Robert Murphy: Mises Theory of Money, Bitcoin, and Saving the Economy Explained in 10 Minutes

While speaking at the Texas Bitcoin Conference in Austin, Texas, economist Robert Murphy tried to rebut a few arguments that are generally made against bitcoin by various economists, as reported by insidebitcoins.com.

In his speech, titled "Mises Theory of Money, Bitcoin, and Saving the Economy Explained in 10 Minutes," he was able to exemplify the reasons why some Austrian economists are fascinated by the digital currency.

The first myth that Murphy addressed was deflation. He pointed out that those economists who think that bitcoin could not work well as a currency as it is intrinsically deflationary (due to its hard cap at 21 million or at least it will be deflationary when that cap is finally hit) may have it all backwards:

"Part of where this fear of deflation comes from is, historically, it's associated with very bad economies. So, during the Great Depression of the 30s, there were falling prices. And there are other periods where prices fell when things were bad, but I would argue that the causality was the other way around. Partly what was going on there was people were concerned because the economy was so terrible. And, so what do you do when you're afraid? You don't want to invest in companies and things like that. You rush to liquidity. You rush to hard money. That's why you often see in periods of panic people will rush to the money, so you see prices of all other things quoted in money fall. So, it's not that the falling prices caused the bad economy. It's the other way around." 

He further said that there have times in history where consumer prices have fallen during periods of prosperity, like during Long Depression, although prices fell during these years, other measurements of economic activity seemed to be moving in the right direction. A.E. Musson explained this in his book, "The Great Depression in Britain, 1873-1896: a Reappraisal":

"Prices certainly fell, but almost every other index of economic activity - output of coal and pig iron, tonnage of ships built, consumption of raw wool and cotton, import and export figures, shipping entries and clearances, railway freight clearances, joint-stock company formations, trading profits, consumption per head of wheat, meat, tea, beer, and tobacco - all of these showed an upward trend."