Cover: The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism by Clara E. Mattei (University of Chicago Press, 2022)


Part of what makes austerity so effective as a set of policies is that it packages itself in the language of honest, hardscrabble economics. Vague sentiments such as “hard work” and “thrift” are hardly novel; they have been extolled by economists since the days of Adam Smith, David Ricardo, and Thomas Robert Malthus, and their latter-day followers who cultivated these maxims as the stuff of personal virtue and good policy. These sensibilities were also reflected in 1821 with the institution of the gold standard, a policy whereby upstanding governments demonstrated their fiscal and monetary rigor by linking their currencies to their holdings of precious metals, both domestically and in colonies. A closer history of austerity shows, however, that it was in its modern form something quite different from these earlier, moral exercises. Austerity as a twentieth-century phenomenon materialized as a state-led, technocratic project in a moment of unprecedented political enfranchisement of citizens (who had gained the right to vote for the first time) and mounting demands for economic democracy. In this way, austerity must be understood for what it is and remains: an anti-democratic reaction to threats of bottom-up social change. As this book will show, its modern form cannot be divorced from the historical context in which it was born.

In post–World War I Britain and in other liberal democracies where widespread political empowerment was historically extolled, the state effectively wielded austerity as a political weapon against its own people. The British workers had fueled the nation’s war effort, and in the course of the wartime mobilization became aware that socioeconomic relations were no natural givens and could be different. By imposing austerity measures after the war, the British government effectively told its working classes to return to the back of the line.

The public disgust for early austerity was its crucible: austerity was rendered more antagonistic because it had to overcome—and indeed tame—an incensed public. After World War I, with the gold standard in pieces, the newly enfranchised European “great public” was not simply going to accept austere policies, and the experts knew it. Thus, they devised austerity to conjoin two strategies: consensus and coercion.

Consensus implied a conscious effort to “awaken” the public to the truth and necessity of reforms that favored economic stabilization, even when it might hurt. Recognizing that a restless public would be unlikely to make the “correct” decision regarding this greater good, experts complemented consensus with coercion. This took two forms. First, austerity had within it the principle of excluding the general public from economic decision-making and instead delegating such decisions to technocratic institutions—especially the central banks, whose setting of interest rates served as a hinge for public wages and unemployment. This preemption of decision-making by the expert class created a canvas for further policy decisions that propelled the installation of austerity. Second, coercion lay not only in who made economic decisions, but also in the outcome of those decisions—that is, in the very workings of austerity.

European governments and their central banks enforced the “proper” (i.e., class-appropriate) behavior on the working classes in order to rescue capital accumulation by the wealthy. The three forms of austerity policies—fiscal, monetary, and industrial—worked in unison to exert a downward pressure on wages among the rest of society. Their aim was to shift national wealth and resources toward the upper classes, who, the economic experts insisted, were the ones capable of saving and investing. Fiscal austerity comes in the form of regressive taxation and cuts to “unproductive” public expenditures, especially on social endeavors (health, education, etc.). While regressive taxation imposes thrift on the majority and exempts the saver-investor minority, budget cuts indirectly do the same: public resources are diverted from the many to the saver-investor few, in that budget cuts come with the stated priority of paying back the debt that rests in the hands of national or international creditors. Similarly, monetary austerity, meaning monetary revaluation policies (such as an increase in interest rates and reduction in money supply) directly protect creditors and increase the value of their savings. Meanwhile organized labor has its hands tied, since having less money in circulation depresses the economy and diminishes the bargaining power of the working class. Finally, industrial austerity, which takes the form of authoritarian industrial policies (layoffs of public employees, wage reductions, union- and strike-busting, etc.), further protects vertical wage relations between owners and workers, fostering wage repression in favor of the higher profit of the few. This book will study these three forms of austerity—what I call the austerity trinity—and how they at once require and advance one another. This historical inquiry, examining a moment in which capitalism was very much on the ropes, enlightens many vital connections that economists overlook when discussing austerity today.

