Austerity, I would like to say, is more than just policy.
It's also the theory justifying the policy.
And, of course, the theory came out in
direct opposition to a theory that was instead trying to empower the workers.
Jack Morgan was a big supporter of
Mussolini and supported him financially from the very beginning.
So, the connection between Mussolini and the financial establishment in the United
States, and especially Wall Street, is something that is also well documented, in
the book of Gian Giacomo Migone called "The United States and Fascist Italy".
Now, let's see if we can avoid the apocalypse altogether.
Here's another episode of Macro N Cheese with your host, Steve Grumbine.
All right. This is Steve with Macro N Cheese.
I am super excited.
I go by the tagline "Austerity is Murder".
And I am frequently talking about ending neoliberalism and attacking neoliberalism.
So imagine my surprise when somebody says,
you got to check out this book by Clara Mattei and it's called "The Capital Order:
How Economists Invented Austerity and Paved the Way to Fascism".
So I'm looking all over YouTube and all these fantastic interviews with this lady
I've not heard of and I'm getting super excited.
She seems to have the right references.
James Galbraith is on the back you've got
Mariana Mazzucato on the back, Mark Blyth, a bunch of really big names.
And so I get the book and I read it and
sure enough, reach out to her and she says, yeah, I'll do an interview with you.
So I have the pleasure of bringing on Professor Clara Mattei.
She is an assistant professor of economics
at the New School for Social Research in New York City.
And as I already stated, she is the author of the must-read "The Capital Order: How
Economists Invented Austerity and Paved the Way to Fascism".
And with that, Clara, thank you so much for joining me today.
It's an absolute pleasure to be here.
Thank you for inviting me.
You better believe it.
This word, austerity is not normalized enough in the United States.
I think people wonder a lot of times what it even means.
What about austerity brought you to even think about writing about it?
And can you give us a definition of what austerity is?
Yes, definitely.
I recently wrote a piece in The Guardian
pointing out how austerity, the A word, is everywhere but unspoken.
Especially after social breakdown, after the 2009 sovereign debt crisis in which
austerity was wielded throughout the world and we saw the devastating social effects.
Now the new norm is to apply austerity without mentioning the word.
And this is something that makes sense because ultimately our society--and this
is what I argue in the book--has been shaped by austerity policies more or less
for the last 100 years, with brief exceptions.
And ultimately the point here is that austerity is not just an exception to how
capitalism functions but it's quite the norm to capitalism itself.
That's why we need to trace the origins
of austerity much prior to the neoliberal turn of the late 1970s and see it as
something that is ultimately foundational and I would say in the DNA of capitalism.
It's a mainstay of the capital order.
And I will get to what capital order is in a minute.
But to answer your question, austerity.
Austerity underscores all the common
tropes of contemporary economic policy, to the point that we can even just see it as
synonymous of what is considered good economic policy.
So I see austerity as made up of three
main spheres that interconnect and help support one another.
First is fiscal austerity.
Fiscal austerity is fundamentally cuts in the budget but not generalized cuts.
So again, we can't see this in the
aggregate, but it's about where you're cutting.
It's about cutting social expenditures.
So if a country is spending a lot for the war and the entire budget is not
decreasing, this does not mean that fiscal austerity isn't in place.
Because if you go look, potentially
there are additions to the expenditures on military expenditure, for example and this
is very topical right now, but cuts in all of the social spheres.
So of course schools, housing, transportation, and you name it.
So fiscal austerity is where you spend
and where you cut, but also where the revenue of the state comes from.
And this is why fiscal austerity is also about regressive taxation.
And regressive taxation is fundamentally
the fact that more and more we see everywhere that the majority of citizens
pay in relative terms much more taxes than the elite and the upper bracket.
So part of regressive taxation is
fundamentally increasing, for example, consumption taxes, which we are all paying
the same, me and Jeff Bezos pay the same consumption tax on bread, for example.
Or a cut in corporate taxes, something
that we've of course seen in the last United States administration--
somehow the fact that once more the top pays less taxes than the bottom majority.
That's fiscal austerity.
So how you spend and where the revenue of the state comes in.
Then we have monetary austerity, which of
course is exactly what we're seeing right now everywhere in the globe.
Interest rate hikes is an austerity
measure because it rewards the saving investing classes, big creditors at the
expense of the rest of society that not only has to consume less, but it also
usually has to face harsher labor market dynamics.
And we see even in the United States today, the Financial Times were showing
how the economy is cooling, the labor market is cooling down.
And this is a big effect of monetary austerity.
And finally we have what I call in the
book industrial austerity which is directly an attack on labor relations.
Privatization is big in which you increase the dependence on the market of people
rather than being hired by the public sector with a stable job and certain
rights, you end up having to face the market competition.
And precarious.
It's attacks on organized labor, wage
repression, that can also happen directly in many settings.
So this trinity of austerity, fiscal, monetary, industrial in The Capital Order,
I show how it works together and ultimately has the fundamental effect of
preserving what in my book I call the capital order.
Without understanding, it seems like what
we're experiencing at this moment with the interest rate hikes and Joe Biden
celebrating $2 trillion in deficit reduction, this is a form of that
disciplining of labor that is going on currently.
It's a reshuffling after the COVID
pandemic and people got something extra and they were not forced back to work.
So we've got to discipline labor, we've got to get them back to where we can
control things, where the capital order can be satisfied.
Is that kind of a modern day version of what we're talking about here?
Definitely. So I'm not that surprised by it.
