1. The Return to Classical Liberalism “of the most Authentic and Purest Form”: De Stefani's Economic and Financial Policy

Einaudi's increasing disillusionment with socialist maximalism, his irritation vis-à-vis a corrupt and ineffectual political class, and profound disappointment with the policies of post-war governments—particularly the reintroduction of a conspicuously protectionist policy of early 1921 culminating in the decree-law on the customs tariff of 9 June that same year—led him to view fascism with growing interest. He perceived it as a movement capable of implementing the liberal principles to which he adhered. While doubts about the methods employed by fascism could arise, Einaudi found its economic and financial programme reflecting a revival of classical liberalism "in its most authentic and purest form.”

Einaudi's initial support for De Stefani's economic and financial policies, however, did not extend to the regime’s proposals for constitutional reform. During the latter half of 1923, the early optimism that had led him to envisage fascism as the political force capable of constructing the liberal state he idealised began to wane. His growing understanding of the true nature of fascism, which crystallised in the aftermath of the Matteotti assassination, prompted him to focus his intellectual energies on defending the liberal state.

By late summer 1922, the Fascists' firm commitment to implement principles central to Einaudi's liberal vision overcame his lingering reservations. He publicly reaffirmed that “the programme of fascism (was) clearly rooted in the classical liberal tradition” and expressed hope for its swift implementation, as articulated by fascist leaders. Following Mussolini's ascent to power—an event Einaudi refrained from publicly commenting upon—the government’s economic objectives, clarified by the newly appointed Finance Minister, De Stefani, appeared aligned with Einaudi's aspirations. These included the restoration of private enterprise across various economic domains previously appropriated by the state, whether “due to wartime exigencies or post-war demagogic imperatives”. Specific measures proposed included the transfer of telephone operations to private companies, the divestment of ancillary railway services with the ultimate aim of transferring railway management to private hands, and the minimisation of state subsidies for maritime services. Drawing upon his experience of prior administrations, Einaudi expressed his hope that words would be followed by deeds: “now that liberal principles are restored to governance, it is to be hoped that Hon. Mussolini’s pledge to imbue them with a renewed spirit of action will be fulfilled”.

Einaudi’s optimism was subsequently reflected in numerous articles, often technical in nature, wherein he lent his support to the economic and financial policies pursued by fascism. He particularly endorsed its steadfast commitment to achieving a balanced budget through reforms in tax policy, the reorganisation of public administration, and the eradication of all forms of protectionism.

1.1. Tax Reform

The pursuit of a balanced budget was a consistent and central concern for Einaudi. He regarded it as imperative to address fiscal equilibrium primarily by reducing public expenditure through implementing economies within ministries and public institutions. Only as a supplementary measure, and only when absolutely necessary, would it be justifiable to impose additional burdens on taxpayers.

This approach, however, did not preclude the need for a comprehensive reform of the tax system. Einaudi contended that De Stefani should have devoted his efforts not to raising taxes but to undertaking the “far more commendable task” of tax reform. Such reform, in Einaudi’s view, necessitated simplification, both in terms of the number of taxes and their rates. This simplification, however, had to be accompanied by two fundamental measures to ensure fairness and efficacy, addressing the deficiencies that had hampered the ambitions of previous administrations. The first measure involved aligning taxable values with actual economic realities by accurately determining taxpayers' total income—a prerequisite for rethinking the entire fiscal system. The second measure required a “sensible” reduction in tax rates. Too often, prior reforms had been synonymous with increased taxation, driven by what Einaudi criticised as the “demagogic spirit” of governments eager to rounding up tax rates to a higher level in view of financing policies of subsidies and protectionism. Instead, he argued, taxes had to be distributed to secure only the state’s essential revenues, avoiding excessive burdens on savings or capital.

The government adopted policies aligned with these principles, prompting Einaudi to express enthusiastic approval. He observed that the measures reflected “an impression of individuals determined to do good, who are not ashamed to admit that for taxes to yield results, it is essential first to allow producers and savers to thrive. All this may appear as basic common sense thus becoming great truths when contrasted with the loom and despairing years when contemptible demagogues and grotesque theorists advocated draining capital as a leverage to repay public debt, stimulate production, and provide employment for the jobless”.

The fiscal policies of the Fascist government, in essence, adhered to the “productivist principle” cherished by Einaudi, which dictated that taxes should be structured to exert minimal pressure on producers, thereby maximising the flow of income available for distribution. His optimism was largely validated with the tax reform of December 1923. While Einaudi acknowledged its imperfections, he recognised it as a decisive step in the right direction, remarking: “I have been writing in defence of the name and the concept for twelve years; and today, I have the satisfaction of seeing both materialised in law”. The reform, achieved after extensive investigation, succeeded in simplifying the tax system, reducing it to three principal categories: “land, buildings, and movable wealth, each subject to reasonable and standardised rates. These were supplemented by a single progressive tax on total income, with rates ranging from 1% to 10%”. Although Einaudi expressed mild dissatisfaction that the minister had favoured “piecemeal reforms against a comprehensive restructuring”, his disappointment was tempered by the recognition that these measures had been devised within a coherent framework and pursued a shared objective: the reconstruction of a more harmonious taxation system than the one inherited from the war. Even as late as 1925, reflecting on De Stefani’s resignation, Einaudi praised his achievements in tax policy, describing them as emblematic of “a period of fruitful restoration of the Italian tax system to its classical liberal traditions”.

