if the value of the dollar rises unexpectedly, can cause severe economic distortions. Unable to cut wages, trouble making payrolls. Unable to renegotiate their debts, homeowners have trouble making paying their mortgage payments.
You have ironically described the problems of deflation, not inflation.
it talks about deflationary systems that worked extremely well in addition to free banking systems, where banks could issue their own currency
It's really not a deflationary system if banks are issuing fiat right next to it, convertible or not. In the same vein, one could argue bitcoin will never end up being particularly deflationary because it will have competition (akin to free banking) with other cryptocurrencies that will be issuing more currency. Network effect? Watch how quickly people leave in droves during deflationary episodes when/if bitcoin is ubiquitous. If acquiring bitcoin becomes more difficult, people will acquire something else to pay for goods and services.
The problem lies in the fact that we are so used to inflationary currencies that our economic system needs this inflation to survive.
Society needs this system. Although it has always been corrupted, inflationary currencies are better to the alternatives where the people are at the mercy of the rich kings. Bankers have only been able to invent new ways to lend money because people were willing to borrow it. Productive and intelligent people can't produce and innovate without borrowing money in the vast majority of cases.
Without inflation governments cannot pay their massive debts. We live in a credit based economy where outstanding debt far exceeds the money supply. Think of it this way, people in debt love inflation, because money they owe is worth less and less as time progresses.
Government debt, business debt, and personal debt are three very different things with three very different causes and effects. There is way too much to go on about that, but don't roll them all together in a neat little ball, wrap it with a bow, and call it a day.