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Austerity beyond growth and beyond confidence

Sascha Engel

Platypus Review #80 | October 2015

SYRIZA MAY JUST HAVE BEEN SUFFERING FROM AN EARLY BIRTH: Everywhere, it seems, anti-austerity policies and politicians are on the rise. With Jeremy Corbyn, British Labour has decided upon a course radically dissimilar to its previous “me too” endorsement of austerity. Spain's Podemos, despite insistence that the country's situation is not Greece's, cannot escape comparisons with SYRIZA. Even in the United States, the rise of Bernie Sanders indicates that the word “socialist,” if not socialist policy, is losing some of its spookiness.


Long queues outside of grocers in Berlin, 1923.

If nothing else, resistance to austerity unites these movements. Yet, their arguments are unable to counter the powers that be, which—apart from the “argument” at gunpoint—have always insisted that austerity policies eventually restore growth. Each time the European Commission has “recommended” austerity measures to one of the European crisis countries, growth was posited as the ultimate goal. To achieve growth, countries are told to restore what ECB president Draghi has called a “confidence channel,” by which cuts to social programs restore financial market confidence in the countries’ ability to repay their debts.1 Yet, Corbyn, Sanders, SYRIZA, and Podemos remain on the same terrain as their opponents: Assuming austerity has economic goals—accumulation, growth, debt resolution—they propose equitable tax reforms, hiring and pension schemes, and health care reform. These are certainly all laudable, yet arguing for them assumes one can have a debate with proponents of austerity on economic grounds.

Economists' arguments against austerity likewise criticize it on the grounds that it is an economic set of policies whose intended goal is the restoration of growth. Written at the height of the Eurozone crisis in 2012, Jay Shambaugh argued that austerity is self-defeating: “Attempts at fiscal austerity to relieve the problems due to sovereign stress are slowing growth. Yet without growth ... the sovereign debt crisis will persist.”2 Prominent critic Mark Blyth has asserted that austerity reduces growth by cutting demand. According to him, austerity's attempt to achieve growth through cuts “rather spectacularly ignores the fact that for someone to be running an export surplus, someone else must be running a deficit…Someone has to spend so that there is demand for these exports.”3 These arguments—and others, famously by Joseph Stiglitz and Paul Krugman—have identified austerity as a macroeconomically irrational set of policies. Yet, they fail to draw the radical conclusion that the main argument for austerity is not economic at all but rather hearkens back to moralities of debt and credit: States and people have recklessly lived beyond their means and now have to face punishment.

Justly, from this perspective, the lenders or savers—the European Commission, the ECB, and the IMF—decide what is “sustainable” and “reasonable,” as became evident in the 2015 standoff between Greece and the “Institutions.” Austerity is a moral economy: It is based on the morality of those who prevail and who consequently decide who gets what and to what end. One must look beyond growth and confidence to this real economy of austerity: its entirely destructive project. To do this, one must at once proceed from a Marxist perspective and acknowledge it does not go far enough. Marxism is necessary to uncover the fact that austerity is not an economic but a political project. It is a project of violent rule rather than a growth-oriented set of policies, a form of violent antagonism, not a well-intentioned but unfortunately counterproductive economic program. It is necessary to go beyond the Marxist perspective after recognizing this, however, because austerity's merely destructive character goes beyond a bourgeois project in service of accumulation.

For Marxism, austerity is part of the ongoing capitalist crisis under the specific conditions of late capitalism.4 It allows the triumphant restoration of capitalist accumulation, and, at the same time, it signals its ever-approaching demise. As Marx notes, a crisis is the inevitable result of the fact that, under capitalism, “commodity capital is inherently already money capital.”5 Thus commodities are subject to the expansions and contractions of monetary capital rather than vice versa. By the same token, “crisis” is a class project. An excess of commodity use-values in general easily goes hand in hand with a scarcity of access to those use-values for those who do not—or only to a limited extent—participate in the cycle of money capital.

