When we were fighting the IMF and World Bank-imposed structural adjustment or austerity programs in the 1980s and 1990s, many of us thought that we were up against a strategy that had been formulated mainly as a response to the social democratic compromise with capital in the Global North and to state-led developmentalist initiatives in the Global South. Of course, we knew that the intellectual inspiration for neoliberalism came from nineteenth-century classical free-market-oriented economics.
What few of us realized at the time was that the neoliberal counterrevolution that took off in the late 1970s had an earlier manifestation in the early part of the twentieth century, and this had provided a theoretical and policy arsenal that the later movement drew upon.
Clara Mattei’s The Capital Order: How Economists Invented Austerity and Paved the Way for Fascism is a masterful fusion of archival research, ideological deconstruction, and political economy that captures the post-World War I era, which was marked by acute class conflict. Although the revolution in Russia is quite familiar, less well-known is the situation in Western Europe, where there was a revolutionary challenge to capitalism, though of a less violent sort. Mattei is convincing when she documents how the role of the state in controlling all dimensions of the economy for the war effort led unwittingly to a “denaturalization” of the market economy, that is, to an unmasking of the “laws of the market” as really a political project benefiting a few that provided workers with a glimpse of a possible alternative order. Reconstructionists and L’Ordine Nuovo Focusing on the situation in Britain and Italy, Mattei details the two key responses to the revolutionary ferment. The “enlightened reconstructionist elite” sought to buy social peace by having the state take an active role in providing workers with better housing, social insurance against old age and disabilities, and greater educational opportunities, all of which entailed expansive budgets. The reconstructionists were not a homogenous grouping, nor did they seek to dismantle the hierarchical order. Yet they shared “a revulsion to competitive individualism and laissez-faire capitalism,” thus “profoundly disputing the economic doctrine that for centuries had stood as the cornerstone of capital accumulation.” In many ways, they were the ideological predecessors of the Keynesian economists of the post-World II era.
The reconstructionists triggered a process that saw a “mutually enhancing relation between reforms and working-class consciousness,” so that “ironically, the reformists, who had bent the iron laws of the market to avoid a revolution, had actually contributed to sparking another one.” The leading force in this radical offspring of the reformists was the Turin-based L’Ordine nuovo group whose key movers were the young Antonio Gramsci, Palmiro Togliatti, and Angelo Tasca.
Gramsci is often encountered only as a theorist, as the source of the many provocative insights of the Prison Notebooks . One of the many delights of Mattei’s book is its showing how these ideas were forged by Gramsci in action, as he, along with his comrades, sought to channel a spontaneous working-class rebellion into a revolutionary movement. The “factory occupation” movement that radiated throughout Northern Italy from Turin was guided by four insights, developed in industrial combat. One was that there was no natural order of things, that market relations, especially the sale of labor power in return for wages, were really socially constructed assertions of the power of one class over another.
Second was that if the labor-capitalist relationship was not a functional one but one of exploitation, then it was the task of workers to create a new relationship to the means of production, which was to take over managing them, mainly through the agency of “factory councils.” Third, praxis was central in forging the new relationship between worker and machines, and among workers. As Mattei puts it, “L’Ordine nuovo was a full-blown experimental trial of Marx’s Eleventh Thesis on Feuerbach: “Philosophers have only interpreted the world; now is the time to change it.” Thus, the practical experience of organizing within factory councils was understood as the people’s “new school.” The factory councils, she observes, “were the living expression of praxis, their regulations guaranteed a melding of theory and practice that was in concept essential for self-government.”
The final principle that animated Gramsci and his comrades was the unity of politics and economics, as opposed to the separation between a formally democratic political sphere and an autonomous economic realm governed by immutable laws over which people had no control. As Gramsci put it, “[B]orn from labor, the [council] adheres to the process of industrial production…within it economics and politics merge, in it the exercise of sovereignty is all one with the act of production…in it the proletarian democracy is realized.” Saving Capital Massive strikes in Britain and the factory occupations in Italy in the years 1919-20 gave the establishment the sense that the European working class had capitalism by the throat. It is at this juncture that economic technocrats came to the rescue. These figures, like R.G. Hawtrey and Otto Niemeyer in Britain and Alberto De Steffani, Maffeo Pantaleoni, Umberto Ricci, and Luigi Einaudi in Italy, realized that the challenge was not simply to impose economic and political order; it was, fundamentally, to reestablish the ideological hegemony over workers that had been destroyed by the explosive conjuncture of the war economy, the reformist movement, and the factory insurgency. In short, the ideological context that would allow capital accumulation to take place had to be restored.
