MMT vs. the Austrian School Debate

I do not think this is the final high-quality video of the debate, but a version of the raw video. The debate begins at 22.30.





I will write some extended comments at another time, but some random comments here.

Right on cue at 34.36, we get Bob Murphy giving us the Austrian view of prices: flexible prices are fundamental communicators of economic knowledge, and (presumably) like other Austrians he thinks that flexible prices moving towards their market-clearing values equate demand with supply, to allow a market economy to achieve economic coordination. This is a misguided and ignorant view of real world market economies. All one has to do is point out the fundamental importance of administered prices and fixprices in a market economy to show how deluded and far from reality Austrian price theory and its view of economic coordination is.

At 36.00, Murphy says that a “market interest rate” is a fundamental economic value, and government interference with it disastrous. But what does he mean by “market interest rate”? Does he mean a Wickellian natural interest rate? If so, such a thing does not exist and is completely irrelevant to any real world market economy outside of imaginary equilibrium states. Strangely, Murphy himself acknowledges the non-existence of the natural interest rate.

If Murphy means a “market clearing interest rate” as in loanable funds theory, this is also unacceptable and a wrong theory of interest rates. For example, if business expectations are subjective and can be shattered, loanable funds theory does not work, because lower interest rates will not induce the necessary investment to clear the money market.

Murphy’s simple blaming of the Fed for the asset bubbles of 1990s and 2000s is also unacceptable. Asset bubbles existed long before central banks and even under commodity standards. In poorly or minimally regulated financial systems, asset bubbles were endemic, and even when the collapse of an asset bubble causes disaster, this does not stop asset market gamblers some years later from doing the same thing and unregulated financial systems from providing the credit for doing so.