But in a way it's more than obvious in the
last months how the same dynamics that I talk about in the book, and I must say the
book reconstructs the origins of austerity after the First World War.
And there's a reason for this.
And the reason being that it was during
the First World War that forces were triggered that allowed for the capital
order to be fully questioned and put into crisis.
In the 'red biennium,' the years immediately following the Great War.
So 1918, 1920, years in which the majority of citizens--and I looked specifically at
Europe because it was the place in the world in which there was a larger
democratization process going on in a moment of large scale democratization and
large scale demands for socioeconomic change that was extremely radical.
It was not just about reforms.
And of course that was a moment in which, for example, the modern welfare state was
born in Britain and Italy and in other countries.
But it was more than just reforming the system.
It was the idea of completely
uprooting the fundamentals, the pillars of capitalism.
And by pillars of capitalism, I mean what ultimately governs our society today,
which is the private property of means of production.
The fact that investment is done by private businesses and entities.
And wage relations.
The fact that the majority of us has no
other choice to make a living but to sell one's labor power in return for a wage.
Now these are pillars of capitalism that
as citizens of capitalism we tend to take for granted during our daily lives.
And part of the mission of the book is actually to reproblematize them by saying,
actually 100 years ago there was a moment in which nobody thought these were going
to be the founding principles of the society to come.
Everyone was convinced that capitalism,
with its foundation in private property of means of production, and wage relations to
achieve profits, as a way to organize our production process was going to last.
Everyone thought it was over and this was true both for the workers, the majority
who are challenging the system and those who are trying to protect the system.
So while of course the years after that
are years that we can without a problem define revolutionary or the most
revolutionary given the history of capitalism and again capitalism even if we
do grow up thinking that it is an eternal natural given.
I always remind my students that homo
sapiens, so human beings, have been on the planet for 300,000 years and capitalism is
more or less only a little bit more than 300 years old.
Now there's debates on when exactly we can
start defining our societies as capitalist.
But certainly this means that fundamentally we've been in a capitalist
society for only 0.1% of the history of humankind.
So once we realize this and we realize
that capital--and again I have not defined it yet for the audience--capital is the
social relation that is necessary to stand in order for
economic growth in our system to even take place.
In order for GDPs to grow in our society and for the economy to run smoothly and
investment to happen, we need to secure the fact that the majority of us is
willing to sell, once more, one's labor power in return for a wage.
The fact that we are willing to go to work in exchange for a wage.
And this is again something that we are in
a way forced to do without anyone forcing us physically.
But it's the typical impersonal coercion
that someone like Karl Marx described very well.
This impersonal coercion is not against
something that is going to be always present, unless you protect it.
So the mission of austerity is to protect capital as a social relation that governs
our society, and it is in fact the social relation that allows for capital in the
money form, all the commodities we see to even be produced.
And this social relation requires constant protection.
In some moments more than others.
And I think, historically speaking, now we
are in a phase in which, even if economic experts try to hide and deny this truth,
they are very well aware of how much the labor market is, in a way, going through a
phase that is definitely a phase of crisis, in the sense that there is deep
questioning of the very conditions people find themselves in.
We saw the phenomenon of the great
resignation that was very big in the United States.
It's still happening right now, even if
the economy is cooling and the unemployment rate is starting to go up.
It is still the case that many people
refuse to sell their labor power in return for a wage.
And of course this was triggered by, I think many factors.
Certainly also the fact that with the pandemic there were some forms of social
redistribution that were unusual for the American economy.
This has helped problematize our condition
that we usually take for granted as wage workers.
So in this sense, I think today, of course, we cannot say that we were in the
same revolutionary setting as the Red Biennium after the First World War.
But certainly the inflationary pressures are triggering a breakdown of the dominant
ideology--by which the system is the most efficient we can have.
And an eternal system.
And people are realizing that capitalism is not the best and only possible world.
And that's why austerity is fundamental, because we know that with interest rate
hikes and at the same time by curbing social expenditures, you are cooling down
the economy--using the terms economists like to use.
And this will in their terms, fix the
labor market in the sense that they will be able to produce conditions that will
force people to accept lower wages and of course accept to go and work for wage.
And this is something that, once more, is
not something that has to be politically enforced.
And this is why austerity cannot just be reduced to bad economic theory that
prescribes bad economic policy, which is somehow I think, a very simplistic way of
framing things that ultimately depoliticizes austerity.
If you look at austerity just as a tool to manage the economy, which is a typical
stance that most Keynesians take, then you cannot really understand why austerity is
so persistent and present and structural to our societies.
It's not merely madness as it has often been described.
There's method to the madness and the
method to the madness is the fact that we do need austerity in order to enforce a
certain organization of society, which is a classist organization based on wage
labor and exploitation that otherwise people would be not so content to accept.
I look at your book and the way you frame this, going back to originally saying that
the end of World War One was in essence the crisis of capital.
In Russia, you have the Bolshevik Revolution of 1917, you have the returning
Russian troops who didn't kill all the Bolsheviks.
It had a massive change and this was, as
you stated, the overreaction to that revolutionary moment.
Can you take us through what the material conditions and the existing situation at
that point in time were that created this crisis of capitalism?
Yes.
In the book, the capital order is built in two parts.
The first part reconstructs the existential crisis of capitalism, while
the second part is devoted to the understanding of how this crisis was fixed
and was preempted by technocracy and austerity.
So let's focus on the first part.
Crisis of capitalism is more than just an economic downturn.
High inflation and budgetary problems were not only an economic problem at the time,
they actually triggered a fundamental political crisis.
