from the biography John Maynard Keynes by Robert Skidelsky;

Keynes was unusual in his stress on the ‘stickiness of social and business arrangements’ and the need it created for completely stable prices if capitalism was to be consistent with social stability. Inflation, he says, inflicts most injury by altering the distribution of wealth; deflation by retarding the production of wealth. In the first case, businessmen gain at the expense of savers and most workers whose incomes are fixed (in the short run), while their value falls. This is good for business, but undermines capitalism in the long run, by turning entrepreneurs into profiteers and drying up the supply of savings. Falling prices on the other hand injure output and employment by imposing windfall losses on businessmen, whose major costs of production (including wage costs) remain fixed in the short run, while the selling prices of their products fall. In the deflationary case, ‘the fact of falling prices injures entrepreneurs; consequently the fear of falling prices causes them to protect themselves by curtailing their operations’. Thus ‘a comparable weak initial impulse may be adequate to produce a considerable fluctuation.’

p 330

HKO

I would add that in addition to stable prices, there is also a need for stability in regulation. Constantly changing rules and tax rates and the expectation that this will persist kills the stable environment needed for long term capital investment and economic growth.

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