Note: This has become particularly relevant given the news about railway strikes and the increasing unionization effort across America. If you are concerned about the rise of fascism in the US and Europe, and if you belong to a minority group that will likely be targeted for the failures of capitalism, then I recommend this post (as a summary) and the book itself to help understand how fascism could arise in today’s contexts.

Yes, we all know “scratch a liberal and a fascist bleeds” and how the failures of liberalism ultimately paves the way to fascism. Still it wasn’t very explanatory. For a long time I struggled to find the material link between Liberalism and Fascism: Why Fascism? What exactly are the roles and functions of Fascism in capitalism and why do liberals have such a strong affinity for Fascism?

Clara Mattei’s new book The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism has brought clarity to many of the questions I had. I first came across the book while listening to her interview on the Macro N Cheese podcast (Apple link). It was an excellent summary of the book and I highly recommend giving it a listen if you have an hour or so.

The book is also available on Libgen. This post will be a very short, simplified summary on the subject (the book itself is far more captivating and elaborate) plus some of my own commentary.

If there is one thing I want you to take away from this post, it is that fascism will not come from sporadic far right white supremacist movements, instead it will be fully supported by the liberal establishment complete with press endorsement that tells you how “President DeSantis is the right man to bring order to a deeply divided America mired in unlawful strikes and riots” while fully justifying the violence of the black/brownshirts. Do not underestimate the lengths the capitalists will go through in their assault against labor.

Mattei’s closing thoughts from the podcast episode summarizes the essence of the book:

The alliance of Liberalism and Fascism, in their diverse forms, is a constant - not just because they support each other politically, but also ultimately they are achieving the same ends with slightly different means.

But before we get to this conclusion, we first need to understand Austerity and its role in a capitalist system.


1. What is Austerity and what purpose does it serve?

Austerity is not just a tool to “bring inflation down” or to “manage the economy”, as mainstream economists (including Keynesians) would like to tell you. This view de-politicizes Austerity into simply an economic theory that primarily concerns itself with tweaking the economy.

Instead, the goal of Austerity is to discipline labor. The ultimate aim is to preserve what Mattei calls the Capital Order – to protect Capital as the social relation, in which the private ownership of the means of production and the wage relation (workers need to work for wages) as the pillars of the capitalist system.

To put it simply, Austerity is needed to enforce the organization of a society in which you are forced to sell your labor power in order to earn wages to survive. If this social relation cannot hold, then the system crumbles.

Mattei further identified three separate forms of Austerity:

  1. Fiscal austerity – budget cuts (reduction in welfare spending, such as schools, healthcare, transportation), regressive taxes (the wealthy pay less taxes)
  2. Monetary austerity – interest rate hikes that reward the saving/investor class as a tool to engineer unemployment (to force workers to accept the conditions set by the capitalists)
  3. Industrial austerity – privatization, mass layoffs, wage repression, direct attacks on organized labor (to make people increasingly dependent on the market rather than having the stability of public sector jobs)

It is very interesting that all three types of Austerity are being instituted in the US today: Biden’s Inflation Reduction Act that boasted $2 trillion deficit cuts (fiscal austerity), Federal Reserves rate hikes (monetary austerity) and the tech companies mass layoffs (industrial austerity).

All of these policies are designed and implemented as a direct assault on labor with the ultimate goal of disciplining labor – especially in the wake of the Great Resignation and increasing social redistribution during the pandemic – labor needs to be disciplined so they get back to work and accepting the low wages forced upon them.


2. Crisis of capitalism

The First World War brought laissez faire capitalism to an end. For the first time in the history of capitalism, the states were forced to intervene in their national economies to sustain the war effort. This caused an unprecedented shift in the balance of power to the working class, as the capitalists were forced to give in to the demands of the workers or else their militaries could lose the war.

This unique moment in history led to a significant breakthrough for working class struggle, and a demand for a radical socio-economic change in the society: victories for socialist and labor parties, workers councils and factory committee, labor unions and modern welfare states across Europe, and most threatening to all of capital, the Bolshevik revolution in Russia.

Across Italy, workers began to run factories. Inspired by the Soviets in Russia and the revolutionary shop stewards in Britain, the Marxist-run newspaper L’Ordine nuovo (The New Order) emerged as a new political movement that focuses on the workers as the producers rather than capitalists/entrepreneurs, uprooting the neoclassical framework that explicitly omits class struggle from the discourse. (This would set the stage for Mussolini’s fascism later on, as we will see)

Workers began to realize that the exploitations were political decisions, and had little to do with growing the economy. In other words, no, you don’t have to sacrifice yourself to grow the nation’s wealth. It all turned out to be bullshit, as the workers began to pierce through the veil of the narrative fabricated by economists.

If you had lived in 1918-20 Europe, it would appear that the capitalism founded on the pillars of private ownership of the means of production and the wage relation, was coming to an end.

Or so it would seem.


3. Capitalists fight back

In the book, Mattei argued that crisis of capitalism is not just economic downturn (such as high inflation or budgetary issue). More foundational to the system itself is the threat to the Capital Order (the challenge to the private property as the means of production and wage relation that forced labor to work for wages).

