In The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism, the economist Clara E. Mattei argues that what is often portrayed as commonsense fiscal policy is deeply rooted in the austerity mindset. Cuts to public spending, regressive taxation, wage repression, and the like, Mattei explains, are often framed as self-evident measures to stabilize a faltering economy. At the same time, such policies assume that welfare governance is reckless and morally suspect: It produces an overly indulgent and self-entitled society.

Viewed in this light, Mattei contends that austerity should instead be seen as a means for preserving capitalist structures and hierarchies. To this end, The Capital Order offers an economic history of austerity, the origins of which she traces to Britain and Italy between the two world wars. Threatened by formidable working-class movements, a small group of liberal economists from both countries touted a new doctrine of austerity, one that heralded the “rational saver” and hardworking patriots for doing their part to lead the economy back to solvency by modeling the virtues of fiscal responsibility. Little wonder that this emerging group of liberal economists, Mattei adds, proved supportive in various ways of interwar fascist movements.

I spoke with Mattei about her class approach to the history of austerity, why liberal economists proved so fascinated by Mussolini’s Italy, and how we might think about her book’s argument in light of the fears of a resurgence of fascism today.

—Daniel Steinmetz-Jenkins

Daniel Steinmetz-Jenkins: Let’s start by taking up what you mean by “economic austerity,” especially given your claim that it had a unique meaning in the 20th century—one that is now taken for granted. What do you have in mind here?

Clara E. Mattei: 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 public moderation, is almost synonymous with today’s economics. But to the extent we can stop perceiving austerity as a simple and objective toolbox for managing an economy, we can instead see it as a tool of class: Austerity preserves something foundational to our capitalist society. Indeed, for capitalism to work in delivering economic growth, the social relation of capital—people selling their labor power in exchange for a wage—must be uniform across a society. In other words, economic growth presupposes a certain sociopolitical order. Austerity, which we can think of as a set of fiscal, monetary, and industrial guardrails on an economy, protects the sanctity of these social relations; it preserves economic subjugation. The structural limitations it imposes on spending and wages ensure that, for the vast majority of those living in our society, “Work hard, save hard” is more than just an expression of toughness—it’s the only path to survival.

Austerity’s trinity of policies—fiscal, monetary, and industrial—work in unison to permanently shift resources away from the working people who make up the bulk of a society. This worsens their precarious conditions and redistributes [resources] toward the few savers-investors at the top.

Fiscal austerity, which we can think of as the austerity that comes from parliamentary or congressional bodies, is where the state cuts social expenditures (health, education, housing) and imposes regressive taxation. The latter means that, while consumption taxes—which hit the poor harder—go up, taxes on the wealthy go down. Monetary austerity primarily takes the form of interest rate hikes—good news for creditors, bad news for households that rely on loans for their daily survival, who will face higher bills. The higher cost of borrowing also increases government expenses for public works and social services, and most importantly, it hits the labor market: Fewer job openings and higher unemployment diminish the bargaining power of workers. Finally, industrial policy is about the state directly intervening in labor relations to hamper organized labor, especially via privatizing, deregulating employment, and weakening unions.

Americans have seen all of these policies repeated by government at every level. Monetary austerity has defined the agenda of the Federal Reserve in the past year; attacks on unions have decimated workers’ collective bargaining rights; minimum wages languish at poverty levels; laws allow employers to enforce noncompete clauses that bar certain workers from changing jobs in pursuit of better pay; welfare has been transformed into “workfare,” i.e., government assistance contingent upon low-wage work. While wages in the US have been stagnant for decades, now, for the first time in history, the country’s richest 400 families pay a lower overall tax rate than any other income group.

All of these policies share a theoretical justification: They are the tools of upward redistribution and of the calcification of social and economic class.

DSJ: What makes a class approach to austerity unique?

CM: Most of austerity’s critics remain stuck within a technocratic approach, typical of economists, that assumes the absolute separation of economic and political problems and, most importantly, considers the economy in the aggregate. This perspective weakens the opposition to austerity because it misleads us in two fundamental ways. First, it creates the false impression that, as long as the state is spending large amounts of money and as long as public debt is increasing, then we cannot speak about an austerity state. This is incorrect. The point is not to look at how much the state spends, but more importantly where the state spends, and especially how this spending reinforces the divide between the few winners and the many losers.

