Saturday, August 11, 2012

Paul Krugman versus Robert Murphy Debate?

Some time ago Robert Murphy challenged Paul Krugman to a debate. In this curious video, Tom Woods tries to promote the idea of such a debate.

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:
“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 [1941]) 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.

Austrian expositions of their trade cycle theory never incorporated the points raised during the Sraffa-Hayek debate. Despite several editions, Mises’ magnum opus (1998 [1949]) 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 [1962]) 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).
In light of all this, Murphy hardly even seems to be a good representative of the Austrian school at all.

(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.


  1. It makes perfect sense why Austrians would dislike Krugman, he represents everything they dislike. He strongly believes there is deficient aggregate demand, Austrians essentially believe that is impossible. He is strongly in favour of more fiscal stimulus and increased government spending, whereas Austrians hate big government and would rather cut down on its size. He also calls for more expansionary monetary policy, while Austrians (annoyingly) believe expansionary monetary policy is practically the cause of all possible economic strife.

    1. And yet even modern monetarism would argue that the problem is insufficient aggregate demand/GDP growth, even though they prefer monetary policy to fiscal policy.

      Yet many Austrian oppose monetary policy too but you don't see them attacking monetarists with his level of venom.

    2. That's because today there isn't any activist monetarists in the media anywhere near as prolific as Paul Krugman. And when there was one alive (aka Friedman), he sided with Austrians in many ways because of his calls for small government and free markets, so was regarded as a lesser evil.

      But if you don't think monetarists receive vitriolic attacks from Austrians, I invite you to see Major Freedom's, and other Austrians' posts at Scott Sumner's blog.

    3. Britonomist is sort of right. Modern day Austrians habitually talk about a "Monetarist-Keynesian nexus".

      As you can see, this idea came down through the Henry Hazlitt propaganda arm of the Austrian School. But it is basically in keeping with their "non-interventionist" ideas about how economies should be run.

      Once again, Austrians show their utopian-political colours. This has less to do with ideas as such and more to do with crass Ron Paul "end the Fed" style political propaganda.

    4. All of economics is based on a political agenda as arguably is science itself. It's based on a philosophy extending into a hypothesis.

      Science filters with hard experimental data - as we've seen with the higgs boson.

      However in 'hard to experiment' area it becomes very political with ideas getting air time because of the political weight behind them - because the hard experimental science is all but impossible to undertake.

      Thus you get, amongst many others, the lipid hypothesis of heart disease, pretty much any dieting fad on the planet, and all of macroeconomics.

      They are all ideas with a bunch of circumstantial evidence around them and people take their position based essentially on what they believe. It can never be proved - because you can't do the experiments at a high enough level of control to provide irrefutable evidence.

      Get enough people to share that belief and you're in power and can implement that belief.

      There is a strong argument that America would do the rest of the world a big favour if Ron Paul got to implement his big ideas. Because it would provide us with another chunk of experimental evidence.

    5. I don't accept the "it's all politics" argument. If that were true we could not distinguish the utopian aspirations of the Austrians or the Marxists from the Post-Keynesians. This would be bizarre because the latter are far more flexible. For example, I'm for the governments in most countries extending employment programs. However, if Romney got elected and kept spending constant while cutting taxes, I'd support that.

      I think the ideologies of most Post-Keynesians is secondary to their more rational tendencies. The same cannot be said of Austrians or Marxists, who actually build utopian value judgments into their economic theories.

    6. "For example, I'm for the governments in most countries extending employment programs."

      The key word there is 'government'. That is, whether you realise it or not, a political ideology. It is your 'self-evident truth'.

      Remember that even resolving to be obstinately neutral is a political position.

      Similarly when you hear Austrian supporters desperately trying to convince everybody that their philosophy is 'value free', you know that they can't see their own 'self evident truths'. Truths other people don't share.

      There is always another point of view and understanding the core of that point of view often highlights the weaknesses in your own position. Areas that need to be watched and from where problems are likely to arise.

