On Propaganda

What, exactly, is propaganda?

To most people, it resembles Justice Potter Stewart's description of pornography - they know it when they see it. 

If you pushed most of these people to describe what approximately it is that causes them to see it, they would likely have the sense of someone trying to manipulate public opinion for selfish political ends, to encourage conformity in viewpoint and values, particularly with regard to biased or untrue viewpoints.

But how exactly do we distinguish propaganda from public service announcements, or statements of shared values, or celebration of historical symbols and rituals, or any other number of related concepts?

One of the good lessons I remember from reading Less Wrong back in the day is the general pointlessness of arguing over definitions. If you're tempted to argue over what is or what isn't X, you're almost certainly better off just redefining X into its component pieces, and just saying what corresponds to what. 

So to me, there is one concept that can be defined in fairly value-neutral terms - attempting to influence public opinion. This covers a wide range of the examples above.

And layered on top of that is the pejorative sense - the perceived bias or bad faith of the messenger.

This latter part, of course, is mostly where people disagree.

And so in this sense, what people perceive as being propaganda is a far more interesting question.

As is often the case, one google image search is worth a thousand essays on the subject (see, for instance, here).

So here are some:

Propaganda

Propaganda

Propaganda

Propaganda

Propaganda

Propaganda

Propaganda

These are just some samples. Your own image search will work just as well.

As always, it is a useful corrective to let data change your mind, even just if in small ways. My guess ahead of time was that the strongest association with "propaganda" would be "Nazi", but none of the images on the first pages are German. I didn't expect nearly as many American entries, but then again this might just reflect the preference for being able to easily understand the text.

So what are the common themes?

The overwhelming principle is that people perceive propaganda as being mostly from World War 2 and the surrounding era. 

One potential explanation is Moldbug's observation that the propaganda of the 30's and 40's was particularly crude (he cites this video as an example).

There's a certain truth to that. The images definitely look dated. But I suspect a large part of this is just that they use paintings where today we would use photographs, the fonts aren't computer-rendered, and the voiceovers emphasise the neutral mid-Atlantic broadcaster pronunciation. If you had given Goebbels some rudimentary training in Adobe Photoshop and Microsoft Video Editor, I doubt it would have taken him long to get equally slick, modern-looking production values.

The small number of modern examples that show up are actually the most revealing. The two that seem to register as being of the same class tend to ape the old poster designs, with Soviet-style drawings, bold clashing colours, and over-the-top symbolism. In this regard, you usually have to be quite overt to trigger the propaganda label.

But there's another aspect here that ties together the past images and the small number of present images.

To wit: people only view things as propaganda when they don't actually share the viewpoint being pushed.

To share the underlying viewpoint is to suspend one's disbelief about the nature of the messaging, and the desire to convert the unbelievers. One cannot see the strings being dangled and the puppets being manipulated, because when one believes the same thing, they simply come across as the truth. The truth needs no justification other than itself. Hence anybody pushing it is not trying to influence the rubes in the general public, they're just delivering a genuine public service.

In this regard, the images above may seem strange at first glance - why are there so many American examples? The answer, I think, is that the cultural values of America in World War 2 are almost as alien to us as those of the Soviets of the time. Which is why crude racial caricatures and related national symbolism seem so jarring today. They are aimed at an audience that is very different from modern Americans, and so it's easy to perceive the messaging. 

And crucially, the only modern examples which show up are those covering the most partisan political issues.

Donald Trump in front of an American flag is propaganda, if you are a Democrat.

A Muslim women wrapped in an American flag as a hijab is propaganda, if you are a Republican.

But no Republican would have the first spring to mind as a symmetric example of propaganda, and no Democrat would think of the second.

Which makes one wonder - what are the types of propaganda that (at least in polite society) don't have an opposing partisan to point them out? What are the things that, in David Foster Wallace's wonderful essay, are simply the water that we swim about in and don't even notice? 

Or equivalently, what are the opinions that are taken for granted today, but which might be seen as propaganda by people in 50 or 100 years? These ideas almost certainly share a lot of overlap with Paul Graham's idea of "What You Can't Say". But sometimes it's not just things you'd get massive flak for disagreeing with, as just things most people wouldn't think to disagree with.

