My main objection to deflation is that, if it's prolonged, it will erode the stock of capital in a country, and we need more capital to be more productive in the long run. A little bit of inflation provides just enough incentive to continually replace old capital with new capital, offsetting the inescapable effect of depreciation on a business.

All capital goods will depreciate over time. If you buy a machine today for $100, next year its salvage value will be worth less than $100. But wait. If interest rates are negative, that means holding onto $100 cash today gives you value greater than $100 tomorrow. You can buy capital equipment, which will depreciate AND have lower prices over time, or you can buy cash which will be able to buy MORE tomorrow.

Instead of new capital expenditures, which will yield negative returns as long as interest rates are negative, businesses will hold onto as much cash as possible. So will individuals, except for the bare minimum needed to consume to stay alive today. That creates conditions for a very small capital stock, so labor productivity will suffer as a result.

Empirically, increases in the rates of GDP are best explained by shifts in TFP (total factor productivity). We can increase productivity by (1) innovation --> making capital more useful, and (2) education --> making human capital more useful. But both require capital and the need for workers to take advantage of capital. With greater capital accumulation, we get more TFP and therefore greater economic growth. With lesser capital accumulation, less economic growth.

I have not read Mr. Hülsmann's book. Is this the book here? I'll be sure to read it, thank you for recommending it. http://mises.org/sites/default/files/Deflation%20and%20Liberty_2.pdf