Three points occur to me:
(1) Frankly, I wonder why Austrians are so hung up on Krugman. Maybe it is Nobel Memorial Prize in Economic Sciences he has, or his media prominence. As a mainstream neoclassical, Krugman represents a heavily neoclassical version of Keynesianism, and he most certainly does not represent all Keynesians.
(2) Woods tells us that Murphy is a member of the “free market Austrian school of economics.”
Yet it strikes me that Murphy is a highly idiosyncratic Austrian. His PhD Unanticipated Intertemporal Change in Theories of Interest (New York University, 2003) included (1) a critique of the pure time preference theory of interest (the view of the interest rate held by all Austrians I know), and (2) a defense of a monetary theory of interest. On his blog, he has cited a comment of Keynes on the monetary theory of interest with approval, which provoked a howl of protests from his regular readers:Robert P. Murphy, “Is Keynes from Heaven or Hell,” 7 July 2011.Add to this Murphy’s work attacking the idea of a Wicksellian, unique natural rate of interest and the consequence of this that all modern Hayekian versions of the Austrian business cycle theory are flawed:
http://consultingbyrpm.com/blog/2011/07/is-keynes-from-heaven-or-hell.html“In his brief remarks, Hayek certainly did not fully reconcile his analysis of the trade cycle with the possibility of multiple own-rates of interest. Moreover, Hayek never did so later in his career. His Pure Theory of Capital (1975 ) explicitly avoided monetary complications, and he never returned to the matter. Unfortunately, Hayek’s successors have made no progress on this issue, and in fact, have muddled the discussion. As I will show in the case of Ludwig Lachmann—the most prolific Austrian writer on the Sraffa-Hayek dispute over own-rates of interest—modern Austrians not only have failed to resolve the problem raised by Sraffa, but in fact no longer even recognize it.In light of all this, Murphy hardly even seems to be a good representative of the Austrian school at all.
Austrian expositions of their trade cycle theory never incorporated the points raised during the Sraffa-Hayek debate. Despite several editions, Mises’ magnum opus (1998 ) continued to talk of “the” originary rate of interest, corresponding to the uniform premium placed on present versus future goods. The other definitive Austrian treatise, Murray Rothbard’s (2004 ) Man, Economy, and State, also treats the possibility of different commodity rates of interest as a disequilibrium phenomenon that would be eliminated through entrepreneurship. To my knowledge, the only Austrian to specifically elaborate on Hayekian cycle theory vis-à-vis Sraffa’s challenge is Ludwig Lachmann.”
(Murphy, “Multiple Interest Rates and Austrian Business Cycle Theory,” pp. 11–12).
“Lachmann’s demonstration—that once we pick a numéraire, entrepreneurship will tend to ensure that the rate of return must be equal no matter the commodity in which we invest—does not establish what Lachmann thinks it does. The rate of return (in intertemporal equilibrium) on all commodities must indeed be equal once we define a numéraire, but there is no reason to suppose that those rates will be equal regardless of the numéraire. As such, there is still no way to examine a barter economy, even one in intertemporal equilibrium, and point to “the” real rate of interest.”
Murphy, “Multiple Interest Rates and Austrian Business Cycle Theory,” pp. 14).
(3) A more promising debate would be a big name Austrian (e.g., Mario Rizzo) against a big name Post Keynesian (say, Steve Keen): that is a debate I would prefer to see.
Murphy, Robert P. “Multiple Interest Rates and Austrian Business Cycle Theory.”
Murphy, Robert P. 2003. Unanticipated Intertemporal Change in Theories of Interest, PhD dissert., Department of Economics, New York University.