Rare is the person who could expertly comment – in a single interview! – on the rise of NFTs and their origins in the virtual worlds of gaming, the logic of the emerging regime of techno-feudalism, and the folly of El Salvador’s Bitcoin-heavy negotiating tactics with the IMF. Luckily, we have found this person in Yanis Varoufakis, the prominent economist, politician, and public intellectual, who is also former Greek finance minister. Yanis was kind enough to grant us an extensive interview, which provides a panoramic (and, at times, rather critical) view of what is going at the intersection of money, macroeconomics, and the digital. ~ Evgeny Morozov
In the early 2010s, before your stint in the Greek government, you worked as economist-in-residence for Valve, a prominent gaming company. In what ways were your skills as an economics expert in game theory useful for dissecting the economics of virtual worlds? And, in turn, what kinds of insights, if any, on the inner workings of the real economy did you gain through that experience?
Ten years ago, the metaverse was already up and running within gaming communities. Valve’s games had already spawned economies so large that Valve was both excited and spooked. Some digital assets that had previously been distributed for free (via the game’s drops) began to trade for tens of thousands of dollars on eBay, well before anyone had thought of NFTs.
What if the prices of these spontaneously lucrative items and activities were to crash? That was what kept the people at Valve awake at night. You can see this from the email with which I was approached: ‘I have been following your blog for a while… Here at my company we were discussing an issue of linking economies in two virtual environments (creating a shared currency), and wrestling with some of the thornier problems of balance of payments, when it occurred to me “this is Germany and Greece”, a thought that wouldn’t have occurred to me without having followed your blog’.
My reasons for getting involved were many. One was the prospect of studying an economy as an omniscient researcher: Since I would have access to the full data set in real time, I did not need statistics! Another was the lure of playing ‘god’; i.e. being able to do with these digital economies things that no economist can do in the ‘real’ world, e.g. alter rules, prices, and quantities to see what happens. Another objective was to forge empirically supported narratives that transcend the border separating the ‘real’ from the digital economies.
What did I learn back then? The key insight was that observed behaviour utterly demolished some key neoliberal fantasies: Barter does not give way to sound money, in the form of some digital gold simulacrum. (Nb. We established that various goods/items vie for dominance as numeraires, without ever dominating.) Selflessness is always present (evidenced by substantial doubly anonymous gifting). Social relations emerge (even in these faceless digital worlds) which then ‘infect’ prices and quantities in a manner that bears little connection to the neoliberal view of exchange values formed in a political and moral vacuum.
Today, a decade later, it is clear that gaming communities like the one I studied at Valve have been operating as fully-fledged metaverses (to use Zuckerberg’s term). Gamers were drawn to them by the game but, once ‘inside’, they stayed to live out a large part of their life, making friends, producing goods for sale, consuming entertainment, debating, etc. Zuckerberg’s ambition is to insert his billions of Facebook non-gamer users into a Steam-like digital social economy – complete with a top-down platform currency that he controls. How can I resist the parallelism with a digital fiefdom in which Zuckerberg dreams of being the techno-lord?
NFTs are all the rage these days. Their rapid rise can be traced to CryptoKitties, a blockchain-based computer game that took off in 2017. There are now also many gamers who oppose NFTs and the rather problematic ideas of ownership that they embed. Was something like NFTs already on the horizon during your time at Valve? Do you think that NFTs will change our ideas about ownership, scarcity, and remuneration in ways that might be of help to the broader progressive project? This, at any rate, is the belief of some advocating for Web3.
Hats in TF2! Team Fortress 2 (or TF2) players were obsessed with digital hats. Initially part of free drops, some hats that were discontinued later became collectibles. Players began bartering within the game (e.g. I will give you two laser guns for this one hat of yours). Then, when the demand for some hat rose sufficiently, the players would step out of the game, meet up on eBay, trade the hat for (sometimes) thousands of dollars, before, finally, returning to the game where the vendor would hand the hat over to the buyer. Note the unbelievable levels of trust between strangers this transaction involved: the vendor could have walked away with both the money and the hat. Valve decided to reduce the need for so much trust, cut eBay out, and make a neat profit too by creating trading rooms within the game (i.e. create an in-game market for digital items owned and supervised by Valve).
NFTs differ in two respects from digital assets like the hats in TF2: The blockchain cuts out the company (e.g. Valve). And it allows the digital asset to emigrate from the game/realm that spawned it to any other digital realm.
Do I think that NFTs have subversive potential? Let’s see. In a digital environment, NFTs are like all other commodities. They reflect the triumph of exchange value (with which capitalism trounced experiential or use value) within a metaverse (Valve-like or Zuckerberg-style). In that sense, NFTs offer nothing new within digital worlds, except perhaps that they turbocharge the ideology of capitalism (exchange value rules supreme). In the analogue world, NFTs have value only to the extent that bragging rights offer utility to those who care for them. Even though in so doing, they force outfits like Sotheby’s and Christie’s (which used to monopolise the trade in bragging rights) to change their ways, NFTs in no way subverts the structure of property rights creating and underpinning the oligarchy’s exorbitant power over the many.
So, no, I see little radical potential from NFTs. Having said that, a good, future, liberal techno-communist society may find ways of using them as part of a broad network of technologies helping us keep records of our identities, property, etc.
As long as we do not have these mechanical slaves catering for humanity as a whole (and not just producing commodities owned by the 1% of the 1%), the idea that people must now play like robots to earn a living so as to be human in their spare time is, indeed, the apotheosis of misanthropy.
