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eventually the gold system as we know it today and recently cracks b/c the policy needed to avoid a devaluuation (or revaluation) is the opposite of what is "needed" for the economy.
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Why exactly is inflation needed for the economy? It seems to me that it is needed politically, but much like debt its not actually needed for the economy.
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Its not so much that you need inflation, its more that you really want to avoid deflation. All sorts of nasty things arise out of that.
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Biggest myth in economics.
http://ideas.repec.org/p/nbr/nberwo/10268.html
There is no empirical link at all between deflation and depression, which matches what the Austrians have said ever since the Great Depression itself.
The only kind of deflation that casues economy-wide problems is sudden, so-called confiscatory deflation, which is an endogenous policy created by central governments, such as happened in Argentina. Credit deflation due to bank failures is not fun, of course, for the people who see their inflated savings wiped out in the bank failure, but there is no aggregate economic problem that results. And there is certainly no problem at all with growth deflation of consumer prices; in fact it's great. That's how a growing economy makes consumers wealthier.
The REAL problem with deflation is that it wipes out the existing inflationary financial institutions that created the problem in the first place. THAT is why we have to be constantly plied with the deflation boogeyman.