The Exchange

Kelly Evans: Long Live Austrian Economics

CNBC

For anyone (hello, FinTwit) watching the long, drawn-out debate between Austrian and Keynesian economics, it would have easily seemed that despite the brief ascent of post-crisis movements like the Tea Party, the Keynesians had won this battle for the "right" way to do macro years ago, and that was that.  

Ah, but not so fast. The Keynesians might firmly hold the reins of the U.S. financial system--but the Austrians are busy working away on Bitcoin, crypto, and DeFi. Case in point: in Swan's brief announcement that it had hired podcaster Stephan Livera, the Bitcoin platform (really more of a savings app) proudly announced that not only does Livera  have millions of listeners, but he also has "extensive knowledge...about Austrian Economics."  

I keep joking to my dad that he should become a crypto consultant on the side, given that he studied economics in college under Hans Sennholz, who himself had studied under one of the Austrian masters, Ludwig von Mises. I wonder if he saved his notes.  

In any case, I point all of this out for two reasons. One, that it becomes a true face-off between two sharply different schools of economic thought, as for which approach can now create the most value. Before, it basically came down to Keynesians grow GDP, Austrians want to shrink it. Now, it's Keynesians can have their dollars, and Austrians will have their Bitcoin. 

The whole point of Bitcoin is that it's supposed to be "hard money" that can't be deflated away. And it's a pretty intriguing notion. Who wasn't turned off by Bitcoin's volatility in its early days, especially after the huge run-up in 2017 followed by the crash? Didn't exactly feel like hard money back then. But now, post-pandemic, you think, well, my dollars certainly don't go as far as they used to (whether measured by real estate, stocks, commodities, etc.), but Bitcoin's purchasing power is still up appreciably. 

Sometimes, watching the almost indistinguishable moves in Bitcoin and the Dow day-to-day, I think it's almost like they turned the Dow into money. Imagine if your dollars rose in value from when you first held them--your teenage job would have paid really well in that sense! Ironically, that would have meant that America's oldest families would be even wealthier (since their dollars started earlier) versus those who got rich more recently. But since we started in 2009, the reason why people say that Bitcoin could be a massive transfer of wealth is that it rewards those who held it earliest--a lot of whom were not 1%ers--as it keeps rising in value.  

If it keeps rising in value, of course. The second point to make here is that this is also an experiment in whether Bitcoin can stay true to its "hard-money" roots. A lot of the other coins--like dogecoin--have already thrown this out the window, and can create more supply anytime, much like the U.S. Fed. The reason Bitcoin itself has so many hardcore aficionados, like Strike's Jack Mallers, is that it is programmed to have a fixed supply of 21 million coins, period.  

It is for this reason I watch the whole stablecoin issue with great interest. There has been a massive printing of stablecoins this year, as Caitlin Long described on this excellent podcast with, yes, Stephan Livera. Much like bank system leverage created overly inflated asset values in 2007-09, are stablecoins artificially inflating the price of Bitcoin and other cryptos? Is all this consistent with Austrian principles? 

The answers to these questions are way above my paygrade. But I'm just pleased to now have a real-time way to explore the real-world outcomes you get using an Austrian (if it stays that way) versus a Keynesian approach to money.  

See you at 1 p.m! 

Kelly

Twitter: @KellyCNBC

Instagram: @realkellyevans

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