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The invention of austerity
Charles S. Maier
19 April 2023
published in Issue Three
The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism
Clara E. Mattei

(University of Chicago Press, 2022)

Austerity today refers to a mix of deflationary policies that public officials, economists, and members of the financial establishment prescribe when a country’s prices and wages rise more swiftly than they deem acceptable, or when a government’s budget and what is loosely called its balance of payments swing into deficit. It has often served as the go-to policy when inflation surges at home, or when the interest rate on its public debt shoots up as compared, say, to « safer » foreign bonds. Austerity policies can cause great suffering, sometimes short-term but often prolonged, and the misery can fall on social groups who had little responsibility for the inflationary surges. Austerity often represents a highly moralized policy prescription. It is a call to repent for alleged high living, national loafing, and frivolous spending. A sarcastic Mephistopheles prefigures the message in Goethe’s Faust: « You must forego, must do without — that’s their song all the time. »

Of course the major sacrifice is usually borne not by those who prescribe it but by the far less affluent. Those who call for « belt-tightening », to use an old metaphor, are reaching for other people’s belts already drawn far tighter than their own. It is a one-sided remedy, justified by the supposed danger to the national economy that sustains us all.

How much inflation is too much? A rate of inflation is not like the human body temperature where our metabolism maintains a constant, « normal » 37C or 98.6F. Dramatic inflations have punctuated twentieth-century political history. Today, economists and politicians look back at the double-digit inflations running from the late 1960s to the end of the 1970s, and associated with labor unrest and the OPEC price increases, as the horror scenario to be avoided. But the twenty-percent rates of the late 1970s were nowhere near the astronomical rates of inflation incurred by countries in the wake of the two world wars, when no one wanted to hold the depreciating money of the defeated powers. In 1924, the German Mark was painfully converted into a new Reichsmark at the effective rate of a trillion to one; after World War II the Hungarian pengo bottomed out at a quintillionth of its value; Chinese money became worthless during the civil war.

In effect, money died…

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Oxford University Press, 2013. See also Blyth’s slash-and-burn reply to critics in Comparative European Politics, vol. 11 no. 5 (Nov. 2013): 737-751.

Sir Alex Cairncross & Barry Eichengreen, Sterling in Decline: The Devaluations of 1931, 1949 and 1967 (London: Palgrave Macmillan, 2003). [This sentence was amended from the print version, and the footnote added, on 19 April 2023, to clarify the timing and the political circumstances of these devaluations.]