Monday, January 19, 2015

A Second Look at Murray Rothbard and Bitcoin

In December 2013, I argued that Murray Rothbard would not have been in favor of Bitcoin. I quoted extensively from the August 1981-January 1982 issue of The Libertarian Forum, where Rothbard wrote about Hayek's idea of competing currencies:
The sad answer is that Hayek's proposal, even in the unlikely event it were adopted, is so irrelevant to our current monetary problems as to take on the aspect of a crank scheme. Suppose, for example, that the American government magnanimously allowed Hayek to issue "Hayeks", me to issue "Rothbards", our publisher "Pedy", etc. The problem, as Hayek's mentor Ludwig von Mises used to point out, is that we might issue these notes to our heart's content, but that nobody (except perhaps a few misguided friends or relatives) would take them.They would become curia for collectors, if not a laughingstock.
I followed this up with my commentary:
 Note: For those of you who are going to charge that Rothbard is wrong because Bitcoin has  advanced beyond a few misguided friends and relatives, I would argue that this is exactly what has occurred with Bitcoin---given the internet age. Circulation is just amongst a small group. Bitcoin, despite much media hype, is really only played with by parts of the techie and libertarian world. The Bitcoin "float" is probably around 6 million bitcoins. In stock terms, that is a very small float, generally, occurring only in the penny stock world. Yes, some misguided friends and family of the techie and libertarian world are into Bitcoin, but that is it.

When I wrote that Bitcoin was trading around $700, it is now down some 70 plus% from that point. As I have noted during the decline of the Bitcoin price, it is occurring for one reason and one reason only, the buying crowd as become exhausted. The segments of the tech crowd and the libertarian crowd are all in, there is no one left to take the price to a higher level.

As Rothbard argued against Hayek's proposal. the same thing applies to Bitcoin:
 The problem, as Hayek's mentor Ludwig von Mises used to point out, is that we might issue these notes to our heart's content, but that nobody (except perhaps a few misguided friends or relatives) would take them.

BTW: Here are some comments that were left at the original post:

Rothbard's statement is entirely correct for what he is addressing, but it's totally irrelevant to bitcoins.

Bitcoin cannot be issued till anyone's heart is contented.

Bitcoin acts, in all respects, as if it were a physical commodity. It is scarce, fungible, divisible, secure, recognizable, impossible to counterfeit, durable - in fact, it is in all ways a superior currency to gold.

Rothbard argues that dollars should be backed by gold, but Rothbard never mentions what means should be used to ensure the accounting of dollars to gold is accurate. Bitcoin is simply a gold standard accounting ledger without the gold.

I read the same words and I see him crying out for Bitcoin to fill all those criticisms. Doors of perception I guess.

This is the final straw.

Wenzel has misappropriated a Rothbard text to try and demonstrate that Bitcoin cannot work.

Rothbard here says that Hayeks would not be accepted in the market because it could be the case that nobody (except perhaps a few misguided friends or relatives) would take them. Well, Bitcoin is not like this at all right now; it is widely accepted and growing rapidly.

The confidence gambit also does not work either, because people are confident in it and can be so not only because other people accept it in trade, but because the number of units of the money is strictly controlled by a network of computers, which is, by the way, the most powerful computer operation ever created by mankind.

Bitcoin has not become money out of the blue. Peter Surda has clearly outlined all of this from the Austrian School perspective. Please use Google to read his work.

The really important current moneys: dollars, pounds, etc., can be taken out of circulation by Bitcoin. The fact that most people use mobile phones and Skype for telephone calls instead of land lines demonstrates how one technology supplants another.

It is clear from this piece of text that Rothbard is not talking about a system like Bitcoin. Here, he is describing another fiat paper currency like the dollar, printed privately. This is what he is talking about when he describes Hayeks as "denationalized" trivial paper tickets. Bitcoin is neither paper or trivial.

Wenzel in his footnote claims that Bitcoin has circulated only amongst a small group. This is absolutely false. Coinbase, a single Bitcoin dealer has just signed its millionth customer. And that is a single Bitcoin business; there are many more all over the world, and they are growing exponentially. I put it to you that there are more Bitcoin users than Libertarians in the world.

The "float" of Bitcoins that Wenzel cites is also utter nonsense; each Bitcoin can be split into one million pieces. He does not know even the most simple fact about it. Or does he? He conducted this interview:

In June 2013 with Trace Mayer, where Bitcoin was explained to him comprehensively. All he could say between the answers was, "um hmmm". Clearly everything that was told to him went straight over his head.

Finally, what would Murray Rothbard really think about Bitcoin were he alive? We can get an idea from this video of Milton Friedman, who describes Bitcoin in 1999:

People like Wenzel and North, unlike the great Rothbard and Friedman are able to see the future, to develop and create ideas. What is reprehensible is to use the words of these great men to try and prop up a false idea that is anti Libertarian and anti Capitalist.


