proponents of the gold standard favor it because it helps limit the ability of the central bank to print money and artificially inflate the money supply. without a gold standard, government can become big without issuing a direct tax, but rather by printing more money to finance government spending. this is known as debt monetization. of course, increasing hte money supply devalues the currency, and causes inflation -- like what we're seeing now. this is essentially a transfer of wealth from taxpayers to those receiving government subsidies, and hence has been dubbed by ron paul and other austrian economists as an "inflation tax."

here is a nice article on debt monetization. the article notes how bernanke acknowledges the problem, and how historically fiat currencies have resulted in hyperinflation.

interestingly, alan greenspan, whom many -- including myself -- blame for being guilty of overexpanding the money supply and resulting in bubbles and inflation we are seeing in the USA, wrote a paper in 1967 in which he argued that the gold standard is necessary to a free society. here is greenspan's paper. when confronted on how his policies conflicted with the ideas he presented in this paper, greenspan said he changed his mind and that he was wrong in this paper, so he has somewhat disowned it. at least that is my understanding of the scenario.

personally, i don't think going back to a gold standard is the answer, although i do think it is important to have a mechanism that limits the central bank from excessively expanding the money supply and creating poverty via inflation.