1. From the fall of the Fascist Regime to the escape over the Alps

The importance of looking back to the past to plan for the future featured Luigi Einaudi’s coming back to journalism after his partial silence imposed by Fascism. In fact, one the first articles he published after the fall of Mussolini in the Corriere della Sera on 22 August 1943 opened with the effective phrase “Heri dicebamus”. Here, he was referring to inflation, a real problem at that moment, to set again an ideal continuity between the ideas he claimed before the Fascist dictatorship and the ideas to be advocated in the new political and institutional framework which was coming out in that period of the transition phase when choices were hard had to make. In this context, Einaudi emphasised on the urgency for Italians to restore individual and civil liberties that the Fascist Regime had deprived them of. Additionally, he strongly believed that reconstruction could be made in a few years only, and not in decades after the disaster of the Ventennio. He first focused on the press freedom, a central issue in his writings of the early post-war period, then on economic issues for the need to let entrepreneurs free to operate without restrictions. Finally, he advocated for the defence of Trade-union freedom and plurality as antidotes against to avoid labour organisations subordinate to the party-driven logic.

The unknowns within the ongoing transition required a conservative forecast for the future to be however based on confidence and optimism that Italians would be capable of closing with Fascism and rebuild the Country after the disasters of the war. Luigi Einaudi emphasised this approach in an article published in the Corriere della Sera on 8 September 1943 about the relationship between economists and the political class. Here, he enunciated general and abstract principles to be turned into political choices. He also included the distinctive traits of liberalism and free market economics that would differentiate his thought and political action in the following years.

During the 45 days of the Badoglio government, Luigi Einaudi would reconsider these topics to further develop them in the pamphlet Lineamenti di una politica economica liberale he wrote in August 1943 upon Alessandro Casati assignement. That pamphlet was to be a draft version of a liberal programme of economic policy and was circulated after the 8 September armistice. His words reiterated the essential conditions for contributing to post-war reconstruction: not only the fight against plutocracy, constraints, privileges and the latifundium, but also a constant commitment to promoting a general empowerment of population so that all social classes can have an active participation in the economic governing of Society. Freedom, therefore, against the omnipotence of the State and private arrogance to ensure, at the same time, a guarantee of the greatest possible equality at square one. The paper gave Einaudi the opportunity to clarify the complex and sometimes ambiguous relationship between political liberalism and liberal economic policy. In the following years, he would repeatedly come back to this theme but already in the second half of 1943, this appeared sufficiently outlined. Far from being an economic doctrine, liberalism was actually a firm moral principle which included measures of social legislation focused on “bringing the square one closer together” by offering opportunities for economic advancement also to the poorest. Rejecting the extremes of absolute equality and absolute inequality of wealth, it was necessary to cater for conditions so that the supreme principle of individual freedom could be ensured and exercised by all social classes: the salvation of peoples in critical phases passed through independence of thought and character.