When I tell you to imagine "Communist propaganda" or "Nazi propaganda", you can picture an image.

When I tell you to imagine "Republican Propaganda" or "Democratic [Party] Propaganda", you can probably do the same.

But when I tell you to imagine "Democracy Propaganda", especially if I limit you to modern examples, your mind draws a blank. There is no cached entry there.

Isn't that strange?

Sometimes, it's helpful to proceed by way of analogy. So let's start with an example that we can all now look back on as having an enormous propaganda aspect - the Nazi concept of Aryan. 

Aryan Propaganda



Aryan Propaganda



Aryan Propaganda

With the benefit of hindsight, aryanism is a strange concept. It conveyed a sense of the canonical blue-eyed, blonde-haired German ethnic pride. It managed to be a hybrid mix of appearance, nationality, ethnicity, and character. It was an amorphous ideal that somehow conveyed positive connotations from ideas of racial uniformity, especially as applied to Germans and Nordic-looking people. Given its many uses, providing a concrete definition is non-trivial, let alone the difficulty of trying to explain why exactly aryanism was meant to be a good thing.

You can see this water. You can understand it intellectually, as an anthropological phenomenon. But it is utterly alien. You simply cannot see it as a German in 1941 would have seen it.

So, the question is - is there a modern equivalent of aryanism?

Is there a term that most Americans understand with approximately the same sense that Germans understood aryanism in 1941? Maybe there isn't one. Maybe modern readers, so inured to the constant bombardment of marketing images, couldn't possibly fall for such a peculiar and loaded term.

One possible answer is below the fold.

Narcissism and the Rise of Celebrity Culture

Narcissism is, as the Last Psychiatrist put it, the disease of our age.

But why this age, and not the ones before it? If we ended up in an age of trivia and self-centredness, how exactly did we get here?

A common theme through some of my recent writings is the idea that a lot of social and cultural problems may significantly stem from technological causes. It's not that the underlying human nature and cultural forces aren't important, of course. But technology opens up possibilities that weren't there before, for instance when it comes to immigration, birth rates, or sexual morality. As always, this isn't my theory on the whole story, or even necessarily the biggest part of the story. But it often makes up the part that goes most neglected, the assumption that gets taken for granted even though it's of very modern origin.

If you want to understand a society's values, look at who they venerate. Who do they hold up as examples of a life well-lived, as examples to emulate?

Like many aspects of culture, it is sometimes easier to understand this in past societies than your own. In your own time, the tawdry reality tends to get mixed up with the aspirational. 

Whom do we celebrate? Why, we celebrate geniuses like Nobel Prize winners!

Very well. Name me all the Nobel Prize winners you can, starting with a field that's not your area of professional employment. I'll wait.

Not so easy, is it? As it turns out, we celebrate the abstract idea of Nobel Prizes, but don't give two hoots about any of the winners. Your children are smart enough to tell the difference.

A necessary but insufficient condition of being celebrated is being known, being famous. It's possible to be infamous and hence not celebrated, like Hitler. But it's not possible to be celebrated and venerated, yet unknown.

The tawdry reality of who we actually celebrate is the list of people who appear on the cover of magazines in the supermarket. The aspiration of who we think we ought to celebrate is the people who appear on Google doodles. The overlap is the null set. Though I'll admit, it's possible to imagine some very odd scenario where Martin Luther King somehow manages to single-handedly fill out the middle of the Venn diagram.

Carlyle set up the National Portrait Gallery in London to inspire people with pictures of great men who did great things. I've written about this before, in both England and America. In the 19th century, you get Tennyson, Darwin, Browning, Wellington, Gordon, the whole deal. In the 20th century you get Sir Paul McCartney, Princess Diana and the Rolling Stones.

The most famous people today are entertainers. Actors and musicians, primarily. These are the pinnacle of adulation and interest. The young aspire to whatever is held up to have the highest status. You may scorn Kim Kardashian, but your daughter will be exposed to tales of her life nonetheless. She was the daughter of a lawyer who became famous for helping get a celebrity murderer off the hook, and she became more famous for releasing a celebrity sex tape, an idea that she wasn't even the first to come up with. What a joke, right? Except she ended up marrying one of the most famous rappers in the world. What lesson do you think the ten year old girls draw?

