Bitcoin panic light flashing bright amber

The once confident Jon Matonis has changed his tune a little:

More than a decade ago, regulators nearly suffocated PayPal. Now it looks like they’re trying to squelch another disruptive, innovative payments system.

At least three exchanges in the U.S. that traded the digital currency Bitcoin have shut down, apparently as a result of guidance issued last month by the Financial Crimes Enforcement Network. That agency has emerged as the top threat, at least in in the United States, to the decentralized Bitcoin network – more so than the widely reported price volatility and hacker attacks.

Matonis does not include the most telling parts of the Bradley Jensen interview (my transcript).  Around 17:30:

Jensen: "I have heard through the grapevine that FinCEN has prosecutions in the works for Bitcoin broadly speaking. My guess, based on the timing of the guidance, and what I had heard previously from the rumor mill about the prosecutions, is that FinCEN put out the guidance sort of ex post facto to justify the prosecutions that they're about to launch."

Interviewer: "So you expect this to happen within in the next couple of months..."

Jensen: "Again, I've heard different rumors, it's difficult to predict, but yeah. We knew that the prosecutions were in the works, and then later the guidance came out, it seems like a sort of CYA approach to how they're doing it."

Around 21:30:

Jensen: "We knew that these guidelines and these prosecutions were in the works, even last Congress. Ron Paul was the chairman of the House subcommittee that had jurisdiction over FinCEN, and he never had a single hearing on this. Congress has dropped the ball."

Interviewer: "Why is that, do you think?"

Jensen: "For a lot of people these are relatively obscure questions... I mean, Congress is a representative body that works to meet the demands of their constituents. Their constituents are demanding a balanced budget or gun control or immigration reform or something else... those are the issues that you deal with."

Jensen, like Foseti, has lived in and knows tha USG - the real one, not the one you see on TV:

What is the purpose of an alternative currency?

Let me answer that by analogy. What is the purpose of the internet?

If you’re reading this, you use the internet to read the often unorganized thoughts of a person with strange views on all kinds of subjects. Undoubtedly, facilitating such reading is one function of the internet. In reality, however, the internet is just a way for people to watch porn.

Similarly, an alternative currency might be a cool way to create a better store-of-value – one that’s free from manipulation of central bankers and large banks. In reality, however, it’s just a way for people to break laws governing financial transactions.

It's kind of a problem that (most of) Silicon Valley thinks it's governed by the TV Washington.  SV is a very confident place.  Very confident people have a way of thinking a new reality into existence.  Reality itself changes to conform to their confidence.  Sometimes this actually works.  Other times...

Bitcoin is money, Bitcoin is a bubble

[I promise - this is my last Bitcoin post.  I fear it attracts low-quality traffic.  Comments are off.]

Someone in a meeting the other day called my theory of why Bitcoin, a useless commodity, has a nonzero price, the "bubble theory of money."  I like it.  I think it could stick.

When I first came up with this BTM (which is only a slight, slight variation of Carl Menger's theory) and posted it seven years ago, I was genuinely concerned that the global mass mind, or at least the global financial mind, might be hyper-rational and converge spontaneously on the equilibrium solution, perhaps in as little as fifteen minutes.  Resulting in unbelievable global mayhem.  Which would arguably be my fault.  And for which I would certainly be blamed.

Obviously, I had a lot to learn about the global financial mind.  No one in this business has a clue.  Everyone who thinks he has a clue has no clue at all.  The rest get by with about half of one, plus a dab of good taste and a lot of hard work.  If you have money to stash away and enough to hire a pro, find some grizzled old silverback like Cassandra and let his spidey sense do the work.  He doesn't have a clue, but nor do you.

For example, while the BTM is impeccable in theory, it does not tell you, me, or anyone whether Bitcoin is money or Bitcoin is a bubble.  If Bitcoin is money, Bitcoin at $150 is absurdly cheap.  Otherwise, it is hilariously expensive.  Bitcoin will go to zero or infinity - almost certainly the former.  What is the expected value?  Answer unclear - ask again later.

Us feeble-brained humans are uncomfortable with path-dependent outcomes.  We don't want Bitcoin, or anything, to have an arbitrary price determined merely by marginal bid and ask, let alone a multiple equilibrium - we want it to have an underlying value.  Which is a physical property, like weight or orangeness.  When I say that Bitcoin is money and Bitcoin is a bubble, your mind grows nervous, as if forced to contemplate a car that is orange and green.  Sure, it's all waves and particles at the bottom - but, really.  Physics is one thing, accounting is another.

The BTM asserts that money and a bubble are the same thing.  Both are anomalously overvalued assets.  Both obtain their anomalous value from the fact that many people have bought the asset, without any intention to use it, but only to exchange it for some other asset at a later date.  The two can be distinguished only in hindsight.  If it popped, it was a bubble.  If not, money - so far.

In any realistic economy, real or virtual, there is a demand for at least one good which is used as a "store of value," that is, not used or intended to be used by the owner, but owned simply to transfer purchasing power across time.  Nonetheless, the owner holds this good and participates in the market for it.  If many owners standardize on the same good, they affect the market for this good.  We can think of their collective purchasing power as a sort of "energy" that flows into this market.

It turns out that the correct collective strategy in this game is for everyone to standardize on the same asset as a store of value, and for this asset to be one of intrinsically limited quantity.  If the quantity is not limited, as for example in a manufactured good, a stable pool of savers will not increase its price.  If the quantity is limited, as with gold, Bitcoin, etc, the price will increase as savings energy flows in - and, of course, decrease as it flows back out.

There is no way to eradicate this effect from anything like a realistic economy.  There is always at least one bubble.  Ideally, this bubble is stable, and we call it "money."  If you try to spread savings energy across all the goods in the economy, it will stay in storable goods and not in un-storable ones.  It will flee from manufactured goods and end up in rare collectibles.  Finally, it will flee from a broad spectrum of collectible assets and end up in a single standard.  Those who are late in fleeing are, by definition, caught in a bubble which pops - and taste the pain.

You might imagine that investment transactions would neutralize or at least reduce the demand for money.  Not so.  True, instead of holding cash, you can hold a debt - a promise of cash delivered next year.  Your demand for cash, and your impact on the price of cash, is now zero.  However, the economy's demand to save cash is unchanged.  In exchange for that debt, you gave someone else a bunch of cash.  She is now the saver.

Bitcoin is an exceptionally pure test of the BTM, because it has no intrinsic utility.  It is uncomfortably reminiscent of that apex specimen of the South Sea Bubble, "a company for carrying out an undertaking of great advantage, but nobody to know what it is."  One of the problems with the South Sea Bubble - in fact, one of the reasons why South Sea Company stock could not become a new monetary standard - was the inability to define a reason why one security should be the standard, and not another.  There are Bitcoin clones, all more or less worthless.  Bitcoin is a protocol standard, and everyone in our era knows how protocol standards play: winner takes all.