2. The Exile in Switzerland L’esilio in Svizzera

On 22 September , Luigi Einaudi, wanted by the Nazis after the invasion of Northern Italy, left the town of Dogliani for Switzerland where he was to remain until the end of 1944. Like many exile politicians who were to play a leading role in the history of the Italian Republic, during his exile he wrote some important notes in his Diari dell'esilio (Diaries of the exile) and, in part, in a memoir that he wrote for a German magazine and published under the title Tagebuch einer Flucht aus Italien,(Diary of an escape from Italy). During his stay in Switzerland he came into contact with the lively intellectual milieu of the exiles. He also carried on with an even greater consistency, despite the shortage of writing material, his collaboration with a number of newspapers, including the supplement to La Gazzetta Ticinese, a daily newspaper in Lugano, edited exclusively by Italian refugees and entitled “L’Italia e il Secondo Risorgimento” (Italy and the second Risorgimento). Einaudi would publish numerous significant articles initially signed with only an “e.” And, starting from 13 May 1944, with the battle name “Junius”. He addressed numerous topics in his journalistic writings and in-depth articles. The distance from Italy, as well as the comparison to a different political system, inspired him for a far-reaching reflection on the possible evolution of the Italian political framework as well as for comprehensive predictions on the fate of transition in Italy. The Lineamenti di un programma liberale (Outlines of a liberal programme), was an enhanced version of the draft programme published in the supplement of 29 April 1944. It set out the guiding principles of future political action: the defence of the Press independence, the return to a gold-based exchange system, the fight against monopolies, the rejection of any idea of socialisation, statisation, nationalisation and of any condition that could reduce people again to the condition of servants, slaves, or conformists. In this new version, Einaudi made a clear reference to relations between the State and the Church, and called for a revision of the 1929 Concordat in order to fully develop the principle of mutual separation between the two scope of action. Once again, he set guidelines, then politicians should to turn all this into practical policies. He also advised public opinion in order to stir up their awareness for the common good, beyond any ideological or political divisions. Actually, in his article “Limiti ai partiti” (Limits to parties) Luigi Einaudi focused on the very issue of separation of powers between the Church and the State, and on the presence and the role of political parties in political life in Italy. There, Einaudi resumed some of the reasons which, already in the first half of the twentieth century, had fuelled the distrust of liberals towards the new form of organisation of the political struggle. The clear rejection of the “Party-Church” model, as a repository of philosophical, economic and historical truths went hand in hand with the equally clear condemnation of the political party understood as a mere electoral machine. The participation of citizens in public debate could not, nor should it be, reduced to militancy in political parties or to the election of men designated by parties: these ones had to remain a mere instrument to foster a greater effectiveness for citizens who were and would continue to be the core of policies. A dominating organisation, with its rules, individualism, and specific faith, eventually would not only hinder independence and freedom of expression, but also the very quest for the common good: the individual interest would finally prevail over universal interest, just as division would end up by obscuring the safeguarding of unity necessary to bring Italy out of the wrecks of Fascism and war. These concerns led him to address the mechanisms that could lead to any prospective degeneration of the role of the parties within the political system. First was the issue of the choice for the electoral system. Under many points of view, the period spent in Switzerland represented for Einaudi an opportunity to anticipate, albeit in the form of speculation, many viewpoints that, once back in Italy, he would advocate in his political and public commitment. The examples of sound Anglo-Saxon democracies led him to emphasise the merits of the uninominal majority system and criticize the limits of the proportional one. In accordance with an ideal of abstract justice which recognises the need to represent all voices and all ideas, proportional representation would only make it impossible to establish strong governments and implement long-term programmes, this would undermining political life to a constant compromise between conflicting programmes. Einaudi’s criticism to the political parties and to the system devised only to acknowledge their central role, once again shed light on the liberal model overcome by the war and then by Fascism. At the same time he gave food for thoughts when he advocated for a vision of profit liberated from the misunderstanding generated by classical Marxism, for a vision of independence of the judiciary and universities, of the abolition of tariff barriers at customs, stable currency, overcoming the outdated idea of absolute sovereignty of the State and the consequent inclusion of Italy within a European federation designed as a political and economic entity. Einaudi dedicated one of his most famous papers, Via il prefetto (Out with the prefect) published in July 1944 to the theme of the State or more precisely to the end of State authoritarianism. His belief that sovereignty and legitimacy in the exercise of power belonged to People led him on the one hand to condemn the absolute incompatibility between the role of the prefect as a symbol of the centralised and imposed power, and rules of democracy to outline, on the other how to train and select politicians. In a democratic system based on universal voting, all expressions of a centralised power had to be lifted up to build up a bottom-up system based on participation, on freedom of expression and choice. Thus a recurring theme of Einaudi's reflections resurfaced: the destruction of the “fateful” idea of absolute sovereignty from the State in order to safeguarding local autonomies for a bottom-up approach for building up the State from real foundations, together with the selection of the political class based on the same approach to select the best people.

During his exile in Switzerland, Einaudi resumed his teaching. He gave a number of lectures at the university campus for Italian soldiers in Lausanne first, then in Geneva. In Lausanne, he lectured in seminars essentially dedicated to the theoretical preconditions for social action. In Geneva he provided a full training in economic policy for a semester. There, he would meet Amintore Fanfani. Despite their diverging ideological and political views, both would share a strong scepticism towards joining the Italian political parties who were rising in power in that period: the Liberal party for Einaudi, the Christian Democrats for Fanfani.

