The following excerpt is adapted from the highly anticipated U.S. publication of “Technofeudalism: What Killed Capitalism,” by Yanis Varoufakis, a Bloomberg most anticipated and best new book of 2024 and a Guardian best forthcoming book. Written by the Greek economist and politician who formerly served as his country’s Minister of Finance, it has been lightly edited for brevity and continues several of the author’s long-running themes throughout several non-fiction books on political economy and theory, specifically 2011’s “The Global Minotaur.”
THE FEARLESS GLOBAL MINOTAUR
Once upon a time, in the famous maze-like Labyrinth of the Cretan king’s palace, there lived a creature as fierce as it was tragic. Surviving in intense loneliness, comparable only to the fear it inspired far and wide, the Minotaur had a voracious appetite. Satisfying it was essential to maintaining the peace that King Minos had enforced, allowing trade to criss-cross the seas spreading prosperity’s benevolent reach to all. Alas, the beast’s appetite could only be satiated by human flesh. Every now and then, a ship loaded with youngsters sailed from faraway Athens bound for Crete. On arrival, it would deliver its human tribute to be devoured by the Minotaur. A gruesome ritual, albeit one that preserved the era’s peace and reproduced its prosperity.
Millennia later another Minotaur rose up. Surreptitiously. From the ashes of the Bretton Woods system. Its lair, a form of Labyrinth, lay deep in the guts of America’s economy. It began life as the US trade deficit—the fact that America began to buy more imports from other countries than it sold to them owing to the Vietnam War, the Great Society and the expanding efficiency of German and Japanese factories. The tribute it consumed was the rest of the world’s exports, imported from Europe and Asia to be devoured in Middle America’s malls. The more the US deficit grew the greater the Minotaur’s appetite for Europe’s and, more so, Asia’s manufactured goods. However, what gave it strength and global significance—what meant that it ensured the peace and prosperity not just in America but in Europe and Asia too—were the labyrinthine underground tunnels connecting Walmart to Wall Street.
The way it worked was as follows. The new American Minotaur’s appetite kept the gleaming German factories busy. It gobbled up everything produced in Japan and, later, in China. This kept Europe and Asia peaceful and prosperous (for now). In return, the foreign (and often the American) owners of these distant factories sent their profits, their cash, back to Wall Street tobe invested—an additional form of tribute, which enriched America’s ruling class, despite its deficit. In this way, the Global Minotaur helped recycle financial capital (profits, savings, surplus money) and the rest-of-the-world’s net exports. Nourished on this constant stream of tributes, it enabled and sustained the post-Bretton Woods global order.
This was the strategy that lay behind the Nixon Shock of 15 August 1971. And it worked wonders, at least for those who triggered it. You see, the writing had been on the wall for Bretton Woods since the mid to late 1960s. As America’s trade surplus began turning into a deficit, financiers began anticipating its demise. They knew that, sooner or later, the dollar–gold exchange rate, artificially set in 1944 at a fixed $35 per ounce, would depreciate. At that point,their stash of dollars would buy less gold. Naturally, they began eagerly exchanging their dollars for American gold before that happened. Had this continued, the United States would have run out of gold. The Nixon Shock stopped the rot.
The dollar depreciated fast vis-à-vis gold, as anticipated, but curiously that was the moment the dollar regained its mojo. How? Shortly after the dollar was decoupled from gold, Europe’s currencies were decoupled from the dollar. Once they lost their fixed exchange with the dollar, the dollar value of European and Japanese money began fluctuating wildly, like driftwood in a tempestuous ocean.The dollar became the only safe harbour, courtesy of its exorbitant privilege: namely, that if any French, Japanese or Indonesian company, indeed anyone, wanted to import oil, copper, steel or even just space on a freight ship, they had to pay in dollars. The United States was, therefore, the only country in the world whose currency was in demand even by people who did not want to buy anything from it. That’s why, as a dark cloud of uncertainty descended upon Europe’s and Japan’s economic future, the world of finance responded by clamouring to turn their savings into dollars.
