I have seen this argument that limited supply leads to a deflationary economy that grinds to a halt many times, but I haven't seen it in practice. When I would talk to people about bitcoin they would say that since it couldn't be inflated it would fail as a currency. The value of a currency is in its ability to retain value and easily be transferred for goods and services so I fail to see how a fixed quantity currency like gold or bitcoin is necessarily bad.
The idea that no one would spend money seems odd because people have needs that need to be met by the economy. They need to buy food, electricity, heating/cooling, and probably other things. Businesses also have certain payments they must make such as raw materials, offices costs, staff salaries etc. so I don't think it's possible for everyone to starve the economy in the way you and others have predicted.
Maybe I'm wrong, but I haven't seen any scientific evidence that inflation is necessary, and I don't fully agree with some of the assumptions in the deflationary scenario. It is possible that a small rate of inflation may still be advantages because deflation would undoubtedly slow the economy, but I'm not sure that it would do so in an unsustainable way that is impossible to bounce back from naturally.
I'm doing more research into it myself. But can't really give you an example of where deflation ruined an economy.
On your second point however:
The idea that no one would spend money seems odd because people have needs that need to be met by the economy
It's not the people you need to consider, they'll spend a few billion at most on necessities. It's the extremely rich. Right now, if they just hold on to their money, they're losing it, so they invest it (at risk) which can be thought of as loans that help drive the economy. If currency was deflating it wouldn't make sense to invest their money at risk when they could just hold onto it, and it would grow in value anyway.
But then again, gold is deflating every year with respect to currency, so if someone wanted to go that route, it's already open to them: just convert all your money to gold, and sit on it.
Yes, more research is needed to figure this out.
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