The Campaign of the Lira – Future Policy -Slump in Stock Exchanges – Prices – Wages and Cost of Living

«The Economist», 10 ottobre 1925, pp. 578-579

Turin, September 26

The months of August and September have seen in full swing the so-called “campaign of the lira”, with which Signor Volpi successfully lowered the exchange to 115 lire to the £, and maintained it between 115 and 120 lire. The phases of the campaign seem to have been as follows: 1) Italian Treasury agents buying up all disposable accumulation of lire existing in foreign centres, especially at New York, and utilising to this end a part of the American credits; 2) foreign speculative sellers of lire scared out of their bearer position and forced to cover, when it appeared that the usual accommodation of lire for prolonging the selling operation were not forthcoming; 3) after the rate of discount was raised to 7 per cent., money went every day more dear, banks were instructed to restrict credits to those customers who were known to have deposits in pounds sterling or dollars in foreign places. With a minimum of effort, speculative sellers of lire were thus obliged to cover, and prospective Italian holders of foreign money obliged to sell in order to finance their new acquisition of raw materials, coal, &c. Both these movements operated in favour of the lira. 4) In the days of the flight from the lira, Italian industry and trade had bought enormous quantities of raw materials and half-finished goods, well in anticipation of current needs. Prices mattered not, in face of the feared collapse of the lira. When exchanges bettered, industry found herself loaded with immense stocks, partly paid for, and it seems that at present we are consuming these stocks, without necessity for replenishment, or not at the same rate. This produces an easing of the market situation, very much in favour of the lira.

If the betterment of the foreign exchanges is a first step toward stabilisation, what will be the rate of stabilisation has never been officially stated. It is doubtful if a definite policy has been settled. Until negotiations about inter-Allied debts are definitely closed, it is not likely that a new parity of the lira will be fixed.

Signor Zuccoli, director of the Banque Franco-Italienne pour l’Amérique du Sud, advocates a sort of gold exchange system, with the present paper-lira remaining for internal use and a Caisse de Conversion on the Argentine model, which should be obliged to give one pound sterling for every 100 or 120 lire and, respectively, to give 100 or 120 for every pound sterling offered to it.

Whichever we prefer, stabilisation at a new parity, or return to the old parity, one common effect of both is already making itself felt-namely, scarcity of money. We are at present in much the same plight as Great Britain after the adoption of the Cunliffe Report, as Germany after the collapse of the paper-mark and the adoption of the renten-mark, as Czechoslovakia when Rasin attempted the valorisation of the crown. We have little unemployment, industry is busy, but the stock markets are going from bad to worse. It is clear today that the De Stefani decrees of which I wrote you were but the forerunners of a period of dear money, which is playing havoc among operators. A few figures may suffice to give an idea of the slump after the maximum prices reached in February, 1925.

The truth is that industrial development as been more rapid than the increase of national savings; the new or increased capital, net, of the joint stock companies was: In 1922, 1,045 million lire; in 1923, 2,128 million lire, in 1924, 4,839 million lire; and in the first six months of 1925, 5,152 million lire. In all these years the lira was not depreciating, the average exchange rate being between 20 and 25 gold centimes to the lira. If we add to the demands of new saving by joint stock companies, the enormous demands by private companies and individual firms, building and agricultural requirements, it was calculated that the total savings required amounted to about 21,000 million lire annually, against an offer of new savings of about 15,000 million lire. We are bound, therefore, to reduce the rate of progress, and an outward sign of the situation is the lowered quotations of shares in the stock exchanges. It is commonly felt that at present many Italian shares are truly tempting, and that foreign capital could, in due time, reap good profits if it came to Italy. Reports of interest taken by foreign capital in the Snia (artificial silk) and Sip (electricity) companies are current.

The lowering of exchanges should have had a favourable influence on the level of prices. Instead of that, indexes of wholesale prices mark continuous increases: Bachi’s number index (basis 1913) was 562 for the average of the year 1922, 575 for 1923, 584 for 1924. In December, 1924, it was 640; in January, 1925, 657; in February, 660; in March, 659; in April, 658; in May, 660; in June, 692; in July, 707; in August, 731. Perhaps there is operating an increasing equalisation of internal and external prices. The average index number of 584 for 1924 corresponded, when the paper lira was valued at 23 gold centimes, to a gold number index of 134; whereas in Great Britain and the United States the index numbers were respectively 159 and 149. The August index number of 731, converted, at the exchange of 21 per cent., into a gold index number of 153, is much more similar to the current indexes in the gold countries. Retail prices are slower to move. The usual figures for a working-class family of five of Turin are as follows (basis first six months of 1914):

There has been much talk of raising wages in relation to the increase in the cost of living, and various arrangements are being made. Opinions are at variance as to whether wages are below the pre-war standard, taking into account the intermediate variations in the value of money.