Above Photo: Luigi Einaudi, then president of Italy, sits at his desk in 1948. Einaudi supported Mussolini’s economic agenda. Wikimedia Commons.
In The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism, Clara E. Mattei brings us back to the dawn of modern austerity politics, just after the First World War. In both liberal Great Britain and fascist Italy, she argues, austerity imposed steep costs in the short term but in the long term proved beneficial to capital. By forcing the working class to rely on the private labor market for survival, austerity ensured the survival of the wage relationship at a moment of anti-capitalist upheaval.
In our current moment, as policymakers are once again entertaining monetary tightening as a means to impose necessary hardship and discipline on working people, The Capital Order is a potent reminder of the cruel rationality of austerity: maintaining stable class relations is worth the price of the economic pain austerity causes.
Nick Serpe: If you were to ask most people to name the signal crisis of capitalism in the twentieth century, they would probably point to the Great Depression. You push us back a decade earlier, to the aftermath of the First World War. What was so pivotal about this period?
Clara Mattei: It was a rare moment in recent history in which people were actually questioning the foundations of capitalism as a socioeconomic system. Coming out of a massive war effort in which workers were mobilized in the name of national interests, they risked returning to a system in which wage relations and the power of private property were the same as they’d been prior to the war. And although before the war these tenets of capitalism may have been normalized, or even seemed “natural,” the war effort showed that this was not true. States disrupted their supposedly neutral position with respect to the market, setting prices and wages to meet their wartime ends. In so doing, they effectively shattered earlier notions of the markets’ inviolability. It became clear that markets and governments were sources of, and reinforcers of, existing power.
The primary sources from the period demonstrate how the ideology that gave capitalism its “natural” veneer was crumbling. The war effort had demonstrated that the preservation of the exploitative relations of production was an explicit political decision. As the intellectual G.D.H. Cole observed in 1920, “the widespread conviction that capitalism was inevitable” was collapsing.
This was an existential crisis for capitalism, especially because it gave rise to alternative ideas about organizing production and distribution, which emerged all over Europe. There was a whole spectrum of examples, from the modest to the radical: well-meaning bourgeois calls to put political priorities ahead of economic ones; guild socialism, which had a harmonic relationship with the state; the idea of nationalization and workers’ management; and the more radical workers’ council movement, which imagined a complete overcoming of both the capitalist market and the capitalist state, leading to a classless society.
The Great Depression in 1929 was an economic crisis, but it didn’t turn into a larger upheaval because the austerity policies that were instituted in the decade leading up to it had secured the foundation of capitalism as a socioeconomic system. In other words, the Great Depression did not produce major changes in social structure because calls for those changes had already been extinguished. In fact, one could argue that the devastating anti-revolutionary effects of austerity are what made the Keynesian idea of curing the depression through state investment—without triggering revolutionary expectations—even possible.
Capital constantly needs protection. It required massive protection in 1919, and by 1929 it was quite protected; the British unemployment rate reached a massive 20 percent by the end of the 1930s, so workers were really already losing. You didn’t need austerity to have them lose even more.
Serpe: This distinction between an economic crisis and a crisis of capitalism gets to a question about the standard critique of austerity. At least among a certain set of Keynesians, there is a sense that austerity is basically an irrational policy. You argue that this misunderstands the point of austerity. So what is the rationale of austerity, if it actually causes macroeconomic distress in the short and even medium term?
Mattei: One reason I wrote this book was to use history to uproot the false dichotomy between austerity economists and anti-austerity Keynesian economists; ultimately, they’re much closer than what is politely thought. And the reason is that they both depoliticize austerity: they view it as an item in the technical toolbox that you can apply to the economy as an object of monetary and fiscal management. Keynesians might consider austerity irrational because it’s often applied in the wrong moment, like when the business cycle is going into a downturn, rather than in moments like ours, during an upturn. Keynes himself would probably argue that now, like the early 1920s, is the right time for austerity—a counter-cyclical measure to stabilize the economy. But the difference between that view of the economy and the view of more brazenly pro-austerity economists is, I believe, not all that substantial. It’s a vanity of very small differences.