As an example, think about how the state is currently solving the crises at our door—bank bailouts, the war in Ukraine, ecological investments. Each of these outputs is coherent with austerity logic in that they enrich somebody who’s accustomed to being enriched: bankers and large deposit holders; actors in the military-industrial complex; asset managers who are the real audience for our ecological transition. A class approach to austerity allows us to make sense of the ubiquitous and insidious presence of austerity within our economy. And it’s a much longer history than the neoliberal period that gets so much attention.

Thinking about austerity in class terms also allows us to overcome the second weakness of the mainstream criticism of austerity: its dismissal of austerity as a simple policy mistake. The political economist Mark Blyth famously demonstrated that austerity has never “worked” in the sense of achieving its stated goals of reducing debt and boosting economic growth. The question then becomes: How do we explain austerity’s resilience in shaping advanced capitalist societies? Why is it still around? Can it all be reduced to stupidity or corruption?

No. A more convincing historical explanation is that capital requires constant protection. And austerity is particularly effective not in stabilizing economies, but in calcifying class relations. After all, austerity has historically never been about curbing inflation and budget control; its manipulations of aggregate demand have always been a means to a deeper end. Austerity secures the best possible conditions for profits to soar, while the majority—the politically underserved—are forced to relinquish all fledgling projects of economic democracy. People are compelled to “live harder” through lower wages and lower consumption.

DSJ: One of your main claims is that the distinct nature of austerity that emerged in Italy and Britain during the early 20th century should be seen as a liberal reaction to a “collective anti-capitalist awakening” that erupted after World War I. Can you explain this awakening?

CM: The so-called “Red Years” of 1919 and 1920 represented an extraordinary moment in the history of capitalism in which the system’s two main pillars—private ownership of the means of production and wage relations—were being contested by the public at large. People’s protests were motivated in part by what they’d witnessed during the mobilization around World War I: The Italian and British governments effectively commandeered their economies—in defiance of the principles of capitalism—in order to shape production, wages, and industry to meet the needs of the war machine. The “natural order” of capitalism was interrupted to meet the needs of the state, and now the state wanted to go back to the way things were. But by then the public had seen too much.

The public mobilization during the interwar period, then, sought to substitute production-for-need for production-for-profit—to render labor in emancipated terms rather than commodified ones. Among the most inspiring [examples] were the Italian worker councils, whose leading experiment was in Turin, around the L’Ordine Nuovo group and its legendary leader, Antonio Gramsci. The movement for self-management of production peaked in the summer of 1920, when workers took over 280 factories in Milan and within two days the movement spread across the entire peninsula, in all industries, including agriculture.

The worker councils represented an institutional breakthrough. Their radically horizontal constitution—which included all the rank and file, as opposed to just unionized workers, and set up a strict recall system to hold representatives constantly accountable—was meant to provide the nucleus of a new state that was not alienated from the people, but was for the people. The idea was that political democracy was empty if not grounded in actual economic democracy.

This break from the hierarchical relationships of production were part of a more radical shift from a hierarchical understanding of the world. But this public enlightenment also functioned as a detonator—the public mobilization that brought about the emerging austerity counteroffensive.

DSJ: It is basically assumed that John Maynard Keynes is the great liberal critic of austerity. You present him, however, in a far different light. You state, for instance, that Keynes endorsed the most fundamental technocratic impulses, and that his economic theory disregarded the notion of class conflict.

CM: It’s common to hear the neoliberal tradition and the Keynesian tradition [described] as opposing approaches to economics. In the most caricatured terms, neoliberalism is a belief in markets, while Keynesianism is a belief in the state.

But if we look at the world through an austerity lens—one in which the state and economy work together to ward off alternatives to capitalism—these two traditions have more common ground than difference. These commonalities can be traced back to Keynes himself, a friend and confidant of many of the experts at the British Treasury whose theories were part of austerity’s founding doctrines. One of those experts was Ralph Hawtrey, who is a major figure in The Capital Order. During the “Red Years” of 1919 and 1920, Keynes was a vocal supporter of interest rate hikes and central bank independence as means to avoid the breakdown of capitalist society, which to Keynes was equivalent to a breakdown of civilization at large.

Later, by the mid-1920s, Keynes did break with the Treasury’s orthodoxy, especially on the grounds of his rejection of Say’s law, which basically held that all private savings everywhere would be invested, thus assuming full employment of resources. Indeed, the downturn of the 1930s—when the world financial system was in collapse and unemployment was rampant in most of the industrial countries—deeply affected his thinking, to the point that he describes his General Theory of Employment, Interest and Money as the outcome of “a long struggle of escape from habitual modes of thought and expression.” Here he theorized a need for state intervention to boost effective demand, boost macroeconomic stability, and secure adequate investment from entrepreneurs’ private savings.

