THE time seems ripe for arriving at some kind of conclusion regarding the public finances of the European country which has remained under the rule of a dictatorial régime for a longer period of time than any other except Russia.

A mystery which has been puzzling many minds during recent years is the coexistence in Italian finance of an allegedly balanced budget with an elaborate program of public works. Public works, of course, have always been the preferred field of action of all dictatorships, and Italy is no exception to the rule. What Mussolini has taken away from the people in the realm of political and intellectual freedom, he has endeavored to make up for in the sphere of material benefits. He has tried not so much to raise the common man to a higher level of civilized life as to dazzle him with spectacular Fascist achievements. Gigantic public buildings have sprung up all over the country, land reclamation on a grand scale has been undertaken in the vicinity of Rome, and the Eternal City herself has been turned upside-down in order that she may shine again in the beauty that was hers two thousand years ago. Magnificent roads span the peninsula from end to end, huge ships cleave the waves for the enhancement of Italy's maritime fame, and a thousand and one other signs give proof everywhere that strictly financial considerations have not been uppermost in the dictator's mind during the last decade. Yet, until the world depression put Italy's budget also out of gear, a balanced budget existed alongside of all these material improvements and served as one of the Fascist Government's proudest claims to the gratitude of the Italian people and to the admiration of the rest of the world.

How was Mussolini able to balance the budget and at the same time reveal to an astonished world such an imposing array of material accomplishments? In democratic countries voices are heard clamoring for a more efficient public administration. The spendthrift habits of popular parliaments are criticized, and often Fascist Italy is given as an example to be followed. If Mussolini has succeeded in combining a balanced budget and lavish public works, he has indeed performed a miracle.

Unfortunately, it is not an easy matter to interpret the Italian budget to a public accustomed to the English or American methods of public budgeting. The very existence of two different budgets, one showing revenues and expenditures as they have been legally assessed, the other showing them as they have actually taken place, does not make for clarity. Furthermore, from one year to another, items of revenue and expenditure are added to, or subtracted from, the budget, so that correct comparisons over a long period of years become very difficult. The result is that when we merely look at budget surpluses and deficits we are confronted with the most bewildering variety of figures. A single instance, chosen at random, will suffice. One set of official figures for the four years from July 1, 1928, to June 30, 1932, gives yearly deficits of, respectively, 2,576 millions, 507 millions, 288 millions, and 2,300 millions, a total deficit of 5,671 millions.[i] Another set of official figures for the same four years gives, respectively, surpluses of 555 millions and 170 millions and deficits of 504 millions and 3,867 millions, a total deficit of 3,646 millions.[ii] The difference between the figures amounts to 2,025 million lire.

But there is one sure index of changes in the financial condition of a country -- its national debt. No government borrows money when revenues are higher than expenditures. Therefore, an analysis of the variations of the public debt from 1922 to 1934 should form the basis of any appraisal of Fascist public finance.

For the sake of clarity, we have subdivided the almost inextricable maze of Italy's national debts into six categories: (a), the consolidated debt; (b), redeemable debts; (c), the floating debt; (d), debts of a miscellaneous character; (e), debts of public authorities connected with the Government; and (f), the debt for expenditures already incurred or contracted for, but the payment of which has been postponed to future years.[iii]

(a). On June 30, 1922, the consolidated debt stood at 44,576 million lire. As of June 30, 1932, it had risen to 71,736 millions. It then constituted by far the largest slice of the national debt.

In the spring of 1934 came the great conversion of 61,838 million lire of 5 percent consolidated debt into a 3½ percent redeemable debt. The conversion was carried out in the high-handed manner commonly associated with Fascist actions and, if related in detail, would greatly relieve the dryness of our figures. It was, of course, a complete success. The requests for repayment which managed somehow to reach the Treasury amounted to only 123 million lire. The Government pointed out with pride that this represented only one-fifth of one percent of the total presented for conversion, a percentage, it added with a keen sense of humor, far lower than that of the British war-loan conversion.

The result of the conversion was to reduce Italy's consolidated debt to 9,892 million lire, as of June 30, 1934. Compared with 1922, we have a net decrease of 34,684 million lire.

