The extraordinary events that befell British politics over the course of September and October 2022 will be subject to considerable historical interest. Liz Truss’s record as Britain’s shortest-ever serving prime minister gives the crisis a whiff of tragedy in retrospect, though the unforced error of Kwasi Kwarteng’s infamous “mini-Budget” perhaps marks it out more for its comedy.
But in other ways, Britain witnessed a succession of more familiar political steps. In sacking Tom Scholar, permanent secretary to the Treasury, and sidelining the Office for Budget Responsibility (OBR), Kwarteng hoped to override economic expertise (which he believed was to blame for Britain’s sluggish economic performance) with nothing but his own political authority. In doing so, he united economic technocrats across the planet against him: the International Monetary Fund, the US secretary of the Treasury Janet Yellen, George Osborne and the Bank of England were among the more prominent voices warning of grave consequences. Within a month, Kwarteng and Truss were gone, the “mini-Budget” was scrapped, and a “sensible” team of Rishi Sunak and Jeremy Hunt was in charge, allied to the now re-credited OBR and Bank of England. Talk turned immediately to austerity.
The pattern is one known to citizens of Greece, Italy, Spain, Portugal, Ireland and, indeed, Britain over the past 15 years. An event occurs that dramatically repoliticises the economy. Economic expertise is suddenly trumped by political possibilities and uncertainty. For a while, the institutions of “the market economy” are revealed as malleable constructs, as opposed to natural or timeless entities. Fearing a genuine challenge to capitalism, a counteroffensive is launched, with unelected technocrats thrust into power, warning of dire implications if budgets are not balanced and sound money not restored. Regardless of political or democratic legitimacy (or impact on human welfare), austerity is imposed, foreclosing political alternatives and detonating social projects.
The fact that this pattern was witnessed in the eurozone and the UK after 2009 is a reminder of what a potentially transformative event had occurred over the previous two years. The bank bailouts and nationalisations publicly affirmed what liberalism exists to deny: that “the market” is not actually some autonomous sphere, external to politics, but depends on the state for its functioning and its power. In 2008-09, it was impossible for anyone to say where “the state” ended and where “the market” began. This, as Clara Mattei’s illuminating book The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism (out this week) shows us, is a terrifying situation for anyone invested in the perpetuation of capitalism. The purpose of austerity and the technocrats who implement it is to re-separate the “political” and the “economic”, killing any lingering dreams of a different economic settlement. The old liberal order must be reinstated at all costs, and those costs are often devastating.
Mattei’s historical cases are Britain and Italy a century ago, a time when capitalism had scarcely faced more political threats. The experience of the First World War, in which states had become responsible for economic decisions that had previously been deemed the preserve of “the market” and “private enterprise”, generated a flowering of socialist ideas and experiments, in which production, consumption and distribution would be organised differently. As workers and trade unions witnessed new ways of coordinating industry and labour relations in the context of modern warfare, so the demands for redistribution, reorganisation and even revolution were emboldened in the immediate aftermath. Across Europe, the year 1919-20 saw visions of planning, public ownership and economic democracy in the ascendant, while trade union membership surged. Given what had been achieved by wartime governments, it was no longer possible simply to dismiss such demands as unrealistic or utopian.
Among Mattei’s most intriguing claims is that these worker movements didn’t simply express a set of class interests or material desires, but offered a glimpse of a different way of doing economics – a “methodological revolution”, that defied liberal orthodoxies. L’Ordine nuovo, a weekly Italian paper founded by four young Marxists (including Antonio Gramsci), provided a space to circulate ideas and policies that straddled the terrains of politics and economics. In Britain, Solidarity and the Worker were published by the shop steward movement, outlining plans for democratic control of industry. Just as the war had catalysed innovation in the management of industry and the economy by governments, so it had bred intellectual innovation within the left regarding possible blueprints for a postwar, post-capitalist system.
The political and intellectual fecundity of that immediate postwar period for the left makes for a fascinating history in its own right. But Mattei is more concerned with the counterrevolutions that were subsequently launched in defence of capitalism, in which academic economists and civil servants played a key role, channeling whatever political forces were most amenable to them, including the political project of Mussolini. At the core of this agenda was a novel explanation of how capitalism worked, that diverted attention away from production, consumption and distribution, and towards savings and surpluses. Only if individuals and states could be made to live within their means could financial surpluses, and therefore investment, arise. Socialists wanted all of the productive gains of capitalism, with none of the delayed gratification that facilitated them.
Austerity comes in various forms. Monetary austerity pushes up interest rates, starving businesses of credit and rewarding savers. Fiscal austerity cuts spending and raises taxes, with a view to reducing the public debt. Attacks on organised labour aim to bring down wages. Profligacy, waste and idleness are attacked, if not by economic policy, then by moral re-education. All of this is justified in the name of “realism”, the idea that subsidies, credit, wage bargaining and public provision all conceal the truth of how capitalism actually functions, namely that self-restraint (manifest in saving and abstinence) is the basis of economic progress. In 1920, the British chancellor Austen Chamberlain complained that the government’s £45m bread subsidy was not only too costly, but “conceal[s] the real facts of the situation from the country”. The demand for austerity is always pitched in terms of a reckoning with uncomfortable truths.
