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I didn't think the comparative statistics were particularly hysterical. The original post was about comparing Keynesian and Austrian monetary approaches or basically, government-imposed fiat money and commodity money, perhaps even denationalized money depending on your Austrian. Skeptical Optimist came down on the side of fiat money on the basis that he preferred continuing steady inflation with little risk of deflation. My point was simply that historically neither money system provided "stable prices" or "steady, predictable inflation". Both exhibited roughly the same magnitude of deviation about their secular trends. The basic question is: If you expect 3% inflation and you end up with 0% is that really any different than expecting 0% and ending up with 3% deflation? I would say not so much, both situations play havoc with the real/nominal interest rate relationship and with the expected behavior of real asset and liabilities with respect to their nominal values. Before 1913, fiat money advocates could promise that they would maintain a stable or at least predicable price level. We have run this experiment for nearly 100 years and the facts show that the predictability of prices has not improved. We have simply added an unknowable and politically driven secular inflation component to the trajectory of prices.
If you analyze the changes in the CPI from 1813 to 1912 (pre-FED gold standard of one sort or another), and from 1913 to 2008 (post-FED, fiat money), you see roughly 0.5% compounded deflation during the pre-FED period and roughly 3.3% compounded inflation during the post-FED period; both computed using an end-point exponential fit. The mean departure from this trend and the standard deviation of the departures was 0.1% and 5.5% for the pre-FED period and 0.2% and 5.1% for the post-FED period. So there was no real difference between the inflation/deflation noise but a big difference in the trend rate of inflation: A dollar from 1813 would purchase $1.65 worth of goods in 1912. A dollar from 1913 would purchase 4.4 cents worth of goods in 2008.
Trying to stay on topic.... In the index of Mises' Human Action, deflation occurs on 4 sets of pages and inflation occurs on 14 sets of pages. Not exactly the number of word usages, but a bit more balanced than 1 to 100.
If you go to this site ( you'll get a graph and table of inflation rates for Japan from 2000 to 2008. This link ( will show the per capita GDP on a PPP basis. Here are the numbers: Year Inflation (%) GDP (US$) 2000 -0.8 23400 2001 -0.7 24900 2002 -0.9 28000 2003 -0.9 28000 2004 -0.3 28200 2005 -0.1 29400 2006 -0.3 31600 2007 0.3 33100 2008 0 33800 Where is the correlation? Serious deflation early on, but no declines in per capita GDP and a 44% growth over 9 years. Where is the misery? Yes there is a correlation between decreasing price deflation and per capita GDP growth, but the data hardly support the idea of price deflation == economic death
The first point of the original post was that the Austrians are wrong on money based on a no deflation and a predictable 2% to 3% standard. Yes, commodity money (Austrian money in this post) is not perfect, but fiat money is arguably worse. beancounter's example from Japan proves the point. Japan is a fiat money country. They have deflation; so fiat (Keynesian money in this post) fails the comparison criteria too. Is it perfectly clear that price deflation was the cause of Japan's problems or is it possible it is simply a symptom? My point about fractional reserve banking was related to the idea of continuous inflation as a desirable feature of money. If money is continuously created it goes to somebody and everyone else suffers. Even with denationalized money and free banking fractional reserve banking is likely to exist, but without continuous expansion of the money supply the ongoing wealth transfers will not occur. Yes, Gil gold miners used to get some extra value for their product because it was money too. However, it is much harder to mine a ounce of gold than to credit digital dollars. So which will cause more trouble in the long run assuming neither bankers nor gold miners are angels?
I agree that general price deflation often was the result of economy-wide declines, but why is that a criterion for comparing money types? You don't like widespread economic declines (who does?) but unless you are arguing that commodity money caused the economic decline, why would gold (or whatever) be to blame? Now I have read some Keynesian arguments that an outgoing inflation during a recession fools people into accepting lower real prices more quickly than they otherwise would. Even if this was true in the past, given the wide availability of inflation measures today, is there any reason to suppose that it remains true and effective. Lastly, today in America, the newly created dollars that yield your desired 2-3% inflation, flow into the economy quite unevenly through the fractional reserve system, first to the banks themselves, and then to those receiving bank loans and finally outwards. This process redistributes wealth and income deceptively. The effects are pretty much indistinguishable from the operation of a large scale counterfeiting scheme.
If falling prices are so absolutely bad, then why haven't they destroyed the computer business where we have observed continuously increasing capabilities at ever lower prices? This is hardly a unique case: Just compare food prices as a fraction of household budgets with those of 50 years ago. Anyway, our experience with fiat money really hasn't met either of your criteria. We have had periods of price deflation and quite unpredictable rates of price inflation. Perfection is not to be found in our corner of the universe. We need to evaluate real alternatives not imaginary ones.