Much has been made of the fact that in some countries of the Global South (e.g. the Philippines) blockchain-based games like Axie Infinity are creating a parallel economy, allowing players to redeem virtual tokens – their value has recently skyrocketed – in fiat money. The founder of Reddit, for one, has recently argued that all future games will follow this play-to-earn model, adding that ‘90% of people will not play a game unless they are being properly valued for that time’. What are we to make of this? Is it yet another dystopia of global capitalism? Or is it a minor improvement from sweatshop labor, perhaps, the consequence of the global pandemic keeping many people stuck at home playing games?
When I worked with Valve, ten years ago, there were thousands of young people in China, in Kazakhstan, and elsewhere making a mint out of providing services to members of Valve’s gaming communities. Gifted players made good money paid by other players keen to watch them play. So, there is nothing new to the idea of a parallel economy that allows people in poorer countries or regions to earn as they play, or from offering in-game services.
Was that a good or a bad thing? Of course, it was good for a young person in Shenzhen who managed to earn $60k a year designing digital hats on his PC – instead of destroying his body in a sweatshop. The question, however, is: Could all workers in Shenzhen (and beyond) be rescued from sweatshops by migrating to a metaverse? The answer is: Not before we have robots working for all of us so that we can reproduce the material conditions of our lives. As long as we do not have these mechanical slaves catering for humanity as a whole (and not just producing commodities owned by the 1% of the 1%), the idea that people must now play like robots to earn a living so as to be human in their spare time is, indeed, the apotheosis of misanthropy.
One of your critiques of Bitcoin as a currency (which you clearly state it is not and cannot be) is that it limits policy space available, such that, when there is a pandemic, it won’t be possible to increase the money supply. I suppose this also covers ‘printing money’, with all of the perverse consequences of QE that you yourself have documented elsewhere. Wouldn’t the Bitcoin maximalists be at least coherent in arguing that this inability to print money is a feature, not a bug, of the system?
When ‘Bitcoin maximalists’, as you call them, wax lyrical about the inability to print money (and celebrate this inability as Bitcoin’s feature, rather than its bug), they are being terribly unoriginal – banal, I dare say. Capitalism nearly died in 1929, and tens of millions did die in the war that ensued, because of this toxic fallacy that underpinned the Gold Standard then and Bitcoin now. Which fallacy? The fallacy of composition, as John Maynard Keynes called it.
Its essence is a tendency to extrapolate from the personal realm to the macroeconomic one. To say that if something is good for me – if a practice is sound at the level of my family, business, etc. – it must also be good for the state, government, humanity at large. For example, yes, parsimony is a good thing for me, personally. If I can’t make ends meet, I need to tighten my belt; otherwise, I shall sink more and more into debt. However, the exact opposite holds for a macroeconomy: If, in the midst of a recession, the government tries to tighten its belt as a means of eliminating its budget deficit, then public expenditure will decline at a time of falling private expenditure. And since the sum of private and public expenditure equals aggregate income, the government will be – inadvertently – magnifying the recession and, yes, its own deficit (as government revenues fall). This is an example of one thing (belt-tightening) being good at the micro-level and catastrophic at the macro level.
Similarly with gold, Bitcoin, and all other ‘things’ of exchange value: If you have gold, it is good for you if its supply is limited, fixed if possible. Same with Bitcoin, silver, dollars. (Nb. It is why the rich and powerful traditionally opposed expansionary monetary policy, crying ‘hyperinflation’ at the drop of a hat.) So, yes, if you are invested in Bitcoin, or for some reason you are elated every time its dollar exchange rate rises, you have every reason to think that its algorithmically fixed supply is a good thing, a feature. But, there is a price for that: A fixed money supply translates into a deflationary dynamic which, in a system prone to under-employing its people and under-investing in things society needs (i.e. capitalism), is a catastrophe in the making.
The Gold Standard is, indeed, a great source of insight into how dangerously primitive Bitcoin maximalist thinking is. Suppose Bitcoin were to take over from fiat currencies. What would banks do? They would lend in Bitcoin, of course. This means that overdraft facilities would emerge allowing lenders to buy goods and services with Bitcoins that do not yet exist. What would governments do? At moments of stress, they would have to issue units of account linked to Bitcoin (as they did under the Gold Exchange Standard during the interwar period). All this private and public liquidity would cause a boom period before, inevitably, the crash comes. And then, with millions of people wrecked, governments and banks would have to abandon Bitcoin. In short, just like gold, Bitcoin is eminently… abandonable (once it has done enormous damage). Put differently, either Bitcoin will never take over from fiat money or, if it does, it will cause huge unnecessary pain (before being abandoned).
To believe that you can fix money, or that you can fix the state, is to demonstrate a devastating innocence regarding the larger exploitative system with which they are integrated.
What about other crypto-currencies, though, which do allow for very sophisticated operations and incentive structures, including algorithmically programmed demurrage? Would they be closer to being defined as currencies?
No, that will not work either. The problem with Bitcoin is not just its fixed supply. It is the presumption that the rate of change of the money supply can be predicted and foreshadowed within any algorithm. That the money supply can be de-politicised. So, it is not a question of how sophisticated and complex the algorithm is. It is, rather, that a purely political, unknowable, process can never, ever, be captured by an algorithm. It cannot and, therefore, it should not.
Because of the growing interest in Ethereum, there has been a strange resurgence of interest in mechanism design and game theory among the crypto-community; some papers on crypto-economics proudly cite Leonid Hurwicz and Oskar Lange. If one studies this nascent discipline a bit closer, however, one is struck by its choice of focus: microeconomics is everywhere but macroeconomics – save for some Austrian critiques of fiat money – is nowhere, not even in the orthodox Samuelson version.
You put your finger on the nail. This is, again, the fallacy of composition: imagining that what works for you must work for society at large; that what makes sense in the micro-world makes sense in the macro one too. Crypto-enthusiasts with strong views on money, in this sense, fall under the category of people best described by Keynes as ‘resembling Euclidean geometers in a non-Euclidean world’. Keynes was referring to classical economists who thought of money as a commodity, as a thing. The crypto-monetarists are repeating the same conceptual error.