And by political crisis the fact once more that there was a deep challenge of wage
labor and the private property of the means of production.
After the First World War, the majority of citizens were not any more willing to
accept the foundations of the capitalist society.
Why? There are many factors that were involved.
What I tried to reconstruct is the role of war collectivism as one important trigger.
What do I mean by war collectivism?
The fact that the First World War was a massive shock to the economy because it
was the first time that the state had to intervene in the economy, intruding in
what had been until then considered the natural sphere of the market, and
intervened to become the main producer, the main employer, the main exporter.
And this meant the fundamental
repoliticisation of the pillars of capitalism.
It was no longer the impersonal laws of the market that govern society, but it was
clear that the state had a fundamental role in deciding economic policies.
And this was not because the elite and the
establishment just wanted to break with laissez-faire, but they had to break with
laissez-faire because of the necessity to produce for the war.
In order to win the war effort.
So major nationalization of factories made control of the labor force and this
fundamentally made it such that many workers realized the fact that they were
being exploited was a political decision coming from the state.
So in this sense, this escalated a whole
bunch of different degrees of demands for a new society.
In the book, chapter two, three and four
go into the details of the different practices and agendas that were put to the
fore in order to overcome the old status quo.
Everyone, not just the Gramsci and the revolutionary shop stewards in Britain who
were following in a way much of ideas of Lenin, were asking for a new world.
It was actually the elite itself.
So if you read what someone like Lloyd
George was writing in the Times, or anyone who was actually in the state bureaucracy,
it was the time for "Homes Fit for Heroes," for a new world.
All this war sacrifice--now people should get something in return.
So from measures that were going to be about distributing resources.
So the whole reconstructionist trend of the bureaucracy all the way to the Workers
Council movement in Italy led by Antonio Gramsci and Palmiro Togliatti.
So I look at a whole spectrum of
possibilities from the more reformist to the most radical.
And it's very fascinating to see how in the workers council movements, for
example, and in Italy they had a big impact, to the point that everyone in the
summer of 1920, in which for a whole month, the factories in the whole country,
in the whole peninsula--and including, by the way, the countryside in which peasants
were occupying land--the factories were being run by the workers.
They emblematically sat at the desk of
Agnelli in the Fiat factory, and they were running the show.
And these workers movements in Italy had
as direct inspires not just of course the original idea of the Soviets in Russia but
also what was going on in Britain with the revolutionary shop stewards, in which war
was declared both against the capitalist state and against the capitalist market.
And the idea here was that you could only
achieve political democracy if you really achieve economic democracy, which meant
that there needed to be self-government in the production process.
And thus the abolition of wage labor
substituted with the idea of the council, which was fundamentally an understanding
of direct democratic assemblies that would decide on the production process.
And from there the idea that this would be the nucleus of a new state, a state that
was not alienated from the people, but was of the people, for the people.
So I don't want to get into too much detail, I go through of course L'Ordine
Nuovo, was a newspaper, and this was the big thing at the time was that these
changes in action, these new practices required new ways of thinking.
So the concept of praxis that Gramsci
comes up with and lucidly theorizes in his Prison Notebooks was of course the outcome
of his actual militancy during the 1919 -1920 years of the factory councils.
And the point of praxis was that you could not act differently if you didn't think
differently and how thought and action mutually reinforce one another.
So that L'Ordine Nuovo was also a journal in which not just intellectuals, but
workers and workers intellectuals were working hand in hand, would actually think
about novel ways of understanding the economy and new economic theories that put
at the center the worker, rather than, of course, what we see today with the
neoclassical framework that was, of course, emerging at the time in reaction
to these theories that were actually empowering for the people.
Austerity, I would like to say, is more than just policy, it's also the theory
justifying the policy and of course this theory was a theory that came out in
direct opposition to a theory that was instead trying to empower the workers.
So while the L'Ordine Nuovo movement was
putting at the center stage the worker as producer, saying there should not be any
classes, we should all be producers--the abolition of class hierarchies or a common
understanding of all men and women as producers--to a model that instead expels
the worker and puts the entrepreneur at the head of the economic framework and
says the worker is nothing but ultimately a passive add-on that depends on the
virtuous capacity to save and invest of those who can abstain.
And that is the neoclassical framework
that was coined at the time and that is still dominant today.
And it's what students learn when they go to school, though they learn it in a way
that takes impersonal form of the textbook.
So they forget about the origins of this
very theoretical framework that, once more, was embedded in certain historical
moment which was a historical moment of clear class struggle.
So in this I would like to end by saying that it's very interesting to see how a
theoretical framework that explicitly expels class struggle from its model.
So if you look at the neoclassical framework, the foundations of micro
and macro that students learn, there are no classes in the models, there are only
fundamentally agents, individual agents, and the outcome is harmonious.
And it's interesting to see how this harmony amongst individuals was thought
about in a moment in which there was clear conflict amongst classes.
So the expulsion of class struggle and conflict and exploitation from the
economic theory was clearly a very political choice in order to make it such
that people would consent once more to an order that presupposes in fact class
conflict and exploitation in order to even function.
Part of the effort of this book is to again show how the world we live in is
shaped clearly by some economic policies that have as their main objective that of
shifting resources from the majority to the minority.
And this is austerity in its threefold form that I just described.
But these policies would not be active in shaping our daily lives if they weren't
backed and justified by specific economic theory.
And that's why for me austerity is more than fiscal austerity.
It's fiscal, monetary, industrial.
And it's also more than just policy.
