Please click the link below to listen to the 51st episode of my weekly crypto podcast ‘Two Minute Crypto.’ These are intended to be short, single-topic ramblings on some aspect of the cryptosphere. Consider dropping a like and or a review on iTunes or Podbean if you enjoy the podcast. Comments and critiques welcome.
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Austrian Economics and Crypto
Welcome to Two Minute Crypto. This week we explore Austrian economics – a core pillar underlying the economic worldview of most Bitcoin advocates. As a crypto enthusiast, you’ve likely noticed that Austrian economics is frequently referenced, in particular, by Bitcoin maximalists. So, what exactly are they referring to? What follows is an extremely simplified overview of the Austrian school of economic thought. It is also not an unequivocal endorsement as my personal view lies somewhere between the Keynesian-Austrian models.
The main beliefs of the Austrian School of economics can be summarized into five areas:
- Laissez-faire economics – a strong belief in the primacy of free markets viewing government regulations and interventions in markets as an inefficient negative. This extends to a belief that all government programs such as infrastructure spending, social welfare, and public healthcare are inherently wasteful.
- A rejection of the Keynesian model of fiscal policy which involves the creation of fiat by governments in order to support spending programs and stimulate the economy.
- A related rejection of the role and actions of central banks in both the printing of fiat money and the setting of interest rates in order to balance, promote or reduce inflation. In addition, Austrian economists are sharply critical of the fractional reserve banking system which utilizes debt to promote economic growth.
- Support of a return to a gold standard or in the case of crypto adherents, the adoption of Bitcoin as a new standard and or global currency. Key to this is the removal of the ability of the state to ‘create’ money. Sound sovereign money may be said to be the heart of the belief system most Bitcoin maximalists espouse.
- A belief that market recessions are in large part caused by central bank interest rate manipulation – inverting the relationship commonly stated by central banks where it is the looming recession itself that causes the change of rates.
Bitcoin advocates would argue that BTC is deflationary in nature. Its supply is limited, its issue known and dependable and critically, its supply lies outside the control of any state or body. Austrian economics and Bitcoin maximalism are natural co-concepts. It is extremely difficult to be both a Bitcoin supporter and a proponent of Keynesian economics.
As to other cryptocurrencies, it is far more debatable whether they offer a viable alternative to fiat currencies. If they are centrally controlled, then the possibility of supply being open to manipulation is orders of magnitude higher than BTC.
If you are interested in learning more about the Austrian school of economics as it relates to crypto, I highly recommend you read The Bitcoin Standard by Saifedean Ammous.
Thanks for listening.