Good discussion Miscreanity!
I entirely agree that inflation shouldn't be used simply to keep prices steady and that things should float freely. However, it is still desirable to maintain price stability in order for an economy to function efficiently.
These two sentences contradict each other. On one hand you say inflation shouldn't be used to keep prices steady. On the other hand you're saying it's desireble to keep prices steady by continually inflating the currency. Your first sentence is correct, second is false.
Wild fluctuations will cause difficulty in price discovery, thus increasing problems in projecting the viability of business productivity.
Agreed, but Bitcoin will not cause wild fluctuations in the long term, will it? It's decreasing rate of inflation is steady and predictable, and there will be no drastic increase nor decrease in money supply, thus price discovery should also occur on a relatively smooth curve. Both Bitcoin and Altcoin would be perfectly predictable and smooth - neither having an advantage in this regard.
If the economy slows and/or contracts, the existing Altcoins would gradually become worth less. As the economy grows, demand for a common currency increases, so the supply must become available - it must inflate. This keeps the Altcoin value relatively stable and range-bound (elastic). It balances out Bitcoin's nature.
Now this is a very problematic statement =) Your claim is that Altcoin will tend to -match- the rate of economic growth, and thus would keep prices stable. But how can you predict the rate of economic growth? You cannot. If the economy grows faster than you're expecting, Altcoin will resemble Bitcoin in that prices for money will rise. The supposed ills which you see in Bitcoin's slower rate of inflation would be similar in Altocoin's faster rate of inflation. Similarly, if the economy grows slower than you expect, the price for both monies will fall, but Altcoin's price will fall faster.
In other words, any argument that Altcoin is superior because it maintains steady inflation rests on the assumption that the economy maintains a steady growth of precisely that amount as well. If not, then Altcoin is susceptible to the same issues of price changes as Bitcoin, just leveraged differently.
Being a
deflationary currency, Bitcoin will become worth more as the economy grows, leading to accumulation - it then becomes a
Giffen good. This increase in hoarding reduces currency available for the economy to function, which is a major factor in the bust that occurs after a boom unless there is a means of translating the value difference between the store of value acting as a foundation, and the product or service desired. That's where Altcoin fits.
Change the word "hoarding" to the word "saving" and you'll see why your statement is silly. An increase in savings rates is
not a major factor in an economic bust. People save to the extent that future consumption is worth more than what they could consume in the present. When people save, market prices must fall only until those goods become attractive again, and subsequently people will spend. The "deflationary spiral" is a myth... savings is a self-correcting process. One need only look at the electronics market to see this in action. We all know the computer will cost half the price next year, yet how many of us are reading this on 20 year old computers? We buy electronics all the time, knowing full well that prices will fall.
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tl;dr - "deflation" is not a problem. It's a boogeyman. Prices always tend to correct and re-allocate behavior toward efficiency. It's okay for prices of goods to fall, and prices of money to rise.