From the very early days – i.e. the early 2010s – you have been arguing that ‘blockchain is a fantastic solution to the problem we have not yet discovered. But it is not the solution to the problem of money’. But are we that ignorant? One could say that the blockchain, as a project inspired by the cypherpunk ideology, has always been a solution to the problem of the state: it promises to take the state out of domains as diverse as law (with the rise of smart contracts) or arts funding (with the fractionalization of ownership through NFTs) or, most obviously, central banking (with its critique of fiat money).
To think that Bitcoin can solve the problem of money, or the problem of the state, is to misunderstand what money is or what states do. Every exploitative socio-economic system is predicated on what the minority running it can make the rest do for them (who does what to whom, as Lenin famously put it). Money and the state are epiphenomena of this system. To believe that you can fix money, or that you can fix the state, is to demonstrate a devastating innocence regarding the larger exploitative system with which they are integrated. No smart contract can, for example, subvert the labour contracts that underpin society’s layered patterns of exploitation. No NFT can change an art world where art is a commodity within a universe of commodified people and things. No central bank can serve the interests of the people so long as it is independent of the demos. Yes, blockchain will be useful in societies liberated from the patterned extractive power of the few. However, blockchain will not liberate us. Indeed, any digital service, currency, or good that is built on it within the present system will simply reproduce the present system’s legitimacy.
Assuming you are still upbeat about the blockchain, how do you reconcile this anti-statist bias with what you see as its potential in an emancipated society? What does that potential consist of exactly? Even if one assumes there’s some value in both game theory and mechanism design, what use are they to the progressive project stripped of any macro perspective?
My answer lies in my sci-fi novel, Another Now (in particular, Chapter 6). In it, I present a blueprint of a post-capitalist, non-exploitative social economy. Blockchain features there as a technology used both by central banks and local communities to create a public, distributed ledger for two things: Money, of course. And title leases for properties in a County’s commercial zone (which are on a perpetual auction, the proceeds of which are used to maintain and expand the County’s social zone). From this, you can see that I consider blockchain, and Ethereum-style mechanisms, as technologies that will prove extremely useful once private property in the means of production ends. But, on their own, these technologies will not liberate us from the extractive power of the few.
You have described yourself as an ‘erratic Marxist’, pointing out that you do have strong libertarian tendencies. In Italy, where I’ve been living for quite some time now, there’s, of course, this long-running tradition of Autonomous Marxism, which shares many of these beliefs. It has always been critical of the state and state bureaucracy, with its rigid, centralized ways of organizing society. Now, it seems there is a new promising solution to this age-old problem: DAOs, short for decentralized autonomous organizations, which promise to put transparent algorithmic rules in place of the Weberian charismatic leaders. Do you find anything of value in such new institutional forms? Or do they smack of the same technocratic credo – with its belief that political problems can be solved by designing clever mechanisms and incentives – that they claim to be attacking?
Karl Marx was erratic. He changed his mind all the time, infuriating his friends and comrades. He wrote furious repudiations of his earlier ideas. And he could not stand those who called themselves… Marxist (e.g. famously saying ‘If they are Marxists, I am not’). So, I described myself as an ‘erratic Marxist’ to signify two things: That I am not dogmatic. And, that I am at odds with those ‘official’ Marxists who seek personal power from a dogmatic custodianship of Marx’s thinking. In fact, I went one step beyond, referring to myself as a ‘libertarian Marxist’ – a self-description that was immediately derided by several libertarians and most Marxists. My reason? Like the anarcho-syndicalists in Spain and the Autonomous Marxists of Italy that you mentioned, I fail to see how one can genuinely cherish freedom and tolerate capitalism. And also: how one could be both illiberal and left-wing.
On the question of DAOs, I must say that I look at them with sympathy. But, again, as with my attitude to the blockchain, I am convinced that these are tools that will very much come in handy once a broad internationalist movement overthrows the oligarchy’s property rights over the means of production (including the cloud servers!). As I try to outline in my Another Now, a digital anarcho-syndicalist future society will use many of these DAO-like tools. But, and this is a gigantic but, DAO-like tools will not bring about this new society in which DAO-like tools are useful. (Nb. We can already see how DAOs are being usurped by regressives and real estate moguls in the United States.)
Within our present oligarchic, exploitative, irrational, and inhuman world system, the rise of crypto applications will only make our society more oligarchic, more exploitative, more irrational, and more inhuman.
Observing the crypto space from the sidelines, I get the impression that it has allowed many of the old neoliberal policy ideas to come back. I’m thinking especially about the use of market-based instruments in fighting climate change: all of a sudden, the blockchain promises to revive many of the ideas related to natural ecosystem services, while the rise of often anonymous activist organizations like KlimaDAO has helped boost what was once a languishing market in carbon emissions. As a result, the reputation of the market as a problem-solving device has been restored, even if temporarily. How should progressives react to such developments? Are these crypto-projects, which promise to reverse climate change via finance, occupying the empty activist space that should have been filled by central banks before they got somewhat sidetracked by the advice they are getting from BlackRock? What should the central banks be doing about this green-tech-finance axis?
Precisely my point. In the name of liberating us from moguls, states, and even climate change, crypto zealots are turbocharging the ideology of commodification (i.e. neoliberalism). What should we do? The only thing that will work is: To take over parliaments so as to legislate a corporate law that ends tradeable shares, and introduces the one-share-one-employee principle in its stead. To take over central banks and make them issue digital currencies on a distributed ledger that makes basic income possible. To take over governments and implement personal ownership of our data. In short, no algorithm will remove the need for a genuine revolution.
