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Austrians Who Say Bitcoin is Impossible Because of the Regression Theorem

by on July 8, 2025

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I always saw the promise in BTC, from the beginning. Even spoke at one of the first conference, in 2013. 1 But I wrongly assumed that the state would realize this and if when it became a threat, it would ban it. 2 So I didn’t buy because I was too confident in the state’s competence. As I tweeted here, “A friend: “It seems counterintuitive to me that the fed and other regulators seem mostly indifferent to the existential threat that bitcoin represents to the world reserve currency status of USD.” Me: for one, they are stupid, for another, they don’t care about the future–short term thinking. It’s why I was wrong in 2013 or so and wrongly assumed the FedGov was smart and evil and competent and would ban BTC as soon as it became a threat (stephankinsella.com/2025/07/austri). They are just evil and stupid. They have short time preference because they dont “own” the state so they don’t care that BTC is a threat in 10 years. (See Hoppe’s Democracy.)” But I never bought into the flawed “it’s impossible because regression theorem” argument.

Most austro-libertarians are for sound money and for this reason are also pro-bitcoin (BTC), or at least are ambivalent and admit they do not fully understand it—such as Hoppe, who has features pro-bitcoin speakers at the PFS several times:

Some others, especially initially, argued that it was “impossible” because bitcoin “violates the regression theorem” or something. Work in progress—

Not yet sorted/classified

Bitcoin Does Not Violate Regression Theorem

For arguments that Bitcoin can be money and does not violate the regression theorem:

Bitcoin Violates Regression Theorem/Cannot Be Money

I’ve lost track of all those who made the argument that it is impossible for various reasons, but here are a few who have expressed skepticism:

***

Relevant quotes by Mises:

Mises on memory of prices: “If the memory of all prices of the past were to fade away, the pricing process would become more troublesome, but not impossible as far as the mutual exchange ratios between various commodities are concerned. It would be harder for the entrepreneurs to adjust production to the demand of the public, but it could be done nonetheless. It would be necessary for them to assemble anew all the data they need as the basis of their operations. They would not avoid mistakes which they now evade on account of experience at their disposal. Price fluctuations would be more violent at the beginning, factors of production would be wasted, want-satisfaction would be impaired. But finally, having paid dearly, people would again have acquired the experience needed for a smooth working of the market process.” I.e., Mises envisions that calculation is possible even if there are NO “current” prices. Because he is imagining the entrepreneur forecasting some future time when money prices will have emerged and he is trying to compare competing uses for his resources at some future date. It is future prices that are compared against future prices. Right? Unless I’m missing something.

Mises: “no good can be employed for the function of a medium of exchange which at the very beginning of its use for this purpose did not have exchange value on account of other employments”. Human Action, XVII.4. “The regression theorem establishes the fact that no good can be employed for the function of a medium of exchange which at the very beginning of its use for this purpose did not have exchange value on account of other employments. This fact does not substantially affect the daily determination of money’s purchasing power as it is produced by the interplay of the supply of and the demand for money on the part of people intent upon keeping cash. The regression theorem does not assert that any actual exchange ratio between money on the one hand and commodities and services on the other hand is a historical datum not dependent on today’s market situation. It merely explains how a new kind of media of exchange can come into use and remain in use. In this sense it says that there is a historical component in money’s purchasing power.” XXI.6

Rothbard: “In this way, Mises demonstrated that Carl Menger’s historical insight into the way in which money arose on the market was not simply a historical summary but a theoretical necessity. On the other hand, while money had to originate as a directly useful commodity, for example, gold, there is no reason, in the light of the regression theorem, why such direct uses must continue afterward for the commodity to be used as money. Once established as a money, gold or gold substitutes can lose or be deprived of their direct use function and still continue as money; for the historical reference to a previous day’s purchasing power will already have been established.” Murray N. Rothbard, “The Austrian Theory of Money,” in E. Dolan, ed., The Foundations of Modern Austrian Economics (Kansas City, Kansas: Sheed & Ward, 1976), pp. 179–82, also in Rothbard, Economic Controversies (Auburn, Ala.: Mises Institute, 2011).

But see, on Mises’s comments on the memory of prices above, the following from Rothbard:

Since the marginal utility of the money commodity depends on previously existing money prices, a wiping out of existing markets and knowledge of money prices would render impossible the direct re-establishment of a money economy. The economy would be wrecked and thrown back into a highly primitive state of barter, after which a money economy could only slowly be re-established as it had been before.

… One of the important achievements of the regression theory is its establishment of the fact that money must arise in the manner described in chapter 3, i.e., it must develop out of a commodity already in demand for direct use, the commodity then being used as a more and more general medium of exchange.

Demand for a good as a medium of exchange must be predicated on a previously existing array of prices in terms of other goods. A medium of exchange can therefore originate only according to our previous description and the foregoing diagram; it can arise only out of a commodity previously used directly in a barter situation, and therefore having had an array of prices in terms of other goods. Money must develop out of a commodity with a previously existing purchasing power, such as gold and silver had. It cannot be created out of thin air by any sudden “social compact” or edict of government.

On the other hand, it does not follow from this analysis that if an extant money were to lose its direct uses, it could no longer be used as money. Thus, if gold, after being established as money, were suddenly to lose its value in ornaments or industrial uses, it would not necessarily lose its character as a money. Once a medium of exchange has been established as a money, money prices continue to be set. If on day X gold loses its direct uses, there will still be previously existing money prices that had been established on day X – 1, and these prices form the basis for the marginal utility of gold on day X. Similarly, the money prices thereby determined on day X form the basis for the marginal utility of money on day X + 1. From X on, gold could be demanded for its exchange value alone, and not at all for its direct use. Therefore, while it is absolutely necessary that a money originate as a commodity with direct uses, it is not absolutely necessary that the direct uses continue after the money has been established.

Rothbard, Man, Economy, and State with Power and Market, 4.5.B

See also Laura Davidson and Walter E. Block, “Bitcoin, the Regression Theorem, and the Emergence of a New Medium of Exchange,” Q. J. Austrian Econ. 18, no. 3 (2015): 311–38, p. 319: “But as Mises makes clear, a paper currency can continue its monetary function even when it is no longer redeemable, provided the public continues to have confidence in its acceptability.”

  1.  KOL085 | The History, Meaning, and Future of Legal Tender (Crypto-Currency Conference, Atlanta, 2013). [↩]
  2. Bitcoin Confiscation vs. Gold Confiscation; also Musings on Fractional-Reserve Banking in a Bitcoin Age; Physicalist Shock Absorber Metaphors; Am I a Bitcoin Maximalist?; Cocky ruminations about why Bitcoin is not “ownable” “property”.  [↩]
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Kinsella profile-head - 1Stephan Kinsella is a libertarian writer and retired patent attorney in Houston, Texas. He has published widely on various areas of libertarian legal theory and on legal topics such as intellectual property law and international law. His publications include Legal Foundations of a Free Society (Papinian Press, 2023), Against Intellectual Property (Mises Institute, 2008), International Investment, Political Risk, and Dispute Resolution: A Practitioner’s Guide (Oxford, 2020), and The Universal Principles of Liberty (2025).

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