Author: Clara E. Mattei
Title: The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism
Publisher: The University of Chicago Press
Year: 2022
Link: https://search.worldcat.org/en/title/1296686961
[!info] from: Ken Homer Fri, Aug 4, 6:04 PM (13 hours ago) to: OpenGlobalMind
Brief excerpt from the introduction:
Austerity is not new, nor is it a product of the so-called Neoliberal Era that began in the late 1970s. Outside, perhaps, of the less than three booming decades that followed World War II, austerity has been a mainstay of modern capitalism. It has been true throughout history that where capitalism exists, crisis follows. Where austerity has proven wildly effective is in insulating capitalist hierarchies from harm during these moments of would-be social change. Austerity is capitalism’s protector, popular among states for its effectiveness and billed as a means of “fixing” economies by increasing their “efficiency”—short-term readjustments for long-term gains.
In his famous book Austerity: The History of a Dangerous Idea, the political scientist Mark Blyth shows that although austerity has not “worked” in the sense of achieving its stated goals across history (e.g., reducing debt or boosting economic growth), it has nonetheless been employed by governments over and over again. Blyth refers to this pattern of compulsive repetition as a form of madness. However, if we view austerity in this book’s terms—as a response not just to economic crises (e.g., contraction of output and heightened inflation), but to crises of capitalism—we can begin to see method in the madness: austerity is a vital bulwark in defense of the capitalist system.
When I refer to a crisis of capitalism, I do not mean an economic crisis—say, a slowdown in growth or an uptick in inflation. Capitalism is in crisis when its core relationship (the sale of production for profit) and its two enabling pillars (private property in the means of production and wage relations between owners and workers) are contested by the public, in particular by the workers who make capitalism run. As part of these expressions of unhappiness, people have historically demanded alternative forms of social organization. Indeed, and as this book will demonstrate, austerity’s primary utility over the last century has been to silence such calls and to foreclose alternatives to capitalism. Mostly austerity serves to quash public outcry and worker strikes—not, as it is often advertised, to spontaneously improve a country’s economic indicators by practicing greater economic discipline.
Austerity as we know it today emerged after World War I as a method for preventing capitalism’s collapse: economists in political positions used policy levers to make all classes of society more invested in private, capitalist production, even when these changes amounted to profound (if also involuntary) personal sacrifices. In the early 1920s, austerity functioned as a powerful counteroffensive to strikes and other forms of social unrest that exploded on an unprecedented scale after the war—a period traditionally, and oddly, overlooked by political and economic scholars who study austerity. The timing of austerity’s invention reflects its animating motivations. Of greater importance than austerity’s purported economic efficacy was its ability to guard capitalist relations of production during a time of unprecedented social organizing and public agitation from working classes.
Austerity has been so widespread in its uptake over the last century that it has become largely undetectable: the economics of austerity, with its prescribed budgetary cuts and public moderation, is largely synonymous with today’s economics. This makes a critical history of austerity, especially one rendered in class terms, profoundly challenging. But to the extent that we stop perceiving austerity as a sincere toolbox for managing an economy, and when we consider its history through the lens of class, it becomes clear that austerity preserves something foundational to our capitalist society. For capitalism to work in delivering economic growth, the social relation of capital—people selling their labor power for a wage—must be uniform across a society. In other words, economic growth presupposes a certain sociopolitical order, or capital order. Austerity, viewed as a set of fiscal, monetary, and indus- trial guardrails on an economy, ensures the sanctity of these social rela- tions. The structural limitations it imposes on spending and wages en- sure that, for the vast majority of those living in a society, “work hard, save hard” is more than just an expression of toughness; it’s the only path to survival.
This book examines the history of how this system came to high fashion in the twentieth century, including its most powerful expression in the postwar economies of Britain and Italy. In both cases, austerity was a means for economists in power to reimpose capital order where it had been lost.
