The release of George Gilder’s Life After Google marks a pivotal moment in the discourse around digital currencies and the future of money. In October 2017, Gilder shared with me a draft of Saifedean Ammous’ now widely discussed book, The Bitcoin Standard. As someone deeply invested in the evolution of monetary systems, I approached the manuscript with genuine enthusiasm—Bitcoin, after all, represents one of the most innovative financial experiments of the 21st century. However, upon close examination, I identified a critical flaw in its foundational thesis: Bitcoin’s deflationary design, rooted in Rothbardian economic thought, undermines its viability as a functional, long-term currency.
This critique is not a dismissal of Bitcoin’s potential. On the contrary, it underscores the need for thoughtful refinement. If corrected, Bitcoin could fulfill its revolutionary promise. My analysis was influential in shaping Gilder’s own perspective, which he later incorporated into Life After Google, particularly in the chapter titled The Bitcoin Flaw.
Note: Page references in this review correspond to the draft version of The Bitcoin Standard and may not align exactly with the published edition.
Diverging Economic Philosophies: Classical vs. Rothbardian
At the heart of the debate lies a clash between two schools of economic thought: Classical economics and Austrian-Rothbardian economics. While both advocate for sound money, limited government, and low taxation, their interpretations of monetary stability diverge significantly.
Classical economics emphasizes price stability and a flexible monetary base that can adapt to economic growth. It has a proven track record—over 300 years of relative success under various gold standard regimes. In contrast, Rothbardian economics champions a fixed money supply, free from government interference, viewing any expansion as inherently inflationary and destructive.
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This ideological divide shapes Ammous’ entire argument in The Bitcoin Standard. He presents Bitcoin’s capped supply of 21 million coins as a feature, not a bug—an unchangeable foundation immune to central bank manipulation. But this very rigidity introduces a systemic vulnerability: deflation.
The Deflation Dilemma
Bitcoin is, by design, deflationary. Its supply diminishes over time through halving events until issuance ceases entirely. Ammous sees this as an advantage—a return to “hard money” that rewards savers and resists debasement.
Yet this view contradicts Ludwig von Mises, a foundational figure in Austrian economics, who warned that deflation is just as dangerous as inflation:
“People labored under the delusion that the evils caused by inflation could be cured by a subsequent deflation… Debt aggravation was merely the unintentional outcome of a policy aiming at other ends.”
— Human Action, p. 784 (1966 Regnery edition)
Deflation discourages spending and investment. When money increases in value over time, individuals hoard rather than transact—undermining money’s role as a medium of exchange. Moreover, deflation inflates real debt burdens, harming borrowers and destabilizing economies.
Mises recognized that stable value—not appreciating value—is essential for sound money. Yet Ammous celebrates Bitcoin’s rising purchasing power as a virtue, directly conflicting with Mises’ warnings.
Conflating Money Supply with Base Money
Another critical error in The Bitcoin Standard is the conflation of base money (M0) with broader money supply measures like M2. Ammous frequently uses M2 data to argue about monetary inflation, but central banks only directly control base money—the currency in circulation and reserves held by banks.
Credit creation, which dominates M2, occurs primarily through private banking activity, not central bank policy. By failing to distinguish between these concepts, Ammous misattributes economic outcomes to monetary mismanagement when other factors—such as fiscal policy or tax rates—are often more significant.
For example, his analysis of the Great Depression ignores the role of taxation and protectionist policies like the Smoot-Hawley Tariff. Economist Nathan Lewis has thoroughly debunked the idea that the Depression was purely a monetary event. Yet Ammous repeats Rothbardian claims without engaging with empirical counter-evidence.
The Myth of Government-Free Currency
A recurring theme in The Bitcoin Standard is the belief that removing money from government control will lead to monetary utopia. But history tells a different story.
The United Kingdom and the United States operated successful gold standard systems for over two centuries—under government oversight. These were not free-market anarchies; they were managed regimes with clear rules and institutions. As Jastram documented in The Golden Constant, British prices remained remarkably stable over 200 years—not because gold appreciated, but because its supply grew steadily, matching economic expansion.
Bitcoin, with its fixed supply, cannot replicate this stability. Its value fluctuates wildly based on demand alone, making it unreliable as a unit of account or store of value over time.
Furthermore, even if a currency exists outside state control, governments retain ultimate authority through taxation. Treating Bitcoin as a capital asset subject to capital gains tax discourages its use in everyday transactions—preventing it from competing fairly with fiat currencies.
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Why Bitcoin’s Design Limits Its Utility
Several key passages in The Bitcoin Standard reveal internal contradictions:
- On page 94, Ammous claims “any quantity of economic transactions could be supported by a money supply of any size”—so long as units are divisible. But this ignores the psychological and practical effects of deflation.
- On page 101, he states “sound money is money that gains in value slightly over time,” contradicting Jastram’s finding that sound money maintains stable value.
- On page 169, he dismisses gold’s assay costs while ignoring Bitcoin’s own security burdens—like private key management and irreversible losses (e.g., Mt. Gox).
These inconsistencies highlight a deeper issue: Bitcoin’s design reflects ideological purity over practical functionality.
Can Bitcoin Evolve?
The core insight behind Bitcoin—decentralized, trustless value transfer—is revolutionary. But its current form is ill-suited for widespread adoption as currency. A truly sound digital money would need:
- A responsive issuance mechanism, perhaps algorithmically tied to economic indicators
- Strong privacy and usability features
- Resistance to both government overreach and market volatility
Until then, Bitcoin remains more of a speculative asset than a transactional medium—a fact evident in its usage patterns today.
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Frequently Asked Questions
Q: Is Bitcoin truly sound money according to Austrian economics?
A: Not entirely. While it aligns with Rothbardian ideals of fixed supply, it contradicts Mises’ warnings about deflation and the importance of monetary stability.
Q: Can deflation ever be beneficial?
A: Mild deflation due to productivity gains (e.g., tech sector) can benefit consumers. But systemic monetary deflation—caused by fixed supply—hurts borrowers, reduces spending, and risks recession.
Q: Did gold standards require government management?
A: Yes. Historical gold standards operated under government-regulated frameworks. The UK and US maintained price stability for centuries through active monetary management within gold-backed systems.
Q: Why hasn’t Rothbardian monetary theory been implemented?
A: Because rigid 100% reserve systems fail to scale or adapt to economic cycles. No nation has adopted such a system long-term due to impracticality during crises.
Q: Does taxation affect cryptocurrency adoption?
A: Absolutely. Treating crypto as property for tax purposes discourages daily use and reinforces its role as a speculative investment rather than functional currency.
Q: Could Bitcoin be modified to avoid deflation?
A: Technically yes—but doing so would undermine its core appeal to adherents of absolute scarcity. Any change would require consensus within a highly ideological community.
Final Thoughts
Bitcoin represents a bold experiment in reimagining money. But ideology must yield to practicality if digital currencies are to serve real economies. The Classical tradition offers a more balanced path—one where stability, adaptability, and trust form the foundation of sound money.
For Bitcoin to evolve beyond speculation, it must confront its inherent flaws—not defend them.
Core Keywords: Bitcoin Standard, sound money, deflationary currency, Rothbardian economics, Classical economics, monetary stability, Mises on deflation, base money vs M2