Roots of Bitcoin in Austrian Economics
They discovered and explained the laws of supply and demand, the cause of inflation, the operation of foreign exchange rates. How did the School of Austrian Economics paved the way for Bitcoin?
Bitcoin evolved from the crypto-anarchist movement that shares the same values and ideas with Austrian Economics – a School dating back to the 15th century, when the followers of St. Thomas Aquinas, started exploring the full range of human action and social organization.
Over the next several generations they studied and explained forces of cause and effect, supply and demand, contract and trade, as well as subjective nature of economic value. The Second Scholastics celebrated the contribution of business to the society in the 16th-17th centuries, opposing taxes, price controls, and regulations that inhibited enterprise.
Essay on the Nature of Commerce, written in 1730 by Richard Cantillon, explained the formation of prices and view the market as an entrepreneurial process, leading to an Austrian theory of money developed by Ludwig Von Mises. The Theory of Money and Credit was published in 1912. In 1949 Mises published ‘Nationalokonomie,’ which provides an overview of the principles governing economists.
When the International Monetary Fund (IMF) was created in 1944 the Austrian Economics started losing the ideological war with Keynesian Economics, which played a major role in the global post-war monetary system, establishing gold and the US dollar as the global standard.
Scholars within the Austrian School of Economics studied the nature of the market, money and banking, capital goods, and the business cycle. What’s more important is they criticized governmental intervention and planning because they believed that knowledge is generally decentralized. They explained how a free market powered by the law of supply and demand in general functions without intervention from any external forces like the central governmental system. Within the Austrian tradition, state interventions such as taxes, subsidies, mandates, and prohibitions are considered harmful. Austrian economists also believed in sound money and gave pride of place to personal freedom.
The cryptography mailing list where the Bitcoin whitepaper was published by Satoshi Nakamoto in 2008 was the gathering place for computer scientists and cryptographers working to utilize technological innovations to support privacy and financial sovereignty. The Bitcoin Genesis block contains the encrypted allusion to the government bailout of banks following the global economic crisis of 2008. Nakamoto’s political and ideological views clearly explain why the Austrian School finds favor with most Bitcoin users.
The work named “The Bitcoin Standard: The Decentralized Alternative to Central Banking”, published by the economist Saifedean Ammous in 2018 makes the case for Bitcoin as sound money under the Austrian school of economic thought, analyzes the historical context to the rise of Bitcoin, the economic properties that have allowed it to grow quickly, and its likely economic, political, and social implications.