Technofeudalism: What Killed Capitalism

by Yanis Varoufakis

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.