Most folks who have looked into the history of the gold standard know it was generally deflationary with occasional bursts of excitement (inflation) when a new gold field came into production, California, South Africa, Australia etc.
And most folks know that during the "classical" gold standard, despite the deflationary bias, average growth was quite respectable, albeit with huge variance: some of the depressions were monsters.
Here's the Bank for International Settlements with more.
The costs of deflations: a historical perspective
BIS Quarterly Review
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March 2015
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18 March 2015
JEL classification: E31, E32, N10.
Concerns about deflation - falling prices of goods and services - have loomed large in recent policy discussions. The debate is shaped by the deep-seated view that deflation, regardless of context, is an economic pathology that stands in the way of any sustainable and strong expansion.
The almost reflexive association of deflation with economic weakness is easily explained. It is rooted in the view that deflation signals an aggregate demand shortfall, which simultaneously pushes down prices, incomes and output. But deflation may also result from increased supply. Examples include improvements in productivity, greater competition in the goods market, or cheaper and more abundant inputs, such as labour or intermediate goods like oil. Supply-driven deflations depress prices while raising incomes and output.
And even if deflation is seen as a cause, rather than a symptom, of economic conditions, its effects are not obvious. On the one hand, deflation can indeed reduce output. Rigid nominal wages may aggravate unemployment. Falling prices raise the real value of debt, undermining borrowers' balance sheets, both public and private - a prominent concern at present given historically high debt levels. Consumers might delay spending, in anticipation of lower prices. And if interest rates hit the zero lower bound, monetary policy will struggle to encourage spending. On the other hand, deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive.2
The bottom line is that, whether deflation is seen as symptom or cause, its cost is ultimately an empirical question. As a symptom, it depends on its underlying drivers; as a cause, on the relative strength of various channels.
Moreover, while the impact of goods and services price deflations is ambiguous a priori, that of asset price deflations is not. As is widely recognised, asset price deflations erode wealth and collateral values and so undercut demand and output. Yet the strength of that effect is an empirical matter. One problem in assessing the cost of goods and services price deflations is that they often coincide with asset price deflations. It is possible, therefore, to mistakenly attribute to the former the costs induced by the latter.
Data limitations have so far made it difficult to answer these questions. In this special feature, we take a step forward based on a newly constructed data set that spans more than 140 years, from 1870 to 2013, and covers up to 38 economies. In particular, the data include information on both equity and property prices as well as on debt.
We highlight three conclusions. First, before accounting for the behaviour of asset prices, we find only a weak association between goods and services price deflations and growth; the Great Depression is the main exception. In some respects, this confirms previous work. Second, the link with asset price deflations is stronger and, once these are taken into account, it further weakens the association between goods and services price deflations and growth. Finally, we find some evidence that high private debt levels have amplified the impact of property price deflations but we detect no similar link with goods and services price deflations.
The rest of the article is organised as follows. The first section briefly reviews the historical deflation record. The second analyses the costs of deflation by considering its correlation with output growth, while the third extends the analysis to asset price deflations. The fourth section asks whether more debt in an economy has increased the costs of deflations. In conclusion, we briefly consider the implications of our findings for monetary policy, highlighting caveats when applying them to the current situation.
The deflation record....MUCH MORE
For current purposes, we define a deflation in the prices of goods and services - or "price deflation" for short - simply as a fall in the corresponding price index. This sidesteps a couple of issues. Analytically, economists make a distinction between one-off price changes, typically seen as reflecting relative adjustments (eg a fall in the price of oil), and self-sustaining rates of change. The term "deflation" is then restricted to the latter. Similarly, given its negative connotations, some would prefer to restrict the term to destabilising self-reinforcing downward wage-price spirals. Our choice reflects the practical difficulties in distinguishing one-off from self-sustaining changes and our wish to avoid prejudging the costs of deflation by incorporating them in the definition....
HT, a March 2019 post at ZeroHedge that was recently brought to my attention:
Hello Jerome Powell, We Have Questions
