The Austrian School of Economics is an influential school of economic thought that emphasizes the importance of free markets, individual action, and entrepreneurial innovation. Founded in the late 19th century by economists such as Carl Menger and Friedrich Hayek, the Austrian School has had a lasting impact on economic thought and is still studied and discussed today. Its core principles have been embraced by many economists and politicians across the world.
How do modern representatives of the AES feel about cryptocurrencies?
Decentralized digital currencies are free from government control to a greater extent than fiat ones. The mechanism by which new bitcoin units are created and transferred ensures its scarcity and respect for the independence of the individual user. These characteristics cannot but arouse the sympathy of the AES.
In his book A Brief History of Money, Seifedeen Ammous, a modern representative of the Austrian school, substantiates the claims of bitcoin to the role of “hard money” that the AES speaks of. He explains that, according to AES theorists, the value of a currency is determined not by external security (in the form of gold or other assets), but by the ratio of supply and demand – the level of trust. In the case of cryptocurrencies, the psychology of the behavior of market participants affects the formation of their price. As long as people consider bitcoin and other cryptocurrencies to be trustworthy, the demand for them is growing. A fall in the exchange rate is possible only in the event of a loss of public confidence. Thus, maintaining a consistently favorable environment in the cryptocurrency industry already serves as a guarantee of exchange rate stability.
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Although some representatives of the modern AES (Konrad Graf, Daniel Kravitz, Robert Murphy, Seyfedin Ammous) call themselves bitcoin maximalists, others doubt that bitcoin and its analogues will be able to replace fiat currencies.
For example, economist Joseph Salerno (and other members of the Austrian school agree with him) supports the idea of a currency free from government control, but doubts the rapid development and implementation of new financial technologies.
The Austrian school regards the free market as the highest value and believes that the market itself determines the best form of money, based on the efficiency factor. The “aggressive” promotion of bitcoin as money is considered by these representatives of the AES to be contrary to the concept of a free market. Joseph Salerno says:
“In connection with bitcoin, I am confused by the fact that no one is campaigning for gold. Why impose bitcoin? Why not just let him emerge victorious in the market fight? I’m not sure about its viability. Now it is viable, being an effective means of payment. However, I don’t think it has already become a medium of exchange.”
In the fundamental works of Menger, Mises, Rothbard and Hayek, money is defined as a “tangible object”. This characteristic does not apply to cryptocurrencies, which gives AES skeptics a reason not to consider them money.
Their opponents object to this by pointing out that the notion that a product must be physical and tangible is outdated. According to them, before the advent of bitcoin, there was no concept of a “scarce digital good”. If earlier there was no appropriate technological base for a digital product, now it is, and the stereotype about the physical nature of value should be abandoned.
Many older Austrian school economists consider gold to be the best form of money, while their younger counterparts lean towards cryptocurrencies. Perhaps this is due to the fact that the young representatives of the AES are better acquainted with the technological side of the issue and are able to understand how the principles set forth in the works of the founding fathers of the school are applicable in the world of advanced technologies.
Today, AES followers cannot but admit that their hopes for gold as “hard money” have remained theorized, while cryptocurrencies have already become fully functional money with real use cases.
Some representatives of the AES believe that a gold-backed stablecoin can become “hard money”, although they admit that such a model risks becoming an object of state control, since the state can always confiscate the security.
All representatives of the AES agree that the free market will sooner or later determine the best form of money, especially in the absence of government intervention. Until this happens, it is necessary to continue to exert ideological pressure on the state, they believe.
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The Austrian School of Economics is a school of economic thought that emphasizes the importance of individual freedom and human action, and advocates for a free-market economy and the elimination of government intervention. It is a school of thought that has had a significant influence on economic theory and policy, and continues to be relevant today. The Austrian School provides a unique perspective on economic issues and provides valuable insights into how the economy works.