What they formulated, though working largely independently, was an economic paradigm whose centerpiece was savings. The economy could not function without savings, which were needed for investment in production. This meant savings had to be channeled to the figure who could invest rather than consume them, meaning the capitalist or entrepreneur, the person who personified the virtues of austerity. Workers in this model were seen as people that were unable to save but consumed resources that could otherwise be invested, or they were depicted as incapable of managing the process of turning savings into investment that would keep the industrial machine functioning, to the benefit of the whole society.
The technocrats sought to portray the austerity paradigm as constituting a set of universal economic laws, while being quite conscious it was designed to reassert the control of the capitalist class. Equally important, they sought not just to intellectually convince people; they were out to get them to morally internalize austerity. Thus, the emphasis on saving and thrift as virtuous. Restoring Class Hierarchy Austerity had interrelated dimensions: fiscal, meaning cutting or keeping down budgetary expenditures; monetary, meaning keeping interest rates high and tying the money supply to gold; and industrial, meaning depressing wages to ensure a high investment rate. It is amazing how the later incarnation of austerity in structural adjustment in the 1980s was so faithful to the original. And likewise striking is how the austerity formula failed to produce the promised economic growth in both instances owing to what its critics pointed to as its internal contradictions.
As I pointed out in my 1994 book, Dark Victory , there were hardly any successful cases of structural adjustment, the reason being that its key elements got the economy stuck in a “low level trap, in which…increased unemployment, reduced social spending, reduced consumption , and low output interact to create a vicious cycle of stagnation and decline, rather than a virtuous circle of growth, rising employment, and rising investment, as originally envisaged by World Bank theory.”
Mattei’s answer to this seeming paradox is that austerity was never designed to restore growth. That was rhetoric designed to pull the wool over the eyes of the workers and the reconstructionists. The real aim was to repair the fraying class relations of capitalism, to reinvigorate the “capital order.” Coercion Supplements Consensus The technocrats’ ideological offensive was aimed at both ideologically disarming the working class and discrediting the reconstructionists. In Italy, however, with the ideological liberation spearheaded by Gramsci’s L’ordine nuovo , the technocrats realized that ideological disarmament had to be accompanied by violence, or as Mattei puts it, using Gramsci’s terminology, consensus and coercion were an inseparable pair. Fascist terror against rebellious workers and Mussolini’s authoritarian rule once the fascists seized state power were necessary to recreate the social context for capital accumulation to take place without hindrance.
Mussolini, Mattei points out, enjoyed the support of the international establishment, even of avowed adherents to parliamentary democracy in their countries, like the Governor of the Bank of England Montagu Norman, who expressed dislike for Mussolini’s elimination of the political opposition even as he wrote to his friend John Pierpoint Morgan, Jr, the American banker, that “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 the other direction. The Duce was the right man at a critical moment.”
This hypocritical deploring of fascist violence while approving the technocrats’ ideological cleansing would be repeated f50 years later, when the international establishment lamented General Augusto Pinochet’s killing and imprisonment of thousands of Chileans while lauding the Chicago Boys inspired by economist Milton Friedman, who were reproducing the conditions for the market economy to regain traction after Salvador Allende’s statist interventions. Chile in the early 1970s was the guinea pig for structural adjustment, which was then generalized to over 70 countries in the Global South over the next 20 years.
Mattei’s account makes clear that economists and technocrats are not mere accessories or instruments of the capitalist class. They are essential to the reproduction of capitalism, and their relative autonomy as agents of the system becomes particularly pronounced when the system is in crisis. The managerial capitalist elite may have been unhappy with the class compromise represented by the triad of Big Business, Big Government, and Big Labor in late 1970s America, but they were willing to live with it. They were not the ones that took the lead in pushing the U.S. economy in a neoliberal or market fundamentalist direction, an enterprise that restored the hegemony of capital by disorganizing and disempowering labor. It was economists with profoundly ideological convictions, like Milton Friedman, George Stigler, and Arnold Harberger that led the charge.
Economists, to use Mattei and Gramsci’s terminology, are the organic intellectuals of the Capital Order.
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