When we define the essential characteristic of "moneyness" as overvaluation, not as currency, we see that commerce in Bitcoin has no direct relevance at all to its price.  If you are spending in Bitcoin, you are not holding it.  All that affects the BTC/USD exchange rate is the order book of the people who hold BTC and are willing to sell it for USD, and vice versa.

Indeed, it is logically possible to imagine an economy in which the medium of saving and the medium of exchange are different assets, and the medium of saving is overvalued but the medium of exchange is not.  This actually happens in seriously mismanaged Third World countries, in which all savings flees to gold or hard currency, and the soft currency is held only for immediate commerce.  Often with an inflation rate of double digits per month.

History has never seen a pure monetary standard like Bitcoin.  It's not only that gold has intrinsic material utility - even fiat currency, though tremendously overvalued by savings energy, has intrinsic value.  Try paying your taxes without it.  Dollars will not become worthless even if Bitcoin becomes the global monetary standard, because dollar-denominated liabilities will remain.  However, considering the price of Bitcoins in this outcome, these debts will become macroeconomically quite easy to pay - an unqualified boon in my opinion.

The dollar is already the global monetary standard - what creates any incentive to switch to Bitcoin?  If the dollar was financially perfect, there would be no such incentive.  The dollar is anything but financially perfect.

Probably the easiest way to see this is to consolidate dollars, Treasury notes, and in fact all securities explicitly or implicitly supported by the US Government - a strong argument could be made that this set now includes both the stock market and the real-estate market - as USG liabilities.  To put it crudely, a dollar is a share of stock in America.  Like a frequent-flier mile (which is also a liability), it confers no explicit rights, but can be redeemed for valuable privileges (especially on April 15).

This set of liabilities is constantly expanding - quite a bit more rapidly than the Bitcoin pool.  In plain English, USG leaks money.  It bleeds, in fact, like a stuck pig.  When we do accounting in a diluting equity like this, the rational way to track our positions is not by the number of shares, but by the percentage of ownership.  If we adopt this "normalized accounting," we see that normalized money is constantly being sucked out of our bank accounts.

Fortunately for those who live in America, normalized accounting also shows us that consumer prices in America are constantly dropping.  Price deflation is the rule.  Consumer price indexes show negligible price changes in non-normalized accounting, not only because they are fudged and rigged, but because prices are set by dollars competing for goods.  Because American spenders have fewer and fewer normalized dollars to spend every year, normalized consumer prices are also dropping.

But the quantity of these normalized dollars is constant, so they have to go somewhere.  Where do they go?  To Asia and to rich people, generally.  If we look at the prices, normalized or not, of the assets that Asians and rich people buy, we see these prices going up.  Rather rapidly.  So, for these people (who hold quite a few dollars), the dollar is a rather poor store of value.

Because it seems unimaginable that USG will repair its hemorrhaging finances, the opportunity exists for a sounder monetary standard to outcompete its notes.  However, it is only an opportunity.

USG, now and for the near-term foreseeable future, can kill Bitcoin dead as a stone by rendering it ineffective as a store of value, simply by using its gargantuan physical force to prohibit exchange of Bitcoin for dollars.  Even a credible threat to shut down the exchanges will result in an enormous demand to flee from Bitcoin, effectively popping the bubble.  If the exchanges are really and truly killed, there will be a billion dollars of Bitcoin market capitalization that has no practical way to escape.  The holders of this Bitcoin will write it off as worthless - like South Sea or Mississippi Company stock.

The best thing about this outcome, from USG's perspective, is that to those who lost money in the Bitcoin bubble, it will seem like their own fault for being such fools.  True, as a result of USG actions, their personal net worth might drop vertiginously in an afternoon.  But it's not that the evil government confiscated their Bitcoins - rather, that the market betrayed them.  As with any bubble that pops.  So, just as 300 years ago, no political resistance can save the bubble.

On the other hand, suppose Bitcoin is money?  At this point, I can guarantee it.  Either USG will kill Bitcoin, which it can and probably will, or Bitcoin will be the new monetary standard.  In this case, Rick Falkvinge's projections are quite conservative.  Simply dividing dollar supply, however defined, by Bitcoin quantity, is an extremely incorrect way to project the USD/BTC exchange rate.  On the other hand, there is no better way.

In a world in which the entire pool of savings energy has moved to Bitcoin, what is a dollar worth?  On the one hand, enormous dollar debts exist.  On the other hand, those debts themselves must be valued as securities in Bitcoin.  As the BTC price increases into the millions, the purchasing power to pay off all the dollar debts - simply by cashing in a few Bitcoins - appears with it.  There are no significant Bitcoin debts, and nor will there be any until the transition has completed.

This is a scenario in which no one wants to hold either dollars, or dollar-denominated debts, because the purchasing power of these assets in Bitcoin is constantly decreasing.  (Note that it is already decreasing - at quite a rapid clip.)  The dollar is now the bubble, and devil take the hindmost.  The savings pool evacuates this bubble, but it does not evacuate evenly or all at once.  Rather, those who get out first (like Rick Falkvinge!) become much wealthier than they were before.  Those who get out last, however, can see a fortune shrink to a pittance.  This is classic hyperinflation.  A currency never hyperinflates by itself - it always hyperinflates relative to some other medium of saving.  There is always a savings pool, and always an overvalued asset.

Tangible assets - stocks and real estate - do better.  Across a monetary transition, a house remains a house.  You can still live in it.  On the other hand, the price of a house or a stock, relative to cash, is determined by interest rates.  Before the reboot, it is determined by USD interest rates.  After the reboot, it is determined by Bitcoin interest rates - which are effectively infinite during the transition, and relatively high even when the savings pool stabilizes.

Why relatively high?  Because they reflect the actual collective time preference of savers and borrowers, rather than the political incentives of Professor Bernanke.  We have no way of knowing what interest rates in a free market would look like - all we know is that ours are way too low, resulting in extreme malinvestment and way way way too much debt.

But the most significant effects of this unlikely, but awesome, transition are political.  Rick Falkvinge, who to be frank could be easily mistaken for a goddamn hippie, has only begun to imagine them.  Yes, a world in which governments were subject to ordinary accounting reality, and could not fund themselves by expanding their balance sheets, would be a very different one.

But even more important - money is power.  Today, power remains in the hands of the great fortunes of the early 20th and even 19th centuries - the Carnegies, Rockefellers and Fords, not to mention the many lesser billionaires gathered under their umbrella.  The greatest of these fortunes have of course passed out of individual hands and into those of foundation managers.  As with Obi-Wan, this has not lessened their power at all.

