Austerity Forever?

The economy crashes, unemployment rises, and public debt surges. The government responds by slashing welfare spending, with the declared aim of reducing the budget deficit. The scene could be Latin America in the 1980s, Sweden in the 1990s, or Southern Europe in the 2010s. Austerity is everywhere.

The human costs of austerity are hard to deny. But can they be avoided? Is austerity a choice or a necessity? Most critics of austerity focus on its seeming irrationality.^[1] When the government slashes spending, it undercuts growth, and thereby its own revenue stream. As the economy slows down, unemployment rises, leading to rising claims for government support, not to mention severe suffering for large parts of the population. Instead, critics of austerity argue, economic crises should be met with public investment in order to stimulate the economy. Once the economy recovers, loans can be repaid. 

Clara Mattei’s recent book, The Capital Order, offers a different perspective. Mattei insists that austerity is not irrational. If austerity undercuts growth and thus makes it more difficult for governments to balance their budgets, this is not so important. The point of austerity is something else: to subdue the working classes. 

Mattei develops her argument through careful case studies of Britain and Italy during the interwar period. According to her argument, austerity originated in the legitimacy crisis which followed World War I. The war had empowered the working classes to make radical demands. In many European countries, the end of the war marked a breakthrough for universal suffrage. The aspirations of the workers did not end there. The war had exposed the political nature of the economy as the belligerent states had brought great parts of economic life under their purview, including munitions, coal, shipping, and railways. They also began to regulate the labour market across key war industries. By intervening directly in the economy, the state had made clear that wage relations and private production were political choices. Radical demands could no longer be swept aside with reference to the apolitical nature of the market system. The future was up in the air, and the workers seized it. 

A wave of strike action swept across both Britain and Italy. British miners called for nationalisation and worker control. Italian workers began occupying factories. Radicals plotted for a post-capitalist future.

Austerity was a response to this surge in labour militancy. According to Mattei, it was invented by economic experts as a method to prevent capitalism’s collapse (p. 4). In her telling, economic experts are crucial to austerity. “In order to persist,” she says, “austerity requires experts willing to speak to its virtues.” (p. 11). Their role is to make austerity seem like a natural fact rather than a political project, and thereby rob workers of their political agency. 

Mattei shows that austerity economists devised ways to shield economic policy making from democratic pressures. They advocated, among other things, the independence of central banks and a return to the gold standard. Maffeo Pantaleoni, an Italian economic expert and adviser to Mussolini’s dictatorship, remarked in 1920: “Where Socialism is strong, where democracy is strong, public finance will go the wrong way.” (p. 143). 

Mattei’s argument is not just that austerity worked to preserve the capital order by shielding it from democracy. Her claim is more ambitious: that the main purpose of austerity was (and is) to defeat working class militants. 

However, the textual evidence she presents does not clearly support this thesis. Consider a few examples. In 1920, the Italian minister of finance, Carlo Schanzer, remarked that the high costs of imports could lead to “nothing short of national bankruptcy and, what was more, revolution” (p. 251). Mattei’s theme of a worker revolution is clearly present here, but how does it figure in relation to austerity? Though it is not entirely clear from the passages Mattei cites, Schanzer seems to suggest that radical labour organisers could exploit an economic breakdown to further their own goals. Austerity figures as a means to avoid an economic breakdown, not as a way to undermine the labour movement.  

The austerity economists Mattei investigates are less focused on revolution and more on the vices of excessive consumption. Mattei convincingly argues that the distribution of vice and virtue was organised by class. For example, the Fascist economist Matteo Pantaleoni wrote: “The working classes basically don’t save and spend everything in pleasures, with the consequence of a remarkable decay of their moral qualities…” Capitalists, on the other hand, were deemed virtuous precisely because of their higher propensity to save. “The businessman is thrifty, a thinker and a calculator, it is this real man who most resembles the abstract man pictured by economists, who does not fuss like a sissy of a hardship to come,” the Italian austerity economist Umberto Ricci remarked (p. 218). 

