If there is a high demand for fiat money -- observable through a rise in interest rates, a measure of the inter-temporal preference for money now versus later -- the Federal Reserve can print more. If there is a high demand for gold money, at the margins we can produce more, but basically the supply is fixed. This limits the rate at which the real economy can grow.
Many people who favor a return to a "gold standard" do so because they have experienced inflation, but have never experienced a deflation. Deflations in general are more painful than inflations.
> This limits the rate at which the real economy can grow
I don't believe this is true if you allow speculation and credit in the economy. AFAIK even on the gold standard banks were not required to be able to satisfy every gold-backed bill they distributed out.
Of course, it helps more than having no scarce item would, but if the problem continued then people would eventually shift to trade in something else while conserving their gold-backed currencies to pay government taxes.
If there is a high demand for fiat money -- observable through a rise in interest rates, a measure of the inter-temporal preference for money now versus later -- the Federal Reserve can print more. If there is a high demand for gold money, at the margins we can produce more, but basically the supply is fixed. This limits the rate at which the real economy can grow.
Many people who favor a return to a "gold standard" do so because they have experienced inflation, but have never experienced a deflation. Deflations in general are more painful than inflations.