A few months ago, I found myself in Lisbon for an International Political Economy conference. To my delight, Clara had been invited to give the keynote address. Her brilliant Capital Order: How Economists Invented Austerity and Paved the Way for Fascism, which meticulously documents the ways in which liberal economists of the interwar period aligned themselves with authoritarian and fascist regimes in the UK and Italy, had been eye-opening and pivotal for my own research on the interwar origins of the ordoliberal/neoliberal framework and its relationship to authoritarianism. Our meeting in Lisbon was an ideal opportunity to discuss such affinities, as well as what they can tell us about the contemporary predicament. In between walking around this beautiful city, its cafes, restaurants and bars, we sat down for an interview. Here it is.
Q: Since the outbreak of the Eurozone crisis, austerity policies have received a lot of criticism. Most of these criticisms, however, are framed around the idea that austerity is inefficient, irrational and detrimental to economic growth. Your book tells a different story.
A: The inspiration to write the book came from the fact that I was living through the austerity process in Italy with PM Mario Monti and EU support. And the public debate was around expansionary vs recessionary austerity: namely, does austerity help promote economic growth? So the debate was really technical and a-political. The point of the book is to say that these supposedly opposing camps are much more similar than what one would think because they both take for granted what I call the capital order - which is not my invention but an intuition at the basis of Marxian analysis. Capital, the production of commodities, the very notion of economic growth are all based on the social relation of exploitation (wage relations).
The most fundamental element to preserve in the capitalist order is to protect the fact that people have no alternative but to go and work for a wage in order to survive. In that respect, austerity is very functional and indispensable to the logic of capitalism. Austerity is not a bug but a feature of the system. So while it makes no sense to say it is a technical necessity, it also makes no sense to say that it is an irrational policy because it is very rational, according to the logic of capital.
Part of how technocrats keep us quiet and consenting depends on definitions that divert our attention from what matters. If you ask the experts for a definition of austerity, you will be told that it involves the economic policies of cutting public spending and increasing taxes. Here lies the first trap: the lens of economists is that of the aggregate, that is, of the "whole." These experts talk about the Brazilian, French, and Chinese economies as if each were a compact unit. But, on closer inspection, these concepts are only abstractions.
Take the US as an example: if we look at the "aggregate" spending of the American state, we won't see any trace of austerity. In fact, the state is spending a lot, especially on securing the profits of the military-industrial complex and other private sectors. For example, with so-called “Bidenomics”, the State actively de-risks and subsidises asset managers to invest in the green transition or coddles the financial sector. The numbers for public spending are not falling. But the relevant issue is another one. Austerity is not simply about whether the state is spending but rather where the state is spending or, better yet, for whom. Though social expenditures may be slashed, for the capitalist class, the rhetoric of "there's no money" doesn't exist.
If the American state, like most states worldwide, increases military spending, rescues banks and/or subsidises private businesses, while simultaneously cutting welfare spending (healthcare, education, transportation, public housing, unemployment benefits, etc.), it is structurally transferring resources from the majority of citizens who live off of their wages in favour of the 1% of the population that subsists mainly off of capital ownership, enjoying dividends, rents, and interests. In other words, it's not about states not spending but about “spending” in the “correct” way, that is, in favour of the economic and financial elite and to the detriment of the majority of the population. While we cannot afford basic medical treatment, are forced to send our children to overcrowded and underfunded schools, and wait in long lines to renew our identity cards, the forges of Lockheed Martin (a weapons manufacturer) and BlackRock (an asset manager that manages an inordinate number of civilian infrastructure from housing to bridges) overflow with money from our taxes.
At a second look, these austerity manoeuvres are not merely technical decisions; they are profoundly political choices. The fewer social resources we have, the fewer rights we have as citizens, and the more we are compelled to buy those rights with money. Thus, our dependence on the market increases. If we want to ensure a good education for our children, adequate medical care, a roof to live under, and the right to transportation, we are increasingly tied to the need to have sufficient money, which most of us can obtain in only one way: by selling our capacity to work in exchange for a wage. It's no coincidence that politicians in government deride the concept of a living income, which, in itself, is potentially subversive; it risks deluding us into thinking that satisfying our basic needs is a right rather than an outcome mediated by exploited labour.
