What is the Austrian School of Economics?

• Value is subjective and exists only in the human mind; the labour expended to produce a good or service is neither the source nor the measure of its value.
• Consumer behaviour is hard to forecast and markets are constantly changing; hence mathematical modelling in economics, as well as central planning, is largely impossible.
• The only path to a coherent economic theory is to derive it from the basic principles of human action.
• The guiding principles of economic policy should be non‑intervention (or minimal intervention) by the state, economic liberalism and libertarianism.

The ASE takes its name from its founding figure, the Austrian economist Carl Menger, whose seminal work, Principles of Economics, was published in 1871.

His leading students and followers included Eugen (Oigen) Böhm-Bawerk, author of “Foundations of the Theory of Value of Economic Goods” (1886), Friedrich von Wieser, author of Theory of Social Economy (1914), and Ludwig von Mises, whose magnum opus, Human Action: A Treatise on Economics, appeared in 1949.

Other prominent Austrians include economists Henry Hazlitt, Murray Rothbard and Nobel laureate Friedrich von Hayek.

The Austrian School is classified as one of the national schools (alongside the Lausanne, Anglo‑American or Cambridge schools) that advanced marginalism. It is also known as the “Psychological School” and the “Viennese School”.

The Austrian School exerted considerable influence in the first half of the 20th century, but over time the Keynesian school, founded by John Maynard Keynes in the 1920s, gained far greater sway.

The essence of Keynes’s doctrine—state management of the economy through control of interest rates and the money supply—suited prevailing institutions. Keynesianism became the dominant economic doctrine in the West. In line with this ideology, the International Monetary Fund (IMF) was created at the 1944 Bretton Woods conference on monetary and financial matters. The IMF played a decisive role in shaping the post‑war global monetary system, entrenching gold and the US dollar as standards.

Another influential 20th‑century school was Marxism, which holds that money as instruments of capitalism are untenable because the capitalist system itself is doomed.

The West fell under Keynes’s sway, while the USSR and the socialist bloc followed Karl Marx. The Austrian School became marginal, but in the latter half of the 20th century it began to regain ground. Today the Ludwig von Mises Institute and the Society for the Development of Austrian Economic Theory are active, publishing new work in the Austrian tradition, reissuing the classics, and running journals and conferences.

The 21st century has seen a surge of interest in the ASE, due in no small part to the rise of blockchain technology and cryptocurrencies.

Bitcoin’s roots run into the movement of crypto-anarchists, who draw heavily on Austrian‑school writings. The bitcoin white paper first appeared on a cryptographers’ and programmers’ mailing list whose members sought to secure privacy and financial independence through technological innovation.

The hash of bitcoin’s genesis block embeds the headline “Chancellor on brink of second bailout for banks” from Britain’s The Times, referring to state aid to banks during the 2008 financial crisis. Though quoted without context, it may suggest that bitcoin’s creator, like the ASE, deemed state intervention in the economy unacceptable.

The white paper also cites British cryptographer Adam Back and computer engineer Wei Dai. According to Satoshi Nakamoto, bitcoin “is a realization of Wei Dai’s b‑money proposal… and Nick Szabo’s Bitgold proposal.” Szabo was directly influenced by the Austrian F. Hayek. In turn, Wei Dai’s b‑money manifesto opens with: “I admire Tim May’s crypto‑anarchism.”

In the Crypto Anarchist Manifesto Timothy May writes:

“Crypto‑anarchy is the cybernetic embodiment of anarcho‑capitalism, which does not recognise state borders and allows citizens to conduct any economic transactions based on consensus.”

This ideal is close to the views of American political philosopher Murray Rothbard, an Austrian. In Rothbard’s book The Ethics of Liberty, libertarian anarcho‑capitalism is presented as the natural and only viable embodiment of the autonomy of a free‑willed subject.

