A Deflationary Age?

While not an economist it's always struck me as intuitively correct that lax monetary policy creates inflation. In short, the more money (broadly understood) in circulation the less it will be worth. Simple supply and demand. Of course, it's not quite that simple because an increase in non-monetary goods and services will "soak up" the extra money. Increases in productivity necessitate an increase in the money supply. Or so it generally seemed to me.

But what if it's the other way around? In other words, what if inflation precedes productivity? Or to put it in reverse: What if deflation causes decreased productivity, which in turn leads to a lower across-the-board standard of living? That's what I take to be the bottom line of a post here at The Economist blog: "On the Meaning of Inflation." The post is relatively long and is well-reasoned. (Which is not to say the same thing as "correct.") Perhaps the final paragraph will further pique your interest:

I'm a bit taken with the idea of high inflation as the fruit of a young, optimistic economy—and of low inflation or deflation as the choice of economies in the twilight of life, excessively cautious, with an eye on the past rather than the possibilities of the future. Alternatively, inflation is a salve that helps mitigate the pain of mistakes (by making it easier to reduce the real value of debts or wages, for instance). Mistakes are the domain of the young; regrets of the old. But mistakes are a critical part of an economy's dynamism. And imposing the sobriety or asceticism of old age on younger generations has significant costs. One starts to wonder whether a society, or a monetary regime, that always advantages the economic interests of the young isn't preferable to one that simply caters to the modal generation across its life-cycle.

Tying back to what I posted here, a below-replacement birthrate imposes substantial follow-along costs on an entire society. Might a moderately inflationary monetary policy help get more babies?