But even then, Keynes never strayed from the technocratic conceits of austerity. Like his colleagues, Keynes’s economic theory omitted any notion of class conflict and indeed helped to conceal the class repression that is intrinsic to capitalism. By disregarding the labor theory of value and the importance of exploitation as a means of capital accumulation, Keynes’s model accepts that the engine of the economic machine is the entrepreneur and the entrepreneur’s investments; they are Keynes’s keys to prosperity for all. This loss of economic agency among workers includes a loss of political agency; both types of agency are handed over to the economic experts. And much like his old friends from the Treasury, Keynes is confident that economists are the guardians of classless truths, that they know what is good for the people, and that they—the economists—should be in charge of economic decisions on everyone’s behalf. He was masterful at conceiving of an economy that is separate from politics and struggle. And his persisting influence has provided economists with the keys to preserving the social order.

DSJ: How do you explain the fact that British liberal economists admired Mussolini’s fascism, even while having knowledge of his violent and illiberal policies?

CM: The Capital Order includes archival materials that reveal, in some cases for the first time, the concerning relationships between elite liberals and autocratic rulers during the 20th century. On their own, these revelations are quite shocking, but more so, perhaps they will compel today’s liberals to think critically about the historical alliances of their political position—and, perhaps, about liberals’ self-portrait as the ideological opposite of, say, a fascist dictatorship.

The evidence in the book is unequivocal: The liberal establishment, both international and within Italy (including figures like Luigi Einaudi singing the praises of Mussolini’s economic agenda throughout the 1920s), played a substantial role in consolidating Mussolini’s fascist dictatorship, both through ideological support and through material resources such as public and private loans.

It wasn’t just a few bad liberal eggs: Much of the liberal apparatus in Italy and England took pains to endorse Mussolini and his austerity policies. The leading liberal media outlets, including The Times and The Economist, along with dispatches from the British Embassy in Rome and memoranda from within the Bank of England, vocally and unabashedly expressed relief about Mussolini’s rule in the 1920s. Why? Because he was superlatively effective at imposing the policies of austerity, which benefitted liberal foreign investors at the expense of the Italian working class.

This double-speak was demonstrated by, among others, Montagu Norman, the governor of the Bank of England and another popular icon of liberalism. Norman expressed wariness of Mussolini’s fascism and its tendency to stifle opposition. “Anything in the way of otherness” was “eliminated,” Norman observed, and “opposition in any form [was] gone.” He then added in the same breath: “This state of affairs is suitable at present and may provide for the moment the administration best adapted for Italy.” Fascism, Norman concluded, was a social means to an economic end: “Fascism has surely brought order out of chaos over the last few years: something of the kind was no doubt needed if the pendulum was not to swing too far in quite the other direction. The Duce was the right man at a critical moment.”

This message and others like it leave no doubt: Any preoccupation with fascist political abuse dwindled under the success of its austerity [policies], including the elimination of strikes, the stabilization of state finances, and the increase in workers’ productivity.

The explicit connection between austerity and political repression—evident under fascism—reveals how the economic treatment of Italian citizens was not in fact so different from the treatment the British experts envisioned for their own people. Indeed, British technocrats pushed hard for a nondemocratic implementation of economic policy through the independence and authority of central banks. Even if different in nature, the Italian and British versions of technocracy shared a common end: creating systems that imposed sacrifice on the majority of the public, then insulating those systems from political interruption.

DSJ: I think liberals today, especially given their anxieties about Donald Trump, would be dumbfounded to hear the liberals of yesterday expressing esteem for Mussolini. What would you say to them?

CM: Economic stability was never, and never can be, a neutral objective. Every economic policy in the history of the world has produced winners and losers. A liberal approach to picking winners in such policy decisions is not so different from those of a politician like Mussolini, or certainly Donald Trump. In each case, the state is safeguarding the mechanisms of capital accumulation, which requires punitive consequences for the majority of the citizens when an economy veers off-track.

Mussolini formalized the alliance of neoclassical expertise with authoritarian government, which is not an exception in the history of 20th- and 21st-century capitalism. Milton Friedman was the architect of Augusto Pinochet’s economic devastation of Chile; The Economist carried water for Boris Yeltsin’s government when in 1993 he bombed the Russian parliament to suppress political opposition to his austerity reforms.

The classist and repressive tendencies of modern austere liberalism is quite clear today in the doings of the Federal Reserve. The message in the last year has been constant: The main objective of interest rate hikes is to cool down the labor market. This is code for working people having to sacrifice their access to credit, employment opportunities, and meager wage increases in the name of monetary stability.