In this moral economy, austerity figured as a way to set the economic world straight in the face of excessive consumption. The war had given ordinary workers unrealistic expectations, which had to be corrected. In the words of the British civil servant Otto Niemeyer, during the inflationary boom by the end of the war, “people were living in a fool’s paradise.” (p. 195). The Italian economist Umberto Ricci spoke of the struggle to “make the public understand that trains could not depart to the moon.” (p. 213). Because workers were disinclined to save, higher wages only lead to increasing inflation. More consumption, more problems. As the British economist Ralph Hawtrey pithily remarked: “after the debauch comes the headache.” (p. 194).

The class implications are clear. The workers must bear the brunt of their own excesses. But to say that austerity theory has class implications is not to say that the point of austerity is to protect capitalism. The textual evidence presented by Mattei indicates that austerity economists were mainly interested in fixing the economy, not in defeating militant labour movements.

For Mattei, this is, in a way, the point. After all, the work of austerity economics is to render an alternative economic system impossible by making austerity seem like a natural fact. This being the case, we should not expect them to say out loud that their real objective is to subdue the working classes. To openly declare austerity a project of class politics would be to defeat their own purpose. 

But if they never say it, how do we know that they mean it? Mattei’s evidence is circumstantial, perhaps necessarily so. There is no smoking gun. Or more precisely, the culprits are there, but their motives remain open to interpretation. Why not take them at their word? Is there any reason to doubt the sincerity of austerity economists when they proclaim that the health of the economy can only be restored through public bloodletting?

The suspicion that other factors are at play in the politics of austerity is strengthened when we look beyond Mattei’s case studies. The purpose of The Capital Order is not only to explain the rise of austerity, but also to formulate a general theory of it. Mattei’s aim is nothing less than to identify “the fundamental elements of austerity and the capitalist mode of production across places and through time.” (p. 14).  

In her account, austerity is a near-permanent feature of capitalism. “Outside, perhaps, of the less than three booming decades that followed World War II, austerity has been a mainstay of modern capitalism,” she writes (p. 3). In recent decades, however, capitalism has not been in crisis, at least not the kind of legitimacy crisis which Mattei describes. Today capitalism enjoys global dominance, from the United States to China. If capitalism has been thoroughly consolidated since the 1980s, how can it be that austerity persists? 

Mattei insists that austerity is a political choice, not a natural given. At times, however, she slips back into the language of necessity, suggesting that austerity is necessary to the functioning of capitalism: “Austerity was most certainly a political project, but its assumptions weren’t necessarily wrong. Indeed, it laid bare an undeniable truth: for capitalism to function, workers had to be disciplined into accepting the two pillars of capital accumulation – the primacy of private property and wage relations.” (p. 163). Austerity figures in Mattei’s argument as the necessary method of discipline. 

If austerity is necessary to capitalism, then a break with austerity must also involve a break with capitalism. This was the view of the Marxist economist Rudolf Hilferding who rejected Keynesian policies in the early 1930s with reference to the impossibility of reforming capitalism.^[2] Hilferding had seen the dramatic rise of European labour movements during his lifetime. We live in different times. The current balance of political forces renders radical ambitions moot. Does this mean that workers are forced to suffer the cruel consequences of austerity for the foreseeable future? Are austerity and revolution really the only two possible options? 

The tone of the book reveals Mattei’s admiration for revolutionary projects, such as the workers’ council movement. Yet, her narrative also reveals the obvious limitations of such alternatives. The ease with which radicals were defeated in the 1920s should make us think twice about pursuing a similar path. If highly radicalised and organised workers could be defeated through a few simple macroeconomic manoeuvres, what hope might today’s atomised working classes have? 

Troels Skadhauge teaches comparative political economy at Copenhagen Business School. He earned his Ph.D. in Political Science from the University of Pennsylvania in 2023. He is currently finishing a book on the ideological development of Swedish social democracy from the 1880s to the 2000s.

Clara Mattei’s Capital Order: How Economists Invented Austerity and Paved the Way for Fascism is available now from University of Chicago Press.

Notes

^[1] The most prominent example being Mark Blyth, Austerity: The History of a Dangerous Idea (Oxford; New York: Oxford University Press, 2013).

^[2] Sheri Berman, The Primacy of Politics: Social Democracy and the Making of Europe’s Twentieth Century (New York: Cambridge University Press, 2006), 112–13.