The notion that inflation is necessary to the expansion of the economy is due to deliberate misdirection.
Before we can get into this discussion, we must define inflation. Inflation is the deliberate expansion of money supply and credit.
Without beating around the bush, inflation has nothing to do with growth.
Inflation is a political strategy.
Growth is action based.
Consumption occurs naturally and very well in the absence of inflation.
Growth occurs naturally and very well in the absence of inflation.
Inflation induces mal investment.
Inflation erodes and subverts the value of growth.
Inflation causes financial value to run away from intrinsic value.
The deliberate, aggressive, pervasive and sustained creation of inflation, leads to command economies characterized by the rise of an oligarchy and a GDP figure that is sustained purely by new debt. This dynamic inherently robs individuals of their wealth and their savings thus making the individual fully dependent on the state in the process. This is a self reinforcing dynamic (i.e. as the currency is debased, the individual spends all his savings till he must make use of credit; as savings are depleted government promises ever greater social support and protection thus justifying its own expansion and intrusion in the life of individuals; once the majority of individuals are dependent on government for their own survival more inflation is deemed necessary, nay, vital to continuation of life as we know it).
Once the diminishing marginal utility of debt has thoroughly consumed the purchasing power of the currency, no amount of credit or money creation can induce an increase in asset values (GDP).
This is the point at which those promises that have made the individual dependent on the state must be rolled back and, eventually, revoked.
As asset values deflate and government gradually withdraws life support for individuals, you foster unemployment and alienation.
As this dynamic progresses, you end up with mobs of unemployed, homeless potentially hungry people whom are going to be very angry….
So what are you going to do?
As to the nature of money.
Money is purely a vehicle of exchange. There is absolutely no reason why the creation of money should concurrently create a debt owed to a privileged third party.
If a country wishes to make use of fiat money, a quantity of money can be created without the need to award credit privileges to a third party. This quantity of money could remain fixed for some length of time (years) and could reasonably be increased in small increments to take into account population growth for example.
It is then up to economic actors to spend the money they earn or save it. If they should choose to save money, they can then lend their savings at interest to someone that wants to spend money.
The crucial thing is that interest here is charged between economic actors that contribute to society rather than between economic actors and a privileged third party that does not contribute to society.
If interest is charged at the moment of creation of the currency to a privileged third party, than, arithmetically speaking, the third party will in time, earn all the profits of society.