1.2. The Reform of Public Administration

As previously noted, the pursuit of a balanced budget necessitated, above all, a drastic reduction in state expenditure. Together with municipal and provincial authorities, the state was incurring what Einaudi described as a “frenzied outlay”, amounting to approximately eight times the level of pre-war spending. This escalation in public expenditure was a legacy not only of the war but also of the 1920–1921 governments, which, rather than dismantling the numerous administrative entities established during the conflict, had preserved—or even expanded—them. This entrenchment led to the bureaucratisation of the economy, with far-reaching consequences. The burgeoning bureaucracy represented not merely a financial burden. The proliferation of autonomous public entities—described by Einaudi as “one of the most pernicious inventions of electoral politicking and parasitic administration” — also resulted in an unwarranted multiplication of official positions, undermining the principles of efficiency and accountability.

In July 1922, on the cusp of Mussolini’s rise to power, Einaudi observed that, despite the government’s extensive powers in this area, bureaucratic reform had effectively been “laid to rest”. He welcomed the Fascist programme’s promise to abolish superfluous offices and ministries and to return unprofitable public services to private enterprise. Nonetheless, once the new government was formed, Einaudi cautioned that it had to lead by example regarding public expenditure. Beyond rhetorical assurances, it was imperative that an “imperious will would be imposed upon civil servants”, who, in the post-war period, had deviated from their primary responsibility of serving the state to pursue sectional or class-based demands.

By January 1923, Einaudi reported that “with a decisive stroke of the rudder, we have embarked upon comprehensive reform of the bureaucracy”, starting with the railway administration, where 36,000 redundancies were planned. The government adopted what Einaudi considered “excellent” principles, which he argued had to be extended to the entire public administration. The first principle was staff reduction, which enabled cost savings by eliminating less diligent and less capable employees. It was essential, he contended, because an excessive number of personnel produced a number of perverse effects, not only sowed confusion but also created superfluous positions driving to a lower efficiency, facilitated lax recruitment standards, and generally lowered the calibre of public service. The second “admirable” principle was the reduction of salaries, to be executed selectively rather than generally and uniformly. This approach was to be guided by meritocratic criteria, calibrated to reflect the financial capacity of institutions, the functional demands of the service, the significance of the roles, and equitable alignment with the remuneration of state employees. In a nutshell, Einaudi emphasised the importance of re-establishing the “scale merit”, which he argued had been “scandalously inverted during the Bolshevist era”, when income increases disproportionately favoured lower grades. Restoring proper distinctions among grades and compensating individuals according to their contributions, he maintained, would enhance productivity while simultaneously reducing expenses.

Einaudi welcomed the introduction of the so-called “rank classes” system for the careers of civil servants, a structure he had long advocated. This system provided a uniform classification for all civil servants, irrespective of their specific administrative department or professional role. Entry into the civil service was determined by the individual’s educational qualifications—primary school, secondary school, or university—and progression within the hierarchy followed a series of general classes, each corresponding to a designated salary level. However, the hierarchy of civil servants established by the government decree of 11 November 1923 did not entirely align with Einaudi’s vision. Concerns arose regarding both its financial implications and the reversion to a six-grade system rather than the three or four grades he had originally proposed. He argued that this additional segmentation was superfluous and risked diluting responsibilities, creating ambiguity in task allocation among departments, and ultimately compromising the quality of service delivery. Nonetheless, Einaudi acknowledged that the new structure could prove advantageous if it was both “dynamic and stimulating” that is if it could “effectively incentivise officials to advance their careers and attain higher ranks and corresponding salaries”. One of the reform’s most significant achievements, in Einaudi’s estimation, was its cohesive and systematic design. Throughout his career, he had opposed the practice of individual categories of civil servants securing exclusive advantages, which often spurred competing demands from other groups and burdened the state with incessant, costly negotiations.

Einaudi also underscored the importance of holding municipal administrations accountable as a strategy for reducing public expenditure. Granting municipalities greater autonomy and responsibility for managing their resources would, he argued, encourage more prudent spending and lead to more efficient and “improved” public services. He pointed to the example of schools, criticising the state’s direct management of primary education—which had led to a disproportionate and unjustified increase in expenditure—compared to the efficiencies observed in autonomous municipalities. Einaudi derisively referred to this state control as the “statalisation” of primary schools and proposed that municipalities should assume a share of school-related expenses while being granted greater autonomy in selecting teaching staff. For similar reasons, Einaudi opposed proposals to place the municipality of Rome under direct financial control by the state.