First, austerity policies cannot be reduced to mere fiscal or monetary policies from central government institutions. Industrial policies, public and private, that create favorable conditions for profit and discipline workers are central to austerity as well. Indeed, as the book will show, our experts’ fixation on debt repayment, balanced budgets, foreign exchanges, and inflation reveals a more fundamental purpose: taming class conflict, which is essential for the continued reproduction of capitalism.

Second, this inquiry clarifies that austerity is more than just eco- nomic policy; it is an amalgamation of policy and theory. Austerity’s policies thrive because they sit atop a set of economic theories that inform and justify them. This book examines the threading of a certain kind of theory within policy making, including how the resulting technocracy—government controlled by technical experts—is central to protecting modern capitalism from its threats. There are no better candidates to illustrate this entanglement than the characters in the post–World War I story, who were among the most influential techno-crats of the 1920s.

Technocracy and “Apolitical” Theory, Then and Now

Technocracy dominates governmental policy making on multiple fronts. One is the historical convention of economists advising people who govern. The other is epistemic, a form whereby these economists frame economics—including the economic arguments they themselves posited—as having achieved a standpoint above class interests or partisanship. Economics, economists argue, constitutes value-free truths about capitalism—natural facts of this world rather than constructed (or at least political) positions.

The technocracy that facilitated austerity’s rise in the twentieth century can be attributed to the British economist Ralph G. Hawtrey, who authored the texts and memoranda that would serve as the guidelines for British austerity after World War I. As is the nature of technocracy, Hawtrey had help. Working at his side were the charismatic Sir Basil Blackett and Sir Otto Niemeyer, both powerful senior Treasury officials who closely advised the chancellor of the exchequer, Britain’s minister in charge of economic and financial policies.

In Rome, the school of academic Italian economics that led the country’s austerity policies was presided over by Maffeo Pantaleoni, who directed a group of economists under the Italian Fascist government that was codified in 1922 under “The Duce,” Benito Mussolini. The prime minister granted Pantaleoni’s pupil Alberto De Stefani exceptional powers to apply austerity in De Stefani’s role as minister of finance. The Italian economists took advantage of this rare opportunity to explore the reaches of what they considered “pure economics,” a school of economics-as-natural-law that aligned with austerity. They enjoyed an unprecedented advantage in governance in that they could directly implement economic models without the encumbrance of democratic procedures—and sometimes, thanks to Mussolini, with the help of tools of political oppression.

This book delves into the writings and public comments of these two sets of economic experts, men who designed austerity policies and wrangled consensus for their brute-force implementations. While their voices were central to the formulation of austerity after World War I, their role in this insidious counterrevolution has not been studied or explicated elsewhere. What their stories make clear, and what remains true today, is that in order to persist, austerity requires experts willing to speak to its virtues. That relationship remains true today, albeit with an ever-refreshed cast of technocratic figures.

After World War I, economists in Britain and Italy—both capitalist nations, but dramatically different otherwise—enjoyed unprecedented roles in shaping and implementing public policy to guide their nations’ postwar reformations. In both cases, economists leaned heavily on the principles of what they thought of as “pure economics”—then an emerging paradigm, but one still foundational to today’s mainstream economics, or what we sometimes refer to as the neoclassical tradition.

The “pure economics” paradigm successfully established the field as the politically “neutral” science of policies and individual behavior. By dissociating the economic process from the political one—i.e., by presenting economic theory and conceptualizing markets as free from social relations of domination—pure economics restored an illusion of consent within capitalist systems, allowing these relations of domination to masquerade instead as economic rationality. Indeed, technocracy’s strength rested in this power to frame austerity’s most fundamental objectives—reinstating capitalist relations of production, and subjugating the working class into accepting the inviolability of private property and wage relations—as a return to an economy’s natural state.

