Technofeudalism: What Killed Capitalism

by Yanis Varoufakis

After 2008, and especially during the pandemic, a strange thing happened. Money held its exchange value – that whole period, from late 2008 to early 2022, was one of very low (sometimes negative) inflation – but at the same time its price (i.e. the interest rate) tanked, even turning negative on many occasions.[5] This was a reflection of the fact that austerity was nullifying business investment and so business people’s demand for money was pitiful. But surely, if the central banks keep reducing interest rates, there would eventually come a point where money was sufficiently cheap that borrowing and investment would pick up again? Not so. In the case of potatoes, microchips or cars, falling prices generally cure an oversupply problem (i.e. where supply outweighs demand) in exactly this way: bargain-hunters swoop in while producers cut output, and thus the price ‘correction’ eliminates the excess supply. But when it comes to money, something different happens. When its price – the interest rate – drops fast, capitalists panic. Instead of rejoicing that they can now borrow more cheaply, they think: ‘Sure, it is a good thing that I can borrow for next to nothing. But for the central bank to allow interest rates to drop so much, things must be looking grim! I won’t invest even if they hand me the money.’ That’s the reason investment refused to recover, even after central bankers cut money’s official price to almost zero.