The story begins with the events of the Great War that triggered the most severe crisis of capitalism to date—the unprecedented wartime mobilizations within European countries that shattered capitalism’s shield of inevitability. For most people living in these countries during and after the war, whether they feared or hoped for it, the abolition of capitalism loomed as the imminent outcome of the war’s devastations and its showcasing of state economic planning. In the words of Willi Gallacher, the British shop steward leader, “the order of industry, which previous to the war seemed destined to last forever, is now tottering in every country of the world.” In Italy, the threat was likewise palpable to the famed liberal economist Luigi Einaudi: “it seemed that a shoulder shove would suffice to knock the so-called capitalist regime to the ground . . . the reign of equality seemed close to ensue.” The words of the bourgeois professor were juxtaposed with the enthusiasm of Palmiro Togliatti, a leading member of the Ordine Nuovo (“new order”) labor movement: “men recoil from the old order of things, they feel the need to place themselves in a new manner, to shape their community in a new form, of forging new living relations that allow for a construction of a wholly renewed social edifice.”
These new voices from the intellectual Left accelerated change in social relations. L’Ordine nuovo, based in the industrial Italian city of Turin and led by Togliatti and his comrade Antonio Gramsci, is crucial to this story because it embodies the most explicit antagonist to capitalist practice and its intellectual justifications. It represented a break from both hierarchical relations of society and top-down knowledge production.
The collective anti-capitalist awakening was facilitated by the extraordinary governmental measures during the war to temporarily interrupt capital accumulation by the owners of private industry. In order to confront the enormities of the war production effort, the governments of all warring nations were forced to intervene in what had been, until then, the untarnished realm of the market. As govern- ments collectivized key industries—munitions, mines, shipping, and railways—they also employed workers and regulated the cost and sup- ply of labor. State interventionism not only allowed the Allies to win the war; it also made clear that wage relations and the privatization of production—far from being “natural”—were political choices of a class-minded society.
After the war, emboldened by the new economic precedents of the mobilization effort, workers in Europe spoke with a stronger and more radical voice, and they expressed themselves in ways beyond the bal- lot box. They consolidated collective power through unions, parties, guilds, and rank-and-file institutions to control production. The extent of politicization among large chunks of the population meant that their public opinion on economic questions could no longer be ignored. As the famed British economist John Maynard Keynes well observed, “even if economists and technicians knew the secret remedy, they could not apply it until they had persuaded the politicians; and the politicians, who have ears but no eyes, will not attend to the persuasion until it reverberates back to them as an echo from the great public.”
In a moment of unparalleled democratic upheaval all over Europe, in the midst of mounting monetary inflation and revolutionary winds coming from Russia, Bavaria, and Hungary, economic experts had to wield their greatest weapons in order to preserve the world as they thought it should exist. Austerity was their most useful tool: it functioned—and still functions—to preserve the indisputability of capitalism.
The austerity counteroffensive successfully disempowered the majority. Austere governments and their experts implemented policies that either directly (through repressive pay and employment policies) or indirectly (through restrictive monetary and fiscal policies that de- pressed economic activity and raised unemployment) subjugated the majority to capital—a social relation in which a majority sells their capacity to work in exchange for a wage. Austerity shifted resources from the working majority to the saver/investor minority, and in so doing enforced a public acceptance of repressive conditions in economic production. This acceptance was further entrenched by experts whose economic theories depicted capitalism as the only and best possible world.
These events of the early 1920s, including the widespread bourgeois fear of the crumbling of capitalism, were a watershed moment. The antagonism of the political and economic establishment to the will of the public, and especially their interventions to quell such revolutionary sentiments, reestablished capital order in Europe and ensured the trajectory of the political economy for the rest of the century, a trajectory that has continued to this day.
Ken Homer's note: So, a popular saying these days is that it is easier to imagine the end of the world than it is to imagine the end of capitalism. I think this book on austerity is a valuable read for the light it sheds on how the economic ordering of society constrains human imagination at a time when we need to be wildly imaginative.
I am also learning that where I have been laying accountability at the feet of the Chicago School of Economics and Milton Friedman (with his close pal Ayn Rand as an advisor) the birth and afterbirth of this ideology debuted shortly after WWI...
From: The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism, by Clara E. Mattei:
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 pub- lic 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 deci- sions, 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, bud- get 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 hav- ing 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 economic 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 technocrats of the 1920s.