Saifedean Ammous: The Bitcoin Standard — making the Austrian School case for Bitcoin

  • Saifedean Ammous: The Bitcoin Standard: The Decentralized Alternative to Central Banking (John Wiley & Sons, May 2018 — UK, US)

Saifedean Ammous is an assistant professor of economics at the Adnan Kassar School of Business at the Lebanese American University and a member of the Center on Capitalism and Society at Columbia University. He’s a Bitcoin maximalist and advocate of the “sound money” theories of Ludwig von Mises and Austrian school economics.

I posted on Thursday about the bad but common argument that “Bitcoin is like the early Internet.” It was widely forwarded on Twitter, and Bitcoin advocate Pierre Rochard said this book — released next month by Wiley — had much better pro-Bitcoin arguments and that I should review it, so Prof Ammous kindly sent me a proof PDF.

I’m in the position of a skeptic reviewing a work of deep theology. This book is for people who will already agree with it. The early Amazon reviews are by Bitcoin fans who read a draft and thought it was one of the best things they’d ever seen — because it makes the implicit politics of their favourite thing explicit.

Ammous’ central thesis is that Bitcoin is “sound money” for the purposes of the Austrian paradigm, because there will only ever be 21 million Bitcoins. Ammous describes Bitcoin as “hard money,” as opposed to “easy money” that can be manipulated by governments, and holds that this will ensure its success.

What is Austrian economics?

The first seven chapters are a history of economics from an Austrian economics perspective, and why “sound money” is essential to society. This “yes, but why are you telling me all of this when I’m here for the Bitcoins” is to set up the claim that Bitcoin supplies the soundness Ammous requires of his money. Bitcoin itself is mostly addressed in the last three chapters.

Austrian economics produces vast quantities of detailed theory to support the claim that a rigid gold standard is the only way to have “sound money,” and the only sensible way to run an economy — rather than the more conventional view that a zero-sum economy quickly seizes up, both in theory and practice — and that central banks and fractional reserve banking will inexorably lead to a collapse. Disaster is imminent, and you need to be hoarding gold.

Per chapter 2 of my own book, Bitcoin ideology is literally based in conspiracy theories, tracing back to the gold bug and Federal Reserve theories of the John Birch Society and Eustace Mullins. Many Bitcoiners aren’t actively aware of this, though they’ll generally be familiar with the versions advocated by Ron Paul last decade.

The acceptable face of this conspiracy cluster is Austrian economics, first put together in its present form by Ludwig von Mises — hence “Austrian school.”

Its key technique is praxeology, in which economic predictions are made entirely by extrapolating from fundamental axioms. It explicitly repudiates any sort of empirical testing of predictions.

In his book Human Action — heavily cited by Ammous — Mises holds that you can’t predict future behaviour from past behaviour even in principle, so testing your claims is meaningless:

The subject matter of all historical sciences is the past. They cannot teach us anything which would be valid for all human actions, that is, for the future too …

No laboratory experiments can be performed with regard to human action. We are never in a position to observe the change in one element only, all other conditions of the event remaining unchanged. Historical experience as an experience of complex phenomena does not provide us with facts in the sense in which the natural sciences employ this term to signify isolated events tested in experiments. The information conveyed by historical experience cannot be used as building material for the construction of theories and the prediction of future events …

[Praxeology’s] statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification or falsification on the ground of experience and facts.

Despite this, proponents keep making predictions and claims, and insisting they are, somehow, still worth listening to and applying to the world.

Having eschewed empiricism, Austrian economics tends toward narratives. The more compelling narratives are propagated.

John Maynard Keynes is the sworn enemy of Austrian economics. You might think he was just an important and influential economist, but they use his name as a curse — as anyone who’s said something normal and reasonable about economics to a Bitcoiner will have discovered. Austrians are also frequently unable to distinguish Keynes from Karl Marx, and Ammous groups “Keynesian and Marxist economists”.

Austrian economics and the limited supply of Bitcoin

Ammous aims to show that Bitcoin is as good a “sound money” as gold. Bitcoin is mentioned in passing in the Austrian part of the book, e.g., in Chapter 4:

In its infancy, Bitcoin already appears to satisfy all the requirements of Menger, Mises, and Hayek: it is a highly salable free-market option that is resistant to government meddling.