But you will not find any actors, or even many musicians, before the 20th century in the galleries. If you go back to Shakespeare's time, actors were considered a class barely above prostitutes. Disreputable phonies who pretend to be other people in order to get cheap applause from drunken idiots. The theatre was a necessary vice, a circus for the rubes. The people who wrote the plays may be celebrated, but the people who delivered them were considered beneath the dignity of polite society. You certainly wouldn't turn to them for guidance on the political goings of the day, as we absurdly do at the moment. Is it because we expect them to know anything about it? No, of course not. But we expect that the rubes will listen to them and follow, the way they do with high status people throughout history.

So how did actors suddenly change into world-bestriding celebrities?

Simple. Hollywood.

Not Hollywood as a cultural value. Hollywood as a technology to transmit moving pictures of actors to millions of people around the world. 

Before the age of movies and television, being an actor was profoundly unscalable. You could only get seen by however many people could fit into your auditorium. Which, around that time, also had unamplified sound. In other words, maybe a few hundred, tops. 

There is simply no way to create Brad Pitt in that environment. 

So actors were just performing a service. You turn up to see a play being performed by whatever troupe of ruffians happened to be in town at that time.

Of course, the written word back then was scalable, since the printing press. Hence why the authors of plays could become famous - the plays themselves could be printed and widely circulated. 

Something even more revealing is true of musicians. Without the phonograph, you needed to have lots of instruments to be heard by a large audience. An orchestra, in other words. As before, sheet music was scalable and could be sent around. So you got famous composers of orchestral music. Both parts are important. The composer got famous by having their name on the music, and the orchestra was needed to make sure that lots of people in the hall could hear without the possibility of speakers or microphones. Since this required large costs in people and equipment, it was limited to the elite, who were also the taste-makers. You did get folk music being spread around, from person to person, like modern memes. But in this case, the song became famous, and the composer became lost in the mists of time.

When the only scalable technology was the written word, the only way to become widely famous was either to write something, or do something sufficiently memorable that other people would write about it. 

Hence you got novels and poetry as celebrations of the written word. And you got military heroism and political leadership as gripping real-life narratives that could be written about in newspapers.

Of all the essays in Carlyle's excellent "Latter-Day Pamphlets", the one that seemed most alien to the modern world is "Stump-Orator". In it, Carlyle presents as an obvious fact of the age that the highest-praised skill was to be able to write and speak well.

It lies deep in our habits, confirmed by all manner of educational and other arrangements for several centuries back, to consider human talent as best of all evincing itself by the faculty of eloquent speech. Our earliest schoolmasters teach us, as the one gift of culture they have, the art of spelling and pronouncing, the rules of correct speech; rhetorics, logics follow, sublime mysteries of grammar, whereby we may not only speak but write. And onward to the last of our schoolmasters in the highest university, it is still intrinsically grammar, under various figures grammar. To speak in various languages, on various things, but on all of them to speak, and appropriately deliver ourselves by tongue or pen,—this is the sublime goal towards which all manner of beneficent preceptors and learned professors, from the lowest hornbook upwards, are continually urging and guiding us.

Do you, dear reader, look at the world today and think that the most celebrated talent in the modern world is eloquence of speech? It seems almost unbelievable today, but that was once true.

And it bears emphasizing - while it may seem incredible given the degeneracy that was to come, Carlyle was writing this in order to bemoan the fact that celebrating speech in his time was coming at the expense of celebrating action and achievement.

I am glad for his sake that he did not live to see Paris Hilton. 

The first shift towards the Kardashian-isation of our society came with the photograph. Instead of writing well, people were noted for being good-looking. Without photographs, the only way to gain from good looks was from people who could see you personally, or the very expensive and unscalable technology of painted portraits. 

Early photographs were slow to take, which meant that people had to be sitting posed for long periods. Hence photographs could convey beauty, but not story or excitement. You could not, for instance, get disturbing but famous photos like this one, or this one (both redacted, since my sister told me last time she found the latter one distressing when it appeared unannounced on my blog).

But with better photographs, and certainly with movies and video, the returns to being attractive, as opposed to eloquent, skyrocketed. Hence the rise of beautiful actresses and actors. Their entertainment role was able to attract more scalable celebrity, and their beauty became a bigger part of their job description.

