January 4, 2024


The Logic of Austerity

On Clara Mattei’s “The Capital Order”

The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism
By Clara Mattei
University of Chicago Press, 2022

In the aftermath of 2008, the pace at which capitalist states moved from bailouts and stimulus policies to fiscal belt tightening was jarring. No less striking was the shift in the intellectual framework deployed to make sense of it. While in the heady days of 2008, sales of Capital exploded and headlines like “What would Marx say?” appeared in the pages of The Economist, the restoration of the status quo ante under the umbrella of post-crisis austerity saw the revival of a different historical figure. To explain the rapid shift from bailouts to fiscal consolidation, academics and center-left intellectuals turned to Keynes.1 Indeed, much of the literature on the politics of austerity and capitalist crisis took up Keynes’s maxim that it was the intellectual influence of defunct economists and academic scribblers, the “gradual encroachment ideas,” not vested interests, that explained the dramatic about-face from stimulus to austerity. From Obama’s Simpson-Bowles Commission to the EU “sovereign debt” crisis, the resumption of austerity politics after 2008 is best understood as a case of bait and switch.2 Armed with the edicts of neoclassical theory, politicians and policymakers were able to obscure the true causes of the crisis and shift responsibility onto bloated public sectors and dependent welfare recipients. Deploying Keynes’s paradox of thrift, critics exposed the counterproductive effects of austerity measures implemented amidst an historic recession.

Given such conspicuous failures to generate growth, how can we account for the political longevity of austerity throughout the 2010s? Some analysts explained austerity’s continued power by reference to the “zombie ideas” propagated by the neoclassical canon,3 as well as the misleading equivalencies drawn between household and national budgets commonplace after 2010. Missing from these explanations, however, was adequate consideration of class and the balance of political forces after 2008.

If prevailing explanatory frameworks of post-2008 austerity relied too much on Keynes, Clara Mattei’s meticulously researched book The Capital Order sought to swing the pendulum back towards Marx. Besides elucidating the hybrid origins of austerity from interwar liberal technocracy and fascist repression, one of the primary theoretical contributions of Mattei’s recent book is its contention that the “perpetuation of austerity […] should not be reduced to a matter of irrationality or bad economic theory.” Rather, she argues, it should be understood as a “tool to maintain capitalist social relations of production.”4 Enforced through a triumvirate of fiscal, monetary, and industrial policies, austerity has both immediate distributive purposes and long-term political objectives. By slashing social spending, hiking regressive indirect taxes, and orchestrating recessions through deflationary monetary policies—thereby driving down wages—austerity channels wealth and resources away from the working classes and toward creditor classes. By promoting unemployment and market discipline, it neutralizes collective working-class power and fortifies economic control in the hands of central bankers and treasury technocrats insulated from political contestation. With the help of economists schooled in neoclassical dogma, this depoliticized capitalist economy acquires an aura of objective truth and impartial technocratic management.

While its self-stated goals are balanced budgets and price stability, austerity’s true purposes are more political, Mattei shows. She suggests that it functions to repel political threats and restore conditions favorable to capital accumulation. Its internal rationality as an economic doctrine is thus of subsidiary importance. To grasp the century-long influence of austerity in buttressing capitalist economies—a technocratic counter-revolution beginning in the interwar period whose success is arguably without parallel in the modern epoch—Mattei takes readers back to its place of origin.

Warden of austerity

Since at least the post-Napoleonic period, the British state’s commitment to fiscal prudence and “sound money” has played a foundational role in its developmental history. Zealous adherence to budgetary discipline was popularized by William Gladstone, first as Chancellor and then as prime minister in 1868. Gladstone’s budgetary reforms and stringent adherence to economic orthodoxy eventually solidified Treasury dominance within the British state. A bulwark against the rise of mass politics associated with the extension of the franchise to the male working classes, Gladstone’s rigid budgetary conventions were also part of a wider political-economic system.5 The consolidation of nineteenth-century British capitalism was shepherded in by the policy triumvirate of free trade, balanced budgets, and the gold standard, the latter of which Joseph Schumpeter aptly designated as the “badge and the guarantee of bourgeois freedom.”6 This developmental paradigm was superintended by the “City–Bank–Treasury nexus” which united key apparatuses of state and financial sectors around an orthodox consensus on economic policy.7 While commitments to austerity thus enjoyed near constitutional status in Britain toward the end of the nineteenth century, it was not until the interwar era that it was fully solidified as an economic doctrine.