    7. I disagree. You can relativise all of this if you want -- and, indeed, from a purely logical point-of-view you may be right. But it appears to me quite obvious that taking the position that a government should exist and do X, Y and Z is far less "political" than calling for the destruction of government as such.

      I guess the way to put this would be: which desired political policy would require more political change and social upheaval? Or perhaps you could ask: which one of these policies is actually in any way practicable and which is utopian garbage?

      From a purely commonsense point-of-view I think it must be said that there is a chasm between the Austrian/Marxist political programs and anything advocated by Keynesians. This is what I would refer to as moral judgements and all that. The former are based on a sort of religious morality (as Keynes said) while the latter are eminently sensible, pragmatic and realisable.

      To not recognise the difference is, in my opinion, to surrender to the voices of madness and dogmatism.

    8. "But it appears to me quite obvious that taking the position that a government should exist and do X, Y and Z is far less "political" than calling for the destruction of government as such."

      No it's not. The underlying assumption is that government will work and do what it says. Yet we see today government captured by a financial elite doing harm to the majority citizens under economic policies that are supposed to be 'Keynesian' - and which people describe as Keynesian.

      Similarly Marxist ideals are corrupted into totalitarian states.

      So it's quite clear that governments end up drifting off course very quickly. There is never any discussion in PK work that I've seen why government will work this time and not corrupt like it has done many times before. Never anything about the weaknesses of democracy.

      What you consider sensible and pragmatic and realisable other consider not to be. Look at the US struggle with healthcare - which most of the rest of the world sorted decades ago.

      "To not recognise the difference is, in my opinion, to surrender to the voices of madness and dogmatism."

      Faith in governments and democracy is similarly fraught with danger. They fail to deliver regularly and therefore as well as policy the function and structure of government and democracy has to be looked at as well.

      So the impetus we get from Austrians, et al is to realise that they are probably correct when they point out that government often doesn't work, but incorrect to assume that the solution is therefore to eliminate governments.

      The solution is to fix governments so they do work - and we know now that the fix involving making governments 'ordinary entities' and relying on technocrat wizards in central bank ivory towers to waggle a few levers doesn't work.

    9. You're not getting what I'm saying. I'm saying that the Austrian drive to eliminate government is an EXTREMIST position. If they were to try to carry out their political project we would all quickly be subject t extreme tyranny and/or societal collapse.

      Keynesian policies are not like that.

      This is the difference I am trying o highlight. And if you cannot distinguish between political extremism and normal proposals then you have no reason to say that, for example, the Unabomber Manifesto is different to Keynesian economics. Or that David Koresh's ideas about children are in any way fundamentally different from more accepted child-raising practices.

      Relativism of such an extreme sort is patently absurd and I tend not to debate anyone who holds it.

    10. "Keynesian policies are not like that."

      Like it or not Keynesian policies, and the corruptions thereof, have led precisely to the current situation.

      The challenge is how to prevent the corruption so the system works.

    11. That's not what we're talking about, Neil.

      We're talking about the inherent difference between Keynesian policies -- which are by nature conservative -- versus extremist ideologies like Austrianism and Marxism that call for total social upheaval.

      Again I'll say that if you are not willing to draw a line between the two then there is no clear line to be drawn between a policy platform guided by Keynesian principles and a lone nut mail-bombing people and distributing the Unabomber Manifesto.

      Everything may be political when looked at through an extremist lens. Thus Keynesianism is "political" when looked at through a Marxist or Austrian lens -- i.e. it is either a defence of capitalism or a corruption of it. But when looked at in a detached manner it is apolitical and conducive to crony capitalism, social democracy, Bush tax-cuts, Nazi command economy, war economy, planned socialist economy and a million and one other political platforms. Therefore, when looked at in a reasonable, i.e. non-extremist, manner it is apolitical.

    12. "Therefore, when looked at in a reasonable, i.e. non-extremist, manner it is apolitical."

