A2) Without an inflationary currency those who hold money invest it less, thus without it radical innovation is less likely to occur.
This is not true. Investment will always be made as long as the expected risk/return is better than the rate of inflation. That holds true even if the rate is negative (deflation).
Inflation @ 3% example.
O1: Invest at -1% after inflation
O2: Do nothing
**
Deflation @ 3% example
O1: Invest at -1% after deflation
O2: do nothing
**
Inflation drives bad investment.
Even if the risk/return is worse than inflation investment will be made - as long as it's not a more-negative risk/return than inflation. Deflation sets a positive return for nothing.
