As a result of World War I, the governments of the world printed far more money than they had backed in gold. Eventually, people realized that the government d

As a result of World War I, the governments of the world printed far more money than they had backed in gold. Eventually, people realized that the government did not have enough gold to redeem all the paper currency. People rushed to the bank to withdraw so they could get their money out first. At this point, the government had to either devalue the currency or leave the gold standard. Sticking to the gold standard at the previous valuation was a recipe for ruin. Most countries chose to leave the standard altogether. But they could have simply devalued, learned their lesson about diluting, and returned to a gold standard. The lesson the Keynesians took from this episode was not to go on a gold standard in the first place. The lesson the Austrians took was that government should not dilute the currency. Since all government's prefer to dilute the currency, and most "mainstream economists" are government funded, mainstream economists are almost all Keynesian, not Austrian. The best two articles I've read in defense of gold are these two: http://unqualified-reservations.blogspot.com/2007/11/who-heck-is-benn-steil.html http://unqualified-reservations.blogspot.com/2007/11/who-hec... and http://unqualified-reservations.blogspot.com/2008/02/return-to-castle-goldenstein-gold.html http://unqualified-reservations.blogspot.com/2008/02/return-...