The baby-sitting co-op that went bust teaches us something that could save the world - Krugman's errors

You can find the original article here, which I also posted previously here.

Though I'm not a Nobel Prize winning economist, I do know when I'm being bamboozled with Keynsian fairytales. Here's the mistakes I think Mr. Krugman makes:

Error #1) The Scrip is not currency, and can only be used for the purpose the group created it for. This means it's not fungible. Therefore the scrip more like a commodity than a currency.

Error #2) The co op members hoarded their scrip, and thus there was a lack of circulation. However, currency is generally not hoarded, it remains in circulation in some form (unless it's hidden in a mattress, it will be invested, deposited, or spent).

Error #3) Having a "central authority" print more scrip so that it can be borrowed does not solve the problem. Indeed, if more scrip can be printed, then the holders of scrip will lose confidence in its since it can be created arbitrarily. What should happen is the scrip should be loanable from member to member, which keeps the quantity and value of the scrip intact.

Error #4) This is a closed system, not an economy. There are no other factors that come to bear on the value of the scrip. It has value because the members agreed that it would represent a tangible item (babysitting). In other words, the scrip and the service are always one-for-one interchangeable.

This is a complicated subject, and further analysis could be employed. However, it is enough to say that this is not a good working example of why our economy should engage in Mr. Krugman's prescriptions. unfortunately, it has done just that, and has suffered as a result.