The material of his lectures was later collected in the well-known volume he later published in 1949: Lezioni di politica sociale (Lessons of social politics). This essay represented the acme of his thought on the relations between economy and the State. In some ways, he wound up on the institutional, political and civil facets his previous views on the relationship between the State and individuals. Although he recognised the central role of the market, he focused his analysis on evaluating the influence exerted by institutions onto market itself. The starting point of his thoughts was the same for all his thinking: it is necessary to let the largest possible number of citizens participate in the market. The “democracy of the market”, in his views, was established through the free voting of all sovereign consumers. In order to be effective, such market had to ensure that all social classes could exercise such right. The market, far from being an end, is in fact nothing more than a means to meet demand arising from needs freely - and not coercively - expressed by consumers. Hence, on the one hand, he severely criticized any attempt to submit the market to the rules of political control or to prevent the natural unfolding of market offsetting mechanisms. On the other hand, he observed that perfect competition was only a theory. Consequently, there was a need to reconstruct competition dynamics. Hence, Einaudi placed the reasons and justifications for State measures in the gap between these two models: the fight against monopolies, trusts, cartels and the forms of centralised planning together with actions to lower down the highest income and raise the lowest. Since, as Einaudi himself would state, the starting point were resources available to each citizen when arriving to the market, the real aim was not the affirmation of equality as the result leveling out income and assets, but the creation of opportunities for savings and economic advancement for the poorest. In this way, the positive effects of exercising this freedom could also unfold within the market economy which is however a market regulated by norms. From this perspective, the organisation of the relationship between the sovereignty of freedom and the provision of forms of social legislation clarified the essence of Einaudi’s liberalism in the economic sector, beyond “multiple liberalisms” and “several socialisms”. A liberalism based on efficiency, selection, and the assumption of risk within general legislative conditions where the State could, and ought to act as a driver also.

3. Return to Italy and the Appointment as Governor of the Bank of Italy

The opportunity to advocate for the views he had perfected in the years he spent in Switzerland would come in late 1944. In the new domestic and international political situation, Luigi Einaudi was called back to Italy to take over the leadership of the only public entity which had continued to operate as an independent unity despite the division of the Country: the Bank of Italy. This appointment would be followed by his designation at the Interministerial Committee for Reconstruction.

In his inauguration speech held on 15 January 1945, the new governor declared the principles that would inspire his action and recovered several themes he had developed during the years of exile: the conception of the Central Bank as a longa manus of the Treasury, the fight against inflation, cooperation with the banks of the Allied countries, adhesion to the Bretton Woods agreement, the need to place the Italian reconstruction into the broader context of an integrated European economy. Once again, all measures were brought back to the principles of the traditional and glorious Italian traditions of the past, however they had to be placed within a profoundly renewed historical framework.

In such a new framework Einaudi was to play a decisive role. In the three years of his governorship, he would hold other high institutional positions without ever abandoning his journalist and literary activities: member of the National Consulta and of the Constituent Assembly, Minister of the Budget in the fourth De Gasperi Government and, finally, President of the Republic. In the various institutional venues, he would be the spokesperson of a coherent but articulate political and economic design. He would give a decisive thrust to the choices for post-war economic and political reconstruction. When leading the Bank of Italy, he was committed to establish a platform to set forth the conditions for the recovery and relaunch of the Italian economy. He clearly described his operational proposals in the Bank annual reports inaugurated by Einaudi himself since April 1945. Additionally, he completed them by numerous articles published above all in the Risorgimento liberale, a sequel of those already published in Lezioni di politica sociale. On a theoretical level, the defence of individual freedom made it possible to clarify once again how, in the economic field, the real alternative for reconstruction was not between liberalism and interventionism but between monopoly and market. From this assumption, Einaudi derived practical guidelines for a truly liberal programme. In the choice between normalisation and radical renewal of economic structures, he would decisively side with the first hypothesis. The war, in fact, had not caused any real damage to the industrial system and economic stakeholders, including capital holders who would resume their business operations in a climate of trust and moderation, rather than uncertainty and radicalisation. Reconstruction would therefore pass through restoring the country's healthy energies and through avoiding forms of summary justice or purges that could harm the restoration of normal living conditions in the Country.

The tools to steer the Country towards this objective were thus identified first and foremost in the methods for managing the governance of money and credit. The direction to be given to both was also clarified in the Bank of Italy annual reports.

