First, They Ignore You. . . .

17 September 2012 at 3:21 pm 11 comments

| Peter Klein |

Paul Krugman writes a typically silly column on the Austrian school’s approach to defining the money supply. As usual, his purpose is not to inform, or analyze, or explore, but to ridicule anyone who disagrees with The Paul. A few reactions:

  • The substantive question, do Austrians consider money-market mutual funds as part of the money supply, is easily answered with 30 seconds of research, which is apparently more than Paul could muster up. Paul, use The Google!
  • Krugman frequently mocks ideas he does not understand, so his tone and style here are hardly surprising. But it’s interesting that he finds Ron Paul’s “hard-money” views influential enough to mention.
  • Krugman seems to believe that the Republican Establishment, and Paul Ryan in particular, are in thrall to the economic teachings of the Austrian school, which would be news to everyone in the Republican Establishment and the Austrian school. In his defense, I think Krugman recognizes only Krugman and non-Krugman, so he cannot quite grasp that there may be some diversity among his critics.
  • Krugman dimly recognizes that Austrians have some objections to fractional-reserve banking in connection with government intervention, and sneers that “[t]his is historically wrong, but maybe the actual history of banking is deep enough in the past for that wrongness to get missed.” He also seem to think that Austrians want to ban the use of money-market mutual funds. Of course, Krugman has never read anything written by an Austrian economist, and he offers no citations or quotes, so it’s hard to know where he gets these ideas. To my knowledge. no Austrian has called for banning MMMFs. On fractional-reserve banking, the opinion among Austrian scholars ranges from those who think FRB is inherently unworkable and illegitimate and could not survive apart from government intervention (most Rothbardians) to those who think that private FRB is legitimate and workable but that the current system of government deposit insurance, government fiat currency as the base money, the Fed as the lender of last resort, etc. is inefficient and illegitimate (Larry White, George Selgin). Needless to say, Austrian scholars have written thousands of pages on these issues, including detailed studies of the history of banking. Krugman apparently thinks Austrians are merely journalists or propagandists, as he himself has become.

Entry filed under: - Klein -, Austrian Economics, Bailout / Financial Crisis, Myths and Realities, People.

Interesting Paper on Entrepreneurship and Growth Arruñada’s Institutional Foundations of Impersonal Exchange

11 Comments Add your own

  • 1. valueprax  |  17 September 2012 at 4:52 pm


    I don’t know if you caught Jonathan Finegold or George Selgin’s comments on the article but apparently some survey has gone out to the world’s Austrians and the results show that the “anti-FRB” crowd are vastly outnumbered by the “pro-FRB” crowd, the few remnants of which consist of nothing more than extremist academic frauds hanging out at the ramshackle Mises Institute (you know, that loony-bin collection of retreads and rejects from the Austrian tradition) as well as a gaggle of “internet Austrian” interlopers.

    I read with interest that, apparently merely because they are a minority, their voice ought to be drowned out (you’d think the deafening roar of the majority would do that on its own?) lest we risk that good citizens such as Mr. Krugman, et al, become honestly and earnestly confused as to just what crazy, insane trollop we Austrians actually believe these days.

    More: “Rothbardian Banking’s Nadir”,

    “The Small Contingent of Austrian ‘Ban’-nermen”, comment by George Selgin on Krugman’s blog,

  • 2. impraxical  |  18 September 2012 at 6:41 am

    Lol, the ‘survey’ was Jonathan Finegold listing the anti/pro frb Austrians he could think of and even his lists were more or less even between anti/pro FRB people. The only fraud here is you, valueprax, you ignorant turd, and it would be far better if you stopped spreading your bullshit all over the internet.

  • 3. Anonymous  |  18 September 2012 at 6:52 am

    Lol. I think, Peter Klein, you should have waited an hour or two with writing that blog post. Less anger, more constructive debate please! Krugman is basically part of the democratic army and his blog post should of course be read with that perspective in mind. They are usually very informative and fact based, although a critical perspective is healthy. As when you read posts by angry Kleins :).

  • 4. Peter Klein  |  18 September 2012 at 7:18 am

    Impraxical, please watch your language, this is a family-friendly blog.

  • 5. Economic Blinders :: The Circle Bastiat  |  18 September 2012 at 1:09 pm

    […] Paul Krugman isn’t the only Princeton economist producing sloppy and ill-informed newspaper columns. Alan Blinder weighs in with a September 6 Wall Street Journal column on the “stark” [sic] differences between the economic programs of Obama and Romney-Ryan. Blinder starts out well enough: The Rooseveltian consensus embodied three main elements: a modest social safety net to protect vulnerable Americans from some of the downsides of unfettered markets, Keynesian-style policies to shorten recessions, and a progressive tax-transfer system to mitigate income inequality (albeit only slightly). […]

  • […] never thought or written about the subject–has been roundly skewered by Austrians here and here.  But I have a question for Krugman:  Why, Paul, would you be interested in the least about what […]

  • 7. impraxical  |  19 September 2012 at 4:42 am

    My apologies, Peter, if there is a mod function please edit or snip the comment as you see fit.

  • 8. Update: Krugman the Banking Historian | Curmudgeons  |  19 September 2012 at 1:16 pm

    […] Mark Thornton, Joe Salerno, and Peter Klein take down Krugman here, here, and here, much better than I […]

  • 9. Allan Walstad  |  19 September 2012 at 8:06 pm

    The more Krugman writes about Austrian econ, the better. It keeps Austrianism in the news and it provides more and more opportunity to effectively promote the paradigm by debunking his criticism. FWIW, I have a lot of respect for Austrians at the Mises Institute and elsewhere.

  • 10. RChavez  |  20 September 2012 at 10:41 am

    I agree with Allan. Krugman is simply attacking a straw man. The more he writes about Austrian econ, the more the public will see the vast discrepancy between mainstream econ and Austrian econ. Krugman in a way, promotes the Austrian school…

  • 11. Mathieu Bédard  |  23 September 2012 at 5:49 am

    As if Krugman was well placed to talk about banking theory and history… His regular misuse and mischaracterization of the Diamond-Dybvig model and his general disregard for very mainstream research on the topic of bank stability makes me cringe every time he writes on the topic.

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