Instead, I see austerity fundamentally as one-sided class warfare, led by the state and its economic experts and aimed at refurbishing the capital order in moments when it is crumbling. Capital as wealth, as money invested to make more money, requires capital as a social relation of production, underpinned by wage labor. As a political project, austerity is in fact the most rational way to safeguard capitalism: it structurally disempowers workers by increasing precariousness and market dependence.
The story I tell from the 1920s shows the “successes” of austerity. In Britain, austerity did bring about an economic downturn, which is exactly what’s happening now. The cost of austerity is clear to the experts: there will be a slowdown. But this is a short-term cost with a structural upside, which is the preservation of stable class relations—workers on the bottom, owners accumulating on the top. This is the recipe required for any capitalist economic growth. In just a couple of years in postwar Britain, the wage share dropped, which allowed the rate of profit to soar. The winners and losers of austerity became very clear. One of the hallmarks of a capitalist society is a highly predictable division between winners and losers.
Serpe: We sometimes hear a theory of left-wing politics that is essentially accelerationist: as things get worse, people seek more radical alternatives. The opposite idea has more to do with raising expectations: when you show that things can improve, that creates room for more radical politics. Your book illustrates how austerity is designed to dash expectations—to make things worse for most people, in order to lower their sights.
Mattei: Yes, and it’s not a time-specific argument. It may be the case that austerity is put into motion in moments of political contestation. But any time it’s used, austerity is a tool to disempower people. Worsening the conditions of the majority through austerity helps prevent political action against the system as a whole. You may muster spontaneous forms of rebellion, but you are structurally disempowered.
When people do get some resources and workers have greater bargaining power, these are the moments in which political escalation can happen, because we understand very well that capitalism is not a result of any deterministic laws. It requires political organization, and political organization requires material conditions that allow for it to even start.
Serpe: In the book, you discuss a trinity of austerity policies. The most common definition of austerity is a kind of fiscal regime: it’s about government deficits, about budget cuts. But you are talking about not just fiscal policy but also monetary policy and industrial policy. What is the value of seeing all of these areas as a suite of ideas?
Mattei: Yes, people focus on fiscal policy and leave behind the other two components of the austerity trinity. This is in part because Keynesians think about fiscal policy in a depoliticized way—like it’s not serving some existing power. Usually, they focus on the macro level, on state expenditures in general. But it’s also important to look at where the state decides to spend. If military budgets are going up at the expense of welfare expenditures, that’s austerity. If you look at the aggregate, you might not see it that way, because money is being spent. But, in coherence with the logic of austerity, it’s being used to incentivize an investing elite, giving resources to those who (people are made to think) run the economic machine. That’s also why regressive taxation is such an important plank of fiscal austerity. It’s not just about how the state spends but also about how the state gets its revenue. Here, you see that the rhetoric of “balanced budgets” is really just rhetoric, because if you wanted to increase state revenue, you would tax where you would actually get more money. With regressive taxation, by contrast, you are forcing people to consume less and produce more, and it’s the working majority that has to take on these sacrifices.
Monetary austerity, of course, is about interest-rate hikes to raise unemployment and slow down the economy. Industrial austerity is having the state directly intervene in labor relations to try to disempower the working classes: cuts in union benefits, wage repression, labor deregulation, and privatization. They all increase market dependence and competition for jobs, thus lowering what economists call “the reservation wage”—the lowest wage a worker will tolerate before telling a prospective employer to take a job and shove it.
Why is it important to see these policies as organs functioning together? All these forms of austerity reinforce one another and are working in unison to shift resources away from the people and to buttress the disciplinary mechanism of the labor market.
Serpe: We often hear criticisms of the metaphors of austerity— that the government needs to “tighten its belt,” or that that government’s finances should be managed like a household budget. But when you look at this group of policies and how they all work together, the reverse does seem true: they really are about changing the behavior and consumption patterns of individual people, of families. The high-level policies are intended to have micro-level effects.
Mattei: This is something that austerity economists see very clearly: the connection between monetary management and not just labor relations but also the behavior of citizens as producers and consumers. Take Ralph Hawtrey, who was very influential for the Chicago School of Economics but also for Keynes. Hawtrey was obsessed with monetary instability. Departing from the traditional neoclassical framework of equilibrium, Hawtrey saw the structural disequilibrium of the market economy, so he understood the importance of austerity policies as a way to shape behavior—especially to curtail what he called “unproductive expenditures.” Macroeconomic management, including monetary policy, became the way to tame the behavior of the people.
