In this sense, Bitcoin is not truly deflationary.

Deflation is a price decline resulting from an inadequate supply of money relative to supply of goods and services. Just as inflation is the result of too much money chasing too few goods, deflation is the result of too many goods chasing too little money. The absolute money supply is completely irrelevant.

We [i.e., bitcoiners] believe [inflation] represents a regressive, silent tax — slowly siphoning wealth from the average person to the politically well-connected.¹

Inflation does not “represent” anything. It is what it is. And it is a tax on hoarding cash, on breaking the barter chain that keeps the economy moving. If you sell something, you should buy something, or lend your money to someone who will buy something. Saving is fine, so long as the money is invested, i.e., spent by someone on something, including capital goods.

Inflation doesn’t take anything from the average person who has a job that pays commensurately with the cost of living. If the average person doesn’t have that sort of job, that’s a problem with the labor market, not the money supply. If wages fail to keep up with modest, predictable inflation, something needs to be done about wages, not inflation.

Predictable inflation doesn’t hurt savers either. They negotiate an inflation allowance into the cost of capital they lend out. People simply bargain around predictable inflation.

Predictable inflation actually lowers prices by making lending safer. Inflation causes the real amount outstanding to decline in value and the collateral held against loans to increase in value. The result is greater safety for lenders, which, through competition, results in lower interest rates for borrowers. That’s good for a credit-based economy.

The late nineteenth century was a period of great economic growth, great productivity growth, and great growth in the political power of workers. Any honest appraisal of that period will see it as a reallocation of the fruits of production, driven largely by the rather obvious fact that as industrialization lowers marginal costs, higher wages translate into higher profits as workers become customers. Henry Ford put that fact into high gear a few years later. The period proves that deflation is not necessarily fatal to growth; it hardly proves that it not a headwind. Absent the reallocation of income through political action, deflation results in recession. (The additional growth that could have been achieved if the economy were not hung up on cross of gold is mind-boggling.)

What we learned from the Great Depression is that bad underwriting can be very dangerous. But we went a lifetime between the Great Depression and the 2007 financial crisis, using credit-backed money, and things grew pretty nicely. Try Googling “Panic of …” and see how the screen fills with the devastation of a monetary system with no central bank. Bad underwriting is caused by poor regulation of banking, both by corporate boards who create the wrong incentives and regulators who don’t prohibit undue risk-taking. All of these things can overwhelm the monetary system, but we have had too much growth under the Fed to give up for what is essentially nineteenth-century monetary thinking in twenty-first century garb.

The simple fact is that money based on creditworthiness arising from future production is the most advanced and efficient way to elicit that production and distribute its creations. Everything else is obsolete. And if you write a piece on monetary policy that does not contain “Grisham,” you are wrong, no matter what.