The same applies to the other side of the coin of fiscal austerity, the one concerning state revenues: it's not about whether the state increases taxes but rather whom it increases taxes for. Today, most governments enact regressive tax reforms, continuing to cut taxes for those with capital income (not counting the enablement of loopholes for evasion) and increasing them for those with labour income. Just think that while VAT is growing (which we all pay in the same way regardless of our income) corporate taxes decline, as do income brackets (from 70% corporate taxation in 1972 for the highest tax bracket to 37% in 2023). Thus, we get to the extravagant scenarios in which in a corporation like Walt Disney, where a custodian would have to work 2000 years to make as much as her CEO does in one year, the shareholders pay far less taxes than the workers who produce the corporations’ surplus value. And Walt Disney is certainly not the rotten apple, rather a standard that pales with respect to other businesses.
The reader may find these scenarios paradoxical or even the expression of a failure of our economic policies. We don’t blame them. What this book wants to stress, however, is that these results are certainly not a failure for the logic of our economic system. Indeed, it goes without saying that the result of regressive taxation is the same as that derived from cuts to social spending: the confiscation of the majority’s resources increases our economic vulnerability, our precariousness, and dependence on the market. These are definitely problems for us but not for the system: securing market dependence means securing the foundations for the capital order.
We can, therefore, dispel the common trope by which austerity policies are conceived as a zero-sum game between the state and the market. Austerity capitalism doesn't mean less state but rather a state that constantly plays an active role in fortifying the market by acting according to the logic of expropriating resources from the many to favour the few.
Furthermore, fiscal austerity, as described, often goes hand in hand with monetary policies of increasing interest rates that swell the incomes of capital owners, while workers are doubly affected: by skyrocketing mortgages, unaffordable credit card bills and job losses.
Meanwhile, the state privatises, makes the labour market precarious, and weakens unions. This is the austerity trinity (fiscal, monetary, and industrial), which clearly has little to do with being "technical" and much to do with maintaining a society of few winners and many losers, increasingly isolated and trapped in material conditions that prevent them from carving out time and collective space to imagine a different social model. Creating more docile and blackmailable workers: this is the role of austerity. With this pamphlet, I aim to convince readers of the fact that one cannot look at (and understand) fiscal and monetary policies without considering their impact on labour relations and, ultimately, on the capital order, as the foundational social relation of our economic system.
Is austerity potentially self-destructive? Absolutely, but this is also part of the logic of capital. There is no long term vision, there is no vision of the whole, there is only winners and losers. This is what austerity is about.
Q: One of the most striking things when reading The Capital Order is how so many of the statements by government officials, economists, politicians and central bankers during the interwar period are identical to the kind of arguments one hears today. How can we approach this phenomenal continuity in the last 100 years?
A: This is exactly the point. Historical studies are a key for greater theoretical and conceptual understanding of how the capitalist system works. One finds out that austerity is not about neoliberalism in the 1970s and 1980s, and austerity is not just about the EU. It is a much more structural and global question. The need to press workers into accepting wage relations and especially increased precariousness is not something novel that emerges in the so-called neoliberal period. In each epoch of capitalism it is established/enforced differently, according to historical specificities, but what you see is that since the early 20th century, the rhetoric used by economists, the type of economic coercion via the austerity trinity that I discuss in the book, is permanent.
There are phases when popular uprisings and political mobilisation are able to limit the workings of austerity but otherwise it is a powerful weapon that is constantly used by the technocrats in order to make sure that people don’t start contesting the system as such.
Q: At the same time, however, the conditions during the interwar period were radically different from today. As you show nicely in the book, there were mass working class organisations, parties, trade unions, social movements, factory councils etc. It was a level of militancy that was non-existent in 2010. How can we make sense of this?
A: This is crucial and it also explains why I picked the specific historical period that I did in the book. Because this makes evident what is otherwise very concealed at the present moment given that austerity today has been so normalised. If you pick a moment when capital was actually challenged, then you see the functioning of austerity much more clearly.