It was in response to the revolutionary fervor that swept Europe after the First World War, Mattei argues, most notably in Biennio Rosso Italy and to a lesser extent during the wave of industrial militancy of 1919–20 in Britain, that austerity was hatched as a global technocratic project to restore the sanctity of capitalist property relations. The growing radicalism of wartime state collectivism and post-1917 worker militancy haunted economists, politicians, and ruling classes after the war, who met at international financial conferences in Brussels in 1920 and Genoa in 1922 to hash out austerity’s core principles. While the reconstruction of the European economy and monetary stabilization were their formal aims, as Mattei convincingly argues, its attendees were unequivocal in articulating austerity as a mechanism to “defend capitalism from its enemies.”8 From these meetings, the modern doctrine of personal sacrifice and thrift, realized through hard work and constrained consumption, was concretized as the prevailing ideological justification for austerity.

Austerity’s champions nonetheless confronted a conundrum: how to implement such widely unpopular policies at a time of unprecedented worker militancy and widespread political discontent? The answer, Mattei suggests, was a twofold strategy, both coercive and consensual, material and ideological. An orchestrated recession, wage repression, and steep budgetary cuts could weaken the buffers of social insurance and low unemployment, often regarded as a subsidy of labor’s militancy. Central to implementing this disciplinary policy was the revival of the gold standard. Formally suspended during the war, the restoration of the gold standard in its aftermath was viewed not only as a means to reestablish monetary stabilization, but more fundamentally as a civilizational lynchpin to reinstate the liberal capitalist order of free trade, balanced budgets, and class discipline.9 By enforcing the imperatives of fiscal and monetary austerity, albeit often less through the mechanical automaticity of gold flows envisioned by its contemporaries and more through the deflationary citadels of “independent” central banks, the gold standard was, in Mattei’s telling, “knaveproof.” It was both a firewall against the incursions of mass politics into capitalist property relations and a guarantor of class discipline. Through the rigors of the gold standard, austere reforms became no longer a “matter of political dispute, but of economic necessity.”10

Austerity’s alchemists

While the gold standard and its accompanying fiscal and monetary edicts was, as Polanyi had it, the “faith of the age,” it nonetheless required ideological justification. Mattei argues that economists were central to this effort. Within interwar Britain, none were more influential than Ralph Hawtrey, who laid much of the intellectual foundations for the infamous “Treasury View” of the interwar period. From his theorization of the unrelenting tendency toward inflation in credit-based market economies, to his justification of the necessity of “independent” central banks—a proposal which Keynes notably endorsed—Hawtrey’s influence in fashioning the deflationary approach of the British state throughout the 1920s was unrivaled.

Hawtrey’s economic theories were rooted in moralistic assumptions. He believed in the inherent virtuosity of the investor class and criticized the improvident consumption habits of the working class. Ideological obfuscation gave these beliefs a scientific air. With individuals substituting for classes (e.g., “consumers” rather than “workers”), and character traits rather than class position determining one’s propensity to save, Hawtrey provided the ideological basis for the Treasury–Bank nexus to orchestrate its deflationary turn. The class orientation of these policies followed clearly from the theory: if workers and the consuming public were at fault for budgetary imprudence and inflationary threats, it followed that they must bear the brunt of personal sacrifice.

In valorizing investor wealth and attributing inflation to rising working class incomes, neoclassical theory provided the intellectual justification for policymakers to channel wealth upwards. While balanced budgets were critical, it was important who financed them. Indirect taxation was preferred over a capital levy, for instance. In this way, Mattei provides a compelling explanation for the disjuncture between the doctrine of austerity and policymakers’ frequent deviation from its core principles—a feature which persists to the present. If recessionary unemployment is necessary to break working-class militancy, balanced budgets play second fiddle. If cuts to welfare spending are needed to compel striking workers back into the labor market, tax increases take a backseat. Indeed, behind every plea for price stability and fiscal prudence is an unrelenting class project with clear distributive and political aims. In the starkly divergent political economies of interwar Britain and Italy, when worker militancy reached historic peaks, this doctrine was put into practice.

