Clara Mattei on the History of Austerity Politics

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.