Meanwhile, because people are lazy, watching and listening to people talk and act had more mass appeal than reading their words, and preserved more of the drama. Actors drove out authors in the celebrity stakes.

Similarly with music, the spread of records meant that the performer could also be widely known. And the ability to amplify sound meant that you needed far fewer musicians per performance.

Hence the Beatles and James Dean, where once you had Beethoven and Samuel Johnson. Even supposing that Carlyle was right about the degeneracy of the written word, it took a lot more genuine talent than what was to come.

And so we ended up with the cult of entertainer celebrity, rather than famous deeds. The pinnacles of social status are actors and musicians. 

And I suspect, though I can't prove it, that this had a profound psychological effect.

At a certain point, especially in the age of the internet, the process degenerates even further. You don't have to have done anything. You just have to be good looking and have lots of people pay attention to you. 

It becomes enough to just be famous for being famous. Kim Kardashian is just the end point of the logic. In the age of the internet, this is often achieved seemingly at random, as things go viral. It's like the lottery of social attention, further reinforcing the perception that fame does not come from deserved deeds.

And technology has greatly refined the measure of celebrity. The modern National Portrait Gallery is instagram. It isn't required to be a portrait gallery, as opposed to a general photography gallery, since in principle people can post anything. But it ended up that way nonetheless.

A girl's instagram feed is often immensely revealing about her. Presumably a man's is too, but honestly, what kind of man is on instagram? 

The instagram feed reveals what the person loves. 

And the main categories, in ascending order of pathology, seem to be

-Cute animals

-Food

-Self-indulgent travel

and most of all

-Themselves.

The selfie is the most quintessential marker of the modern era. I am both the subject, the artist, and the consumer. A photo of me, taken by me, repeated endlessly in trivially different settings, which brings me great delight, and which I post to social media in order to get attention. Me, as the literal centre of the photographic universe.

It is the cult of celebrity, but democratised.

The results are exactly as unedifying as you would expect.

On the Dying of the Darkness

In Chicago, on a summer's night, the sky at 2am glows with a dull grey orange. If modernity has a colour, it is this. The orange is the city, reflected back off the night clouds. The colour of streets illuminated to make it safer to walk in. The colour of houses with merriment and offices with productive work, extending the day long past the sun's descent over the horizon. The colour of man beating back nature. The colour of progress, in its old and apolitical sense of sheer advancement, of doing things that were once not possible.

And yet, few things in this universe are truly free. Wrestling with the full implications of opportunity cost, both in terms of battling it where possible and making peace with it as best you can otherwise, is a large part of the human condition. This concept has been studied by poets and economists alike. As I wrote about in the very first entry of this periodical, the best summary of opportunity cost, in my opinion, still comes from Bob Dylan.

The light dispels the darkness. Even reactionaries, no matter how committed, would hesitate mightily before wishing away this development.

But to choose openly does not mean one cannot regret the tradeoff. So what, thereby, is lost?

Chief among the costs is the splendour of the night sky.

In a capital city in Australia, where I grew up, you can still see the stars at night. Not the full panoply of the Milky Way, but enough to sense the enormity of the heavens.

For immediately conveying the sheer punyness of man on a cosmic scale, there is no substitute for the stars on a cloudless night, surrounded by pitch black. It is a scene which requires almost no explanation. Mere scale is enough to make one's own problems, and indeed one's very existence, seem picayune.

And nothing else quite has the same effect. Not the fury of the ocean in a storm, not the solitude of a silent forest, not the desolation of a wilderness far from other people. A wilderness can be traversed, a forest explored, an ocean sailed. Even when they threaten you, they can all be interacted with. But the stars can only be watched, and one's place in the universe pondered.

And increasingly, we don't see them. I suspect that a child growing up in New York City might go months without seeing the stars. Even as adults, the full visual of the Milky Way has mostly become something we see when on holiday in somewhere remote. Exteranally-prompted contemplation of one's place in the universe becomes similarly irregular.

Modernity is the era of light pollution.

Modernity is also the era of atheism, and (though less remarked), the era of narcissism.

I suspect these aspects are not entirely a coincidence.

Without the stars, one only sees the lights of the city. Without the heavenly panorama, one is less drawn to look at the night sky in the first place. And the same light that drowns out the stars attracts our attention downward, towards televisions, phones and computers.