(b). The larger part of the consolidated debt was transferred to the category of redeemable debts. The following table shows the change (in millions of lire):


Increase or Decrease
June 30, 1922 June 30, 1932 June 30, 1934[iv] over 1922
Long-term 4,783 3,556 64,674 +59,891
9-year Treasury bonds 7,227 11,986 15,898 + 8,671
Morgan loan . . . . . . 1,696 950 + 950
Miscellaneous . . . . . . 1,669 1,533 + 1,533
______ ______ ______ _______
Total 12,010 18,907 83,055 +71,045

The increase of 8,671 million lire in 9-year Treasury bonds, with large premiums attached, should be noticed. The decrease during the last two years in the amount outstanding of the Morgan loan is largely attributable to the devaluation of the dollar.

(c). The floating debt also has undergone striking changes in its composition since 1922 (in millions of lire):


Increase or Decrease
June 30, 1922 June 30, 1932 June 30, 1934 over 1922
Ordinary 1-yr. Treasury bonds 24,161 10 6 -24,155
Advances --
  from Bank of Italy 3,612[v] . . . . . . . . . . . - 3,612
  from Cassa Depositi e Prestiti 415 5,673 8,881 + 8,466
  from Bank of Naples . . . . . . 105 132 + 132
  from Istituti di Previdenza . . . . . . 869 1,214 + 1,214
______ _____ ______ _______
Total 28,188 6,657 10,233 - 17,955

In the years immediately following the World War, when the Government was hard pressed by the necessity of making large cash outlays to settle war claims, it found that the best way of raising the money was through the issue of short-term Treasury bonds. Such bonds amounted to 24,161 million lire on June 30, 1922. In November 1926 the Government put through a forced conversion of all 1-year Treasury bonds into the so-called Lictor funded debt.[vi] It thus deprived itself of the normal and best way of meeting short-term requirements. After 1926 it was unable to enter the market for short-term funds: it had broken a formal pledge of reimbursement once, and no money would have been available. The short-term requirements continued, however, so that the Government had to find the necessary money elsewhere. This explains the rise of 8,466 million lire in the debt owing the "Cassa Depositi e Prestiti" (the central agency which controls the savings collected through the Post Office Department), the Bank of Naples, and the "Istituti di Previdenza" (State Benevolent Institutions).

(d). Now comes the fourth category into which we have subdivided the national debt (figures in millions of lire):


June 30, 1922 June 30, 1932 June 30, 1934
Advances and loans from Cassa Depositi
  e Prestiti 734 1,092 } 6,226[vii]
Sums due for acquisition of railroads 873 1,853
Sundry Treasury Debts ("Partite in Corso
  di Liquidazione") 6,507 1,881
Debt to municipalities of Milan and Rome . . . . . . 304
Miscellaneous 226 196
Internal Debts:
  Colonial Public Works Consortium . . . . . . 85 69
  State Railroads 115 115 1,003
  Sinking Fund . . . . . . 201 206
  Sundry 9 3 5
Bank of Italy, for gold shipped to England 1,848 1,824 1,773
______ _____ _____
Total 10,312 7,554 9,282

The only item in this table which calls for comment is that of Sundry Treasury Debts. They stood at 6,507 million lire on June 30, 1922. In 1922-23 Minister De Stefani ordered that they be revised, with a view to establishing which were real debts and which were fictitious claims against the Treasury. The result was that by a few strokes of the pen the debt was reduced on June 30, 1924, to 2,096 millions. Therefore, in order to arrive at fully comparable figures, it is necessary to change to 2,096 millions the Sundry Treasury Debts of 1922, and thus reduce the total debt of that year from 10,312 to 5,901 million lire.

(e). The public authorities connected with the Government are the Post Office, the Highways Board ("Azienda della Strada"), and the Tobacco and Salt Monopolies. In Italy these have always been branches of the central government. The "autonomy" accorded them in 1925-26 is merely nominal and does not prevent their debts from being a part of the nation's public debt. Their indebtedness increased from 164 million lire in 1926 to 1,184 million lire in 1932. There are no figures for 1934, but there is little doubt that the trend is upwards.