1.3. The Fight against Protectionism

The third pillar of the Fascist economic policy that reassured Einaudi, at least until the end of 1923, was its opposition to all forms of protectionism. For Einaudi, protectionism was to be fought not merely because economically-prohibitive but, perhaps more crucially, because its eradication was a fundamental requirement for liberating the national economy from what he termed “private taxes”. Even if it could be demonstrated that protective tariffs yield some economic benefit to the national economy, Einaudi argued, they inevitably engender a form of “pollution” in public life that is detrimental not only to the state but also to the industries they purport to support. While the theoretical allocation of duties might follow ostensibly objective criteria, the reality, he explained, is far different. The process of selecting which industries merit protection among the multitude of those unworthy is not conducted by an impartial assembly of experts operating in an environment of pristine detachment. Rather, these decisions are made within a sphere inhabited by fallible human actors, susceptible to passions, biases, and self-interest. As a result, protectionism corrupts public life. Instead of devoting their energies to addressing the serious affairs of state, politicians find themselves besieged by lobbyists and private interests clamouring for tariffs to shield them from foreign competition.

Furthermore, industrialists themselves, rather than striving to innovate, compete, and organise effectively “consume their time and resources to lobbying by means of a biased public opinion onto administration, government and parliament” to secure economic advantage “through the easy way of protective duties”. Therefore, abolishing customs tariffs would invigorate the national economy by replacing “struggling enterprises dependent on subsidies with vigorous, flourishing self-sustaining businesses who would act as vigorous contributors to a full, dynamic, and competitive national economy”.

Critiquing these so-called “protectionist” industrialists, whom he urged to revisit the foundational texts of liberalism, Einaudi went so far as to equate protectionism with socialism. He contended that protectionism was not merely a deviation from liberal practice but a fully-fledged theoretical framework in its own right. While economic liberalism envisages the state intervening only in areas where private enterprise is inherently incapable or less effective, protectionism promotes a state that propels and directs individual economic activity, substituting “collective, regulated, state-driven, bureaucratic initiative” for the “free initiative of individuals and voluntary associations”. To Einaudi, this amounted to nothing less than socialism in disguise. True economic liberals, according to Einaudi, recognised that state intervention might occasionally be justifiable, such as in fostering nascent industries. However, they opposed the wholesale protection of “all” businesses incapable of surviving independently, as this would transform the state into a “paternalistic, redistributive authority, arbitrarily reallocating private savings”. Even during times of economic crisis, Einaudi maintained, the state should refrain from intervening to rescue failing banks or companies. He endorsed De Stefani’s view that “bankruptcies, when inevitable, are a marvellous phenomenon” because they signal a process of recovery, facilitating the removal of unhealthy elements from the market.

Einaudi’s endorsement of Fascism’s economic and financial policies reached its zenith with the Finance Minister’s address at La Scala on 13 May 1923. Einaudi expressed his admiration, commending De Stefani for speaking “like a genuine old-school liberal—not one of those pseudo-liberals whose supposed virtue lay in pandering to the demagogic whims of the misled masses, in yielding to every demand, and in fearing unpopularity; but of the others who bolstered the authority of the state by confining it within its proper limits, while strengthening it through the freedom granted to individual and societal forces to act independently”.

By November 1923, however, Einaudi publicly voiced his first significant disappointment with De Stefani’s tenure. While he reaffirmed his general support for the minister’s efforts to consolidate the budget and largely endorsed his revenue policy, he raised two notable criticisms. First, he objected to the abolition of the inheritance tax, which, in his view, had been an unwarranted concession for which there had been no public demand. Second, and more significantly, he criticised the minister’s “excessive timidity in reducing customs duties”. Einaudi opposed customs tariffs not only for the reasons he had articulated previously but also because they functioned as a form of taxation levied on the general population for the benefit of a small group of industrialists and farmers. This, he argued, diminished the state’s taxable base. It would have been possible to achieve the outright abolition of the 1921 customs tariff, a “monstrous construct”; actually the minister was not strong or bold enough to abolish such did not dare or to —a failure he attributed to the minister’s lack of either resolve or authority. The article in which Einaudi elaborated these criticisms marked a significant turning point. By mid-1923, Einaudi had begun to distance himself from Fascist policy, offering occasional critiques, particularly of its constitutional reform proposals. Now, however, his dissent extended to the very domain that had initially aligned him with Fascism: its economic policy. De Stefani, despite his efforts, had fallen short of addressing the crucial issue of expenditure reduction, or better, “to put it simply, one has the impression that while the minister and his auditors worked to prune, file, and reduce by one million, more powerful forces compelled him to acquiesce to expenditures amounting to hundreds of millions”. As a matter of fact, Einaudi explained, all could not fail to frighten the one who believes that savings are the only real budget saviour. On the other side were the escalation of military spending, the initiation of unnecessary or deferrable public works, the continuation of subsidy policies for the merchant navy, the unchecked proliferation of bureaucracy, and the profligate mismanagement of public funds, including bank bailouts—all of which Einaudi had consistently opposed. Of even greater concern were the decrees-laws on the stock exchanges issued in February and March 1925. Einaudi condemned these as a “grave error” and as “precipitous and unnecessarily interventionist legislation” that instead of protecting disrupted the foreign exchange market. Rather than bolstering the value of state securities, these measures undermined them.