Britain and Italy

From the Cunliffe Committee to the historic increase in the Bank Rate in April of 1920, it was Britain that initiated the deflationary turn. Laying the foundation for the return to the gold standard, these policy measures were also a bludgeon to restore waning class discipline amidst the explosion of trade union membership during the war and the extension of the franchise to male working classes in 1918. Above all, they served to restore the value of creditors’ outstanding loans from inflationary threats in the aftermath of the war. These policies were disastrous, inaugurating a decade of debt deflation and mass unemployment, which, by the early 1920s, stamped out any prospects of postwar social reform.11 The brunt of the fiscal arm of austerity came from the Geddes Axe, a postwar ruling-class initiative for fiscal and social retrenchment abetted by Lloyd George. Cuts totaled some £57 million, with government expenditures slashed by a third from 1923 to 1924 and debt servicing (largely to the US) overtaking social expenditures by 1922.12 Overwhelmingly targeting social spending, these cuts would be the most far-reaching of the twentieth century, obliterating promises of health, housing, and education reform.

The return to the gold standard secured in 1925 restored the Treasury–Bank–City nexus and vanquished Britain’s brief glimmer of political radicalism. As Mattei’s book highlights, central to this conservative return were the collective efforts of Treasury bureaucrats and Bank officials. Authority over fiscal policy throughout the 1920s was more squarely within the domain of the Treasury rather than Parliament. More important still was the Bank of England. Steered by Montagu Norman, Treasury and Bank officials, as Mattei’s archival research reveals, worked closely to coordinate their objectives, with the Treasury’s interwar push for fiscal consolidation enhancing the Bank’s control over money markets.

British development during this period—an evolution towards stability, prosperity, and liberty—is typically contrasted with the political instability and economic backwardness that is said to have plagued its continental neighbors. This, it is argued, accounts in large part for the relatively low levels of fascism in the country during the interwar period, notwithstanding Oswald Mosely’s British Union.13 Mattei questions this contrast—the persistent link between liberal Britain and fascist Italy, she argues, was their mutual embrace of austerity. 

Unlike the technocratic respectability of Britain, austerity in Italy was enforced by the iron fist of the fascist state. Despite these different modalities, Mattei insists that austerity united “Fascism and liberalism together in a shared, coercive pursuit.”14 She traces the role of four economists, two liberal and two fascist, in shaping Italian austerity following Mussolini’s March on Rome. Italy faced a more imminent threat of proletarian revolution than its Anglo counterpart, with half of its workforce on strike at the peak of the red wave of the ‘20s alongside frequent workplace occupations. The “pure economics” movement, a close cousin of marginal utility theory and neoclassical economics, offered a blueprint to crush working-class rebellion. Aided by the jailing and execution of communists, socialists, and labor union leaders, not least Matteotti and Gramsci, Italy’s austerity program was nonetheless technocratic. Economists from De Stefani to Pantaleoni devised a sweeping program of social-spending retrenchment and fiscal consolidation that actively drew on the British model.

Italian fascism was a boon to international capital. Early reforms included a substantial curbing of the tax burden for the wealthy and lavish bailout packages for prominent financial conglomerates. Whereas conventional historiography distinguishes Italian fascism by its early path of laissez faire and subsequent turn to corporatism, Mattei sees a continuity of austerity measures intended to quash working-class power. Following significant external pressure on the Lira, Mussolini established the monetary and exchange rate prerequisites for Italy—a dependent peripheral economy—to join the gold standard in 1927, stiffening deflationary pressures. What followed was an historic disempowerment of the Italian working class and a sharp deterioration of its living standards.