One of the interesting consequences of the ongoing currency crisis in Turkey has been the growing popularity of stablecoins such as Tether among the Turkish population. This is even more remarkable given that Tether has been rumored to have problems of its own, which many in the crypto community expect to explode sooner or later. Erdoğan’s hands seem to be tied, as Turkish cities brim with ads for crypto services, which are genuinely popular with the local population. You’ve spoken, somewhat dismissively, about stablecoins in the past but how do you see them changing the dynamics of a currency crisis like the one in Turkey? How should the government be reacting to them, if at all?
Bitcoin was, as I claimed earlier, the digital-algorithmic reincarnation of the Gold Standard – supported by the same vacuous arguments and the same underlying oligarchic motives. Stablecoins are yet another reincarnation of yet another primitive, failed idea: the so-called currency board.
The idea behind the Gold Standard was that national currencies gained credibility because their state/central bank gave up the right to print money at will. By fixing the exchange rate of a national currency to the price of gold (e.g. $35 for one ounce of gold), and freely allowing two-way convertibility, it was common knowledge that, if the authorities printed money in total value exceeding the value of the gold in the central bank’s vaults, at some point people holding paper money would demand gold that the central bank did not have.
A currency board (e.g. the system underpinning Bulgaria’s national currency today) is similar in that the central bank fixes the national currency’s exchange rate to equal the average price of a basket of hard currencies. Again, as long as there are no capital controls and the national currency is fully convertible to the hard currencies in the currency board, if the central bank prints more money than is equivalent (under the fixed exchange rate) to its foreign currency reserves, it risks a run on its reserves. As with the Gold Standard, currency boards have proven fragile – at the sign of economic crisis, war, or other types of stress, they are abandoned.
A stablecoin is a currency board with the difference that it applies to a stateless digital currency (like Tether), not a national currency. This means that there is no state to legislate that the system administrators honour the fixed exchange rate; that they not create stablecoins in excess of the value of their reserves, cash them in, and do a runner. In other words, in addition to the inherent instability of currency boards, stablecoins are ripe for fraud.
In conclusion, the fact that stablecoins or Bitcoin itself acquire the aura of saviours in countries hit by inflation, like Turkey, is nothing more than a measure of the desperation of the people: they will clutch at straws. Stablecoins offer Turks no respite from inflation that buying euros or dollars cannot offer. So, why buy Tether instead of dollars or euros? Why rely on the shadowy characters running a private currency board? Only because the latter deploy good marketing to exploit desperate people.
What do you make of China’s recent efforts to rein in both its FinTech market and the crypto industry, as well as to accelerate the development of the e-yuan? Are they an example for Europe and the US to emulate? And if so, what are the elements worth borrowing?
I am immensely impressed by these moves, especially when looked at as a package. The Chinese authorities are, at once: (1) deflating the real estate bubble (by taking down Evergrande, blow-by-blow); (2) aiming to reduce aggregate investment from 50% to 30% of GDP as a precondition for boosting the wage share of GDP; (3) ending the oppressive tutoring system for pupils that crushes young souls without helping nurture creative thinking; (4) sponsoring sci-fi writing and game design; (5) restricting the power of Big Tech; and, last but certainly not least, (6) bringing the digital yuan online.
That last move, the digital yuan, constitutes a revolution: when fully-fledged, it will equip every resident in China, but also anyone from around the world who wants to trade with China, with a digital wallet – a basic digital bank account. In one move, therefore, the commercial banks will have been ‘dis-intermediated’; or, in plain English, they will have lost their monopoly over the payments system. This is genuinely a radical break from finance as we have known it. And, yes, it is one that we should emulate in Europe and in the United States – which is, of course, why Wall Street and the rest of the West’s financiers will do their best to stop it, preferring to blow up the world rather than allow themselves to be… dis-intermediated.
Are you familiar with the plans for the ‘digital dollar’ advanced by the likes of Robert Hockett and Saule Omarova, which, in essence, insist on the need to build a democratically accountable CBDC? How likely do you think the Fed is to implement something like this, especially given how much opposition – including from the crypto industry – there was for Omarova’s nomination to the Biden administration? We have also recently heard from Congressman Tom Emmer, who, while proclaiming that Washington should be building crypto with ‘American characteristics’, wants to prohibit the Fed from any experiments with a CBDC. One of Emmer’s stated reasons for such action was to ‘maintain dollar dominance’. What do you think is behind such proclamations? Do they mean we are likely to see Facebook’s earlier efforts to launch its own stablecoin – now called (ironically) Diem – given an official stamp of approval?
The situation sounds complex but it is very, very simple. Most dollars, pounds, euros, and yen are already digital. The digitisation of money is not the issue. The issue is the monopoly of the payments system. Today, you use digital money (phone apps or plastic cards) to buy a cup of coffee at your local Starbucks. But, to do so, you first need an account with a commercial bank. In other words, to grant you access to digital fiat money, the state forces you to fall into the embrace of the commercial banks.
So, today, the state guarantees a monopoly over payments to commercial banks. And that is only one gift to the oligarchy. A second, even greater gift, is that only commercial banks are allowed to have an account with the central bank. So, when a recession hits, and the central bank decides to stimulate the economy, the central bank lowers the interest rate of the overdraft it grants commercial bankers – who then exploit this to profit from arbitrage (by lending the money on to customers at a higher interest rate). And when the recession gets even worse (as has been the case since 2008 and now with the pandemic), the central bank prints digital dollars or euros and credits them directly into the accounts the commercial banks have with the central bank. This is the definition of exorbitant privilege!
