Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

Bank Credit Expansion and Its Effects on the Economic System 341remains the same or even diminishes somewhat, permit theearner to acquire an increasing quantity of consumer goodsand services of higher and higher quality: the decline in theprice of these goods is proportionally much sharper than thepossible decline in wages. In brief this is the healthiest, mostsustained process of economic growth and developmentimaginable. In other words, it involves the fewest economicand social maladjustments, tensions, and conflicts and historicallyhas taken place on various occasions, as the most reliablestudies have shown. 5656 Milton Friedman and Anna J. Schwartz, in reference to the periodfrom 1865 to 1879 in the United States, during which practically noincrease in the money supply occurred, conclude that,[T]he price level fell to half its initial level in the course of lessthan fifteen years and, at the same time, economic growthproceeded at a rapid rate. . . . [T]heir coincidence casts seriousdoubts on the validity of the now widely held view that secularprice deflation and rapid economic growth are incompatible.(Milton Friedman and Anna J. Schwartz, A MonetaryHistory of the United States 1867–1960 [Princeton, N.J.: PrincetonUniversity Press, 1971], p. 15, and also the important statisticaltable on p. 30)In addition Alfred Marshall, in reference to the period 1875–1885 in England,stated thatIt is doubtful whether the last ten years, which are regardedas years of depression, but in which there have been few violentmovements of prices, have not, on the whole, conducedmore to solid progress and true happiness than the alternations offeverish activity and painful retrogression which have characterisedevery preceding decade of this century. In fact, Iregard violent fluctuations of prices as a much greater evil than agradual fall of prices. (Alfred Marshall, Official Papers, p. 9; italicsadded)Finally, see also George A. Selgin, Less Than Zero: The Case for a FallingPrice Level in a Growing Economy, Hobart Paper 132 (London: Institute ofEconomic Affairs, 1997).