Autarky and trade in Italy

«The Economist», 24 giugno 1939, pp. 712-713

There is no definite evidence that the consequence of the policy of autarky has been inflation. Figures of banknotes and cheques in circulation give little suggestion that an inflationary movement is in progress.

The total of notes and cheques rose from 18,000 million lire at the end of 1936 to 19.1 millions at the end of 1937 and 20.8 millions at the end of 1938. Whether this increase is an index of inflation is not easy to say. But the extension of the territory in which notes are now, at least partially, circulating and the increase that has taken place in physical economic production and activity go far to explain the increase, without any reference to inflation.

How, then, is the autarky plan, which is mainly a plan for war industries, financed? According to discussions in the Credit Corporation and in the Autarky Committee last September and since, the means have been found in the utilisation of effective savings. It is very probable that to date this is so. The movement of current and deposit accounts in the banks and in post office and other savings banks has been upwards, as the following figures show:

The figure of 66,500 million lire at the end of January, 1939, represents mainly deposits originating from a true act of saving by the customers of the banks. And the increase of 4,700 millions in this total in 1938 may be said to be the sum that savers did not invest directly in agricultural land improvements, house building, industrial plant and equipment, or State and other securities. But, and this is the point, it must be emphasised that this sum, that is, the 4,700 millions increase, which is frequently held in common parlance to be the total amount of savings, is only the residual and minor item in savings. It would be very rash to evaluate the total amount, but at a guess a figure of 18,000-20,000 million lire may not be very wide of the mark; and the recent deficts on the State Budget (16,230 millions in 1936-37 and 11,174 millions in 1937-38) were met mainly by these savings. Other sources were a moderate increase in the note circulation (extraordinary advances to the Treasury were 2,000 million lire), and the proceeds of the revaluation of the lira, of the gold gifts to the Exchequer and of the sales of foreign securities commandeered by the State. If, in the current and future Budgets, extraordinary expenditure (that is, expenditure not financed by taxation) could be kept within the 10,000 millions limit, its financing out of true saving appears to be possible without giving rise to inflation.

Thus, autarky is not necessarily connected with inflation; but it is logically the cause of a gradual and radical change in external trade. Newspapers are now full of comments about the scarcity of coffee. Queues are to be seen in the cities; dealers are selling an ounce of the precious drug to old customers at stated days and hours; the Secretary of the Fascist Party has ordered members not to consume any more; a big drive has begun in the Press to the same end. True, the sum spent by Italy in purchasing foreign coffee is not very important; 130 million lire in 1938 and 31 millions in the first quarter of 1939. This is a small part only of the total sum of 1,000 millions yearly spent by Italian consumers in buying crude coffee; and the rest went mainly to the Exchequer in the form of taxation. Indeed, the biggest loser in the campaign for the reduction of the consumption of coffee will be the Exchequer, which will also lose some part of the tax on sugar, which is complementary to coffee.

As an article in the May 13th issue of La Stampa explains, the point is one of principle. Brazil, which is the biggest seller of coffee to Italy, refuses to buy enough Italian goods to balance her trading accounts; in the last 18 years and three months Brazil has sold to Italy goods to the value of 2,077 million lire more than Brazil has purchased from Italy; as Brazil will not purchase Italian goods, Italy will not buy Brazilian coffee.

The regulation of foreign trade, according to the Minister of Foreign Trade in a speech on May 12th, has gone through three stages. First there was the bolletta system. Only those importers who introduced foreign goods in a certain quarter of 1934 and possessed a certificate (bolletta) of import were authorised to import a specified quota of their former imports. This was tantamount to fixing trade at a set level, and it discriminated in favour of particular individuals. Therefore the bolletta system was replaced by the licence system. Import licences were granted to those industrialists and traders who had a priority right because they were better equipped, from an economic and technical point of view, or because their industry was important from the public, military or other point of view. This system, too, did not work satisfactorily for two reasons: first, foreign trade continued to be conducted on an individual basis and Italy was unable to obtain compensatory bargains with foreign countries as a whole; secondly, the licence system gave rise to numerous “middlemen” or “go betweens”, who claimed payment for their good offices in securing licences. The Government decided to stamp the middleman out, and a beginning was made towards the institution of yet a third system. Italy will henceforward adopt a corporative solution of the problem. Goods will be more and more imported exclusively by public bodies, on which the consuming industries, the Corporation or Confederation concerned and the State will be represented. Imports will be gradually transferred from individual traders to privileged companies and bodies, which will distribute the goods imported according to some priority table.

Meanwhile the Minister observed that the regulation by authority of foreign trade has already resulted in 1938 in total exports covering 73 per cent, of imports against 60 per cent, on the average in the years 1934-37. Countries with which Italy is bound by clearing or other compensation agreements supplied 66 per cent, of total goods imported into Italy and purchased 71 per cent, of goods exported by Italy. Import prices, it is true, increased in 1938 by 88 per cent, over 1934, while export prices increased by only 46 per cent.; and the terms of trade may seem to have moved against Italy. But the Minister observes that the 1934 terms of trade, owing to a too high external value of the lira, badly handicapped exports; the alignment or devaluation of the lira has restored the balance between external and internal purchasing power of the lira.

June 5^th.