2. The Defence of the Liberal State

Einaudi’s definitive break with the Fascist regime was precipitated by the assassination of Matteotti. This pivotal event coincided with a noticeable increase in the frequency and fervour of his writings during the summer of 1924, as he began a sustained and resolute defence of the liberal State. However, the roots of his estrangement from the regime can be traced back to mid-1923, by which time his critiques, though always expressed with cautious elegance, had become markedly more pointed.

2.1. The Liberal State and the Fascist State

In his celebrated commentary on De Stefani’s speech of May 1923, Einaudi explicitly distanced himself from the Fascists’ constitutional reform agenda. After lauding the government’s financial policy achievements in emphatic terms, he added a critical caveat: “We have been and remain opponents of certain tendencies and methods in domestic policy, as well as of some dangerous constitutional reforms reportedly desired by the current government. Yet our opposition in this realm is informed by the same principles that lead us to commend the government’s reforms in finance. We cannot contradict ourselves, for all aspects of life are interconnected: politics and finance, foreign relations and the national economy. It is not possible to embrace liberalism in finance—approving and supporting government actions guided by liberal principles—while endorsing illiberalism in politics, approving institutional reforms that would replace the regime of debate and accountability enshrined in the current Statute with the rule of a single individual (or a privileged caste).

Einaudi’s unwavering commitment to the principles of debate and accountability codified in the Statuto Albertino was a consistent feature of his thought. His apparent silence on the regime’s trajectory between late 1922 and mid-1923 did not signify a renunciation of liberal doctrine; rather, his steadfast adherence to it is evidenced by numerous interventions both prior to and immediately following Mussolini’s rise to power. During the summer of 1922, amidst rumours that dictatorship was the only viable solution to inadequacy of both the government and the parliament, Einaudi firmly rejected such claims. He argued: “The sole guarantee of salvation from error and disaster is not dictatorship; it is discussion. We are not uncritical devotees of parliamentary regimes or of the governments they produce. Yet we assert that such systems, for all their imperfections, are the lesser evil, as they facilitate debate. Truth is never certain of itself unless it permits the opposing principle to challenge it and reveal its flaws”. In November 1922, as Mussolini’s government sought plenary powers over fiscal matters, Einaudi countered by emphasizing that the true value of parliament lay not in its role as a representative of people’s will or as a decision-making body, but in its capacity to raise public debate about political issues with the ensuing discussion as “the only safeguard of citizens’ lives, liberty, and property.” This mechanism, he argued, represented the sole avenue through which the voice of the ordinary citizen might be heard and public audit be expressed. Hence, Einaudi opposed the granting of plenary powers “not out of blind allegiance to parliamentary procedure but as a protection of ordinary citizens” and because the lessons of the First World War had demonstrated the unsuitability of such measures for the proper exercise of power. In 1923, he reiterated this position while commenting on the second edition of Gaetano Mosca’s Elements of Political Science. For Einaudi, the representative regime, despite its flaws, remained the least harmful system, as it provided “perhaps the most practically effective combination of counterbalances and compromises in which supreme power is not unconstrained to act on his behalf, but instead subjected to checks and limitations by a plurality of powers, each exerting control over the others.”

Einaudi reiterated these principles with vigour in the wake of the Matteotti murder, using the moment to articulate his vision of a liberal state. In a series of incisive articles, he underscored that the true innovation of the Fascist state was not its ambition to establish a corporatist model, but rather its efforts to grant certain trade unions or corporations a “legal” state-supported monopoly on political organisation and impose its ideology in a top-down style, through coercion. This framework sought to “crystallise” power in the hands of those who, at the regime’s inception, had managed to dominate these corporations. Once the guild system was fully entrenched—its number, relative influence, and “classifications” of individuals firmly established—any alteration to the balance of power would become exceedingly difficult. The entrenched bodies, protective of their privileges, would likely resist the emergence of new trades or interests. Consequently, political life would degenerate into bargaining among the most powerful guilds, each vying for a share of the state’s resources, now a lucrative “source of wealth”. Such a system, Einaudi warned, would give rise to a rigid, “locked” and stagnant order, incapable of adapting to the “unceasing mutations of the social organism”. Far from creating a robust and modern state, this inflexible structure would ultimately lead to societal decay and decline because once “taking public opinion out of the way, distracting minds from discussing major national problems, with individuals focusing solely on defending their group’s interests against competing factions in the plundering of the state and against the threats from emerging unknown external forces men would gradually degrade themselves to the condition of beggars”.