So, this is why Wall Street prefers to see the world explode, time end, or Armageddon arrives, rather than allow the Fed to proceed with the digital dollar: because a digital dollar would mean that every resident in the US, and anyone beyond US borders trading with Americans, will be granted a digital wallet. That would be detrimental to the power of commercial banks. First, because people would no longer be obliged to open a bank account with them (think of all the lost fees!). Secondly, because there will no longer exist a rationale as to why the Fed or the ECB, etc., cannot – when they think they must stimulate the economy – drop helicopter money on everyone. Why credit dollars only to the accounts commercial banks keep at the Fed and not credit the people’s digital wallets directly? Indeed, why give money to commercial banks at all?
One of the persistent critiques of cryptocurrencies like Bitcoin and Ethereum is their immense energy use, which, on the surface, seems like the price to pay for not trusting the state as the arbiter of truth/provider of trust. The solution proposed by the Ethereum Foundation has been to shift from today’s energy-intensive mechanism of Proof of Work to the less environmentally damaging Proof of Stake. Yet, the latter, once you look closely at the details, solves the energy problem by making the entire system more plutocratic, because, in essence, it runs on the principle ‘one dollar (or ether) = one vote’. What makes this crypto-plutocracy tolerable to many of its advocates is their jaded view of today’s financial system, which they see as even more plutocratic and hell-bent on appropriating even more of the bailout money. How does one answer such critiques?
The environmental costs of crypto are very large, undoubtedly. But, even if there existed a magic wand whose waiving would make blockchain run on zero watts, crypto currencies would remain more of a problem than a solution – for reasons I explained above. In brief, within our present oligarchic, exploitative, irrational, and inhuman world system, the rise of crypto applications will only make our society more oligarchic, more exploitative, more irrational, and more inhuman. This is why, in opposing the crypto enthusiasts, I never even bother to mention their environmental repercussions.
If one looks closely at some of the influential crypto projects, they feature a bizarre mix of ideologies. There’s, for example, a very ambitious project called Cosmos – it bills itself as ‘the Internet of blockchains’ – which is set up as a cooperative, an institutional form dear to the heart of many leftists. Yet its co-founder and CEO is a big believer in ‘free banking’, an ideology espoused by many libertarians in the US. Do you think the left has been too slow to make sense of the crypto/digital currency space? It seems that even on an earlier set of issues before crypto – complementary and alternative currencies, for example – there seems to be no coherent leftist position, so that today they can be easily appropriated by the crypto start-ups pushing the tokenization of everything…
The Left, radicals, progressives, etc. have either refused to acknowledge the genuine ingenuity of blockchain or have fallen for it. We seem to have forgotten how Marx and Engels had the nous and the ability, on the one hand, to admire and celebrate the technological and scientific wonders of their era and, on the other hand, grasp that these potentially liberating technologies were bound to enslave the many if they became instrumentalised by the very few. The two Germans believed in the emancipatory potential of the steam engine and of electromagnetism. But, they never believed that society would be liberated by the steam engine and/or electromagnetism. Liberation required a political movement that first overthrows the bourgeoisie and only then presses these magnificent technologies into the service of the many. This seems to me an excellent way of approaching today’s potentially liberating technologies, including blockchain.
You are acquainted with Michel Feher, the Belgian activist-philosopher. I don’t know if you’ve read his Rated Agency, but it does capture many arguments advanced by those who see something politically significant – something to be used by progressive forces – in the structural transformation of global finance associated not only with the rise of crypto but also with the popularity of day-trading apps like Robinhood. At least on the surface, the latter do allow retail investors to pool their efforts together and engage in financial activism that was previously available only to hedge funds (Feher himself had an interesting interpretation of the GameStop saga). I can see this logic working for coordinating divestment campaigns. Yet, apart from crowdfunding for, say, micro-municipal bonds, I can’t yet see a more proactive deployment of such power – except, perhaps, when driven by the desire to ‘stick it’ to the hedge fund industry and spoil their carefully engineered shorting of stocks like GameStop. How do you see this landscape? Is there much value in getting the left to proactively develop some capacities that would allow it to ‘move’ markets?
In Chapter 6 of my Another Now, I imagined how capitalism fell to a variety of techno-rebels who used a mix of financial engineering, worldwide consumer boycotts, and conventional industrial strikes/activism. A year later, I remember receiving calls from US journalists asking me: ‘Are your Crowdshorters in action?’ I was very amused to hear them talk of the Crowdshorters as if they were a real techno-rebel group. Of course, what occasioned the journalists’ questions was the GameStop mini-rebellion that saw millions of small-stake investors take on a couple of vile hedge funds, using the Robinhood platform. So, clearly, I am mightily excited by the idea of a techno-rebellion. If you want to see how I imagine it, on days when hope trumps pessimism, that chapter is my long answer.
I anticipate an almighty struggle for the right to a digital ECB wallet that will bring back memories of the struggle for universal franchise.
You’ve argued against depoliticizing money, which also explains, at least in part, your critical stance on Bitcoin. There have been plans, as you well know, for the digital euro. It would probably be more political than Bitcoin, as it would have a direct connection to the ECB. But as long as the ECB remains seen as a technocratic and apolitical institution, so would the digital euro. You’ve written and spoken extensively about it in the past but what would it mean, in practical terms, to politicize an institution such as the ECB? Stated more broadly, what would keeping the ‘political’ dimension of money in the picture imply in terms of practical politics?
European bankers loathe the idea of a digital euro just as vigorously as Wall Street bankers hate the idea of a digital dollar. It would end their monopoly over payments and make it hard to justify the exclusive umbilical cord connecting them to the printing presses of central banks (see above). What makes the Eurozone special is that it features no Eurozone Treasury, no common debt, no federal decision-making body. This is, lest we forget, a design feature of the Eurozone, one that Europe’s oligarchy adores. Come to think of it, the non-existence of any government with a capacity to transfer substantial wealth from financiers and corporates to the many (not even the German one can do this) is any oligarchy’s wet dream. Why would they want to spoil this triumph either by creating a democratically elected federal government or a digital euro?