These economists’ “apolitical” theory was centered on an idealized caricature of an economic being: the rational saver. This broad-stroke characterization had a dual result: first, it created the illusion that anyone could be a rational saver, provided they worked hard enough and no matter their material conditions and endowments; and second, it discredited and devalued workers, who went from being understood as productive members of society to being seen as social liabilities based on their inability to practice virtuous economic behaviors. (Note: it was, and remains, exceedingly challenging for people to save money they don’t have.) Accordingly, workers after the war lost all the agency that the theories and actions of the Ordinovista movement had won for them. Because through the economists’ lens, the productive class in a society was not the working class, but the capitalist class—the people who could save, invest, and thus contribute to the private accumulation of capital. Economic theory was no longer a tool for critical thought and action; it was a mold for imposing passive consent and maintaining a top-down status quo.

Austerity’s capacity to divert attention from systemic problems also helped foster collective passivity. Economists attributed postwar economic crises to the excesses of citizens, who were thereby delegitimized in their socioeconomic needs and expected to redeem themselves through economic sacrifices, restraint, hard work, and wage curtailment—all essential preconditions for capital accumulation and international economic competitiveness.

Austerity policies in the spirit of “pure economics” were a disaster for most people living in Britain and Italy in the 1920s. Thus, the book delves into the paradox of a doctrine that presents itself as apolitical but has as its central purpose the “taming of men,” as the Italian academic and economist Umberto Ricci crudely put it in 1908. Under a veneer of apolitical science, technocrat economists were undertaking the most political action of all—bending the working classes to the wills and needs of the capital-owning classes for the enrichment of a small minority.

The story of austerity is also an origin story for the rapid ascent and awesome political power of modern economics. It is true today, but was not after World War I, that capitalism is the only show in town: mainstream economic theory flourishes because our societies rely almost entirely on the coercion of people who have no alternative but to sell their labor power to the propertied few in order to survive. (As the economist Branko Milanović notes in his 2019 book Capitalism, Alone, “the fact that the entire globe now operates according to the same economic principles is without historical precedent.”) Rather than acknowledging and studying the odd homogeneity of this reality, mainstream economics works to conceal it. Class conflict and economic domination are supplanted by a supposed harmony between individuals in which those at the top are seen as those who exhibit greater economic virtue and whose quest for profit is beneficial to all. In this way economic theory thwarts critiques of vertical relations of production, justifies capitalism, and counsels public compliance.

Capitalism’s ubiquity today can make criticizing or even observing capitalism seem quaint. After all, we have internalized its teachings to the point that our values and beliefs are largely aligned with those that are functional to capital accumulation. It is all so embedded that today a majority of American workers can live paycheck to paycheck with little to no social insurance and still largely accept that their position is one they deserve; the country’s wealthy, meanwhile, benefit from a seeming national allergy to any form of even mild tax reform that would shift more tax burden to the wealthy. The current landscape is quite different from the one technocrats were confronting in 1919, but the two are most certainly connected.

Indeed, even an economic expert like Keynes, usually understood as the most vocal critic of austerity, in 1919 was of a very different opinion. He shared with colleagues at the British Treasury a sense of terror around the threatened breakdown of the capital order—and surprisingly enough, he also shared their austere solution to the capitalist crisis. As the 1920s progressed, Keynes’s economic theory of how best to avoid crises did change; what did not change was his fundamental concern to preserve capital order—what he described as the “thin and precarious crust of civilization” that required protection. This existential anxiety remains a cardinal feature of Keynesianism to this day. Even though Keynes is not a central figure in this story, his intellectual bond with several of austerity’s principals remains essential to fully under- standing the nature and impetus of the so-called Keynesian Revolution later in the twentieth century.


Reprinted with permission from The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism by Clara E. Mattei, published by the University of Chicago Press. © 2022 by The University of Chicago. All rights reserved.

Clara E. Mattei is assistant professor of economics at the New School for Social Research.

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