While British liberalism and Italian fascism remain distinct political formations, austerity unites both Italian and British ruling classes. As Mattei’s research illustrates, leading liberals, including in Italy, praised Mussolini’s experiment in market discipline. Those from Churchill to Montagu Norman and Andrew Mellon extolled the virtues of political order and fiscal discipline that Italian fascism wrought. With postwar debt settlements provided by the American and British states and a $100 million loan from J.P. Morgan Chase, Italy was given the golden stamp of approval to enter the international stage. Despite liberals’ best efforts to differentiate fascism’s “necessary” emergence in Italy and its absence in Britain, their shared economic policy agendas throughout the 1920s plus the sustained material support offered by the West for Italy’s fascist experiment reveal the clear links that existed. 

Austerity then and now

Mattei’s analysis is an exemplary work of historical political economy that seeks to steer the conversation on capitalist crisis from Keynesianism back toward Marx. In contrast to recent accounts which have suggested that the revival of the gold standard and austerity in interwar Britain is the product of the decisions made by particular statesmen or economists, Mattei reanimates this history with the conflicts of states and of classes.15 Mattei foregrounds the ideological foundations of neoclassical economics and demonstrates its close entanglement with state power in the service of defending capitalist property relations. In this sense, The Capital Order represents an advance in recent academic literature on austerity, which can often abstract the ideational and technical features of austerity from its wider political and social foundations.

While Mattei’s work is at its best in illuminating the origins of austerity, it offers less in the way of explaining its remarkable durability all the way into the present. In her concluding chapter on austerity today, Mattei admirably breaks with the prevailing tendency to narrate twentieth-century economic history as a contest between Keynesianism and monetarism. Instead, she suggests that our present era has been defined more by a radical continuity with the interwar era. To explain this throughline, Mattei emphasizes the persistence of technocracy, which has remained the best political mechanism for enforcing austerity and shielding capitalist property relations from democratic politics. 

Mattei’s emphasis on technocracy is appropriate. As the latest cycle of monetary tightening since the pandemic has demonstrated, unelected central bank technocrats remain at the helm of enforcing austerity. Indeed, recent events in British and Italian politics support Mattei’s thesis. Britain saw a stunning restoration of technocratic power following Lizz Truss’s experiment in pseudo-Thatcherism in late 2022, while in Italy, political leadership has oscillated from Draghi’s technocracy to a veritable post-fascist who affirmed her commitment to austerity.16 As Mattei reminds readers toward the end of her book, “some old habits don’t die.”17

Still, conceptualizing the political economy of austerity from the 1920s to the 2020s as an uninterrupted technocratic counter-revolution is not quite accurate. The mechanisms of legitimacy and mass politics through which austerity has been articulated have undergone significant changes since the 1920.

In the interwar era, the imposition of austerity, enforced largely through the edifice of the gold standard and its accompanying dictates of balanced budgets, faced few channels of popular oversight or scrutiny. While The Capital Order traces the explosion of militant popular opposition to this order, in many ways, this period marked the cresting of a pre-democratic age and the eclipse of an anti-capitalist left rather than a blueprint of the future. During this period, austerity often yielded open confrontations between capital and labor in ways that rendered any prospective settlement between capitalism and democracy highly dubious. In these conditions, austerity was more visibly a weapon of class rule wielded by a narrow ruling class.

But in the aftermath of the fascist interregnum, the Great Depression, and the destruction wrought by the Second World War, capitalist democracies in Europe and North America underwent a significant overhaul. With the implantation of Fordist capitalism under the auspices of postwar American hegemony, economic policy was refracted through mediating institutions of mass politics, which both obscured austerity’s class character and generated new axes of political support and opposition. Throughout the postwar period, political parties in the Western world, shorn of much of their interwar political radicalism, realigned around growth, welfare compacts, and corporatist capital-labor accords. As politicians gradually conceded social reforms associated with postwar reconstruction, the “end of ideology” superseded class struggle as democratic capitalism’s dominant ideological architecture, and political conflict became more diffuse.

This period arguably offers a more promising starting point to assess austerity’s durability in the present. In contrast to the era of the gold standard, when the popular franchise was either non-existent or only recently extended to working-class men, postwar “democratic capitalism” widened the avenues of popular politics (though by no means equally), and economic policy became more closely aligned with national populaces. In the age of mass politics in the West, austerity required a sturdier grounding. While residues of oligarchic liberalism continued to shape economic policy throughout the postwar era, not least in the role of central banks, a convincing theory of the politics of austerity today must explain how it is reproduced within the contemporary institutions of liberal democracy—however hollow and circumscribed they may now be in the aftermath of the neoliberal onslaught.

