 From the Ludwig von Mises Institute, this is the Mises Report, a public policy and economic issues commentary series. In this program we present another part of ten great economic myths. The material heard today was prepared by Murray and Rothbard, Ph.D., of New York Polytechnic Institute for the Mises Institute. Myth number seven, deflation, that is, falling prices, is unthinkable and would cause a catastrophic depression. The public memory is short. We forget that from the beginning of the industrial revolution in the mid-18th century until the beginning of World War II, prices generally went down year after year. That's because continually increasing productivity and output of goods generated by free markets caused prices to fall. There was no depression, however, because costs fell along with selling prices. Usually wage rates remained constant while the cost of living fell, so that real wages, or everyone's standard of living, rose steadily. Virtually the only time when prices rose over those two centuries were periods of war, the war of 1812, the Civil War and World War I, when the warring governments inflated the money supply to pay for the war so heavily as to more than offset continuing gains in productivity. We can see how free market capitalism, unburdened by government or central bank inflation, works if we look at what has happened in the last few years to the prices of computers. A computer used to have to be enormous, costing millions of dollars. Now, in a remarkable surge of productivity brought about by the microchip revolution, computers are falling in price, even as I speak. Computer firms are successful despite the falling prices because their costs have been falling and productivity rising. In fact, these falling costs and prices have enabled them to tap a mass market characteristic of the dynamic growth of free market capitalism. Deflation has brought no disaster to this industry. The same is true of other high growth industries, such as electronic calculators, plastics, TV sets and VCRs. Deflation, far from bringing catastrophe, is the hallmark of a sound and dynamic economic growth.