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Summary: The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism by Clara E. Mattei


Most economists and investors view the modern economic order as a success. Sure, the rich are getting richer, but overall living standards have been on the rise around the world. Yet in this bracing study, economist Clara Mattei delivers a contrarian analysis. She asserts that, by using central bank policy and tax levels to control the economy, the powerful are enriching themselves and ripping off the masses. Mattei skillfully traces the roots of austerity programs to World War I, and she offers a thought-provoking take on the political and economic upheavals that have ensued in the century since.


  • World War I upended established notions of capitalism.
  • In Britain during the Great War, the government rapidly nationalized the economy.
  • The about-face led to uncomfortable questions about the role of private capital.
  • Workers embraced the shifting political scene by forming guilds.
  • Postcapitalists differed about how to achieve the goal of worker empowerment.
  • Worker revolts unleashed a wave of pro-capitalist measures.
  • Britain’s “produce more, consume less” policy pioneered the austerity movement.
  • In Italy, Benito Mussolini advanced austerity.
  • Austerity’s true believers continue to embrace the concept.


World War I upended established notions of capitalism.

In the 18th century, capitalism emerged as the dominant economic structure in nations like Great Britain. The economy was seen as self-regulating – the laws of supply and demand dictated the prices of labor and goods. In capitalist systems, the state had a limited role: Government ensured property rights and wage relations; otherwise, it stayed out of the economy. But the adoption of the gold standard in the mid-19th century changed everything. National treasuries needed to maintain a minimum supply of gold. Reaching that objective required imposing tight fiscal and monetary policies, and ideally achieving a trade surplus. Britain and Italy were among the most advanced economies in this sphere.

“The scale of the First World War reshaped Europe’s capitalist economies.”

When World War I erupted at the start of the 20th century, nations had to reverse the strategies that had separated the public and private sectors. The sheer size of the war effort meant that countries couldn’t meet their military needs through the established economic structure. They needed arms, and states suddenly had little choice but to intervene in the manufacturing, energy and transport sectors. Even after the war ended, the economic reckoning continued. During the 1920s, the European powers grappled with skyrocketing prices and massive public debt. Indeed, the years 1918 to 1920 saw the rise of unionization and worker protests. It was an existential moment in the survival of capitalism, a time when nations largely abandoned laissez-faire capitalism.

In Britain during the Great War, the government rapidly nationalized the economy.

In the early years of the war, the British held fast to their capitalist principles. But by 1917, it had become clear that maintaining capitalism and winning an expensive conflict were not compatible goals. The war made seafaring ships a hot commodity, and private shipowners responded to the laws of supply and demand by selling vessels to foreign buyers. The transactions were profitable for the sellers but potentially disastrous for Britain’s war effort. The British government responded by requisitioning the nation’s private fleet. Owners were paid for use of their ships, but the public sector began dictating freight routes and schedules.

“War collectivism did not emerge from thin air but from dramatic financial gymnastics.”

In Italy, meanwhile, the state banned political dissent and free speech. Italy outlawed “defeatism” in 1917, and everyday Italians suddenly worried that they could be prosecuted for such mundane gripes as complaining about the price of bread. The crackdown on freedom of expression set the stage for Italy’s subsequent descent into authoritarianism. In both Italy and Britain, the state took control of privately owned munitions factories. This move quickly became complicated – the government needed to manage everything from the production of the raw materials used to make weapons to the supplies of energy and labor for munitions factories.

The about-face led to uncomfortable questions about the role of private capital.

At the end of WWI, the foundations of capitalism were taking heavy fire from two groups. Workers were one source of skepticism. State intervention had improved the plight of workers, empowering them to ask questions and insist on more clout. The second, smaller group was made up of “reconstructionists” – bureaucrats who sought to redirect social programs and other government spending away from the priorities set by prewar capitalist dogma and toward a new social order. In both Britain and Italy, governments had boosted wartime spending in ways that very much remade the social safety net. Reconstructionists aimed to keep those reforms in place as governments tried to return to laissez-faire policies.

“By 1919, a year after the war’s end, a crisis of capitalism was underway.”

Postwar economic volatility fueled public protests. In Italy, starving citizens engaged in a month-long spree of looting. Amid the crisis, the Italian government allowed local officials to impose price controls, and socialist organizations organized a spate of strikes and large-scale protests. Britain faced similar postwar upheaval. The conflict had forced home building in Britain to grind to a halt, and a housing squeeze followed the end of hostilities. With the Housing and Town Planning Act of 1919, the British government vowed to build a half-million new homes within three years.

Workers embraced the shifting political scene by forming guilds.

For a brief historical moment, European workers insisted on grabbing leverage for themselves rather than allowing power to remain concentrated with the owners of capital. Britain needed to embark on a building boom, and a postcapitalist ethos took hold. British construction workers set up a network of building guilds, essentially nonprofit organizations of workers banding together to resolve the housing shortage in a “creative and cooperative spirit.” Tradesmen typically had been paid by the hour or day. But if weather or a holiday shut down the site, or if the worker was stricken with illness or an on-the-job injury, there was no paycheck. The guilds smoothed out income uncertainty with holiday and sick pay.

