Philipp Bagus

In this article published in Quarterly Journal of Austrian Economics 6 (4) 2003: 19-35, I examine the deflation theories of Ludwig von Mises, Murray N. Rothbard, Friedrich A. von Hayek, George Reisman, Jesús Huerta de Soto and Hans Sennholz.

Austrian economists are famous for the laissez-faire conclusions they derive from their theoretical analyses, in particular in the case of money. For instance, they champion free banking and free money. Yet, most of them fear deflation in at least some situations and call for government intervention to prevent it. Even more mainstream economists fear def lation and want to prevent it (Keynes 1963, p. 177; Samuelson 1980, p. 258; Bernanke 2002). This paper examines what Austrian economists think about deflation and offers a critique of their views. This seems to be of particular importance because Austrians differ in their opinions about def lation, quite in contrast to most other subjects, especially inf lation. Even Rothbard and Mises diverge in their perspectives on def lation.
I will begin with an analysis of Rothbard. With a few exceptions, his understanding of def lation serves as a standard to critique other Austrian perspectives. Then I will contrast his view with Mises’s, analyze Sennholz’s attitude toward deflation, and continue with Huerta de Soto, who is in some sense influenced by Hayek. A critique of Hayek’s perspective will follow, with the analysis ending in a discussion of Reisman’s opinion on the subject.

Key words: Deflation, deflation phobia, price deflation, Austrian Business Cycle Theory, Austrian economics, Ludwig von Mises, Murray Rothbard