The stars speak the irrefutable message that there are measures greater than man. Take that away, and man has no measure other than himself and his physical surroundings. The latter is atheism. The former is narcissism.

There are no simple causes of social phenomena, and it would be trite to ascribe great social changes to such Rube Goldberg-like developments as streetlights.

And yet, each restraint that gets eroded adds momentum to the changes already underway.

And this was known long before light pollution was even a concept. As Isaac Asimov noted, quoting Emerson:

If the stars should appear one night in a thousand years, how would men believe and adore, and preserve for many generations the remembrance of the city of God?'

Feminism and Birthrates

As I’ve written about in the past, by my reckoning the direst problem of our time is that the west is not having enough children to replace itself. It is literally dying out. To make matters worse, the distribution of birthrates seems significantly dysgenic. It is the rich and educated who are having the least children. We are not just shrinking, we are getting dumber to boot. If you doubt me, I’ll gladly stake a wager on whether you should expect to see more articles about “The Flynn Effect” or “The Reverse Flynn Effect” over the next 20 years. One does not have to be a HBD fanatic to observe that, if current trends continue, it is hard to see a scenario where this ends well.

And, as far as I can tell, we don’t really know why all this is happening, though of course there are theories. Some parts, as I’ve noted, are purely technological. We have much better birth control technology, which means that those people who are inclined to not have children have a much easier time of arranging this. We’ve short-circuited evolution’s link between having sex and having children, so we do the former, but not the latter.

But there’s another part that missing in the previous analysis. Even among the couples that do want to have kids, there’s an increasing sense that they can’t afford to have as many as they’d want. The cost of raising them has gotten too high, both in terms of money and time. For today, let’s just focus on the money aspect (with the acknowledgement that this almost certainly doesn't explain the whole thing).

While it’s worth taking this complaint seriously, it sounds very odd at a first glance. Society is immensely richer than it was a hundred years ago. We have a lot more labor-saving technology, and ipads and televisions to entertain children. How is it that the cost has not only gone up, but gone up so much that it overwhelms the increase in income, resulting in the budget set allowing for fewer children under current preferences?

Part of this is just a raised set of standards. When people lived in primitive societies, often everyone in a family slept in the same room and the same bed. A hundred years ago, it was entirely normal for children to share bedrooms for years at a time. Now, it’s considered vaguely odd for middle class children to not have their own bedrooms for their whole life. So people acting as if it’s better for the child not to exist in the first place than to have to share a bedroom. Hey, I didn’t say it made sense, but that’s the implication.

If children are expensive, what are the costs that make it that way? By my reckoning, the two biggest costs are schooling and housing. The two are correlated. Part of the cost of schooling is being able to afford a house in a good school district, which makes it harder for people to just buy a bigger house in a cheap area. The alternative is to spring for private school, which is even worse for birthrates, since this adds a fixed per-child cost.

The sheer mendacity of the social discourse about “good schools” makes it hard for people to even explain what it is they’re after. Part of the demand comes from delusion about the idea that schools with good educational outcomes get results solely from good teachers and more resources, as if the quality of the student body had nothing to do with it. Partly it comes from a realistic appreciation about what the student body’s qualities have to do with the chances your kid ends up being friends with drug dealers and gang bangers, or just gets beaten up at school.

But whatever the reason, it’s deemed very important to be in a good school district, so there’s lots of demand for houses in these areas.

And a similar geographic aspect is present in the demand for housing itself we described. If it’s hard to afford a big house with a bedroom for every child, is this because the cost of construction has gone up? Not really – building technologies keep getting cheaper.

No, houses are expensive because of land. You might be able to afford a big house. You just can’t afford one in any place you’d like to live. Schooling is expensive because it is assigned by school district, which is also based on land. If there were more selective, entrance-exam public schools, a lot of this pressure might be alleviated. But disparate impact related hysteria being what it is, land is the currency of our time for schooling.