While Mattei importantly emphasizes that austerity must be understood as a mechanism of class rule rather than an irrational policy doctrine, her emphasis on the role of neoclassical economics and the persistent concentration of technocratic power over macroeconomic policy only partly explains austerity’s resilience today.

Divide and rule

One way to avoid the pitfalls of Keynesian literature is to return to one of the central theorists politicized in Mattei’s Biennio Rosso Italy: Antonio Gramsci. Written largely while he was incarcerated in fascist prison in the 1930s, Gramsci’s Quaderni offers a sophisticated framework for grappling with the material foundations of ideology in capitalist democracies. Amongst his best recognized concepts is hegemony, which described how a dominant ruling class exercises political authority based not simply on coercion and violence but on forms of “intellectual and moral leadership.”18 This form of rule represents itself as operating in the service of a general or universal interest, and it is ultimately able to secure the consent of subordinate classes and social forces by offering a variety of compromises and concessions, while nonetheless reproducing the particular interests of the dominant classes.

A rich literature has since applied central concepts from Gramsci’s work to understand contemporary capitalist societies. In the 1980s and ‘90s, Gramscian scholars in the UK looked to Gramsci to explain how the New Right, represented by figures like Margaret Thatcher, were able to pitch ruling-class policies to a broad swathe of voters. In a 1979 essay on the politics and ideology of Thatcherism, Stuart Hall described how Thatcher popularized the economic doctrine of monetarism through moralistic tropes, idioms, and narratives that became a reactionary common sense amongst her base.19 From moral panics about rising crime, to notions of hyper-militant trade unionists and feckless welfare scroungers, Thatcherism popularized an economic agenda of the ruling class by weaponizing divisions within and between classes.

Scholars characterized Thatcherism as a “Two Nations” project, which strategically mobilized layers of the populace by weaponizing internal divisions emerging from the socio-economic dislocations of the 1980s.20 This form of “divide-and-rule” politics was wielded as part of a broader program to defeat the organized left and restore conditions of capitalist profitability, and has since become an integral feature of electoral politics in the modern epoch. Applied to the contemporary deployment of austerity, this framework explains how economic policies that benefit the interests of a narrow ruling class nonetheless continue to command broader support amongst populations. Pitting employed against unemployed, unionized against non-unionized, native against immigrant, public- against private-sector worker, indebted against debt-free, and ultimately deserving against “undeserving”, the divide-and-rule politics exploited by Thatcher has remained key to the political coalitions of underwriting today’s austerity.

When historic levels of public resources were devoted to bailing out banks and socializing their risks after the 2008 global financial crisis, such antagonisms were central to orchestrating a return to austerity. Indeed, behind every invocation of the need for belt-tightening or collective sacrifice was an undeserving welfare recipient, an overpaid public-sector worker, or an encroaching immigrant depleting public coffers. Beyond a mere rhetorical strategy, these social antagonisms legitimized the starkly asymmetrical class burden of macroeconomic adjustment behind the return to austerity in many countries after 2010. The class character of austerity was revealed plainly in the UK Coalition Government’s (2010–2015) “80-20” rule of thumb, for instance, which outlined how 80 percent of fiscal consolidation measures were to be realized through cuts to spending (disproportionately on social services and local authority grants), with only 20 percent comprised of tax increases.21 In addition to the technocratic and depoliticized forms of governance that animate Mattei’s book, understanding the ideological contours of this form of politics remains central to grasping the durability of austerity in the twenty-first century. 

The current landscape

When central bankers embarked on a rapid and synchronized phase of monetary tightening in 2022, the stark power dynamics of macroeconomic policy in capitalist democracies were once again laid bare. Despite a decade of populist upheaval and a belated recognition of the failures of austerity after 2008, the swift re-alignment of the world’s central bankers, policymakers, and political parties around an agenda of austerity has once more underscored the doctrine’s durability. As unelected technocrats have wielded the disciplinary bludgeon of interest-rate hikes, overriding nationally elected governments to discipline the alleged inflationary wage claims of workers, The Capital Order serves as a timely reminder of the indivisible class foundations of austerity and the extraordinary concentration of elite power that continues to shape it today.