Suddenly, the dollar became king and queen again. The Nixon Shock had produced a magic trick for the ages: the country going deeper and deeper into the red was the country whose currency, the dollar, was becoming more and more hegemonic. It was the epitome of paradox. The tumult unleashed by Nixon gave the world’s capitalists a strong impetus to dollarise their profits. It was to become an unmissable pattern. To this day, whenever WallStreet tanks, the moneymen’s reaction is to buy more dollars to send to … Wall Street!
But there was another reason why the dollar’s hegemony grew: the intentional impoverishment of America’s working class. A cynic will tell you, quite accurately, that large quantities of money are attracted to countries where the profit rate is higher. For Wall Street to exercise fully its magnetic powers over foreign capital, profit margins in the United States had to catch up with profit rates in Germany and Japan. A quick and dirty way to do this was to suppress American wages: cheaper labour makes for lower costs makes for larger margins. Faced with a Minotaur sucking most of the world’s capital into America, the European ruling classes reckoned they had no alternative but to do the same.
A new era had begun. The post-war détente between capital and labour was now in its death throes. The final straw came in 1991, with the demise of the Soviet Union. Thereafter Russia and more importantly China voluntarily inducted themselves into globalised capitalism. Two billion low-waged workers entered the Minotaur’s realm. Western wages stagnated further. Profits swelled. The torrent of capital rushing to America to nourish the beast grew into a tsunami.
The question I now hear you asking is perhaps the most important one of all: why did Nixon not try to save Bretton Woods? Even while devaluing the dollar vis-à-vis gold he could have kept the restrictions on bankers in place. He could have preserved the dollar’s fixed exchange rates with Europe’s and Japan’s currencies. What inspired this dramatic volte face?
FROM UNCONTROLLABLE DISCONTENT TO CONTROLLED DISINTEGRATION
The Vietnam War did much to radicalise the young after 1965. However, the young had been turning against their parents’ establishment, and inventing the “generation gap,” years before President Johnson escalated the war in Indochina. The discontent was ignited by the war but it was not caused by it. So why did America’s and Europe’s youth rise up in the mid to late ‘60s, at a time of full employment, sharply diminished inequality, new public universities and all the trappings of an expanding welfare state?
It is one thing for our dreams to go unfulfilled. It is quite another to sense that our unfulfilled dreams, our frustrated desires, have been manufactured by others. The more our mass-produced cravings are satisfied, the less satiated we feel. The greater the capacity of the technostructure to stir the passions, the greater the void within when they were served. To fill this void, young people felt in their bones the need to break with the established order, to rebel without a well-defined cause, to proclaim their moral outrage at the technostructure’s ways. The May 1968 uprisings, Woodstock, even the fervour with which the young threw themselves into the civil rights campaigns smacked of the rebelliousness that usually foreshadows a fin desiècle; the end of a regime and its replacement with something new.
The 1950s and ’60s had been a nightmare for true believers in capitalism as a natural system of spontaneous order. Wherever they turned their eyes, they saw centralised planning–not the splendid operation of freewheeling market forces that no planner, however well meaning, should be able to second-guess. They could not help but notice the long hand of the state directing investment funds, preventing bankers from moving money, and fixing the dollar value of every other currency. To their free-marketeer eyes, the Global Plan was too close to Soviet planning for comfort. The West was, in short, psychologically prepared for a rupture like the Nixon Shock. Anti-capitalist youths and free-market zealots were both looking for a chance to bring down what they saw as a dying system.
In the end, though, it was neither the hippy left nor the libertarian right that disintegrated the Global Plan. We know this from the horse’s mouth, the former New Dealer who was at the centre of the 1971 Nixon Shock and who, between 1979 and 1987, chaired America’s central bank, the Fed. In a 1978 speech at Warwick University, Paul Volcker explained succinctly and cynically what they were up to: “[A] controlled disintegration in the world economy is a legitimate objective for the 1980s.”
That’s exactly what the Nixon Shock was meant to do: just as a controlled implosion brings down an unwanted skyscraper, Bretton Woods was demolished to make way for America’s Global Minotaur. Lest you have any doubts, Volcker’s own words, from the same Warwick speech, say it all:
[B]alancing the requirements of a stable international system against the desirability of retaining freedom of action for national policy, a number of countries, including the United States, opted for the latter …
Where once stood the most stable global capitalist system ever, the most unstable international system possible emerged, founded on ceaselessly ballooning deficits, debts and gambles. The controlled disintegration of Bretton Woods would soon complete the new global system. Most people refer to it as Globalisation or Financialisation. Under the perhaps excessive influence of your taste for the ancient parables, I call it capitalism’s Global Minotaur phase.
