Stabilisation – Stock Exchange Company Profits – Unemployment – Foreign Trade

«The Economist», 11 maggio 1929, p. 1049

Turin, May 6

A newspaper statement that the restriction policy shall be unflinchingly pursued at any cost, and the subsequent more authoritative assurance given by the King in his speech, at the opening of the new Parliament, that the “rate of stabilisation of the lira will be strictly maintained, and that the paper issues will be subject to a drastic and systematic restriction”, eliminated rumours which had been current in some industrial and financial circles that the rate of stabilisation would be raised above 92.70. The rumour was absurd; as nothing would be more dangerous to industry and to saving than the fear that the monetary basis of all contracts is not stable. I explained in my last letter that the reduction of issues and of reserves going on in Italy at present is natural and perfectly in accordance with orthodox rules. But some people imagined that the reduction of gold bills reserves meant a net loss for the Bank of Italy and made her task of maintaining the rate of stabilisation more and more difficult. The task would be difficult only if the note issues did not decrease at about the same rate as the reserves; whereas, if both decrease, the process is bound to restore the balance of international payments and put an end to the export of gold bills.

The Stock Exchange, however, took the short view of the matter, and, forgetting the distant and beneficial effects of the policy of joint issues and reserves restriction, looked exclusively at the immediate one, i.e., shortness of money in the Bourses, and sold heavily. The general index number of shares which was, according to the Milan Economy Council, 90.21 at February 23^rd, weakened to 87.10 at March 29th, and went down to 82.52 at April 20^th.

Bank of Italy shares, which were quoted 2,215 at February 23^rd, are down to 1,885 at May 3 rd; Banca Commerciale Italiana went down between the same date from 1,462 to 1,371, Snia Viscosa from 111 to 100, Soie de Chatillon from 232 to 213, Montecatini (fertilisers) from 282 to 251, Edison Electric Co. from 950 to 780, Real Estate of Rome (Beni Stabili) from 757 to 638, and Fiat from 619 to 533, after having fallen below the 500 level. The end of April settlement proved somewhat difficult, owing to high differences to be paid by bulls; but no trouble ensued. Markets are now better, because people are beginning to think that stabilisation may be costly at first, but must end in assuring a more stable life to agriculture and industry and more lasting profits even to Stock Exchange operators.

The Joint Stock Companies’ Association has compiled, and the Bulletin of the Central Statistical Institute, publishes for the first time a collection of very interesting statistics on the profits of the joint-stock companies in Italy. The number of companies accounted for is 237, and the years from 1925 to 1928 (figures in millions of lire).

The worst year was 1927, owing to the stabilisation crisis; but, even then, the total losses were only 6.27 per cent, of the profits. The biggest losses in that year fell on the engineering group, with 40.3 million lire out of the total 58.4, and with only 26.4 millions profit for the companies which closed the accounts with a balance on the right side. The next in point of losses was the iron and steel industry, with 8.5 million lire losses, against 11.0 profits; the third was the export and trading companies, with 3.3 millions losses and 3.8 profits. In 1928 the tide was apparently already subsiding. At the top of the list of absolute losses are the iron and steel companies, with 6.5 million lire out of a total loss of 12.5; engineering companies lost only 0.6; export and trading companies 2.7, against 2.6 profits. Agricultural and food companies fared somewhat worse, with 1.7 losses against 1.2 in 1927. Not all the difference between net profits and dividerids distributed went to reserves; as various allocations to directors’ fees, pension funds for employees, &c, are to be deducted. It would be useful to have the figure of reserves distinguished, but perhaps it would not be as illuminating as in the Economist’s statistics for Great Britain, because the general rule is to allocate to reserve only the legal proportion fixed in the articles of association. Hidden reserves are usually bigger than the legal one; and they are drawn upon in lean years to maintain dividends. It is possible, and from many points of view it would have been useful, that in 1927 and 1928 hidden reserves had been utilised to some, perhaps not important, degree, in equalising dividends.

The number of unemployed was 461,900 at the end of January, 1929, 489,300 at the end of February, 293,300 at the end of March, against 439,200, 413,400 and 411,800 respectively at the end of the corresponding months of past year. Imports in the first quarter of 1929 were 5,619.3 million lire, against 5,081.1 in the corresponding period of 1928; while exports totaled 3,282.2 against 3,418.5 millions. The adverse balance increased thus from 1,662.6 to 2,337.1 million lire. The increase in the deficit is due not so much to decrease of exports as to increase of imports; and it may be remarked that in the month of March exports, too, increased a little from 1,169 to 1,184.5 million lire. Big increases of imports are signaled in raw textiles, minerals, metals, coal, rubber; so that it can be hoped that exports will also increase in due time.