Yet for all the echoes of the interwar period in the present, the current conjuncture is also marked by unmistakable discontinuities. Despite a renewal of popular mobilization and labor unrest in the aftermath of the pandemic, the political temperature of the present is a far cry from threats of socialist revolution. While unelected central bankers still possess extraordinary technocratic power in shaping the global economy, the channels of popular politics through which austerity passes today are distinct from the heyday of the gold standard. Grappling with austerity’s broader ideological foundations and tracing its trajectory through party politics today raises questions that cannot be fully answered by returning to the interwar period. Despite significant moments of popular unrest, austerity has since gained political and ideological traction amongst a larger cross-section of society. Apart from these historical differences, however, the core argument of Mattei’s book remains essential: rather than an irrational doctrine or a zombie idea that refuses to die, austerity has a fundamental and enduring relationship to the politics of capitalist crisis management. 

  1. John Maynard Keynes, The General Theory of Employment, Interest and Money, London, UK 1936 [1997], p. 383.

  2. Mark Blyth, Austerity: The History of a Dangerous Idea, Oxford, UK 2013.

  3. Paul Krugman, Arguing with Zombies: Economics, Politics, and the Fight for a Better Future, New York 2020.

  4. Clara E Mattei, The Capital Order (University of Chicago Press, 2022), 287.

  5. As economic historian Martin Daunton (2001) notes, “Both Gladstone and the officials at the Treasury…were very conscious that new dangers arose from the pursuit of votes by competing politicians as well as from the ambitions of spending departments. The result, they feared, would be a replacement of retrenchment by expenditures unless there were clearly established, rigid, conventions” (p. 66). Martin Daunton, Trusting Leviathan: The Politics of Taxation in Britain, 1799-1914, Cambridge, UK, 2001.

  6.  Joseph Schumpeter, History of Economic Analysis, Oxford, 1954, p. 382.

  7. Geoffrey Ingham, Capitalism Divided? The City and Industry in British Social Development, New York, 1984.

  8. Mattei, 134.

  9. As Karl Polanyi described, the gold standard was “the one and only tenet common to men of all nations and classes, religious denominations, and social philosophies,” which was the “invisible reality to which the will to live could cling” (1957 [2001], p. 26-27).

  10. Mattei, 152.

  11. David Edgerton, The Rise and Fall of the British Nation: A Twentieth Century History, London 2018.

  12. Mattei, 229.

  13. Classical modernization theory offered a similarly evolutionary explanation for the absence of fascism in Britain. As Seymour Martin Lipset (1959) suggested, it was the “norms of toleration” associated with Britain’s path of modernity and the elevation of its middle class that contributed to the absence of political extremism (p. 484). Lipset, “Democracy and Working-Class Authoritarianism,” American Sociological Review, 24(4), 1959, pp. 482-501.

  14. Mattei, 212.

  15.  James A. Morrison, England’s Cross of Gold: Keynes, Churchill, and the Governance of Economic Beliefs, New York, 2021.

  16.  Guiseppe Fonte and Gavin Jones, “Italy’s Meloni hails “courageous” budget, opposition plans protest.,” November 2022. Available online at: https://www.reuters.com/markets/europe/italys-meloni-unveil-budget-with-30-bln-euros-lift-economy-2022-11-21/.

  17. Mattei, 303.

  18. Antonio Gramsci. Selections from the Prison Notebooks. Translated and edited by Q. Hoare and G. N. Smith. New York: International Publishers. 1971, p. 182.

  19. Stuart Hall. The Great Moving Right Show. Marxism Today, 23(1), 14-20, 1979.

  20.  Kevin Bonnett, Simon Bromley, Bob Jessop, and Tom Ling. Authoritarian Populism, Two Nations, and Thatcherism. New Left Review, 0(147), 32-60, 1984.

  21. Scott Lavery. British Capitalism After the Crisis. London: Palgrave MacMillan. 2019.

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