Yanis Varoufakis has worn many hats over the course of his career: Economist. Academic. Politician, even briefly becoming Greece’s minister of finance during a tumultuous period in 2015. Author, most recently of Technofuedalism: What Killed Capitalism. But many people forget that, back in 2012, he also helped Valve study hats – or at least, the market surrounding them in Team Fortress 2. At the time, Varoufakis was Valve’s economist in residence, playing a role in pioneering the sorts of digital markets that now dominate Steam, video games, and to some degree, the Earth.
Varoufakis is not a fan of many of these markets, as he outlines in Technofeudalism, which posits that the likes of Amazon and the App Store have evolved into algorithm-powered fiefdoms that exist not to foster commerce or competition, but to modify behavior and extract rent from all who produce goods for them. Other people do the work, while big companies and platforms reap the rewards. At this point, it’s a well-documented dynamic that most ascribe to late-stage capitalism. Varoufakis believes that capitalism fell to this new system’s claws some time ago – that we’re now tussling with a wholly different beast. In fact, he doesn’t believe that what companies like Amazon offer are markets at all.
I realized that when I'm on Amazon.com, I'm not in the marketplace. It looks like a marketplace, but it isn't a marketplace.
“Every capital good that we had since antiquity was something we produced in order to produce something else with it, whether it's a fishing rod or a hammer or a tractor or, today, a very advanced industrial robot,” Varoufakis told Aftermath. “Cloud capital is not a produced means of production; its purpose is to modify our behavior, to replace Don Draper, to replace the market. And to replace it with a machine that interfaces with you in real time forever and extracts you from the market.”
The real goal, as Varoufakis identifies it, is to provide the land on which these transactions occur and, like the feudal lords of yore, to effectively give us, the townspeople, no choice in the matter. You either sell your product on Amazon – or share your music on Spotify, or tailor your videos to the ever-shifting whims of YouTube and TikTok – or you may as well take a hike into the internet’s equivalent of the frozen wastes. Companies extract rent, whether in the form of a 30 percent tax on the App Store and Steam or by collecting all your data and selling it to ad providers on YouTube, Facebook, Instagram, and the like – all while you provide the content that gives these platforms their appeal in the first place.
“I realized that when I'm on Amazon.com, I'm not in the marketplace,” Varoufakis said. “It looks like a marketplace, but it isn't a marketplace. It has none of the characteristics of a market. And the most important characteristic of a market is its decentralization. You walk into a shopping mall, you walk into a farmer's market, if you and I walk together, we see the same products. We can have a discussion about it. We can say 'Ah, this is crap,' that we're not gonna buy the stuff, or 'This looks great.' We can't do that on Amazon.com because you and I cannot communicate. The algorithm doesn't allow us. It matches you with a particular vendor, maximizing the likelihood of extracting a greater cloud rent from the vendor. And if you and I type the same thing in the search box, we get very different recommendations, because that's how the statistical model works. This is how the algorithm works.”
The larger superstructure of technofeudalism, Varoufakis believes, is unsustainable. A small handful of companies maintain absolute control over these algorithms while extracting fees that do not even remotely correlate to a need.
"These are simply retained rents, because the Apple Store doesn't cost them,” he said. “The marginal cost of running it is miniscule."
As a result, money exits the circular flow of income – the version of the economy in which individuals provide labor that allows businesses to produce goods and services, for which individuals then receive income that can then be spent on goods and services – and ceases to benefit most people. Games that rely on user-generated content, Varoufakis said, are an example of this. The Robloxes of the world might offer generous payouts to a select few, but most never see any payout for their hard work.
“There's so much work that is not remunerated, but it is monetized,” said Varoufakis. “It's not remunerated to those who actually created it. Kids get some money, but they get next to nothing compared to the value that they create, because they actually build the cloud capital, and they are wage-less. Up until now, you know, steam engines were manufactured by wage labor. Now all the worlds are manufactured by unwaged labor. This is not sustainable, even if this work is voluntarily provided. It's still work, and it's skilled work, and when it's not remunerated, that kid will not have enough money to go to college. That kid will not have enough money to buy stuff from Walmart. That kid will not have enough money to go to the movies. So that affects the rest of the economy."
Varoufakis recognizes his own role in paving the way for technofeudalism to bulldoze capitalism, which was already bad, and build something worse in its place. At Valve, he studied Steam’s then-nascent community marketplaces, which have since evolved to become some of the most influential in video games. Without Team Fortress 2’s hats and Counter-Strike’s knives – not to mention Steam’s almighty algorithm – you’d have never gotten the real-world-money-powered stores present in games like Roblox and Fortnite, nor Facebook’s fumbling metaverse aspirations, nor numerous other platform monetization efforts. But during Varoufakis’ time at Valve, from his perspective, it all arose from a place of necessity.
"Some people have accused me and others of having commodified the games too much and having introduced the stores and the capacity to trade within,” he said. “My fear was that if you don't do that, [users] will take it outside, and then it will be completely impossible to regulate. So it was always a difficult project to maintain a balance between commodification and outside options, as I call them. If you don't commodify, then the commodification will escape outside the walls of the community – of the fiefdom, if you want – and then you will simply have no control over it. It's a big dilemma."