At this point the question arises whether debts contracted by other public bodies having practically the same characteristics as the "autonomous" authorities just mentioned should, or should not, be included in the figures of the national debt. The Senate Finance Committee was aware of this problem and, since the State had guaranteed either the payment of interest, or the repayment of capital, or both, the Committee drew up a list of the sums borrowed by such bodies.[viii] It is clear, for instance, that in the case of money borrowed by municipalities in the colonies (40 millions), or by thermal concerns owned and managed by the State (Montecatini, 44 millions; Salsomaggiore, 65 millions; Recoaro, 11 millions; etc.), or by joint-stock companies in which the sole shareholder is the Government (Cogne Steel Company, 175 millions), it is the State which is the only real debtor. Another characteristic instance is afforded by the 362 millions of bonds issued by the Institute of Naval Credit with a State guarantee. The money thus raised was spent for the construction of fast transatlantic passenger liners. The losses of this trade are such that eventually the Government will probably have to shoulder even the ordinary running expenses. The State has of late drastically reorganized the shipping companies and has taken over their administration in everything but in name. Is there any valid reason for denying that these 362 millions of bonds are a part of the national debt?

We have chosen, however, not to include these debts in our calculation of the public debt. The figures necessary for a thorough study of all of them are lacking, and the inclusion of just a few would serve no useful purpose. But this particular problem in Italian finance gives some idea of the extent to which the Government has entered new fields. It also suggests some of the obstacles to an exhaustive study of the Italian financial situation today.

(f). We have now come to the most delicate and most important part of our subject -- the sixth, and last, category of the national debt, made up of debts already incurred or contracted for, but the payment of which has been postponed to future years.

In brief, the story is as follows. The Fascist Government has carried on a considerable part of its activities, in almost every field, not by paying for them out of current revenue, and not by borrowing from the public, but by promising to pay the creditors in instalments extending over a period of years -- on the average a period of ten years, but in some cases no less than fifty. Here is a list of the annuities which on the dates given were already contracted for: March 29, 1924, 6,546 million lire;[ix] end of 1928, 26,219 million lire;[x] December 31, 1930, 65,390 million lire; March 31, 1932, 75,118 million lire; February 28, 1933, 74,315 million lire.[xi]

The Parliamentary Finance Committees have provided these astounding revelations of hidden indebtedness. From 1924 to 1933, an increase of 67,767 millions! Each financial year sees an increase in the burden. For instance, by 1924 the Government had pledged itself to pay in 1932-33 the sum of 2,762 millions. This sum gradually rose until by February 1933 it was 6,003 millions. Italy thus is confronted with a succession of years whose revenues have been pledged years -- nay decades -- in advance, to meet expenditures of the past, leaving a narrowing margin of free revenue.

One of the most remarkable features of this situation is the fact that out of the 74,315 million lire of annuities outstanding as of February 28, 1933, nearly two-thirds, or 51,243 millions, were for ordinary expenses, and only one-third, or 23,072 millions, for extraordinary expenses. The exact composition of this debt is given in the following table[xii] setting forth the nature of annuities owed by the State for expenditures already incurred or contracted for (in millions of lire):

Ordinary Extraordinary Total
Ministry of Finance 16,466 663 17,129
Foreign Affairs 3 20 23
Colonies . . . . . . 3 3
National Education 2,986 . . . . . . 2,986
Department of Interior 114 1,367 1,481
Public Works 10,757 3,169 13,926
Communications: railroads 8,370 } 477 12,290
Communications: shipping 3,443
War . . . . . . 2,144 2,144
Navy 820 662 1,482
Air Force 459 69 528
Agriculture and Forests 5,556 12,230 17,786
Corporations 396 117 513
Highways 1,765 204 1,969
Post Office 12 145 157
State Monopolies . . . . . . 63 63
Telephones 6 156 162
State Railroads 90 1,584 1,674
______ ______ ______
Total 51,243 23,072 74,315

The commitments are heaviest in the fields of agriculture (land reclamation), public works, railroads, and shipping -- that is, where the Fascist régime has put forth the greatest efforts to impress the country with its material achievements. These vaunted achievements rest upon flimsy financial foundations.

