How Bitcoin Spreads ‘Austrian Economics’ and thus Worldwide Intellectual Revolution

Dec 27, 2017 · 7 min read

The world’s population can be divided into two groups. Group #1 can be seen as the seemingly ‘radical free-marketeers’ who believe that the world would work much better if most or all things were privatized and thus see a world where traditional governments play a minimal role at best. Whether these people know it or not, their worldview was to a large degree crafted by free-market economists like Ludwig von Mises, Henry Hazlitt, F.A. Hayek, and Murray N. Rothbard…men oftentimes referred to as members of the ‘Austrian School of Economics’. Group #2 is basically everyone who is not part of group #1 and thus believes governments and large public sector bureaucracies like public education, public/government-managed care of the elderly or poor, and numerous other governmental bureaucracies must play a significant role for the smooth and fair/just functioning of society. Only one of these world-views is correct, and cryptocurrencies like Bitcoin are inadvertently helping millions stumble upon the wisdom of the ‘Austrian School’ and their seemingly radical free-market views.

Until the emergence of Bitcoin, the radical free-marketeers had to rely on various traditional ways of helping spread their views. Things like economics-related publications, think-tanks like the Ludwig von Mises Institute and the Foundation for Economic Education and a few others. The writings of free-market philosopher/novelist Ayn Rand have also been very influential. The 2008/2012 presidential runs of former congressman Dr. Ron Paul, who is an avid fan of the ‘Austrian School of Economics’ and aforementioned economists, also created a swell of interest in the radical free-market/libertarian views. Yet relatively speaking, the spread of such ideas has been slow and the result of painstaking effort. Bitcoin is changing all that in two fundamental ways. Reason #1 is the massive interest in Bitcoin which is the result of its spectacular rise in price, fortunes being made, and relative disruption of the financial markets. By late 2017, the American public at large has heard the word “Bitcoin”, and those in the financial sector or looking for ways to get rich, in other words, a gigantic number of highly motivated and ambitious people, are learning about it. So reason #1 gets a rapidly increasing number of minds learning about Bitcoin, and more importantly, the basics of monetary theory. The second reason why the radical free-marketeers are hopefully on their way to transforming the planet is because as the aforementioned minds learn about cryptocurrencies and Bitcoin, they learn one basic economic concept which helps them get closer to understanding the views of the radical free-marketeers and thus join their ranks. What is this basic economic concept?

Easy, the reason why the price of most things like healthcare, housing, food, education, transportation, etc. keeps going up is mostly due to the fact that government-run central banks create more money. Imagine a small island economy with 10 people where each person has $10 so that there is a total of $100 in the island. Can anything sell for $120? No, right? Even if everyone pooled their money there would still not be enough to make such a transaction. What if each person had an “increase in their supply” of money and now had $1 million so that there would now be a total of $10 million in the island. Could something now sell for $120, or $5 million? Yes, because there is now more money. So what is needed for the price of things to go up? More money! And who creates the money that enables this? The government’s central banks, the only ones that are legally allowed to do so. This simple lesson does two devastating things for the prevailing economically ignorant worldviews held by most people, including many financial “experts”. 1) It easily shows how rising prices/inflation is due to increases in the quantity/supply of money and 2) It clearly places the blame for this on the government’s central banks. As famed free-market economist and 1976 Nobel Laureate in Economics Milton Friedman mentioned “Inflation is a monetary phenomenon. It is made by or stopped by the central bank.” Compare the obvious wisdom in Friedman’s statement to that of current (as of 12/26/2017) Federal Reserve Chairman Janet Yellen who said that “our understanding of the forces that drive inflation is imperfect” . In less than a year, from 1/1/2017 to 12/1/2017 the US central bank, the Federal Reserve increased the money supply by about 600 billion dollars. In the early 1920s Germany suffered one of the most famous bouts of hyperinflation and economic chaos where prices were at times doubling every couple of days. What was responsible for this chaos? Obviously the German central bank/“Reichsbank” :

“The Reichsbank was finally reduced to making apologies for its inability to provide for a weekly output of more than several billion (or trillion) of marks of the required denomination and to an expression of its hope that this situation would be quickly remedied by an improvement in the speed of the printing presses! The printing presses did their bit. By the end of inflation the daily output of currency was over 400,000,000,000,000,000 marks.” (Graham, p. 35)

