 It is at this point that you see how economic theory understood as a framework that expels class conflict, expels the worker as the source of value, and instead tells us that the economy is made up of individuals. It's no longer the worker who counts, but it's the entrepreneur who is the driver of the economic machine. It's there that this economic theory that seems so apolitical is actually justifying the most classist set of economic policies of all. Hi, everyone. My name is Clara Matei. I'm Assistant Professor of Economics at the New School for Social Research. And my work focuses on the relation between economic theory and policymaking, so an interdisciplinary work that is both history of economic thought and economic history, as well as methodology of economics. So austerity has been so widely successful in shaping our societies and how we think about our society. It has been fundamentally undetectable. It is so normalized that we rarely call it by name, but it actually informs all the common tropes of contemporary policymaking. From the budget cuts, specifically in welfare cuts, such as public spending for schools, for universities, for healthcare, for housing, unemployment benefits, regressive taxation. So we constantly see cuts in the highest brackets or cuts in corporate taxes, and also hikes in the interest rates, which is, of course, something that we're seeing the Fed is undertaking at the present moment. What I try to do in my work is reproblematize austerity. Austerity is everywhere. It's all-encompassing in our lives. Yet, I don't think that scholars have thoroughly been able to pinpoint why austerity is so successful and so enduring in contemporary capitalism. I wrote this book that took many years and is coming out with Chicago University Press beginning of November. The book is called The Capital Order, How Economists Invented Austerity and Paved the Way to Fascism. What I try to do in this book is rethink austerity. Rethinking in fundamentally three ways. The first is to avoid considering austerity just as a matter of fiscal measures. So it's not just about cuts in the budget. It's something more. It's what I call the austerity trinity, which includes the mutual operation of fiscal policies, so of course both on the side of cutting and on the side of the income through regressive taxation. Interest rate policies, so interest rates, hikes, and industrial policies. When I talk about industrial policies, what I fundamentally mean is the fact that there is a permanent attack on organized labor, which can be cutting union benefits, curtailing the role of the unions, but also fundamentally securing wage flexibility and wage repression. So this austerity trinity works in unison and you cannot just focus on one aspect. Moreover, what I try to say is that austerity is actually not just policy. It's more. It's actually the amalgamation of policy and theory. And austerity is in fact very successful because it has a powerful set of theory backing it. So this is the first main claim. What austerity is. It's both policy, not just fiscal policy, and it's also theory. And theory and policy cannot be separable. Secondly, austerity is not the product of the so-called neoliberal era of the 1970s. austerity is actually quite more fundamental to the operation of capitalism. And its origin dates back to at least the beginning of the century. And my claim is that austerity finds its origin after the Great War, so after 1918. And it was a measure to react to a big crisis of capitalism. So austerity has the mainstay of capitalism, not just an exception, but quite the norm. And at this point, the third claim I make is that austerity is not just a matter of irrationality of bad economic theory that thus informs a mistaken policy. And this is the reading of austerity that many Keynesians have, but I think it's very simplistic because it does not really get to why then does austerity persist? And to really fundamentally understand why austerity persists, we need to figure out its deeper logic. And this deeper logic is understandable if we think about austerity not as stabilizing economies necessarily, right? The reason why Mark Blythe calls austerity madness is because it has never really or very exceptionally achieved its stated goals of economic growth and debt repayment, right? So the tale of expansionary austerity is certainly one that economists espouse, but has been often actually disproven by historical events. So as I was saying, austerity is not necessarily successful in stabilizing economies, but it is successful in something deeper. And my bold claim in the book is that austerity was really never about the end goal of curtailing inflation and balanced budgets. These were means to a greater end, which is that of preserving the capital order. So austerity may not stabilize the economy, but stabilizes what is actually the precondition for any capital accumulation and any preservation of our socioeconomic system as a whole, which is capital. That comes from, that's the title's motivation is the capital order. What is the capital order is the idea that capital is not merely a commodity. So money invested to make more money, but it actually presupposes a specific social relation of production, a specific class relation that requires stabilization. If you don't secure the preservation of this class relation, that is at the foundation of economic growth under capitalism, then the system may be in crisis. So the book explores the origin of austerity, because I believe that in order to understand the logic of austerity still today, you need to really go back. After the First World War, something unimaginable happened for the people living at that time. Capitalism was shaken at its very core. The pillars of capitalism, what guarantees capital accumulation, which is private property of the means of production and wage relations, so capital as a class relation, were shaken. Why were they shaken? Well, because there had been a massive shock in the relation between the state and the market. The Great War, the First World War, was a moment in which the