 The 20th century has been the century of omnipotent government. In some countries, totalitarian governments have established themselves in one stroke through revolutions – apparently a bad strategy, for none of these governments exists anymore. But in other countries, totalitarianism has not sprung into life full-fledged, like Venus from the Waves. In the United States, and in virtually all the Western European countries, government has grown slowly, but steadily – and if unchecked, this growth will make it totalitarian one day, even though this day seems to be far removed from our present. Fact is that in all Western countries, the growth of government has been faster over the last 100 years than the growth of the economy. Its most conspicuous manifestations are the welfare state and the warfare state. Now the growth of the welfare warfare state would not have been possible without inflation, which for the purposes of our study we can define as the growth of the supply of base money and of financial titles that are redeemable into base money on demand. The production of ever-new quantities of paper dollars and the creation of ever-new credit facilities at the Federal Reserve have provided the liquidity for an even greater expansion of bank-created demand deposits and other money substitutes, which in turn allowed for an unparalleled expansion of public debt. US public debt is currently December 2002 at some $6.2 trillion, up from $2 trillion at the beginning of the 1980s, and less than $1 trillion before the era of the paper dollar set in when President Nixon closed the gold window in the early 1970s. The link between the paper dollar and the exponential expansion of public debt is well known. From the point of view of the creditors, the Federal Government controls the Federal Reserve, the monopoly producer of paper dollars, and it can therefore never go bankrupt, if necessary the Federal Government can have any quantity of dollars printed to pay back its debt. Buying government bonds is thus backed up with the security that no other debtor can offer, and the Federal Government can constantly expand its activities and finance them through additional debt, even if there is no prospect at all that these debts will ever be paid back out of tax revenues. The result is seemingly unchecked growth of those governments that control the production of paper money. Among the many causes that coincided in bringing about this state of affairs is a certain lack of resistance on the part of professional economists. In the present essay I will deal with a wrong idea that has prevented many economists and other intellectuals from fighting inflation with the necessary determination. Most economists backed off from opposing inflation precisely when it was needed most, namely at the few junctures of history when the inflationary system was about to collapse. Rather than impartially analysing the event they started fearing deflation more than inflation and thus ended up supporting reflation, which in fact is nothing but further inflation. The United States of America has experienced two such junctures, the years of the Great Depression and the little depression we are facing right now in the wake of the first global stock market boom. Today again the deflationary collapse of our monetary system is a very real possibility. In November 2002 officials of the Federal Reserve, Greenspan Bernanke and of the Bank of England, Bean, proclaimed that there would be no limit to the amount of money they would print to fend off deflation. These plans reflect today what is widely regarded as orthodoxy in monetary matters. Even many critics of the inflationary policies of the past concede that under present circumstances some inflation might be beneficial if it is used to combat deflation. Some of them point out that there is not yet any deflation and that therefore there is no need to intensify the use of the printing press, but on the other hand they agree in principle that if a major deflation set in there would be a political need for more spending and that to finance the increased spending the government should incur more debts and that the central bank should print more money. Such views have a certain prominence even among Austrian economists. Ludwig von Mises, Hans Sehnholz, Murray Rothbard and other Austrians are known for their intransigent opposition to inflation, but only Sehnholz did not flinch from praising deflation and depression when it came to abolishing fiat money and putting a sound money system in its place. By contrast Mises and Rothbard championed deflation only to the extent that it accelerated the readjustment of the economy in a bus that followed a period of inflationary boom. But they explicitly, Mises and implicitly Rothbard sought to avoid deflation in all other contexts. In particular when it came to monetary reform both Mises and Rothbard championed schemes to redefine a paper currency's price of gold to restore convertibility. The main weakness of this scheme is that it implies that the reform process be directed by the very institutions and persons whom the reform is supposed to make more or less superfluous. It is also questionable whether our monetary authorities can legitimately use their gold reserves to salvage their paper money. In fact they have come to control these reserves through a confiscatory coup and it is therefore not at all clear how plans for monetary reform allow Mises and Rothbard can be squared with the libertarian legal or moral principles that Rothbard champions in other works. But there is also another issue that needs to be addressed, what is actually wrong with deflating the money supply from an economic point of view? This question will be at centre stage here, which can fortunately build on Rothbard's analysis of deflation, which demonstrated in particular the beneficial role that deflation can have in speeding up the readjustment of the productive structure after a financial crisis. But no economist seems to have been interested in further pursuing the sober analysis of the impact of deflation on the market process and of its social and political consequences. The truth is that deflation has become the scapegoat of the economics profession. It is not analysed but derided. 100 years of pro-inflation propaganda have created a quasi-total agreement on the issue. Wherever we turn deflation is uniformly presented in bad terms and each writer hurries to present the fight against deflation as the bare minimum of economic statesmanship. Students who otherwise cannot agree on any subject are happy to find common ground in the heartfelt condemnation of deflation. In their eyes the case against deflation is so clear that they do not even bother about it. The libraries of our universities contain hundreds of books splitting hairs about unemployment, business cycles and so on, but they rarely feature a monograph on deflation. Its evilness is beyond dispute. Yet this silent accord stands on shaky ground. A frank and enthusiastic endorsement of deflation is at any rate in our time one of the most important requirements to safeguard the future of liberty.