Episode 198 – The Trinity of Austerity with Clara Mattei

Macro N Cheese – Episode 198
The Trinity of Austerity with Clara Mattei
November 12, 2022

[00:00:04.760] – Clara Mattei [intro/music]

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.

[00:00:21.940] – Clara Mattei [intro/music]

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”.

[00:01:35.140] – Geoff Ginter [intro/music]

Now, let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

[00:01:43.140] – 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.

[00:03:03.340] – Clara Mattei

It’s an absolute pleasure to be here. Thank you for inviting me.

[00:03:07.770] – Grumbine

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?

[00:03:24.410] – Mattei

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.

[00:08:18.860] – Grumbine

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?

[00:08:56.510] – Mattei

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.

[00:16:50.360] – Grumbine

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?

[00:17:29.290] – Mattei

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.

[00:28:30.110] – Grumbine

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?

[00:29:33.490] – Mattei

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.

[00:41:37.910] – Intermission

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[00:42:28.910] – Grumbine

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?

[00:44:27.910] – Mattei

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.

[00:52:25.840] – Grumbine

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?

[00:53:19.090] – Mattei

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.

[01:04:03.340] – Grumbine

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?

[01:04:35.370] – Mattei

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.

[01:08:02.060] – Grumbine

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.

[01:08:42.160] – Mattei

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.

[01:09:30.710] – Grumbine

This just made my day. So Clara, thank you so much for joining me. I really appreciate it.

[01:09:36.640] – Mattei

Thank you. I feel so honored and it was such a pleasure.

[01:09:40.310] – Grumbine

This is Steve Grumbine with my guest, Clara Mattei. Macro N cheese. We are outta here.

[01:09:52.990] – End credits

Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts, and promotional artwork by Andy Kennedy. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like to donate to Macro N Cheese, please visit patreon.com/realprogressives.