Bitcoin is an innovative amalgamation of pre-existing technologies and the creation of new ones that has lead to an entirely new form of money. However, for many, the support for the world’s first digital currency is based primarily on ideological preferences.
In this article, you will discover why a significant amount of Bitcoiners also love Austrian Economics.
What is Austrian Economics?
Austrian Economics is a school of thought that originated in Vienna, Austria. Though influenced by works from earlier times, the work considered to be the foundation of this economic school of thought is Carl Menger’s 1871 book ‘Principles of Economics.’ In 1949, another notable name within the Austrian school, Ludwig Mises, published the book ‘Nationalokonomie,’ which provides an overview of the principles governing the economists who identify under this label.
At the time of its publication, Mises’s book was received unfavorably by other leading economists who had already made a turn towards Keynesian economics, following the devastating effects of the world wars. Austrian Economics was losing the ideological war, with Keynesian Economics significantly influencing global economics especially after the Bretton Woods Conference of 1944 where the International Monetary Fund (IMF) was created. The IMF played a major role in the global post-war monetary system, establishing gold and the dollar as the standard and greatly influencing the U.S.’s position in global politics.
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Following the publication of his 1949 book, Mises inspired a revival of the Austrian school which had begun to flounder without scholastic contributions and support from economists across the world. Murray N. Rothbard, a former student of Mises, further reignited interest in Austrian economics with his four-volume history of colonial America and the secession from Britain, work he called ‘Conceived in Liberty.’ It was this series that brought Austrian Economics to a wide set of eyes firmly establishing it as a separate school of thought from those in existence at the time. Other notable names within Austrian Economics are Friedrich Hayek and Friedrich von Wieser.
The principles of Austrian Economics
Scholars within the Austrian School of Economics busied themselves with studying the nature of the market, especially as it pertains to entrepreneurship, money and banking, the time structure of capital goods, the business cycle, the dynamics of markets, and spontaneous orders. And, finally, critiques of governmental intervention and planning because they believed that knowledge is generally decentralized and unknowable to central planners.
Austrian economists place great stock on free markets. The school of thought believes the market works best without outside intervention from any forces except those operating within it. As a result, it is obvious why Austrian Economics is generally at odds with many other schools of thought such as Marxism and Keynesianism, which both lean heavily on state intervention. Within the Austrian tradition, state interventions such as taxes, subsidies, mandates, and prohibitions are considered harmful and to be avoided.
Another major principle within the Austrian school is the concept of sound money. While the concept of sound money did not originate with Austrian economists, it forms a major underlying basis for how the intellectual tradition looks at money. Austrians believe that money, like the market, must be state-interference free. Additionally, money must be scarce in nature. Lastly, the market must be allowed to choose what money works best for it.
To conclude, another major feature of Austrian economics is the stock placed on personal freedoms. The two leading Austrian economists of the 20th century were Mises and Hayek who both showed in the 1920s and the 1940s, respectively, that a complex economy cannot be rationally planned because true market prices are absent. As a result, the information critical for centralized planning cannot be obtained. This is another reason for the criticism of state intervention.
Complex economies cannot be rationally planned because one cannot logically aim to account for human action. Thus, Austrian Economics advocates for the study of economics as a human science as opposed to physical science because it is impossible to account for all of human behavior. In this way, Austrian economists make the case for human freedom and the resulting unpredictable nature of the market.
Why Bitcoiners love Austrian Economics
Bitcoin is rooted in the crypto-anarchist movement which borrows concepts from Austrian economics. The Bitcoin whitepaper was initially published on a cryptography mailing list that was populated by computer scientists and cryptographers working to utilize technological innovations to support privacy and financial sovereignty.
Additionally, contained in the genesis block of the Bitcoin network, is an allusion to the government bailout of banks following the global economic crisis of 2008. While the newspaper cutout was included without context, many believe it to be a criticism of the action, especially given his endorsement of Wei Dai’s b-money, which defined itself undoubtedly as crypto-anarchist.
The b-money proposal states: “I am fascinated by Tim May’s crypto-anarchy. Unlike the communities traditionally associated with the word ‘anarchy’, in a crypto-anarchy the government is not temporarily destroyed but permanently forbidden and permanently unnecessary. It’s a community where the threat of violence is impotent because violence is impossible, and violence is impossible because its participants cannot be linked to their true names or physical locations.”
Given these somewhat covert and overt clues, it is possible to deduce Nakamoto’s political and ideological leanings. It also explains why the Austrian School finds favor with most Bitcoin users.
As referenced earlier, the Austrian School sees state interference as unnecessary. For Bitcoin, an open decentralized digital currency outside the influence of any single state, this is a closer reality than fiat currency. Bitcoin users undoubtedly identify strongly with this principle.
Lastly, the mechanism by which new units of bitcoin are created and transferred make it both scarce and respectful of the sovereignty of the individual. A node can choose to participate in any way shape or form on the Bitcoin network. In his 2018 book, The Bitcoin Standard economist Saifedean Ammous makes the case for Bitcoin as sound money under the Austrian school of economic thought and many Bitcoin users are in agreement, both with his conclusions and the Austrian intellectual tradition.