Technofeudalism: What Killed Capitalism

by Yanis Varoufakis

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 neighbourhood 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 neighbours are, and the more they invest in the area, the larger his rents.