I am not skilled in econ, but isn't this because the utility of new technology increases faster than inflation? In other words, utility(technology1, t1)/cost(technology1, t1) < utility(technology2, t2)/cost(technology2, t2).
Ignoring any affects of supply and demand,
If I buy a tractor 1.0 today for X dollars to produce Y units of utility (i.e. Y/X), but tomorrow tractor 2.0 costs 2X dollars (with inflation) to produce 4Y units of utility (i.e. 2Y/X), then my tractor 1.0 should be worth 1/2 dollars tomorrow (assuming that it still has Y units of utility). And, I may buy a tractor 2.0.
But, if on the next day, tractor 3.0 comes out and still has 4Y units of utility (technology stagnation) but costs X dollars (deflation occurs and production costs have gone down), then my tractor 2.0 should be worth 4X dollars. I'm not going to buy tractor 3.0.
Comments
Good question.
I am not skilled in econ, but isn't this because the utility of new technology increases faster than inflation? In other words, utility(technology1, t1)/cost(technology1, t1) < utility(technology2, t2)/cost(technology2, t2).
Ignoring any affects of supply and demand,
If I buy a tractor 1.0 today for X dollars to produce Y units of utility (i.e. Y/X), but tomorrow tractor 2.0 costs 2X dollars (with inflation) to produce 4Y units of utility (i.e. 2Y/X), then my tractor 1.0 should be worth 1/2 dollars tomorrow (assuming that it still has Y units of utility). And, I may buy a tractor 2.0.
But, if on the next day, tractor 3.0 comes out and still has 4Y units of utility (technology stagnation) but costs X dollars (deflation occurs and production costs have gone down), then my tractor 2.0 should be worth 4X dollars. I'm not going to buy tractor 3.0.