Bringing Down the Axe

The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism, Clara E. Mattei, 2022.

Thumbnail: Aeroritratto di Mussolini aviatore, Alfredo Ambrosi, 1930.

When most people - myself included - hear the word ‘austerity’, a roll call of historical episodes come to mind: Thatcherite Britain, post-1991 Eastern Europe, and Southern Europe, particularly Greece, during and after the Euro crisis. That is understandable: fresh in historical memory, this recurring nightmare weighs heavily on our collective understanding of political economy. But less well-known, I think, is the greatest - and, in fact, original - austerity programme; pursued Europe-wide during the early interwar years. The Geddes Axe of 1921, for example, produced the largest expenditure squeeze Britain endured during the 20th century: a cut more severe than any under Thatcher or Cameron. Nonetheless, it has largely passed from memory; living only through the oft-repeated metaphor it may-or-may-not have produced. As Adam Tooze once wrote, this “global Thermidor” is perhaps “the most underrated event in twentieth century world history”.

In The Capital Order, Clara Mattei argues this episode deserves better attention. Not only did austerity originate, and intellectually coagulate, during this period; but vital insights into austerity’s political function can be produced from studying its earliest manifestation. In a comparative analysis of Britain and Italy, Mattei draws out how, in response to post-war experiments with economic democracy, their respective states - in cahoots with business and the economics profession - reasserted market society by employing a mix of “consensus and coercion”; with the latter, especially in the Italian case, often taking precedence. In fact, Mattei argues, the contrast between the British institutions of austerity (with which we are most familiar today), and the Italian, reveal the essentially coercive nature of austerity, irrespective of where it is imposed. Britain’s institutions took their form because of political constraints Italy was unburdened by, not because the doctrine underpinning them was fundamentally more liberal, or less anti-democratic. Enforced by the state, or insulated from it; the goal of austerity is the same: a depoliticisation of the economy.

The backdrop to these developments is important to understand. Until reading The Capital Order, I had not been aware of quite how radical, in Western Europe, the first years after the Great War were. Labour organisation and industrial militancy reached hitherto unprecedented levels - Mattei quotes Gramsci quoting a factory worker who believed that the march of labour was no longer “towards” Revolution but “within” it. The years 1919-1920 are known in Italy as the “red biennium”, such was the explosion of collectivism politically, and, through the rapid growth in co-operatives, industrially. Even more strikingly, all this was supported - or at least, left unopposed - by the state, which both refused to violently put down striking workers, and financially supported co-operative industry. In Britain, events had a similar hue. The coal miners union, by this time the largest union in Britain at over a million members, fought an extended industrial dispute with the government in 1919, resulting in a commission - later the Sankey report - which recommended “nationalisation or a method of unification by national purchase and/or by joint control”. Viewed together, Mattei argues, these political victories illustrate how the war had shattered, for many, the illusion that belle epoque capitalism was the only way to organise society. That, for example, coal mining was essentially state-run in Britain during the war widened the frontier of possibility for peacetime. The experience of war economy made and unmade popular ideas about what an economy should look like, whom it should serve, and who should control it.

Consequentially, two problems presented themselves for defenders of the old capital order. On the one hand, the economic conditions that had enabled an upsurge of anti-market forces through stoking the demand for labour - high government expenditures on things like military pensions, and a liberated money supply - had to be reversed, if the conditions for capitalism were to be re-established. On the other, if these reversals were to be made permanent, the levers of the economy had to be taken from the hands of labour. The notion that an alternative to laissez-faire capitalism was possible had to be dispelled, through de-politicising - and thus de-democratising - the economy; both intellectually, and institutionally. Hence the need for a strategy of both consensus and coercion. This was as true in Italy as it was in Britain. It is only how it would manifest that differed.