It's policy and theory that go hand in
order to preserve consensus for a system that often shakes, often is in crisis.
And once more, I think that we are today experiencing quite a big crisis of it.
Of course not as revolutionary, but yet something is happening nonetheless.
It's enough to think about all the
unionization efforts that are taking place in unknown spheres of our economy in the
United States, the whole Amazon, Starbucks, all the service sectors.
This is unusual and it's something that frightens the establishment.
And even if they portray austerity as an apolitical necessity in order to fix
inflation, it is very clear that of course they need to fix inflation.
But the reason why you need to fix inflation is because inflation expands the
discontent for a system that clearly is not delivering in satisfying the majority.
And if this majority escalates its dissatisfaction, then there's a problem.
There's a political problem that requires fixing.
And that's why austerity is portrayed as a necessity and one that is only technical.
And that's why we should leave it to the
experts of the Fed and other independent institutions while in fact they know
themselves that it's the most political action of all, backed by theory that
pretends to be non political but it's the most political.
It's a very powerful weapon in order to
subjugate the majority to accept what's going on.
That brings to mind something very important.
I'm inundated with positive people who believe that we can simply vote our way
out of this, that they just don't understand.
And I can say that clearly because every
aspect of our life is inundated, as you stated, with austerity messages, with the
concept of austerity baked directly into it.
And your book quite clearly says how economists invented austerity.
So somebody understands the essence of austerity because it was created.
It is not some natural thing that happens.
This power dynamic has played out for over a hundred years.
Is it possible that the people doing this
simply don't understand what they're doing?
I feel it's almost impossible to believe the level of incompetence it would require
for economists and world leaders to not fully understand what is at play here.
Is this a well known thing that is talked
about in smoky rooms or is this just the way it is?
This is a very tricky, fascinating
and difficult question in the sense that there's multiple aspects.
One is for sure that part of why working
as a historian of economic thought is a fascinating task is that any historian
knows that intentionality is not really a metric that makes much sense because how
do you actually figure out what is intentional and what is not?
And part of this, of course, is the fascination with the concept of ideology,
which is the idea, of course, that people may well be convinced to actually be doing
the best of possible actions for their fellow citizens.
But structurally speaking, what their actions and policies turn out
to be is clearly something that is detrimental for the majority.
I'm quite sure that a lot of these mainstream economic experts truly believe
in the virtuosity of their models and nonetheless they pursue it.
Also, my book is not just numbers and abstract concepts.
Even if I tended to give that take right now in the interview.
The book is actually made of people.
I tried to narrate a story, to give it life somehow.
So the experts in my story who are the most authoritative economists, for
example, in Italy under Mussolini's first ten years of fascist rule, and in Britain,
they are the experts for running the Treasury and the Bank of England.
These people are true believers in their models.
Yet at the same time models do prescribe
what they themselves say very clearly: the sacrifice of the majority.
The motto 'Consume less, produce more' is not a motto I made up.
It's actually a motto that was during these international financial conferences
in 1919 and 1922 in Brussels and Genoa, in which experts came together.
They were the first international
financial conferences in which states and their experts and their bureaucrats sat
together and said what are we going to do about this situation?
And so 'produce more, consume less' became the motto.
And for them that was the only way to preserve our society.
So in a way, for them, given that they were convinced that the best and only
possible society was a capitalist society, then of course, for them, that recipe was
going to be a recipe for the good of the whole.
Because the idea was people cannot understand the hard truth, that the only
way to actually have economic recovery is to give up something now.
The reason why we're in a crisis, that people are just too entitled and cannot
understand the fundamentals of economics and ultimately the words they used are not
very different from the words we hear today, as you were stressing.
And just to read you a quote that for me was very fascinating.
And there's many. But Sunak, who now runs the British state,
has resigned from his old position as Chancellor under Johnson.
And he uses words that are exactly the
same words that we can find in my book of those years.
He says, "we both want a low tax, high growth economy and worldclass public
services, but this can only be reasonably delivered if we are prepared to work hard,
make sacrifice and take difficult decisions.
I firmly believe that public are ready to hear that truth.
People need to know that whilst there is a
path to a better future, it is not an easy one." So the depiction of this all is that
we are all on the same boat, we will all sacrifice now for a better future.
And ultimately, I do think that if one
gets the training in mainstream economics, you believe in what you stand for.
This said, again, intentions are not a very good metric historically because the
point is to see, structurally speaking, what these words
and these policies are doing for the material conditions of the majority.
And there is when you realize that actually these experts are playing a
fundamental role in the class struggle, in preserving the class hierarchies of today,
in which the elite constantly gains both in a crisis and in an upturn of the
economy, and the majority constantly loses.
And this is why I think the point here of austerity is that even if interest rate
hikes and cuts in the budget will cause a downturn, this is for economists,
ultimately a short term cost for longer term gain, which is that of stabilizing
the class relations that are more foundational to the system.
So this is why you cannot avoid seeing their agency as part of a bigger picture.
So apart from their intentions, and again, I'm sure that ultimately they do think
that they're doing stuff for the good of everyone.
We need to figure out what their historical role is as actors in
reaffirming a society that is clearly a society that has failed.
And this is under the eyes of everybody at this point.
And the American society is at a level of
social failure that you can just feel and breathe if you walk down the streets of
any city, even the cities are the richest of the country.
You go in San Francisco, you go in New York City, the hub of advanced capitalism,
western capitalism, and it's a complete nightmare.
Dehumanized people everywhere.
