Economist and former Greek finance minister Yanis Varoufakis has written a provocative new book, Technofeudalism: What Killed Capitalism, in which he argues that our 21st-century economic system should not really be described as “capitalism” anymore but as a kind of “techno-feudalism” in which the owners of platforms extract rent in the same way that feudal lords did. We present an excerpt from Varoufakis’s book here. Note that the book is written in the form of an extended letter to Varoufakis’s father.

What would it take for capitalism to die? In your youth you had a definitive answer: capitalism will die, like Dr. Frankenstein, indirectly of its own hand, a deserving victim of its greatest creation: the proletariat. Capitalism, you were convinced, was creating two great camps destined to clash: capitalists, who did not physically work with the revolutionary technologies they owned; and the proletarians who spent their days and nights working in, on, under, or with these technological wonders, from merchant ships and railways to tractors, conveyor belts, and industrial robots. The revolutionary technologies were no threat to capitalism. But revolutionary workers who knew how to work these incredible machines were.

The more capital dominated the global economic and political sphere the closer the two camps got to facing off one another in a critical battle. At its conclusion, and for the first time on a planetary scale, good would vanquish evil. The bitter bifurcation of humanity, between owners and non-owners, would thus be healed. Values would no longer be reducible to prices. And humankind would, at last, be reconciled with itself, turning technology from its master to its servant.

In practical terms, your vision meant the birth of a proper, technologically advanced, socialist democracy. Collectively owned capital and land would be pressed into producing the things society needs. Managers would be answerable to the employees that elected them, to their customers, to society as a whole. Profit would wither as a driving force because the distinction between profit and wages would no longer make sense: every employee would be an equal shareholder, their pay coming out of their enterprise’s net revenues. The simultaneous death of the market for shares and of the labor market would turn banking into a staid, utility-like sector. Markets and concentrated wealth would, consequently, lose their brutish power over communities, allowing us collectively to decide how to provide health, education, and protection of the environment.

Things could not have panned out more differently. Even in Western countries like Germany and, for a time, Britain, where national labor unions grew strong, waged labor failed to organize effectively and eventually acquiesced to the idea of capitalism as a “natural” system. Solidarity between the workers of the North and the South remains an entirely unfulfilled dream. Capital has simply gone from strength to strength. And in places where revolutions sworn to your vision succeeded, life ended up sooner or later resembling a cross between George Orwell’s Animal Farm and Nineteen Eighty-Four. I shall never forget you confessing to me, while recounting horror stories of the years you spent in prison camps for Greek left-wingers, the feeling which overwhelmed you most: that, had our side won power, you would probably be in the same prison only with different guards. It resonated with the heartbreak of authentic left-wingers worldwide: good people, dedicated to your vision, who ended up in gulags guarded by former comrades or, even worse, in positions of the sort of power that their own ideology detested.

Nevertheless, your prognosis is holding up extremely well, though not in ways that you would welcome. Capitalism is dying indirectly of its own hand, a deserving victim of its greatest creation: not the proletariat, but the cloudalists. And little by little, capitalism’s two great pillars—profit and market—are being replaced. Alas, instead of a post-capitalist system that finally heals human divisions and ends exploitation of people and planet, the one that is taking shape deepens and universalizes exploitation in ways that were hitherto unimaginable, except perhaps by science-fiction writers. Thinking back, Dad, why did we ever allow ourselves to be lured into the soothing delusion that the death of something bad would necessarily deliver something better? Rosa Luxemburg’s devastating question “Socialism or barbarism?” was not rhetorical. Its answer could easily be barbarism—or extinction.

What we need, then, is a new story that explains not what we wish would happen but what is actually happening, and that is the story of how rent—the defining economic trait of feudalism—staged its remarkable comeback.

Under feudalism, rent was easy enough to grasp. Courtesy of some accident of birth, or royal decree, the feudal lord obtained the deeds to a plot of land which empowered him to extract part of the harvest produced by the peasants who had been born and raised on that land. Under capitalism, grasping the meaning of rent, and distinguishing it from profit, is much harder—a difficulty I witnessed first-hand when as a university teacher I would struggle to help my students spot the difference between the two.

Arithmetically, there is no difference: both rent and profit amount to money left over once costs are paid for. The difference is subtler, qualitative, almost abstract: profit is vulnerable to market competition, rent is not. The reason is their different origins. Rent flows from privileged access to things in fixed supply, like fertile soil or land containing fossil fuels; you cannot produce more of these resources, however much money you might invest in them. Profit, in contrast, flows into the pockets of entrepreneurial people who have invested in things that would not have otherwise existed—things like Edison’s light bulb or Jobs’s iPhone. It is this fact—that these commodities were invented and created and so can be invented and created again but better by someone else—that renders profit vulnerable to competition.

When Sony invented the Walkman, the first mobile and personal hi-fi, it raked in substantial profits. Then competition from imitators whittled Sony’s profits away until, eventually, Apple rode in with its iPod to dominate the market. In contrast, market competition is the rentier’s friend. If Jack owns a building in a neighborhood that is being gentrified as a result of what others do, Jack’s rents will increase even if he does nothing—he literally gets wealthier in his sleep. The more enterprising Jack’s neighbors are, and the more they invest in the area, the larger his rents.