When instead of being determined by whose ancestors cornered oil in 1896, the distribution of great fortunes is determined by who bought Bitcoin when 10K BTC would buy a pizza - really, a no less arbitrary function - we see the balance of wealth, and hence the balance of power, in the hands of very different kinds of people.  What changes this would bring - no one can know.  Probably none, as it will never happen.

Disclosure: I have no Bitcoin.  Which is not because I disdain the great bet - but just because I'm a poor student of history.  But if you have some and think you've learned from UR, I just made a wallet: 12jmAcfRptnP7wkvepXQoYUt5yDsYxHRiZ.  Send me a little and I'll buy my wife a pizza.  Send me a lot and I'll found the resistance.  A luta continua!

Felix Salmon's Bitcoin FUD

Felix Salmon has a very good job.  He gets paid - and paid well - to pretend to think.  He's very good at it.  You have to respect anyone who's good at his job.

But if by some misfortune you are actually capable of thinking for yourself and, worse, enjoy it, you cannot have Felix's job or any job like it.  Not only is Felix not paid to think, he is not allowed to think.  Thinking is above his pay grade, as they say in the military.  A private who thinks he's Napoleon is not only not Napoleon, but not a very good private.

Rather, Felix's job (as with all legitimate journalists or columnists - though the former are not even allowed to pretend to think, which must really sting) is to communicate the thoughts of his sources, rewording them as if they were his own thoughts.  His sources are legitimate thinkers - professors, policymakers, and priests.  Just kidding.  Obviously there are no priests. 

Nonetheless, his sources (no sources, no journalist) have obtained distinguished titles at important institutions, which is (a) very difficult and (b) something Felix probably once tried to do, but couldn't.  If he disagreed with these distinguished sources, humbly and respectfully offering his own contrary opinion, they would look very puzzled, as though their golden retriever had attempted to engage them in a debate about Thomas Aquinas instead of fetching the goddamn ball.  Then, they would find a new dog.  An excellent fido is our Felix - but the planet has no shortage of dogs.

It is fundamentally erroneous for an Internet crank like me to argue with one of these microphones.  You might as well argue with a dog, or a lamppost, or anything else that can't change its mind.  My beef is with the sources, or rather, the institutions.  Or rather, the institution. 

(There is really no one these days who gets paid to think.  The difference between Felix and his sources is only that Felix knows he is not really thinking, whereas his sources actually believe they are.  Nonetheless, they would not have obtained their important positions had they thought differently.  And might even lose them, or at least sink a little, if they changed their minds.  Our Cathedral is made of real stones and real mortar and is quite invulnerable to mere windy thought.)

Nonetheless, Felix is an excellent fido and has a knack for catchy summarization.  It's not as easy as it looks.  His Gladwellian airport-bestseller product is full of transparent FUD, like "OMG haxx0rs!", to which a response would demean us both.  Pretending to think is one thing.  Blatant padding, another. But there are a couple of vaguely substantive anti-Bitcoin points which deserve an equally snappy response from someone with, if I may be so modest, a clue.

The first is the "argument from instability":

This is actually a serious problem, if you’re trying to put together a currency, rather than a vehicle for financial speculation. If the currency of a country ever fluctuated as much as bitcoins did, it would never be taken seriously as a medium of exchange: how are you meant to do business in a place where an item costing one unit of currency is worth $10 one day and $20 the next?

First, every currency is a "vehicle for financial speculation."  When you exchange good X for currency A on Tuesday, you are speculating that you will be able to exchange your A for good Y on Thursday.  This is a guess about the future, ie, "speculation."  Moreover, by choosing to use A as an intermediary rather than B, you are speculating that the exchange rate A/B will not change in B's favor between Tuesday and Thursday.  Otherwise you would have chosen B.

(It's typical of our thoughtfree age that a successful financial columnist feels no qualms about using the word "speculation" as a pejorative.  Can anti-Semitic rabbis be far behind?)

Second, Felix's sources will tell him that a currency has two roles: storing purchasing power and solving the coincidence-of-wants problem.  This is because Felix's sources are thinking thoughts last actually thought in the 1930s, ie, before computers.  With these magical devices, coincidence of wants is not in principle a problem, though small frictional effects persist.

It is trivial to do business in Bitcoin when BTC/USD is unstable.  Simply post the price in USD, and use the BTC/USD exchange rate as of the transaction date.  Even if buyer and seller are both saving in USD, within a couple of seconds they can exchange in, send Bitcoin, and exchange out.  The prices realized may differ slightly from the posted estimate, but only slightly.

In the 21st century, a currency has only one role: storing purchasing power.  Or to be more exact, containing the inevitable overvaluation of at least one asset in an economy where many actors want to store purchasing power.  If you can use this store of value directly in transactions, nice.  Nonetheless, rational actors will "speculate" on their optimal store of value, and convert on the fly if needed.  Using, you know, computers.

It falls under "padding," but I can't resist this moment in which our Felix truly plays his shill card:

The overwhelming majority of dollars in the world are deposited safely and electronically in banks: there’s something weird and self-defeating about the kind of people who keep their savings stuffed under the mattress. In Hollywood, if you show someone counting out huge sums of cash, that’s an easy way for the director to say that he’s a criminal.

Oddly, I actually lived in Cyprus when I was a kid.  It's a dangerous practice for a fido to keep his boilerplate stuffed under the mattress.  He's paid well by the word - the product should be fresh. 

It's also dangerous to channel Bulgakov, whom Felix probably hasn't heard of but can Google:

'In Sawa Potapovich's masterly interpretation we have just heard the story of "The Covetous Knight."  That knight saw himself as a Casanova; but as you saw, nothing came of his efforts, no nymphs threw themselves at him, the muses refused him their tribute, he built no palaces and instead he finished miserably after an attack on his hoard of money and jewels.  I warn you that something of the kind will happen to you, if not worse, unless you hand over your foreign currency!'
It may have been Pushkin's verse or it may have been the compere's prosaic remarks which had such an effect; at all events a timid voice was heard from the audience:
'I'll hand over my currency.'
'Please come up on stage,' was the compere's welcoming response as he peered into the dark auditorium. 
A short blond man, three weeks unshaven, appeared on stage.
'What is your name, please? ' enquired the compere.
'Nikolai Kanavkin ' was the shy answer.
'Ah! Delighted, citizen Kanavkin. Well? '
'I'll hand it over.'
'How much? '
'A thousand dollars and twenty gold ten-rouble pieces.'
'Bravo! Is that all you have? [...] Where are they hidden?'
'At my aunt's, in Prechistenka.'
'And where have you put them?'
'In a box in the cellar.'
The actor clasped his hands.
'Oh, no!  Really!' he cried angrily.  'It's so damp there -- they'll grow moldy!  People like that aren't to be trusted with money!  What child-like innocence.  What will they do next?
Kanavkin, realizing that he was doubly at fault, hung his curly head.
'Money,' the actor went on, 'should be kept in the State Bank, in dry and specially guarded strongrooms, but never in your aunt's cellar, where apart from anything else, the rats may get at it.  Really, Kanavkin, you should be ashamed: you -- a grown man!'
Kanavkin did not know which way to look and could only twist the hem of his jacket with his finger.
'All right,' the artist relented slightly, 'since you have owned up we'll be lenient...' Suddenly he added unexpectedly: 'By the way... we might as well kill two birds with one stone and not waste a car journey... I expect your aunt has some of her own hidden away, hasn't she?'

