Austrians: Don’t be Fooled by the Bitcoin Core Cargo Cult

There have recently been several articles, interviews and videos related to Bitcoin’s BTC/BCH divide that appeal to superficial aspects of Austrian School economics, arguing that BTC upholds Austrian ideas, and portraying BCH as more Keynesian. These arguments, however, miss the underlying reasons needed to support their position. They merely appeal to surface appearances, and in that way are similar to a cargo cult.

Cargo cults were an interesting phenomenon in various Pacific island societies where they would emulate superficial aspects of advanced societies, with the goal of attaining the benefits they had observed [1]. For example, they would construct crude copies of runways and airports in the hope that this would cause airplanes to land and deliver cargo to them. These cults can seem amusing to us, because their actions make it obvious that they have a completely different mental model of how our advanced society works. It seems funny that they would think mimicking the superficial trappings of advanced technology could be effective, while missing the underlying reasons for why the airplanes arrive.

An example of a “cargo cult” argument would be to use Austrians’ affinity for Gold to advocate something with superficially similar properties, without reference to the actual reasons behind why they see Gold as a good form of money.

I will point out a few examples of this phenomenon. I will not exhaustively analyze every flaw, just point out the more glaring ones, and urge readers to use their own reasoning to evaluate to these arguments with a skeptical ear.

“Crypto Keynesians”

Spending versus saving, however, is just a surface observation. The more important fundamental property is the free choice between those options. This is what will permit people’s time preference to be communicated to the wider economy in a sustainable way. When Austrians see coerced spending via central bank inflation and government taxes on saving, they naturally emphasize the importance of saving. And when they see artificial restrictions on spending created by unnecessary technical restriction in Bitcoin, they emphasize the importance of low-friction transactions.

As Amaury Séchet has pointed out in several talks, the thing that makes Bitcoin revolutionary is not that it mimics Gold or fiat currency, but that it combines the best qualities of both [4]. This means it should be good for spending and for saving, leaving the individual user free to follow their preference.

For those interested in delving deeper into Jimmy’s arguments, Chris Pacia has written a more in-depth critique of his article [5].

Bitcoin Immutability

This argument may have surface appeal to Austrian economists, since they appreciate the properties that make Gold a good sound money. They can also see the calamity caused by Fiat’s ability to change supply based on the whim of central authorities.

Source: https://commons.wikimedia.org/wiki/File:Gold-296115.jpg

The argument, however, skips some steps in the deductive analysis that Austrians should follow. Merely making an appeal to the feeling of physical immutability of Gold does not mean that Bitcoin can have the same characteristics by aping Gold. We must think through the causality of what gives Bitcoin its properties. Are its properties maintained by strong social consensus against hard forks? If so, this would seem to justify a permanent campaign to keep the community in line, featuring online trolls and Reddit censorship.

To properly understand, from an Austrian perspective, what maintains Bitcoin’s properties, we need to trace the logical consequences of its nature as a decentralized network, and how human actions shape it. It is not Gold; it is a different technology with different properties. Blindly imitating the superficial properties of Gold without understanding the deeper logic will not lead to success.

I have previously argued that it is the market that ultimately shapes Bitcoin’s properties [7]. If this understanding is correct, it leads us to positive attitudes about community debate and hard forks. It means we should not fear hard forks, as those that add value (such as raising transaction capacity) can be adopted, while those that destroy value (such as increasing the number of bitcoins) will be rejected by the investors in the market.

Why This Matters

References

[2] Jimmy Song article: https://medium.com/@jimmysong/segwit2x-post-mortem-divorce-of-crypto-austrians-and-crypto-keynesians-87960b11ce4c

[3] Jimmy Song video: https://youtu.be/5gMlldJ6myA

[4] Amaury Séchet: Talk at “The Future of Bitcoin Conference” Arnhem 2017 https://youtu.be/By0w43NQdiY

[5] Chris Pacia: Refutation of Jimmy Song’s article https://www.yours.org/content/re--crypto-austrians-and-crypto-keynesians-473a15b527fd

[6] Saifedean Ammous: Tom Woods Interview https://tomwoods.com/ep-1171-the-bitcoin-standard-the-decentralized-alternative-to-central-banking/

[7] Antony Zegers: Two Theories of Bitcoin https://medium.com/@Mengerian/two-theories-of-bitcoin-f4da84468a7a

[8] Daniel Krawisz: Reciprocal altruism and the theory of money https://nakamotoinstitute.org/reciprocal-altruism-in-the-theory-of-money/

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