Capitalism prevailed when profit overwhelmed rent, a historic triumph coinciding with the transformation of productive work and property rights into commodities to be sold via labor and share markets respectively. It was not just an economic victory. Whereas rent reeked of vulgar exploitation, profit claimed moral superiority as a just reward to brave entrepreneurs risking everything to navigate the treacherous currents of stormy markets. Nevertheless, despite profit’s triumph, rent survived capitalism’s golden age in the same way that remnants of the DNA of our ancient ancestors, including long-extinct serpents and microbes, survive in human DNA.

Capitalist mega-firms, like Ford, Edison, General Electric, General Motors, ThyssenKrupp, Volkswagen, Toyota, Sony, and all the others, generated the profits that outweighed rent and propelled capitalism to its dominance. However, like remora fish living parasitically in the shadow of great sharks, some rentiers not only survived but, in fact, flourished by feeding on the generous scraps left in profit’s wake. Oil companies, for example, have raked in gargantuan ground rents from the right to drill on particular plots of land or ocean beds—not to mention the unearned privilege to damage the planet at no cost to themselves.

Naturally, oil companies have attempted to legitimize their loot by presenting it as capitalist profit, exaggerating the extent to which their returns are a reward to investments in smart, low-cost drilling technology without which, it is true, the extracted oil might not be competitive with oil extracted by competing oil producers. The same is true of real estate development where ground rent overshadows any profit from innovative architecture. Or with privatized electricity or water utilities whose returns are mostly due to rents the political class has allocated to them. What all these mega-rentiers have in common is a strong motive to legitimize their rents by disguising them as profits—something akin to profit-washing their rents. After the Second World War, rent went one better than merely surviving capitalism: it staged a revival on the coattails of the emergent technostructure—the nexus of conglomerates with immense resources, productive capacity, and market reach that grew out of the War Economy. The innovative marketeers and imaginative advertisers employed by the technostructure achieved this by creating something ingenious: brand loyalty.

Brand loyalty affords the brand owner the power to raise prices without losing customers. This price premium reflects the greater status afforded to the owner of a Mercedes-Benz or an Apple computer over the owner of, say, a cheaper equivalent produced by Ford or Sony. These premiums amount to brand rents. By the 1980s, branding had attained such rent-extracting powers that young, aspiring entrepreneurs cared less about who produced things, where, or how than they did about owning the right brands.

If branding gave rent its first chance to flourish again in the 1950s, the emergence of cloud capital in the noughties was rent’s opportunity to exact a stunning revenge on profit—to stage a comeback for the ages. Apple played a leading role in this. Before the iPhone, Steve Jobs’s gadgets were a textbook case of high-end commodities that fetched premium prices reflecting substantial brand rents—not unlike Rolls-Royces and Prada shoes. The company survived brutal competition from Microsoft, IBM, Sony and an army of lesser competitors by selling desktops, laptops, and iPods with beautiful design and famed user-friendliness that ultimately allowed Apple to charge significant amounts of brand rent. However, the breakthrough for Apple, which turned it into a trillion-dollar company, was the iPhone—not just because it was a great mobile phone but because it handed Apple the key to a whole new treasure chest: cloud rent.

The stroke of genius that unlocked cloud rent for Steve Jobs was his radical idea to invite “third-party developers” to use free Apple software with which to produce applications for sale via the Apple Store. In one fell swoop Apple had created an army of unwaged laborers and vassal capitalists whose hard work yielded a host of capabilities available exclusively to iPhone owners in the form of thousands of desirable apps that Apple engineers could never have produced themselves in such variety or volume.

Suddenly, an iPhone was much more than a desirable phone. It was a ticket to a vast vista of pleasures and abilities that no other smartphone company could provide. Even if an Apple competitor, say Nokia, Sony, or Blackberry, had managed to respond quickly by manufacturing a smarter, faster, cheaper, and more beautiful phone, it would not matter: only an iPhone opened the gates to the Apple Store. Why didn’t Nokia, Sony, or Blackberry build their own store? Because it was too late: with so many people signed up to Apple, the thousands of third-party developers were not going to spend their time and effort developing apps for other platforms. To be competitive, Apple’s unwaged third-party developers, mainly partnerships or small capitalist firms, had no choice but to operate via the Apple Store. The price? A 30 percent ground rent, paid to Apple on all their revenues. Thus, a vassal capitalist class grew from the fertile soil of the first cloud fief: the Apple Store.

Only one other conglomerate managed to persuade a significant proportion of those developers to create apps for its own store: Google. Long before the iPhone arrived, Google’s search engine had become the centerpiece of a cloud empire which included Gmail and YouTube, and which would later include Google Drive, Google Maps and a host of other online services. Keen to exploit its already dominant cloud capital, Google followed a different strategy to Apple’s. Instead of manufacturing a handset in competition with the iPhone, it developed Android—an operating system that could be installed for free on the smartphone of any manufacturer, including Sony, Blackberry, and Nokia, who chose to use it. The idea was that if enough of Apple’s competitors installed it on their phones, the pool of smartphones operating on the Android software would be large enough to lure third-party developers to produce apps not only for the Apple Store but also for a new store running on Android software. That’s how Google created Google Play, the only serious alternative to the Apple Store.

