Our "cut pieces of linen paper with fancy printing on it" are wildly successful at injecting capital where it's needed to create real wealth. I've been thinking about this. At a macro level, wouldn't moving to the gold standard make sitting on a supply of gold as profitable as investing it? Example:
If the world was on the gold standard, all the gold in the world would represent all that exists in the world. So what would happen if you and I each have half the gold, and you invested all yours in projects to develop industries and nations? In the end you'll still have the same amount of gold and so would I, but all that it represented would be greater. So we'd both share equally in the profit from your risk. So why should I risk mine? That exemplifies the problem with gold as I understand it. It doesn't promote investment to create real wealth as well as does fiat money.
You must have read a radical Islamist's definition of the gold standard! ;-) The gold standard doesn't mean, "blow up everything that isn't gold." It simply means that, if you have a dollar bill, you can exchange it to a fixed amount of gold whenever you wish to.
Since most of the people hardly ever want to exchange their banknotes to gold, it wouldn't mean any significant change in how you use your money. But it would change what your money means. Right now, the value of your cash is determined by the Federal Reserve. Alan Greenspan could turn you into a beggar any moment he decided to. With the gold standard, you can always turn your cash into gold, and of course you can then turn the gold into anything you want. Currency, as hard as it gets.