The level of dehumanization is so obvious that I think now more than ever the effort
of the experts to try to still build up a rhetoric that has us think that anyway,
this is the best way we can go, becomes more and more difficult.
And that's the role of austerity, because
austerity is the best weapon they have to try to convince.
And if they can't convince, they can't coerce.
So in my book, I say austerity plays with a double strategy: coercion and consensus.
If you can't convince people that, as
Rishi Sunak and my guys say, the truth, they have to learn the truth and we have
the truth in our hands and we can try to convince them, we can try to educate them.
So the whole idea of educating people to the importance of paying back the debt and
the importance of healthy economic growth and flexible wages and as you were
pointing out things that then trickled down at all levels of our society.
You were pointing out how we're bombarded by these messages.
And of course it's messages that have been simplified and are conveyed through
different means, but ultimately they are foundational to the economic,
sophisticated, mathematically -based economic models.
In the sense, if you cannot convince
people of this hard truth through education, through propaganda of various
sorts done with all the new media things we have, you can do it through coercion.
Meaning that, well, if you create a
downturn, an economic downturn will act as a disciplinary mechanism.
And this is not me saying it, as anyone
who has read any work of political economy, starting from the classic of
Michal Kalecki of 1943, the Political Aspects of Full Employment, in which he
clearly says that in order for capitalist economic growth to function smoothly, you
need the sack, the fright of being fired, to discipline workers.
Otherwise why would they accept the
conditions they're in as not being in charge of their labor and getting paid
lower wages than the amount of value they're producing?
So at that point it's clear that if you can't convince people, you can force
people, because once you create an economic downturn, higher levels of
unemployment will necessarily kill the bargaining power of the workers.
Silence the workers.
We're seeing now that layoffs have started once more in the tech industry, but it's
going in all sectors, the unemployment rate is slowly raising.
The UK is already in a recession.
And so that's the game.
And I think in a sense, deep down, and this is why it's a tricky question,
because from one point of view, I would like to say with the power of ideology and
the power of ideology, what hegemony stands when the ideas that are beneficial
to the ruling class ultimately are the ideas that everyone shares as their own.
And the fact that the experts at the top do somehow think that they are wielding
the eternal universal, objective truth of how to run a society.
But at the same time, these experts, even today are also very explicit about the
fact that monetary policy is not just about the monetary sphere, but in order
for it to work, it has to impact labor relations.
So you can read any mainstream economist of political wage right now.
Look at someone like Larry Summers.
He's quite explicit.
In order for our labor market to be
healthy again, we need 7-8% unemployment rate.
So you see there that even if they're convinced to have the truth that is good
for all in their hand, at the same time it seems to me that there is a fundamental
awareness of how the system only works if the majority suffers.
So it's almost a paradox because in a way the power of ideology, so their intentions
are good and ultimately we don't really care about their intentions though,
because what matters is what their actions ultimately structurally mean.
But at the same time, the fact that they're quite overt in the impact that
fiscal and monetary austerity will have on the labor market.
That's why my colleague Duncan Foley has a
really nice line saying that raising interest rate is not necessarily just
about targeting inflation, but it's also about targeting the rate of exploitation.
And this is something that the experts
that I look at, in my time, had understood.
If you think about the birth of
macroeconomic policy and Ralph Hawtrey, who is a big protagonist of my book,
someone who has deeply influenced John Maynard Keynes, and Keynes himself--the
whole point here was to realize how monetary management was going to be
effective only if you are able to shape the behavior of the majority of the
economic agents and thus the direct impact that interest rate hikes will have on
consumers, enforcing them to consume less so that the aggregate demand would go down
and thus you could manage monetary stability.
So this is something that is in the
reflection of economists always, even if we think about monetary policy as
something very detached from our daily lives.
The whole point of monetary policy is actually to show you how it has a direct
impact on the consumption behavior of the majority.
So a downturn will in a way avoid
unproductive consumption and austerity instead should help productive
consumption, which is ultimately investment.
And this is why you need to shift the
resources towards the investing classes, which of course are the top classes.
And this is why you need the austerity trinity.
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I love that austerity trinity.
It's very easy to understand.
I'm a systems guy.
And that brings me to another point.
You explicitly focus your efforts for your
storytelling in the second half of the book on England and Italy.
But this is trying to tie what you've produced into modern reflection.
We have a situation where the global south has been basically used, where we take
what we want, we steal their resources through exploitation, through the IMF and
structural adjustments, where we have them eliminate their social safety nets and
stop nationalizing protections of their own industry, all in the name of opening
markets as part of the carrot and stick of the IMF to receive loans.
And when the United States raises interest rates, it makes it more challenging for
those whose national unit of account is not the US dollar.
So they have to find a way to get those
reserves to be able to keep their economies going.
And with the interest rate hikes, it's
having an incredibly negative effect around the world.
As you look at the framing of international finance.
I know going back to Lenin, in his book What is to Be Done?
And Imperialism, the Highest Stage of
Capitalism, he was talking about it way back then.
And you see it happening now, and you saw
it happen with Greece, and you saw a lot of this happen in the EU.
This model seems to be not just shared by one country or another.
It seems to be a universal ideological
unification--almost polar hegemony of sorts--of thought.
Nations have their own rules and laws, and
they have their own unit of account in most cases, minus the EU.
How does that come to be?
Is this the United States strength in
terms of domination of the world through empire?
Or is this more academic?
How does this thought process come to be in this?
I would say that a book that for me is very good, also talking about these points
is Michael Hudson's book Super Imperialism that I would definitely recommend.
It's a very, very good book.
