Introduction
When I was studying Austrian economics, I often asked myself: Why do we in Austria learn so little about the theory founded by Carl Menger and Ludwig von Mises? Instead, Keynesianism dominates schools, the media and politics. I think the reason is that Keynesianism offers politicians quick solutions and control, while Austrian economics demands discipline and long-term thinking – not very popular. As Mises said: “The alternative is only whether the crisis comes sooner through a voluntary abandonment of further credit expansion or later as a total catastrophe of the monetary system”. Politicians often choose the latter, preferring short-term relief.
A comparison of the two schools
Keynesianism:
Named after John Maynard Keynes, this school emphasizes government intervention. In crises, the government should increase spending and reduce taxes in order to boost demand. This is attractive to politicians as it has an immediate effect and allows them to act. This is attractive to politicians as it offers quick solutions and allows them to take action. But the idea of building up reserves in good times remains theoretical – in practice, they take on more debt in bad times and use inflation to reduce it, which burdens citizens.
Austrian Economic Theory:
Founded by Carl Menger and further developed by Ludwig von Mises and Friedrich Hayek, it calls for free markets and sound money. It sees prosperity through voluntary exchange, while state intervention brings inflation and instability. Hayek warned that intervention leads to “servitude”.
Why politicians prefer Keynesianism
- Short-term solutions: Keynesian policies provide immediate economic stimulus that helps politicians during election cycles or crises.
- Control and power: By manipulating monetary and fiscal policy, politicians can exert more control over the economy, which corresponds to their power.
- Popularity with voters: Increased spending and lower taxes can make voters happy in the short term, even if there are long-term costs.
In contrast, Austrian economics does not offer the same political advantages, as it focuses on restraint and long-term stability.
Historischer Kontext: Die Große Depression und darüber hinaus
During the Great Depression in the 1930s, many countries turned to Keynesian policies to combat economic hardship. Franklin D. Roosevelt’s New Deal in the US, with massive government spending and regulation, is a well-known example [1]. Austrian economics, represented by Mises and Hayek, argued that the market should correct itself, which was considered too harsh and impractical at the time. Mises criticized interventions as shifting the problem. After the Second World War, Keynesianism became the dominant economic theory, while Austrian economics was marginalized.
Current economic challenges and Austrian relevance
Today we are faced with problems that seem to confirm the warnings of Austrian economists. Austrian economists’ criticism of the governments’ monetary and budget policies seems more relevant than ever before. Here are some concrete examples:
- Inflation: The eurozone had inflation of 8.4% in 2022, which fell to 2.5% by 2024 [2]. According to the quick estimate by Statistics Austria, the inflation rate in Austria was back at 3.2% in January 2025 [3]. The Austrian school warns of inflation through monetary expansion, as it increased after the pandemic due to ECB policy and the Ukraine conflict, which drove up energy prices and the cost of living in Austria and is noticeably gnawing away at purchasing power. Austrian economists have always warned of the dangers of inflation caused by an expansive monetary policy and emphasized that only a limited, stable currency such as Bitcoin can really protect purchasing power.
- Public debt: Austria’s debt ratio was 78.4% of GDP in 2022, fell to 77.8% in 2023, and forecasts show 83.2% for 2024 [4]. High debts, accumulated through coronavirus aid, are a burden on future generations, as Mises emphasized. The EU criticizes Austria’s deficits as unsustainable. Austria, but also other countries, will have difficulties meeting the Maastricht criteria for budget deficits, which calls into question the sustainability of debt policy.
- Financial instability: The Silicon Valley Bank collapse in 2023 shows the risks of the fractional banking system. Austrian economics has emphasized the risks of the fractional reserve banking system and central bank interventions in the past, which can lead to such crises. Low interest rates also led to real estate bubbles in cities such as Vienna, where prices rose by around 30-35% from Q1 2020 to Q1 2022 (cumulative, based on OeNB index) [5].
- Pensions: The employee-to-pensioner ratio will fall to 2.3:1 by 2030, putting pension systems at risk [6]. In Austria itself, the pension burden is expected to rise by 20% by 2030 [7], which will put additional pressure on public finances and underline the need for individual savings strategies, as recommended by Austrian economics.
- Regulations: A study from 2023 showed that small businesses in the EU can spend up to 10% of their turnover on compliance with regulations such as the GDPR, which limits their competitiveness [8]. This hampers their growth opportunities and innovation. Austrian economics argues in favor of minimal regulation to promote free competition and entrepreneurial initiative.
- Trade tensions: The ongoing trade tensions between the US and China, which have led to tariff increases and trade barriers, show the disadvantages of protectionism. Another example is the EU’s agricultural policy, which distorts free trade through subsidies and tariffs and puts smaller agricultural countries at a disadvantage, reducing market efficiency [9]. Austrian economics is an advocate of free trade, as this can lead to an efficient distribution of resources and prosperity for all involved.
These examples make it clear why the principles of Austrian economics are once again in the spotlight today. The challenges we face echo the warnings and recommendations of thinkers such as Menger, Mises and Hayek. Bitcoin, as a decentralized and stable currency, offers a modern application of these ideas that can help us overcome these challenges
Bitcoin: a modern tool from the Austrian school
Bitcoin, a decentralized currency with a cap of 21 million coins, embodies the principles of Austrian economics. Its features include:
- Decentralization: No central authority controls Bitcoin, which minimizes manipulation.
- Limited supply: The fixed number of coins protects against inflation and preserves the value.
- Voluntary exchange: Transactions are based on mutual agreement, which promotes free markets.
Thus, Bitcoin serves as a practical application of Austrian economic ideas in the digital age and offers an alternative to the inflationary and interventionist policies that the school criticizes.
Conclusion
Austrian economics has been overshadowed by Keynesianism, as the latter provides politicians with instant solutions and control. Keynesianism offers politicians popularity, the Austrian school demands discipline. However, in the face of current economic challenges, the wisdom of the Austrian school is once again gaining relevance. Bitcoin, as a decentralized and stable monetary system, can help to revive and implement these ideas. It is time for us in Austria to take a fresh look at our economic heritage and consider the benefits of Austrian economics and Bitcoin.
Citations
[1] New Deal History – https://www.history.com/topics/great-depression/new-deal
[2] Statista Inflation Rate EU – https://www.statista.com/statistics/267908/inflation-rate-in-eu-and-euro-area
[3] Infina Statistik Inflation – https://www.infina.at/trends/statistik-inflation/
[4] Staatsschulden – https://staatsschulden.at/
[5] ÖNB Trendwende am Immobilienmarkt in Österreich – https://www.oenb.at/Presse/thema-im-fokus/2023/trendwende-am-immobilienmarkt-in-oesterreich.html
[6] WKO: „Pensionen – wie werden sie nachhaltig?“ – https://www.wko.at/pensionen-nachhaltigkeit
[7] Rechnungshof/Wiener Zeitung: „Pensionslast für Bund bis 2030 verdoppelt“ – https://www.wienerzeitung.at/archiv/pensionslast-2030
[8] SME Performance Review 2022/2023 – https://single-market-economy.ec.europa.eu/smes/sme-strategy/sme-performance-review_en
[9] WTO Trade Reports – https://www.wto.org/english/res_e/publications_e/trade_reports_e.htm
