A Response To Paul Krugman's Understanding Of Austrian Economic Theory

http://krugman.blogs.nytimes.com/2011/12/15/inflation-predictions/

The above link contains a few responses from Peter Schiff about some of his inflation predictions for 2010, back in 2009 during an interview. Krugman gives his response to Schiff and appears to be confused about two things; Schiff's definition of inflation and also, his understanding of Austrian Economic Theory in regards to the relationship between an increase in the supply of money and the effect it has on prices.

The following link contains a graph of the True Money Supply, up until 2011, which clearly shows that there was in fact inflation.

http://mises.org/content/nofed/chart.aspx

Krugman's comment in regards to his knowledge on Austrian Theory was, "In their version of reality, it really isn’t possible to triple the monetary base without dire effects on the price level. In my version of reality, of course, that’s not only possible but what the model predicts in a liquidity trap."

This is false. Nowhere in Austrian Theory is an attempt made to say exactly when prices will be effected and also what prices will be effected, due to an increase in the supply of money. When new money is created, it is impossible to know which sectors will obtain this new money and when. One thing that Austrian Economic Theory does mention is that when this money finally does make its way to a specific sector, then yes, prices in that given sector will increase. But it must be understood that the theory does not make an attempt at saying when and where the money will go to have this effect.