The first report was a sort of summary, indeed. It outlined the measures regarding the organisation of the Institution, the general services provided and the reporting of budget figures; all this to be set within the broader context of the monetary situation in Italy. Starting from the second report dated 29 March 1946, he made more incisive and specific suggestions. The debate with the economic and political players was focused on two main areas: 1) the currency exchange which would make it possible to inventory liquid assets in stockpile while waiting for prices to fall, and 2) the simultaneous levy of an extraordinary tax on wealth. For the first point, Einaudi repeatedly underlined the danger that economic measures might result in increasing the propensity to stockpiling rather than curbing it for their impact in terms of violation of the banking secrecy and unpreparedness of the administration. In a nutshell, there is the risk that the two measures combined instead of having a beneficial effect on recovery would end up preventing investment. Instead, he would pay greater attention to wealth tax. Like many others, although he valued this measure as the most democratic, he would however declare its limits. Firstly, this tax had not to be levied on income and, therefore, on capital; secondly, he considered unfounded the prediction that wealth tax was more effective than the income tax in hitting large fortunes. Lastly, he considered an illusion to assume that taxpayers would be able to pay in one year higher taxes from income than from assets without the need to make debt or sell a share of them. Damage that would result could be partly avoided by granting more time to make the payment. To be effective, therefore, the "extraordinary wealth tax" should have made the miracle of modifying taxpayers’ psychology. Such objective could be achieved only by reducing other taxes, by excluding wealth increase and blocking the calculation of taxable income at a given established date, thus creating the conditions to encourage taxpayers’ willingness to pay wealth tax without suffering further reduction of their income. Both his thoughts on the currency exchange and on wealth tax showed how, ultimately, Einaudi did not consider such measures useful in anti-inflationary and anti-cyclical terms: the only instrument to combat inflation remained an effective monetary policy. With the end of the 1940-1943 capital circulation phase, it was necessary to cater for conditions for capital to support the national economic recovery, as well as to restore confidence in free-market and private enterprise. This objective required measures to control inflation, encourage savings and provide better guarantees on the stability of money value. In this direction, inflation had to be fought by controlling budgetary deficit and, therefore, through a sharp reduction of public spending funding by a never-ending issuing of paper money.

These measures could bring effects that Einaudi himself would clarify on the occasion of the third annual report of the Bank of Italy on 31 March 1947. He outlined two real cases, a positive and a negative one. In the first case, 50 per cent of currency deriving from exports could be used without restrictions. This measure had been introduced in March 1946. In the second case, the State funding for wheat storage following the reintroduction of the political price of bread decided in that same year.

The first measure made it possible to assess how market rules operated on the circulation of capital and the growth of private investment without any governmental control. Inversely, the second one effectively proved how a measure that could trigger again the inflationary drive for the negative impact on the national budget deficit.

This approach fully justified the severe criticism vis-à-vis the banking cartel introduced by Francesco Saverio Nitti after the First World War which was still in operation, together with the need to encourage the opening of new bank branches with the consequent competition between small and larger banks, together with the confidence for a positive outcome if a credit system would operate under the free flow of the market.

Henceforth, theories of investment being a function of the level of activity, theories about inflation caused by free flowing money, and theories of investment being a function of incentive to saving and of distribution of wealth, al this defined the unchanging rules of an economic policy built, once again, around the defence of individual freedom to be exercised in the trust for the future and in the capabilities of the Italian people.

4. At the Ministry of the Budget in the 4th De Gasperi government. The “challenging” 1947

Luigi Einaudi had focused the 1947 annual report on the assumption that the peak inflation was nearing, i.e. the moment when the Government would no longer gain any advantage from a growing expenditure if this one had to be reimbursed only by printing new money to pay for it. As governor of the Bank of Italy, he had insisted on the need to cut public spending in order to curb inflation, questioning on the so-called “social safety nets” then in place: price controls including rent, tariffs and redundancy freeze. This statement and the consequent measures required did reveal not only the essence of his theoretical design, but also an economic and political plan: economic reconstruction had to leverage the individual potential for initiative and action. Hence, the system would provide the psychological base for business undertaking: i.e. a broad freedom, the removal of assumptions contrary to market economy, the cancellation of socialist-type planned economic policies, and the stabilisation of the Lira. This style of solutions would definitely meet sharp hostility from the ruling politicians. The participation of the communist and the socialist parties to the De Gasperi government, as well as the positions expressed by the left wing of the Christian Democrat de facto tended to shift the balance of economic policy far from the Einaudian liberalism. While not questioning the need for the measures advocated by the Governor and supported by the then Minister of Finance and Treasury Pietro Campilli, and by De Gasperi himself, the Left insisted on the adoption of gradual economic measures and on the positive effects that could derive from economic planning . In the complicated domestic and international political situation that was to mark Italian history between the end of 1946 and mid 1947, the controversy over economic choices finally lead to a stalemate with heavy consequences on the Government operational capacity. The shrinking confidence in the market, the rise of the inflationary spiral, the flight of capital abroad, and the growing wave of speculation had generated a crisis impossible to overcome without the direct involvement of the so-called “fourth party”: i.e. the people who could provide the State with billions and economic power needed to fix things. This context would set conditions for direct collaboration between the Prime Minister of the time and the Governor of the Bank of Italy.

