The only currency this wouldn't work on is actual gold, silver, etc.
You can have wild fluctuations in the supply of magic, shiny rocks -- it has happened before, and it will happen again. For example, when Spain discovered that they could kill people and take their rocks more efficiently than they could mine their own rocks. It also happens on the microeconomic level, a phenomenon known as a Magic Shiny Rock Rush.
When the supply of magic, shiny rocks increases suddenly, the amount of magic, shiny rocks you need to buy things also increases.
EDIT: In response to replies the above should read "govt's in check short of using force"
More subtle variations on this: "We require you to pay us in shiny magic rocks, but we will only pay you in crispy paper.", "Our coins are made out of shiny magic rocks... but, haha, there is less magic in them now! Too bad you're not an alchemist and will never notice!", "These paper entitle you to shiny magic rocks. We're lying, but you don't know that.", etc, etc, etc.
(The Israel Museum once had an exhibit on money which included a series of ancient coins, struck from exactly the same mold over a number of years. The oldest one was something like 90% gold and the most recent was something like 1%.)
By contrast, if a supermarket cashier gives me a handful of coins in change and I want to know which are 90% gold, which are 95%, and which are 99%, what am I supposed to do? Carry an analytic balance into the grocery store? That would make me real popular with everyone standing behind me in line....
Normally, in an economy that is growing in productivity, your purchasing power should be growing, not merely staying the same. If your productivity increases by 3% per year, then you should be able to buy 3% more goods and services every year (assuming you work the same hours).
If the supply of money does not change, then increases in productivity will be reflected in lower prices. If you made 100 widgets last year for $100 ($1/widget), and this year you made 103 widgets because you got better at it (productivity increase), the price of your widgets would be $100/103widgets = $.97/widget if people spent the same amount of money or portion of their income on widgets. Your goods would be cheaper for customers, or, put another way, your customers would be a little richer in widgets. If others in the economy experienced the same productivity growth, you would also be richer. The $100 you made producing widgets would buy you more of other people's goods. Your standard of living depends on your own productivity and everyone else's. If your productivity is average, and the average is growing, then your standard of living should be growing too.
Thus, if the money supply were relatively constant as it would be under a gold standard, prices should naturally fall as productivity increases, while wages should be constant (assuming no population change).
When the money supply is growing, it is a lot harder to make these calculations and know what your money should be worth. This is an irritation at the personal, consumer level, you don't know exactly how much the government is screwing you, but at the macro level, it causes bubbles. When people don't know the value of money, they spend unwisely, paying too much for a thing. The housing bubble was caused because people thought that money was worth less than it was. (They can be forgiven for this mistake because it was reasonable. If money were worth more, why were the banks selling it so cheaply?) As a result, they overpaid for houses and builders built too many of them. By the time the mistake was discovered, there were too many houses on the market and their prices dropped suddenly.
...which would be a bad thing, because if the purchasing power of your money grows even when it's parked under your mattress, it's a lot harder for entrepreneurs to attract investment.
I would agree that the Fed has been too loose with the money supply over the past twenty years or so, and that this appears to be a structural problem with the central banks; George Cooper makes a good case in The Origin of Financial Crises. But I don't think the solution lies in a return to the gold standard.
A gold standard also solves inflation, but fundamentally and non-policically, by limiting money to the supply of gold.
The purpose of the Fed is to inflate the money supply for the benefit of the government, the banks, and borrowers who want artificially low interest rates at the expense of everyone else who uses money. If the Fed did not inflate, it would be no different from a gold standard, and in fact, when the Fed corrects inflation, it does so by reducing the production of new money as under a gold standard.
That’s not how I define inflation, and I don’t think it’s how most people (even economists) define it. I define inflation as stuff getting more expensive.
If you define “inflation” as “increase in the money supply” and “value” as “value denominated in the mass of shiny rocks”, then yes, a gold standard prevents inflation and stabilizes the value of money. But this is a tautology, not an argument.
Certainly, one can turn to science and make objective statements about both mass and purity. But unless you have melting facilities and deal in raw metal (rather than stamped coins) there is no advantage in this. As a hypothetical sovereign individual, you'll lose out when trying to trade raw metal because without the word of an independent (and government-licensed) assayer the buyer will discount the value of your lump'o'gold to allow for the possible unreliability of your claims about purity and weight. Most people don't have the facilities to assay precious metals themselves, so they rely on a third party to certify such claims; the implied social contract stamped into a coin or ingot has much greater value than the actual metal itself.
Please, look into some history of money. currency abuse is not a recent phenomenon by any means.
The government can take away your house or any possessions you couldn't hide, ban trading of popular commodities (like foreign currencies; this drastically reduces liquidity), or, as a measure of last resort, kill you.
Former socialist countries have seen all of these after WWII.
This is not unlike eschewing seat belts because asteroids have been known to smash into the Earth.
You might find it instructive to examine the history of ancient Rome around the time of Nero and Caligula. If you find history books dry reading, get a copy of 'I, Claudius' which presents the history of that period in narrative form and is both educational and entertaining.
This is not to say that opposition to a tyrannical government is hopeless - indeed, history with littered with examples of such leading to revolution. But currency alone is a weak check on a determined oppressor. And (as we are sadly reminded by news from Africa on a regular basis) revolutions often result only in a change of players, but the game remains the same.
There is a continuum of choices of money in terms of preservation of value with the safest being the dealing directly in gold, next, dealing with private guarantees (the market "guarantees" value), government guaranteed (the guarantee is political action), and finally, government-issued fiat. The further down the continuum, the harder it's to determine devaluation and stop it.
The green ones are no longer gold backed, in that case. Gold-backing which can be revoked on a whim is not gold-backing in any interesting sense.
In other words, gold-backed currency would be completely ineffective at restraining a meat-grinder like North Korea, which is what this thread was supposed to be about.
Really? The majority of the American people believe that the top two economic priorities of our nation are to perpetuate endless war and give all the rest of the money to international bankers? I reject your premise and find it has no merit.
The American people elected President Obama. Did you not see his speech about Afghanistan last night? He contradicts the endless war notion directly. I've looked it up for you: (23:00 to 25:00) http://www.youtube.com/watch?v=oZLVqhsLgIw