In contrast to the fascist state, Einaudi expounded, the liberal state is founded “on one single belief: the right to govern belongs to those who possess the greatest capacity for persuasion, those who embody the highest ideals, and those who, in pursuit of these ideals, can inspire the people’s acceptance through reasoned argument on la long-lasting base, to ultimately securing through persuasion their votes and consent”. Within the liberal state, the unrestricted freedom of discussion ensures that anyone may challenge the prevailing powers, refute their arguments, and seek to prove them wrong. This state seeks truth, rooted in the conviction that “truth is that which can at any time be shown to be erroneous”. Thus, no individual or group enjoys a permanently “acquired” position, nor does any monopoly on political power exist. Einaudi emphasised that the liberal state should not be misconstrued as purely democratic in nature. Drawing on Mosca’s analysis, he acknowledged that governance invariably rests in the hands of an “organised minority”. Yet, the defining feature—and great virtue—of the liberal state lies in its capacity to ensure that this "organised minority" can, in time, be replaced by another more capable of persuading and rallying support for its ideas. The liberal state offers “minorities animated by high ideals (...) the best opportunity to impose themselves on a disoriented and sluggish collectivity”. Its cornerstone—freedom of discussion—guarantees the alternation of political leadership. Beyond its institutional benefits, the liberal state also elevates the moral and spiritual condition of individuals, contributing to their “perfecting” and thereby fostering societal progress. “On the premise […] that the individual must be placed in the best conditions to fully develop his personality, to enrich both himself and the community with new material and moral contributions, and to collaborate, whether independently or collectively, with others in pursuit of varied and individual goals”. And he believes in the fruitfulness, in the greater effectiveness of a “perfecting” that is not imposed from above but that “comes from below and consists in a spiritual, intimate, a profound and spiritual elevation of the individual, enabling participation in an ever richer and more dynamic communal life. Therefore, individuals must constantly renew their institutions of defence, cooperation, and production, perfecting them daily to prevent their subversion by others. Citizens must strive to become ever more vigilant, industrious, and aware—as parents, producers, landowners, and political actors”. Therefore, the state should not replace the individual with a paternalistic organisation but let him act freely and intervene only when it is persuaded that “the individual free to act overwhelms others and goes against the collective interest”.

2.2. The Political Class

In his comparison of the liberal state with the fascist state, Einaudi began with the premise that the merit of any regime lies in its capacity to cultivate a governing class “worthy of holding the sum of the things of the state.” From this foundation, he concluded that the representative regime—the liberal state—was best equipped to produce a political class capable of fulfilling its essential duty: “safeguarding society from decadence.” Such a political class, Einaudi argued, must possess moral and cultural elevation, coupled with a commitment to the common good. This is because, uniquely within the liberal state, those in power are compelled to continuously refine their governing skills because “Every idea, every trend, every interest, which has reached government through the regime of public discussion,” he wrote, must constantly fear being “supplanted by opposing ideas, tendencies, and interests.” Therefore, “the idea in government must strive to live better and better; it must, through its own actions, demonstrate that it is industrious, vibrant, and more productive than competing ideas.”

Nevertheless, Einaudi had long recognised that while liberal democracy was the regime most suited to fostering a competent ruling class, it did not always succeed in doing so. He believed that the principal issue in liberal Italy was not so much its institutions—although imperfect, they remained the lesser evil—but its political class. He had harboured the hope that the new political class shaped during the war might replace the corrupt and inept leaders who had governed Italy since 1876. However, this hope was swiftly dashed. This disillusionment, at least in part, explains his initial interest in Fascism. In 1922, Einaudi shared the Fascists’ aspiration to forge a new political class since “the existing class—what Mussolini aptly termed the Giolittian class, shaped largely under the influence of the venerable Piedmontese statesman—was tattered, depleted, defeated (...). It is necessary to forge a new political class: strong, conscious of the nation’s needs and energies, and determined to lead the Italy of Vittorio Veneto towards its lofty destiny”. He envisioned a government that would not rely on “pandering to parliamentary lust” but would instead derive its strength from its capacity to “compress and purify” such impulses. Einaudi lamented that the liberal political class had “fallen into decay” because “A false nation of claimants for bridges (...), honours, subsidies, customs duties (...), and bailouts—gave it the impression of a illusion of inexistent omnipotence (...), when in truth it was simply mediocre”. This class had abandoned its paramount duty: to serve the state, to create and govern with a view on posterity in mind rather than on the living ones thus fostering a morally bankrupt, feeble, and corrupt state. Einaudi concluded urging Mussolini to remain firm in “the supreme purpose of restoring the state to its true power, which lies in fulfilling its proper offices”.

Einaudi’s initial optimism regarding the potential of Fascist leadership to cultivate a quality political class was soon overshadowed by disappointment. In his June 1923 review of Mosca’s Elementi di scienza politica [Elements of political science], he identified the “fundamental flaw” inherent in non-representative regimes or those where political representation was dominated by professional classes who relied on a “single source” for the formation of the ruling class, resulting in the creation of a “uniform, bureaucratic political elite, subservient to the very state it is tasked with governing and administering.” Such a class, he observed, became dependent on the wealth it could extract from the state. By contrast, the representative state drew its strength from the existence of “forces independent of and distinct from the state itself.” Its essence lay in fostering a ruling class that was “diverse, cultured, and economically independent.” Einaudi retained some hope that the new generation of middle classes, which had emerged during the Great War and provided the principal recruitment pool for the Fascist elite, might yet produce the educated, independent, and competent political leadership that Italy so urgently required.