Android was neither better nor worse than the operating system Sony, Blackberry, Nokia, and others had—or could have—produced on their own. But it came with a superpower: Google’s abundant cloud capital, which acted as a magnet to the third-party developers that Sony, Blackberry, and Nokia could never have attracted on their own. How could they resist? However reluctantly, they were forced to accept the role of vassal capitalist phone manufacturers, subsisting on scraps of profit from selling their hardware, while Google raked in the cloud rent produced by that other crowd of vassal privateers and capitalists: the third-party developers now producing apps for sale on Google Play.

The result was a global smartphone industry with two dominant cloudalist corporations, Apple and Google, with the bulk of their wealth being produced by unwaged third-party developers, from whose sales they extracted a fixed cut. This is not profit. It is cloud rent, the digital equivalent of ground rent.

During this same decade, Amazon perfected its own formula for selling physical goods via a global supply chain through its own cloud fief—amazon.com—whose dynamics we have already examined. Thanks to Amazon’s algorithmically driven ecommerce formula, cloud rent was no longer confined to the digital world.

Funded by central bank money, bolstered by private equity, these cloudalists extended their cloud fiefs across the globe, extracting gargantuan cloud rents from vassal capitalists and cloud serfs alike. In a paradoxical twist, the number of capitalists relying on good old-fashioned profit grew even while their profit margins and power declined. Likewise, these vassal capitalists have continued to enjoy the power to command labor from the majority who are reliant on wages, and they continue to own at least some of their means of production: their computers, their cars, and vans, perhaps an office, warehouse, or factory. Indeed, not all vassal capitalists are small-scale artisans; some are large capitalist manufacturers. But large or small, powerful or otherwise, all vassal capitalists are by definition dependent to a greater or lesser extent on selling their wares via an ecommerce site, whether Amazon or eBay or Alibaba, with a sizeable portion of their net earnings being skimmed off by the cloudalists they depend on.

Meanwhile, as Amazon was snaring makers of physical products within its cloud fief, other cloudalists were focusing their attention on the precariat. Companies like Uber, Lyft, Grubhub, DoorDash, and Instacart in the Global North, along with their imitators in Asia and Africa, wired into their cloud fiefs a vast array of drivers, delivery people, cleaners, restaurateurs—even dog walkers—collecting from these unwaged, piece-rate workers a fixed cut of their earnings, too. A cloud rent.

Recently, I watched the Super 8 silent home movies you left me in a carton at the Paleo Phaliro house, many of which you had filmed during your travels in the 1960s when, at the drop of a hat, the steel company you worked for would fly you to America, Japan, and Europe to buy advanced machinery, or to the West’s former colonies to secure a steady supply of high-quality iron ore and coking coal. One film reel I found was marked ‘1964 – Indonesia.’ Most of the footage was of a road trip out of Jakarta. On mile after mile of crowded country road, I could not fail to notice the roadside warungs around which scores of locals congregated. Warungs, you explained, are like our kiosks in Greece, selling cheaply everything from drinks, pens, and newspapers to shampoo, aspirin, and telephone services.

You might be surprised to hear that Bukalapak, an Indonesian cloudalist firm, is taking over three and a half million warungs, digitizing their services with a view not only to uploading their multifaceted local markets to the cloud but also to financializing the local communities who depend on them via usurious micro-credits, expensive digital cash transfers, and basic banking services. Never too slow to cotton on, Jeff Bezos dispatched Jeff Bezos Expeditions to Indonesia and in 2021 began to invest in a competitor of Bukalapak’s. Peter Thiel, co-founder of PayPal, early investor in Facebook, initiator of Palantir, has done the same with his Valar Ventures. So has Tencent, a leading Chinese Big Tech conglomerate.

From factory owners in America’s Midwest to poets struggling to sell their latest anthology, from London Uber drivers to Indonesian street hawkers, all are now dependent on some cloud fief for access to customers. It is progress, of sorts. Gone is the time when, to collect their rent, feudal lords employed thugs to break their vassals’ knees or spill their blood. The cloudalists don’t need to deploy bailiffs to confiscate or to evict. Instead, every vassal capitalist knows that with the removal of a link from their cloud vassal’s site they could lose access to the bulk of their customers. And with the removal of a link or two from Google’s search engine or from a couple of ecommerce and social media sites, they could disappear from the online world altogether. A sanitized tech-terror is the bedrock of technofeudalism.

Looked at in totality, it becomes apparent that the world economy is lubricated less and less with profit and increasingly with cloud rent. And so the delightful antinomy of our era comes into focus: capitalist activity is growing within the same process of energetic capital accumulation that degrades capitalist profit and gradually replaces capitalist markets with cloud fiefs. In short, capitalism is withering as a result of burgeoning capitalist activity. It is through capitalist activity that technofeudalism was born and is now sweeping to power. After all, how could it be any other way?