What is certain is that I think we need to keep the class dimension.
That's why I tried to focus on the West
and two European countries, because it's interesting to see how austerity is
wielded by the elite against its own citizens.
That's when I would like also to go back
to try to maybe compare what was going on in a democratic setting like Britain and
what's going on today with respect to a fascist one.
This class struggle that is happening
within nations is also a class struggle that is going on between nations.
But I also think it's very important also
when we talk about America and Greece and Italy...
Again, the idea of taking as a unit and analysis a country is always very tricky
because the countries within the country, there's so many class antagonisms and
hierarchies that then, of course, the whole point is that the elites in all the
financial institutions in the west are gaining massively, not only from increases
in mortgages of American citizens, but also from the increase in the debt
repayment of all these countries in the south of the globe that, of course, are
countries in which, once more, the resources are really the resources of
the majority and not of the elite of that country.
So again, we see how the class struggle plays off at an international level and
austerity will definitely trigger further austerity.
And also austerity in the North is triggering greater austerity in the South
also because there is a clear grip in which these countries are in, in the sense
that, in fact, we are seeing what Sri Lanka is experiencing right now.
It is a huge problem when the North
decides to speculate against your debt in terms of possibilities.
And this I'm seeing as an Italian, that it is happening in Italy as well.
Italy is a country that wants to affirm
its positioning with NATO and with the Anglo-American block.
But we are a periphery and we well know
that there is no national sovereignty until we are indebted at these levels.
And once speculation starts and the spread of German bonds goes up, then it is easy
for the heads of the state to use the usual talking points and describe
austerity as the only necessary way forward.
In fact, the hands are much more tied than a country like the United States.
And you being someone who knows about MMT,
we know that there's many people talk about it.
While of course there are some structural limits to capitalism, certain countries
experience these limits in a slightly less strong form.
And the United States is a country that could in fact push the limits of
capitalism towards potentially more distributive forms.
But again, I think there's limits
everywhere, including again--because the capital order we've seen with the small
amount of money that people have gotten with the pandemic relief, people got
nothing with respect to what the big corporations and the actual financial
institutions got, yet even breaching that limit of giving
something as an entitlement--so the fact that people receive resources just because
they are citizens and alive, economic means just because they live--is
already something that breaches the capital order a little bit.
Because for the capital order, you're only
going to make a living if you sell your labor power, right?
So already there we see how economists are
the first ones to blame these pandemic reliefs, these, like, nothing, by the way.
Still, ideologically speaking, these reliefs open up spaces to imagine
possibilities of organizing our society differently.
People start thinking, if the state can give me a thousand, why can't it actually
make it such that I can have enough to eat and live daily?
Why isn't this possible?
So this is something that is problematic
for those who want to preserve the capital order.
So again, there's clear limits to what can
be done even in a country like the United States, because once social policies start
questioning what are taboo obvious facts that we do need to go work for a wage,
then people might decide not to go work anymore.
And this was something that you saw after
the First World War, and I think it's something that, to a minimal degree, we
are also seeing in the United States, and that's something to consider.
So going back to this historical parallel with the present is in fact what happened
to Mussolini when he was governing in the 1920s.
And if I can, I would like to spend a couple of words on this in the sense that
Mussolini himself was one of the best students of austerity in the 1920s.
Mussolini came to power, by the way, not
through a coup, but he was called by the King to fix a political crisis.
Okay? So once more, it's very important for us
to stop thinking with the eyes of the present.
In the past, people who were living in the
1920s didn't necessarily recognize that a fascist dictatorship was being built.
So, now we can say, oh, those were the 20
years in which there was a fascist dictatorship in Italy, people living in
1922: So there's this guy, he's clearly a very charismatic, strong man.
The King has brought him to fix the
political crisis because our country was not governable.
There were too many workers' strikes, too many factory councils.
We needed some order, and he was the right man at the right time.
And so Mussolini came to power and he realized that if he did austerity, that
was the best way to secure the establishment of his dictatorship.
In fact, he gained the praise of the whole liberal establishment.
By liberal, I mean classical liberalism.
I just wrote this piece for Jacobin
America called when liberals fell in love with Mussolini.
And you can see that he gained the praise of the whole liberal establishment, not
just in Italy, but also abroad, mainly in the United States and in Britain.
If you read what people were writing in the Economist, in the Times, there are
only phrases for the efficient economic policies of someone like Mussolini, who
was able to enforce industrial peace, kill strikes, repress wages, privatize, get
finally the market back on its feet, take away all that work collectivism and state
intervention of the economy, and so on and so forth.
And this, of course, Mussolini did
strategically to gain power, but he also had to do it somehow by economic necessity
exactly by what you were saying before, because the fact that the United States
were deflating the economy so much in 1919-1920 made it such that all other
countries needed to impose austerity as well.
And it was again the fact that debt became
more expensive, and in order for the exchange rate to be maintained, both the
British and the Italian elite were forced into austerity.
So once more we see how what's happening at the level of domestic policies in terms
of class struggle cannot be really separable from the fact that these
capitalist nation states in a globalized economy in which the more powerful nations
can set the tone for greater austerity everywhere else.
What you've said is very powerful.
And I appreciate you, by the way, taking a step outside of just the confines of the
book because your book brought me into rethinking a lot of things, really
reconnecting some points that maybe I had gotten wrong.
For example, really hyper focusing on
neoliberalism when in reality, even though neoliberalism is its own animal and it
serves a purpose for conversation and for explanation, it goes back so much further
and I think that your book really exposed that for me.