      It's not. It's political. It's always political.

      It's about public affairs. Its about the relationship between people and the construction of a society.

      That is politics. The very definition of it.

      Keynesianism requires active political intervention to the 'natural order'. That requires a political decision to adopt that approach.

    13. The theory is apolitical. How it is applied is the political dimension. See: the quote above about Keynes discussing Nazi Germany. I wrote a short piece on the German forward here which ties into this argument:

      As I say there, although everyone has an opinion on the taste of apples, you should not pay attention to this when counting the number of apples on the table.

      My contention is that with Marxism and Austrianism, the taste of apples is always already taken into account when counting the apples. With Keynesianism, this is not so. One could undertake the most right-wing policies imaginable under a Keynesian lens -- just as Hitler did.

      When I hear people saying that "everything is politics" I reach for my gun. By that logic child sexual abuse could be considered politics in the sense that one could argue that this is a political choice that one has made as to how they want to raise their child. I do not make this grotesque example arbitrarily, many cults have indeed taken this line. In conflating perversion, fantasy and derangement with politics many educated people cross a line which I don't believe they even recognise. And in conflating politics with everything else (which is the same logical move) they cross that same line.

    14. "My contention is that with Marxism and Austrianism, the taste of apples is always already taken into account when counting the apples."

      I disagree entirely. It's the same thing. People taking positions and trying to self-justify it.

      As with all religious positions yours is always holier than everybody else.

      And in taking that position you miss what can be learned from understanding the alternative viewpoint - even if you vehemently disagree with it.

      Understanding the child sex abuser gives you information that helps you protect children better. Much more civilised than just ordering up a lynch mob.

      Austrianism, Marxism and Anarchism are extreme but there is much to be learned by understanding why people who believe that sort of thing when it appears obvious that it cannot possibly work in practice.

    15. This line of discussion has wandered far from the original topic of this post. I think it's time to agree to disagree, guys.

  2. Why pick Mario Rizzo out of all the Austrians ?

    1. Because of the Economics of Time and Ignorance?

  3. Rizzo is certainly not representative of all Austrians, just like krugman is with keynesianism. The debate would be very different if we had salerno v krugman, or white v krugman or Russian v krugman (or Murphy v sumner, then throw in keen in the combinations), etc.

  4. I quite admire Murphy for his take on the Hayek-Sraffa controversy. He amusingly summarized his position here:

    I've also wondered about the Austrian obsession with Krugman. I think that more than anything else, it's a function of Krugman's prominence as a pundit. It's also possible that many Austrians began reading Krugman during the Bush administration, when he was largely a critic of Bush's wars, and now feel betrayed.

  5. "In light of all this, Murphy hardly even seems to be a good representative of the Austrian school at all. "

    You talk as though Austrian school is some kind of monolithic organization. I would categorize Murphy as being quite close to "Rothbardian" Austrianism in most areas but he has definitely done some very innovative thinking on interest rates and other areas that needs to be more widely debated and incorporated into Austrian thinking if the school is to stay relevant.

    As well as being a a first-rate economist capable of delivering new ideas Murphy is an entertaining and personable blogger and speaker and would undoubtedly give Krugman a good run for his money in the unlikely event that such a debate ever takes place.

    1. " I would categorize Murphy as being quite close to "Rothbardian" Austrianism in most areas"

      He would still be a highly unusual Rothbardian: one who rejects pure time preference theory of interest and holds a monetary theory of the interest rate.

    2. For big ticket items like fractional reserve banking and monetary disequilibrium he seems to follow Rothbard.

      I think his work on interest rates is very interesting because it addressed head-on some theoretical weakness in the Austrian position that have tended to get ignored (by Austrians). But I don't see those issues as that fundamental - it doesn't in any way undermine ABCT for example but rather lays the foundations for strengthening it by addressing a theoretical weakness identified by Straffa.