Rothbard posits that an anarcho‑capitalist society must rest on the rejection of violence as such. In his view, any aggression by an individual or the state, including coercion by “rulers”, lacks moral justification.

Bitcoin and other cryptocurrencies are voluntary and peaceful by nature. They envisage a financial infrastructure built on voluntary cooperation. Their purpose is to equip people with financial tools to shield themselves from inflation and state surveillance. Their success depends on their efficiency as a technology for economic exchange, not on state coercion.

Satoshi Nakamoto’s ideological leanings echo those of the Austrians, while Vitalik Buterin, creator of the second‑largest cryptocurrency, Ethereum, said: “I think Austrian economics was a whole world.”

Features of the bitcoin protocol recall Friedrich von Hayek’s book “Private Money”, in which the Austrian argued for removing the government’s monopoly on issuing means of payment and creating a competitive system of settlement media among legal entities and individuals.

Even analysts at the European Central Bank (ECB), in their report “Virtual currency schemes”, draw a direct link between decentralised digital currency and the Austrian School. The document says bitcoin’s philosophy is rooted in “a direct criticism of existing fiat money and the intervention by governments and other agencies”, which, in the view of Mises, Hayek and Böhm‑Bawerk, “led to worsening business cycles and significant inflation”.

Decentralised digital currencies are freer from state control than fiat money. The mechanism by which new bitcoins are created and transferred ensures scarcity and respect for the independence of the individual user. These traits naturally appeal to the ASE.

In his book “The Bitcoin Standard” (A Short History of Money), Saifedean Ammous, a contemporary Austrian, argues the case for bitcoin as “hard money”, the Austrian ideal. He explains that, in the Austrian view, a currency’s value is not determined by external backing (gold or other assets) but by supply and demand—by the level of trust. In cryptocurrencies, market psychology shapes prices. As long as people deem bitcoin and other cryptocurrencies trustworthy, demand rises. A price decline is possible only if public trust erodes. Thus, a consistently healthy environment in the crypto industry itself underpins price stability.

The Bitcoin Standard: how the first cryptocurrency surpassed gold

While some modern Austrians (Konrad Graf, Daniel Krawisz, Robert Murphy, Saifedean Ammous) style themselves bitcoin maximalists, others doubt bitcoin and its peers will replace fiat currencies.

For example, economist Joseph Salerno (joined by other Austrians) supports a currency free of state control but doubts rapid adoption and deployment of new financial technologies.

The Austrian School treats the free market as the highest value and holds that the market itself selects the best form of money according to efficiency. These Austrians consider “aggressively” pushing bitcoin as money to contradict the free‑market concept. Joseph Salerno says:

“What bothers me about bitcoin is that no one is campaigning for gold. Why push bitcoin? Why not just let it emerge victorious in market competition? I am not sure it is viable. At present it is viable as an efficient means of payment. However, I do not think it has yet become a medium of exchange.”

In the foundational works of Menger, Mises, Rothbard and Hayek, money is defined as a “tangible object”. That description does not fit cryptocurrencies, giving sceptics among Austrians grounds not to consider them money.

Their opponents counter that the notion a good must be physical and tangible is outdated. Before bitcoin there was no concept of a “scarce digital good”. If the technological basis for a digital good was absent before, it now exists, and the stereotype of value as physical should be abandoned.

Many older Austrians consider gold the best form of money, while younger colleagues lean toward cryptocurrencies. Perhaps the latter are more familiar with technology and better able to see how the founders’ principles apply in a high‑tech world.

Today, Austrians cannot help but acknowledge that their hopes for gold as “hard money” remained theoretical, whereas cryptocurrencies have already become functional money with real use cases.

Some Austrians argue that a gold‑backed stablecoin could serve as “hard money”, while conceding that such a model risks state control, since governments can always confiscate the backing.

Austrians agree that the free market will eventually determine the best form of money, especially in the absence of state intervention. Until then, they say, ideological pressure on the state must continue.

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