Note: I am not an economic historian, and I am eliding a lot of monetary policy detail.
Right now, everyone is wincing at the inflation in progress in the US. Money is cheap compared to “stuff,” so the dollars per unit of stuff is going up. Most of us, I suspect, are far more familiar with inflation than deflation. Historically, inflation gets all the attention from historians. Roman emperors did it by diluting silver currency with lead or copper. Byzantine emperors did it by diluting silver currency. Spain under Charles V and Phillip II did it by accident when the treasures of the American poured into Seville and Madrid, thence into the economy of Europe to pay for the various Spanish wars. It hit again in the early 1600s when local nobles diluted silver with lead and copper.
What about deflation? If inflation’s bad for most people (like, oh, most of Europe in the 1500s-1600s), then deflation is good, yes? Prices go down, your coin buys more stuff per unit of coin, and everyone’s happy. Yes, if you are a consumer, or if you are collecting on a debt. If you are a producer of goods, or are paying off a debt, each dollar/schilling/mark you pay on that car loan is worth more and more flour/lattes/music CDs. And it takes more grain/chickens/butter/fabric to pay for each dollar in taxes. Instead of fifty bushels of wheat, now you have to pay one hundred bushels of wheat to get the same amount of coin/money.
That was the United States after the US Civil War. The country had become an industrial nation, although agriculture was still very, very important, and farmers had some political clout, if they could all get together and use it. However, it seemed to many rural people that the industrial east (steel, oil, railroads, consumer goods, the binder twine monopoly) ran both the economy and the country, to the detriment of the people actually growing and mining the stuff. Part of this lay in the US government’s insistence on a firm gold standard, with little or no coinage in silver. Money was very, very expensive. So expensive that it attracted British investors, who could make a fortune loaning money to American businesses at 10-15% interest, as compared to the 3-5% interest back in England.*
People, namely consumers and businessmen, in the urban areas did well and the standard of living was growing nicely. People who had to pay taxes in gold coin or gold-backed notes, and who produced food and fiber, felt trapped and squeezed. They paid taxes. City people didn’t. (The income tax didn’t exist. Taxes were land taxes, and import/export.) Farmers and ranchers and miners had to scrape up gold coin for taxes and other bills, even as prices they got for their grain, cattle, and fiber dropped compared to the value of that coin. With the discovery of the big silver loads in Nevada, Colorado, and California, westerners and farmers began pushing for “free silver.” They wanted a bimetallic standard, gold and silver, and cheaper (inflated) money so that they could pay their bills and prosper.
Toss in the international economic splat (Panic) in 1873, the first modern global recession, then a downturn in 1886 and the Panic of 1893, and you have three decades of lack-of-progress for some, along with growing labor unrest. On top of that, new immigrants were arriving from Central and Southern Europe. They spoke little or no English, dressed funny or seemed otherwise “Off” (Italians), tended to be Catholic or even Jewish, and worked for cheap compared to native-born Americans. Oh, and a few people in Europe were assassinating elected and hereditary rulers in the idea that if you eliminate the monarch, the government will go away and Paradise!** And Marx’s ideas were in the air, but they weren’t all that popular in the US just yet.
Out of this you get the Progressive Movement (efficiency, internationalism, experts know what is best for the rest of the people, central government over state governments) and the Populist Party, which was an outgrowth of the earlier Farmers Alliance and Farmers’ Union.*** The Populists wanted cheap money (Free Silver!), limited immigration (no Brits buying huge chunks of land that Americans needed), and more attention paid to the West and Midwest, especially to farmers’ demands. The Populists were in some cases, like the earlier Alliance, multi-racial, or tried to be. One of the reasons for Jim Crow in the South had been to keep poor whites and poor blacks from working together to oust the old elites from political power.
So inflation’s not good, deflation’s not good, and thus far, I’m not certain anyone has come up with a way to achieve “just right” for more than a few years at a time. You want a stable form of exchange that doesn’t get “watered down” with lead or copper, or that governments can’t produce through handwavium. You also need to keep that medium of exchange from becoming too expensive for people to use. Somewhere there’s a Goldilocks point of not too inflated, not too deflated, and prices for currency are just right compared to prices for stuff. Somewhere . . . Somewhere . . .
*Ever wonder why so many huge ranches were owned by English and Scottish companies? They had the cash to invest. The Swan, XIT, Rocking Chair Ranche, JA, ROW, and others all came from British money.
**The Anarchists tended to be hazy on the steps in-between, and often disagreed with each other.
***The Farmers’ Union is still around, and still somewhat active in Kansas and Nebraska and South Dakota.