Under the gold standard, since you can’t increase the supply of money/gold by simply adding some zeros at the end of a bar of gold, prices remained stable because governments could not “inflate” and thus create additional money with which to trade for all the wealth needed by their inefficient bureaucracies/militarism. Just like gold, and unlike government-controlled central bank electronic/fiat money/dollars we have these days, Bitcoins can’t be increased at will or controlled by some economically clueless bureaucracy. Every day, thousands of minds all over the world are stumbling upon these simple yet monumentally important facts which correctly place blame and focus on the current misguided mainstream economics establishment, and gets them closer and closer to properly understanding the views of the ‘Austrians’.

The fact that the free-market views of the ‘Austrian School’ economists utterly dominate the mindset of most of the super-bright and ambitious computer programmers that are currently revolutionizing the world provides a look at the epicenter of this intellectual pro-free-market revolution. The anonymous inventor of Bitcoin who goes by the name of Satoshi Nakamoto has mentioned Ludwig von Mises and other evidence shows he is likely to be a big fan of the ‘Austrian School’ free-market economists. The second largest cryptocurrency as of 12/26/2017, Ethereum, was created by Vitalik Buterin who nicely sums up the ongoing intellectual revolution when he mentioned that “I thought Austrian economics was like the world”. Another popular personality in the cryptocurrency world is CEO of Roger Ver whose life too was utterly transformed when he stumbled upon the free-market economic ideas of the ‘Austrian School’.

How the cryptocurrency/Bitcoin phenomenon is inadvertently spreading free-market ideas became surprisingly obvious to me while discussing the growth of libertarianism with a friend from the Philippines who mentioned to me that:

“people are learning all about fiat money and its defects because of the distinction with bitcoin” … “I hardly, if ever, talk about philosophy to people because it’s hard to segue into it in a conversation without awkwardness, but inviting the smart curious people to a bitcoin event can really…”

A lot of wisdom can be extracted from that statement. There is the obvious fact that interest in Bitcoin is causing great interest in monetary theory. It should be noted that the great ‘Austrian’ economists specifically advised the public to do precisely what Bitcoin is inadvertently doing, which is to focus on a basic understanding of monetary theory and how rising prices are the result of government central bank policy and mismanagement of the economy. Henry Hazlitt wrote an essay titled “The Task Confronting Libertarians” where he advises his readers to do just that:

“This brings me, finally, to one more single issue on which all those libertarians who lack the time or background for specialized study can effectively concentrate. This is in demanding that the government provide an honest currency, and that it stop inflating.

This issue has the inherent advantage that it can be made clear and simple because fundamentally it is clear and simple. All inflation is government made. All inflation is the result of increasing the quantity of money and credit; and the cure is simply to halt the increase.”

Again, a basic understanding of inflation is probably the most viral and powerful idea which can get people on the path towards a superior understanding of the socioeconomic world as properly explained by the free-market economists. The very fact that so many libertarians already know this is a testament to its viralness and ability to cause the necessary doubt and curiosity needed to wake up to the fact that much of how the world economy runs is far from ideal.

The free-market or small-government views can be supported via economic arguments that explain the superiority of privatization based on rational self interest and also using moral arguments. The growth of Bitcoin is greatly accelerating the former approach, which happens to be the approached preached by the great free-market economists who saw the world’s socioeconomic problems, not so much as the result of immorality, good vs. evil, or bad politicians, but as the result of massive intellectual error and economic ignorance. The great Ludwig von Mises goes out of his way to advice his readers against shifting arguments for freedom too much towards the “moral sphere” when he writes:

“The problems involved are purely intellectual and must be dealt with as such. It is disastrous to shift them to the moral sphere and to dispose of supporters of opposite ideologies by calling them villains. It is vain to insist that what we are aiming at is good and what our adversaries want is bad. The question to be solved is precisely what is to be considered as good and what as bad. The rigid dogmatism peculiar to religious groups and to Marxism results only in irreconcilable conflict. It condemns beforehand all dissenters as evildoers, it calls into question their good faith, it asks them to surrender unconditionally. No social cooperation is possible where such an attitude prevails.”


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