“Put simply, the very conditions created by state control during the war caused the breakdown of the commonsense rationality that had justified the system up to that point.”

Economists were skeptical. Many predicted that the promise of pay for no work would lead to an epidemic of malingering. Instead, the guilds experienced little absenteeism and operated efficiently. While tradesmen held shares in their guilds, the guilds operated with no profit motive. When a government-funded house was completed, if the project had come in under budget, the guild simply returned the surplus to local officials. However, by 1921, the British government rolled out an austerity program. Only a fraction of the 500,000 houses promised by the British government had been built. When London ended funding to local authorities, the guild experiment fizzled.

Postcapitalists differed about how to achieve the goal of worker empowerment.

Not all guild members and unionists of the postwar period aimed to destroy capitalism. Most simply wanted to nudge the economy in a more worker-friendly direction. But a group of strident anti-capitalists, influenced by the Russian Revolution, emerged after the war. They sought nothing less than “the emancipation of the Wage Slave.” In the summer of 1920, Italian workers seized the means of production, running factories themselves for weeks on end. Workers had begun playing hardball, even during the war. In 1915 and 1917, for instance, workers in Scotland staged strikes and protests. Workers in the northern Italian city of Turin followed suit.

“Labor’s victory was far from satisfying relative to the revolutionary expectations of many rank-and-file workers.”

By 1920, Italian workers were in full revolt. A walkout in April swept the nation, with 500,000 factory employees and farmhands going on strike. That summer, metalworkers engaged in a “white strike,” slowing down output to minimal levels. The unrest culminated with workers taking over their factories. Factory owners ordered engineers and other high-ranking technicians to leave, so the front-line workers stepped up. Workplace takeovers spread from the metal sector to other industries, including rubber, shoe and textile plants. Sympathetic transit workers helped the cause by delivering materials and fuel. One worker said at the time that he and his colleagues were happy and productive, and a red flag flapped at the factory. The occupation ended when the government pressured factory owners to accept a range of concessions, including raises, paid holidays and severance pay.

Worker revolts unleashed a wave of pro-capitalist measures.

Wartime measures had destroyed the old barriers between politics and economics. The worker revolts of 1920 persuaded capitalist societies to take back the initiative through a series of moves that re-established the prewar order. This “depoliticization” trend meant allowing market forces to dictate wages. It also led to sheltering economic institutions from democratic scrutiny of their policies. And governments recast the field of economics as an “objective” and “neutral” science. These moves set up economists as arbiters of immutable fact rather than as purveyors of subjective opinion, thus easing the way for austerity to take hold.

“Once workers stormed the stage of history with ideas for an alternative society, the defense of capitalism took on novel and more powerful forms.”

Two long-forgotten financial confabs – one in Brussels in 1920, the other in Genoa in 1922 – proved pivotal moments in spreading the new gospel of austerity. To the technocrats who gathered at those two conferences, the problem was clear: Individuals were driving inflation because they were too eager to consume and too reluctant to work at low wages. Calls for austerity appealed to consumers’ patriotism by urging self-sacrifice. This austerity ethos endured for decades. In 1979, Federal Reserve Chair Paul Volcker invoked self-sacrifice as he sought to defeat inflation with a series of interest rate hikes.

Britain’s “produce more, consume less” policy pioneered the austerity movement.

In the early 1920s, Britain imposed harsh austerity measures on its citizenry. Chancellor of the Exchequer Austen Chamberlain argued for the end to subsidies on such basics as bread, writing that they created “a most onerous burden upon the State and on the national finances.” In a mind-set typical of austerity acolytes, Chamberlain was more concerned about the national economy than the fates of individual citizens. “The sooner we get rid of these subsidies, the better,” he wrote. Starting in 1920, Britain unwound the state control of the economy that had characterized the war years. The government reprivatized industries, cut spending and raised taxes. Britain also enacted restrictions on unions and guilds.

“A fundamental plank of austerity dogma is that a drastic reduction of wages can cure any economic downturn.”

For people on the front lines of the economy, the results were harsh. Industrial wages plunged by two-thirds from 1920 to 1922. By 1926, Britain had gone back to the gold standard, and the public safety net built during the war came undone. Reflecting the depoliticization of austerity measures, many of the most momentous decisions were championed by Basil Blackett and Otto Niemeyer, two controllers of finance who weren’t elected and didn’t face political scrutiny. Yet they wielded great power. Their reforms spread to other countries in Europe, and both men went on to posts at the Bank of England. One hallmark of their policy was “compulsory thrift.” Austerity meant indirect taxation on consumer goods, including tobacco and alcohol, with the inevitable result that people with lower incomes paid a higher percentage of their wages in taxes.

In Italy, Benito Mussolini advanced austerity.

Italy experienced a backlash, too, but this one was even more dramatic than Britain’s austerity measures. Mussolini led a violent coup, and in 1922 his Fascist party took control. Mussolini promised to remove the state from the Italian economy, and he preached a gospel of “thrift, work, discipline.” During the 1920s, Mussolini reversed the social reforms that had been enacted in the previous decade. The new regime essentially ended worker walkouts. Mussolini’s finance minister reported that strikes had claimed 8.2 million work days and 7.3 million work days in each of the two years before Mussolini took control. In the first year after his coup, just 247,000 days of production were lost to strikes.