Okay, that's cheap.  But it is simply lovely how much our fido loves his loving master:

Because it turns out that financial-services companies are a very important part of any democracy.

It’s because we place so much trust in banks, after all, that they are forced to take on a great deal of responsibility. Banks and central banks are given an important job to do, are regulated and scrutinized, and can be held responsible for their actions. The population of the entire country, as represented by the government, stands behind bank deposits and promises to honor them even if the bank goes bust. Money, in other words, is a key ingredient in the glue which keeps the social compact together. (What we’re seeing in Cyprus is in large part a demonstration of what happens when that compact starts becoming unglued.)

Bitcoin, in that sense, is anti-democratic...

Dare I suggest that Fido understands 21st-century democracy perfectly?  "The population of the entire country, as represented by the government."  And hence, transitively, by J.P. Morgan.  I would love to have made it up.  Crap, Orwell would love to have made it up.

But there is substance here, or pseudo-substance anyway.  The cornerstone of the attack on the kulaks and Kanavkins:

Inflation is bad, but deflation is worse. The reason is that in a deflationary environment, no one spends money — because whatever you want to buy is sure to become cheaper in a few days or weeks. People hoard their cash, and spend it only begrudgingly, on absolute necessities. And they certainly don’t spend it on hiring people — no matter how productive their employees might be, they’d still be better off just holding on to that money and not paying anybody anything.

The result is an economy which would simply grind to a halt, with massive unemployment and almost no economic activity. In a word, it would be a Depression. In order to have economic growth, you need monetary growth as well — and that’s something which is impossible to achieve in a bitcoin-based system. Currencies such as the dollar, with a central bank which can print money at will, have succeeded for a reason. As economies grow, the money supply has to be able to grow with them. And that’s why bitcoin can never really succeed over the long term.

"In order to have economic growth, you need monetary growth as well."  But standing in its way - the Covetous Knight again!  A Trotskyist, a hoarder and a wrecker!

Surprisingly, this is perfectly true.  Actually, the key to understanding this argument is to understand that everything in it is true - if you look at it from the right perspective.  Or at least, the fido's perspective.


In order to have economic growth, you need monetary growth as well.  Why?  Because "economic growth" means "increase in the number of monetary units spent by consumers."  In order to increase the number of dollars that consumers spend, consumers need to have more dollars.  But is this "real" growth, ie, more and better products, or "nominal" growth, ie, just "inflation?"  Our hedonics experts will be looking closely at the quality of the products to ascertain this.


At this point, a person actually addicted to the vice of thought might ask: in an economy with a fixed number of dollars, is it possible to have constant dollar spending, for more and better products?  Ie, in fido language, zero "nominal" growth, but positive "real" growth?  What an odd idea.

But again, Fido turns out to be perfectly right.  It is not possible to fix the quantity of dollars in our economy, because the quantity of dollars sensu stricto (that is, liabilities of the Federal Reserve) is vastly disproportionate to the quantity of debt (market capitalization of the financial system).  By well over an order of magnitude.

Imagine a Bitcoin economy in which there were only 20 million Bitcoins, but 200 million promises to deliver future Bitcoins.  It is easy to see that this debt could not possibly be valued at par.  If we started with it valued at par, we would see the effective dilution of the Bitcoin market by a flood of effectively bogus promises.  But the market, being a market, would rapidly unravel this scam and devalue the bogus promises - increasing the exchange rate of a real BTC over a bogus promise, and also increasing the exchange rate of a real BTC against all other goods.

At a macroeconomic level, this would constitute a gigantic depression, exactly as Felix describes.  The fault would be not on the hands of those who exposed and detonated the debt bomb, but those who built and maintained it.  In the dollar debt bomb, continuous monetary expansion is needed to keep the plutonium core stable, which is why Good Professor Ben is lending us $85 billion a month.  With this mega-stimulus, spending scrapes along the bottom in a stagnant desultory way.  Without it, the core begins to contract, accelerates and then implodes - just as Irving Fisher (who originally thought this thought) explained.

Fortunately, there is no significant debt in Bitcoin.  In fact, BTC appreciation is a therapy for the dollar's debt bomb - because as the "bubble" expands, dollar purchasing power is created out of nowhere.  If BTC has the unlikely luck to run to fixation and become the world's standard currency, San Francisco will be full of dollar billionaires, who will spend these dollars - creating consumer spending, ie, inflationary purchasing power.  It would be too much to say this would be a good outcome for everyone, but it would certainly be a good outcome for those in debt.

Moreover, a healthy macroeconomic system with a fixed currency supply will not create a debt bomb.  Debt bombs are created when unpayable debts are guaranteed, formally or informally, by governments who want to profit surreptitiously from seignorage - generally, in the 20C, as part of some scheme to increase consumer spending.  USG itself cannot mint BTC.  So it cannot dilute the BTC supply with bogus BTC which are half bad debt, half "FDIC put."

It's also true that during the transition to BTC, no debt will be produced and there will be no significant BTC financial system.  Real debt requires the power to profit by selling future currency for a discount against present currency.  In a USD economy in which BTC is rising at 5% a day, or whatever, there is no way to complete this loop.

The "deflation" of BTC against USD is simply a function of the shifting volume of savings between the two currencies.  At present, almost all savings are in USD (and friends).  As tiny amounts of this energy flow into BTC, BTC goes up like a rocket.  Of course, the contest is unstable.

But when the entire savings pool has flowed into BTC, leaving the demonetized USD priced as a financial instrument for its expected return in BTC (ie, a dollar is a share of stock in USG, which has lots of awesome assets but no cash and no profits), you have an extraordinarily stable financial structure.  The quantity of BTC is fixed, by math.  The energy in savings is stable, because it corresponds to the real collective desire to defer consumption.  Even the debt capitalization is stable, because the quantity of debt depends on the existence of real productive opportunities.  I believe quite strongly that in this economy, there would be no such thing as a business cycle.

Sadly, I fear we'll never know, because Bitcoin is probably going to be killed by the USG.  Not really for any good reason, not even in self-defense, but just because it's easy to kill and bureaucrats like killing things.

