Ron Paul is clearly a nut job with some idea of what he is talking about in economics. He is squarely in the Austrian camp.

To understand what that means, you can think about it as being (1) subjectivist, (2) dynamic and (3) libertarian.

By subjectivist I mean that ONLY THE PARTIES TO A TRANSACTION can judge the value of that transaction to themselves. Suppose you go to a cafeteria and want to buy an apple. The server tells you it is $1 dollar. Is it worth it? It depends on how much you want the apple, whether there are cheaper alternatives, whether the apple is Fuji or delicious, whether it is the last one or one of hundreds, whether it has bruises or not, etc. Facts, the relative positions of the bargainers and the supply of money all affect the calculation of the actors. No objective, universal answer can be derived.

By dynamic I mean that prices can only be determined in action. Transactions need to occur to know the relative value of a thing. One of the reasons this recession has been difficult is because no one wants to get screwed by overpaying, yet no one knows what that means since transaction volume stopped in the wake of the credit crumble. Activity is a value to the system in and of itself as a means of conveying information about the system.

Finally, it is libertarian in the sense that only free actors can make the subjective determinations necessary to price goods and services. If it is not free, then the parties cannot have the subjectivity necessary for choosing price.

These principles started with the Spanish scholastics like De Mariana and were later picked up by the Austrians like Menger, Hayek and most greatly, Mises. Human Action by Mises is the most important text in the field, one that Ronald Reagan critiqued in the 1950’s in a hand-written letter to Mises that is quite interesting.

Paul may be fruit loops, but these guys were real thinkers.