Does the Free Market Naturally Push Prices Down?

The distinction between good and bad deflation is the crux. Policy-driven monetary contraction – the kind that follows credit expansion – is destructive. It forces a liquidation of malinvestments and chokes the economy. Deflation that comes from falling production costs, better technology, and more efficient capital use is a sign of progress. Bob argues that Austrians too often conflate the two.

He also revisits a debate within the school: whether a free market has a built-in tendency toward falling prices. His answer is yes. That only holds under a genuine commodity standard, and only when the state is not actively inflating the money supply. The greenback era provides a clean test case. Prices fell steadily during that period, and the economy grew.

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