Just read these excepts produced by Brad DeLong. Mill is debating whether gold-convertibility is enough to prevent damaging speculation. His insights into how speculation takes place are extremely advanced – no ‘rational economic man’ here:
Speculation is almost always set in motion by something which affords apparent grounds for expecting either an extra demand or a deficient supply. But the anticipation may, in the first place, be erroneous; in the second, however rational it may be, the speculation (especially where the prospect of gain is considerable) is very likely to be overdone, each speculator conducting his operations as if he alone knew the circumstances on which the hope of profit is grounded. The rise consequent upon the speculative purchases attracts new speculators, insomuch that, paradoxical as it may appear, the largest purchases are often made at the highest price. But at last it is discovered that the rise has gone beyond the permanent cause for it, and purchases cease, or the holders think it is time to realise their gains. Then the recoil comes; and the price falls to a lower point than that from which it had risen, because the high price has both checked the demand, and, by stimulating production or importation, called forth a larger supply.
Brad clearly intends this to show that a stable value of the currency -whether through inflation targetting or gold-convertibility – is no guarantor of asset-stability, or macro-economic stability. And life under the gold standard WAS volatile.