Some people have accused me and others of having commodified the games too much. ... My fear was that if you don't do that, [users] will take it outside, and then it will be completely impossible to regulate.
This has proven true for many games, whether it’s V-Bucks scams around Fortnite or, following Varoufakis’ time at Valve, the rise of Counter-Strike skin gambling, which exploded into a multi-billion-dollar aftermarket until Valve was pressured into regulating it, first in 2016 and then again in 2023 after the practice saw a resurgence, especially among content creators.
Varoufakis spent his time at Valve studying markets with the goal of avoiding these (admittedly very profitable) worst-case scenarios and ensuring stability.
"My main project was to study the economy – to work out its dynamics, to work out what determined prices, what determined the distribution of incomes,” said Varoufakis. “Was it a stable economy? We feared that it would collapse, that suddenly some kind of bubble would inflate in terms of the prices of these artifacts, and then suddenly go pop – and if it did, a lot of people would leave the community, and that could be detrimental to the interests of the company, as well as it would annoy a lot of people and even lead to substantial financial losses for a lot of people. … I was essentially highlighting how the economy functions and then when it came to advice, what I can tell you within my NDA is that it had to do with monetization. What is the optimal strategy for monetizing without losing the joy of playing to over-commodification?"
This involved, for example, learning why certain items came to function as currency – why players might hold onto one hat not for its own sake, but as a means of exchange. These findings also fed into another project that Varoufakis is disappointed never saw the light of day.
“I worked on how the Valve ecosystem could be used to create prediction markets,” he said. “Here's how you could use these 100 million people that interacted there in order to essentially improve upon the predictions of economic forecasters on the American economies, the global economies, interest rates, growth rates, and so on. Because like Reddit, you can crowdsource a lot of information from such a large pool of smart people who are interacting and create games within the video games where you, say, for instance, get these brownie points or credit points if you predict next month's inflation rate more accurately than the Fed.”
If done correctly, Varoufakis believes Valve could be even more on top of the world than it currently is.
“That was my advice: Since an economy had emerged within the community, you can connect the economy within the community with economies outside the community – and to do it in a gaming way, which creates pleasure and, at the same time, some useful statistics,” Varoufakis said. “I am of the belief that had that happened, then Valve would be able to produce better macroeconomic forecasts for the American economy or the global economy than the [International Monetary Fund] or Goldman Sachs."
Varoufakis was diplomatic in his appraisal of where Steam ended up instead: bigger and more profitable than ever, but also relentlessly focused on games and in-game items as commodities rather than anything more.
"I shall constrain myself to saying that it's not as interesting as it was to me [at the time],” he said. “The way it has evolved makes it less interesting, and I feel a certain regret that it had to go that way in the end. Commodification won. There were important values in there that commodification has destroyed, but that's what commodification does."
Despite all this, Varoufakis doesn’t blame those he worked with at Valve for Steam’s role in the advancement of technofeudalism. He believes that technofeudalism – like capitalism before it – is an everybody problem. Just as kings, lords, and peasants did not purposefully seek to invent what eventually evolved into late-stage capitalism, Valve, according to Varoufakis, did not set out with anything resembling the current digital landscape in mind.
"The people who I met at Valve who were actually coding and designing these games were just gamers. They just loved to play games, and they wanted to create better games. They didn't want to create technofuedalism. … But once scarcity of particular artifacts creates a quasi-market, and this quasi-market gives the opportunity for arbitrage, and this arbitrage can be monetized by individuals – not by the company – the company is caught between a rock and a hard place. It has created, without wanting to, a new profit drive and a new rent extractive drive amongst its players. And then either [the company] turns a blind eye and the whole thing goes outside and all sorts of things happen, or it tries to [control it]. ”
The people who I met at Valve who were actually coding and designing these games were just gamers. ... They didn't want to create technofuedalism.
However, just because a company didn’t intend to do something does not mean it’s absolved of responsibility.
“But then once [a company starts trying to assert control], you are going headlong to what I now think of as technofeudalism,” said Varoufakis. “You become part of the problem, the same way that everybody participated in the late 18th century and early 19th century in the creation of capitalism. If you had taken two people [back then] and described to them BlackRock and Vanguard and Goldman Sachs and said 'Would you like to live in a world with these companies?' they would've said 'No, no, no, no.’ But everyone participated in the creation of this world."
The question now is how people can build a better system. Varoufakis would like to see a “cloud tax” levied against the large corporations that control the internet, as well as a structure in which governments force companies to put 30 percent of their shares into a commonwealth fund, the dividends of which would be distributed to the public in the form of a basic income. But we’re nowhere close to a point at which companies or governments would agree to that. So we’ve got to get to work.
"The only solution is politics,” said Varoufakis. “I hate to say that because I don't like politics. Running in elections, that really bores me. I can't stand it. It's toxic. It's horrible. But there's a job that we must do. It's like taking the garbage out. Because the market is not going to solve this problem. The market has already been usurped by cloud capital. … We have control over all of our communities and our societies, and we're going to do this. I hope we do this democratically – through the old-fashioned idea that the 'demos' has to be returned to democracy. It's not part of democracy as we speak. It's an autocracy without the ‘demos’ calling itself democracy. That is hard work, but you know what? There's no alternative."