As the First World War was coming to a close, a shadow fell on Joseph Schumpeter from the future. Addressing fears that the Austrian budget would ‘collapse under the weight of the war burden’, he argued that such a diagnosis was misinformed. The military outlays which had dominated state expenditure hitherto were not the future, for their place would be taken by welfare spending. His analysis of the conjuncture telescoped out into a historical sociology of the ‘tax state’—its origins, trajectory, crisis and speculative end. Born in war between medieval princes and their lords, the fiscal compact grew over several hundred years into the ancien régime, which had been blown away by the Great War’s storm of steel. ‘The spirit of a people, its cultural level, its social structure, the deeds its policy may prepare’, Schumpeter argued, ‘all this and more is written in its fiscal history, stripped of all phrases. He who knows how to listen to its message here discerns the thunder of world history.’
The financial stress of war was merely a temporary rumbling, he predicted: it was rather rising social expenditures that were on their way to ‘conquering’ the tax state for the popular classes in the new, democratic age. The expanding welfare state would ultimately help prepare the way for socialism, whose ‘hour will come’. What had started as meliorism under Gladstone and Bismarck could, if that trickle grew into a flood, so radically alter the political culture of society that, once industry was ‘mature’ enough for socialization, no revolution would be necessary. A matter-of-fact proclamation by parliaments would suffice. The work of capitalist entrepreneurs, in the meantime, would speed this by rationalizing production networks, organizing them into massive corporations managed by professional bureaucracies with complex internal accounting mechanisms that could be seized when the moment was right.
Schumpeter spent the rest of his career elaborating that vision, with Capitalism, Socialism and Democracy (1942) its summa. Though his perspective was unique in its analytical rigour, historical sweep and idiosyncratic cocktail of ideologies, he was not alone in interpreting the rise of the welfare state and the modern corporation as an evolutionary stage in the transition to a post-capitalist society. After 1945, the Keynesian revolution appeared to many from across the political spectrum to confirm the trend. Then, when the stagflationary crisis of the 1970s set in, that faith was lost in a flash: it was no longer obvious that a post-capitalist order was germinating in the West’s welfare states. The neoliberal transformation that followed displaced the earlier sense of historical inevitability with a volatile open-endedness.
What turned the tide in the last half century? Why did the fiscal state’s redistributive mechanisms suddenly stop, and go into reverse? Explaining the regressive course of us monetary and fiscal policy since the 1970s has been the project of Melinda Cooper’s highly acclaimed recent monographs, Family Values: Between Neoliberalism and the New Social Conservatism (2017) and Counterrevolution: Extravagance and Austerity in Public Finance (2024). Cooper is a sociologist based at the Australian National University, and each of her books could be described as contributions to fiscal sociology, the field Schumpeter pioneered.
Cooper’s story of neoliberalism, as her title Counterrevolution suggests, emphasizes its highly political and contingent character. ‘The neoliberal resolution to the capitalist crisis of the 1970s was by no means self-evident’, she maintains. It was rather a concerted ‘backlash’, propagated by an opportunistic alliance of right-wing forces, to ‘meticulously undo and neutralize the gains that were made by the left in the 1960s and 70s’. She follows the Marxist economist James O’Connor in viewing the fiscal politics of the period as full of ‘revolutionary’ potential; the reality of the threat was precisely what stoked the vehement counteroffensive. In her view, the inflationary crisis of the early 70s was a symptom of an ‘intensified struggle’ over the redistributive state: ‘wages effectively outran the power of corporations to collect profits and the resulting consumer price inflation eroded the wealth of financial asset holders’. The real story of the wage-price spiral ‘was a fight to the death between labour and capital, the outcome of which was far from foreordained’, Cooper writes. Revising Schumpeter, she argues that ‘fiscal and monetary redistribution’ could ‘tilt into fiscal and monetary revolution’. Where he had thought that rising social expenditures would obviate the need for revolution proper, Cooper sees them as potentially leading to ‘a complete takeover of the state’s powers to create money, issue debt and distribute wealth’. But as it turned out, the opportunity to push past postwar Keynesianism towards socialism was missed: instead there was a ‘pre-emptive strike against an incipient social revolution that was not to be’.
In Family Values, Cooper characterized this neoliberal ‘strike’ as a moral crusade as much as an economic response to stagflation, driven by the conviction that ‘the grand macroeconomic issues of the time, from inflation to budget deficits to ballooning welfare budgets, reflected an ominous shift in the sexual and racial foundations of the Fordist family’. In her telling, the postwar Keynesian consensus in America depended on excluding large surplus populations from the benefits of full employment and the generous New Deal welfare state. Without a reserve army of the unemployed, macroeconomic imbalances, like inflation or wage growth, would have threatened the stability of capital. But through various racist and sexist exclusions, an ample buffer of workers was always at hand, and a more-or-less orderly regime of accumulation maintained for a generation after the Second World War. Starting in the mid-1960s, however, with the success of the civil rights movement, feminism and welfare activism, the barriers preventing these excluded constituencies from accessing fiscal support were toppled one by one: court cases removed moralistic restrictions on welfare recipients; bankers and regulators ended the discriminatory practice of ‘red-lining’ inner city neighbourhoods deemed ‘uninsurable’; and Congress extended Social Security benefits to previously debarred groups—‘African American factory and domestic workers, public-sector employees, migrant farm labourers, welfare mothers, students’. Johnson’s Great Society reforms catalysed a proliferation of organizations taking advantage of the new funding to push the welfare state even further—past the point where it would simply mediate social conflicts, mid-century Keynesianism’s stopping place, and towards the possibility of overcoming them. Even Nixon, Cooper stresses, strongly considered universal healthcare and basic income programmes.
The complicated story of the capitalist counteroffensive can be split into two parts, corresponding to Cooper’s two books. Family Values gives an account of the ‘anti-welfare backlash’, instigated by ‘the neoliberal–new social conservative alliance’ who felt that the ‘ominous’ extension of New Deal entitlements beyond the male breadwinner was not only stoking inflation but also ‘radically undermining the American family’. The solution: the restoration of ‘family capitalism’, which far from being usurped by the modern corporation and the welfare state, as Schumpeter predicted (‘the capitalist process, by virtue of the psychic attitudes it creates, progressively dims the values of family life’), would now be the linchpin of the economy once again. Under the banner of moral responsibility and market rationality, neoconservatives and neoliberals jointly scaled back the state’s role as ‘welfare provider of last resort’, reassigning that function to the family, their favoured legal form of accumulation. Cooper sums up their view in the dictum: ‘There is no better instrument for the long-term hoarding of wealth than the legal haven of the family.’