Comment by imtringued

>If there is 'less gold' to go around, we can just value it in higher denominations, i.e. deflation.

Imagine borrowing $300k for a house denominated in gold and then the price of gold doubles. Now you owe $600k even though you haven't agreed to this amount in the original contract. You have taken something less valuable and now you are returning something more valuable. In any other business context one would expect to get paid for providing this service. The illogical nature of gold demands compensation instead, as the lender could just do nothing with his gold and get the same benefit despite the fact that doing nothing is actively harmful to the economy.

Ancient Egypt simply used grains as money. You deposit the grains at a local grain bank, get a clay tablet in return. They never had a "not enough" money problem. Because borrowing grain and returning it in pristine condition was actually considered the service it is. If the lender does nothing, his grains will spoil in front of his eyes.