It’s critical to recognize the ways economic decisions made by economic experts are present in our daily lives. We can’t just go about internalizing austerity—internalizing the idea that we need to leave it to the experts, that it’s too complicated for us to understand, or that we’ll just have to make do with less or find a way to work a little more. That’s conditioning, not nature.
Serpe: The two case studies that you use in this book—the United Kingdom and Italy—are not just examples plucked from thin air; they were both important at the dawn of austerity. But it also seems like a provocation to pair the liberal-constitutional example of the United Kingdom with fascist Italy. I don’t take it as your aim to obliterate the distinction between liberalism and fascism, but I did want to ask you about the relationship that they both have to austerity, and to each other.
Mattei: I could have picked many other countries, because austerity was taking place in countries all over the world in the 1920s. But I chose these two countries specifically to juxtapose two settings that are seemingly different institutionally and ideologically. Britain was a rich old capitalist state in the 1920s; Italy was a comparatively young backwater. But when you look at the two in terms of how they wielded austerity and how they talked about doing so, the notion that liberalism and fascism are these profoundly different things starts to crumble. In both the liberal parliamentary democracy of Great Britain and under fascism in Italy, experts were using the power of macroeconomic dials for the same objective: to reconstitute the capital order.
In Britain, they used interest-rate hikes and slashes in social expenditures to induce a recession and increase unemployment. This completely curtailed the mobilizing capacity of workers. At the time, G.D.H. Cole, who a couple of years before was convinced that capitalism was on the verge of collapse, remarked, “The big working-class offensive had been successfully stalled off; and British capitalism, though threatened with economic adversity, felt itself once more safely in the saddle and well able to cope both industrially and politically with any attempt that might still be made from the Labour side to unseat it.”
Italy had the same policies—privatization, cuts in social expenditure, deflation—but it also more directly used the coercive hand of the state. The fascist state intervened to curtail wages by decree, and with the fascist labor charter it also killed any non-fascist unions and made strikes illegal. So what in Britain was achieved by the impersonal laws of the market after inducing a recession, in Italy was mostly achieved by the state suppression of industrial mobilization. Italy didn’t need to induce a recession; the Italian economy actually grew from 1922 to 1925. It only really went into a recession when it tried to go back to the gold standard in 1926.
But the issue isn’t just parallels. The stories of twentieth-century liberalism and fascism also intersect: Mussolini would have never really solidified his rule without the consensus of the domestic and international liberal elite. For example, when it came to austerity, the liberal economist Luigi Einaudi—who became the first president of the republic after the fall of fascism—supported Mussolini’s economic measures for the whole of the 1920s, writing great things about him in the Economist.
It’s also important to recognize the anti-democratic, authoritarian thrust of austerity—including how it sometimes serves liberal ends. Part of Hawtrey’s argument in favor of an independent central bank was that it would never have to explain its actions, never regret, never apologize; it would prevent any democratic participation in economic decisions. This authoritarian inclination, shared across liberalism and fascism, can be seen whenever the capital system is breaking down.
Serpe: Austerity emerges at a revolutionary moment, and it’s used to stabilize class relations—to reinforce the capital order. The ideas around austerity start to dominate again in the 1970s, and in some ways we’ve been living under that revival ever since. There are some recent, encouraging signs that people are repoliticizing some economic issues that have been depoliticized. But our situation doesn’t have that same explosive revolutionary potential. What kind of purpose do you see austerity serving under circumstances in which the systemic threat isn’t quite as large?
Mattei: A lot of lefties have internalized an end-of-history perspective—basically, a belief that labor is just too weak. It’s true that we are in a different economic and political place than we were in the early twentieth century, and austerity has weakened the people and normalized the capital order. But I think this book can stir something again, in part because it shows that the ruling technocratic elite do not share that same end-of-history perspective. In fact, they are quite obsessed with the possibility of the capital order breaking down, and they know that it needs protection constantly, even in moments when workers seem weak. It is clear to them that capital is not a natural given, even if they want us to think that it is. The system is not necessarily permanent, and it has vulnerabilities. Austerity functions as a defender of those vulnerabilities.