But here is an interesting thought: The peoples of Europe have failed to push for a federal democracy in Europe. However, the Chinese central bank digital currency may prove harder to ignore: If a Dutch or German firm that trades with China can acquire a digital wallet from the Chinese central bank, they will most certainly use it. That means that the euro’s dominance will be challenged even within Europe. So, the pressure on the ECB to create a digital euro is enormous. But so is the oligarchy’s counter-pressure to ensure that, even if a digital euro is created, the people of Europe should not be allowed a digital euro wallet with the ECB. In this sense, I anticipate an almighty struggle for the right to a digital ECB wallet that will bring back memories of the struggle for universal franchise.
What do you make of what is going on in El Salvador? Not only has it made Bitcoin legal tender (shortly after announcing the Chivo Wallet with some money placed in it to incentivize use) but it will also be issuing the so-called Volcano Bonds, which have attracted their share of controversy. Is there a way to look at these bonds as a tactic that expands El Salvador’s options in negotiating with the IMF? Based on your own experience negotiating with that institution, do you think they stand any chance of success?
It is a preposterous stunt. For the life of me I cannot even begin to answer those who say to me: ‘Had you, Yanis, adopted Bitcoin back in 2015, all of the Greek people’s problems would have gone away!’ Why would they? The poor of Greece or of El Salvador would have no way to get their hands on Bitcoin anyway. Then the only beneficiaries would be Bitcoin hoarders (of whom very few live in El Salvador or Greece), who suddenly benefit from a spike in Bitcoin demand and from being able to spend their stash in El Salvador without the cost of converting them to dollars. The only poor El Salvadorians who may gain something are the expats sending money home in the form of remittances – people who are, now, fleeced by Western Union and the like.
On Volcano Bonds, this is a dangerous development. A government is inviting speculators to buy cryptocurrency backed by an impoverished state. Early Bitcoin enthusiasts were motivated, partly, by a loathing of governments that took on unsustainable debt – before indulging domestically in financial repression and austerity – in order to be able to extend-and-pretend their debt. The worry was that, at some point, Wall Street and other grubby conventional financiers would start building similar pyramids on… Bitcoin. And, the ultimate fear was that the state would join in. Well, Volcano Bonds are making this nightmare a reality, allowing speculators to speculate on a cryptocurrency using an impoverished sovereign state as backup.
More generally, and lest we forget, El Salvador’s public debt is in dollars, and thus impervious to whether Bitcoin is made legal tender or not. Making Bitcoin legal tender just adds enormous costs on small businesses, and ensures that those who do accept Bitcoin effectively exit the domestic fiscal system – leading to a substantial loss of fiscal space for the government, a development that increases its long term dollar debt burden.
As for the argument that, by adopting Bitcoin, Bitcoin will flood into the country thus boosting investment and giving the government more degrees of freedom vis-à-vis the IMF, again I cannot see the logic here. Bitcoin business moved into the Baltics, Puerto Rico, and elsewhere because of low costs, low taxes, and negligible regulation of their activities. They did not care if the local corner store is forced by law to accept Bitcoin. (In any case, most of these businesses are ultimately using Bitcoin to earn large amounts of… dollars!).
In view of the above, I cannot see why anyone would think that, in making Bitcoin legal tender, the El Salvador government is improving its bargaining position vis-à-vis the IMF. The fact that the IMF is utterly opposed to Bitcoin being granted legal tender status in El Salvador, as well as to its president’s Volcano Bonds, does not mean that the IMF is worried that its bargaining power vis-à-vis the El Salvador government is weakened. Quite the opposite: They predict that the Bitcoin experiment will deplete the El Salvador government’s fiscal space, boost the IMF’s power over El Salvador, but, at the same time, put more pressure on the IMF to commit more bailout funds to a failed El Salvador. After the recent IMF fiasco of huge bailouts to the radically right-wing Macri government in Argentina, it is not something the IMF folks cherish.
You have claimed, in an interview, that there are feudalistic elements to Bitcoin, for there is no democratic mechanism to determine who gets how many Bitcoins, thus favoring the early adopters. Interestingly, you contract feudalism to democracy here rather than to capitalism. Because if you think about capitalist competition – but also all the shady stuff that Marxists tend to lump under ‘primitive accumulation’ – one can easily argue that there’s nothing non-capitalist in what you describe: those who moved in early got the largest share of the pie, while crypto-mining, as it exists today, favors those with larger capital expenditures. Why describe this system as ‘feudalist’ when ‘capitalist’ would do just as well?
Assets, by themselves, are neither feudalist nor capitalist. Whether we are talking about gold, cucumbers, or Bitcoin, assets are assets – end of story. What makes an asset feudal or capitalist or socialist is the manner in which it interacts with a society’s social relations of production, the pattern of property rights it shores up, etc. My point, when referring to Bitcoin’s early adopters as a crypto-aristocracy, as crypto-lords, was that, when an asset like Bitcoin (whose exchange value is built on engineered scarcity) is embedded in any oligarchic exploitative system (capitalism, kleptocracy, techno-feudalism, etc.), it acquires the basic character of the (pre-capitalist) feudal order: a small minority are empowered to collect rents in proportion to the chunks of the asset that they began with. To recap, Bitcoin is neither feudalist nor capitalist per se. It is simply oligarchic.
Recently, you’ve taken up the theme of ‘techno-feudalism’, pointing out that capitalism is no longer what it once was. If I understand your thesis correctly, what makes the current system ‘feudal’ is that A) markets are no longer key to the making of profits (e.g. the QE experience suggests as much), while B) tech platforms have amassed immense political power, which is unprecedented in capitalism. Is it a correct summary of your argument? Are there other important dimensions to ‘techno-feudalism’ that this summary doesn’t capture?