My point is to say: In order to assess the political health of our societies, we have to be [attentive] to the one-sided class warfare that is being fought against the majority of the working people. This is unfortunately a common trait among governments, even those of supposedly different political colors.

DSJ: Do you believe that we are living in a new age of fascism today? How do you approach the question from your class-based approach? For instance, there is very little in your book about the role that nationalism played in creating loyalty to Mussolini, but rather a history of how elites embraced coercive measures to keep the people in line. Can the turn to right-wing authoritarianism today be explained in this manner, without taking into consideration a culture of nationalism?

CM: I don’t think it is particularly useful for a critical understanding of current-day capitalist societies to try to stretch the word “fascism” to include current right-wing manifestations. Rather, by looking deeper at the originating fascist movement of Benito Mussolini and pointing to its foundational features—namely, austerity in the form of wage repression and the protection of capital against workers’ demands—we can become more critical of the comforting binaries between supposed liberal democracy and right-wing authoritarian governments. In fact, the antidemocratic thrust of austerity is all-pervasive, albeit with different nuances, in the large majority of governments today.

Think about the case of the European Union, where since the 1992 Maastricht Treaty, the European Central Bank retains formal “independence from elected officials” so as to operate “without prejudice” in favor of price stability—its primary mandate. It also “explicitly forbids” the ECB board to “receive any instruction from either community or national political institutions” (as stated in Article 7). It is thus no surprise that today, the ECB can ignore the popular opposition to tight monetary policies. The EU era has also given austerity hawks a window to advance institutional reforms that explicitly strike at the foundations of democratic principles—political guardrails that, especially in Italy, were formalized to mark a distance from the country’s fascist past. Similar to fascist economists in the early 1920s, contemporary mainstream economic advisers (think about Silvia Ardagna, Alberto Alesina, etc.) advocate for electoral reforms to diminish proportional representation (and thus favor stronger governments) and to rewrite countries’ constitutions to include an obligation for a balanced budget. Italy implemented both policies in the 2010s, and many today push for a form of presidentialism that, as we see right now in France, allows Emmanuel Macron to be deaf to people’s protests against slashes to pension benefits.

This is not to dismiss the dimension of nationalism, especially if we analyze it in connection to austerity. Similar to what happens today with Italy’s Giorgia Meloni and other right-wing governments, and as was the case with Mussolini’s fascism, nationalism plays a key function in concealing the state’s violence against its own workers (for example, in the form of slashes in public expenditures and regressive taxation), thanks to the power of the idea that we are all united behind a national flag. Accordingly, nationalism is also a strategy, a way for states to divert attention away from the people’s actual enemies—the wealthy and powerful elites who are the only ones who benefit from our current economic system—and to channel resentment toward external enemies, who are usually even more vulnerable victims of international austerity. In the meantime, a Bolsonaro, a Trump, a Meloni, an Orbán—they perpetuate austerity that continually increases the wins of the few and enlarges the number of losers within our capitalist economic system.

DSJ: What lessons, then, do you draw from the history you have charted for the purposes of resisting these impersonal, technocratic systems—you mention central banks, for instance—intentionally cut off from democratic accountability?

CM: I wrote this book for a changing society and with an eye on combating austerity. The first step in this direction is to emancipate ourselves from the biggest success of the austere technocratic project: the almost universal conviction that any alternative to capitalism is unviable, doomed to fail, or simply utopian. This is where historical political economy can play an empowering role. Indeed, once we get rid of the understanding that economic problems have to be separated from political ones—once we stop considering “economic facts” as self-standing technical objects of the natural world—we realize that preserving capital as a social relation requires a constant, militant activity of protection. That’s what austerity is and does, and we are constantly faced with it.

For example, inflation cannot be addressed as a purely economic issue when it is deeply related to power relations in the production process. A focus on the strategies that are constantly put into place to encase capital speaks to the fact that our socioeconomic system is not inevitable; nor is it to be grudgingly accepted as the only way forward. It is the outcome of collective action to foreclose any alternatives to capitalism. Hence the empowering message: It can be subverted through collective counteraction. The study of its logic and purpose is a first step in that direction.

If austerity is in a capitalist state’s DNA, then mobilization [against it] needs to be much more ambitious, and alternatives need to be thought up outside the capitalist box. The Gramscian insight about knowledge stemming from action is crucial here: Our political imagination increases only if we participate in collective action that produces spaces for economic democracy.