The government crisis of May 1947 was to finish with the formation of the fourth De Gasperi government. Einaudi had been appointed as Vice-president of the Council of ministers and as Minister of the unified ministries of the Treasury and Finance. However, a decree of 6 June 1947 had established an ad hoc ministry to be assigned to the Governor of the Bank of Italy: the Ministry of budget, a supervisory ministry in charge of filtering the provisions of the other ministries on specific matters considered as “sensitive”. These pieces of legislation concerned ordinary and general expenditure charged to a plurality of ministries, norms on extraordinary expenditure exceeding one billion lire made by some given ministries, and norms providing for a reduction in tax revenues. In carrying out his new task, Einaudi would inaugurate a practice that would remain constant even during the years spent as President of the Republic: his serious commitment, as well as his inflexible stance would feature his review of the measures to be implemented by his Ministry. A few days before being appointed as minister, Luigi Einaudi clarified to Alcide De Gasperi the condition for his collaboration: act on the norms that regulated the relation between money flow and pricing, and more specifically on the continuous needs of the Treasury. This premise would be the foundation of the governmental program on economic policy and would lead to a joint commonality of views between the Minister and the Prime Minister: if Alcide De Gasperi had justified the fall of the government in May 1947 on purely economic grounds, Einaudi's positions provided a full convergence on the direction to be followed since that moment.

In his speech at the Chamber of Deputies during the parliamentary debate before the vote of confidence, Einaudi clarified the objectives to be pursued: control over public spending, governmental measures in the production system to ensure free personal initiative, rejection of planned economies, budgetary and credit restrictions. He set out his line of action which would be implemented in two consecutive phases. The first measures, mainly aimed at containing spending, would concern the devaluation of the official exchange rate of lira against the dollar and the increase of specific public service tariffs. A few months later, a property tax on real estate only would also be introduced. The second lot of measures would be focused on the control of the overall volume of credit. On this point, a new compulsory reserve system was approved thanks to the work of the Interministerial Committee for Credit and Savings established on 1 July 1947,. This system stipulated that by 30 September, all banks were to credit to the Bank of Italy 15% of their existing deposits; from 1 October, the share to be paid for new deposits rose to 40%, leaving 60% available to Economy. This credit measure made it possible to bring a direct action on liquidity as well as an immediate stop to speculation on stockpiling. Einaudi’s expanded his analysis on the causes of inflation, which still represented the enemy to be defeated, against the positions he had stated a few months before: in fact, inflation was no longer to be blamed solely for the excess of public spending financed by printing paper money, but also on the choices made by the “business world”, primarily the banks, precisely through credit issuing and investment. Therefore, the objective remained unchanged, however the solutions required complex economic measures. During the months spent in his governmental assignment, Einaudi would repeatedly support the rationale his monetary policy. In the contingent situation, the stabilisation of domestic prices required deflationary measures and actions focused to monetary stability for generating: voluntary and not forced savings induced by inflation; the levy of ordinary and not extraordinary taxation; cheap pricing for producers and subsidies for consumers; flexible labour to be protected by a social security system.

In this direction, the deflationary line necessary to relaunch domestic economy, would lead to achieve a further goal. Einaudi, like De Gasperi, had a clear sense of the weaknesses and limits of the Italian economic and political system. The risk of an excessive and dangerous bending of national economy back on itself could be averted by including the country into the broader framework of international relations so as to build for the future through a complex system of constraints.

Italy was admitted to the Bretton Woods system and joined the Monetary Fund as a full member as well as the International Bank for Reconstruction and Development, and received funding from the Marshall Plan. If all this provided significant opportunities for recovery in domestic productivity, on the other hand all this helped to cross the national borders of economy to benefit from the “global” dimension, the only one capable of ensuring widespread and lasting economic development.

Measures on income, saving and consumption within an integrated economy represented the fundamentals of a reconstruction project where Einaudi and De Gasperi would be the economic and politica directors respectively. Actually, that project would by partially disregarded to the point of driving Einaudi himself to express strong scepticism about the system's ability to continue along that roadmap.

