One of the big scares which has markets round the world in its grip is deflation. Falling consumer prices have historically been linked with bad times and we are on the borderline of it.
But this worry requires a closer look at the three bouts of deflation which most influence present day thinking - the late 19th century, the 1930s and present day Japan.
In the late 19th century the problem was that money was linked to gold and economic growth was outstripping gold supply. In very simple terms, if in such a system you have an economy with 25 widgets and 100 ounces of gold then widgets cost four ounces of gold each.
Now make it 40 widgets and 120 ounces of gold and the price of widgets drops to three ounces of gold each. In effect your system constrains you from allowing money supply to rise in line with your economy, forcing prices to fall and putting the brakes on your economy when you don't need them applied.
The most loudly touted solution at the time was bimetallism - back your issues of banknotes with silver as well as gold and thus allow yourself to issue more banknotes. It was never adopted. Its biggest supporters were considered political quacks.
In the US for instance it was associated with William Jennings Bryan, a religious populist who twice ran for president under the slogan of 'Thou shalt not crucify mankind on a cross of gold'. He crucified his own electoral chances instead and is now most widely known for the Scopes Monkey Trial, a court case in which he argued against teaching of evolution in schools.
In the end, the problem was temporarily solved by the discovery of vast gold deposits in South Africa. But economists are now increasingly swinging to the view that in the monetary circumstances of the time Bryan was arguably right.
