Via Tyler Cowen, I see this piece at Between the Balance Sheets, which purports to show the untold side.

The original article on which Krugman’s piece was based is even more interesting. The authors came to a very different conclusion from the professor, however, which has significant implications for today’s debates on monetary policy and the economy.

Yet, I don’t see anything here which deviates from the core lessons we would learn from this story.

The author of the blog post says

Krugman’s account focused on the way the co-op used monetary policy to deal with its “recession” after it had already occurred:

By contrast, the original story focused on the cause of the “recession.” The problem was that the co-op economy was very sensitive to monetary shocks because the price of going out was fixed:

There was a shortage of scrip. There was so little scrip to go around that holders were reluctant to squander it by going out. Those who wanted to go out but didn’t have scrip were desperate to get sitting jobs. The scrip-price of baby sitting couldn’t adjust, and the shortage worsened.

The bolded passage makes all the difference in the world. Recall that a unit of scrip was defined in terms of the number of hours of baby-sitting it could purchase. The price of going out was fixed in terms of scrip, so when the supply of scrip fell, the cost of going out surged.

First, Krugman off-handedly mentions the reason why the recession occurred, because of taxation. However, that’s not particularly material to the core insight.

On the other hand the note about sticky prices is material to the core insight but its also – if I may be so bold – the point of the Sweenys’ telling of the story, Krugman’s telling of the story, and my frequent telling of the story. The idea is to help people understand liquidity demand; that we don’t need and industrial economy or bonds in order to have a recession. We just need money, prices and exchange.

It’s the anti-PSST story. No patterns whatsoever.

On my bus ride home I toy with a story that even eliminates the exchange. There are only money and prices. What it’s the price of – well you have to wait and see if I can finish the story for that – but there are no goods or services, or anything that could be meaningfully called output or employment.

When the economy goes into recession it manifests itself solely in a reduction in the velocity of money, yet we can easily see that this makes the participants sad and they could be made happier by monetary and fiscal policy.

I think also that we can even have a bank and a bank run, but that is much more sketchy.

Long story short, I what Under the Balance Sheets identifies as the key message is what we all think is the key message.

The only place where I see a difference is when Under the Balance Sheets seems to conclude that the whole thing is an indictment of macro-management. The post author says.

This is the third lesson: experts cannot manage the economy.

As they asked at the end, ”if goodhearted people in an area that offers little scope for chicanery can so bungle economic management, can we really be surprised at the results of turning our economy over to the tender mercies of political experts?”

I totally took a way the lesson that this is not a political problem, nor a problem of people of bad faith or class warfare. This is a monetary problem pure and simple.

Indeed the final two paragraphs are this:

The monetary nature of the co-op crisis is clear (to you and us). The recession-inflation seesaw developed when the number of units of scrip per member got out of line. Very well. Get it back in line and see to it that turnover the growth (or shrinkage) cannot change this ratio. There are lots of ways to do this, though the tendency to look for moral failings as the cause of difficulties makes discretion in the hands of the officers more than a bit iffy. One way to cut the knot is to fix the number of units per member at an amount that seems right on the basis of past ups and downs, and freeze the ratio there. Of course, the ratio may be a little off and the "best" ratio may change from time to time. But this may merely be the cost of avoiding a conversation grilling you about why you haven’t sat for four weeks. Unfortunately, the co-op members seem not to understand all this. When crisis finally stirs the majority to action, who can say monetary wisdom will prevail.

There are a few practical morals to draw from this unhappy tale. One is that the co-op is an organization of persons, with social and personal relations—and it’s also an economy. It is simply foolish not to design the management of the economy right to begin with. The main lesson may be that there is an economy embedded in many social relationships, and while a well-run economy is no guarantee of love and peace and happiness, a poorly run economy may well prevent these goodies. Now, if goodhearted people in an area that offers little scope for chicanery can so bungle economic management, can we really be surprise at the results of turning our economy over to the tender mercies of political experts? Indeed, unlike the co-op, the national economy seems virtually indestructible, not having died yet

This seems to me to a pure endorsement of technocracy. That the problem is not political, its technical.