Quarterly Journal of Austrian Economics

Volume 9, No. 2 (Summer 2006)

Joseph T. Salerno (2003) argues economic growth has occurred in periods of deflation. The Austrian School’s broad understanding of deflation is underscored by the four definitions offered by Salerno (growth deflation, cash-building deflation, bank credit deflation, and confiscatory deflation). Keynesians, by contrast, define the phenomenon more narrowly, equating it with a negative Consumer Price Index (CPI) and economic contraction. The purpose of this note is to argue that economic expansions have occurred in periods of negative CPI, and to challenge Keynesians to improve upon their narrow definition of deflation.