With the Capital Order threatened, the capitalists began to fight back after the First World War, and Austerity was introduced to wage a war against labor.

First, new waves of fiscal austerity that focused on cutting social spending. The first international financal conferences in Brussels (1920) and Genoa (1922) ushered in the motto “consume less, produce more” as the path to economic recovery.

Economists played the role of experts to convince people that economic recovery is only possible through sacrifice. And the reason you don’t understand this is because you are too entitled and don’t understand the fundamentals of economics. (Incredible how similiar it is to the situation today with economists arguing for deficit reduction). Politicians and policy makers were convinced to draft budgets that cut social expenditures and reduce deficit, lowering the cost of production such that they can export more cheaply and more competitively.


4. If the people cannot be convinced, then they will be coerced.

When the public cannot be convinced, you have to force them. As an example, the capitalists pushed for the independence of Central Banks to wrestle the monetary power away from the state. This enabled a group of unelected “expert” economists to gain control of the monetary policy of the country, and through the control of interest rates to directly engineer unemployment and thus recession. The point is always to discipline labor - to make labor accept that the only way in life to work for low wages.

We often laugh at how capitalism is so irrational that their austerity measures only create recession for themselves. But this is where you underestimated the capitalists – they are willing to lose billions in profit if the short term pain means stabilizing and preserving the class relations that are foundational to the Capital Order. Disciplining the labor is far more important than losing billions of dollars, because if labor no longer accepts the social relation imposed upon them, then the entire capitalist structure collapses.

As such, austerity and recession are indeed very rational from the capitalists' perspective. After all, historical evidence shows that after labor has been properly disciplined, their profit margin rebounds rapidly. This is also why every recession since WWI only ends with the capitalists consolidating more wealth than even before the recession, at the expense of the working class.


5. And if labor still refuses to budge, then Fascism will be brought in to crush the working class

Independent worker organizations proliferated in Britain and Italy during the First World War. Workers increasingly rejected unions as they were seen as unreliable and complicit in the capitalist power structure, and which too easily surrendered the workers' demands for high wages and the right to strike to the establishment.

While Britain succeeded in fomenting the rise of revolutionary shop steward movements and the Clyde worker committee that culminated in the metalworker strikes of May 1917, it was in Italy that capitalism has met its gravest challenge yet, reaching proportions second only to the Bolshevik revolution in Russia.

Inspired by the Soviets in Russia and the revolutionary shop stewards in Britain, young Italian Marxists (such as Antonio Gramsci) took the plunge to push for worker’s revolution in Italy. Just a few months after the Clydeside struggles in Britain, the Turin upheavals (July 1917) would mark the opening of a sustained dual-pronged strategy of using strike action and worker’s committee organizations to strike at the heart of Italian industrialists.

As Gramsci quoted a worker from the Brevetti factory:

[The workers] had begun “the march ‘within’ the Revolution and no longer ‘towards’ the revolution” to reach “the greatest end: the liberation of labor from the slavery of capital.”

Under the militant leadership of Ordinovisti (practice) guided by the L’Ordine nuovo movement (theory) – which together formed what Gramsci called praxis – for two years Italian rank-and-file practiced and advanced an alternative economic system to capitalism that would eventually culminate in the events of summer 1920, when workers took over factories all over Italy for a month.

Starting on August 31st, 1920, when over 280 factories in Milan were taken over by the workers, it would rapidly spread to over 60 cities with half a million workers taking control of factories, railways, docks and mines. Factories were run as self-government and factory councils took on the direct control of the production. The intensity of labor seizing the means of production was indeed a practice run for the revolution that was supposed to come.

In just one month, in September 1920, the industrialists caved, the government yielded, ceding significant control to the workers as well as giving substantial wage improvements and compensations for the workers.

Mattei wrote in Chapter 4:

In September, once the agreement was signed, the director Il corriere della serra, Senator Luigi Albertini, explicitly told then deputy of the Democratic Liberal Party Giovanni Amendola that “the only thing left is to resign and give power to CGdL [the General Confederation of Labour union].”

Albertini even visited the reformist-socialist leader Filippo Turati and told him that the time had come for the socialists to govern.

Gaetano Salvemini would recall a few years later:

The bankers, the big industrialists, the big landowners, were waiting for the socialist revolution like a ram waits to be led to the slaughterhouse.

It would seem that the socialist turn was unstoppable in Italy. But the seeds of counter-revolution were already growing.

Mattei closed Chapter 4 with the following paragraphs:

Gramsci’s analysis could not have been more timely: “industrialists are divided among themselves because of profit, because of economic and political competition, but in front of the proletarian class they are an iron block”.

Both Lenin and Gramsci foresaw the unleashing of a bourgeois reaction of a new type, one that went beyond the traditional liberal-democratic framework – it was the coming of a violent civil war. The impulse of revenge (an impulse the government failed to address) was to be satisfied with Fascist violence. Fires would soon burn down many worker organizations' headquarters. Camere del lavoro (chambers of labor), le case del popolo (citizen centers), cooperatives, and newspaper offices were reduced to ash. Armed attacks would kill thousands, from socialist majors to rank-and-file workers, until the advent of the Fascist government in October 1922.