    3. "In light of all this, Murphy hardly even seems to be a good representative of the Austrian school at all. "

      Strange then, that two months ago, you wrote this:

      (4) Against the Pure Time Preference Theory of Interest Rates
      “Robert P. Murphy on the Pure Time Preference Theory of the Interest Rate,” July 13, 2011.
      Robert P. Murphy, an actual Austrian, debunks the pure time preference theory of interest.

      So when Murphy helps you "debunk" Austrian economics, he's an "actual Austrian," but now suddenly he's "a highly idiosyncratic Austrian"? Which is it?

      I don't get it--everyone criticizes the Austrian school for being "ossified" and "dogmatic," but as soon as someone adds something new, suddenly they barely qualify as an Austrian? Is the Austrian school barred from growing and innovating?

      Btw, I would like to know if you hold such rigid ideological standards for Post-Keynesianism. Does challenging any aspect of its tenets constitute grounds for ex-communication from the Church of Keynes?

    4. I think that's the point. Murphy seems to be sympathetic to Sraffa's critique that there is no natural rate of interest. That means, as LK has stated quite clearly above, that the Austrian business-cycle theory (ABCT) falls apart.

      But the ABCT is (presumably) the basis upon which an Austrian would critique stimulus policies (because they would tamper with the natural rate and make things worse) together with exotic monetary policy (ditto). If an Austrian were to debate Krugman these would be the points they would have to go after. If Murphy were to be honest he would thus come across as ill-equipped insofar as his views directly clash with the rest of the Austrians.

      It would be roughly the equivalent of a Post-Keynesian adhering to the loanable funds theory. Which, in your terms, would indeed get them kicked out of the "Church of Keynes" -- whatever that particular pejorative means.

    5. Anonymous@August 12, 2012 3:25 PM
      "So when Murphy helps you "debunk" Austrian economics, he's an "actual Austrian," but now suddenly he's "a highly idiosyncratic Austrian"? Which is it?"

      You have done nothing but merely invent a contradiction here.

      (1) Murphy is indeed to be categorised as an Austrian
      (2) yet he is also, as I have shown above, an idiosyncratic one.

      Propositions (1) and (2) do not contradict each other: I might say the same thing about Ludwig Lachmann.

    6. "I don't get it--everyone criticizes the Austrian school for being "ossified" and "dogmatic," but as soon as someone adds something new, suddenly they barely qualify as an Austrian? "

      That is not what I said: I said Murphy hardly even seems to be a good representative of the Austrian school at all. That is, one who holds positions typical of most Austrians.

      (1) Murphy self identifies as an Austrian,
      (2) must be placed in the Austrian school
      (3) yet has some unusual positions I don't see any other Austrians taking.

      And you misunderstand my own position: I strongly welcome and praise anyone within the Austrian school who innovates or develops Austrian theory in new ways that address serious criticisms leveled against Austrians.

    7. This entire thread is ridiculous. The reason why it should be Murphy, rather than Rizzo, who debates Krugman is that Murphy is the one who thought of using to set up an incentive for Krugman to debate him. Due to MUPRHY's efforts, over $76,000 stands waiting to be donated to charity as soon as Krugman agrees. If Rizzo wants to debate Krugman, let him set up a challenge on

      It should be Krugman who Murphy debates, not Keen, b/c Murphy has chosen to focus on the contradictions within Krugman's highly influential and (in Murph's opinion, misleading) columns. If you want Murphy to debate Keen instead, why don't you suggest it to him on his blog yourself?

      Pilkington--Murphy has written many columns in support of ABCT. He has never stated that "the Austrian business-cycle theory (ABCT) falls apart" due to the existence of multiple rates of interest. Only you and LK have drawn the false conclusion that Murphy's paper invalidates ABCT.

      Again, this whole harping on "who is a typical Austrian" completely misses Murphy's point. He wants to use the debate as a platform to spread basic Austrian ideas to a broader audience. Whether or not he fits into LK's box of a "typical Austrian" is completely beside the point.