Land is interesting, because it’s almost the classic example of a positional good. There is a certain amount of beachfront real estate in Los Angeles, Miami and the Hamptons. The ability to make more of it is approximately zero. The best land will end up being held by whoever the richest people in the area are at the time. Whether the society is rich or poor, someone will get to look at the ocean view, and the ocean isn’t much different than it was in 1950. As more money comes in, this will simply drive up the price, because the supply is highly inelastic. In one sense, you can build skyscrapers so lots of people live there. This solves the problem of getting to look at the ocean, but not the school district problem whereby the new entrants will be poorer than those who would live there if it’s only single family dwellings. So for the school district problem, it’s even more of a positional good problem.

And this is where feminism comes in.

Because the patriarchy, even in its relatively mild 1950s form, acted like a fairly strong co-ordinating mechanism whereby we all agreed that only 50% of us were going to work. For positional goods, if we all co-ordinate to do exactly 50% as much work, we end up holding exactly the same land as before – the ordering of who is rich and poor doesn’t change, and neither does the mapping between the richest and the best land.

In theory, you could get a similar effect with a rule that said that only one partner in a marriage was allowed to work (regardless of who it was), and everyone had to be married. In practice, even putting aside the desirability of this in terms of men vs women doing the child raising, and the relative complexity of trying to co-ordinate on this alternative, I don’t know how much difference this would make. Gary Becker famously noted that assortative matching between high income potential women and high income potential men (for any number of reasons, from preferences on down) means that the number of cases where the women would be the optimal choice to be a sole worker would likely be a lot lower than 50%, provided that men enjoy some income advantage. In other words, the “one worker per married couple”, if enforced, would mostly end up as only having the man working.

Either way, the norm that, in general, women don’t work, was a reasonably strong Schelling point around which to co-ordinate. As long as everyone stuck to the deal, you could afford exactly the same house and school district as before, but now there was someone at home to make dinner, keep the house clean, look after the kids when they came home from school.

As the Schelling point collapsed, we got the school district arms race. The first couple to have dual incomes can move up a long way in the school district / land rat race, but it wasn’t stable. Other people joined in, and before you know it, everyone has to have two incomes just to afford the same house that they would have had before under a single income model.

It’s actually worse than that – as well as having to pay more for the same house, the couple now has to pay to contract out all the services that previously would have been done by the woman who stayed at home, from childcare to cooking to cleaning. Feminists, like progressives, are always apt to insist that the problem is simply a lack of more feminism! We just need to have more family-friendly work policies, free childcare etc. It’s true that this will help somewhat – there is probably a J-shape of feminism and birth rates, where a moderately large amount of feminism without any maternity leave or childcare subsidies (a la the American model) is probably about the worst possible scenario. But look at the Scandinavian countries. Even with all the childcare in the world, the total fertility rate for Denmark, Sweden and Norway are 1.69, 1.88 and 1.75 children per woman respectively (without even inquiring how many of those are ethnic Scandinavians as opposed to third world immigrants).

It seems apparent that more feminism is entirely unable to solve the school district problem, because they don’t even understand it, and they don’t think about the extent to which this is driving the birth rate choice. It’s not a surprise then that even going the full retard of feminism doesn’t get you even replacement rates.

And in the cross-section, which people are going to feel this school district / birthrate pinch the most?

Those who are most likely to think that education and school districts are highly valuable. Which is to say, those who are highly educated themselves, since they likely attribute their success to their education. Being unable to bear the possibility of their kids going to “bad schools”, they instead get a small house in a good area and have fewer children. So we end up with not only reduced birth rates, but dysgenic birth rates to boot. Which, as I noted last time, is the biggest puzzle to be explained in the cost story.

And like Scott Alexander’s Moloch, we now don’t know how to stop the process. Some co-ordination mechanisms are easier to break than they are to get started again, even if there were the will to do so.

Of course, the problem will resolve itself one way or another. It’s just that the some of the resolutions sound like “the disappearance of people who care about school districts, and the societies able to sustain such infrastructure”.

As far as I can tell, the only groups of westerners with significantly above-replacement birthrates are Orthodox Jews, Mormons and the Amish. It is no surprise that all of them are considerably more patriarchal than the secular west. On current trends, there will be a lot more of them in the future, and that’s currently the best case scenario.

If you don’t like that, you’d better start figuring out some alternative, because the future is coming one way or another.