It really comes down to an understanding that very few have.
Mussolini was celebrated in his day, even Hitler was celebrated by many in his day.
As you describe the more democratic British version of things and then Italy.
What do you think are the main differences between the two?
One powerful message of the book is: fascism and liberalism, parliamentary
democracy and authoritarian state, we tend to think of these as polar opposite
institutional settings and ideological spheres.
Actually, once you focus on austerity and what the state was wielding as correct
economic policies in those years, which is what we still see now again,
you realize that they're not so different after all and they were just reaching same
objectives through slightly different means.
The reason why I focus on these two countries is exactly
the provocative idea that capitalism in a democratic setting and capitalism in an
authoritarian setting requires the same type of policies in order to run smoothly.
And they were also supporting one another as countries and as economies.
So let me be more specific.
Mussolini could directly curb the
revolutionary strength and the prospective for change of the workers through laws.
So the state imposing wage repression by law.
And this happened especially in 1926, in combination with the need to deflate, in
order to regain the exchange rate of the lira and anchor it back to gold.
Fundamentally austerity by direct state repression.
Mussolini outlawed strikes, outlawed unions--except for the fascist union
--undertook the greatest privatization campaign in the history of modern
capitalism until that point, laid off thousands of public employees.
It could do this with state force and with the black shirts and the secret police
jailing, killing, and beating any political opposition.
Now the same was happening in the UK, just not directly, but a little bit more
indirectly with the same outcome in the sense that it was the experts at the head
of established institutions of the Bank of England and the Treasury.
So technical institutions with experts that were not elected democratically, so
they did not have the problem of having to stand elections in the following term
because they were state bureaucrats or bureaucrats of the bank.
They wielded the power of macroeconomic management by tweaking the dials, for
example, by the interest rate hikes or curbing public expenditures.
And this created a downturn.
So the famous 1919-1920 power of the workers, I have a chapter
that looks at it also from a point of view of stylized facts.
If you look at the wage share--it was very
high at that moment--with the recession that was induced in large part, and I
would say for the greatest extent, by monetary and fiscal austerity.
The results were depression.
Unemployment soared like never before.
It reached almost 20% of the insured workforce.
And from then on, you see very clearly
from the data I provide in the book, is that the immediate result of higher
unemployment was that strikes basically stopped.
And then after that, profit rates surged
again and the wage share went down and the capital share went up.
And when I talk about wage share, I mean
the portion of the GDP that goes to wages rather than profits.
And this is where I study marginalist economists.
So the founders of the neoclassical
mainstream economic framework that still dominates the worldviews of economic
experts at the head of the Fed and other big institutions today.
These experts that were actually building
the strength of their theory in those years, the neoclassical framework was
actually not a framework that was dominant yet.
Because, for example, in Italy we had the historical school of economics that was
much more influenced by the German tradition.
So these experts that were battling a battle in academia to dominate in terms of
theory were provided with an opportunity of a lifetime of seeing their models being
directly implemented without any political liability through an authoritarian state.
So Maffeo Pantaleoni, Umberto Ricci, all these famous economists at the time
thought this was a great opportunity to work for Mussolini's cabinet and implement
austerity, which was the direct outcome of their economic theory.
And they could do this without any political opposition and actually with
state law that was directly appeasing the workers.
And once more, this industrial peace by force was what the liberal world,
especially in the United States, were so excited about.
I did a lot of archival work for this book, and it's quite fascinating when you
find some quotes that speak so obviously to the situation.
I could not even imagine this.
This is Montagu Norman, the head of the
Bank of England, who's writing to Jack Morgan of JP Morgan Chase.
Jack Morgan was a big supporter of
Mussolini and supported him financially from the very beginning.
So the connection between Mussolini and the financial establishment in the United
States and especially Wall Street is something that is also well documented in
the book of Gian Giacomo Migone called The United States and Fascist Italy.
This letter I found in the archive of the bank when I went to do some research.
Montagu writes, "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." So Montagu Norman in this letter is of course describing the fact that
freedom of press has been suspended and that there's all these killings going on.
But this is 1926, so when he writes this
letter, it's been already four years of fascist regime.
But he's very clear about the fact that
the Italian population was too turbulent and they needed to be disciplined.
Churchill says, "Different nations have different ways of doing the same thing.
Had I been an Italian, I'm sure that I should have been with you from the start
to finish in your victorious struggle against Leninism.
But in Britain we have not yet had to face this danger in the same poisonous form.
But I do not have the least doubt that in
our struggle we shall be able to strangle communism." So we see here that even some
like Churchill is pointing out the fact that we Brits are also strangling
alternatives by austerity, just in less direct ways.
So we see a complete reversal of the bargaining power of the worker and
fundamentally the silencing of the workers.
So I want to read this quote from GDH Cole.
For me it's a very important quote.
GDH Cole was a guild socialist who was not
only intellectual, he was actually active at that time with the whole guild
socialist movement in the building industry.
And he observed very sharply what was going on.
And especially in one quote that really points to the coercive effect of
austerity, even in supposedly democratic setting.
He basically is talking about 1922, after two years of austerity that brought the
economy into the doldrums, as Pigou put it.
So a state of fundamental, permanent under-utilization of resources.
"The big working class offensive had been
successfully stalled off and British capitalism, though threatened with
economic adversity, felt itself once more safely in the saddle and well able to cope
both industrially and politically with any attempt that might still be made from the
labor side once seated." So this is very obvious.
So again, short term cost? Of course.
