In an absurd series of posts, Paul Krugman struggles to define money, then criticizes Ron Paul based on a myriad of incorrect assumptions “guessing” what Paul thinks, using as proof a Fan Site, not anything that Ron Paul said.
Let’s start from the beginning. Please consider Paul Krugman’s post What Is Money?
What is money, anyway? It’s not a new question, but I think it has become even more pressing in recent years.
The truth is that these days — with credit cards, electronic money, repo, and more all serving the purpose of medium of exchange — it’s not clear that any single number deserves to be called “the” money supply.
But if you’re determined to view economic affairs through a sort of paleo-monetarist lens, focused on the evils of “printing money”, you’re going to have a hard time in the modern world, where the definition of money is increasingly vague.
I purposely picked out sentences from Krugman’s article that reasonable people might agree with. Given that Austrian economists and Austrian-minded people cannot agree on how to measure money, it’s hard to quibble too loudly with the above.
Those interested in a philosophical debate might be interested in reading
- True Money Supply (TMS) vs. Austrian Money Supply (AMS or M Prime) Update
- Money Supply Divergence – TMS1 vs. TMS2 vs. M2 – What does it Mean?
This post is not about the debate as to what money is. This post is about Paul Krugman’s attempt to “guess” at what Paul thinks money is, then attack that strawman.
Krugman dives into fantasyland with his followup post Paleomonetarism
I used that term — it’s probably not original, but who knows? — in a recent post about the increasingly obscure meaning of the money supply. The best example would surely be Ron Paul, who’s now going to have oversight over the Fed. If you read his stuff, it’s very clear: money is a well-defined quantity that the Fed controls, and inflation comes from — indeed is defined as — increases in that quantity.
What he means, I guess, is monetary base. Here’s the actual relationship between monetary base and inflation:
It’s also worth nothing that in normal times (not now), monetary base consists overwhelmingly of currency (bank reserves are normally very small), and the majority of US currency isn’t even being held in the United States.
It’s kind of terrifying, in a way, to realize that the politically dominant faction in America right now has a view of money, what it is, and how it works that hasn’t been true since the early 19th century, if it ever was.
The first thing of note is Krugman’s line “If you read his stuff“
Follow that link and it takes you to a Ron Paul Fan site, not anything written by Ron Paul himself. It is NOT “his stuff” as Krugman states.
Krugman goes on to say (emphasis mine) “What he means, I guess, is monetary base. Here’s the actual relationship between monetary base and inflation”
Excuse me but if you are going to attack someone, should you be guessing about what they mean? Krugman then follows up with a strawman attack based on a guess, based on a something Paul did not even say.
Believe it or not, it gets worse. The article Krugman pointed to did not use the term “monetary base”. In fact, the article did not even use the word “base”.
Is Krugman drunk?
Mike “Mish” Shedlock
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