This was particularly evident in the U.S. subprime crisis, where the expansion of money capital contained in the asset-form of real estate (rather than the commodity-form) allowed widespread access to the use-value contained in housing only on terms set by the mechanics of credit creation. The result was an accumulation by dispossession by which the U.S. financial system, recently bailed out, was able to seize houses and force populations into debt-based quasi-slavery. Likewise, the European banking system was able to penetrate the periphery to an unprecedented extent in the 2003–2007 credit boom—only to get bailed out and seize the states involved as collateral.

Austerity deepened and sustained this process. By recapitalizing the banking system whose circulation remains mostly intact and self-contained while simultaneously impoverishing the real economies subservient to it, it accelerates the reproduction of the conditions for subsequent crises. Austerity is not, as its Keynesian critics have it, a failed economic policy. Austerity measures prolong and accelerate the savage accumulation characteristic of “crisis” to reproduce the conditions of capitalism’s continued survival. Its policies fit seamlessly into the pattern of capitalist accumulation by dispossession, such as “privatization of what were once considered common property resources (like water and education)...eminent domain...takeovers, mergers and the like that result in “asset stripping,” and reneging on, say, pension and health care obligations through bankruptcy proceedings.”6

Moreover, austerity policies do so by explicitly endorsing the very financialization that led to the crisis. Irish austerity, for example, consisted of an explicit continuation of Ireland's pre-crisis policies of trade openness, wage moderation, and a comparatively low level of social security. The only difference is that these measures were now implemented by decree and explicitly served financial interests. As Ireland's finance minister, Brian Lenihan, said in 2009: “We need to persuade the international markets that we are capable of taking the tough decisions now to get our house in order.”7

Borrowing from David Harvey, austerity may thus be characterized as a “financial fix” analogous to the “geographical fix.”8 In Europe, austerity focuses exclusively on maintaining the functions of sovereign bonds on international balance sheets at the expense of other state functions—i.e., by enforcing, as the Commission calls it, debt service prioritization. It therefore in effect accelerates the financialization of European peripheral states and their social fabrics in service of capital markets. This is not to say that such prioritization, implicit or explicit, had not taken place previously. Austerity accelerates the development, however, putting financial interests squarely into the center of the European political economy at the expense of everyone else: “A horror show of decrepit political formations not seen since the interwar years has been exhumed from the crypt and installed across Europe: national governments, externally-imposed technocrats, even—in Greece—a troika-dictated regimen.”9

Austerity is thus also intimately connected to the ongoing transformations of states in the context of late capitalism. In this regard, it is important to observe the differentiation of states in the Eurozone: debtors (Greece, first and foremost; Portugal and Ireland; Italy, Spain, and Cyprus) and creditors (Germany, first and foremost; France to a lesser extent; Austria and Finland; the Benelux countries). Both of these groups, in different ways, serve as transmission belts for the transformation of states into appendices of the European banking system. Debtor countries keep their national banking systems intact by bailing them out and by prioritizing debt servicing—which is to say by borrowing from the banking system at interest rates set by the banking system to recapitalize the banking system.

Less well known is that the creditors are subject the same dynamics and implement policies along the same axis—austerity benefits Germany, but it is not a German project. Wolfgang Schäuble's “black zero” fanaticism in Germany, for example, is vastly overestimated when assumed to be an autonomous German policy. All European countries have recapitalized their banking systems after 2008. Likewise, all European countries are embedded into the financial fix. In Germany's case, this has been profitable, as flights-to-safety from peripheral to core sovereign bonds have lowered its interest rates significantly during the so-called crisis (a condition which still persists). Austerity sustains a peripheral zone of raw capitalist accumulation in Europe characterized by unequal exchange with the capitalist core—a classic in capitalist peripheries.10 In this case, the periphery supplies tourist destinations, cheaper labor, and a departure site for flights-to-safety exploiting the core–periphery differential. As a financial fix, austerity allows investors to profit from risk premiums peripheral governments have to pay to attract investments away from the “safety” of investing in the core; as a spatial fix, it allows for Germany and other creditors to sustain the conditions for accumulation of industrial and financial capital.

