A follow-up post at Mises CA:
[L]et’s try a different thought experiment. As before, suppose the government locks in the dollar-price of gold, thinking that this will provide a “stable ruler of fixed length” by which people can measure market values. Yet a sudden resurgence of interest in Mr. T causes most Americans to want to wear more gold jewelry on their chests. If the government does nothing, then the dollar-price of gold would increase because of the heightened demand to use gold as jewelry. In order to keep the dollar-price fixed, therefore, the government has to suck dollars out of circulation. This keeps the dollar-price of gold stable, but causes a crash in the dollar-price of everything else. Far from providing a stable unit of value, it seems that locking in gold as the money allowed a sudden bout of “deflation,” at least in the way the public currently thinks of the term.