I am taking a 52-week take home course on Austrian Economics from the Mises Institute (Yes, I know NERD ALERT!) and included in this week’s reading (Money – Week 18) is a reference to Paul Krugman’s well-known “babysitting coop” story.
I know I have encountered this before, but wanted to go to the source and revisit this issue. I find it confusing from the outset – the members of the coop are issued script denominated in time that can be used to acquire babysitting hours or can be earned by providing such services.
Krugman notes that the members tended to hoard this script and so it became practically impossible to ever earn more. So, I presume that means that the script was not a claim to one hour of someone’s time unless that person voluntarily agreed to provide it.
Krugman suggests that it was a problem of too little script and that issuing more saved the day, creating a more vibrant market. Critics have pointed out that this outcome was motivated by price fixing of the script. Given an excess demand for the script, in a free market, the “price” of script would have risen, say to two hours per script. [Or, the cost of acquiring an hour’s worth of babysitting has fallen.]
This would entice more to acquire these services and the “problem” is solved. Anyway, this issue came up a few years ago as a writer tried to relate this to Bitcoin. Here is that commentary and a link to a rebuttal, which may relate well to this week’s topic.
This 1998 Paul Krugman Column Perfectly Explains The Design Flaw At The Heart Of Bitcoin
Babysitting Bitcoin Skeptics: A Response to Krugman and Gobry