Sinking Fund for Public Debt – Imports and Exports Figures -Towards a New Economic Equilibrium

«The Economist», 17 settembre 1927, pp. 482-483

Turin, September 2

Since the beginning of the summer recess the legislative activity of the Cabinet has not been conspicuous. A sinking fund for the amortisation of the public debt has been created, implementing and enforcing the method already adopted. Traditionally Italy always followed a system similar to that known in Great Britain as the old sinking fund. All Budget surpluses were automatically applied by the Treasury to the reduction of public debt, mainly of the floating debt. Now there has been created a body of Commissioners of the Public Debt who will receive: 1) Past Budget surpluses from 1924-25; 2) future surpluses; 3) a fixed allocation of 500 million lire each year as from 1926-27; 4) miscellaneous revenues. The securities bought will be cancelled, but the interest which the State would have had to pay on them will continue to be paid by the Treasury to the Commissioners, so increasing progressively the fixed allowance of 500 million lire.

The yield of the taxes on the transfer of movable and immovable wealth is steadily decreasing as a consequence of the revaluation of the lira and the reduction of prices – 298.6 million lire in July, 1927, as against 392.7 in July, 1926. Also Customs and Excise, including the so-called “exchange additionals”, gave smaller yields – 391.5 million lire, against 488.1. The yield from tobacco, salt, lotteries, and monopolies has decreased only from 258.7 to 241.2 million lire. But as the downward movement of prices appears to have stopped for a while, it is probable that the decrease in the public revenue will also stop.

The problem of how far the revaluation policy has reacted on international commerce is being keenly discussed in the public Press. Figures of exports in 1926 and 1927 are not strictly comparable. According to the State Central Institute of Statistics we must add 15 per cent, to the export figures from July 1, 1921, to November 30, 1926. If we follow this official advice we obtain the following results for the first seven months of the year (in millions lire):

The decrease in the paper lire figures of foreign commerce is evenly distributed between exports and imports. If we translate the paper lire figures into gold lire at the average exchange rate of 5.03 paper lire to one gold lira for the first seven months of 1926 and 3.95 for the first seven months of 1927, imports increased from 3,242.8 million gold lire in the first seven months of 1926 to 3,325 millions in the corresponding period of 1927. Likewise exports increased from 2,241.7 to 2,310.2 million lire, the excess of imports remaining practically unchanged, moving only from 1,001.1 to 1,014.8 million lire. Nor is there much change in the quantity figures, import quantities increasing by 4 per cent, and export quantities by 6.6 per cent.

Statistics, therefore, do not reveal as yet a very pronounced state of crisis in consequence of the revaluation of the lira. Nor is it probable that we shall see in Italy spectacular figures of unemployed such as were or are usual in industrial countries such as the United States, Great Britain, or Germany during the revaluation or stabilisation period. Italy being, like France, as yet predominantly a country of small cultivating landowners, economic cycles are bound to work more smoothly here.

The real point of interest in the economic policy of Italy is the method adopted for reaching the new equilibrium of price, incomes, wages, public revenue, &c. In America, Great Britain, or Germany the Treasury and the central banks endeavoured to guide the economic mechanism through the gentle agency of the variations of the rate of discount and the sales or purchases of public securities. The Bank of Italy has not yet attained so predominating a position among other banks that it can direct the markets.

The true agency working for a new equilibrium is the idea of the “Corporate State”. For about five years incomes, wages, prices, public revenue were regulated on the basis of about 120 lire for one pound sterling. A new equilibrium must be reached on the basis of 90 lire., i.e., 25 per cent, lower. But employers are not free to react to the stimulus of decreasing wholesale prices by corresponding decreases of wages, dismissal of workers, closing of factories. The Corporate State substitutes for the free reactions of the individuals the collective deliberations of the corporate representatives of various economic classes. Signor Rossoni, the general secretary of the Confederation of Fascist syndicates of employees, clearly described the system when he recently proposed to extend to retail prices the methods already employed for the reduction of house rents. Primarily it is the duty of the interested confederations to see what is the “just” reduction to be enforced in the various industries or trades. If these reductions are not enforced by individuals the State is to declare them compulsory and enforceable by law. Finally, if some individuals are recalcitrant, they must be punished by prison, exile, and so on. “If, says Signor Rossoni in II Lavoro d’ltalia (August 30th), “somebody endeavoured to violate the law and elude the decreed price scale, the remedy would be deportation, prison, or, for traders, the discontinuance of the trading license, viz., the compulsory closure ot the shop”. This same method is to be observed in industry. Agreements between syndicates of employers and employees – and only one Fascist syndicate exists in each industry – and, if these are wanting, Court judgments declare what is the reduction to be enforced in wages. But employers are not free to close the factory, even if at that level of wages production is not remunerative; they can reduce the days worked per week, but not dismiss workers.

Only time will show what economic reactions will follow from the compulsory working of this plan. A recent article by Signor Arnaldo Mussolini, brother of the Premier, in the Popolo d’ltalia, seemed to suggest that the first reaction is the hesitancy of capitalists when considering the opportunity of employing their savings in industry. Really there is not much liquid capital lying idle at present. Figures of deposits in saving and ordinary banks are stationary, excepting only the deposits of the ordinary banks at the Bank of Italy, which increased from 1,467.9 millions lire on July 31, 1926, to 2,587.4 on July 31, 1927. This is a new development arising from the consolidation of Treasury bills. Ordinary banks which previously invested their liquid funds in Treasury bills are today depositing them at 5 per cent, interest at the Bank of Italy. If these deposits were not forthcoming the Bank of Italy would be obliged to curtail its discounts and advances or to increase the note issue.