Bitcoin and the Inscrutability of Wealth

Well, it’s been about 6 months since my last Bitcoin post. I think what I wrote back in May stands up pretty well so far. Certainly the price has gone up like crazy, and my modest wager has so far paid off quite handsomely. The tendency towards the disposition effect beats in most human breasts – it is hard to continue to hold your gains as they keep rising, and psychology will push you towards wanting to cash out.

Of course, in this instance it might actually be wise to cash out now – it’s hard to know. My earlier rationale, in broad terms, was that I felt I had figured out why Bitcoin “worked”, and most people hadn’t yet – but they would in time. Well, the number of people who’ve figured out something certainly has gone up an enormous amount since then. One can disagree wildly on what exactly they’ve learned – I suspect a lot have just learned that Bitcoin will go up forever, which seems unlikely. In any case, the number of people still to figure it out has to be smaller than it was back in May. Even if Bitcoin does turn out to be valuable in the long term, this doesn’t mean it’s not facing a crash in the interim. In other words, Bitcoin might end up being Amazon, but you might also be living in the equivalent of November 1999.

I don’t know how to weight these two assessments. At the moment, the deciding factor for me is the influence of long-term vs short-term capital gains taxes. Not really knowing when to call it quits, I’m currently waiting until May or the price goes back to zero, whichever comes first.

But I have been thinking about the question of what makes things valuable, and what this portends for the future of Bitcoin.

In Patrick Wyman’s excellent “Fall of Rome” podcast series, at some point Wyman notes something very interesting about the Roman economy. In his words, the Roman economy was “monetised". This was something that distinguished it both from all the societies that had come before, and most of those that would come afterwards until at least the middle ages.

One way of thinking about monetisation is that people transacted widely in money, instead of just using a barter system. This is true, and important, but it’s not the psychologically most interesting part.

When money becomes used enough for transactions, a subtle shift takes place in terms of how people think about it.

The first step is that people start using money as a denominator of wealth when trading off economic decisions. Wyman describes how rich Roman aristocrats who owned villas and productive lands would begin to make choices based on what would maximize their amount of money – thinking about labor costs in terms of money, thinking about different crop yields and market prices in terms of money, etc.

This may seem obvious to us now, but again, that’s because we take money for granted. This process assuredly would not be so obvious if you lived in a barter economy. You can exchange a certain number of chickens for a certain number of bags of rice, or a certain number of horseshoes or whatever. To trade off the economic costs and benefits in a production process, you need to first convert everything to a given numeraire good, and then keep track of all the prices of inputs and outputs in terms of that good. But would it occur to you to arbitrarily evaluate everything on your farm in terms of horseshoes, and then keep track of horseshoe-prices for every good at each point to make sure you’re trading off things correctly? You might think it would, but I’m not nearly so sure. Yet when you’re already used to thinking in terms of money, it’s a much more natural step to take.

Once this process of trading off benefits and costs in terms of money has been going on for a while, an even more subtle transformation begins to take place, and one with wide-reaching implications. At a certain point, money stops being merely a unit of measuring wealth, and begins to be thought of as the wealth itself. In Rome, this was a quite radical shift. Because up to that point, land was the only real measure of wealth. Moreover, land was something one didn’t buy and sell, it was something that was held over generations. The idea that land might be a commodity that one bought and sold with money is yet one more idea that we take for granted that most humans in history would have viewed as crazy. Even now you see the legacy of this view, with people who think that housing wealth is somehow "real" and "reliable" in a way that other assets aren't.

And you can see that people’s willingness to hold money is radically different if they think of it as a) tokens that you can use to get stuff, vs b) the actual measure of wealth. In the former, an increase in money makes you nervous – you have to get rid of it to transfer it to the actual store of wealth or consumption. In the latter, it just makes you happy – money can always be reliably exchanged for stuff, so if you get more money, great, just hang on to it until you need to spend it.

This latter process is something that I think operates much more widely than just in money. I think something similar has been at play regarding the role of equities over the centuries. Again, nobody thinks of it now. But these days, equities are also wealth. This is opposed to equities being a series of tokens that you hold for a short period, hoping it will go up and then you can convert it into the real measure of wealth.

