Apoplithorismosphobia

Apoplithorismosphobia is the term coined by Mark Thornton to describe a fear of deflation. Many economists have suffered from Apoplithorismosphobia since Keynes' General Theory, but is this fear justified? I will argue that it is not; that deflation is the process of improving living standards, and that the 'deflationary spiral' is a myth.

This essay concerns deflation under a fixed money supply based on 100% reserves, falling prices resulting from increased productivity, not a decrease in the supply of money or credit. Deflation is the process by which life improves as savings and wages stretch further. The elephant in the room is The Great Depression; however, the original recession came after huge artificial credit expansion, tightening came after the economy was rife with misallocations. The deflation of the 1930's involved credit contraction, and the Hoover administration prevented market correction by means of wage controls and other interventions (Thornton, 2014). Hence, it does not reflect the economic conditions being argued for here.

Keynesians argue that if goods are not more expensive tomorrow, there is no incentive to buy them today, hence the feared 'deflationary spiral'. This ignores basic human nature. We consume because we experience hunger, cold, desire, and countless wants beyond bare survival. People spend to satisfy their wants and needs, not because inflation punishes them for waiting. The period from 1870 to 1890 saw prices fall 1-2% annually for two decades. If consumers truly deferred purchases under deflation, the economy would have ground to a halt. Instead, real per capita incomes rose 2% per year. Americans consumed more, not less (Hudson Institute, 2024).

Profits, too, do not suffer under deflation: costs fall alongside revenues. Whether costs or revenues fall faster depends on market conditions, not deflation itself. The technology sector demonstrates this clearly: the US Bureau of Labor Statistics reports that information technology prices have fallen by an average of 7% annually since 1988 (Information technology, Hardware and Services Price Inflation since 1988, 2025). Yet the sector has thrived. Apple's Services segment saw 73.9% gross margins in 2024, while NVIDIA maintains a 53.7% profit margin (Neufeld, 2025).

While critics would be correct to point out that deflation increases the cost of real debt burdens, defaults merely transfer asset ownership; real wealth is unaffected. This is a feature of deflation that enforces accountability of asset ownership, ensuring productive use.

Keynesians accuse savings of being a 'leakage' from the economy. But saving is not the absence of spending: it is deferred spending. Only the individual can decide if spending now or later better satisfies their wants and needs. To say that a constantly appreciating currency would never be spent is to ignore the fact that a monetary good is never attained unless it is with the intention to use it for future exchange. On top of this, time preference for all humans is always positive since present satisfaction is valued greater than future satisfaction. Who would choose future consumption over present consumption if there was no trade-off? It is safe to say no-one; hence, interest is the reward for postponing consumption in order to invest in higher order goods (investment goods) which will produce a larger amount of consumer goods in the long run. Importantly, when one chooses to save, there is no withdrawal of real resources from an economy; instead, it frees them. The goods and services a saver would have consumed remain available for others to use productively, likely in industries of higher order goods as increases in money held increases the amount of loanable funds and therefore reduces interest rates. What matters to societal well-being is real resources and their usage, not some abstract flow of money that monetarists call ‘velocity of money’. The ‘velocity of money’ does not represent any increase in material wealth. A high ‘velocity’ of money can reflect economic activity, but it is the effect of economic activity and never a cause. Low ‘velocity’ simply indicates a preference for saving, a period of resource accumulation before productive investment. Manipulating velocity in these periods will only lead to misallocation due to premature spending and investment. 

Keynesians also fear aggregate saving during recessions, the paradox of thrift, but recessions are just signals of misallocated resources propped up by prior monetary expansion. Aggregate savings during recessions accelerate the necessary reallocation of resources to profitable uses. Therefore, aggregate saving is the proper response!

Keynesians seem to forget that saving must necessarily come before investment: you cannot build a factory with resources that are already being consumed. Capital accumulation, the engine of economic progress, requires deferred consumption. Inflating the money supply only prevents economic actors from engaging in productive saving for future investments. Printing money does not conjure new resources into existence; it merely redistributes claims on existing resources. Worse still, inflation does not prevent saving. Instead, funds flee into alternative stores of value, such as housing and stocks, driving up asset prices. Those wanting to save can no longer do so reliably. They are forced into the stock market or other scarce assets rife with counterparty risk and information asymmetries. As a result of the ability to save being undermined, investment is artificially restricted, and economies suffer from lost productive potential. Even mainstream economic institutions concede that nineteenth-century deflation was ”primarily good, or at the very least neutral” (NBER, 2025). The nineteenth-century deflation was dominated by the productivity-driven type with minimal credit contraction. 

Deflation is not the economic catastrophe we are taught to fear. It is the natural reflection of human progress: more goods and rising purchasing power for all. The source of prosperity is not spending but saving: the deferral of consumption that frees real resources for investment and growth. Apoplithorismosphobia, regarding productivity-driven deflation, is unjustified.

Bibliography

in2013dollars.com. (2025). Information technology, hardware and services priced at $20 in 1988 → $1.36 in 2026. [Online]. in2013dollars.com. Available at: https://www.in2013dollars.com/Information-technology,-hardware-and-services/price-inflation [Accessed 17 December 2025]. 

National Bureau of Economic Research. (2004). Good versus Bad Deflation: Lessons from the Gold Standard Era. NBER Digest. [Online] Available at: https://www.nber.org/digest/apr04/good-versus-bad-deflation-lessons-gold-standard-era?page=1&perPage=50. [Accessed 17 December 2025]. 

Neufeld, D. (2025). Charted: How Apple Makes its $391B in Revenue. [Online] Visual Capitalist. Available at: https://www.visualcapitalist.com/charted-how-apple-makes-its-391b-in-revenue/. [Accessed 17 December 2025]. 

Thornton, M. (2010). Hoover, Bush and Great Depressions, Quarterly Journal of Austrian Economics, 13(3), pp. 86-100. Available at: https://mises.org/quarterly-journal-austrian-economics/hoover-bush-and-great-depressions [Accessed 17 December 2025]. 

Brown, B. (2017). A Tale of Two “Deflationary” Booms - The Gilded Age vs. Today. [Online]. Hudson Institute. Last updated: 18 August 2017. Available at: https://www.hudson.org/economics/a-tale-of-two-deflationary-booms-the-gilded-age-vs-today [Accessed 17 December 2025].