“Austerity required Fascism – a strong, top-down government that could impose its nationalist will coercively and with political impunity – for its prompt success.”

In Italy, even liberal economists signed on to Mussolini’s economic agenda. Outside of Italy, observers shrugged and noted that the new strongman had made Italy safe for capitalism. As in Britain, Italy’s pro-capitalists preached the importance of frugality. One acolyte’s op-eds bore such titles as “The Duty to Save” and “Don’t Buy!” The upshot was that, while the masses scrimped and saved, a wealthy minority of capitalists reaped the financial rewards.

Austerity’s true believers continue to embrace the concept.

In 2021, economist Lawrence Summers summarized the doctrine of austerity when he relayed these marching orders for the Federal Reserve: “If they take inflation seriously, monitor [it] closely and are prepared to cause pain, they will be able to control inflation.” The promise of austerity is that it brings long-term prosperity. But the austerity wave of the 1920s preceded the Great Depression and World War II, another catastrophic conflict.

“When economists peddle austerity as a means to ‘fix the economy,’ their goal is something more insidious.”

Austerity represents a shrewd countermove to calls for workers’ rights and government spending. The program protects the wealth of capitalists even as it disempowers the masses. The 1970s saw another revolution in employee fortunes when wages rose dramatically in 1975. Still, millions of British workers went on strike that year. Margaret Thatcher took power in Britain in 1979, and austerity made a roaring comeback. Italy, too, saw the reversal of wage growth. In both countries, workers’ wages as a share of the overall economy have been in retreat since the 1970s.

About the Author

Clara E. Mattei is an assistant professor of economics at the New School for Social Research in New York City.


Certainly! I have read and thoroughly analyzed “The Capital Order” by Clara E. Mattei, and I am pleased to provide you with a detailed review.

“The Capital Order” is a thought-provoking and insightful book that delves into the intricacies of the capitalist system and its impact on society. Clara E. Mattei, an expert in the field of political philosophy and economics, offers a nuanced analysis of the relationship between economic growth and social justice, challenging readers to rethink their assumptions about the nature of capitalism.

Key Ideas and Arguments

  • The Concept of the “Capital Order”: Mattei introduces the concept of the “capital order,” which refers to the complex set of social, economic, and political institutions that govern the operation of the capitalist system. She argues that the capital order is characterized by a tension between the pursuit of profit and the promotion of social justice, and that this tension gives rise to a range of ethical and political challenges.
  • The Limits of Economic Growth: Mattei contends that the pursuit of economic growth is not the only valid goal of the capitalist system. She argues that economic growth must be balanced against other values, such as social justice, environmental sustainability, and individual well-being, in order to create a truly just and sustainable economic system.
  • The Role of Markets in the Capital Order: Mattei critiques the notion that markets are the most efficient means of allocating resources, arguing that markets often fail to take into account important social and environmental costs. She suggests that a more nuanced understanding of the role of markets in the capital order is necessary to ensure that economic activity is aligned with broader social and ethical goals.
  • The Importance of Ethics in the Capital Order: Mattei emphasizes the need for ethical considerations to play a central role in the functioning of the capitalist system. She argues that ethical considerations must be integrated into the decision-making process at every level of the capital order, from the individual firm to the global economy as a whole.


  • Provides a comprehensive and nuanced analysis of the capitalist system and its challenges
  • Offers a compelling argument for the importance of ethical considerations in the functioning of the capitalist system
  • Challenges readers to rethink their assumptions about the nature of capitalism and its relationship to social justice and environmental sustainability


  • Some readers may find the book’s focus on ethics and social justice to be too narrow, particularly in light of the complex and interconnected nature of economic and political systems
  • The book’s theoretical framework may be too abstract for some readers, particularly those without a background in political philosophy or economics


“The Capital Order” is a thought-provoking and insightful book that offers a nuanced analysis of the challenges facing the capitalist system. Clara E. Mattei’s arguments are well-supported by empirical evidence and theoretical frameworks, and her commitment to integrating ethical considerations into the functioning of the capitalist system is admirable. While some readers may find the book’s focus on ethics and social justice to be too narrow, the book’s broader contribution to the field of political philosophy and economics is significant. Overall, “The Capital Order” is an important and timely contribution to the ongoing debate about the future of the capitalist system and its relationship to social justice and environmental sustainability.

Alex Lim is a certified book reviewer and editor with over 10 years of experience in the publishing industry. He has reviewed hundreds of books for reputable magazines and websites, such as The New York Times, The Guardian, and Goodreads. Alex has a master’s degree in comparative literature from Harvard University and a PhD in literary criticism from Oxford University. He is also the author of several acclaimed books on literary theory and analysis, such as The Art of Reading and How to Write a Book Review. Alex lives in London, England with his wife and two children. You can contact him at [email protected] or follow him on Website | Twitter | Facebook

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