the dollar value the iPad has lost due to depreciation. Furthermore, if their cash was earning interest they would have less incentive to buy iPads because the utility of 2 years' iPad use would have to outweigh both the depreciated value of the iPad as well as the appreciated value of their currency, which would lead to fewer iPads sold.
Productive investment means spending cash on something, like property, R&D, or plant and equipment. I don't see how this is the same as hoarding cash.
There is a psychology that iPads, and to an even greater extent iPhones, are a short life time product. So their price in a couple of years does not matter. Buying one now will not prevent you from buying one at the cheaper price in a couple of years as well.
"Productive investment means spending cash on something, like property, R&D, or plant and equipment. I don't see how this is the same as hoarding cash."
Exactly. No one actually hoards cash. Why would they? There is an enormous incentive to make idle money useful. But the greater point is: even if they do, so what? The money will be utilized at some point. That's what it's for. Why is it better used now than in the future? What is the 'correct' ratio of savings to immediate consumption? Given that you're unlikely to provide a convincing answer to this, wouldn't it be reasonable to let the owners of the money determine its allocation?
"There is a psychology that iPads, and to an even greater extent iPhones, are a short life time product. So their price in a couple of years does not matter. Buying one now will not prevent you from buying one at the cheaper price in a couple of years as well."
This is because the iPad's price falls and its quality increases. If each new iPad were twice the cost for the same performance, I don't think the lines at the Apple Store would get quite as long.
The second fallacy is that 'hoarding' (long term saving, in other words) is a problem for an economy. It simply demonstrates a longer term time preference, which is actually necessary for larger and more complex uses of capital which can often take 10-20 years of investment and planning to pay off. It is axiomatic that the only purpose for hoarding cash is to eventually spend it. Trying to eliminate this 'problem' by confiscating wealth through inflation is both short-sighted and immoral.