These elements of a Marxian interpretation, then, seem to give a well-rounded account of austerity. Austerity is a sustained and accelerated crisis as triumphant capitalism—not a response to crisis. It sustains and maintains the accumulation by dispossession characteristic of late capitalism. It is a part of the ongoing transformation of nation-states in the context of late capitalist debt relations. It also deepens the unequal exchange relations characteristic of core-periphery distinctions, bringing to Europe what other global regions had long suffered.

Yet, the Marxian interpretation does not account for a central characteristic of austerity that—while having the effect of accumulation by dispossession—primarily makes it a phenomenon sui generis. Beyond the role austerity policies play in sustained accumulation by dispossession, austerity is at its core a project of a different kind: a dynamic whose destructive effects go beyond its accumulative effects. The phenomena for which the Marxian analysis accounts are themselves subject to a continuous, endlessly destructive, excessive dynamic.

As is well known to mainstream economists, austerity presents an intersection of a procyclical macroeconomic dynamic with an escalating political dynamic: “from Argentina in 2001 to Greece in 2010–11, austerity measures have often created a wave of violent protests and massive civil unrest.”11 Simultaneous cuts in wages and social benefits result in a steep decline of effective demand. In turn, this reduces production and exacerbates unemployment—a development that feeds itself, especially when it coincides with a downturn in investment as “crisis'” reduces liquidity and raises interest rates. In turn, more social expenses would be necessary. But since these are cut as well, there are further increases in poverty, child poverty, health problems, mortality, crime rates, etc.—all of which reduce growth. Not surprisingly, debt reduction turns out to be nearly impossible in this environment. Mass protests, combined with a volatile political environment—a result of the protests on the one hand and creditors' demands on the other—invariably result in an authoritarianism where “all classes and parties [unite] in the party of Order against the proletarian class as the party of anarchy, of socialism, of communism.”12

Yet, while previous forms of capitalism have resorted to fascist rule to preserve and restore accumulation, austerity does so to purely destructive ends. Its core dynamic continues through fascist and technocratic governments and yet is not identical to the restoration of class power. Austerity is not sufficiently explained either as fetish of deflationary stability as such (i.e., fascist political order + restored class power), or as Schumpeterian creative destruction as such (i.e., cutting towards growth in a leaner and meaner economy). Its core is an endless reinforcement of contraction as such.


Photographs of Athenian dogs wearing shirts that read "I have no money", by Santiago Sierra.

The “economy” of austerity is an entirely destructive aneconomy. Here, the all-pervasive specter of hyperinflation engenders a deflation that is always excessive hyperdeflation, while consumption is forced to engage in a structurally endless attempt to reduce itself to zero. This attempt is asymptotic. Any spending reduction must be followed up by another—a movement whose stake is not a hypothetical state of non-consumption, but the movement of reducing consumption itself. Being virtuous is not the stoic morality of reducing consumption to zero, but the endless attempt to spend ever less. Likewise, there is no fetishization of monetary stability here, only the endless reduction of monetary circulation and its derivative, the endless reduction of fiscal expenses. This movement is likewise asymptotic: it does not aim to kill the state (“starve the beast”), but to reduce every expense even further.

As I wrote above, I do not mean to claim that austerity is a German project. However its genealogical origin is Germany's 1923 hyperinflation that gave rise to a dynamic resulting in austerity.13 A moral overdetermination of thrift emerged in which all superfluous spending was morally pernicious and in which saving as such—privately and publicly—was a morally virtuous activity in itself. As social philosopher Walter Eucken stated in 1960, “making saving possible is better than charitable help or state subsidies,” since people must be “capable of helping themselves if necessary.”14 In this perspective, all spending is potentially superfluous—i.e., potentially morally pernicious. This sentiment haunts Europe today in the form of the Schwäbische Hausfrau (Swabian housewife), “who knows how to live within her means.”15

The—macroeconomically nonsensical—conflation of household spending and state spending at work here is no accident: it is at the heart of austerity's genealogy. The moral overdetermination of household thrift combines with an equal moral overdetermination of monetary stability. Inflation incites spending, and all spending is potentially irrational. A fortiori, then, hyperinflation incites it: "one frequently found image in accounts of the time [1923] is the figurative expression of the inflation as a Hexentanz, ‘a witch dance,’ or a Hexensabbat, a ‘witches Sabbath.’”16 Restoring stability—contracting the monetary supply—is thus not only identical to the restoration of purchasing power, but to civil society as a whole: one day shop fronts are empty and money is carried in wheelbarrows; the next day purchasing power reappears and windows are filled again.

