Why Austrians are Wrong about Bitcoin

Austrian Economists unjust attack on Bitcoin.

Austrian Economists unjust attack on Bitcoin.

I have learned a lot from the Mises academy and Austrian Economics in general. There is in fact very little I’d disagree with that I’ve read from these sources, and I believe everything that came directly from Mises or Hayek themselves is the final word in economics. These great thinkers are rare gifts to humanity, and it’s a bitter injustice that ‘mainstream’ economists ignore them so often.

Sadly, the common opinion of Bitcoin expressed from the Mises Academy’s leaders today is a true exception to this otherwise pure fountain of wisdom. They have stated that Bitcoin can never be a commodity (since it isn’t useful for anything else) and therefore can never be actual money. Then some of them continue on to say that because it can’t actually be money, one should never invest in it, because they are sure the market won’t accept it. (My paraphrasing, but accurate sentiment.)

In short, the hardcore Austrians continue to say that the market won’t accept it, yet the market is valuing each bitcoin today at almost $50 USD, and growing.

Luckily, some others in the Mises crowd don’t go so far as saying that it cannot catch on; but still they don’t spend any time promoting it nor I’d imagine investing in Bitcoin. Here is the common response that most Austrians will point to on Youtube, and I believe it is the one such statement from Mises with the most reviews:

I respect the points given in the video, however after giving the subject over 2 years of hard thought now, I’m convinced that any negativity towards Bitcoin is in fact, misplaced. While I certainly concede that Bitcoin is no commodity, there is no evidence whatsoever outside of the historical precedent for money to necessarily be a commodity.

Some would even argue that no money exists right now that IS a commodity… It’s almost as if commodity-backed currency went extinct in 1971, when Nixon took the USD off the gold standard. (Yes, I realize that there are better-backed currencies than the USD; however none are above a 50% backing anymore so my point stands.)

Meanwhile, there are plenty of popular bitcoin-friendlies to be found online too, most notably among the libertarians and anarchists, and even a growing group inside the Mises circle itself who are bullish on bitcoin. Tom Woods did an excellent podcast recently of the Peter Schiff show promoting Bitcoin. This excellent article from “the Mises Circle” blog is very bullish indeed on Bitcoin, and advises other Austrians to start hoarding them, mainly to help take power away from the federal reserve bank.

It’s very difficult though to see why any Austrian would not want to help promote a totally decentralized form of anonymous money out in the wild, especially one that stands to take some ‘market share’ away from the federal reserve in some small way. Afterall, don’t Austrians always say that they’d like to see competing currencies? That’s been the Austrian mantra since Mises said it first.

Bitcoin certainly fits the description of “competing.” It may not have a chance of beating any government-backed legal tender, but it can certainly compete with it in our day-to-day lives and offer better alternatives as long as the free market finds bitcoin desirable.

Stefan Molyneaux, the famed anarcho-capitalist and star of the largest philosophy show online made a fair argument for Bitcoin on RT a year or so ago:

In it, Stefan briefly states that while bitcoin is backed by nothing of value, it is a separate system that doesn’t have to really compete directly with the others. This point does not seem to be taken to heart by the core Austrian crowd. They seem happy to reject a viable competing currency with a large following just because the definition of currency has always been value-backed in the past.

However this isn’t the past anymore. Today we have a very different world, thanks to the internet.

No one here is arguing that Bitcoin’s future is likely to become so popular that the world’s governments will be forced to accept bitcoins as legal tender. However, that doesn’t mean that Bitcoin isn’t money; it just means Bitcoin isn’t legal tender for the state.

And since when were Austrian economists so concerned about making a future that is compliant with the state?

It used to be that all money was either legal tender, or not. The internet has opened us up to both problems and possibilities with that antiquated dichotomy. To visualize Bitcoin’s place in this increasingly connected world, one has only to realize that the internet has made room for a new type of money right inbetween local scrip and legal tender:

The Types of Money

The Types of  Modern Money

Too many people are getting the concept of “Legal Tender” (which is the state-legalized, mandated money) confused with the idea of money itself. It is just one form, and an undesirable form by it’s very nature since the threat of force is the only thing that keeps us using those worthless, leaky, fiat scraps of paper.

Keeping in mind that there is no type of money in use anymore that is actually backed by a commodity of some sort, (non-fiat) it should be clear that Bitcoin is the superior type of money in use today. Not only are all of it’s features more desireable than all other money in use; It is gaining popularity so fast that even at a mere 4 years of age, with use restricted almost completely to the internet, Bitcoin has a market cap of over $500 Million USD!

Clearly, bitcoin is popular on the free market, and given time it will find a much larger place for itself in the wild than it has already, no matter how little the old-school Austrians think of it… Nor their partners in pessimism; the governments of this world.


4 thoughts on “Why Austrians are Wrong about Bitcoin

  1. Quinton

    I could see Bitcoin being a transitory form of money that transitions us from government Fed notes to something more real like gold and silver. I don’t really think gold and silver could do what Bitcoin is doing because companies can always be shut down and it can’t be done without some type of front company to handle the exchange. All you have to do is look what happened to e-gold. It is much harder, if not impossible, to shut down the Bitcoin engine without actually shutting down Internet communications all together. Bitcoin should definitely give governments a run for their money in the coming years 🙂

    1. Luke Post author

      Mostly agreed, but not quite.

      I’m convinced that bitcoin will stay around for decades or even centuries serving a portion of the world’s population as any cash other than legal tender.

      The states will never accept bitcoin. Bankers simply won’t allow it, and just a quick look in the history books shows that bankers always get what they want from all governments in their path.

      Did you know that the world’s 2nd largest economy is under-the-table (cash-in-hand) transactions? Everyone in every country who doesn’t report something they sold is taking part in the economy of System D. Once bitcoin grabs onto this demographic fully, they aren’t ever letting go.

  2. bitcoiner

    “They have stated that Bitcoin can never be a commodity (since it isn’t useful for anything else) and therefore can never be actual money.” I see it now – they cannot understand, that the blockchain has a bigger potential than a payment network/currency. So how it is not useful for anything else? Did anybody tried to tell this them?

    1. Luke Post author

      Yes, many people have, and there has been some sign of big names like Tom Woods carefully coming over to our side, but the main holdouts, people like Ron Paul himself, seem to really be shy of bitcoin because they distrust the nature of code and open source… It’s unnatural to them.


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