This is the best thing about being a mouthpiece for power.  Your predictions come true.  You argue that the abandoned church next door is a dangerous firetrap, will probably burn down, and should probably burn down before someone moves into it.  It burns down.  Good, you say!  Are you a master thinker?  Or just good friends with a master arsonist?

Power creates opinion.  If Bitcoin goes from a billion-dollar capitalization to zero, which will happen if Washington so much as squeezes lightly on its neck, it's a bubble.  The past is always perceived as inevitable.  Everyone who bought Bitcoin will feel like the world's biggest chump.  How could anyone have thought it was worth something?  When, obviously, it was worth nothing?

No, it's a pity we can't use actual thoughts as a currency.  The quantity is so limited.  And always will be.  Alas, pseudo-thoughts are everywhere and very difficult to distinguish from the real goods.

Lawrence Auster, 1949-2013

Laura Wood has a brief eulogy.

Larry is gone and so is the country he was born in.  To complain of either would be as superfluous.  One pathology of our age is a childlike credulity in the magical efficacy of complaint.  Don't complain, build.  We have done well at complaining; so what?  What have we built?

The path to (dark) enlightenment

What is it like to be a Muslim?  "If a lion could talk, we could not understand him."  The truth is that a (genuine, not "moderate") Muslim (or Jew, Christian, Buddhist, Scientologist, etc), though unlike a lion he may speak perfectly good English, is someone who has grown up inside his faith and knows nothing else. You cannot understand him, because the only word he wants to use is "everything."

(I also except those, several of of whom I know, who grew up as rationalists but have made a rational decision to convert to orthodox religions, the mustier and more arbitrary the better - generally because the alternative more and more proclaims itself, per Chesterton, not nothing, still less Reason, but the Whore of Babylon in full professional attire.  To these friends, Babylon-worship, essentially idolatrous (and speaking to Maimonides' point that idol-worship is self-worship) seems unsatisfying for a grownup, but utterly unacceptable for his children.  But still - these people are not genuinely religious, though their kids will be.)

A genuinely Muslim Muslim cannot tell us anything about Islam, as the chick within the egg (even a talking chick) can tell us nothing about eggs.  The concept of "egg" is not meaningful for her - or to put it differently, it is equivalent to her concept of "universe."  Her universe is two inches in diameter and glows soft-white about half the time.  It's warm, well-nourished, and really rather pleasant.

And perhaps yet there is a point at which she realizes - in some obscure chick-language - "I am in an egg."  Her universe is not the universe.  It is just an egg.  What a pity, to live one's whole chicken life inside an impenetrable sphere, two inches in diameter!  To be... in fact... to be crushed, in fact, by the pressure of my own growing wings.  Already I can barely open my beak.  Why was I even born in this egg?  With wings and a beak?  Why, inside an egg, would I even need a beak?  But wait -

For there is one brief moment in which the chick can conceive the concept of an egg.  The moment before, egg is universe.  The moment after - egg is eggshell.

An eggshell is not an egg, nor will it ever be.  I'm sure everyone reading this was once a good 20th-century liberal.  Yet we find it a serious, even impossible, struggle, to explain the liberal mind.  What, this eggshell?  A millimeter thick?  Flattened with a footstep?  And missing its entire top, whence I dragged my scraggly ass out and sat shivering till my down dried off?  This, a universe?  My universe?  Elizabeth Bishop:

I said to myself: three days
and you'll be seven years old.
I was saying it to stop
the sensation of falling off
the round, turning world,
into cold, blue-black space.
But I felt: you are an I,
you are an Elizabeth,
you are one of them.
Why should you be one, too?
I scarcely dared to look
to see what it was I was.

As a small fortunate Internet miracle, you can see Charles Stross in precisely this evanescent moment - scarcely daring to look to see what it is he is:

Please don't deny that you are a believer in this revolutionary ideology — and it is revolutionary; so much so that Republican Democracy, Fascism, and Communism are just minor doctrinal disputes within it. It's okay to admit it here; I'm a supporter of this ideology, too. None of us are supporters of feudal monarchism; we're all the inheritors of the early Jacobins. Which makes us revolutionaries.

But it's important to understand that virtually the entire mainstream of political and social discourse today is radical and revolutionary by historical standards. (Hell, the concept of sociology itself is a construct of the revolutionary philosophers.) This is not an historically normative set of touchstone ideas to run a society on. We're swimming in the tidal wave set running by an underwater earthquake two centuries ago — and like fish that live their entire lives in water, we are unable to see our circumstances as the anomaly that they are, or to know whether it's all for the best.

And, as Oliver Cromwell put it, "I beseech you, in the bowels of Christ, think it possible you may be mistaken."

Indeed.  Unfortunately, it's one thing to "see what it is you are" three weeks after laying.  Or three days before seven.  Slightly different when you're pushing fifty.  But better late than never, eh?

Again, as survivors of this insane murderous cult (we can say one thing for the Jacobin of 2013 - none of his works has ever been released in human leather) that ate the planet, we all find ourselves wondering how to get our friends out of their eggs.  Our difficulty is that we do not understand eggs and have no memory of escaping from an egg - only from an eggshell.

While there is no easy answer, I can't help but think that this moment in which the chick sees the egg is an essential part of the solution.  The truth is that some will escape and some won't.  Probably, most won't.

But it seems almost inevitable that once anyone understands that he's inside an egg, his next step will be to figure out what his beak is for.  An egg is an eggshell.  The world outside it is kind of big and certainly scary.  How easy to fall off, into black, turning space!  And yet, it's pretty boring inside an eggshell...

Two words for Tyler Cowen and Ilya Somin

The words are ultra vires.  If these effulgent benefactors of humanity at large had received an ordinary 19th-century legal education, they'd already know them.

After USG is finally razed to the ground, the entire Potomac watershed from Vienna to Gaithersburg restored to pristine pre-Columbian conditions, and North America governed by a couple of smart, hard-working guys and a secretary out of a cozy little office in St. Louis, smart high-school kids will still need to be taught about this monster and why we slew it.

When did the contract that was the Constitution become null and void?  Obviously, any contract, once breached, is void - another truth you'd learn in an ordinary 19th-century legal education.  In fact the reality is that a constitution cannot be a contract, for a contract requires an enforcing agency superior to both parties.  Were we still in love with Lockean political theory, we might say that the Sovereign People was the enforcing party and resumed the powers they had contracted away.  But Lockean political theory went into the Potomac with the Washington Monument and now provides a habitat only to the rapidly rebounding and perennially delicious Chesapeake blue crab.

Given that America's Sovereign People, if truly sovereign, took a sweet two centuries and change in asserting that sovereignty, there are as many answers to the question as there were GS-15s in Bethesda.  But we can still evaluate this Constitution as a supposed contract, and at least count the fistulae where Washington nailed it once too often in the tail.  Moreover, since smart high-school kids love compelling simplicities, we can pick one main hole or cloaca maxima, and select it arbitrarily as the orifice through which this national bowel, so often violated beyond nature's nightmare, finally prolapsed beyond repair and tangled permanently round our combat boots.

