Bitcoin in treasury

Profits, capital, and the keys to business resilience

Bitcoin for Business

Profits, capital, and the keys to business resilience

A healthy company
Does Capital have a virtue?
The Austrian School of Economics and Its Vision of Capital
More about the Austrian school of economics

A healthy company

The future is uncertain, and businesses must navigate this uncertainty with a clear focus on making profits and preserving capital. According to Austrian economics, profits are the ultimate signal of a company’s health—they show that the business is meeting consumer needs efficiently. Without profits, a company cannot sustain itself, let alone grow. For a business to remain healthy, it must not only generate profits but also think ahead, storing capital for future investments and challenges.

Capital preservation is crucial because it enables businesses to adapt and capitalize on opportunities in an unpredictable market. This involves striking a balance between reinvesting earnings to grow and maintaining a financial buffer to weather potential downturns. Austrian economics highlights the importance of “time preference”, meaning businesses must carefully decide how much to prioritize immediate returns versus investing for long-term success. A healthy company maintains a strong financial foundation, ensuring flexibility in both good times and bad.

Market signals, such as prices and competition, guide businesses in making informed decisions about resource allocation. By listening to these signals, companies can avoid the pitfalls of overextending themselves or making poor investments—especially those influenced by artificial factors, such as easy credit. Misallocating resources not only jeopardizes the company’s health but also reduces its ability to serve customers effectively.

Ultimately, maintaining a healthy business means staying adaptable, making prudent financial choices, and always keeping an eye on the future. By focusing on profit, preserving capital, and responding to market signals, businesses—big or small—can thrive even in the face of uncertainty.

Does Capital have a virtue?

How capital is generally portrayed

Let us rediscover what capital truly is—a term so often misunderstood and negatively perceived in our society.

In traditional economic theory (Keynesian), capital is frequently seen in simplified terms as a homogeneous stock of physical or financial assets, primarily used to stimulate aggregate demand through investment. It is often associated with the concentration of wealth and the economic power held by a small elite. In a context where wealth gaps continue to widen, many view capital as a symbol of economic inequality, particularly when accumulated wealth appears to offer no benefit to the majority.

"Capital" is often portrayed as a tool of exploitation, and this perspective has deeply influenced various movements that view capital as inherently opposed to the interests of workers. But is this true? Or could this perception be distorted by:

A lack of understanding of economic mechanisms (including by economists themselves)?
Government interventionism and market manipulation?
Confusion between crony capitalism and free-market capitalism?
The media's framing of economic crises?
A desire for quick fixes and immediate social justice?
The cultural normalization of anti-capitalist rhetoric?

Fortunately, Bitcoin forces us to rethink everything and challenge these preconceived notions. There exists a school of thought—the Austrian School of Economics—that can shed light on these issues and help us reconsider the true nature of capital.

Once upon a time

Let’s begin with a short story:

"On a small deserted island lives a solitary fisherman. Each day, he spends hours catching fish with his bare hands, an activity that consumes a significant portion of his time and energy. One day, he has an idea: to build a spear that will allow him to fish more efficiently. But he knows this will require a sacrifice.

Before starting to craft the spear, the fisherman decides to set aside some fish to sustain himself during the process of building it. He eats less than usual for a few days, saving enough fish to focus on his project. This saved fish represents his capital, a small reserve that enables him to pursue his goal.

While he dedicates his time to building the spear, he relies on his reserves, willingly delaying some of his immediate comfort (a reflection of his time preference). After several days of hard work, he completes a sturdy spear.

With the spear, he can now catch fish much faster and with less effort. He no longer needs to exhaust himself as before and even begins to accumulate a surplus of fish. This surplus opens up new possibilities: he can store it, share it, or invest it in other projects on the island. By delaying immediate consumption and utilizing his capital, the fisherman has significantly improved his efficiency and prospects."

This story underscores the vital importance of capital, patience, and foresight in shaping a better future—concepts crucial to economic growth and human progress.

The Austrian School of Economics and Its Vision of Capital

The Austrian School of Economics is named after its founders and early contributors, who were originally from Austria. The name stuck, and the school has since become closely associated with classical liberal thought, emphasizing individual freedom, free markets, and minimal state intervention.

The Austrian Perspective on Capital

In the Austrian view, capital is deeply connected to the idea of deferring consumption to build tools or productive resources that enhance future production. This process, known as capital accumulation, is a central concept in Austrian economic theory. Key elements of this perspective include:

Time Preference and Deferred Consumption: Individuals naturally prefer consuming now rather than later, but they may choose to defer consumption if they expect greater rewards in the future. By saving today, resources can be invested in capital goods (tools, machines, infrastructure) that improve productivity over time. Societies or individuals with lower time preference save more and invest in long-term projects, fostering sustainable growth.
Capital as a Driver of Future Production: Capital goods are seen as intermediate tools used to produce final consumer goods. By accumulating capital, entrepreneurs can enhance productivity and create more wealth in the future. For example, instead of producing consumer goods immediately, resources might be used to build factories or machines. Although this reduces short-term consumption, the resulting efficiency enables greater production and long-term prosperity.
Indirect Production and Efficiency: Austrian economists, such as Eugen Böhm-Bawerk, highlighted the idea of indirect production—longer and more complex production processes involving multiple stages. Though these processes take time, they ultimately yield more efficient and productive outcomes, such as building a sawmill to process wood rather than collecting logs by hand.
Interest Rates as Signals: Interest rates, in the Austrian view, naturally reflect individuals' time preferences. High rates indicate a preference for immediate consumption, while low rates encourage saving and long-term investment. When central banks artificially manipulate interest rates, they distort these natural signals, leading to misallocated resources and unsustainable investments (malinvestment).

