The cult of the Austrian School of economics

The Nostr network began as a response to closed social networks and to this day it is one of the few, if not the only, social network that provides freedom of speech for its users. It quickly drew in freedom-loving individuals and remains popular mainly among bitcoiners and libertarians.

It is refreshing to participate in a network that cannot be censored, where you are free to express yourself and discuss any topic. At the same time, you notice several like-minded groups among Nostr users, especially bitcoiners, who currently make up most of the network.

One prominent example of this groupthink is a strong belief in the Austrian School of Economics, which bitcoiners see as the only economic theory that can ensure prosperity for everyone. This belief is supported by the “bible” of Bitcoin, The Bitcoin Standard, and echoes through many other Bitcoin-related books and podcasts.

What the school promises

The Austrian school centers on the individual and their actions, emphasizing complete freedom to pursue them in an open market. Markets, in this view, self-regulate: supply and demand correct anomalies better than any regulator could. Value is subjective - a thing is worth exactly what someone will freely pay for it - and prices coordinate the choices of millions of people without anyone in charge.

It is an attractive vision, and it carries a strong claim. If the school is right, economics would mirror physics or math, following natural laws that function on their own and reliably produce prosperity for everyone. So the question is simple: is the freedom of the open market all an economy needs?

Labor vs usury

Here I part ways with the school’s premise.

The Austrians treat value as something individuals assign through personal preferences. I side with an older tradition, running from Aristotle through the medieval scholastics, which holds that human labor is the true and only source of value. Without labor there is no value and no wealth, and any successful economic or social system must put human well-being and labor above everything else.

Aristotle called money sterile: it cannot breed value on its own. Usury - charging interest for the use of sterile money - means making money generate wealth, and any system that allows this while prioritizing money over labor is harmful. Throughout history we see a struggle between these two approaches, one based on usury and one based on labor. Sadly, usury has become the norm, enforced by most governments around the world.

A bitcoiner will object that holding appreciating Bitcoin is not lending at interest, and strictly speaking he is right. But the deeper point stands: when “sound money”, whether Bitcoin or gold, rewards holding over doing, the incentives of the economy tilt away from labor and production toward simply holding and speculating. Wealth flows to those who already hold, not to those who create.

A live experiment

The cryptocurrency ecosystem is as close to the open market as one can get: 24/7 trading, full freedom to launch any “shitcoin” you can dream of and shill it to anybody. No rules, no constraints.

It is worth asking what this freedom produces in practice. Is it right to push a shitcoin on others knowing it is a scam? Is it acceptable because it is an open market and nobody is forced to buy? The honest answer is that the closest thing to a truly free market we have ever built is drowning in scams, and reputation alone has not stopped it.

Bitcoin changes the money, not the deal

Create value and trade it for Bitcoin (“stay humble and stack sats”). You exchange your precious time for ever-rising Bitcoin (“number goes up technology”) instead of constantly devalued fiat currencies, and by doing so you preserve and even boost your wealth over time.

Nothing should stop us from using this approach. Bitcoin is genuinely powerful for individuals: it cannot be inflated or taken, even with coercion, and it is one of the few assets you can truly own.

But every transaction comes with responsibility, even in the Bitcoin world. At the end of the day Bitcoin is just money, and the free market cannot carry that responsibility for us. We should ask who we are dealing with. Is the deal fair for both sides, or is one party taking advantage of the other?

The Austrian school does not answer such questions, not by oversight but by design: its ideal of a value-free science deliberately brackets ethics out of economics. (Rothbard later tried to bolt a natural-law ethics onto it, which only shows the hole was felt.) The market assumes voluntary transactions are mutually beneficial and stays silent on whether they are just.

Yet an individual focused only on personal gain, with no principles beyond profit, will exploit others. Over time this concentrates wealth in the hands of a few predatory actors, and the free market will not stop it; it will amplify it. Some argue that the loss of reputation protects the weak from the strong, but reputation is a weak check when the gap in power is large: the scams of the crypto world kept finding new buyers long after everyone knew what they were.

Morality

The problem is that we don’t always trade on equal terms, and we can’t always walk away from deals that don’t benefit us. Often one person can take advantage of another, and an open market won’t help here.

Can we ignore morality when discussing human actions? Can we overlook what is just when transacting with others? Nostr gave us freedom of speech, and for that I am grateful. But freedom of expression, like the freedom of the market, does not free us from asking what is right.