    8. It appears that what Murphy does is advocate that Austrians should use some sort of rationale based on perfect foresight in order for ABCT to remain relevant. I quote the above linked paper:

      "Rather than couching their business cycle theory in terms of the ERE, Austrians should use a more general notion of dynamic equilibrium. In this construct, the fundamentals of consumer
      preferences, resources supplies, and technology can change over time, but these changes are perfectly anticipated and thus entrepreneurs earn no pure profits."

      This doesn't appear to me to square with the Austrian belief in Knightian uncertainty. It seems to rest on a conception of entrepreneurs that is far closer to a Rational Expectations agent than to an Austrian price-discovering entrepreneur who creates the economy of the future. If I've read this correctly then Murphy is engaged in a total cop-out and has to smuggle in neoclassical nonsense to prop up a shaky theory.

      However, you are correct on one point: Murphy does indeed continue to champion ABCT.

  6. I think i'd rather see a big name Austrian (such as Rizzo) debate Krugman, whilst having a more unique Austrian (such as Murphy or Horwitz) debate Steve Keen. This would give birth to a very interesting exchange of ideas, a "standard" Austrian debates a "standard" Keynesian, meanwhile a more heterodox and critical Austrian debates a more heterodox and critical Keynesian.

    I kind of cringed when Woods referred to Austrians as "free market Austrian school". It sounded like the school was monolithic and as if it existed specifically to support the specifically Rothbardian view of "free-markets", both things which are simply not true.

  7. Speaking of debates, one I would find interesting would be Gavin Kennedy versus Steve Keen. Keen claims that Francois Quesnay deserves greater importance in the canon of great thinkers in the history of economics. I'd like to see Kennedy versus Keen in a contest of two historians of economic thought!

  8. Woods et al are interested in two things. One is PR. When Krugman mentions someone that gives them media cred. Think of Steve Keen for example. That is perfectly rational.

    But the other thing Woods is interested in is, of course, politics. It's not so much that Krugman really represents Keynesianism as such. It's that he represents left-wing political ideals. As I've said numerous times before: for the Austrians economic theory is secondary to politics and political questions. Their theory is constructed out of their politics and not vice versa. I think this makes them political ideologues rather than economists -- like Marxist-Leninists -- but people keep shooting down this rather obvious truth.

    This is the stark difference between them and the Post-Keynesians. The PKers don't give a damn about Krugman's politics. They're more interested in certain ideas (endogenous money etc.). And you'd never see them calling on Greg Mankiw for a debate because they know it would simply turn into a political debate and it would thus be boring.

    For those interested in what such a "debate" might look like, Krugman did have a sort of debate with Pedro Schwartz. As people will see the economics are subordinate to the speaker's own moral project -- which is really what is at issue.

    People will, of course, note that the uploader of the video is very hostile toward Krugman. In fact there was another uploader who put up the video and he is very hostile toward Schwartz. As if we needed any more proof of what this sort of "debate" is really about.

  9. The Murphy-Krugman debate sets a dangerous academic precedent. Think of what Murphy is trying to do: he is saying, I have set up this charity, and if you don't accept this debate, you are insulting my charity.

    Imagine an AIDS denialist or a global-warming crank (Monckton, Anthony Watts) saying "I've set up a charity for children for a debate on global warming, and if you don't accept, it proves you don't like children)," even though the real reason you can't debate is that you can't give any leeway to crank sciences.

    Since Murphy has also questioned the HIV-AIDS hypothesis and the AGW hypothesis, the analogy fits. And the academic precedent it would set would be horrific.

    Krugman would be irresponsible TO accept such nonsense.


    1. That is an excellent point. Next thing you know LaRouche will be debating Obama or Alex Jones will be debating some sensible anchor.

      The "free market of ideas" wold indeed be a toxic means by which fringe lunatics could use the money from their base to inject their ideas into the mainstream.