It’s not made clear in the text, but Ammous is arguing with his fellow Austrians here. Even as many Bitcoiners are huge fans of Austrian economics, there’s plenty of critiques from inside the Austrian school — and the book doesn’t even mention these, let alone engage them.

The following, from, date back to 2013, and have been widely circulated in the crypto world. These are not critiques from some sort of Keynesian statists — these come from firm Austrians:

  • Nikolay Gertchev in “The Money-Ness of Bitcoins” still prefers gold: “virtual monies, of which bitcoins seem to be the most perfected specimen up to date, do not allow acting individuals to manage the uncertainty of the future as well as material monies do.”
  • Frank Shostak in “The Bitcoin Money Myth”: “Bitcoin can function only as long as individuals know that they can convert it into fiat money, i.e. cash on demand.”
  • Patrik Korda in “Bitcoin: Money of the Future or Old-Fashioned Bubble?”: “While bitcoins are designed so that they cannot be hyperinflated in name, they certainly can be hyperinflated in substance. Already, there are numerous knockoffs such as litecoin, namecoin, and freicoin in place.”

Korda’s observation is particularly relevant, and not addressing it is a glaring failure — because Ammous is really big on the value of Bitcoin as “sound money” following directly from its limited supply. In a Bitcoinist interview, he says:

The most important for me is the fixed supply, which makes Bitcoin the first truly scarce liquid asset. We can always make more of anything else on earth if we dedicate more resources to it, but we will never have more than 21 million bitcoin.

This is technically true, but not functionally true — Bitcoin is only limited like gold if you could create new gold mines any time you wanted by cut’n’paste.

Bitcoin has strong network effects and is still the biggest crypto-asset — but it’s still just one of a whole class of things loosely tagged “cryptos,” and the market behaves like this is all one market. Prices relative to dollars go up and down roughly in step. And there’s no limit to how many cryptos there could be.

And in practice, we see cryptos substitute for each other both for speculation and for their limited use case as currency. e.g., the darknet markets switching in part to Monero as Bitcoin became unusable with high transaction fees and long delays.

As ICO tokens, Ripple and IOTA show, the market doesn’t really care about the decentralisation promises either — it just wants “number go up.”

Thus we get crypto-assets that are centrally controlled, and business blockchains that are just an append-only ledger with “let’s take turns” as the consensus mechanism. This applies even if you think the ideology is inherent to the structure set up by the software — which is the position both of advocates, and of harsh critics such as David Golumbia.

Ideology is always secondary to the thing people are actually buying in for. Ideology is not the thing the market optimises for, so it gets optimised out. The market wants a more versatile supply — so it gets something that gives it that.

Ammous is attempting to use Austrian ideology — which loves and idealises free markets — to argue against the observed behaviours of the actual, real-life markets.

Can Bitcoin be Austrian “sound money”?

Chapter 7, “Sound Money,” starts bringing in Bitcoin:

But whatever historical quibbles the proponents of the state theory of money may have with these facts, their theory has been obliterated before our very eyes over the last decade by the continued success and growth of Bitcoin, which has achieved monetary status and gained value exceeding that of most state-backed currencies, purely due to its reliable salability in spite of no authority mandating its use as money.

This sentence is completely factually incorrect. Bitcoin is traded as a commodity, there’s functionally no Bitcoin economy, and it’s only useful insofar as it can be converted to conventional currency — even its proponents, including Ammous, consistently speak of it in terms of its price in dollars. And the gateways to and from conventional currency get narrower and narrower. Bitcoiners will argue they’re narrowing for bad reasons, but Ammous is making a claim of functionality here.

Chapter 8 describes what Bitcoin is and how it works, from an economic perspective. This is actually not bad — if overly idealised. It starts with very strong claims as to Bitcoin’s technical robustness:

Bitcoin has operated with practically no failure for the past 9 years, and if it continues to operate like this for the next 90, it will be a compelling solution to the problem of money, offering individuals sovereignty over money that is resistant to unexpected inflation while also being highly salable across space, scale, and time. Should Bitcoin continue to operate as it already has, all the previous technologies humans have employed as money — shells, salt, cattle, precious metals, and government paper—may appear quaint anachronisms in our modern world — abacuses next to our modern computers.