Here we find the clue to the miracle referred to at the beginning of this study -- the coexistence in Italian finance of an allegedly balanced budget with an elaborate program of public works. The miracle is not a miracle. It is a mystification. The Fascist dictatorship has dodged the difficulties of the moment by creating a mountain of hidden debts. It has left the future to take care of itself -- après moi le déluge!

We must make it clear, however, that the hidden debt of 74,315 millions is to be paid over a period of years extending to 1986-87. It includes the interest charges which the Government has to pay on the capital sum, and also expenditures which -- although contracted for -- have not yet been completely met. In other words, the present capital value of the debt is not 74,315 millions. This figure is merely the arithmetical sum total of all the annuities owed by the Italian State within the next 53 years. The Senate Finance Committee attempted a partial calculation of the present capital value of the debt -- not an easy task.[xiii] On the basis of that partial evaluation we can say that the present capital value of all these annuities amounts to no less than 35,000 millions. Were the Fascist Government now willing to face the consequences of its spending policy, it would have to raise that sum. We shall therefore add not 74,315 but 35,000 million lire to the national debt as of June 30, 1932.[xiv]

On the other hand, for the sake of a comparison with the pre-Fascist situation, we must try to find the corresponding figure as of June 30, 1922. Using all the facts available, we can set our maximum estimate of the capital value in 1922 of all State annuities at 2,700 million lire.

Thus the following comprehensive table can be set up (in millions of lire):

Increase or Decrease
June 30, 1922 June 30, 1932 June 30, 1934 over 1922
Consols 44,576 71,736 9,892 -34,684
Redeemables 12,010 18,907 83,055 +71,045
Floating debt 28,188 6,657 10,233 -17,955
Miscellaneous 5,901 7,554 9,282 + 3,381
Autonomous authorities . . . . . . 1,184 1,184 [xv] + 1,184
Current capital value of State
  annuities 2,700 35,000 35,000 +32,300
______ _______ _______ _______
Total 93,275 141,038 148,646 +55,377

The increase over the amount of the national indebtedness in 1922 is thus almost sixty percent. But this is merely the nominal increase. Since the fall of 1926 the Government has been following a deflationary policy, while State expenditures have continuously expanded -- a patent and harmful contradiction. If we take into consideration the increase in the gold value of the lira between 1922 and 1934, we obtain the real increase of the national debt. It is over 83 percent.[xvi] What this increase means for the Italian people can be surmised when we remember that the national income has decreased by at least 35 percent in the last ten years.[xvii]

The immediate future does not hold any hope that the national debt will cease to soar; the deficit for the current fiscal year 1934-35 is estimated at over 2,000 million lire, and at the end of 1934 the Government issued another 2,000 million lire of 9-year Treasury bonds.

At this point someone may interrupt to say that, if Fascist finance is bad, pre-Fascist finance was worse. The argument is that if the Fascist dictatorship has, according to the latest figures, increased the national debt by 57,371 million lire in the course of twelve years, the pre-Fascist régime increased it by 37,310 millions in the three years from July 1919 to June 1922. The national debt rose by 6,374 million lire during the last pre-Fascist fiscal year, 1921-22, and it rose by only 2,688 millions during the first Fascist fiscal year, 1922-23.[xviii] The free régime, according to this argument, left Italy bankrupt.

This assertion has no foundation. The huge deficits from 1919 to 1922 were due to the liquidation of expenditures necessitated by the World War. During those years the Government had to meet war claims to the amount of 55,221 million lire. Of this total, about a third, or 17,911 millions, came from current revenue, while the balance, 37,310 millions, was raised in the public market, thus increasing the national debt by that amount between June 30, 1919 and June 30, 1922. But after June 1922 the strain of the war claims began to subside. While in 1921-22 the war claims to be met amounted to 20,334 million lire, they declined to 6,146 millions in 1922-23, to 5,283 millions in 1923-24, and they continued to decline until they stabilized themselves at about 1,350 millions after 1926-27.[xix]

At the end of 1921, Professor Mortara, one of Italy's leading economic experts,[xx] predicted the complete disappearance of the deficit by 1924. Fascism came into power after the free régime had endeavored with determination and courage to make a clean sweep of the war claims. Mussolini inherited a financial situation which was basically sound. Thus by 1924 Fascism found itself in a position to proclaim that the budget had been balanced. But the hidden debt represented by expenditures contracted for and payable in future years was increasing; and after 1925 both avowed and hidden indebtedness continued to grow.

