1. In a pure free market with a Gold Standard deflation is the norm rather than the exception because the number of goods increases while the money supply (gold) increases a lot slower. As a result the value of money increases which leads in a continued fall in prices. Falling prices is of course good!
This might be interesting: http://mises.org/document/3726/Deflation-and-Liberty
2. The 19th century was marked by deflation because the U.S. was for the most time on a Gold Standard. During this period took place the Industrial Revolution and the U.S. economy grew enormously!
Jamie, take a look at Joe Salerno’s article on a taxonomy of deflation. Depending on the monetary system and the cause of deflation, it can be benign or malignant. In the free market economy, price deflation is benign. In an interventionist economy with a central bank and fractional-reserve commercial banking, some forms of deflation are malignant.
The article is “An Austrian Taxonomy of Deflation” and appears as chapter 10 in Salerno’s book, _Money, Sound and Unsound_.