It may be that under historic conditions, deflation does tend to be bad. Though, I wonder conditions have changed sufficiently to mitigate its historical "badness". Specifically, I wonder if being able to price goods in real-time helps mitigate deflation's badness. Is it possible to assess the extent to which the inability to price in real-time affected historical cases of depression from deflation? Just thinking out loud here.
Thanks for the question, Proudhon.
For a myth to be adopted by a society, it must have at one point in time been
useful. Between 1700 - 1900, England was on a hard-money standard and price levels over these two centuries were fairly stable (although sometimes volatile). The "deflation is bad" myth had not yet been adopted
1.
Around the turn of the last century is when the "deflation is bad" myth truly took hold. Our productive abilities were increasing extremely fast--so much could be produced with so little human input. We had the factories in place to increase real output Q (from M V = P Q) and the will of the capitalists to push technology forward, but with a fixed-supply currency the only way Q could increase was if P decreased.
Like you said, we didn't have the internet back then and efficiently communicating real-time prices was difficult. Q increased only modestly, but since productivity had improved to such an extent,
there was less work available an unemployment increased during the Great Depression. And thus was born the myth that "inflation is good." The Fed increased the money supply M (by devaluing the dollar vs gold), which allowed Q to reach its potential without the fast drop in P that would have been required due to mankind's rapid advances in productivity.
The first thing the increased Q went to was WWII. We could produce so much stuff that we had to destroy it in order to keep the people employed!
But this got the people working, validated the "inflation is good" myth, and gave birth to our modern consumer economy. Our consumer economy is a relic from the Great Depression that says that if we don't consume our resources fast enough then people will lose jobs and will be back in a depression.
Our "deflation is bad" myth stems from our grandparents' inability to communicate real-time prices in 1933 efficiently enough to just let P fall to where it needed to be.
1But already early pioneers in anarchism like your namesake were working towards ways to provided fair access to capital for the people. Pierre-Joseph Proudhon "unsuccessfully tried to create a national bank, to be funded by what became an abortive attempt at an income tax on capitalists and shareholders...it would have given interest-free loans." I think Proudhon saw the unrealized potential in the people to increase real output Q if they only had equitable access to money. [Wikipedia]I offer an alternative view ( or maybe additional): After the world war I, some countries (USA) declared redeemability at prewar par. England did the same in 1925. This was a major pain, as prices did not adjust accordingly and there were problems with trade balance and unemployment.
Whether this was real or not, can be discussed. A producer will always whine at price reductions of his produce, when the proper reaction should be to strive to be the best, or leave the business. But a producer always have some argument power, and the producers of labour also have violent unions or unions backed by government violence.
There is also the poor/rich divide, where the poor are those who hold money or assets enumerated in the money unit, while the rich have estates and factories and therefore are pro devaluation, and presumably the rich have more political power.
Or understanding. Even now, people I speak to, who save in money and has not yet bought a house, don't care about inflation as long as their wages go up accordingly, even if it goes counter to their interests.