# Why Everything Should Be Getting Cheaper Prices in competitive markets fall toward the cost of making one more unit, and technology is dragging that cost toward zero at a compounding rate. Why the natural state of a free market is deflation, prices falling because we got better at making things, and why the fall is speeding up rather than settling down. - Date: 2026-07-15 - Canonical: https://thenaturalstate.org/essays/why-everything-should-be-getting-cheaper/ --- A price in an open market splits in two: the cost of making the thing, and a margin on top. That margin is never safe. A fat margin is an advertisement to other entrepreneurs that there's easy profit here, and a rival takes the customers by offering them more for less. So the margin gets competed away until the price is barely above what one more unit costs to produce. That's half the story. The other half is that the cost itself, the floor the price is falling toward, is now dropping on a compounding curve. Competition closes the gap between price and cost. Technology lowers the cost. The first force is old. The second force is the one that compounds. ## The squeeze The customer is the enforcer. People reliably pick more value for less, with no ideology in it. You do it at the supermarket without thinking. That single behaviour powers everything that follows. Say you're the entrepreneur, looking for a way in. A high margin is information. It tells you roughly where an incumbent is charging well above cost. You can't win those customers by being the same, because they have no reason to move. You win them by being cheaper, or better, or both. The incumbent can match, or lose the customers. Matching means cutting the price, or spending to close the gap. Either way the margin narrows. And once they've matched, the game repeats with the next entrant. Why does the fall stop at the cost of making one more unit, which economists call marginal cost? Because of a floor and a ceiling that pinch together. You can't sell below that cost for long, because then every sale loses you money. But any price held well above that cost leaves room for someone else to undercut you and still profit. So price gets squeezed from both sides until it hugs the cost of the next unit, plus whatever it takes to keep the lights on. Profit migrates instead of dying. You earn your margin during the descent, and when the descent is finished you take your capital and your team to the next scarce thing. Photo storage went to free, and the profit moved into tools for organising and sharing photos. The calculator app went from a paid product to a free line of code, and the developers moved on. Falling prices on the old thing release customers' money to spend on the next thing. That's why the mechanism doesn't run out of fuel. Competition looks like a fight, but it functions as enforced service. Where the market stays open, the only way to win is to serve the other person better than the last firm did. That's why a free market turns scarcity into abundance rather than extraction. The system pays you to give people more for less, and pays your rival to give them even more for even less. Only one thing reliably stops the squeeze. A wall. A licence, a regulation written by the incumbents, state protection, or privileged access to newly created money that lets a big firm outlast challengers it couldn't outcompete. A monopoly earned for a moment happens in any market. A product that improves as more people use it can hold a winner in place for decades too, but it holds that place by staying cheap or free, so it blocks rivals without blocking the fall in prices. A monopoly that holds high prices for decades is almost always leaning on one of those walls, and that's a blocked market rather than a failed one. If prices naturally fall, why does your weekly shop keep costing more? Almost every price you see carries two forces at once. Technology pushes the real cost down. Money and credit creation push the quoted price up, because when more pounds exist, each pound buys less. Coffee is radically more efficient to grow, ship, and brew than it was decades ago, and the price at the till still rose, because the measuring stick shrank faster than the cost fell. The squeeze works on real costs. Whether you can see it in pounds depends on what's happening to the pound. ## Why the fall is speeding up The competitive squeeze closes the gap between price and cost. On its own that motion has a stopping point. Cost is the floor, and once the price reaches it there's nowhere further to go, so a faster squeeze finishes sooner rather than going deeper. The second motion has no stopping point in sight. The cost itself is falling, the fall keeps getting faster, and that is where most of the acceleration comes from. ### 1. Tools compound Most improvements become inputs to the next improvement. Better chips make better software, better software designs better chips, and now machines help build the machines. When each gain builds on the last, the steps get bigger over time, not smaller. Our intuition runs in straight lines, so we keep expecting the overall curve to flatten, and it keeps not flattening. That gap between linear expectation and compounding reality is why the waves feel sudden. ### 2. More of the economy keeps turning into information A song became a file. A map became an app. A product design becomes a file a machine can print near the buyer. Increasingly, an AI model produces the first draft of a contract or a diagnosis in seconds. Once a thing is information, one more unit is a copy, and a copy costs almost nothing. So the price of that thing races toward free. Software absorbed one set of tasks, AI is absorbing knowledge work, and robotics carries the same logic into warehouses and factories. Year after year a bigger slice of the economy moves onto that near-zero-cost curve, so the average fall gets steeper. ### 3. The competing itself got faster Challenging an incumbent used to require a factory, or 60 developers and years of building. Today a founder rents the tools for £50 a month and reaches a global market from a laptop. When the cost of entry collapses, fat margins get discovered and attacked sooner. The squeeze that once took a generation now takes a few years, sometimes months. So even the old motion, closing the gap, runs on a faster clock. ### 4. The floor under every floor is sinking Every step of making and moving anything is energy being spent, so every value chain ends at energy. When margins are fully competed away, price comes down to the cost of energy. But solar falls roughly a fifth in cost with each doubling of the panels the world has ever shipped, a pattern known as Swanson's Law, and storage follows a similar path. So the hardest floor that marginal cost can rest on is itself dropping. ### 5. The fight against the fall speeds the fall up When policy creates money to keep prices rising, and wages with them, firms face rising labour costs while customers still demand more for less. They can't pay more and charge less at the same time, so they automate sooner than they otherwise would. The café installs the self-order screen. The retailer installs self-checkout. Each intervention meant to hold prices up brings forward the technology that pushes costs down, which then demands a bigger intervention next time. So why doesn't it settle? Settling would need innovation to stop, entry to stop, or costs to hit a floor that holds. Innovation doesn't stop, because a solved problem cheapens the tools for solving the next one. Entry doesn't stop, because profit keeps regenerating at each new frontier and keeps luring builders in. There's no resting point, because the cost that price is chasing is a moving target, and the target keeps picking up speed. Any single technology does level off eventually. But the economy's curve is a stack of overlapping curves, and as one flattens, the next is already rising underneath it. Computing, then software, then AI, then robotics, with energy falling beneath all of them. No single breakthrough is required. The compounding of the ordinary ones is enough. ## Three objections worth taking seriously ### "Firms will pocket the savings rather than cut prices." They try, and briefly they succeed. But a firm that keeps the old price on new lower costs is holding a price high enough for anyone to undercut, and someone eventually does. Brand and habit slow the fall. Only a wall stops it. ### "Nobody will invest if prices only fall." The record says otherwise. Money was made on the way down in streaming, where the price per play collapsed, in budget airlines, and in cloud software, because falling prices expand the market. You earn during the descent and redeploy to the next scarcity. What really kills investment is being unable to compete with a protected incumbent. ### "Chips are hitting physical limits, so the acceleration stalls." One curve flattening isn't the system flattening. The gains now come from stacking. Models improve on fixed hardware, robots extend software into the physical world, and cheaper energy lowers almost every input. Prices in competitive markets fall toward the marginal cost of production, technology is dragging marginal cost toward zero at a compounding rate, and so the natural state of a free market is deflation [prices falling because we got better at making things, not because demand collapsed] that deepens over time. Every hard part of the thesis follows from here: why a debt-based system must fight this force, and why that fight escalates until something gives. An unstoppable fall in costs and a money system that cannot allow prices to fall are heading for each other.