Beyond the unachieved implementation, it cannot bedewed that in his role of Minister of Budget, Einaudi gave a rhythm to the reconstruction of the national economy. In a all-but-favourable climate for liberalism, this one was precisely the setting which framed the new economic policy of the De Gasperi governments.

The reference to liberalism, in its various facets, and the role of the old liberal ruling class in the construction of the new political and economic order would prove to be, in reality, more consistent than some ideological reading of history has been ready to acknowledge: the recovery to the pre-fascist period, and the possible reconciliation of the past with the new requirements of the present would inspire not only Luigi Einaudi's action as executive in economic agencies, but also his work in the relevant institutional settings to show a clear coherence and continuity in his intentions and ideals. In this direction, an even more emblematic confirmation of his role at the top of economic organizations is to be found in his contribution to the preparatory work for the Constitutional Charter and in his considerations on the architecture of the new State.

5. From the National Consulta to the Institutional Referendum

In his years spent at the head of the Bank of Italy, and at De Gasperi side in his Fourth Ministry, Luigi Einaudi also actively participated in the political debate as a member of the National Consulta first and of the Constituent Assembly later.

During the sessions, Einaudi, appointed to the Finance and Treasury Commission chaired by Stefano Siglienti, actively participated in the debate on economic, political and constitutional issues. Although factually devoid of any decision-making power, the Consulta represented a gathering for comparing the various projects which came out in the months of the long transition after the fall of Fascism to set the grounds for building the new State in continuity or severance with the past first and foremost, and then in the relation with Fascism, in the role of the new political players, and in the future form of government.

Among the subjects addressed by the Commission, Einaudi spoke on foreign trade regulations and its managing entities, on the definition of the tax system in the liberated territories, on the new land-registry assessment for buildings and farming land, on the allowance to be assigned to civil servants working in the areas destroyed by the war, on regulations for taxes and levies on entrepreneurial activities, on profits made upon cooperation with the fascist regime, on the establishment of a national solidarity fund, on the appropriation of war profits by the government.

However, he held his speeches with the most political relevance during the Plenary Assembly gathering.

On 16 January 1946, in the debate that followed the communications by Prime Minister De Gasperi, Einaudi intervened about colonies. After recalling the past position of Italy, and the points of the agenda approved by the Senate in support of the Ethiopian enterprise on 9 December 1935, he stated his positive consideration of using the trusteeship on behalf of and in the interest of the indigenous populations in a context of overcoming the national States and consolidate federalism. The speech not only was a criticism against all forms of abuse and privilege, but also it set the base for Einaudi to address a topic he would repeatedly raise from the benches of the Consulta, as well as from the pages of the newspapers. He focused again his attention on the correct configuration of the concept of State sovereignty. His rejection of any form of absolutism and dictatorship persuaded him that the absolute sovereignty of individual States was now to be considered an economic anachronism in a time marked by the birth and expansion of railways, telegraphs, radio and air navigation: by now reality had the exclusive form of interdependence between sovereign States. Einaudi had already outlined his approach in the aftermath of the First World War and at his return to Italy in early 1945, and such approach would profoundly influence his interpretation of the relations between the national and international dimensions.

Einaudi would take inspiration from the federal systems when writing his speeches dedicated to the relations between the central Government and the Regions. He seized this opportunity when the debate was going on about the entry into force of the Statute of the Sicilian region, approved thanks to the energy and consistency of the Sicilian separatist movement. In addition to expressing strong disapproval for the methods used in this operation, he declared his opinion that the Statutes contravened the logical and legal norms on relations between the central and the regional levels. Only apparently was this a defence of the centralized vision. In reality, the entire report was focused on defining the specific tasks of the relevant institutions, on avoiding overlapping of powers and duties as well as uncertainty that undermine the stability of the relations. The State was to retain all the functions not explicitly assigned to the regions at the moment of their establishment. Contrary to this general principle, the case of Sicily outlined a dangerous confusion between tasks and roles proper to the State and those delegated to the regions. Moreover, if the Statutes would allocate the largest share of tax revenues to the Region, Central government would be deprived of the possibility of levying taxes in the region. The far-reaching knowledge of the theory of the State would then translate, on the one hand into a need for rationalising the operations of institutional and administrative entities, and on the other into the belief, always advocated, that the State did not accomplish the entire dimension of social, political and civil life : the limits to the exercise of central power precisely came from the autonomies and constraints to which State was subject in a system of integration.