Fascism has arrived, and capitalism has found its answer to Leninism.

On October 29th, 1922, King Vittorio Emanuele III called upon Benito Mussolini, Italy’s Fascist leader, to handle the post-war political crisis, and Mussolini promptly and violently imposed austerity where the liberals had failed: fiscal and industrial austerity (1922-1925), and followed with monetary austerity and even more industrial austerity (1926-1928), undoing the hard-won social reforms and workers rights.

The Capital Order has been preserved.


6. Liberalism and Fascism

Mattei deliberately focused her book on post-war Britain (parliamentary democracy) and Italy (authoritarian fascism) to demonstrate that both Liberalism and Fascism are indeed both sides of the same capitalist coin, both working in tandem to protect the capitalist order.

The gruesome and brutal assault on the working class in fascist Italy was seen by the international liberal establishment as a necessity to discipline the “turbulent” Italian working class, to prevent the country from sliding into Bolshevism that had “plagued” Russia just a few years prior. The Times and The Economist wrote countless articles praising the efficacy of Mussolini’s methods and how he “was the right man for the right situation”.

In Chapter 8, Mattei wrote:

The international establishment’s support for a strong state was not an outlier or an aberration. These sentiments pervaded British diplomatic circles and the British liberal press: Fascist dictatorship was an unavoidable and necessary means to govern a turbulent country and achieve sound economic objectives. Oliver Harvey, second secretary of the British embassy in Rome, left no doubt as to the criterion for this judgment: “the Mussolini experiment should stand on its merits as a pure and unadulterated dictatorship, like that of Cincinnatus, to be justified or otherwise by the gravity of the situation and by success”. Dictatorships were only bad when they were wrong.

An anonymous handwritten memo from 1925 addressed to the Bank of England, titled “Fascist Italy – Fascist Methods” endorsed the brutal oppression and described the situation in Italy as such:

[T]he Italian people are the descendants of Roman slaves. After the decay of the Roman power, they remained for some fourteen centuries under the domination of various warring sets of foreigners . . . slave peoples are generally incapable of governing themselves . . . so it is that democratic government in Italy, which has never been a conspicuous success, broke down utterly when the strain of the great war had produced exceptionally severe moral degeneration among the unstable Italian people . . . the nation was ripe for Bolshevism . . . but the nation—or perhaps its non-latin-rulers?—was not ripe for suicide. . . . Mussolini and his Fascists seized power and restored order. They rule the country today by force according to their own will, and the people are reduced to the servitude which had been their lot for a score of centuries.

Finally, none could be clearer than Winston Churchill’s remarks in 1927 himself:

Different nations have different ways of doing the same thing . . . Had I been an Italian, I am sure that I should have been with you from 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.

Many liberals took this to mean that Churchill did not endorse fascism in Britain, but you cannot read the passage and not understood it as “Britain does not need fascism yet - for Leninism has yet to spread to the country - but we will need fascism if the communists managed to gain traction at home”.

Last but not least, it is important to note that the British marginalists - who were the precursors to the neoclassical economics that would come to dominate neoliberal framework in the 1970s - saw their theories, which had remained on paper thus far, played out in real terms in fascist Italy throughout the 1920s.

The successes of Fascism have since been replicated across the world, for example Suharto in Indonesia, Pinochet in Chile, Yeltsin in Russia, all of which with the intent to destroy the organizational ability of the international labor movement, to prevent another uprising that could threaten the Capital Order as did the Bolshevik revolution in 1917 and the Italian upheaval in 1920. No fascist government has ever emerged that was not fully backed by the liberal establishment, both domestically and internationally.

(Note: I shouldn’t have to tell you that the fascist descent in Russia was only stopped when Putin came to power in 2000 that stemmed the bleed of privatization and thrown the whole lot of neo-Nazis into jail. Yet Liberals remain a powerful faction in today’s Russia, and the battle is far from over. Fascism can still emerge in Russia if the Liberal policies are not eventually reversed.)


7. Conclusions and Follow Up

The book mostly covered the brief period between the First and Second World Wars. The final chapter provided a modern day retrospective on how the Austerity we continue to experience today emerged from the post-WWI Europe as a reaction against socialist movements. Mattei warned that even the Keynes, whom the progressives so admired today, was himself a fervent supporter of Austerity and only advocated government spending to ease the economy after labor had been properly disciplined. (This is supposed to be the subject of her next book)

For the imperialist perspective, Mattei recommended Michael Hudson’s Super-imperialism that dissected how the post-war inter-governmental debt, unlike the finance capital expansion as articulated by Lenin during WWI, led to WWII and America’s hegemony after the war. (I may write another post on this in the future if I have time)

TL;DR:

  • Austerity is the disciplinary mechanism that capitalists use to curb labor power
  • Do not underestimate how far the capitalists are willing to go when it comes to disciplining labor
  • Liberalism needs Fascism to institute Austerity when workers refuse to yield and begin to threaten the Capital Order
  • Fascism when it eventually emerges will be fully endorsed and backed by the entire liberal establishment, justifying its brutal means of violence against workers