The title (“the invention of austerity”) is quite misleading because austerity was not “invented”, it is permanent. Especially during the 1800s with the gold standard. This becomes more visible when austerity capitalism is contested. At the moment when we start contesting the capital order, austerity becomes visible as a tool of reaction.
In 2010 we can say the mobilisation was not as strong. But it is important to be vigilant against common tropes of the so-called Keynesian left, especially the fact that it has often internalised the “end of history” perspective, namely the idea that we are doomed, that this economic system will last forever. If we look closely at every historical moment there is contestation against the system - including in the 2010s. Maybe not on the same level as in 1919 or the early 1970s but it nonetheless exists. You can trace it already in the antiglobalisation movement of the late 1990s and early 2000s.
The reality is that mobilisations are a real phenomenon within capitalism, every period has its own forms of mobilisation and that is why the governing elites are always anxious about reimposing the capital order.
My research embodies a message of hope: if we focus on the tools used by technocrats to preserve the system, you realise how these tools are really political, contingent and that they are made out of fear. In the minds of the technocrats in power, potential subversion is always present. And it can be more or less acute but the point is that it is there and it needs to be constantly repressed.
Austerity often comes in the guise of “balancing the budget”. But why not balance the budget through avoiding expenditure in the military industrial complex that serves the massacre of Palestinians in Gaza? Or through taxing the rich? You can make money more effectively by taxing where the wealth is. The point is not to balance the budget. It is not even to defeat inflation, as is sometimes argued. It is clear that inflation is not due to increases in wages - there are many theories that tell us that inflation right now is due to higher profit margins. And the profit margins are the problem. Austerity is not meant to cure these issues, these issues are used as a neutral pretext, a technical necessity that people are meant to buy into but the aim is actually to suppress the class struggle.
Q: I want to push a little bit on the treatment of the state in the book. I see a certain ambiguity there: on the one hand, there is a clear necessity of a strong state in order to implement austerity, either in the form of authoritarian liberalism (as in the UK) or fascism (as in Italy); on the other hand, the conceptualisation of austerity is presented as a response to the new role of the state in the post WWI period and the fact that direct intervention of the state within the economy undermines the ‘naturalised’ market. The state thus appears as both the instrument of austerity and the reason why austerity emerges.
A: The State is a very abstract concept. That is why Ralph Miliband does a better job of explaining what the state is, by looking at the institutions, the state apparatus, in practice. What you see there is that different institutions of the state were mobilised differently in these moments.
In 1919, for example, in Britain, the Ministry of Reconstruction emerged with the specific goal of prioritising political issues over economic ones. That is why it was a potentially subversive ministry. While it was of course part of the bourgeois state, working class mobilisation had pressed it to go beyond what the limits of the possible were.
Thus the bourgeois state was forced to undertake action in directions that were potentially going to mobilise workers even more, to the point that we see an instance in which the capital order was threatened by the very operation of the state.
Those were the institutions that were active during the emergence of the welfare state. In Italy it was the same: the first state institution in which workers were represented was born in the immediate aftermath of the war. It was a moment when workers had gained some representation in the bourgeois state, and were thus pushing it beyond the conventional activities.
Instead, the operation of the state in the 1920s was much more conventional technocratic operation. It was about wielding independent, especially technocratic institutions exempt from political pressure. The Bank of England was a private institution. The Treasury was led by technocrats who were not even elected. They were advising and writing the policies for the Chancellor. But they were not elected. These are the institutions of the state that are insulated from democratic decision making. And they took precedence, especially in Britain because they did not have fascism. Brits preferred the independent central bank but the functioning of austerity achieved the same goal of Mussolini’s regime that they were very much admiring.
Q: How would you position yourself in relation to criticisms that there is some conceptualised “neutrality” of the state on parts of the left? The notion, that is, that one can take over the state and use it as a mechanism for the implementation of socialism etc. There were, even at the time, criticisms of such positions – and you mention some of them in the book.
A: Certainly the big lesson we draw from Miliband and Gramsci’s works is that there can be no such thing as a neutral state. This is an important antidote against a lot of economists, especially those with progressive leanings, that cannot escape the core beliefs of technocracy: namely the idea that the economy is like a machine and the experts running the state are engaged in some pure super partes exercise.