The severance from the fascist experience was manifest as was the distance from any hypothesis of building this new State on totalitarian and totalising ideologies. These premises found an actual implementation in the other major theme that Einaudi would address during the work of the Consulta: the type of voting system to select the members of the Constituent Assembly.

Against the position of a share of the liberal ruling class ready to accept a proportional representation only in a direct-voting system, to define small constituencies and distribute the left-over areas, and based on a mandatory voting, Einaudi raised his voice to declare his “aversion and repugnance” towards that choice and to reiterate his preference to go back to the single-member constituency. At least two reasons led him to prefer this second system. First, the need to provide stability to the government: in a climate marked by political and ideological fragmentation, proportional representation would make governing impossible. Einaudi thus returned to reasons he had already advanced in the years before. In a Country with over four or five political parties, it was impossible to form lasting and cohesive majorities. It was essential, then, to chose for a voting system apt to prevent this peculiar intrinsic tendency to multiply. Proportional representation, on the other hand, granted representation to those who reached the established quotient thus favouring the set up of groupings that represented neither “great interests” nor ideals capable of directing people towards the pursuit of the common good but to the detriment of particularistic interests. The fault of the proportional system precisely laid in altered principles of representation which would favour the success of minorities over majorities. Second, proportional representation would contribute to stiffen relations between the parties, i.e. after getting positive results at elections, each party would radicalize the defence of their own interests and their political propaganda, exposing the system to the risk of a possible “coup de main”.

Einaudi thus went so far as to deny the very assumptions leading to consider the proportional system as the best way to preserve the country from totalitarian involutions: the pre-fascist liberal State had collapsed because the parliamentary regime had been unable to function in a system made up of a multitude of smaller and larger parties. The antidote remained the return to individual representation that allowed men, not machines, selected for their merits and skills to sit at the Parliament. Against the intrusiveness of political parties or of the number of candidates on the electoral lists, it was necessary to call for men directly chosen by voters, men who were known and deemed worthy of writing the fundamental rules of the new State. On the other hand, as he would state, there was no reason to believe that the assembly should grant representation to all ideas. It was more appropriate to leave room only for ideas founded on moral or permanent values, and which were not the mere expression of partial or fractional interests.

In his controversy against proportional representation that Einaudi would face again in the Constituent Assembly, he would once again shed a light on his own past to restate the reasons for the scepticism which had led liberals to distrust the usefulness of modern parties even before the advent of Fascism and to defend an elitist and nobiliary conception of politics: an approach where the search for the common good and the selection of the ruling class was made through a personal exercise of leadership unwilling to submit individual freedom to the rules and constraints of political parties.

When taking position for the choice of the new form of government, Einaudi would be equally consistent with the recovery of past value and with the ability to discern all the good to be saved from the history of Italy. In fact, according to the decision made by the Consulta, the first elections with universal suffrage for the Constituent Assembly were held on 2 June 1946. At the same time, Italians were called to choose between the Monarchy and the Republic by an abrogative referendum.

Einaudi would be front-runner in the Turin-Novara-Vercelli constituency for the National Democratic Union, a grouping of liberals, Nittians and Demolabourists. During the electoral campaign, he would not fail to openly intervene in defence of the preservation of the monarchy. Various reasons led him to believe that the latter was able to offer better safeguards than a democratic republic for the reconstruction of the institutional architecture, naturally inclined to degenerate towards Jacobinism. First, as the experience of Piedmont had proved under the rule of the Savoy, monarchy was perfectly compatible with the respect for local autonomies and pluralism. Second, monarchy appeared the best expression of a sovereignty not centred on a single source of power but subject to a system of checks and balances. Reflecting on this point, Einaudi noted how the formula “By the grace of God and the will of the Nation” proper to monarchic systems, better met demands to limit authoritarianism and State absolutism. Therefore the true legitimacy of power did not lie in popular sovereignty only, but in the simultaneous appeal to the past, to the values of tradition, to the burden of memory, to the authority of the wise. The victory of the republic would not persuade him to give up the defence of these principles. In full respect for the choices made by Italians, and faithful to the new form of government, he would continue, even during the work of the Constituent Assembly, to defend the attempt to translate the reference to the “grace of God” into constitutional rules.

