In this excerpt of a new book, The Capital Order, Clara Mattei traces the origins of austerity to the period just after World War I, and argues it is a tool for protecting capital and suppressing upstart working classes.

In March 2020, during the earliest days of the COVID- 19 pandemic, the Democrat governor of New York, Andrew Cuomo, announced plans to slash Medicaid spending to hospitals by $400 million as part of his state budget. It was a shocking announcement: on the threshold of a pandemic, one of the country’s most high-profile politicians was informing the public that he planned to underpay hospitals caring for New York’s poorest and most vulnerable. “We can’t spend what we don’t have,” Cuomo explained with a shrug in a press conference. The cuts were expected to go deeper in the following years, with similar cuts to come for the state’s public schools.

In October 2019, following an announced increase in the subway fare for citizens of Santiago, Chile, citizens flooded the streets in protest— not because of transit concerns, but in response to the cumulative public toll of fifty years of privatization, wage repression, cuts in public services, and marginalization of organized labor that had fundamentally hollowed life and society for millions of Chileans. With hundreds of thousands demonstrating in the streets, Chile’s government responded with dictatorship-style martial law, including a series of deeply unsettling displays of police force that spanned weeks.

“The timing of austerity’s invention reflects its animating motivations.”

On July 5, 2015, 61 percent of voters in Greece passed a referendum to oppose a bailout plan from the International Monetary Fund and the European Union that was proposed to address Greece’s sovereign debt crisis. Eight days later, and in spite of the public referendum, the Greek government signed an agreement anyway, settling on a three-year bailout loan that limited how the country could spend money on its people: Greece had to impose more pension reductions, increase its consumption taxes, privatize services and industries, and implement a pay cut for the country’s public employees. Two years later, the Greek government privatized the country’s ten main ports and put many of its islands up for sale.

It is a trope of twentieth- and twenty-first-century life that governments faced with financial shortfalls look first to the services they provide their citizens when making cuts. Instances like these are innumerable and span every country in the world. When this happens, it produces highly predictable, uniformly devastating effects on societies. Call it the austerity effect: the inevitable public suffering that ensues when nations and states cut public benefit in the name of economic solvency and private industry. While austerity policies may not be identified by name, they underscore the most common tropes of contemporary politics: budget cuts (especially in welfare expenditures such as public education, health care, housing, and unemployment benefits), regressive taxation, deflation, privatizations, wage repression, and employment deregulation. Taken together, this suite of policies entrenches existing wealth and the primacy of the private sector, both of which tend to be held up as economic keys that will guide nations to better days.

Americans have seen these policies repeated by governments at every level. Attacks on unions have decimated workers’ collective bargaining; minimum wages languish at poverty levels; courts enforce “non-compete clauses” that bar certain workers from changing jobs in pursuit of better pay; welfare has transformed into “workfare,” i.e., government assistance contingent upon low-wage work. Most tellingly, the country’s regressive tax policies enforce inequitable sharing of public expenses: a larger share of tax revenue drawn from consumption taxes, which are shared across a society, paired with exorbitant tax cuts across top income brackets—91 percent during Eisenhower’s presidency (1953– 1961), 37 percent as of 2021—as well as a reduction in capital gains taxes and corporate taxes. (The latter were lowered in 2017 by the Trump administration, from 35 percent to 21 percent, a remarkable shift from the 50 percent rate of the 1970s.) While wages in the US have been stagnant for decades, for the first time in history the country’s richest 400 families pay a lower overall tax rate than any other income group.

Austerity is not new, nor is it a product of the so-called Neoliberal Era that began in the late 1970s. Outside of the less than three booming decades that followed World War II, austerity has been a mainstay of modern capitalism. It has been true throughout history that where capitalism exists, crisis follows. Where austerity has proven wildly effective is in insulating capitalist hierarchies from harm during these moments of would-be social change. Austerity is capitalism’s protector, popular among states for its effectiveness and billed as a means of “fixing” economies by increasing their “efficiency”— short-term readjustments for long-term gains.

In his famous book Austerity: The History of a Dangerous Idea, the political scientist Marc Blyth shows that although austerity has not “worked” in the sense of achieving its stated goals across history (e.g., reducing debt or boosting economic growth), it has nonetheless been employed by governments over and over again. Blyth refers to this pattern of compulsive repetition as a form of madness. However, if we view austerity in this book’s terms—as a response not just to economic crises (e.g., contraction of output and heightened inflation), but to crises of capitalism— we can begin to see method in the madness: austerity is a vital bulwark in defense of the capitalist system.

When I refer to a crisis of capitalism, I do not mean an economic crisis— say, a slowdown in growth or an uptick in inflation. Capitalism is in crisis when its core relationship (the sale of production for profit) and its two enabling pillars (private property in the means of production; and wage relations between owners and workers) are contested by the public, in particular by the workers who make capitalism run. As part of these expressions of unhappiness, people have historically demanded alternative forms of social organization. Indeed, and as this book will demonstrate, austerity’s primary utility over the last century has been to silence such calls and to foreclose alternatives to capitalism. Mostly this occurs in times of public outcry and worker strikes— not, as it is often advertised, in times when states and governments seek to spontaneously improve their economic indicators by practicing greater economic discipline.

Austerity as we know it today emerged after World War I as a method for preventing capitalism’s collapse: economists in political positions used policy levers to make all classes of society more invested in private, capitalist production, even when these changes amounted to profound (if also involuntary) personal sacrifices. Austerity functioned as a powerful counteroffensive to strikes and other forms of social unrest that exploded on an unprecedented scale after the war during the early 1920s— a period traditionally, and oddly, overlooked by political and economic scholars who study austerity. The timing of austerity’s invention reflects its animating motivations. Of greater importance than austerity’s purported economic efficacy was its ability to guard capitalist relations of production during a time of unprecedented social organizing and public agitating from working classes.

Austerity has been so widespread in its uptake over the last century that it has become largely undetectable: the economics of austerity, with its prescribed budgetary cuts and public moderation, is largely synonymous with today’s economics. This makes a critical history of austerity, especially one rendered in class terms, profoundly challenging. But to the extent that we stop perceiving austerity as a sincere toolbox for managing an economy, and when we consider its history through the lens of class, it becomes clear that austerity preserves something foundational to our capitalist society. For capitalism to work in delivering economic growth, the social relation of capital— people selling their labor power for a wage— must be uniform across a society. In other words, economic growth presupposes a certain sociopolitical order, or capital order. Austerity, viewed as a set of fiscal, monetary, and industrial guardrails on an economy, ensures the sanctity of these social relations. The structural limitations it imposes on spending and wages ensure that, for the vast majority of those living in a society, “work hard, save hard” is more than just an expression of toughness; it’s the only path to survival.

This book examines the history of how this system came to high fashion in the twentieth century, including its most powerful expression in the postwar economies of Britain and Italy. In both cases, austerity was a means for economists in power to reimpose capital order where it had been lost.

Reprinted with permission from The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism by Clara E. Mattei, published by the University of Chicago Press. © 2022 by the University of Chicago Press. All rights reserved.