Since 1925 the Italian budget has never been balanced. The Italian national debt in the last ten years has increased, on the average, by a yearly amount of over five billion lire, even though the war claims had been reduced to negligible proportions. Money has been spent lavishly. The national accounts have not been made so clear that the average citizen can understand them -- notwithstanding Mussolini's proud assertion to the contrary. The annuity system prevents any immediate control over the outlay of public funds. The Government is concealing from the public at large the true composition and size of the national debt. Fascism has done away with the publicity and delays usually found in democratic countries; but it has not succeeded in creating a sound financial system. Financially, Fascism has nothing to its credit.

[i]Cf. "Rendiconti Generali Consuntivi," for the corresponding years.

[ii]Cf. "Bollettino Mensile di Statistica," August 1934, p. 746.

[iii] The starting-point will be June 30, 1922, the close of the fiscal year 1921-22, because less than four months later the Fascists came into power (October 30, 1922). All figures, when no other specific reference is made, are taken from the "Rendiconti Generali Consuntivi," for 1921-22 and following years, or from the "Conto del Tesoro."

[iv] The dollars of the Morgan loan are taken at the new parity of 11.23 lire to the dollar.

[v] This figure does not take account of 4,227 millions of Government debt to the Bank of Italy, cancelled by the 1927 stabilization law through revaluation of the gold reserves of the central bank.

[vi] The Lictor loan was included in the 61,838 million lire offered for conversion in 1934.

[vii] As of June 30, 1933. No separate figures are as yet available.

[viii]Cf. Repaci, "La Finanza Italiana nel ventennio 1913-1932," p. 312 ff.

[ix] "Conto del Tesoro," Gazzetta Ufficiale, March 29, 1924, no. 76.

[x] "Parliamentary Report on the Budget for 1927-28," Atti Parlamentari, XXVIII Legisl., Camera dei Deputati, no. 30A. (The total of 26,219 takes into account annuities only up to 1938-39. It is therefore not strictly comparable with the other totals.)

[xi] "Reports of the Senate Finance Committee," for the years, respectively, 1931-32, 1932-33, and 1933-34.

[xii]Cf. Repaci, p. 311.

[xiii]Cf. "Relazione della Commissione di Finanza allo Stato di Previsione delle Finanze per l'Esercizio 1934-35," Senato del Regno, Doc. no. 1969A, p. 43 ff, quoted in Repaci, p. 311.

[xiv] This figure applies to 1933. But we shall use it for 1932, too, since it represents as accurate an average as can be had under the circumstances. Actually, the figure for 1932 would be higher.

[xv] June 30, 1932. The amount for 1934 will very likely be higher.

[xvi] The gold index averaged 430 (1913:100) in the second half of 1922 (Cf. Mortara, "Prospettive Economiche," 1932, p. 566), while it has stood at 367 ever since the 1927 stabilization law.

[xvii]Cf. Mortara, "Prospettive Economiche," 1933, p. 615.

[xviii] "Il Bilancio dello Stato Italiano dal 1913-14 al 1929-30," Rome, Istituto Poligrafico dello Stato, 1931, p. 230.

[xix]Cf. "Bilancio dello Stato dal 1913-14 al 1929-30," p. 224.

[xx]Cf. Mortara, "Prospettive Economiche," 1922, p. XX.

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  • GAETANO SALVEMINI, formerly Professor of History in the University of Florence and Member of the Italian Parliament; subsequently visiting lecturer at the University of London, Harvard University and Yale University; author of "The Fascist Dictatorship in Italy," "Mussolini Diplomate" and other works
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