The question is this: Is capitalism undergoing one more of its many metamorphoses, thus warranting nothing more than a new epithet, e.g. rentier capitalism, platform capitalism, hyper-capitalism or xxxxx-capitalism? Or are we witnessing a qualitative transformation of capitalism into a brand new exploitative mode of production? I think the latter. Moreover, this is not just a theoretical issue. If I am right, grasping the radicality of this transformation is crucial to opposing this new systemic exploitation.
Puzzlement is, of course, an understandable reaction to my claim – which needs a great deal of explanation and substantiation. Unable to offer it here in full (Nb. I am dedicating my next book to the subject), here is a flavour:
Capitalism is everywhere we look. Capital is accumulating rapidly and beating labour over the head everywhere and in cruel new ways. So, how come I argue that this is no longer capitalism – but, rather, something worse and distinct? Let me begin by reminding our readers that back in the 1780s, feudalism was everywhere and feudal lords were stronger than ever. However, surreptitiously, capitalism was already infecting feudalism’s roots and a new ruling class (the bourgeoisie) was in the process of taking over.
My claim is that, similarly today, capitalism – like feudalism in the 1780s – is being usurped by a far more exploitative and very distinct new extractive/exploitative system (which I call techno-feudalism), one that is arriving complete with a new ruling class.
Critics of my thesis will point out, correctly, that capitalism has undergone many transformations – from its early competitive phase, to monopoly-oligopoly capitalism (1910–onwards), its Bretton-Woods period (during which finance was kept on a leash with capital controls, etc.), financialised capitalism (from 1980–onwards) and, more recently, rentier capitalism. All these capitalisms were distinct and interestingly different from one another. BUT, they were each a version of capitalism.
What makes a system capitalist? The answer is: It is a system driven by private profits (Nb. not rents) extracted within markets. (To compare and contrast, feudalism was driven by rents extracted outside of markets.) Has that changed? I believe so. What has replaced profit on the one hand and markets on the other? My answer: Central bank money has replaced private profit (as the system’s main fuel and lubricant) and digital fiefdoms/platforms have become the realm in which value and capital are extracted from the majority by a tiny oligarchy.
Let me explain this in greater detail:
Hypothesis 1: Central bank money replaced private profits as the system’s driver
Profitability no longer drives the system-as-a-whole, even though it remains the be-all and end-all for individual entrepreneurs. Consider what happened in London on August 12, 2020. It was the day markets learned that the British economy shrank disastrously – and by far more than analysts had expected (more than 20% of national income had been lost in the first seven months of 2020). Upon hearing the grim news, financiers thought: ‘Great! The Bank of England, panicking, will print even more pounds and channel them to us to buy shares. Time to buy shares!’
This is just one of countless manifestations of a new global reality: In the United States and all over the West, central banks print money that financiers lend to corporations, which then use it to buy back their shares – whose prices are thus decoupled from profits. The new barons, as a result, expand their fiefs, courtesy of state money, even if they never earn a dime of profit! Moreover, they dictate terms on the supposed Sovereign – the central banks that keep them ‘liquid’. While the Fed, for example, prides itself over its power and independence, it is today utterly powerless to stop that which it started in 2008: printing money on behalf of bankers and corporates. Even if the Fed suspects that, in keeping the corporate barons liquid, it is precipitating inflation, it knows that ending the money printing will bring the house down. The terror of causing a bad debt and bankruptcy avalanche makes the Fed a hostage to its own decision to print and ensures that it will continue printing to keep the barons liquid. This has never happened before. Powerful central banks, which today keep the system going singlehandedly, have never wielded so little power. Only under feudalism did the Sovereign feel similarly subservient to its barons, while remaining responsible for keeping the whole edifice together.
Hypothesis 2: Digital platforms are replacing markets
Amazon.com, Facebook, etc. are not markets. As you enter them, you leave capitalism behind. Within these platforms, one algorithm (belonging to one person or to very few persons) decides what is on sale, who sees which commodity is available, and how much rent the owner of the platform will keep from the profits of vassal-capitalists allowed to trade within the platform. In short, more and more economic activity is shifting from markets to digital fiefs. And that’s not all.
During the 20th century, and up to this day, workers in large capitalist oligopolistic firms (like General Electric, Exxon-Mobil, or General Motors) received approximately 80% of the company’s income. Big Tech’s workers do not even collect 1% of their employer’s revenues. This is because paid labour performs only a fraction of the work that Big Tech benefits from. Who performs the bulk of the work? Most of the rest of us! For the first time in history, almost everyone produces for free (often enthusiastically), adding to Big Tech’s capital stock (that is what it means to upload stuff on Facebook or move around while linked to Google Maps). And, moreover, this capital takes a new, far more powerful form (see below, where I talk about command capital).
At the same time, firms operating in normal capitalist markets – outside Big Tech and Big Finance – see their profitability collapse anyway, their dependence on central bank money grow exponentially, and their ownership be gobbled up by private equity and SPACs. Ergo, as feudal social relations of production were on the wane (and replaced by capitalist social relations) in the 1780s, today it is capitalist social relations of production that are being replaced by what I call technofeudal social relations.
Summing up:
Capital is getting stronger but capitalism is dying. A new system is taking over in which a new ruling class owns and runs both the state money that lubricates it (instead of profits) and the new non-market realms in which the very, very few make the many work on their behalf. Capitalist profits (in the sense of the entrepreneurial profits as understood by Adam Smith and Marx) are disappearing, while new forms of rent are accumulating in the accounts of the new techno-lords in control of both the state and the digital fiefs, in which unwaged or precarious work is performed by the masses – who begin to resemble techno-peasants.
