I agree with your reasoning as to why deflation is dangerous, but I feel compelled to point out that the 19th century most emphatically WAS a period with lots of boom bust cycles.

There was the recession of 1802, the depression of 1807, the recession of 1812, the depression of 1815, the recessions of 1822, 1825, 1828, 1833, then a couple of depressions in 1836, and 1839... I could go on, but you can read the wikipedia page yourself. http://en.wikipedia.org/wiki/List_of_recessions_in_the_Unite...

These weren't small either. Many of them saw decreases in business activity of over 15%. Contrast this with the postwar growth period of the late 1940s through the late 1990s, where you see inflation and strong steady economic growth (there were recessions, but they were all under 4%, and they were quickly erased by the growth that followed).

So without trying to start an economic flame war, whatever they were doing in the 19th century for the most part clearly didn't work, and whatever they were doing from the great depression to the late 1990s early 2000s clearly did, if what you are optimizing for is steady growth and to moderate boom / bust cycles.