This is only plausible if “Bitcoin” here is a synecdoche for cryptocurrency in general — it’s already ludicrously false for Bitcoin itself — but Ammous is a Bitcoin maximalist, and everywhere else he says “Bitcoin,” he means “Bitcoin.” This suggests he doesn’t understand or want to acknowledge the glaring technical problems of Bitcoin that nobody in the crypto sphere could reasonably claim ignorance of by 2018.

Ammous is given to sweeping statements that gloss over crucial caveats, when the statements can only be considered true in some limited or jargonistic sense. e.g.

The market demand for a bitcoin token comes from the fact that it is needed to operate the first (and so far, arguably only) functional and reliable digital cash system.

As plain English, this has been entirely false since mid-2015, when Bitcoin started clogging to uselessness and utter failure as digital cash; and the demand in the 2017 bubble was entirely speculation. Perhaps there is a jargon sense in which the sentence is true — the paragraph proceeds to justify itself by quoting Mises, so this appears to be a further plea to Austrian nocoiners.

The sweeping statements appear completely ignorant of Bitcoin’s very real technical issues, e.g.:

Because each bitcoin is divisible into 100 million satoshis, there is plenty of room for the growth of Bitcoin through the use of ever-smaller units of it as the value appreciates.

This turns out to be incorrect — the idealised economics crashes into a technical issue: the dust problem.

If you have 100 bitcoins, you almost certainly don’t have a single lump of 100 bitcoins — a Bitcoin address doesn’t have a balance, it has the sum of all the transactions that ever went into it. So, rather than a single 100 bitcoin lump, you have a few thousand pieces that add up to 100 bitcoins.

This becomes an issue when you want to send it somewhere — you have to consolidate all those tiny dust transactions, and transaction fees are in Satoshis per byte. So when transaction fees are high, it can cost you more to move your coins than they’re worth. There’s a vast quantity of dust transactions that are literally unusable. (Coinbase may already have this problem with its Bitcoin reserves.)

So the higher the price of Bitcoin, the less useful its divisibility is. It’s the difference between moving a $100 bill and moving 10,000 pennies, when you’re charged per item.

There’s work to reduce dust for the future, and a programme to clean up past dust. But divisibility down to even the millionth of a bitcoin is unlikely to be feasible.

Ammous consistently describes the advantage of Bitcoin as its price in conventional currency — yet again, even Bitcoin maximalists only ever seem to think about Bitcoins in terms of dollars. There’s also a few paragraphs on why you should hold your Bitcoins and not spend or use them — the thing that he just said gave them use value and market demand.

Chapter 9 is Bitcoin use cases:

  • “Store of Value” — by which he doesn’t mean the conventional sense of somewhere you could store the value of your pounds or dollars, like gold or real estate, but instead a fairly complex and jargonised concept in Austrian economics. When Bitcoiners say “store of value,” they’re not speaking conventional English!
  • “Individual Sovereignty” — “the first time since the emergence of the modern state, individuals have a clear technical solution to escaping the financial clout of the governments they live under.” He then cites Timothy May’s pre-Bitcoin cypherpunk manifesto Crypto Anarchy and Virtual Communities, and says that supports Murray Rothbard’s The Ethics of Liberty, in another plea to Austrian nocoiners.
  • “International and Online Settlement” — oh yeah, you could also use Bitcoin as a payments network. He posits it as just the thing for bank settlements, though here in the real world they can’t even find a practical and viable use case for Ripple.
  • “Global Unit of Account” — though at least he admits how hypothetical this one is. He thinks this could happen because gold used to do this job.

Chapter 10 answers objections to Bitcoin:

  • Proof-of-work mining is good actually, and not a stupendous and horrific waste, because otherwise Bitcoin wouldn’t be Bitcoin.
  • Bitcoin’s governance is so dysfunctional that all the cultist infighting since the network started clogging in mid-2015 can’t fix even the smallest problems with it — but this is good actually, because this way Bitcoin doesn’t change.
  • Bitcoin is “antifragile,” which seems to mean in practice “not dead yet.”
  • Bitcoin can’t possibly scale to the size of Visa, but this is good actually: “The biggest scope for scaling Bitcoin transactions will likely come off-chain, where many simpler technologies can be used for small and unimportant payments … the majority of Bitcoin transactions today are already carried out off-chain, and only settled on-chain.” That is, everyone’s actual transactions being done outside Bitcoin is good news for Bitcoin. Now, you might wonder why we need to invoke Bitcoin at all then …
  • Is Bitcoin for Criminals? No, because the blockchain is entirely traceable, so don’t be a dumb crook. But ransomware is good actually, because “Bitcoin allows for the monetizing of the computer security market.”

