 Inflation in the form of fractional reserve banking and fiat money is ultimately a self-defeating practice. It bears in itself the germs of its own destruction, and as we shall see, deflation is the essential vehicle of this destruction. We can distinguish three scenarios of the halt of inflationary processes. First, there can be a liquidity crisis of the fractional reserve banking system that ends up in a bank run, that is in a sharp decline of the demand for money substitutes. The concomitant drastic reduction of the money supply entails a corresponding decrease of money prices, which negatively affects all market participants who have financed their operations through debt. The lower nominal selling receipts after the run do not suffice to pay back the debts contracted at the higher nominal price level of the past. This in turn jeopardizes the positions of many creditors, who when they do not get their money back cannot pay back their creditors. Thus, the liquidity crisis of our fractional reserve banks entails a general financial meltdown. Rock Bottom is reached in a commodity money system when all money substitutes have vanished and the market participants have turned to using the money commodity itself or using competing currencies, for example other commodities or foreign paper monies. After the deflation has cleaned up the economic landscape, fractional reserve banking and other forms of financial intermediation will play a less significant role in the economy. Firms and individuals will, at the margin, turn to financing whatever purchases they make through personal savings. In short, financial decision making will be even more conservative and more decentralized than before. This first scenario was very common in the 19th century and up to the Great Depression, which according to Irving Fisher and the early Chicago school was all about debt deflation entailed by a liquidity crisis of fractional reserve banking. The scenario became less important after the introduction of deposit insurance, which for all practical purposes established 100% reserve banking in the US. It could have some relevance however in explaining the more recent financial crises in Russia, Brazil, Argentina and certain Asian countries, in particular if the currencies of these countries at the time of the crisis could be interpreted as money substitutes for US dollars. Second, there can be inter-temporal misallocations of resources when fraudulent fractional reserve banks increase the money supply and thereby depress market interest rates below their equilibrium level. Then entrepreneurs invest too many of the available resources high up in the physical production chain and not enough resources in the lower stages of the structure of production. The result becomes visible after some time when a more or less great number of firms must file bankruptcy. This in turn jeopardizes their creditors, in particular fractional reserve banks, and leads to the chain of events we described above. The difference between the second and the first scenario is in the causation of the bank run. In the former the bank run starts more or less by accident when one major market participant, be it out of negligence or due to unforeseeable contingencies, fails and pulls down a house of cards. By contrast in the scenario we are now considering, the bank run is the necessary consequence of a previous misallocation of resources that resulted from a fraudulent increase of the money supply. The question of whether this scenario applied to any historical crisis is somewhat controversial. Many Austrian economists believe it fits the Great Depression and several other economic crises of the past. At any rate it is certainly a conceivable scenario and it also involves a heavy dose of money's substitute deflation. Hence in this scenario too inflation ends up in a deflationary meltdown of the old ways of finance. The share of banking and financial intermediation in overall economic activity will be reduced and financial decision making will be even more conservative and decentralized than it is anyway. The two foregoing scenarios both involve a more or less sudden decline of the demand for money substitutes which entail a more or less rapid physical disappearance of these substitutes from circulation as market participants switch to using base money. By contrast in the case of paper money it is very unlikely that there will ever be a rapid deflation in our definition, a reduction of the money supply. The reason is that paper money is protected through legal tender laws and other legislation. That leaves barter as the only legal alternative to using paper money and barter is so much less beneficial than monetary exchange that market participants typically prefer using even very inflationary monies rather than turning to barter. In all known cases it was only under extreme duress when the purchasing power of their paper money holdings dwindled within hours so that indirect exchange became impracticable that the market participants finally ignored the laws and started using other monies than the legal tender. The foregoing three scenarios cover probably most historical cases in which inflation has been brought to an end. If we tie this up with our competitive analysis of free and compulsory production of money and money substitutes we come to the conclusion that deflation is not a mere redistribution game that benefits some individuals and groups at the expense of other individuals and groups. Rather deflation appears as a great harbinger of liberty. It stops inflation and destroys the institutions that produce inflation. It abolishes the advantage that inflation-based debt finance enjoys at the margin over savings-based equity finance and it therefore decentralizes financial decision-making and makes banks, firms and individuals more prudent and self-reliant than they would have been under inflation. Most importantly deflation eradicates the re-channeling of incomes that result from the monopoly privileges of central banks. It thus destroys the economic basis of the false elites and obliges them to become true elites rather quickly or abdicate and make way for new entrepreneurs and other social leaders. It is highly significant that the authors of the 1931 Macmillan report which analyzed the worldwide financial crisis at the time recognized and emphasized that deflation was foremost a political problem. They clearly saw that deflation brings down the politico-economic establishment which thrives on inflation and debts and it therefore brings about some circulation of the elites. The late Lord Keynes and his co-authors, among them several leaders of the London banking industry and of the British cooperative and labour union movements were of course convinced that their country could not do without them. Deflation puts a break, at the very least a temporary break, on the further concentration and consolidation of power in the hands of the federal government and in particular in the executive branch. It dampens the growth of the welfare state if it does not lead to its outright implosion. In short deflation is at least potentially a great liberating force. It not only brings the inflated monetary system back to rock bottom it brings the entire society back in touch with the real world because it destroys the economic basis of the social engineers, spin doctors and brainwashers. In light of these considerations deflation is not merely one fundamental policy option next to the fundamental alternative of reinflation. Rather if our purpose is to maintain and where necessary to restore a free society then deflation is the only acceptable monetary policy. The case of Japan might serve as a warning counter example. The severe Japanese recession of the early 1990s was both an economic and a political threat to the establishment. In Japan the process of consolidation and centralization of power started right after World War II when the economic experts within the US occupation forces imposed Keynesian and socialist policies on their former enemy. By the late 1980s the process had advanced to such an extent that it was politically impossible to allow deflation to cleanse the economy and politics. The Japanese governments of the 1990s sought to fix the economic crisis through increasingly heavy doses of inflation. But the only result of this policy was to give a zombie life to the hopelessly bureaucratic and bankrupt conglomerates that control Japanese industry, banking and politics. After almost 15 years of mindless inflation Japan's economic crisis has turned into a fundamental political crisis that sooner or later will bring the country onto the verge of revolution. This is also what will happen to the West if the citizens of our countries let their governments have a free hand in monetary affairs.