Italy in war time

Savings Deposits – Note Issues – War Cost and Debt -Dividend Restrictions

«The Economist», 1 febbraio 1919, pp. 135-137

Turin, January 11

As in other countries, deposits in State Saving Post Bank decreased in the first year of the war. The number of accounts, which was 6,330,283 at June 30, 1914, decreased to 6,295,797 at June 30, 1915, and the deposits from 2,121,280,945 to 1,861,737,720 lire between the same dates. Soon after the declaration of war by Italy against Austria the tide turned; at June 30, 1916, the number of accounts open was again 6,382,945 and the deposits 1,987,639,997. The increase went on, as below:

The increase in savings was not limited to the State Post Bank. If we sum all the deposits in all the banks – of issue, ordinary, savings, and popular banks – we obtain the following results (in millions of lire):

The increase in the current accounts subject to withdrawal by cheque on June 30, 1915, when saving deposits were decreasing, is explained by the moratorium, which induced depositors to withdraw deposits from savings deposits, subject to limitation, and transfer to the banks of issue, whose current accounts were exempt from moratorium. Afterwards all fear disappeared, and, with the help of an expanding circulation, the banking deposits increased with a velocity truly astounding to those which remember the more slow pace of peace times.

The following figures are interesting as showing the increase in the sum of notes issued by the three banks of issue (Banca d’ltalia, Banca di Napoli, and Banca di Sicilia) and by the State (in million lire):

The total issue increased from 100 on July 30, 1914, to 473 on September 30, 1918. The greatest increase was in the State direct issue, viz., of notes for 5 and 10 lire (about 4 or 8 shillings at the par of exchange), which are utilised for retail transactions. The silver coins of 1 and 2 lire are almost gone out of circulation, and were substituted by equivalent paper, Buoni di Cassa, which are included in the above figures. Of the notes issued by the banks of issue the maximum increase was in those furnished by the banks to the State Exchequer. The remaining part, entitled “Banking Issues”, which has its counterpart in “Loans and Advances”, positively decreased in the first years of war, as the custom of cash payments for a time prevailed. The recent increase in banking issues appears to be partly due to the arrears in payments by Government Departments to the trade, which force the industrial concerns to resort to banks for advances and also to payments in Treasury bills, which are discounted by recipients at the banks. Great as has been the increase in note issues, the Treasury claims that the increase was relatively lower than in France and Great Britain, not to say Germany, Austria-Hungary, and Russia.

Many calculations were made during the war of the war expenditure in Italy. The following is, however, the first official estimate. The period considered is from August 1, 1914, to October 31, 1918, and the figures are in million lire:

The absolute sum is lower than that of other belligerent great Powers. But if the sum spent is compared to the private wealth of Italy prior to the war, which was estimated at 80,000 million lire, and can, at the utmost, be stretched to 110,000 million lire, it is easy to conclude that Italy is, of all the Allies, the country which has sustained the most crushing financial effort, relatively to her previous wealth.

The following are the figures relating to the State debts in Italy at the date of October 31, 1918 (in millions of Lire):

That the sum of war debts is of 49,457 million lire, while the total war expenditure was of 59,073 million lire, may be explained by the fact that the figure of 49,457 millions of war debts is the nominal figure, representing the sum that the State is obliged to repay to its creditors. That sum may be higher or lower than the real sum which the Exchequer has received. It is higher in the case of National War Loans, which, having been issued at various prices below par, had given to the Exchequer the sum of 10,084.5 million lire only, instead of the nominal sum of 14,737. The sum registered is lower than the sum received in the case of foreign loans, as in addition to 13,851 millions lire nominal debt at the par of exchange with sterlings, dollars, and francs, the Government received 7,800 millions lire, owing to the greater number of lire in which sterlings, dollars, &c, were exchanged. Other items of expenditure included in the 59,073 millions have yet to be liquidated, and a sum of 4,791 millions lire was obtained by war taxes. An index of the industrial progress of Italy during the war is furnished by the statistics of joint-stock companies. A few figures may be interesting:

The most striking increases were in the iron and steel companies -286.8 millions in 1917, 316.5 in the first quarter of 1918, and 586.5 in the third quarter of 1918. The increase was partly of a permanent character, and partly due to the financing of war enterprises. A not indifferent cause of increases of capital was the limitation of dividends, which was imposed by the Government in 1916. The joint-stock companies, which, notwithstanding the war profit tax graded to 60 per cent, and the ordinary income-tax of 16 per cent., could not infrequently distribute a dividend greater than the legal maximum (10 per cent, for new companies, 8 per cent, or the mean of three previous dividends for the old companies), and which are fearing a retrospective increase of war taxes, endeavored to elude the legal limitations. The first attempts to increase the capital, on which a dividend may be paid, by a distribution of bonus shares, given gratuitously to shareholders by conversions of reserves, was made vain by a new decree, which declared that such bonus shares should remain dividend less till after the peace. Numerous companies resolved then to increase the capital proper. As the new shares are sold at par to the old shareholders – the issue at a price above par is practically impossible, since, by a technicality of our income-tax law, the premium above par would be deemed “income”, and subjected to the income-tax, recently increased in most cases from 16 to 24 per cent. – the result is thus obtained of distributing a greater mass of dividends than would be legally possible without the increase of capital. This is truly a most unfortunate result of the legislation for the limitation of dividends, as none can say whether in the after-war period all such capital artificially increased will find employment. Another unfortunate result of the same legislation was that all companies, even those which would have spared a part of their profit, endeavoured by all means to reach the limit of 8 per cent., for fear lest the Government should in after times absorb the undistributed profits. And thus it is very difficult to say wheter the results of the limitation of dividends policy were in the main beneficial or hurtful to the common good and to the industry.