Dillon Wamsley in Phenomenal World: 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. 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. 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, 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 (2022) 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. More here