None of these points make sense.
OK. Let me try a different tack. I wish I could just post a link, but this is my own understanding from many sources and observation.
If we used gold for a currency, when the economy expanded at a faster rate than the gold supply, that would be deflationary. Each gold coin would buy more. But when the economy slows down, gold is still being produced, so your currency inflates. Now, over time, this tends to correct, but that doesn't make it any less volatile in the short term.
This uncertainty of the direction and amplitude of the inflation/deflation signal meant a larger predictable profit needs to be made, to get any capital raised. Because if I think I can make 3% return on cash by sitting on it, your venture needs to look at least 3% better than what my expected premium would be without the deflation risk. So when I am talking about the benefits of the Fed system, it is this that I am talking about. Deflation risk means sitting on more cash. By making inflation permanent, capital NEEDS to be invested. This has reduced returns for the bondholders, and reduced the cost of financing businesses and everything else.. This has had a long term boost to the economy, both by boosting demand, and production. More capital is invested, because sitting on it becomes risky, long term.
We traded that short term uncertainty, for a managed system of inflation. We did this in a depression, and we all just got used to it. Somehow, we just ran with it. We did it so well, I have to explain the difficulty deflation risk brings.
Will it last? Will it have been worth it if it doesn't? I don't know. Will it all come crashing down? I expect so, everything does, eventually. And I am no defender of QE.
This is literally robbing from the rich, to give to the rich. If one has capital, returns are slightly lower. If one is borrowing, the cost is slightly lower. I don't see the moral high ground belonging to either group. If you don't like inflation, take the other side of the trade.
But let's compare with gold. Gold was available as a store of wealth, and inflation hedge, THE WHOLE TIME. If you are uncomfortable with the moral implications of the Fed system, the push to invest your capital, gold was available the whole time. it did pretty much what you claimed it would do. But as money, it would suck. That's why, even though it does everything you claim, nobody uses it.
Let me use your suit of fine clothes example.
If you bought the suit a hundred years ago for an ounce of gold, and you could buy a suit today for an ounce of gold, that seems very stable. But that ounce of gold bought less cloth and more labor a hundred years ago than today. Yes, combined, they total nearly the same, but labor is far more expensive in gold than it used to be, and fine cloth is far cheaper than it used to be. And it gets worse if you wanted your new suit hand sewn, as it would have been in your example.
So which was the problem, and which the solution? The appreciation of labor compared to gold, or depreciation of cloth? Note that neither has anything to do with gold, other than in our thought experiment.
Nothing is stable. Stability itself is usually not a good thing, though we do crave it. The Fed system expands and contracts the money supply to kinda match the size of the economy. Inflation is the slop, or overhead. Bailouts lead to moral hazards, and undermine the system. But that's political, not economics.
I don't think it's the best we can do. I do think it's the best we have done. I really don't like QE, and can't see a way to put that genie back, and I expect bailouts to lead to horrible results. So if someone could please come up with a better system, I'm all ears. But gold isn't it.
Trying to force cash to be a store of wealth, isn't it.
A cryptocurrency that somehow expanded and contracted with the economy, to provide a short term stable currency without as much slop would be a very interesting idea. But tying that currency to gold isn't it.
I hope that makes sense.