The Austrian School of Economics owes its name to members of the German historical school of economics, who argued against a circle of economist, mainly from Austria, during the late-19th century Methodenstreit (“methodology struggle”), in which the Austrians defended the role of theory in economics as distinct from the study or compilation of historical circumstance. In Austrian Economy there is a rejection of mathematical modelling, econometrics and macroeconomic predictions. The Austrian economic thought that is based on methodological individualism, the concept that social phenomena result exclusively from the motivations and actions of individuals. Methodological individualism is the principle that subjective individual motivation explains social phenomena.
Murray Rothbard, the American economist of the Austrian School of Economics, believed strongly that the workings of the economy are the sum of all individual’s actions. As a result of this belief, he argued that no institution could act as a central planner. No centralised institution, Rothbard said, could accurately estimate the supply and demand of services and products at any given time.
This belief is one of the core values shared by many libertarians active in bitcoin. Rothbard put forward the idea that if central institutions intend to change an economic parameter (for example, the interest rate), they could never accurately estimate market decisions such as consumer spending habits or the decisions of investors and businesses. The result of such inaccurate predictions, Rothbard said, is inevitable disruption caused by the difference between the central institution’s expectations and the actual economic reality.
Other notable ‘Austrians’ include Carl Menger (late 1890,-earl 1900), Ludwig von Mises (in the 1920s) and Friedrich Hayek (in the 1940s). The Austrian School believes that the free market will come up with the best solution to an problem, as it is an aggregate collection on consciousness where the concentrated thought of every single market actor in his niche will yield the greatest result, because market actors are rational. Government involvement and regulation will effect the market negatively in the long term and causes market distortion, as seen in the lost of purchasing power of fiat currencies, which are continuously issued by central banks, who are looking to ‘stimulate’ the economy, but essentially make the economy fragile.
In his essay “The Use of Knowledge in Society”, Hayek writes “If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization.”
Austrian Economist long argued for a competition in money. Instead of a national governments issuing currency, which use is imposed by force in the form of legal tender laws. Austrians believe that private businesses should be allowed to issue their own forms of money. Bitcoin is build on ‘Austrian ideals’. A force of the free market. Bitcoin exhibits the quality of sound money (scarcity, portability, divisibility, fungibility & durability) like no other monetary asset in history. The supreme characteristics of Bitcoin constantly increase the likelihood (via the Lindy Effect) that it will continue to outcompete gold and fiat currencies. Which confirms the theory of Austrian Economist, that the free market will bring out the best solution, the best money.