Okay, so even if we go to metal backed currencies, the civil war proves we can and will come off it in a crisis. So it's really not secure like it's been sold. Everyone who thought their dollars were backed by gold suddenly saw 78% inflation over three years, because we can come off it with a simple legislative act.
And of course the value of the dollar popped right back after the war right? Wrong. It would be 30 years before the CPI was back down to 8.54.
How about these other episodes of currency instability while on gold? Did we come off it these times too?
From 1866-1896 was a period of persistent mild deflation. We were expanding fast as a nation, and the gold/bimetallic standard was unable to keep up, even as new sources of the metals were discovered. That is one of the chief disadvantages of the gold/silver standards. Limited monetary supply and debasement are its two greatest flaws.
The gold standard, or the bimetallic standard, or the debt standard; it doesn't matter. Legislative acts can upend them at any time. Every monetary system has its advantages and disadvantages. Today's has the great flaw of debt piled upon debt until the current system comes apart because of???
You guessed it. Limited money supply making it unable to pay interest on the debts incurred. Even running the proverbial printing presses can only work for so long. The debts keep being incurred, and in larger amounts, as money is pumped into the system, in order to create economic activity, creating ever increasing interest payments. Eventually we run into the hyperinflation problem. The FED has avoided it rather deftly so far. But they are bailing water right now, not fixing the holes. Congress is supposed to do that, and they haven't. They have been pouring water into the boat as fast, or faster, than the FED can bail it out.
Housing isn't a very good indicator of deflation right now because the market for real estate collapsed, and for the reasons I just listed. Autos had much the same problem. They priced themselves right out of a market. I maintain that we are in a mild inflationary period that has the potential to get out of hand.
The other falsehood is that there are only two options of extremes, the Austrian School or Keynesian. In reality, economic models proposed by people like Milton Friedman and others offered a more rational, and nationally secure approach that based currency on all production or multiple commodities instead of a single commodity- reducing the risk of outside influence and protecting economic interests. There is a reason why economies that are backed by a single commodity fail (with the exception of the Swiss Franc but there are a lot of factors as to why that is strong.)