Gramsci understood it as a ‘capitalist state’. L’Ordine Nuovo movement of which he was part clearly understood that in order to make a breakthrough from bourgeois society, you need to rethink the state. And in this sense the workers councils were seen as the nucleus of a new political entity that was going to go beyond the state as an institution alienated from the people, to instead create a proletarian state that was grounded on economic democracy. In Gramsci’s view you can only overcome capital if you have new political institutions in place to govern society, production and distribution. The key insight from Gramsci is that a non-capitalist state by definition breaches the divide between the political and the economic given that the organisation of the economic as conscious collective effort is itself political. The councils were thus an embryo of the proletarian state, a state that is qualitatively different from the one we know. Indeed, Gramsci and his comrades understood well that the state that was active during the war, was actually an instrument of capital, even when it was engaged in planning, even when it was pressured by the people to implement welfare measures.
Indeed, central planning during the war was geared towards increasing the rate of exploitation and preserving capitalist accumulation. The reformists tried to use constitutional means within the liberal state to achieve revolutionary goals: for Gramsci this could have been a useful step to break with the ideology of the neutrality of the state but definitely not the only path to pursue.
Q: Depoliticisation is a very essential concept in this whole historical trajectory. In a certain way, we can say that since 1919, the capital order is embedded in an attempt to return to the pre-1914 period of the gold standard, which truly was a depoliticised time: no mass democracy, mass working class organisations, strong politicised unions etc. It is the changing scenery after World War I that necessitates the emergence of depoliticisation as a goal - rather than a reality. But there is another side to this as well. In his Dual State, Ernst Fraenkel documents how the transition taking place in Nazi Germany between 1933 and 1938 represented a move away from the bureaucratisation of politics (characteristic of the Weimar Republic) towards a politicisation of bureaucracy (characteristic of Nazism). Can we speak of a (re)politicisation of the economic in today’s ascent of the far right?
A: Very interesting. Part of the argument that the economist Michael Kalecki was making was that coercion functions differently in a well structured authoritarian regime: you are allowed to politicise the economic so long as workers are suppressed by the law. Once you get rid of challenges to wage labour, which in a liberal democracy is done through unemployment, austerity etc, there is greater space for economic manoeuvre. So Kalecki was saying: you can only have full employment under Nazism because ultimately the idea is that you are taking care of the labour issue differently and that opens up spaces for more expansionary or redistributive measures. I guess that we can say that a precondition for an actual politicisation of the economy is to see an actual contestation of wage relations? Otherwise it is a fake politicisation of the economy. We can pretend it is but the reality is that our economic system is incompatible with workers’ actual agency within the economic decision making process. That would be politicisation in the true sense. There are cases where you see it. In 1919 the struggle was not merely about gaining the right to vote but about gaining agency in macroeconomic decision making. And this was grounded on the idea that the workers had to self-govern and self-manage industry and production. So politicisation was about taking control of the production and distribution of resources.
I do not think this is the type of politicisation of the bureaucracy that happened under Hitler and it is definitely not the type of politicisation of the economy that the far right represents today. Quite to the contrary, another dosage of austerity is to be expected.
In fact, using the ideology of national unity is the best way to depoliticise. Genuine politicisation is about putting the class dimension at the forefront and to realise that there is no such thing as “the Italians”: there is the 0.1% percent that detains more than the bottom 50%, there are the beneficiaries on the one hand and the many losers on the other. Politicisation in the substantive sense of the term is about the struggle around who owns the means of production, who gets to manage production etc. This is exactly what the Right wants to avoid, feeding the anger of workers who have been bashed by decades of capitalist austerity with the easy scapegoats of those who are even more massacred by austerity in the global South and seek refuge as immigrants. That is what is interesting about Trump and others like him: he is instrumentalizing the fact that people are sick and tired of capitalism to his benefit. But Trump's ‘politicisation’ of the economy is not substantial. It will never mean disputing the division of resources in society. But there is an appeal there and it shows how the left is not able to do that anymore.