THE MINOTAUR’S FAVOURITE HANDMAIDENS: NEOLIBERALISM AND THE COMPUTER
The controlled disintegration of the old planned system and its replacement with the recalcitrant Minotaur was always going to hurt American workers. After decades of a hard, step-by-agonising-step slog up the socio-economic ladder, they were unceremoniously thrown off it and back to the pit of subsistence wages. How else could ever-increasing American deficits coexist with reinforced US hegemony and a fabulously richer American elite?
In practice, Volcker’s controlled disintegration of the old system required, beyond the neutering of trades unions, an engineered recession in order to reduce workers’ bargaining power and the elimination of the shackles that President Roosevelt had slapped on bankers to restrain their recklessness. These were prerequisites for the Minotaur’s rise. But they were also big political asks with worldwide repercussions. As with every systemic transformation that hurts countless people, the cruelties necessary to bring it about had to be bathed in the light of a liberating, redemptive ideology. That’s where neoliberalism came in.
Neither new nor liberal, neoliberalism was an uninteresting hodgepodge of older political philosophies. Nevertheless, neoliberalism delivered the necessary ideological veneer to legitimise the assault on organised labour and to promote the so-called “deregulation” that let Wall Street rip. Along with it came the revival of economic theories that humanity had, rightly, ditched during the Great Depression–theories artfully assuming that which they claimed to explain, such as the grand lie that deregulated financial markets know best.
At around the same time, in the late 1970s, the first personal computers began to enter engineering, architecture and, of course, finance. The joke then was that to err is human but to mess things up seriously one needs a computer. Sadly, in high finance it was no joke.
Computers allowed financiers to complicate their gambles immensely. Instead of a simple option-to-sell boring old shares to Jill, Jack could now buy much snazzier options called derivatives. For example, he could buy a derivative that was in essence an option-to-buy a bundle containing shares in a variety of different companies plus bits of debts owed by homeowners in Kentucky, German corporations, even the Japanese government. As if that were not complex enough, Jack could also buy a derivative amounting to the option-to-buy a bundle of many such … derivatives that some super-computer would create. By the time these derivatives containing other derivatives had come out of the computer, not even the genius financial “engineer” who created them could understand what was in them. Once computers had guaranteed that no one could possibly understand what these derivatives were made of, everyone wanted to buy them because … everyone was buying them. And as long as everybody was buying, anyone who could borrow huge amounts of money could become a billionaire simply by purchasing them. For years, that’s exactly what was happening. Until, in 2008, it wasn’t.
As a brief side note, you may well ask: when the bubble finally burst, why did we not let the bankers crash and burn? Why weren’t they held accountable for their absurd debts? For two reasons. First, because the payments system, the simple means of transferring a sum of money from one account to another and on which every transaction relies, is monopolised by the very same bankers who were making the bets. Second, because the financiers’ gambles contained, deep inside, the title deeds to the houses of the majority. A full-scale financial market collapse would, therefore, lead to mass homelessness and a complete breakdown in the social contract.
Back in the 1980s I remember a famous economist saying sarcastically that everywhere he looked he “saw” the productivity gains brought on by computers–”everywhere,” he continued, “except in the productivity statistics.” He was right: just as the early generation of computers saved no paper, since we tended to print anything important out (often twice!), so too they did little to boost industrial output. But the computer did have an enormous impact on finance. It multiplied the complexity of financial instruments by hiding the ugliness within them. And it allowed for their frantic trading to accelerate almost to the speed of light.
Three were the handmaidens of this motivated madness: the torrents of money rushing to the American Minotaur, the computer-generated complexity of financial derivatives, and the neoliberal faith that markets know best.
From Technofeudalism: What Killed Capitalism. Used with permission of the publisher, Melville House Publishing. Copyright © 2023 by Yanis Varoufakis.
