Earlier this year, I wrote about the five causes of inflation, and now I want to flip to the other side of the coin. As a reminder, here’s a definition of the terms.

• Inflation is when the general price level rises;

• Disinflation is when the increase is slower than previously; and

• Deflation is when the general price level decreases—purchasing power increases.

And some people might reasonably ask: Wouldn’t falling prices be good for everyone?

The United States went through an extended period of deflation at the end of the 19th century, during a misguided period of tying ourselves to the gold standard. Before looking at the economic consequences, I’d like to make a prediction: you already know deflation is bad.

Congress suffers from deflation

On September 17, 1787, the Constitutional Convention in Philadelphia had finished its work. As delegates read over freshly printed copies, preparing to vote on its passage, Nathaniel Goram of Massachusetts proposed an amendment. Article I, Section 2, targeted a ratio for seats in the House of Representatives at one for every 40,000 people; Goram suggested reducing it to 30,000.

Would the members want to make a last minute change? George Washington, who as convention president had generally eschewed participation in policy debates, chose this moment to weigh in support of greater representation. The motion was quickly adopted, and the larger number was crossed out.

For the first 13 decennial censuses, Congress increased the size of the House accordingly. By 1913, the House had grown to 435 members, each representing about 200,000 constituents. Then, Congressional gridlock halted the process, and that’s why we still have 435 members, with the average House district now representing nearly four times as many people as it did in 1913.

This is a kind of deflation—not in prices, but in representation. Just as monetary deflation increases the value of money held over time, the longer a member of Congress holds a seat, the more people they represent. And just like with monetary deflation, this dynamic has many negative consequences for the United States.

The consequences of deflation

Hoarding

The first of these is hoarding, or as an economist might call it, reduced consumer spending. When people expect that holding onto their money will give them greater purchasing power in the future, they will often delay spending it. Since one person’s spending is another person’s income, the circulation of money slows, dragging the whole economy down in what J.M. Keynes called “the paradox of thrift.”

In Congress, House seats don’t circulate in society. Members hold onto them for years or even decades; the incumbent reelection rate has only fallen below 90% five times in the last 60 years. Like generational wealth, these valuable assets are sometimes passed on to family members—Sen. Lisa Murkowski’s seat, for example, was held by her father until he was elected governor in 2002 and promptly appointed her to fill the vacancy. There are numerous “nepo babies” in the House, too.

(I want to be clear that this is an argument for addressing deflation by increasing the number of seats, and not advocacy for term limits. There will always be people in Washington who are looked to for their institutional knowledge. If elected representatives are barred from holding that role, the resulting power vacuum will be filled by the lobbyists and unelected bureaucrats.)

High costs for access

When the per capita money supply is shrinking, interest rates tend to rise. In a deflationary environment, this makes loans doubly expensive. The dollars which were borrowed are less valuable than the ones that must be repaid. This deflationary burden on farmers at the end of the 19th century led many to join the People’s Party and advocate for adding silver to the money supply.

In Congress, the cost of access to a seat also continues to rise. Since 1990, the cost of a successful campaign has has increased by over 500%, growing at more than twice the rate of inflation. Because of the advantages that come with incumbency, this burden falls heaviest on those seeking office space within the marble halls of Congress. Contrast this to New Hampshire’s House, which has one member for every 3,500 residents, which results in much lower campaign costs and a higher rate of turnover.

Amplification of inequality

Unsurprisingly, monetary deflation primarily benefits those who already have money and assets. Historically, the wealthy were the fiercest defenders of the gold standard, just like the loudest advocates for bitcoin (a deflationary currency) are those who already hold it. Deflation means “the Haves” gain purchasing power automatically, while “the Have-nots” are compelled to try and keep up.

Representational deflation also exacerbates inequality. In the Framers’ time, the electorate was almost all white male farmers; today’s voting population is far more diverse. Communities on the margins find their voices diluted in large districts, further entrenching systemic disparities. The concentration of political power means policy decisions are more likely to reflect the interests of well-connected groups rather than the full spectrum of the population.

A mindset of scarcity

Similar to hoarding, where those who have resources hold on to them, a deflationary environment encourages a mindset of scarcity. A competition for scarce-but-essential resources can easily change from a friendly competition to one with deadly seriousness. As I’ve written, in the Great Depression, falling prices meant that:

Factories slowed manufacturing and laid off workers, reducing their spending, so factories cut production further, and so on. This deflationary death spiral drove the unemployment rate in cities like Chicago and Detroit as high as 50%.

Because no new seats are being added in Congress, elections are a zero-sum game. A party can only gain a seat by taking it from the opposing party. This mindset of scarcity leads to fierce competition—the other-color team must lose so that my team can gain!—and is one of the contributing factors to increased partisan polarization.

Growth is good

As the Framers recognized in 1787, a growing country should have a growing number of representatives. When the first Congress met, they sent 12 proposed Constitutional amendments to the states. Ten were quickly ratified as the Bill of Rights, but one directing a continual increase in House size never gained enough support.

Imagine if the House was continually growing:

• More seats would make Representatives more accountable to constituents.

• The Electoral College would more accurately reflect the nation’s preference.

• Elections would no longer be a zero-sum game, and therefore less adversarial.

Instead, stagnation has produced concentrated power, more gatekeeping, and fewer opportunities for the “Have-nots” to become part of the system. Congressional deflation negatively impacts the health of our democracy.

Monetary deflation would do the same to the health of our economy. It encourages hoarding, a mindset of scarcity, and amplifies inequality. We avoid this in our growing economy—one with more people, and additional goods and services for sale—by continually adding to the money supply. Accepting this principle leads to two other policy questions.

Deflation is actually bad—I predicted you already knew this. Let me know how I did in the comments.