And this was not always the case. If you look back to 19^th and even early 20^th centuries, equities were mostly considered by prudent investment advisors to be “not even an investment”. Rather, they were just gambling and speculation and nonsense. Safe bonds were an investment. Real estate was an investment. Stocks, however, were speculation. And with speculative assets, you don’t want to hold them long term. You want to hold them for a bit, then ditch them. Now, it’s commonplace for people to leave their retirement assets in equities, and just plan to sell them when and if they need the money. This is what you do, when you view an asset as inherently being wealth, rather than just being a means to wealth.

The rise of “equities as wealth” has been mirrored in a massive rise in the number of equity securities. Most people don’t know it, but  the importance of equities was tiny for a lot of the 19th century. In 1815, the number of shares listed on the New York Stock Exchange was… 8. That’s right, 8, total. There were far more shares listed in Amsterdam or London around the time of the South Sea Bubble, and indeed there were more shares listed when the NYSE first got started in 1792 - the number actually declined by 1815. Partly, equities had just gone out of fashion during this whole period, after the collapse of the South Sea bubble around 1720. Bonds were the instrument of choice to trade and hold. Equities just weren’t interesting to people, and weren’t where they stored most of their wealth.

I think this kind of psychology is especially important for impacting price movements. The more people are willing to hold an asset long term, the higher its price will be, and the more stable its price will be. A willingness to hold long-term adds a large amount of permanent demand for the asset that doesn’t budge much with news. This is much more likely to result in sustained high prices than a view that any price rises should be considered as merely a sign that you have more tokens to convert to the “real wealth”, because the tokens themselves are not sufficiently reliable.

And I think something similar is playing out, to an uncertain conclusion, with Bitcoin.

To wit, people’s beliefs about the question I opened this essay with are likely to be very important for what happens next as the price of Bitcoin continues to rise. In other words, is Bitcoin inherently wealth? Or is Bitcoin merely a means to wealth? Put differently, if I hold a decent amount of Bitcoin and the price rises, do I need to convert it to some other asset? Or should I only sell it if I plan to spend the money?

There is always a question of portfolio rebalancing, but that’s not the whole issue. You will find no shortage of people who own huge real estate holdings that they lease out. To them, the real estate is wealth – if it rises in price, they don’t inherently feel the need to sell some of their properties. The question is, will the same psychology hold for Bitcoin?

In some sense, this gets to the question of “if you sold it, and you weren’t planning on spending the money, what other asset would you buy, absent a specific forecast of short term price movements in that asset?”. That other asset is what you think of as wealth. This contrast becomes especially stark if you think that selling bitcoin and putting the money in gold is a potentially sensible idea, since gold is a “safe asset”. As I’ve argued, in terms of fundamentals, Bitcoin is gold. The difference is only jewellery and psychology, with the latter being more important in my opinion. Gold has the considerable advantage that everybody has a relatively fixed idea of what it is and has a general sense that it's valuable, so it's unlikely to revert back to jewellery-only value. In addition, the big holders of it (central banks) are long-term, stable holders, so the price isn't crazily volatile. 

And strangely enough, this question is probably one of the big risks of Bitcoin today. I think the time-series here is very different from equities, where I suspect over the years people got gradually more used to holding the asset, and then viewed it as inherent wealth, which made prices and realized returns high during the latter half of the 20^th century.

Instead, I suspect that many of the initial holders of Bitcoin did view it as wealth – they planned to hold it for a very long time, if not indefinitely. But I strongly suspect that most of the people who have been piling into Bitcoin in the past 6 months aren’t thinking of it the same way. They are much more likely to view it as an instrument to wealth, a way to make a quick buck in the short term. And when something is merely an instrument to wealth, add in the disposition effect and suddenly you’ve got a lot of instability baked in. People have a base view that the price will keep going up, but they also have a nervous impulse to sell, and a vague feeling that the price rise can’t last forever. That makes crash risk higher.

In other words, I think that an important metric of whether Bitcoin is ultimately likely to succeed as a long term asset is whether it is viewed as wealth on its own. Whether, in other words, people are comfortable with the idea that a large fraction of their savings is in Bitcoin, and they’ll only sell it when they need the money.

This can happen to assets where it didn’t used to be true – again, look at equities, or before that, gold coins. Will it? Your guess is as good as mine. But as the number of people still to be exposed to the idea of Bitcoin gets smaller and smaller, I suspect this will increasingly become the first-order question as to what happens next.