Two Forms of Capital in Modern Economies

Within the framework of the debt-based monetary system in which we operate, there exists a second type of capital: one that is generated instantaneously when a bank creates a loan through a simple credit mechanism. This involves the creation of liquidity ex nihilo, where the bank lends money it does not actually hold in advance but instead creates based on a promise of repayment.

On one hand, the "Austrian" capital is the result of real savings, a process that involves thoughtful economic decisions and meticulous sacrifice. On the other hand, the capital generated through the creation of debt-based money is an instantaneous and artificial construct. These two types of capital, though superficially similar in their use to finance projects, are fundamentally different in nature.

These two forms of capital should never be conflated; yet, within a debt-based system, they are often conflated, distorting economic signals and frequently leading to malinvestment. This misunderstanding sheds light on why capitalism usually receives unwarranted criticism.

The Key Issue with Keynesianism

Keynesian policies, widely adopted by global elites, manipulate interest rates and stimulate demand by creating debt. This encourages resources to flow toward short-term, unsustainable projects, amplifying economic cycles and delaying true growth rooted in healthy savings and productive investments. Business leaders observe this harmful policy firsthand as healthy companies are pushed into overvalued acquisitions in pursuit of inflated returns, undermining organic and sustainable growth.

In such an environment, how can "healthy" capital—carefully saved by entrepreneurs—compete with artificially created "unhealthy" capital? Furthermore, the unilateral expansion of the money supply erodes the purchasing power of sound capital, exacerbating economic disorientation and societal dissatisfaction.

A Glimmer of Hope: Bitcoin

Bitcoin provides a means to accumulate and preserve capital over the long term, thereby mitigating the erosion caused by monetary inflation. As a store of value, it enables businesses to plan future investments with resilience, challenging the dominance of debt-driven systems and fostering a return to true, productive capital accumulation.

More about the Austrian school of economics

The Austrian School of Economics is a tradition of economic thought that values free markets, individual liberty, and the importance of human action in economic processes. It critiques state intervention, particularly in the areas of money and markets, and argues that individuals, guided by their subjective preferences, are the best judges of their own interests.

Key Figures of the Austrian School

Carl Menger: The founder of the Austrian School, Menger developed the theory of subjective value, which asserts that the value of goods depends on individual preferences rather than production costs.
Ludwig von Mises: A cornerstone of the Austrian School, Mises introduced praxeology (the theory of human action) and authored Human Action, a profound critique of socialism and central planning.
Friedrich Hayek: A student of Mises, Hayek won the Nobel Prize in Economics in 1974 for his work on decentralized knowledge and market spontaneity. In his book The Road to Serfdom, he strongly criticized centralized control.
Murray Rothbard: A disciple of Mises and a staunch advocate of libertarianism, Rothbard developed the theory of anarcho-capitalism, envisioning a stateless society governed by voluntary contracts. His book Man, Economy, and State is a seminal work in Austrian economics.

Other Influential Economists

Milton Friedman: While not directly associated with the Austrian School, Friedman supported many pro-market and liberal ideas. His monetarist policy differs from Austrian thought but shares their critique of excessive state intervention in the economy.
Frédéric Bastiat: A 19th-century French economist, Bastiat influenced the Austrian School with his works on free trade and the unseen consequences of economic policies. His essay What Is Seen and What Is Not Seen is a foundational text of economic liberalism.

Attribution: The Ludwig von Mises Institute

Core Contributions and Ideas

These thinkers shaped the idea that state intervention distorts markets and that economic freedom is essential for prosperity and the harmonious coordination of human actions. Their insights underscore the importance of decentralized decision-making and the risks associated with centralized control in economic systems.

For more information on this topic:

Austrian School of Economics Fundamentals

Intermediate

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Discover Austrian economics as an alternative framework for analyzing markets and individual decision-making

4.7(218)

Austrian School of Economics Fundamentals

Discover Austrian economics as an alternative framework for analyzing markets and individual decision-making

A Philosophical History of Freedom

Beginner

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Discover the evolution of freedom through the ages, from ancient philosophers to modern challenges.

4.7(76)

A Philosophical History of Freedom

Discover the evolution of freedom through the ages, from ancient philosophers to modern challenges.

Bastiat Economic Thought

Intermediate

4.6(178)

To gain a deep understanding of the life, influences, opponents, and economic theories of Frédéric Bastiat, a 19th-century French economist and thinker.

4.6(178)

Bastiat Economic Thought

To gain a deep understanding of the life, influences, opponents, and economic theories of Frédéric Bastiat, a 19th-century French economist and thinker.

Quiz

biz1013.1

1/5

According to Austrian economics, why are profits considered a key indicator of a company's health?