Once upon a time, back in June 2007, I suggested an experiment to test the theory of the gold standard:
On the major planks in Ron Paul’s Presidential campaign is the abolishment of the Federal Reserve and a return to the gold (or hard currency) standard.
…
after reading this article on Chinese gold farmers in World of Warcraft it occurred to me that we don’t have to guess what would happen. We could model the effect on a World of Warcraft server
At the time I was interested in testing Ron Paul’s assertions that returning to the gold standard would cure all of America’s economic ills, but as part of my thought experiment I threw out the a couple other suggestions:
It would also be interesting to see some variations on this theme in which an ulimited amount of gold can be purchased from Blizzard but items are strictly limited. Huge inflation I would bet. Or items and gold can be purchased from Blizzard. My bet there is the local trade economy would tank (Globalization analouge).
Well it turns out that Blizzard went ahead and tested the theory about unlimited gold and limited goods even if it was by accident:
in the last few months, various outposts in that world (Diablo III) — Silver City and New Tristram, to name two — have borne more in common with real world places like Harare, Zimbabwe in 2007 or Berlin in 1923 than with Dante’s Inferno. A culmination of a series of unanticipated circumstances — and, finally, a most unfortunate programming bug — has over the last few weeks produced a new and unforeseen dimension of hellishness within Diablo 3: hyperinflation.
Basically Blizzard created a virtual economy in which infinite amounts of gold could be accumulated very quickly and it drove the prices of goods through the roof. Precisely what just about anyone would have expected but since I wrote about this back in 2007 I am claiming prescience and genius.
It should be noted that as soon a Blizzard cracked down on the gold supply prices began to drop. The author of the Zero Hedge article thinks this proves the need for a gold standard. I think in my own uneducated way that it proves Friedman’s theories about control of the monetary supply more than it makes the case for a specie based currency, but as I said in the title I am a drooling mouth breathing moron so what do I know?
doubleplusundead 
My problem with the gold standard as a “fix” is that it’s predicated on the assumptions that “gold is valuable” and “gold has a limited supply.” The premise that a gold standard is more stable because there’s a limited supply assumes that we’re not going to ever find much more gold somewhere, so it can’t get massively devalued. But that’s a bogus assumption. Right now, the price of gold is over inflated because of market speculation on the commodity itself. The price is easily more than four times the value it was a decade ago, and yet, the gold standard people will talk about how volatile the fiat currency is. When Cyprus had to dump a bunch of their gold a few weeks ago, the price of gold dropped dramatically. If gold is so “stable” then how could that have happened?
The answer is, the actual supply of something DOES have an effect on it’s value, but that’s just one factor. Gold, like EVERYTHING else is only ever worth what someone else will give you for it. Scarcity obviously drives up the value, but only if the scarce resource is something someone else wants or needs. I’m the only supply of my urine on the planet. But no one is fighting over rights to buy up my pee. Thus, it’s rare, but worthless. People speculate on the price of gold and buy and sell it as a commodity. That makes it vulnerable to market fluctuations just like everything else. And in many ways, gold is a poor commodity to base a currency on anyhow. Why? because it’s actual use value (as opposed to investment value) is limited to its use as an electrical conductor. Gold does little that other metals and alloys cannot do better. So if you leave out the very few situations where only gold will do, it’s a pretty yellow rock useful for making jewelry. Wheat can be eaten if you’re hungry. Oil can be burned as a heat and energy source. Iridium is a hell of a lot more rare than gold, and has other industrial uses as well.
The ONLY real advantage that gold has is purely psychological. People think gold has value, so it holds value. Period. In a survival situation, gold is pretty fucking worthless. You can’t eat it, you can’t drink it, you can’t shoot it as ammo, and it’s barter value only is good if you’re bartering with someone who doesn’t need the same things you do (food, water, shelter, medicine, ammo, heat, etc).
I have tried to make those same points many times MikeD. Usually I am shouted down especially in Presidential election years.
Really kinda want to sockpuppet as a Paultard here, but I’m feeling lazy.