However, by August 1924, when he took up his pen to denounce the industrialists for their silence over the Matteotti murder, he was forced to observe that this emerging generation had yet to attain the level of political sophistication exhibited by earlier ones. Worse, he regretted that they could entertain the belief that dictatorship and violence offered superior mechanisms to persuasion for ensuring social harmony. Einaudi remained steadfast in his conviction that the bourgeoisie was the social class naturally destined to lead “since this (was) nothing else than the flower of the most active, intelligent, and morally sound individuals, who, through their organisation, thrift, and effort, daily rise from the ranks of labour”. Yet, he asserted that “nothing is more urgently required by the Italian ruling classes at this moment than a strong and well-organised labour party to press, compel, and inspire them to purify and elevate themselves”. In other words, “an independent, conscious, and organised working class is the primary condition for ensuring that the ruling classes remain dynamic, virtuous, and progressive”.

2.3. Labour Conflicts

From late 1923, Einaudi revisited the issue of labour conflicts. While he acknowledged the merit of their ambition to establish a harmonious balance between employers and workers for the benefit of all, explained Einaudi in an essay written for Gobetti, he expressed reservations about their method of “imposing” this equilibrium from above. He viewed this as merely another form of collectivism, wherein social peace was enforced “under the guidance of an authorised interpreter of the supreme national interest”. For Einaudi, true equilibrium could not be dictated; it had to be “conquered” through dialogue and contention. Such a balance, he contended, would be more readily accepted by all parties, rendering it both more stable and enduring. However, he stressed that for equilibrium to persist, it needed to be perpetually challenged. A lasting balance could not coexist with “monopoly, nor with the legal or de facto suppression of dissent.” Or better, monopolies as in themselves might arise spontaneously, however, it was impermissible that the state would enshrine it “legally” by prohibiting opposition or efforts to dismantle them. He maintained that as long as monopolies—be they of employers or workers—remained subject to critique and open to being contested or pulled down, it may cause damage; however, such damage would likely be minor and transitory. The indispensable precondition for a stable equilibrium, one that serves not only industrialists and organised labour but also unorganised workers, not only present bus also future generations, and society as a whole, was not necessarily the presence of active competition. Rather, it was the legal possibility of competition. Nothing more should be demanded of the state, except that it set the conditions for everyone to assert themselves, that it allow everyone the opportunity to deny the monopoly of others.

While Einaudi shared the objective of achieving balance—while emphasising its inherently precarious nature—he fundamentally disagreed with the methods advocated by Fascism. In particular, he criticised the way Fascism, under the guise of securing social peace, was systematically undermining fundamental freedoms, enforcing unanimity and consensus through coercion. This assault on liberty was epitomised by the decree of 24 January 1924, which imposed stringent state supervision over workers’ associations. Einaudi contended that if such “supervision” had been juridical—entrusted to impartial magistrates and governed by equitable laws—it might have been an excellent initiative. However, under the decree, this oversight was explicitly political, granting prefects and the Minister of the Interior sweeping powers to inspect, dissolve, reconstitute, or liquidate the direction boards of workers' associations, and notably, of only workers’ associations. The right to strike, meanwhile, had become little more than a distant memory. Einaudi observed that if, as the Fascists claimed, the corporate system was designed to resolve disputes between employers and workers peacefully, this claim was impossible to substantiate when “since October 1922 an essential condition for such judgement has been absent: the freedom of workers to associate as they wish”. What Einaudi found most disheartening, however, was the willingness of industrialists to prioritise this “social peace” over political freedom. While their desire for stability and the safeguarding of their property was entirely legitimate, however, this “right” of respecting their labour and their assets, ought not to be “required through the suppression of other social forces”. Instead, it should be “earned, day by day, through diligent efforts of persuasion and dialogue” because “only by this and in no other way could modern, civilised societies flourish and progress”. For Einaudi, struggle, i.e. free competition, was not merely a fundamental driver in the economic domain, where it compels businesses to improve and fuel productivity, growth, and wealth creation. It was indispensable perhaps above all for societal advancement and the moral and spiritual elevation of individuals. Liberalism, he asserted, is rooted in faith in individual initiative and the unrestrained freedom to associate, creating mechanisms of cooperation and collective defence of shared interests “in the material or moral improvement gained by voluntary effort, by sacrifice, by the aptitude to work in a collaborative spirit”. In the preface to J.S. Mill’s On Liberty, written only a few months later, Einaudi reaffirmed these principles “at a time when the right to dissent, to nonconformity, and the very rationale for contesting uniformity urgently required reassertion”. He restated “the logical justification of the right to dissent and the profound social and spiritual utility of struggle”: “syllabus, conformism, harmony, and regressive press laws are synonyms and symptoms of civil decline. By contrast, partisan struggles, criticism, nonconformity, and press freedom are heralds of the ascension of nations and states”.

2.4. University Reform

Another issue on which Einaudi expressed his perplexity concerned university reform. He praised a number of elements of the reform as representing an “increase in the freedom and independence by which science lives and without which no progress of science can be conceived” such as, for example, the financial autonomy of universities, the possibility for academic bodies to organise studies in the most appropriate way for the progress of studies themselves, and the freedom to create new universities. He emphasised, however, how these measures were accompanied by a series of other “particular institutes” such as the oath and the system of recruiting professors, as well as the state examination, in contradiction with that same principle of freedom and independence.

