Comments (5)

• Oil Shock

  Excellent work Mr. Bagus.

  Published: October 15, 2008 1:52 PM

• Dick Fox

  When someone sings the praises or either inflation or deflation I begin to get worried. Any fluctuation in the currency can lead to malinvestment so we should object to both. Mr. Bagus seems to take issue with Mises definition of deflation but I don't understand why.

  If you do not understand the problems with deflation you cannot understand why the deflation of the late 1990s led us into the oil supply crisis in the 2000s.

  Published: October 15, 2008 2:43 PM

• fundamentalist

  While generally sound, it seems to me that the author confuses pure theoretical analyses of deflation with practical proposals. The authors he criticizes often held different views of what was theoretically true and what was politically feasible.

  Published: October 15, 2008 2:55 PM

• Stanley Pinchak

  Dick Fox,
  as far as I can tell, Mr. Bagus is not calling for deflation for the sake of deflation. His article seems if anything to call for a correction of the precious inflations of the central bank and the fractional reserve banking system. He is basing his appeal on the grounds of justice for those who have been defrauded by the perpetrators of the inflation. The fear of deflation which permeates the economic profession is a hindrance to the correction of the misallocations caused by prior inflations. To prevent deflation is itself inflationary and contrary to the free market, thus his criticism of Hayek's calls for ameliorating the secondary depression. One can not say that the effects of the deflation are bad, yet criticize the misallocations caused by inflation. Any intervention (force) in the money supply or the demand for money will have negative effects. This is clearly seen by Austrians with regards to inflation, the author merely seeks to point out the pitfall of demonizing deflation when resulting from corrective actions of the market.

  Published: October 15, 2008 2:59 PM

• Matthew

  Bagus's discussion of the topic of deflation and its associate policy prescriptions is excellent. Far too often, economists miss one another in their debates because they use imprecise and differing definitions, which Bagus compares and contrasts among the economists he treats.

  Advocating particularly policy is largely a function of what one's goals are. While utilitarian economists have no firm footing at all, even those in the Rothbardian natural law camp find deflation a difficult problem due to its overwhelming complexity. Nonetheless, Bagus provides a good argument that allowing the liquidation of the banking system is a just solution toward a sound financial system.

  Published: October 15, 2008 3:13 PM