5 - The 1920s and 1930s: foreign exchange policy and industrial and financial restructuring

Summary

Mr. Mussolini threatened to take the lira back to its former value. Fortunately, … the lira does not pay attention even to a dictator and one cannot treat the currency with castor oil.

(Keynes 1923)

the time came for Mussolini to regain control of the lira. In a speech delivered in Pesaro in August 1926, he stated his intention to defend the lira at all costs. Soon after, the currency showed a strong improvement.

(Einzig 1935)

Introduction

There are many salient characteristics of the Italian monetary history of the 1920s and 1930s. First of all, the purchasing power of the Italian lira was lower at home than on the international markets. This problem emerged slowly between 1922 and 1924, then exploded in the subsequent two years. For the most part, this situation was inherited from the war as it stemmed from the process of normalising both domestic and international monetary relations. The authorities also faced difficulties in dealing with an obsolete industrial and financial structure existing at the end of the war. Second, the authorities initially reacted to the lira collapse by launching a monetary stabilisation program, but then went much further and aimed at a fundamental restructuring of the industrial system. Thus, from 1926 to 1936, the authorities tried to harmonise monetary policy, industrial restructuring and the resumption of the process of capital accumulation.

This chapter consists of five major parts. We begin with a comparison of the Italian economy and the economies of the United Kingdom and the United States. Then, we analyse the causes of domestic inflation and lira depreciation from 1922 to 1926.