Firstly, therefore, Einaudi noted how the oath not only contradicted the principle, contained in the law, of freedom of teaching; a principle without which there can be no truth and scientific progress given that “the only guarantee of truth and scientific progress is the freedom to deny everything”; but it was also in contradiction with the meritocratic objectives that the reform set out to achieve, since in no way would it allow for the selection of better and more deserving professors. Secondly, Einaudi criticised the power given to the minister of education to directly or indirectly choose professors, headmasters, deans. The existing system, however imperfect, had in his opinion yielded excellent results. No one - professors, headmasters, deans - could enter without having been chosen by the body of professors, through a recruitment system based on co-optation, which had ensured, after long battles, “the existence of an aristocratic class, removed from political parties, independent of the government and the bureaucracy”, i.e., ultimately, “the only substantial guarantee of true independence”. Finally, Einaudi criticised the state examination system. That it was necessary to give a “practical” examination in order to be able to exercise a profession, as already existed for example for lawyers or with public competitions, was not in itself a bad thing. Given, that is, that the value of a degree is entirely relative since it depends on who awards it, checking the level of preparation for entering a profession could be considered a guarantee. On the contrary, Einaudi considered - and in this he agreed with the text of the reform - that not only could the degree have no practical value nor confer any exclusive rights (not even for applying for public competitions) but that in fact the degree should have “exclusively” the value of an “academic qualification” because “only in this way will degrees become something serious and high because only those who want to know will aspire to them”. What Einaudi criticised was the connection that was to be created between the degree (theoretical-scientific examination) and the state exam (practical) and more specifically the fact that every year a ranking of the virtuous universities would be published, i.e. a ranking of the universities that would provide the highest number of graduates in the state exam. In this principle, Einaudi saw a serious danger for scientific research because it would have stimulated competition between universities in preparing for the State examination. Competition in the abstract would have been excellent because it would have encouraged universities to better prepare candidates. But “since the state examination must be professional, the professional aim will be the first, perhaps the only one that universities will be forced to attend to”, and not the scientific one. Universities will give precedence to the teaching of practical notions, to the accumulation of practical knowledge over reasoning. As Einaudi put it, professors would become mere “repeaters” and “preparers” of state examinations and students would become “parrots”. Since the university's task is to manufacture thinking heads, to teach reasoning, to provoke research and consequently stimulate great discoveries, it cannot be reduced to preparing for a practical exam.

Einaudi revisited the role of universities a few years later, reinforcing his conviction that their primary mission is to teach reasoning rather than amass knowledge. He criticised certain research evaluation methods that prioritised quantity over quality, arguing that the merit of a researcher could not be determined by the sheer volume of their publications or the breadth of topics they addressed. As he succinctly put it, “He who demonstrates the ability to comprehend one economic problem shows that he is capable of addressing all problems”. Equally, Einaudi rejected the notion that a researcher’s worth could be judged based on the ideological standpoint underpinning their work. Specifically addressing proponents of “corporatism” as a universal interpretative framework, he argued that the best solution to any problem is the one reached through the systematic elimination of alternative possibilities, following rigorous debate to identify the approach most aligned with the general interest. In his view, socialism or corporatism could not serve as initial assumptions or guiding perspectives in analysis; rather, they could only emerge as legitimate conclusions after competing solutions had been thoroughly evaluated and dismissed.

3. Foreign Policy: Inter-Allied Debts and the Problem of Peace

3.1. Building an Edifice of “International Consciousness”: the Organisation of Peace

Einaudi observed with keen interest the efforts to “organise” peace on an international scale. He was firmly convinced that Germany’s rehabilitation and the establishment of peaceful relations among European nations could only be achieved through international cooperation. The salvation of Europe, he believed, rested upon solidarity and the creation of a federation of independent nations. He lauded “the grandiose debate in which the lives of rising generations and the fate of civilisation are deliberated and determined,” urging the representatives of former adversaries to prioritise the construction of an “edifice of international consciousness”. In Einaudi’s view, arbitration represented the ideal theoretical mechanism for ensuring peace: the binding obligation for all states to resolve disputes through a supreme court of justice. Yet, recognising that cultivating a moral conscience at the international level would require time, he advocated for immediate practical measures to guarantee security among nations. “Until the League of Nations evolves into a superstate with its own army, superior in strength to that of any alliance of sovereign states—and we are far from such a goal, if indeed it is a goal at all—one pressing question remains: how can a weaker state defend itself against the aggression of a stronger one determined to flout international rules?” The solution, according to Einaudi, lay principally in “special” and public treaties, agreements designed to deter aggression by ensuring that an attack on one state would prompt a collective response from multiple nations.

While Einaudi remained optimistic and enthusiastic about the various international conferences aimed at fostering cooperation, he was not blind to the significant challenges that impeded progress. He recognised not only the entrenched historical antagonisms, occasionally exacerbated by ill-conceived policies—such as the French occupation of the Ruhr and the contentious issues of reparations and war debts—but also the self-serving attitudes of states reluctant to engage in international agreements they deemed contrary to their immediate interests. Although he initially held hope that Italy might assume a leading role in the peace movement, by late 1925, he was compelled to acknowledge the impasse into which the League of Nations had fallen, hampered by the absence of major powers and the hesitation of others to fully commit to its mission.

