This is the bit about gold-standard currencies that I don't understand. You and I agree that the total amount of wealth in the world steadily goes up, as people and industries become more productive. But if the total money supply is fixed to the total gold supply, which is essentially fixed (give or take the small amount of "new" gold mined each year), then the money supply as a fraction of all wealth must steadily decrease.

Eventually there's (say) twice as much wealth in the world, but still only the same amount of gold. Doesn't that mean that one gram of gold now buys you twice as much stuff, in other words that prices expressed in terms of a quantity of gold, will have halved? I don't see how a fixed-commodity currency can do other than cause long-term deflation, and deflation is very damaging to investment and production, as it becomes more economically sensible to hold on to gold than to invest it in new enterprises.

Put differently, if the money supply is constrained, the laws of supply and demand tell us that its price goes up. So if a ton of grain used to buy a gram of gold, eventually two tons will buy a gram of gold. That is, the gold currency has deflated.

Clearly a fiat currency is a temptation to governments to print too much money and cause inflation. But the reason they need to be printing extra money in the first place, is to stave off deflation.

Peter