Continuing a family tradition, Rand Paul is saying crazy things about the Fed and monetary policy. It’s important to note, however, that he’s not that far out of the modern Republican mainstream. Remember this:

I always go back to, you know, Francisco d’Anconia’s speech, at Bill Taggart’s wedding, on money when I think about monetary policy. Then I go to the 64-page John Galt speech, you know, on the radio at the end, and go back to a lot of other things that she did, to try and make sure that I can check my premises.

Yes, that’s Paul Ryan citing a second-tier character in Atlas Shrugged as the ultimate authority on monetary policy; and we’re not talking about when he was an adolescent, we’re talking about someone who was already a rising Republican star.

But why the craziness? It goes beyond class interest, I think, although that’s part of it. There’s something about money that promotes crazy thinking, backed with a lot of passion (and anger at anyone who doesn’t go along with the program). What makes money and monetary policy special?

Here’s my current thought: in some sense money is a really weird thing, which can look to individuals like a real asset — cold, hard, cash — but is ultimately, as Paul Samuelson put it, a “social contrivance” whose value is more or less conjured out of thin air. Mainstream macroeconomics acknowledges the weirdness — in particular, makes heavy reliance on the ability of central banks to create more fiat money at will — but otherwise treats money a lot like ordinary goods. But that intellectual strategy doesn’t come naturally to many people, so there’s always a constituency for monetary cranks.

Think about how most macroeconomists handle the role of money. First, we tell stories about the need for and emergence of mediums of exchange — transaction costs, double coincidence of wants, cigarettes in prisoner-of-war camps, etc.. Then we declare that we’re going to blur the details and introduce money into our models either with some stylized story like cash-in-advance constraints, or by deliberately burying the complexities and putting real balances in the utility function.

This in turn leads to the basic Hicks model of an economy in which there are three markets — for money, bonds, and goods — which are treated symmetrically; add price stickiness and that model becomes IS-LM. New Keynesian economics pretty much takes that base and adds explicit modeling of intertemporal choices and rational expectations.

Dealing with monetary economics this way lets you address monetary and fiscal policy in terms of lucid, elegant little models that are quite intuitive once you get used to them, but not at all intuitive to people who haven’t learned to think this way — witness the debates we’ve had since 2008. Still, there’s a bit of sleight of hand involved in the way we handle money itself: first acknowledge that it’s a special sort of good that people desire only because other people desire it, then ignore that specialness for the rest of the analysis. And you could imagine that this sleight of hand might lead you badly astray, that the predictions of those lucid little models would be all wrong, that you should only use models in which the role of money itself is microfounded.

But the conclusion of generations of macroeconomists has been that for most purposes models that treat money as if it were an ordinary good are good enough; whereas attempts to ground everything in models in which the role of money is in some (weak) sense derived rather than assumed have been generally useless. Still, there’s always an undercurrent of unease. And you can find heterodox economists on the left as well as the right unhappy with the standard approach.

Now, the elder and younger Pauls know nothing of this, nor, I suspect, does Paul Ryan. But that may be the point: having no contact with the intellectual tradition of macroeconomics, they find the role of money in the economy a great mystery and possibly an outrage — how dare banks/governments/the Illuminati pretend to create value out of nothing! Fiat money, whether created by the government or by banks, seems to them to be a violation of natural law; creating more fiat money in an attempt to relieve economic distress must surely lead to disaster.

The sad thing is that this epistemological panic is gaining a growing hold over American conservatives at a time when the standard way of dealing with money has, in fact, been covering itself in glory. That Hicksian approach, in which money is treated symmetrically with bonds and goods, made strong predictions about what happens with interest rates near zero — predictions that the Fed could expand its balance sheet many times over without inflation, that governments could borrow vast sums without driving up interest rates, that slashing government spending would cause private spending to fall rather than rise. Those predictions were ridiculed five or six years ago, but they have come true. It’s hard to imagine a worse time to reject the standard approach and “audit” — actually, intimidate — the Fed.

But so it goes.