The question in the 1920s, as in the 2010s or 2020s, is who is willing to convey this unwelcome news. And the answer, then as now, is often the unelected technocrat, who speaks on the basis of their intellectual credentials rather than their constitutional authority. In Mattei’s account, mass democracy, which expanded rapidly during the 1920s, is fundamentally at odds with capitalism, in as much as the latter requires that most people accept their subjugation via a reliance on wages, and the primacy of private property, which they may never themselves benefit from. Unless capitalism could be defended by some non-democratic or even anti-democratic power structure (for instance, more systematic constraints placed on trade unions), its long-term security would be in doubt. This was the same problem that would later animate networks of neoliberal intellectuals such as Wilhelm Röpke, Friedrich Hayek and Milton Friedman in Europe and the United States from the 1940s onwards.
[See also: Ha-Joon Chang: “Talk of a ‘fiscal black hole’ is an insult to the concept”]
In 1920 and 1922, International Finance Conferences were held at Genoa and Brussels, at which economists and Treasury officials met to discuss the policies that would reinstate a stable capitalist order, based around a creed of “work more, consume less”. From Mattei’s perspective, their agenda was clear: to reassert the class inequalities on which capitalism depends. But for the attendees, the discussions were framed in resolutely scientific, expert terms. Thus the advice that emanated from these conferences could be presented not as “political”, but simply as the necessary, even regrettable truths of how economies must be governed. The restoration of the gold standard was among their most urgent, and apparently obvious, policy recommendations, no matter what social pain might result from such deflationary measures. This cloaking of class war in the language of neutral economic expertise would later become familiar to wage labourers living under Paul Volcker’s Federal Reserve in the early 1980s or Mario Draghi’s European Central Bank in the early 2010s.
Right from its origins, therefore, austerity has been waged as much as an epistemic battle against “the people” – with their ignorant demands for bread and circuses – as a political defence of finance capital. For Mattei, this becomes especially vivid in the early 1920s, because the intellectual question of how capitalism really works had become such a live one across the political spectrum. In one respect, the technocrats and the socialists had something in common: both were concerned with stripping away the veneer of economic fictions, to reveal the mechanics underneath. But where the socialists believed that 1914-18 had revealed the primacy of labour, cooperation and planning, the economists who assembled in Genoa and Brussels believed that the First World War (and its aftermath) was a mere diversion from the unavoidable necessity for frugality and discipline.
Britain and Italy don’t simply provide parallel national case studies, but also an exemplar of how austerity operates as an international project, just as it would later do under the auspices of the Washington Consensus during the 1980s and 1990s or within the eurozone during the 2010s. The British Treasury, which in 1920 still occupied a central role within the world economy, was aghast at the failures of the Italian government to impose order on its own economy. British Treasury officials issued stern advice to their Italian counterparts, which invariably came down to austerity measures of one kind or another, to run surpluses and defend their currency. The alternative, it seemed, was a gradual descent towards socialism and mob rule, from which foreign investors – including British banks – would suffer.
It was in this context that Mussolini appeared to be a solution in the eyes of British technocrats and liberals. On taking power in 1922, Mussolini introduced the very measures that the British officials had been demanding, securing the rights of foreign investors and cutting taxes on capital. A week after Mussolini had seized power, the British ambassador in Rome reported back that “I have the honour to report that the political events of the last week appear to have had a favourable effect on the Italian exchange”. British liberal media were delighted, with the Times characterising the new fascist regime as “an anti-waste government”, and the Economist praising the Black Shirts’ violent oppression of political opponents (including the murder of the socialist deputy, Giacomo Matteotti) as a welcome “clean up” of the political system. The priority was achieving economic order, and in the imagination of British elites, fascism was the only kind of order that Italian politics was capable of.
Any reader of The Capital Order will be struck by the contemporary resonances. To anyone who assumed that market-oriented technocracy dates only to the rise of neoliberalism in the 1980s, this is a startling corrective. If it serves as a historical analogy to the events that have befallen Italy since 2009, that is surely deliberate. On the surface, Italy’s recent history has been a protracted wrestle between technocrats and nationalists, not unlike the conflicts in Britain between Remain and Leave, or in the US between red states and blue states. The toppling of Liz Truss, and her rapid replacement by Rishi Sunak, appeared to some liberals to herald a welcome return of “realism” after years of Brexit-based fantasies. Among Mattei’s many contributions here is an invitation to look beneath or beyond these comforting binaries, and consider the various continuities between liberal technocracy and nationalist authoritarianism. One merely needs to consider Sunak’s choice of home secretary to see that this continuity is alive and well today.
The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism
Clara Mattei
Chicago University Press, 480pp, £24
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[See also: Mike Davis: The left’s patient gardener]
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This article appears in the 23 Nov 2022 issue of the New Statesman, Russian Roulette