What is the charge?  The main charge?  The main charge, I assert, is that USG post 1945 breached the Constitution irreparably by operating ultra vires as a world government.

The so-called "international" agencies of this period, like the risible "United Nations," were established by USG and creatures of it.  In fact rather than name, they were merely new tentacles of the State Department, not bound by the archaic restriction to employ only American citizens.  USG's "withdrawal" from the UN was like Russia's "withdrawal" from the Warsaw Pact.  This institution of socialist brotherhood did not mope in exile pining for its founding big brother - but simply ceased to exist.  Obviously.  I mean, obviously in retrospect.

Even what we called our "friends" and "allies" in this "international community" turned out to be no such thing, but rather despicable puppet regimes of foreign nationality but American loyalty.  The great Vattel described this phenomenon with his usual succinctness:

But a people that has passed under the dominion of another is no longer a state, and can no longer avail itself directly of the law of nations. Such were the nations and kingdoms which the Romans rendered subject to their empire; the generality even of those whom they honoured with the name of friends and allies no longer formed real states. Within themselves they were governed by their own laws and magistrates; but without, they were in every thing obliged to follow the orders of Rome; they dared not of themselves either to make war or contract alliances; and could not treat with nations.

Of course these quislings, traitors to their own nations, were not loyal to America, but rather to Washington.  But from the perspective of, say, France, it made no difference:


During the transition our dear puppets kept phoning their masters, in excellent English of course, but could not get an answer.  Sometimes the line would pick up, but emit no English - only a sort of wet scuttling noise, suggestive of the Maryland blue crab with its exquisitely evolved hind paddles.

Bees without a queen are pretty helpless.  It didn't take long for the French and others to get the idea.  As Americans, of course, it's hard to support what they did.  But as Americans, we don't have to.  Besides, France has a pretty long tradition of this kind of thing.  Hot-blooded Latins and all.

But wait - as Americans, why should we mind if Washington conquers the world?  Isn't it awesome, always and everywhere, to rule?

Not at all.  The doctrine of ultra vires exists for a reason.  Every institution, private or public, is chartered to serve the interests and purposes of its beneficiaries.  If it decides it has the right to trade off the interests of those beneficiaries, purportedly for the purpose of serving other beneficiaries to whom it is not contractually responsible, but has decided to love simply out of the goodness of its gigantic and perpetually hemorrhaging heart -

When USG decided it had the right not to serve the people of America, to whom it was exclusively responsible, it set the precedent that it could abuse American interests for any purpose it desired.   And what other precedent could tyranny demand?

USG certainly was never responsible to any other party.  Operating ultra vires as a world government, like any regime it worked assiduously to curry the favor of its foreign subjects.  But how could it possibly be responsible to the mango farmers of Pakistan? 

No - in its capacity as planetary benefactor, USG could only be utterly irresponsible and autocratic.  In time it probably would have followed the example of Rome and extended the citizenship of the metropolis to the entire empire.  Not that this would have given foreigners any more real authority over "their" government than Americans already enjoyed.  But at least it would have fixed the optics.

And why?  Why this amazing planetary empire?  Ostensibly, we were told, the motive was the benefit of humanity.  What a purpose!  What benefit!  The progressive global leadership that at home produced Clockwork Orange Detroit also gave us Clockwork Orange France, Clockwork Orange South Africa, Clockwork Orange Haiti, Clockwork Orange Syria, etc, etc, etc.  Nor may we forget its earlier patronage of Clockwork Orange Russia and Clockwork Orange China.  All told, the murders on USG's tab run well into 9 figures.  Hitler was an amateur and Mao was a cheap local punk.

No, there is a simpler reason.  Washington loved it.  It was not America that got to rule the world, but Washington.  This amazing global empire was responsible neither to Americans, nor to foreigners; neither did it serve the interests of either.  The interests it served were its own.  How fortunate we are that this monster is at the bottom of a river!  Happy the crabs that feast on its corse!  May never drought undrown its bones!  Roll on, great Potomack, roll.  In spring's floods the bricks do tumble, the waterman hears clicks and clacks and smiles broadly as he casts his net.  To trumpets and great pageant the kings are home; the television's dead; the globe exhales in peace at last.

In the mouths of Washington's worm-tongued professors, not all of whom were truly bad people, many of whom later found real meaning and excellence in plumbing, landscaping or driving a cab, the strawman was easily raised that if USG considered only the interests of Americans, it should logically use its planetary dominion to (for example) slaughter the entire population of Brazil for its fresh young transplantable organs.  Not so, because Americans were and are not collectively evil and have no intention of committing any such crime.  Neither will any institution responsible to them.  It is not their interests only that a responsible government is bound to follow, but their purposes. 

In an international capacity, the purpose of a sovereign people - or any other sane sovereign - is to protect their own rights and respect the rights of others, as laid down by Vattel and other great scholars of the classical European international law.  Like so many sound old principles, the good name of international law was perverted by the unspeakable 20th century into a system of transnational domination.  Yet the law of nations is a natural law, and under the rubble it remained true; and shone with the glint of real gold.  And outside the stables, flowed the patient river by.

Jacques Ellul on the demand for propaganda

Usually I only post excerpts of very good books or very bad ones.  Jacques Ellul's Propaganda (1962) is neither - it is a pretty good book.  It's dated in many ways and has many of the faults of the postwar French intellectual. 

Nonetheless, Ellul lived and observed in Vichy France, a great laboratory of this black art in which fascist and communist propagandas of every conceivable flavor competed, interacted, and interbred.  Here, for instance, is a great summation of the 20th-century achievement in the form:

The idea that propaganda consists of lies (which makes it harmless and even a little ridiculous in the eyes of the public) is still maintained by some specialists; for example, Frederick C. Irion gives it as the basic trait in his definition of propaganda.  But it is certainly not so.  For a long time propagandists have recognized that lying must be avoided.  "In propaganda, truth pays off" -- this formula has been increasingly accepted.  Lenin proclaimed it.  And alongside Hitler's statement on lying one must place Goebbels' insistence that facts to be disseminated must be accurate.(*)

How can we explain this contradiction?  It seems that in propaganda we must make a radical distinction between a fact on the one hand and intentions or interpretations on the other; in brief, between the material and moral elements.  The truth that pays off is in the realm of facts.  The necessary falsehoods, which also pay off, are in the realm of intentions and interpretations.

