beero1000
Veteran Member
Less money means the money that exists is worth more - the process whereby money gets more valuable over time is called deflation, and it is bad because it discourages investment - why take a risk to increase your wealth, when you can get the same result by just holding on to your cash?
How would it be the same result, though? If a company is actually producing real wealth, then surely the return on your money is going to be better than the return from sitting on the cash, even if there is general deflation?
Well, that would depend on the company's rate of return relative to the deflation. In an extreme example, hyperdeflation might mean that no one would want to spend any of their cash - if a TV costs $1000 today, but will cost $500 tomorrow, you'd have to have a really good reason to buy one today. A company that needs to buy equipment to make stuff might have to spend cash that they will not be able to make back.
This is the exact opposite of hyperinflation, like what happened in Weimar Germany, where everybody wanted to spend their cash as fast as possible, before it devalued.