Austerity is also the restoration of bourgeois morality tout court: “Inflations are one of the worst grievances from a social point of view since they deny humans the ability to provide for themselves and their loved ones.”17 Moreover, it is identical to the restoration of economic rationality itself: “The market economy constitutes a consumer-oriented, mathematically exact apparatus which builds incomes according to market requirements.”18 Economic rationality is thus pervaded by a telos of morality: Spending within one's means is morally righteous spending, which is to say spending only to the extent that it is not superfluous—i.e., ultimately, no spending at all. The private and public sentiments intersect here: All spending is inflationary spending, private and public, and it is best not to spend at all.

Thus, public deflation and private saving become goals in themselves. The European peripheries, and Greece in particular, have lived beyond their means, which is to say they have behaved amorally—they must be punished. Yet, the punishment can never end, since only saving one's money is virtuous, not the outcome of saving, i.e., money hoarded. Hardship itself, not accumulation is the goal: “We need to persuade the international markets that we are capable of taking the tough decisions now to get our house in order.”19 Proving this is an endless project: The witches of spending, of moral frivolity, are everywhere. To be sure, austerity also restores and maintains class power, but only as long as this restoration is contractive. The core of austerity is not bottom–top redistribution as such but the dynamic it engenders, where each contraction brings further contractions and each destructive act further destructive acts. Class warfare destroys to accumulate; austerity merely destroys.

It would be false to conclude that austerity is not a project of class restoration. On the contrary, the evidence clearly suggests that it is: redistribution of public and private resources from the laboring bottom to the rentier top and redistribution of capital within the Eurozone banking system from the periphery to the core. In this sense, austerity can very well be interpreted as a continuation of the authoritarian project of class restoration often called “neoliberalism.” Yet, these accumulative effects are accidental. Austerity is fundamentally not in the interest of those imposing it. It reduces growth and effective demand, which hurts industrial capitalists;20 it also causes financial instability, threatening portfolio allocations and returns, which hurts financial capitalists.21 Austerity is certainly a successor to neoliberalism, but it has gotten out of the control even of those in whose interest it supposedly operates. At its core, austerity constitutes an endlessly destructive dynamic in which every social formation is an opportunity to be destroyed, not an opportunity to be used for class restoration. Austerity is not ultimately a class project, and it is not ultimately neoliberal. Rather, its core is an outgrowth of neoliberalism superseding it towards mere destruction.

Anti-austerity projects such as SYRIZA and Podemos do not go far enough when they posit austerity as a struggle of peripheral against core capitalisms. Likewise, the Corbyns and Sanderses of the world fall short of recognizing the aneconomic, even anti-economic nature of austerity. At the same time, however, merely interpreting austerity as a class project falls short of its excessively destructive dynamic. Left-wing activists—from Sanders and Corbyn, to Tsipras, and beyond—should stop pretending austerity was an economic project and start acknowledging its war characteristics. The alternative to be put before the people under austerity is not a piecemeal alternative between progressive and regressive taxation; it is—and must be presented as—an alternative between an emancipated society and aneconomic destruction. It has always been known implicitly that capitalism is a war economy; yet, its generally accumulative nature has prevented that from being obvious. Now that it has turned inward and become purely destructive, it is perhaps time to respond to it in kind. Due to austerity's tendency to destroy all parts of the social fabric subjected to it, resurrecting strategies and tactics of the class struggle—Leninist, Maoist, Trotskyist, or non-denominational—may be possible now more than ever. To be sure, austerity is a destructive project whose scope goes beyond a class struggle, and it will not be possible to identify its opponents by more than merely by this opposition. By the same token, however, when austerity's destructive effects on ultimately all parts of society become obvious, social-revolutionary strategies and tactics may not even find much resistance any more. |P