Immediately there will be a downturn and capitalists will lose in the short term.
But then if you look at, for example, the data on the profit rate, you see that
really it's very briefly after that, the trend is reversed and that you are able to
stabilize what is more foundational, which is the capital order.
So again, if austerity does not stabilize the economy, it stabilizes capital order.
Or better, destabilizing the economy in terms of economic growth helps preserve
the capital order, which is much more structural to capitalism in the long run.
So in fact, like Cole put it, capitalism
was once more safely in the saddle because labor was defeated.
So this is for me, a very important
message of the book is that, historically speaking, we've constantly seen
parliamentary democracies hailing the successes of authoritarian regimes.
You can imagine what happened under Pinochet's dictatorship in Chile,
what happened in the Suharto government in Indonesia, what happened with Boris
Yeltsin in 1992 with the fall of the Soviet Union.
All of these authoritarian regimes that were explicitly repressing political
opposition were hailed in the main liberal press.
If you go into the archives of The Economist, it's impressive how much
someone, for example, like Larry Summers, had no doubt that Boris Yeltsin was doing
the right thing at the right time in order to impose much necessary austerity that
was supposedly going to be for the benefit of the Russian people.
So in my book, the last chapter tries to show how the story that I tell more in
detail in the 1920s recurs throughout the 20th and the 21st century.
And once more, the alliance of liberalism
and fascism in its diverse forms is a constant, not just because they actually
support each other politically, but also because ultimately they're achieving
the same ends with slightly different means.
This reminds me very much of the Democrats and Republicans in the United States.
We often talk about the two wings of the same bird and the Democrats.
As a UK version of this.
Clara, in some of your talks you talk about future projects, Michal Kalecki and
full employment, which is near and dear to my heart, being that MMT is foundational
to the job guarantee as part of its core tenet.
What are you working on in the future?
Where can we find more of your work?
Actually I'm envisaging a trilogy, so this would be the first one of three.
And the next book, I just recently signed a contract for Chicago Press since they've
been really wonderful to me, especially Chad Zimmerman, my editor.
He's fantastic and I owe a lot to him if the book came out as well as it did.
The next book is actually going to be
about challenging the Keynesian epoch after the Second World War.
So I'm going to be looking at exactly what
happened, not after the First World War, but after the Second World War, because I
think there is a lot to be said about the idealization of the golden epoch of
capitalism, in which, in fact, it seemed like the system could guarantee a
democratic well-being that was, in fact, much more diffused.
And I think in a way this is important politically, because I think there was
much more austerity than what it's normally thought about, both in terms of
the type of economic theory the experts that were advising governments were
bringing out, but also in terms of the policy.
So I think I'm going to be looking more closely to the United States.
In the book, The Capital Order, the United States is an actor in the background.
But the second book will be more focused,
I think, on the United States, to breach the common narrative.
Also politically, I find it very problematic that as we face all of these
unprecedented challenges to our system right now, from the social catastrophe to
the climate catastrophe, that people then tend to revert to, 'oh, we can just have a
New Deal once more, or a new Bretton Woods,' or...
In a sense, the idea that, 'yes,
capitalism has gone astray because we're in this neoliberal period.
But ultimately there was a virtuous moment in which the real essence of capitalism
can be a good one, if only we can reform it in the right direction.' And I think
this is very problematic because I think, especially today, in which all these
challenges are new and we are living the deepest contradictions of our system, we
cannot just be, in a way, blinded by the idea that we can just revert to the past,
especially when the past is an idealized one.
And I really do think that this Keynesian
epoch was not as rosy as a lot of progressives want us to think, and that we
should really try to think anew for the future to come.
So that's going to be the next step, is to try to see what is the relationship
between austerity and Keynesianism after the Second World War.
Because in my first book, I very well show
how Keynes himself was one of the biggest fans of austerity in the early 1920s.
Then he reverts to critique of austerity
only once the capital order was fully re-established.
So Keynes himself is not a main actor in my book, but he is present and he is
someone who clearly said that in the hot years and the revolution years, 1919-1920,
there was no way out but austerity because we needed to preserve the capital order.
Then once that was done, once the workers were defeated, then you could envisage
potentially some public spending, but certainly not in a moment in which public
spending could escalate further demand for social change.
Wow, I cannot wait.
We have a bookstore that we prop up the
books of the people we interview, and this is definitely going to go in that.
We're very interested in buying bulk and
getting them out there to people, especially when they have an impact.
And I believe this book is a must-read for
every single person that wants to see change.
You have to understand where we come from to know where we're going.
And this really has opened my eyes quite a bit.
This is such a powerful book, and Clara, I
really appreciate the effort and time you took with me today.
I hope we can have you back on in the future.
I have so much more to ask you, but we'll save that for another time.
For sure. I would like to end maybe by reading you
the last quote of the ending words of chapter ten.
I wrote: "Austerity is a political project
arising out of the need to preserve capitalist class relations of domination.
It is the outcome of collective action to foreclose any alternatives to capitalism.
It can thus be subverted through collective counteraction.
The study of its logic and purpose is a
first step in that direction." So I'm writing this book because I think we
really need to understand how our society works in order to actually change it.
And this is the first step, is to really stop idealizing what's going on.
And this is why history is so important to really grasp the logic and the dynamics
and thus potentially open our eyes to a different future.
This just made my day.
So Clara, thank you so much for joining me.
I really appreciate it. Thank you.
I feel so honored and it was such a pleasure.
This is Steve Grumbine with my guest, Clara Mattei.
Macro N cheese.
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