state, in order to guarantee economic victory, had to cross the natural boundaries of what it was normally meant to do. The state became the main employer, the main producer, and actually the main regulator of the labor force. In this way, what used to be understood as natural give-ins, private property of the means of production and wage relations, were all of a sudden repoliticized. What do I mean by this? It seems like a big word, but it's actually quite simple. Workers and the majority of citizens in Europe, and I focus specifically on Britain and Italy, and I will tell you why more later, started realizing that things could be different. We could be living in a different social economic order. Capitalism was not a natural given. It was a specific, classist political choice in which the state was directly visibly intervening to coerce the workers into greater exploitation in order to win the war. So after the First World War, and this is what I discussed in the first part of the book, the crisis of capitalism, this crisis was not just about an economic downturn, was something much more. It was about calls for economic democracy, calls to overcome capital as a class relation, calls to actually regain sovereignty as producers, and fundamentally abolish the profit motive and the private property of the means of production. How did this happen? It happened in many ways. It happened through guild socialism, through worker council movements. I go through a whole spectrum of practical possibilities for change that were also informed by different economic theory. So Marxian economic theory that put at the center stage the worker. So what happens there, and this is we get to the crux of the matter, in a moment in which capitalism was shaking, in which there was deep uncertainty for the future. The sense of contingency was everywhere, not just from the side of the workers, especially from the side of the bourgeoisie, who was really frightened on the news and on the press about the possible collapse of the socioeconomic order. And this is very clear also in Keynes's writing in 1919. This is when austerity is really born. Austerity is born as a tool of reaction to prevent the collapse of capitalism as a classist socioeconomic system. So austerity is really a political project that was extremely successful in preventing foreclosing alternatives to capitalism. And how did that happen? Well, I reconstruct the first international financial conferences in Brussels and Genoa, 1919, 1922, in which experts, economists, for the first time were called to advise states all over Europe and to tell them what was the true economic doctrine that should be implemented in order to prevent the collapse. And this is the big relationship between austerity and technocracy. Technocracy meaning the rule of economic experts in advising governments. But more than this, technocracy as an epistemic stance by which experts can come up with theories that are above classes, that are neutral, objective, without any sort of bias, and thus the expert as the guide to the solution and to the prosperity of all. So very much a political theory, and of course this was grounded in the growing marginless framework, the origin of neoclassical economics that still dominates to this day is really dated at the end of the 19th century, but was really kind of spreading and becoming ingrained in the years of the birth of austerity in the 1920s. So it is at this point that you see how economic theory understood as a framework that expels class conflict, expels the worker as the source of value, and instead tells us that the economy is made up of individuals that are not in conflict with one another, but they're actually in harmony and that it's no longer the worker who counts, but it's the entrepreneur who is the driver of the economic machine. It's there that this economic theory that seems so apolitical is actually justifying the most classist set of economic policies of all. And again, we need this theory that in its classless guise is able to justify policies, the austerity trinity of fiscal, monetary, industrial austerity that serve to crush the voice of the workers in a very material way. So austerity as a tool, as a political project that is at once about constructing consensus for the capitalist order through mainstream economic theory that justifies the priority of the saving, investing elite as the real engine of the economic machine that thus should be incentivized. And austerity as coercion through these policies that in fact, austerity policies are nothing but the shifting of resources from the majority that at that time was empowered. Wage shares were very high after the war. The Red Biennium 1918 to 1920 in which the workers were raising their voices, not just for higher wages, but for a really a different socioeconomic order. Austerity serves to disempower them materially speaking. And how does this happen? Well, either directly through policies that actually make strikes illegal, such as in Italy and curtail wages. And this is what happens under Mussolini's Italy, but also indirectly by creating an economic downturn. So monetary deflation, what we see actually being the main policy agenda now of the Fed. Monetary deflation together with budget cuts have also the indirect effect, the very important direct effect of slowing down the economy, creating higher unemployment, which of course kills the bargaining power of the workers and thus subordinates them in a coercive way into accepting the capital order. So we see how there is a direct and indirect shift of resources and of political power from the majority to the minority. And in this austerity is successful. And it has, what I tried to show in the book is that the origin story only really makes more explicit given that it is a moment in which everyone recognizes class conflict as the driving feature of the historical moment makes only more explicit what is more nuanced and hidden today. So this is why we need to take history seriously is that if you understand the moment in which austerity was born, you can really figure out its logic.