  1.  Language to this end can be found in a series of documents published by the European Commission containing the “recommendations” for austerity policies necessary for bailout payments. For example, in the first program for Greece in 2010, the Commission noted: “The short-term programme objectives are to restore confidence and maintain financial stability [...] The medium-term programme objective is to improve competitiveness and alter the economy's structure towards a more investment- and export-led growth model.” (European Commission, “The Economic Adjustment Programme for Greece.” Occasional Papers No. 61) Similar language can be found in the “recommendations” for Portugal (2011), Ireland (2011), Greece again (2012), as well as G20 statements with regard to Spain (2012) and the Commission to Italy (2012). Greece's current third bailout package will likewise come with a report.  

  2.  Jay Shambaugh, “The Euro’s Three Crises,” in Brookings Papers on Economic Activity 2012, no.1: 159.  

  3.  Mark Blyth, Austerity: The History of a Dangerous Idea (Oxford: Oxford University Press, 2015), 140.  

  4.  The term “late capitalism” was coined by Ernest Mandel in his 1978 magnum opus of the same name.  

  5.  Karl Marx, Capital, Vol. III (London: Penguin Classics, 1991), 622.  

  6.  David Harvey, The Enigma of Capital (Oxford: Oxford University Press, 2011), 49.  

  7.  Mairead Considine and Fiona Dukelow, “Ireland and the impact of the economic crisis: upholding the dominant policy paradigm,” in Social Policy in Challenging Times: Economic Crisis and Welfare Systems, ed. Kevin Farnsworth and Zoe Irving (Bristol: Policy Press, 2011), 191.  

  8.  Harvey, 140-184.  

  9.  Joe Guinan, “Returns to Capital: Austerity and the Crisis of European Social Democracy,” in The Good Society 22, no. 1 (2013): 46.  

  10.  A classic described thoroughly by Emmanuel Arghiri, Unequal Exchange (New York: Monthly Review Press, 1972).  

  11.  Jacopo Ponticelli and Hans-Joachim Voth, “Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2009,” in CEPR Discussion Paper No. 8513 2011: 2.  

  12.  Karl Marx, The Eighteenth Brumaire of Louis Bonaparte, in The Marx-Engels Reader, ed. Robert Tucker (New York: W.W. Norton & Company, 1978), 602.  

  13.  In Europe, that is. In the United States, where a version of austerity prevails through other means—where it is a publicly supported, common-sense set of policies—one may speculate about origins stemming from Puritan denials of pleasure, through Western-state and Jacksonian sound money ideas, to Tea-Party hatred against poverty.  

  14.  Author's translation from German: “Ermöglichung des Sparens ist besser als karitative Hile oder staatliche Subsidien,” since people must be “in die Lage versetzt werden, sich notfalls aus eigener Kraft zu helfen.” Walter Eucken, Grundsätze der Wirtschaftspolitik (Tübingen: Mohr Siebeck Publishers, 1960), 319.  

  15.  Young, Brigitte and Willi Semmler: “The European Sovereign Debt Crisis: Is Germany to Blame?” German Politics and Society, vol. 97 no. 29 (2013), p. 7.  

  16.  Widdig, Bernd. Culture and Inflation in Weimar Germany, 2001. University of California Press, p. 203.  

  17.  Author's translation from German: “Inflationen sind vom sozialen Standpunkt eines der schwersten Übel, denn sie nehmen dem Menschen die Möglichkeit, für sich und die Seinen vorzusorgen.” Eucken, 319.  

  18.  Author's translation from German: “Die Marktwirtchaft bietet eine sich an den Konsumentenwünschen orientierende, rechenhaft exakt funtionierende Apparatur, die gemäß den Markterfordernissen Einkommen bildet.” Müller-Armack, Alfred. “Stil und Ordnung der Sozialen Marktwirtschaft,” in: Nils Goldschmidt and Michael Wohlgemuth (Eds.): Grundtexte zur Freiburger Tradition der Ordnungsökonomik, 1952. Mohr Siebeck Publishers, p. 460.  

  19.  Considine and Dukelow, 191.  

  20.  Shambaugh, 158-160.  

  21.  Blyth, 3.  

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