This is Propaganda 101.  The footnote is also interesting:

* - This idea is now generally accepted.  In the United States it is the Number One rule in propaganda manuals, except for unbelievable and harmful truths, about which it is better to remain silent.  SHAEF said in its manual: "When there is no compelling reason to suppress a fact, tell it... Aside from considerations of military security, the only reason to suppress a piece of news is if it is unbelievable... When the listener catches you in a lie, your power diminishes... For this reason, never tell a lie which can be discovered." 

As far back as 1940 the American psychological services already had orders to tell the truth; in carrying them out, for example, they distributed the same newspapers to American and German soldiers.  In the Communist bloc we find exactly the same attitude: Mao has always been very careful to state the facts exactly, including bad news.  On the basis of Lenin's general theory of information, it is incorrect that the dissemination of false news does not create problems.  French propagandists also have discovered that truthfulness is effective, and that it is better to spread a piece of bad news oneself than to wait until it is revealed by others.

There remains the problem of Goebbels' reputation.  He wore the title of Big Liar (bestowed by Anglo-Saxon propaganda) and yet he never stopped battling for propaganda to be as accurate as possible.  He preferred being cynical and brutal to being caught in a lie.  He used to say: "Everybody must know what the situation is."  He was always the first to announce disastrous events or difficult situations, without hiding anything.

The result was a general belief, between 1939 and 1942, that German communiques were not only more concise, clearer, and less cluttered, but were more truthful than Allied communiques (American and neutral opinion) -- and, furthermore, that the Germans published all the news two or three days before the Allies.  All this is so true that pinning the title of Big Liar on Goebbels must be considered quite a propaganda success.

See, you've already learned something today! (And it can't be repeated too often that when Hitler talks about the "Big Lie," he is accusing his enemies rather than revealing his plans - not, of course, that his own propaganda is anything but propaganda.)

The core of Ellul's work is his explanation of why both the State and the People need propaganda.  The former is a straightforward matter we've considered many times here at UR:

Ergo: even in a democracy, a government that is honest, serious, benevolent, and respects the voter cannot follow public opinion.  But it cannot escape it either.  The masses are there; they are interested in politics.  The government cannot act without them.  So, what can it do?

Only one solution is possible: as the government cannot follow opinion, opinion must follow the government.  One must convince this present, ponderous, impassioned mass that the government's decisions are legitimate and good and that its foreign policy is correct.  The democratic state, precisely because it believes in the expression of public opinion and does not gag it, must channel and shape that opinion if it wants to be realistic and not follow an ideological dream.
[...]
The most benevolent State will inform the people of what it does.  For the government to explain how it acts, why it acts, and what the problems are, makes sense; but when dispensing such information, the government cannot remain coldly objective; it must plead its case, inevitably, if only to counteract opposing propaganda.  [...]  And because pure and simple information cannot prevail against modern propaganda techniques, the government, too, must act through propaganda.
[...]
The American writer Bradford Westerfield has said: "In the United States, the government almost always conducts its foreign policy on its own initiative, but where the public is interested in a particular question, it can only proceed with the apparent support of a substantial majority of the people."  Westerfield stresses that at times concessions must be made to the people, but "if the President really directs opinion, and if the public accepts the foreign policy of the government as a whole, no great concessions will have to be made to elicit the necessary support."  Here we find confirmation that any modern State, even a democratic one, is burdened with the task of acting through propaganda.  It cannot act otherwise.

In 1957, when the Soviet people were called upon to study and discuss Khrushchev's Theses on Economic Reorganization, we witnessed a truly remarkable operation.  The underlying theme of it all was, of course, that everything is being decided by the people.  How can the people then not be in agreement afterward?  How can they fail to comply completely with what they have decided in the first place?

The Theses were submitted to the people first.  Naturally, they were then explained in all the Party organizations, in the Komsomols, in the unions, in the local soviets, in the factories, and so on, by agitprop specialists.  Then the discussions took place.  Next, Pravda opened its columns to the public, and numerous citizens sent in comments, expressed their views, suggested amendments.  After that, what happened?  The entire government program, without the slightest modification, was passed by the Supreme Soviet.
[...]
When Fidel Castro wanted to show that his power was based on democratic sentiment, he organized the Day of Justice, during which the whole population was called upon to sit in judgment of the past regime, and to express its sentiments upon massive demonstrations. These demonstrations were meant to "legalize" the death sentences handed down by the State courts and thus give a "democratic sanction" to the judgments. In doing this, Castro won the people's profound allegiance by satisfying the need for revenge against the former regime and the thirst for blood. He tied the people to the government by the strongest of bonds: the ritual crime. That Day of Justice (January 21, 1959) was undoubtedly a great propagandistic discovery. If it caused Castro some embarrassment abroad, it certainly was a great success at home. It should be noted that such provocation of popular action always serves to support governmental action. It is in no way spontaneous, and in no way expresses an intrinsic desire of the people: it merely expresses through a million throats of the crowd, the cry of governmental propaganda.

Second - and this is a subtler process -- governmental propaganda suggests that public opinion demand this or that decision; it provokes the will of the people, who spontaneously would say nothing. But, once evoked, formed, and crystallized on a point, that will becomes the people's will; and whereas the government really acts on its own, it gives the impression of obeying public opinion -- after first having built the public opinion. The point is to make the masses demand of the government what the government has already decided to do. If it follows this procedure, the government can no longer be called authoritarian, because the will of the people demands what is being done. In this fashion, when the German public opinion unanimously demanded the liberation of Czechoslovakia, the German government had no choice but to invade that country in obedience to the people. It yielded to opinion as soon as opinion -- through propaganda -- had become strong enough to appear to influence the government.

Yeah, yeah.  We know all this - I hope.  But the People need their propaganda too:

A common view of propaganda is that it is the work of a few evil men, seducers of the people, cheats and authoritarian rulers who want to dominate a population; that it is the handmaiden of more or less illegitimate powers.  This view always thinks of propaganda as being made voluntarily; it assumes that a man decides "to make propaganda," that a government establishes a Propaganda Ministry, and that things just develop from there.  According to this view, the public is just an object, a passive crowd that one can manipulate, influence, and use.  And this notion is held not only by those who think one can manipulate the crowd, but also by those who think propaganda is not very effective and can be resisted easily.

In other words, this view distinguishes between an active factor -- the propagandist -- and a passive factor -- the crowd, the mass man.  Seen from that angle, it is easy to understand the moralist's hostility to propaganda: man is the innocent victim pushed into evil ways by the propagandist; the propagandee is entirely without blame because he has been fooled and has fallen into a trap.  The militant Nazi and Communist are just poor victims who must not be fought but must be psychologically liberated from that trap, readapted to freedom, and shown the truth.  In any case, the propagandee is seen in the role of the poor devil who cannot help himself, who has no means of defense against the bird of prey who swoops down on him from the skies.  A similar point of view can be found in studies on advertising which regard the buyer as victim and prey.  In all this the propagandee is never charged with the slightest responsibility for a phenomenon regarded as originating entirely outside of himself.