  1. Bitcoin is not a currency Bitcoin is a platform. That it has value ascribed to it and could be easily transferable on a ledger is a necessary but not sufficient condition to stand as a medium of exchange no more than puka shells or glass beads.

    Please see

    The misnomer her is in the word "coin" it is not a coin. it is more a token/voucher/contract

    Those with Libertarian inclinations should appreciate this much

  2. "Could not have been in favor of bitcoin"? I thought libertarians were in favor of voluntary agreements. I guess that goes out the door when you're on a religious crusade to smear something you don't understand.


    So said Murray Rothbard at the 1:02:54 mark of his 1984 lecture at a Mises seminar event on money in Houston; [].

    When Dr. Rothbard said "dollars', he we referring to Federal Reserve Notes, or their electronic equivalent.

    I was rather surprised by this, and by the rest of Professor Rothbard's response in the Q&A period, when a hard money advocate (presumably) asked him the very same question many are asking the great economic thinkers of our time: "will the destruction of private debt through default cause a deflationary spiral?" 30 years later, and there is still nothing new under the sun.

    I listened to Dr. Rothbard a couple of times; for my money he didn't really answer the question directly. But to be fair, it was close to lunch time in the day's agenda, and the question was peripheral to the lecture itself.

    For the record, RW has stated that there will be no decrease of currency units in the Federal Reserve system, as there will be no debt write-offs, only inflation of currency units to continue private (and public) debt bail-outs. Mr. Wenzel is a staunch inflationist. So far I think the options are inflationist, deflationist, deflationist-inflationist, hyper-inflationist, hyper-deflationist, hyper-boomerang, and lastly "slow burn" (a la Catherine Austin Fitts).

    Mises seems to me the best bet [to paraphrase]: "the crack-up following a boom brought about by an expansion of credit cannot be avoided. The only question is whether it comes sooner or later. Sooner as a result of voluntary reduction of credit, or later, after the final catastrophe of the currency unit involved."

    1. I think you're misunderstanding the Q&A between Rothbard and the guy asking him.

      The guy says that banks don't create money, the create "credit". Rothbard correctly answers that there is no difference in practice, since the created "credit" or money is a generally accepted medium of exchange, which can be "spent".

  4. and the robert wenzel bitcoin assault continues.

    considering the drop in the ocean market cap bitcoin has is it really worth your time to continue to attack it so aggressively?

    and i dont like this "rothbard would/would not have approved" speculation too.

    if bitcoin survives in the market good for bitcoin, if it does not survive well at least it had its chance and it didnt really have value to people and hopefully people learn lessons from the technology and we find a good use for the innovation of eliminating double spending. Can you not just let the market decide if it has value to people instead of using the volatile price movements of an infant technology to cherry pick attacks against it?

    1. Were you decrying "cherry picking" when it was at $1200?

  5. When you can pay taxes in bitcoin, then it will matter as a currency, until then it's just another oddity of trade that exists within the market for a few people to play around with and speculate with.

    When the Chinese were able to play around with it, it was a fine investment and saw close to $1K USD worth of trading per coin. The second the Chinese banned it, it lost all momentum.

    Now, it's more like; okay, I have these digital ones and zeroes that are essentially useless outside of exchanging them for other digital one and zeroes.

    Robert, you were correct the first time. Rothbard would not have been in favor of Bitcoin.

  6. It's not hurting anyone. I don't see why another crypto-currency couldn't replace it though.

  7. Isn't the real problem an alternative currency faces legal tender laws?

  8. Most Bitcoin collectors suffer the same flawed perspective as is common in the so-called "liberty movement". That being, they think facts imply action. So, they evangelize the facts they feel are important based on that incorrect premise. That behavior indicates a total lack of understanding of Misean human action...what is required to get people to change behavior is to alter their perception of the value of their actions.

    The facts about Bitcoin simply do not address the ways by which people perceive the value of their actions. In other words, Bitcoin "solves" problems that the majority of currency users do not perceive as being personally valuable to them, at least not valuable enough to them to cause them to consider changing a comfortable behavior; no matter how fervently the evangelical promoters of facts about Bitcoin believe the "should" change their past behavior in order to adopt Bitcoin.

  9. One might as well associate Bitcoin fanboy with Technology fanboy. They are the same thing. It's disappointing to see such poorly framed attacks on here. Price volatility, early adoption risk, and enthusiastic yet incorrect advocates are not legitimate critiques, but merely observations.

    "The idea seems to be that right now, investors aren't really seeing bitcoin as a useful currency but rather as a good method for making secure transactions."