I'm sure many of you have already read Paul Krugman's latest column, in which he points out what he believes is a contradiction within the Austrian school regarding money market funds:
"But consider a more recent innovation: money market funds. Such funds are just a particular type of mutual fund - and surely the Austrians don't want to ban financial intermediation (or do they?). Yet shares in a MMF are very clearly a form of money - you can even write checks on them - created out of thin air by financial institutions, with very few pieces of green paper behind them.
So are such funds illegitimate? What about repo, which has many of the same features?
One of the key lessons of the 2008 crisis was precisely that banks are defined by what they do, not by what they look like, and there are a whole range of financial arrangements that in economic terms act a lot like fractional reserve banking. So would a Ron Paul regulatory regime have teams of "honest money" inquisitors fanning across the landscape, chasing and closing down anyone illegitimately creating claims that might compete with gold and silver? How is this supposed to work?
OK, I don't expect a serious answer. But it's scary that this has become the more or less official doctrine of the GOP."
It's not my intention to discuss the Austrian position(s) on money market funds here, but I found it interesting that Krugman first poses a question to the Austrian school but then turns to Ron Paul for a response. I realize that Ron Paul is the popular face of Austrian economics, but surely a PhD demi-god like Paul Krugman (who won a Nobel Prize for economics, by the way) would want to get his answers from actual Austrian economists instead. If I had a question about Keynesian theory, I'd want to ask an actual Keynesian economist like Krugman himself. I wouldn't pose the question to a Keynesian-influenced politician.
And although Krugman said he didn't expect a serious answer, he got one nevertheless from the Mises.org crowd. But the chutzpah illustrated by that snide closing comment is truly impressive. After all, it comes from the same guy who has been challenged to a debate by Robert Murphy (an actual Austrian economist) - a debate in which all of his questions about the Austrian school would get very serious answers indeed, and a New York food bank would receive $60,000 if he would just show up for it. Yet he hasn't even bothered to respond.
I'm sure many of you have already read Paul Krugman's latest column, in which he points out what he believes is a contradiction within the Austrian school regarding money market funds:
"But consider a more recent innovation: money market funds. Such funds are just a particular type of mutual fund - and surely the Austrians don't want to ban financial intermediation (or do they?). Yet shares in a MMF are very clearly a form of money - you can even write checks on them - created out of thin air by financial institutions, with very few pieces of green paper behind them.
So are such funds illegitimate? What about repo, which has many of the same features?
One of the key lessons of the 2008 crisis was precisely that banks are defined by what they do, not by what they look like, and there are a whole range of financial arrangements that in economic terms act a lot like fractional reserve banking. So would a Ron Paul regulatory regime have teams of "honest money" inquisitors fanning across the landscape, chasing and closing down anyone illegitimately creating claims that might compete with gold and silver? How is this supposed to work?
OK, I don't expect a serious answer. But it's scary that this has become the more or less official doctrine of the GOP."
It's not my intention to discuss the Austrian position(s) on money market funds here, but I found it interesting that Krugman first poses a question to the Austrian school but then turns to Ron Paul for a response. I realize that Ron Paul is the popular face of Austrian economics, but surely a PhD demi-god like Paul Krugman (who won a Nobel Prize for economics, by the way) would want to get his answers from actual Austrian economists instead. If I had a question about Keynesian theory, I'd want to ask an actual Keynesian economist like Krugman himself. I wouldn't pose the question to a Keynesian-influenced politician.
And although Krugman said he didn't expect a serious answer, he got one nevertheless from the Mises.org crowd. But the chutzpah illustrated by that snide closing comment is truly impressive. After all, it comes from the same guy who has been challenged to a debate by Robert Murphy (an actual Austrian economist) - a debate in which all of his questions about the Austrian school would get very serious answers indeed, and a New York food bank would receive $60,000 if he would just show up for it. Yet he hasn't even bothered to respond.
- Stephen M. Smith