[eli_gottlieb]

Or you'll have to allow some form of fiat currency as an alternative currency. Or you'll have to more-or-less allow the entire real economy to collapse as the exponentially dropping remnants of actual aggregate demand become utterly unable to facilitate, or rather justify, real trade.

One last point: deflation always favors whoever, in a transaction, is the creditor/seller. In a certain sense, this is not only economically harmful but morally unfair. After all, if I pay a contractor $150k to build me a house (assume I own the land and we're only paying for construction), what I'm really doing, underneath the illusion of money, is trading my skills and property (program code, raw building materials) for his skills and property (architecture, construction, use of his materials and tools). In theory, this can and should be modeled as a spot-trade of my stuff for his stuff with no unwanted side-effects.

But once we get money and its time-value (deeply affected by deflation) involved, then one of us has an automatic advantage over the other based on the currency value when the work is done and when the payment is made. If the currency is deflating, even predictably, then whoever gets paid has an automatic advantage over whoever does the paying. An arbitrage opportunity across time has appeared solely because we involved currency.

[AnthonyMouse]

>If the currency is deflating, even predictably, then whoever gets paid has an automatic advantage over whoever does the paying.

If the value of the currency is changing predictably and the date of the future payments is known then it can be taken into account in determining the amount of the payments. However, the purchaser does benefit if the seller doesn't know enough to account for it or is timid and fails to assert the demand, etc.