A Barbarous Inflation

So, Paul Krugman comes clean about money, or at least his view of it, writing:

For many people on the right, value is something handed down from on high It should be measured in terms of eternal standards, mainly gold; I have, for example, often seen people claiming that stocks are actually down, not up, over the past couple of generations because the Dow hasn’t kept up with the gold price, never mind what it buys in terms of the goods and services people actually consume.

And given that the laws of value are basically divine, not human, any human meddling in the process is not just foolish but immoral. Printing money that isn’t tied to gold is a kind of theft, not to mention blasphemy.

For people like me, on the other hand, the economy is a social system, created by and for people. Money is a social contrivance and convenience that makes this social system work better — and should be adjusted, both in quantity and in characteristics, whenever there is compelling evidence that this would lead to better outcomes. It often makes sense to put constraints on our actions, e.g. by pegging to another currency or granting the central bank a high degree of independence, but these are things done for operational convenience or to improve policy credibility, not moral commitments — and they are always up for reconsideration when circumstances change. (Emphasis mine)

In other words, the supposed "greatest" economist in the world cannot even articulate an Austrian theory of value without slipping into insults, caricatures, and straw men. Actually, Austrians believe that value is subjective and depends upon what individuals are willing to give up in order to obtain something.

Now, we do believe that laws of economics are immutable because they are based upon human action. Is Krugman about to say that the Law of Marginal Utility, the Law of Scarcity, and Opportunity Cost are nothing but mere human constructs that can be changed at the whim of a legislature or a president? Does the Law of Demand hold only when Krugman wants it to do so?

Austrians have favored gold as money not for any "religious" reasons, but rather because over time gold supplies are not easily manipulated, which means governments find it harder to debase the money that people are holding. Now, according to Krugman, this makes me "anti-Enlightenment" because I don't think that one group of people should be able to use covert means to take property from one person and give it to someone else who is politically-favored.

Let's face it. That is exactly what inflation does: it transfers wealth. Krugman can write about "better outcomes" all he wants, but he really is saying that it is better for government agents to have the power at any time to make political decisions that will negatively affect the property and monetary holdings of individuals. Furthermore, when Krugman declares that money "should be adjusted, both in quantity and in characteristics, whenever there is compelling evidence that this would lead to better outcomes," he really means "adjusted" in just one way: expansion of the amount of money in circulation. After all, there can be nothing worse than deflation, at least in the Krugman-Keynesian view.

I would like to turn toward Krugman's insults toward those who do favor gold. I first link readers to what Carl Menger wrote about money in his 1871 Principles of Economics:

Money is not the product of an agreement on the part of economizing men nor the product of legislative acts. No one invented it. As economizing individuals in social situations became increasingly aware of their economic interest, they everywhere attained the simple knowledge that surrendering less saleable commodities for others of greater saleability brings them substantially closer to the attainment of their specific economic purposes. Thus, with the progressive development of social economy, money came to exist in numerous centers of civilization independently. But precisely because money is a natural product of human economy, the specific forms in which it has appeared were everywhere and at all times the result of specific and changing economic situations. Among the same people at different times, and among different peoples at the same time, different goods have attained the special position in trade described above.

There is nothing "anti-Enlightenment" in that paragraph, or in Menger's entire section on money. So, let us turn to Rothbard, since he was much more libertarian than Menger or Ludwig von Mises, to see if he writes from a religiously-mystical viewpoint:

A most important truth about money now emerges from our discussion: money is a commodity. Learning this simple lesson is one of the world's most important tasks. So often have people talked about money as something much more or less than this. Money is not an abstract unit of account, divorceable from a concrete good; it is not a useless token only good for exchanging; it is not a "claim on society"; it is not a guarantee of a fixed price level. It is simply a commodity. It differs from other commodities in being demanded mainly as a medium of exchange. But aside from this, it is a commodity, and, like all commodities, it has an existing stock, it faces demands by people to buy and hold it, etc. Like all commodities, its "price" is determined by the interaction of its total supply, or stock, and the total demand by people to buy and hold it. (People "buy" money by selling their goods and services for it, just as they "sell" money when they buy goods and services.)

In fact, the Austrians have not written about money or gold in any sort of mystical way, as Krugman claims. Yes, they have said that inflation does involve a form of "theft," since government is using it to quietly transfer wealth from one group of people to another, but claiming simultaneously that it is not engaging in such activity. I suspect that if I entered Paul Krugman's house and took some of his possessions without his permission, he also might accuse me of "theft," even if I vociferously protested by claiming that I was simply engaging in an act of "social justice," since he is wealthier than I am.

Of course, Krugman ends with his usual insults posing as an intellectual contribution to monetary theory:

And I do find myself thinking a lot about Keynes’s description of the gold standard as a “barbarous relic”; it applies perfectly to this discussion. The money morality people are basically adopting a pre-Enlightenment attitude toward monetary and fiscal policy — and why not? After all, they hate the Enlightenment on all fronts.

The bottom line is that we aren’t really having a rational argument here. Nor can we: rationality has a well-known liberal bias.

I'm not sure which of the "Enlightenment" figures advocated inflation, including Jeremy Bentham. However, Bentham did call for governments to arrest and imprison people who "might" commit crimes one day, and he favored the surveillance society that we have today. Certainly, the all-encompassing State is a product of post-Enlightenment thinking.

However, when one points out that people are hurt by inflation, and that inflation over time distorts the structure of production and wreaks havoc on an economy, then according to Krugman, those people are wrong because someone before the Enlightenment might have believed the same thing.

Furthermore, Krugman is claiming, apparently, that all systems of thought and all writings and laws produced before the Enlightenment were wrong. Does that include laws against theft and murder? Does that mean Aristotle and Plato were idiots? Who knows. After all, we are not having a "rational discussion," since Krugman now is claiming that any system of thought produced before the Enlightenment automatically is wrong. Somehow, I think that is an irrational way of looking at things.