Unit 3 Lecture Notes

Many readers ask regularly about what to expect from Bitcoin in the case of a coming financial crisis. This, I believe, is one of the most interesting questions surrounding Bitcoin, and one of the most important indicators of what its future will look like. To answer this question, I must first begin with an explanation of how I understand financial crises, before explaining how Bitcoin relates.

To begin with, we need to make one thing clear: The Austrian Business Cycle Theory is the only theory of business cycles worth even reading about. It clearly explains recessions in a way that is unmatched by any other theory. For a good, brief, and intuitive introduction to them, you cannot beat Murray Rothbard's Economic Depressions: Their Cause and Cure. While not being a book focused on recessions, I have always found the introduction and first few chapters of Rothbard's America's Great Depression a wonderful beginner's guide to the topic. Rothbard's Man, Economy, and State contains a good thorough explanation of this topic, as does Jesus Huerta de Soto's Money, Bank Credit and Economic Cycles. Hayek's Monetary Theory and the Trade Cycle is a foundational book on this and contains a wonderfully lucid discussion of it, in Hayek's inimitable style. An excellent modern explanation of the theory, and a comparison of it to Keynesian theory, can be found in an excellent collection of presentation slides by Roger Garrisson (1 and 2). Garrison uses simple diagrams that illustrate the capital structure in a very effective way to convey the essence of the theory, and I highly recommend taking the time to go through them.

In The Bitcoin Standard I have written a short explanation of Austrian business cycle theory as I understand it. I will reproduce it here for those unfamiliar with it, or looking for a refresher, but readers who are familiar with the theory, or with my book, may want to skip until the end of this excerpted section.