His recent blog post on Adam Smith and Bitcoin pretty much says it all:
There have been many good pieces written on the dubious economics of Bitcoin; I especially liked this one by Neil Irwin. One thing I haven’t seen emphasized, however, is the extent to which the whole concept of having to “mine” Bitcoins by expending real resources amounts to a drastic retrogression — a retrogression that Adam Smith would have scorned.This is not so much a defense of Bitcoin, given I have not followed it and most likely will not be following it, but I do find that his post demonstrates his disdain for money itself. Why do I say that? I say it because he actually believes that mining for gold and silver which were used as money (and for other uses, too) was foolish and wasteful.
Smith actually wrote eloquently about the fundamental foolishness of relying on gold and silver currency, which — as he pointed out — serve only a symbolic function, yet absorbed real resources in their production, and why it would be smart to replace them with paper currency....
Money is a productive asset contra Krugman, for it enables exchanges to occur that would not have happened under a pure barter system. No one things it foolish to dig for silica or for copper or to expend resources to create capital. Yet, money being productive means that one can apply a marginal cost/marginal benefit analysis to it.
Krugman, quoting Smith, argues that paper money is better because one uses fewer resources to create it, but he fails to admit that it is much easier to inflate paper money than it is gold or silver. Yes, yes, all of the Keynesians will point out the Wonder and Majesty of Inflation, and how the Inflation Fairy will save our economy if we just crank out enough dollars.
Yet, inflation lowers the value of the marginal unit of money, and enough of that will lead to the demise of money altogether. (Zimbabwean dollar, anyone?) So, Krugman is saying that in order for money to be useful, governments need to print a lot of it and debase the whole thing, and if governments debase it enough, then the Inflation Fairy will wave her magic wand and make our economy whole again.
Update: Krugman continues his Bitcoin rant in his latest column. Paper money is superior to gold or anything else:
...paper currencies have value because they’re backed by the power of the state, which defines them as legal tender and accepts them as payment for taxes.In other words, according to Krugman, things have value because government declares they have value. Furthermore, Krugman declares that Ben Bernanke's money printing is not "irresponsible" because we have not yet had hyperinflation. While it is true that the USA has not become Bolivia in the 1980s, nonetheless we are seeing big increases in the prices of food and fuel, two things that are sensitive to monetary changes, and we are witnessing what seem to be twin bubbles in housing and the stock market.
Once again, we are seeing the Krugman insistence that the Inflation Fairy is all we need. Just print money, borrow, and spend ourselves into prosperity. So far, it hasn't worked very well.