Reply To: Loans and falling prices and wages


Ramlajh, this is a common objection to commodity money. The objection boils down to this, “Steady price deflation [a decrease in nominal wages/prices] will crush those who have debt because they will be paying back their loans with money that is worth a lot more than it was when they took out the loan.”

In current U.S. society, deflation would cause widespread default on debt obligations. But there is no reason to believe that lenders would not negotiate partial defaults with borrowers as to avoid not getting paid out at all.

Bryan makes a solid point above. In current society we expect inflation and make borrowing decisions based on that expectation. However, if there were to be a change to commodity money, then people would expect deflation and those expectations would be factored into the interest rates of loans.