A common refrain in arguments about the rise of techno-feudalism is that tech platforms are just passive rentiers who are deriving immense profits from user data for which they pay very little. To put this in the most extreme way possible, these are lazy, mostly immaterial rentiers, who, having amassed a lot of IP, are now resting on their laurels. This reading also informs many of the enthusiastic accounts of Web3, which promise to share data wealth with the users who generated it. Yet, if one looks at the balance sheets and earnings statements of these firms, a different picture emerges: they actually invest more – rather than less – in material and tangible assets than non-tech firms (and more than they themselves did a decade ago), all while incurring immense R&D and capital expenditures (e.g. Amazon’s for 2020 was over $40 billion; Alphabet’s was almost $30 billion). This seems to fit rather well with the view of these firms as capitalist enterprises that, while controlling some markets, still compete in others (Google, Facebook, and Amazon in advertising; Google, Microsoft, Amazon, and Alibaba in cloud computing and AI services). Aren’t we running the risk of minimizing the really-existing capitalist dynamics of this tech economy when we emphasize those related to feudalism?
I agree with you in this sense: Jeff Bezos, Elon Musk, et al. invest massively and are nothing like the lazy aristocrats of the original feudal era. But that does not mean that their investment is part of a standard capitalist dynamic. Techno-feudalism is not merely feudalism with gadgets. It is simultaneously much more advanced than capitalism and reminiscent of feudalism.
Let me be more precise. The massive investment of Big Tech that you mention is crucial. Not just because of its size but, primarily, because of what it produces: a new form of capital that I call command capital. What is command capital?
Standard capital comprises produced means of production. Command capital, in contrast, comprises produced means of organising the means of industrial production. Its owners can extract huge new value without owning the means of industrial production; merely by owning the privatised informational networks that embody command capital.
Command capital, to be more precise, lives on privately owned networks/platforms and has the potential to command those who do not own it to do two things: Train the machines/algorithms on which it lives to (A) direct our consumption patterns; and (B) directly manufacture even more command capital on behalf of its owners (e.g. posting stuff on Facebook, a form of labour de-commodification).
In more abstract terms: Standard capital allows capitalists to amass surplus exchange value. Command capital, in contrast, allows techno-lords (i.e. Jeff Bezos, Elon Musk, et al.) to amass surplus command value. Command value? Yes: Any digital commodity has command value to the extent that its buyer can use it to convert expressive everyday human activity into the capacity to train an algorithm to do two things: (A) make us buy stuff, and (B) make us produce command capital for free and for their benefit.
In the language of Marx’s political economy, the magnitude of command value contained in any digital commodity is determined by the sum of: the surplus value of the commodities it makes us buy (see A above) + the labour time socially/technically necessary for us to produce a unit of command capital (under B above), to be appropriated instantly by the techno-lords.
In summary, what Bezos, Musk, et al. are accomplishing through their massive investments cannot be understood in terms of either feudalism or capitalism.
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Feudalism was based on the direct extraction of experiential/use value from peasants.
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Capitalism was based on the extraction of surplus labour from waged labour.
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Technofeudalism is a new system in which the techno-lords are extracting a new power to make the rest of us do things on their behalf. This new power comes from investing in a new form of capital (command capital) that allows them to amass a new type of value (command value) which, in turn, grants them the opportunity to extract surplus value from (i) vassal-capitalists, (ii) the precariat, and (iii) everyone using their platforms to produce on their behalf, unconsciously, even more command capital.
If I am right, by continuing to call this new environment… capitalism, we would miss the opportunity to appreciate the radically different, and new, processes determining our lives in the here and now. Techno-feudalism, I think, comes much closer to capturing this brave (albeit, dystopic) new world.
Yanis Varoufakis is a member of Greece’s Parliament and parliamentary leader of MeRA25, the Greek political party belonging to DiEM25 – Europe’s first transnational paneuropean movement. Previously, he served as Greece’s Finance Minister during the first six months of 2015.
Varoufakis read mathematics and economics at the Universities of Essex and Birmingham and subsequently taught economics at the Universities of East Anglia, Cambridge, Sydney, Glasgow, Texas and Athens where he still holds a Chair in Political Economy and Economic Theory. He is also Honorary Professor of Political Economy at the University of Sydney, Honoris Causa Professor of Law, Economics and Finance at the University of Torino, Visiting Professor of Political Economy at King’s College, London, and Doctor of the University Honoris Causa at University of Sussex.
He is the author of a number of best-selling books, including Another Now: A novel (Penguin UK & Melville House US), Adults in the Room: My struggle against Europe’s Deep Establishment (London: Bodley Head, 2017); Talking to My Daughter About the Economy: A brief history of capitalism (London: Bodley Head, 2017), And the Weak Suffer What They Must? Europe, Austerity and the Threat to Global Stability (London: Bodley Head and NY: Nation Books, 2016); and The Global Minotaur: America, Europe and the Future of the World Economy (London: Zed Books, 2011, 2015). His academic books include Economic Indeterminacy (London: Routledge, 2014); Foundations of Economics (London: Routledge, 1998); and Rational Conflict (Oxford: Blackwell, 1991).
In his own words, Varoufakis was “thrust onto the public scene by Europe’s inane handling of an inevitable crisis”. In January 2015 he was elected to Greece’s Parliament with the largest majority in the country and served as Greece’s Finance Minister (January to July 2015). During his term he experienced first hand the authoritarian inefficiency of the European Union’s institutions and had to negotiate with the Eurogroup, the European Central Bank and the International Monetary Fund. Varoufakis resigned the finance ministry when he refused to sign a loan agreement that perpetuated Greece’s debt-deflationary cycle.
In February 2016 Varoufakis co-founded DiEM25, the Democracy in Europe Movement – Europe’s first transnational movement. In March 2018 DiEM25 founded MeRA25, its Greek political party. Led by Varoufakis, MeRA25 entered Parliament with nine MPs in the July 2019 General Election.
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