This view seems to me completely wrong.
[...]
For propaganda to succeed, it must correspond to a need for propaganda on the individual's part.  One can lead a horse to water but cannot make him drink; one cannot reach through propaganda those who do not need what it offers.  The propagandee is by no means just an innocent victim.  He provokes the psychological action of propaganda, and not merely lends himself to it, but even derives satisfaction from it.

Without this previous, implicit consent, without this need for propaganda experienced by practically every citizen of the technological age, propaganda could not spread.  There is not just a wicked propagandist who sets up means to ensnare the innocent citizen.  Rather, there is a citizen who craves propaganda from the bottom of his being and a propagandist who responds to this craving.
[...]
I think that propaganda fulfills a need of modern man, a need that creates in him an unconscious desire for propaganda.  He is in the position of needing outside help to be able to face his condition.  And that help is propaganda.  Naturally, he does not say: "I want propaganda."  On the contrary, in line with preconceived notions, he abhors propaganda and considers himself a "free and mature person."  But in reality he calls for and desires propaganda that will permit him to ward off certain attacks and reduce certain tensions.
[...]
We have stressed that the State can no longer govern without the masses, which nowadays are closely involved in politics.  But these masses are composed of individuals.  From their point of view, the problem is slightly different: they are interested in politics and consider themselves concerned with politics; even if they are not forced to participate actively because they live in a democracy, they embrace politics as soon as someone wants to take the democratic regime away from them.

But this presents them with problems that are way over their heads.  They are faced with choices and decisions which demand maturity, knowledge, and a range of information which they do not and cannot have.  Elections are limited to the selection of individuals, which reduces the problem of participation to its simplest form.  But the individual wishes to participate in other ways than just elections.  He wants to be conversant with economic questions.  In fact, his government asks him to be.  He wants to form an opinion on foreign policy.  But in reality he can't.  He is caught between his desire and his inability, which he refuses to accept.

For no citizen will believe that he is unable to have opinions.  Public opinion surveys always reveal that people have opinions even on the most complicated questions, except for a small minority (usually the most informed and those who have reflected most).  The majority prefers expressing stupidities to not expressing opinion: this gives them the feeling of participation.  For this they need simple thoughts, elementary explanations, a "key" that will permit them to take a position, and even ready-made opinions.

As most people have the desire and at the same time the incapacity to participate, they are ready to accept a propaganda that will permit them to participate, and which hides their incapacity beneath explanations, judgments, and news, enabling them to satisfy their desire without eliminating their incompetence.  The more complex, general, and accelerated political and economic phenomena become, the more individuals feel concerned, the more they want to be involved.  In a certain sense this is democracy's gain, but it also leads to more propaganda.

And the individual does not want information, but only value judgments and preconceived positions.  Here one must also take into account the individual's laziness, which plays a decisive role in the entire propaganda phenomenon, and the impossibility of transmitting all information fast enough to keep up with developments in the modern world.  Besides, the developments are not merely beyond man's intellectual scope; they are also beyond him in volume and intensity; he simply cannot grasp the world's economic and political problems. 

Faced with such matters, he feels his weakness, his inconsistency, his lack of effectiveness.  He realizes that he depends on decisions over which he has no control, and that realization drives him to despair.  Man cannot stay in this situation too long.  He needs an ideological veil to cover the harsh reality, some consolation, a raison d'etre, a sense of values.  And only propaganda offers him a remedy for a basically intolerable situation.

This is all true.  Even in 2013, it is true.  And yet, it offers some hope.

It is a frequently observed truth of con men that it's impossible to con an innocent man.  It is also impossible to propagandize an innocent man.  It is your political ambition - an original sin if there every was one; when I translate "original sin" into 21st-century English, it comes out as "evolutionary psychology" - that makes you fall for this con.  Somehow excising this libido dominandi, the lust for power, would leave you as immune to propaganda as a tonsillectomy to tonsillitis. 

Or a castration to porn.  Indeed, what Ellul is telling us - a fact which is obvious today, though much less so in 1962 - is that the modern propaganda addict (we cannot call him a victim) experiences political authority, a delicious taste instinctively desired by all men and women of true chimpanzee descent, entirely as porn.  That is, as a simulation entirely without substance.

Is there life after porn?  In 1962, this seemed impossible and indeed it was.  Then again, in 1962, democracy, though not real, included many more living remnants of an age when it was once real.  The organized political riot, for instance, remained a reality in every democratic country.  Even in America, in the resistance to desegregation, we see political crowds using crude hand weapons and sheer weight of biomass to actively pursue their collective interests against the agenda of the State.  It's true that these crowds were weak and were defeated, but it's also true that they existed.  They would be unthinkable today.  The Tea Party, the closest thing to their successors, doesn't even litter.

There are two ways to imagine a realistic life after porn.  First, the political libido of the average Westerner has greatly decreased, through absence of reality and overstimulation of falsity.  Engagement remains, but has much diminished.  Apathy is proverbial.

Apathy, which is a passive reaction, is not by any means conquest of desire.  But it provides a platform for conquest of desire.  Moreover, the extraordinary increase, not in the intelligence of the crowd, but in its philosophical sophistication, must be reckoned with.  Imagine the impact of a movie like Inception on the audience of 1962.  Irony and "meta" are old hat to quite a large population.  Conquest of desire?  Zen, or at least the idea of Zen (Zen is an exercise, not an idea), is familiar to essentially anyone who can read.

And second, conquest of desire need not mean elimination of desire.  It can mean control of desire.  It is possible to reject porn in favor of celibacy.  It is also possible to reject porn in favor of sex.  It is true that all superficially plausible channels of conventional political activism are more or less what Patri Friedman calls "folk activism," ie, porn.  But when the impossible is rejected, the implausible becomes possible.

Power porn, that is, political action compatible with official propaganda (even supposedly anti-government actions can reinforce the narrative, often strongly; Timothy McVeigh was a better propaganda asset than Bill Moyers), is essentially a safety valve that prevents real and effective collective action by bleeding off its energy source.  To realize that porn and celibacy are effectively the same choice is also to refocus your sex drive on achieving actual sex.  To the porn addict, actual sex seems undesirable, because actual women are never as desirable as porn stars.  Learning to overcome this, and becoming accustomed to actual women with actual pubic hair, is the essence of the exercise.

Of course, sex differs from power in that sex is individual, where power is collective.  It is not sufficient for an individual to overcome his phobia of political pubic hair.  It is necessary for a substantial number, if nowhere near a majority, to do so.  Is it possible?  Is there space for a new and more genuine propaganda, which would genuinely satisfy the libido of the masses, by offering at least the genuine opportunity for genuine authority?  Perhaps we'll see.