[How About This Book] World War I, Giving Birth to 'Austerity'

On July 2, 1915, during the height of World War I, the British government enacted the Defense of the Realm Act. The military procurement department gained the authority to control all civilian businesses involved in the production of military supplies. It also secured the power to limit the profits of these civilian enterprises. In Italy, the royal family issued a similar decree earlier on June 26. The government was granted the authority to classify all civilian businesses capable of producing war materials as 'reserve factories.'

These measures contradicted the values of traditional capitalism. Capitalism, which emerged alongside the Industrial Revolution, was based on the principle of laissez-faire, minimizing state intervention. Clara Matei, a professor of economics at The New School, wrote in her book The Capital Order that "starting from World War I, the state exercised immense power in fiscal, monetary, and industrial sectors." This is why the first chapter of The Capital Order is titled "World War I and Government Economic Intervention." The New School is a progressive university located in New York, USA.

Professor Matei argues that World War I significantly altered the course of capitalism. She claims that it was during this period that austerity policies, now a major government economic strategy, began to take shape. The scope of austerity policies, as defined by Matei, is quite broad. It includes not only the conventional tightening measures such as raising benchmark interest rates but also cuts in welfare spending like public education, health insurance, and unemployment benefits, regressive taxation (where taxes decrease as quantity increases), deflation, privatization, wage suppression, and deregulation of high-interest lending. Matei asserts that whenever governments faced fiscal shortages, they implemented these measures, reducing public goods benefits and harming citizens. She examines the political and economic developments in the UK and Italy to trace the origins of austerity policies.

The focus on the UK is due to its status as a leading capitalist country before World War I, having been the birthplace of the Industrial Revolution. However, the war triggered extensive nationalization in Britain. To secure victory, the government needed to facilitate easy procurement of supplies and thus took a leading role. The state controlled not only workers' freedoms but also their wages. Workers began to realize that their wages were determined by political decisions. The government needed the cooperation of union leaders, and unions started to gain political standing.

In the UK, the electoral law was revised in 1918 after the war ended. All men gained suffrage regardless of property ownership, and women obtained limited voting rights. The number of voters surged from 5.2 million before the revision to 12.9 million, more than doubling. The Labour Party secured 4.5 million votes, eight times more than before the war, displacing the Liberal Party and establishing itself alongside the Conservative Party as one of the two major parties.

In the 1919 Italian general election, the traditional Liberal Party collapsed, and the Socialist Party and People's Party won a majority of seats. Matei focuses on Italy because of the relationship between austerity policies and fascism. She explains that a top-down fascist government, capable of strongly instilling nationalist spirit, was suitable for quickly achieving austerity goals. She also argues that fascist governments needed austerity as a means to consolidate the ruler's control. Indeed, Benito Mussolini emphasized thrift, diligence, and discipline in his first parliamentary speech in November 1922, values that aligned with austerity.

Workers, politically awakened by the war, desired changes in capitalist production relations. The Labour Party, which rose to prominence as a major party in Britain during this period, advocated for the control of the means of production. According to Matei, alongside workers, the reconstructionists posed a threat to the existing capitalist order. Reconstructionists were bureaucrats and progressive elites who supported new social policies and believed these could create a more equitable society. Both the British and Italian governments used large-scale social welfare policies during World War I to foster political unity, and reconstructionists sought to push this strategy even more forcefully after the war.

Conversely, forces aiming to preserve the existing capitalist order also emerged. Matei highlights the first international financial conferences held in Brussels in 1920 and Genoa in 1922. These meetings, largely excluding politicians and thus the voices of the working class, were attended by financial and economic experts. The conferences emphasized thrift and workers' diligence, advocating for reductions in state fiscal spending and working-class consumption. These are the core principles of austerity as Matei defines them today.

Matei traces the beginning of austerity to the 1919 British debate over coal mine nationalization. Among the 13 members of the Sankey Commission discussing the issue, a majority of seven supported nationalization. However, the government rejected this, pressured by Treasury experts citing national fiscal concerns. The government opposed miners' demands, claiming they were harmful to society. Matei argues that this opposition logic laid the foundation for the arguments used to justify austerity today. Subsequent financial conferences further institutionalized the actions of fiscal experts. The chairman of the 1922 Genoa Financial Committee was Wordington-Evans, a British Conservative minister.

The author contends that except for the less than 30-year economic boom after World War II, austerity policies have dominated modern capitalism over the past century. Hong Ki-hoon, a professor at Hongik University who reviewed The Capital Order, praised the book's excellent structure and its role in initiating new discussions on austerity. However, he noted that some arguments are overly biased toward a particular perspective and that the conclusions could be interpreted as conspiratorial.

The Capital Order | Clara Matei | Translated by Lim Kyung-eun | 21st Century Books | 492 pages | 28,000 KRW

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