3.2. The Issue of Inter-Allied Debts

Einaudi dedicated numerous articles to the pressing issue of inter-allied debts—those incurred by Italy and other victorious European powers vis-à-vis Great Britain and the United States. He consistently advocated for their cancellation and supported governmental efforts to achieve this objective. At the heart of Einaudi’s argument was the premise that these inter-allied debts were “not true debts in the conventional sense but (had) instead to be regarded as sacrifices jointly borne for a common cause”. In his view, the financial obligations owed by European nations such as Belgium, France, and Italy to their Anglo-Saxon allies could not be assessed in isolation; they had to be weighed against the debts owed by the Anglo-Saxon powers to the European continent, incurred through the immense human sacrifices and material devastation endured in pursuit of their shared victory. Thus, Einaudi maintained that Italy’s case for debt cancellation had to be rooted primarily in moral considerations.

The advisability of cancelling or at least reducing debts also resulted, however, from considerations of the economic capacities of the countries concerned: the enforcement of such debts would hinder post-war recovery, destabilise currencies, and sow discontent, undermining the foundation of lasting peace. He warned that the in the aftermath of the Great War, countries like France, Italy, and Belgium were economically incapacitated of repaying such debt. In order to meet their financial obligations they were depending not only upon Germany’s reparations stipulated under the Treaty of Versailles but also on a general recovery of economy. Einaudi posed a stark question: How could Italy possibly repay the 22-23 billion lire owed to the United States and Great Britain if Germany defaulted on its reparations? Such a scenario, he argued, would inevitably jeopardise fiscal equilibrium and currency stability. Moreover, he underscored the “indissoluble logical connection between reparations and inter-allied debts”: it was both unjust and immoral to reduce or cancel Germany’s reparations - the loser - while compelling the victorious allies, who had endured greater destruction in many cases than Germany, to repay what he deemed “false” debt.

Although Einaudi disapproved of France’s occupation of the Ruhr—criticising it for obstructing the revival of European trade and undermining peace—he viewed it as an inevitable reaction to the injustice of disregarding this connection. Similarly, while offering cautious yet broadly favorable comments on the Dawes Plan, Einaudi repeatedly and firmly decried the “absurd” failure to reach an agreement on inter-allied debts. The result, he noted, was a scenario in which Italy was required to pay interest to the United States and Great Britain amounting to approximately the total sum Germany was expected to contribute in a year.

4. Monetary Problems and Reflection on the Crisis

By 1925, Einaudi's primary focus had shifted to monetary issues, particularly in the context of the ongoing lira crisis. He strongly reiterated the futility of inter-allied debts, which were now posing a grave threat to European currencies. At the same time, he was highly critical of the Italian government, particularly targeting De Stefani, who was soon to resign as Minister of Finance. While Einaudi shared the government’s priority to stabilise the lira and restore market confidence, he insisted on addressing the root causes of instability, which he referred to as “disruptive circumstances.” From an economic standpoint, Einaudi stressed the importance of consistency and predictability in policy, warning against abrupt changes to decrees and regulations, which generated uncertainty and fear, thereby driving up exchange rates. He specifically cited the stock exchange decrees of February and March 1925, which he argued had caused “unspeakable” harm. Hence

“No decrees, no regulations, no constraints, no monopolies.” Politically, he cautioned against “Everything that makes people fearful of the future, that casts doubt on the free and peaceful coexistence of all opinions and all parties in the sovereign state, that divides citizens into the elect and the reprobate, sows uncertainty and mistrust” therefore De Stefani should have “the obligation to draw the logical consequences from these observations”.

This critique marked Einaudi's final direct challenge to the regime. In November 1925, his collaboration with Corriere della Sera came to an end. He continued his publishing activity through La Riforma Sociale, which he directed, but his commentary on current affairs became increasingly rare and carefully measured. Only opinions favorable to the regime’s policies could appear without risking censorship or being banned from publication. These very rare favourable opinions concerned monetary policy. In fact, Einaudi expressed a generally positive view of the 1927 monetary reform, which revalued the lira at the “quota novanta” level and implemented a stabilisation policy. In the early 1930s, in a series of articles on the Great Depression, he also praised the policies of the Bank of Italy’s director, who appeared to move away from the “bailiff” approach—a complex system of bank and corporate bailouts that, in Einaudi’s view, had impeded crisis resolution.

Beyond these reflections on the crisis and monetary policy, Einaudi’s role as a keen observer of his time gave way to the scholar of economics and finance and then. When La Riforma Sociale was banned in 1935, he turned his attention to historical research, founding the Rivista di Storia Economica in 1936. During those “years of withdrawal” as described by his biographer Riccardo Faucci, Einaudi concentrated on theoretical studies, particularly refining his taxation theory. He staunchly defended orthodox economic principles, critiquing Keynesian and corporatist theories, and engaged in a dialogue with Benedetto Croce on the interplay between political liberalism and economic liberalism.