MMVIII v 1.0.7
Money has evolved over millennia through trial and error. Gold was adopted because gold is scarce — most importantly, new gold cannot be created out of thin air. But most people would like to win the lottery and politicians like to give people what they want so they can get elected and stay in power.
Democracy insures that people get what they want, and that they will get it good and hard.
John Maynard Keynes , with whom the great philosopher Bertrand Russell  was greatly impressed, dismissed gold as a relic of the past. After the Second World War, Keynes and Harry Dexter White helped devise the world's financial system known as Breton Woods. Following The Great Victory of 1945, when the evil fascists had been defeated in history's greatest bloodbath, the United States replaced Great Britain as the world's financial, military, political and cultural hegemon. The United Nations was created in San Francisco and then located in New York City, the world's most important city, after Washington. Building a better world with a bright future had begun. Decency would reign evermore. . .
The United States of America assumed the very important task of protecting the world from communism.
Breton Woods retained gold payments for foreign exchange, but gold had already been abolished by Franklin Roosevelt in 1933 when the American dollar became no longer redeemable in gold.  When Breton Woods collapsed in 1971, Richard Nixon "closed the gold window" because gold was flowing out of the United States to other countries  — clear evidence that inflation existed and that the U.S. dollar was losing value against other currencies.
Politicians love inflation. Politicians have always loved inflation. Creating money out of nothing is like magic. One can buy anything one wants. One can spend oneself into prosperity. The sky is the limit!
Richard Nixon disconnected the world's financial system from gold and opened the door to China. Nixon's predecessor, Lyndon Baines Johnson, paid for The Great Society, the space program, and the War in Vietnam with inflation. Their successor, Jimmy Carter, appointed Paul Volker  to deal with "stagflation" — the economy was moribund, yet prices were rising.
How does inflation work? New money is added to an economy. The first people to get this new money spend it before vendors realize there is more money in circulation. These purchasers get good value, at first. But soon vendors realize that people are willing to pay more because they have more money to spend, so vendors raise their prices. They don't have to know anything else. Purchasers compete against each other as they would in any auction. Prices go up, wealth is not increasing.
With gold standard money, prices decline as wealth (abundance) increases. The 19th century provides many good examples.
Spain suffered from stagflation when gold and silver were looted from the Aztec and Inca empires in the 16th century. These treasures added "new money" and lead to the decline of Spain. There are other examples.
Alan Greenspan  worked magic as the Chairman of the Federal Reserve and blew the bubble that has just burst, creating a world-wide financial meltdown. During Greenspan's tenure, low interest rates were used to create "new money" but prices were not rising, so The Fed and the politicians could say there was no inflation. Why were prices not rising? Because high quality low-priced goods were being imported from China and other places. People were buying these instead of higher-priced goods made by workers in domestic industry. Domestic jobs were being 'exported' as the unions said.
"How can we buy anything if we are unemployed," American workers asked? Good question. You can't. So Americans stopped buying and Chinese have been thrown out of work too. Ominous signs were appearing months ago. Imports have been slowing down since the spring of 2008. Now, the Big Three Detroit auto manufacturers are facing bankruptcy along with their subcontractors and hundreds of thousands of executives and workers.
More is coming.
Politicians and their Wizards cannot be trusted with the world's financial system. Their solution to inflation is usually more inflation. (In the Thirties, The Fed went wild and shrank U.S. money by a third, creating the world-wide Great Depression.) Inflation will work as well as putting out a fire by throwing gasoline onto it. A gold financial standard is required along with honesty in banking and in the equity and debt markets. The hucksters of Wall Street should go to jail. They should not be given trillion-dollar bailouts. Stock brokers do not represent "capitalism" any more than do real estate salesmen or shoe shine boys, nor do the crooks in Washington and other capitals represent "capitalism".
Gold is not a relic, nor is honesty. Greed is not a virtue and never was.
 Mises on Money