> I kinda agree if this is inflation, but deflation is different.
Why’s that?
> This is a problem because people horde money, just keep saving - why would you spend it? And the economy dies.
This is one of those things where local Keynesian reasoning can lead you to the wrong answer, and tons of people get trapped there.
“Hoarding money” isn’t harmful. Ideally, people should be “hoarding” money unless they want to buy something. “Passive investing” (the rational strategy with an inflationary money) is not a good thing, but a harmful inefficiency.
The key realization is that at any given time, the total human productive output sits more or less on a pareto frontier, with positions in the space representing how much of various goods are being produced. For didactic purposes, we can pretend this space is 2D and has only two goods that can be produced - “capital goods” and “consumable goods”. So you can shift human productive output between these two goods, but the total output is capped.
When people spend money, what they are doing is (often indirectly) bidding for the right to decide how some fraction of human productive output gets allocated. Either into capital goods (e.g. by buying stocks) or into consumable goods (e.g. by buying a TV).
When people don’t spend money (because they are saving/“hoarding”), they are simply choosing not to participate in this auction process. This means the people who choose to participate in the auction have less competition. Because the amount of goods being auctioned is fixed (or more accurately, lies on a pareto frontier), the people buying the goods pay less than they would in the absence of “money hoarding”. This means their purchasing power has increased!
Inflation, less saving/hoarding:
People who don’t really want to spend money are forced to do so anyway unless they want to lose wealth. They either buy consumable goods they don’t really want, or invest in stocks without really thinking about it, introducing inefficiencies in asset allocation.
People who do want to spend money (because they actually want a good, or have a solid investment thesis, or have a business plan) have to compete with those other people, and lose purchasing power.
Fixed supply, more saving/hoarding:
People who don’t really want anything or have an investment thesis just sit on their money and it naturally appreciates in line with economic development. No need to buy index funds - money already behaves like a market-wide fund behaves today.
People who actually want to buy something or have an investment thesis don’t have to compete with the former group, making it easier for them to bid on socially efficient allocations.
The effects are somewhat marginal, but I expect that with a fixed money supply, the economy would be more oriented to capital goods production and less to consumption, and also asset allocation would be a bit more efficient thanks to decreased distortion from blind “passive” investing. Life is easier for people who just want to save for the future, or don’t have an investment account.