The section on “How To Kill Bitcoin” spends four pages discussing the theory of 51% attacks, but completely fails to mention that time GHash actually achieved 51% of mining.

The chapter finishes by finally mentioning altcoins. These are dismissed as not having the Austrian magical essence of Bitcoin.

Observable reality — that the market pools altcoins with Bitcoin as further instances of “crypto,” and that consumer markets switch between cryptos as needed — is not considered.

Ammous admits:

In reality, after examining this space for years, I have yet to identify a single digital currency that offers any product or service that has any market demand.

This is true of Bitcoin too, but it’s still uniquely good and possessed of the Austrian virtues because … reasons.

I will give Ammous full points for making fun of The DAO, and the cargo cult nature of business blockchain.

The sources

You won’t find strong supporting references for the book’s remarkable claims. The sourcing is not just deficient, but weird enough to require note.

The footnotes are sparse and largely insular or trivial — the book drinks from a very narrow and ideological pool for even basic facts:

  • Many, many basic claims are cited to Ludwig von Mises’ Human Action. The main source on the history of the Great Depression is Murray Rothbard’s America’s Great Depression.
  • The history of money is cited, where cited at all, to Nick Szabo’s essay “Shelling Out: The Origins of Money.” Szabo is a computer scientist who also has a degree in law, and not notably a historian or economist — but he’s a cypherpunk who worked on Bitgold, a precursor to Bitcoin.
  • A paragraph on the history of debasement of money is cited to Schuettinger and Butler’s Forty Centuries of Wage and Price Controls, originally published by the Heritage Foundation and currently available via the Mises Institute.
  • A cite that the word “salary” derives from the Latin sal, for salt, is not to any mainstream linguistic reference — you might expect, say, an authoritative Latin dictionary — but to “Whither Gold?” by Austrian economist Antal Fekete, a 1996 essay on why “delay in putting the cancer-fighting gold corpuscles back into the monetary bloodstream may bring about a credit collapse and chaotic conditions in the world economy, eclipsing the memory of the Great Depression.”

“Whither Gold?” was a prize winner in a competition run by the Foundation for the Advancement of Monetary Education, a “sound money” (i.e., gold) advocacy thinktank who stress their sensible non-conspiracist views:

We do not believe in conspiracy theories, but there are people that do not want you to have or share this information. They are making huge sums of money, and they want to protect and continue with a system that enriches themselves at our expense.

The Federal Reserve for instance has a virtually unlimited budget, and thousands of “experts” and pundits on payroll providing op-eds to newspapers, interviews on talk-shows and news programs – even comic books for children.

um, OK.


Ammous wants to show that Austrian economics is true, and that Bitcoin fits it perfectly. His audience is his fellow Austrians, and naïve prospective fellow Austrians.

These are only the strongest arguments for Bitcoin if you already agree with them. The book won’t convince anyone else one jot. It makes sweeping statements that are simply false. It glosses over the glaring technical problems that disprove its claims. What little sourcing there is ranges from the dubious to the ludicrous.

You may want it to familiarise yourself with the Austrian case for Bitcoin, but that’s a limited need, and the book ignores the Austrian case against Bitcoin. For fans only.

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4 Comments on “Saifedean Ammous: The Bitcoin Standard — making the Austrian School case for Bitcoin”

  1. Re the history of money, have you watched Mike Maloney’s excellent YouTube series called Hidden Secrets Of Money? Find it on Mike’s channel “GoldSilver (w/ Mike Maloney)”. I look forward to comparing Saifedean’s views with those of Mike and others.

  2. It’s all very well deriving your conclusions from axioms, so long as your system is consistent.

    But if you want to apply it — how do you know you have the right axioms?

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