Let us consider the coercion first. In December 1922, Mussolini issued a royal decree granting full powers to his government for economic reform. It would use it to deliver an austerity programme which cut spending dramatically, and gutted any semblance of progressive taxation. Wartime taxes on profits, capital income, and inheritances were effectively abolished. Consumption taxes rose steadily. The victories of the red biennium were dismantled: insurance for old age, disability, accident, unemployment, and even the recently-created Ministry of Labour and Social Insurance itself, were abolished. As with austerity today, none of this was really about fiscal responsibility - tax evasion was de facto encouraged, and bank were bailed out without qualm. But it was certainly about reasserting the capital order, and it certainly took a lot of violence - including the forced abolition of independent trade unions, as well as a lot of murder.

In Britain, measures as drastic as this were not politically possible. While the Geddes Axe could be brought down on public spending, industrial relations had to be handled more carefully. Although strikes were repressed and legally restricted over the course of the twenties, organisers could not simply be shot. Instead, that most technocratic of institutions would be put into use: the central bank. A policy of “dear money” was intended to break the spine of wage-increases and the disruptive power of labour, as high rates and the return to the pre-war gold standard were maintained in the face of rapidly rising unemployment. Was this approach any less anti-democratic than that pursued in Italy? Mattei convincingly argues for scepticism. ‘Independence’, the virtue liberal economists of the time rated mostly highly in a central bank, was a substitute for authoritarianism, not a safeguard against it. In Britain, where democracy could not be dispensed with altogether, independence was seen as essential. But the economists and Treasury officials who waxed lyrical on its virtues were surprisingly untroubled by its absence in fascist Italy, where the central bank was as free as was the press. In Mattei’s words, this was no double standard: British technocrats saw Italy achieving “the same immunity from public criticism with different methods”.

Coercion, whether of British or Italian style, was indispensable for austerity. But Mattei believes there was also a role for consensus - for consensus among technocrats in the doctrines of “pure economics”; her term for the not-yet-crystallised ideas of what would later be called neoclassical, or even neoliberal, economics. This is where The Capital Order earns its subtitle. In Italy, austerity’s architects were drawn from the ranks of the economics discipline. Some were committed fascists, while others - such as Italy’s future president Luigi Einaudi - were ostensible liberals who reconciled to fascism because of its hardline austerity. In Britain, it is a similar group of economists and civil servants - Hawtrey, Niemeyer, and Keynes - who provide intellectual support for the reforms of the twenties; couching it in the language of the emerging economic science.

To be clear, I think there is a lot of merit to this argument. Mattei presents archival research which reveals, without a doubt, the symbiotic relationship between the new economics of the twenties and austerity politics. But I found the presentation of this argument, at times, risked undermining the book as a whole. It frequently drifts into familiar two-bit heterodoxy, hitting notes like “economists model workers as being selfish, opportunistic, and lazy”, and alluding often to well-worn critiques of homo economicus, mathematisation, and intellectual arrogance. It is not that I am without sympathy for these arguments, but that, for a book which is already forthright in its marxist vocabulary, the manner of their inclusion makes it too easy for those who are unsympathetic to dismiss Mattei’s book altogether. More importantly, however, I am not quite convinced that economists did invent austerity and pave the way to fascism. The impression I received was that economists gave austerity and fascism intellectual cover, for reasons of class interest, conviction, and spinelessness. But excluding fascist darling Alberto de Stefani, and perhaps Niemeyer, they seem to have been running a rear-guard. For a book which makes many criticisms of Keynes, The Capital Order seems to take the Master’s theory of history very seriously. Its largely materialist account of class and austerity sits in uneasy tension with the supersized presence of its economists.

These minor quibbles aside, I think the The Capital Order is essential reading. Mattei puts forth the indispensable point that “austerity was always much more than laissez-faire; it embodied the active intervention of the state against capitalist crisis”. Next, I will be tackling Quinn Slobodian’s Globalists - I am halfway through at time of writing - which also hammers this point home. But its story, while also beginning in the early interwar years, deals with economists and ideas that, although connected to austerity, were not responsible for its earliest incarnation, even if they later became associated with it. In fact, the early neoliberals Slobodian studies were forged in the tumultuous world Mattei’s architects of austerity presided over. This, I feel, is the central insight of The Capital Order - that austerity shaped economics in its formative years. Even if economists may not have invented austerity, austerity invented many economists.