It’s interesting to note that in the late 1970s, when austerity reemerges, in Italy it’s Enrico Berlinguer, a leader of the Communist Party, who endorses it. It was a stark illustration of a devastating truth: austerity had been so successful that a lot of people on the left saw it as the only way forward in times of trouble.
Today, we see a labor shortage and unrest fomented by inflationary spirals. As these things continue, we also see a breakdown of the “common sense” ideology that this system is the most efficient one, or even the only one possible. That’s why even Keynesians are now reverting to austerity in order to cure inflationary pressures: because the capital order is slowly slipping into disorder. The anti-work movement and the Great Resignation, along with inflation and the political intervention of the state during the pandemic, have helped make wage relations a political conversation again. We are seeing forms of spontaneous rebellion against, and even rejection of, the idea of selling one’s labor power in return for a wage. Of course, they’re less organized than the demonstrations I write about, a hundred years ago, but we’re at least seeing the return of fundamental questions.
Serpe: When people on the left talk about contemporary far-right movements or right-wing populists, they often fear that the right is going to make a pivot from decades of supporting austerity and social elites. The concern is that they’re going to learn lessons from earlier extreme-right movements and offer policies that support at least certain segments of the working class or the middle class. This represents a political threat, especially in times of a weak left. Your book raises some questions about that fear. It may be particularly interesting to ask about these dynamics when there’s a new post-fascist leader in Italy, Giorgia Meloni, whose economic policies certainly aren’t broadly pro-working class.
Mattei: A lot of people read the title of my book and think that I’m going to make the classic argument that austerity helps build discontent before a fascist leader emerges to promise social protection for workers—the general narrative we hear about what happened with Hitler in Germany. But look at what is happening in Italy today with Meloni. She had a very ambitious campaign program centered on an idea of giving back to the people. She was critical of the troika [the European Commission, European Central Bank, and International Monetary Fund], of balanced-budget constraints, and so on. Now that she’s in power, she is showcasing a commitment to institutional continuity with the government before her [of Prime Minister Mario Draghi, a former European Central Bank president]. Her minister of economics, Giancarlo Giorgetti, was also one of Draghi’s ministers. Her new budget represents a war against the poor. It’s taking away the citizens’ income program, which guaranteed a minimum income to unemployed people, and it includes a regressive flat tax.
The austerity playbook is all there: shaming the poor because they are parasitic, supporting entrepreneurs with the flat tax. Economically, she’s as harsh as the Draghi government—but she seems more willing to use the coercive hand of the state, like the old fascist guard. One of the first things she did coming to government was pass a law against rave parties. This was simply a cover for a dramatic infringement on the constitutional right of political demonstration: the law targets anyone who wants to assemble with more than fifty people without having received permission to do so.
Much of the same stuff is going on in Great Britain at the moment. Last November the Tory government planned for £30 billion in public spending cuts, and it is also passing laws such as the public order bill and the national security bill to explicitly target demonstrations against the government—for example, those held by Extinction Rebellion—by threatening protesters with criminal charges.
Meloni has shown that her support for social measures was only rhetoric. Mussolini himself, however, did not come to power with that rhetoric. He explicitly promised law and order, the elimination of strikes, and the restoration of industrial peace.
We need to look more critically at what the fascist state did and how its policies facilitated its power. In The Capital Order, I focus on the emergence of the first fascist state under Mussolini, especially how it used austerity to render the Italian public both powerless and dependent on the state. And who designed those austerity policies for the fascists? High-profile economists, most of them politically liberal. Their architecture of austerity—and this link between liberalism and austerity—remain in play today. Austerity is the core of fascism, even when the austerity is getting administered by a liberal state. I hope the book is an invitation to look beneath some of our comforting political binaries. If we do, we’ll find lots of continuities between liberal technocracy and nationalist authoritarianism.
Clara E. Mattei is an assistant professor of economics at the New School for Social Research and the author of The Capital Order: How Economists Invented Austerity and Paved the Way for Fascism.
Nick Serpe is senior editor of Dissent.