"keep in mind that during the depression we were on the gold standard, thus there was none of the inflationary/deflationary risk of a fiat currency"
Sure there was. Gold as currency is just as susceptible to instability as anything else, as a simple thought experiment can show.
Consider that the supply of gold, though growing, grows extremely slowly. The supply of goods and services which are exchanged in economic transactions (and for which currency acts as a proxy), however, goes through great spurts of growth which the supply of gold cannot hope to match. Thus, a gold standard during such a spurt can only lead to widespread deflation (as would any currency which failed to keep pace with the quantity of goods and services it must stand in for).
I really don't know why people harbor this mystical belief that a shiny piece of metal is somehow immune to well-understood economic principles.
Sure there was. Gold as currency is just as susceptible to instability as anything else, as a simple thought experiment can show.
Consider that the supply of gold, though growing, grows extremely slowly. The supply of goods and services which are exchanged in economic transactions (and for which currency acts as a proxy), however, goes through great spurts of growth which the supply of gold cannot hope to match. Thus, a gold standard during such a spurt can only lead to widespread deflation (as would any currency which failed to keep pace with the quantity of goods and services it must stand in for).
I really don't know why people harbor this mystical belief that a shiny piece of metal is somehow immune to well-understood economic principles.