I see what you are saying, is there any proof this (=automatic stabilization without state intervention) has actually taken place for a free traded currency until now?
Price levels in England were quite stable for 2 centuries on various gold/silver standards. Check out the table here: http://safalra.com/other/historical-uk-inflation-price-conversion/. Notice that the yearly change in the price levels between 1750 and 1900 have equal + and - signs, but after the turn of the century the price level changes are almost entirely +? This represents the transition from hard money (gold and silver) to fiat currencies.
So England used silver or gold itself as a currency those days, not a currency "pegged" to silver/gold?
The name "pound sterling" came from the fact that 240 "sterlings" were minted from a pound of silver. So, yes, silver coins circulated amongst the people, as well as bank notes. There is a line in Oliver Twist where the rich old man gives the kid a 5 pound note to run an errand, and the other old man is sure he's going to run away with it. That's because that five pound note was redeemable for 5 pounds of silver (5 pounds of silver is a lot of money today, but a 5 pound note won't buy you a decent lunch in London today).
The history is long and complex but fascinating to read up on. There were times when the supply of silver coins became diminished so the mint would issue "tokens" to fill the void. But it wasn't until the early 20th century that the idea of hard currency was abandoned once and for all, and gold and silver stopped circulating with banknotes.