6. The Constituent Assembly and the new architecture of the State

The election to the Constituent Assembly provided to Luigi Einaudi the opportunity to carry on his political commitment along the same track path he had already outlined at the Consulta. Following his election (24,857 preferences in Turin and 14,073 in Cuneo), Luigi Einaudi was appointed at the Commissione dei 75 and at second sub-commission responsible for dealing with the constitutional organisation of the State.

The complexity and the extent of the debate during the drafting of the new Charter let Einaudi deal with the new issues on the agenda of the ongoing standardization of life in the State and recover most of his previous visions.

Starting with the issue of State sovereignty required to facilitate the insertion of the system of autonomies into the Constitution and to define the role to be assigned to the regions. Echoing his earlier positions at the Consulta, Einaudi reiterated his difficulty in having provinces within the system of autonomies. Also he called for the preparation of a scheme that would assign specific tasks to the regions. In other words, a solution had to be found that would provide some constitutional tool to protect the unity of the State while recognising the fundamental role of the autonomies. Italy was on a reverse direction from the other countries having a strong autonomist tradition: Italy had to remain a unitary State.

Concerning the financial implications of autonomy, Einaudi rejected the idea to break down taxation sources between the State and smaller entities. In his view, he considered as more effective a system that would deny the power to levy certain taxes if regions would not guarantees an effective use of that revenue. On the other hand, however, he supported the need to provide for additional funding from the central government if tax revenue would not be sufficient. The debate on the special statutes of Sardinia and Valle d'Aosta confirmed his reservations regarding the allocation of tax levying power.

The definition of the relationship between the central and the peripheral administration also involved the issue of the voting base. Alongside with the points he would raise during the debate on the constitutional organisation of the State, he declared he was against the provision of any form of professional electorate.

His strong disagreement about the protection of partial or sectional interests would be one of the his most important struggles in the sub-committee. Actually, the composition and the functions to be assigned to the second House gave him opportunity to open this debate. In the speeches he gave during the proceedings, Einaudi reconsidered the theme of State sovereignty, the relationship between Power and People, the dividing line between democracy and Jacobinism. All his thinking about the configuration of a two-house system was based on the requirement to leave no room for imposing a full-sovereignty State. In this approach, he considered that the Senate, although different from the Chamber of Deputies should also be an expression of the “living forces” of the country, of “those who lived and those who will live” and not of the economic forces. Therefore it would give a regional representation and, to a lesser extent, a professional representation elected by non-pre-established categories. Henceforth, he rejected a pattern of medieval corporatism but also a full People’s sovereignty. The choice of the two-House system made sense if inspired by the principle of balancing of powers. This system ensured that the Senate would finally be liberated from his “inferiority complex” due to senators being originally appointed only by the monarch and that People’s sovereignty would not be the exclusive source of legitimisation of power.

Therefore, Einaudi considered that parliamentarianism would be the preferable form of government for this set of guarantees and the break down in the exercise of sovereignty. His analysis on this crucial point of the institutional configuration is meaningful. In his various speeches he would review not only the models of other constitutional experiences, but the examples of “living” Constitutions, in the conviction that in examining the different cases, “what matters substantially [...] is not their wording, but their life”. The comparison between the presidential and the parliamentary systems revealed the major limitations of the former. The lack of communication between the executive and the legislative powers revealed the lack of homogeneity between the two Houses worsened by the different duration of their terms and the President being assigned almost absolute power. Thus, the parliamentary system seemed to be preferable but only if it proved to ensure an effective exercise of free discussion and debate, in the belief that a truly free government “is not free because it is presidential or parliamentary; a government is free if there is a complete and absolute freedom of debate in the two Houses and within the Country”. In this configuration, the centrality of the parliament would also ensure strength and stability to the government. About the relationship between the two powers, Einaudi advocated the need to introduce the mechanism of trust and no-confidence voting specifying, however, that such voting should have been on programmes and not men. When speaking about the functioning of the executive, he declared he was against rules that enshrined the primacy of the presidency of the Council over the ministers, and he supported a mechanism of flexibility in the appointment of the government. The Prime Minister had to be appointed by the President of the Republic after consultation and agreement with leading figures and not upon strict designation by the Parliament. Without prejudice to the centrality of the Parliament and based on the principle of trust, the fact that a third party was granted the power of appointment represented on the one hand a further tool for balancing the exercise of powers, and on the other hand this put in some ways the relations between the legislative and executive branches in a situation which set a limit to the clear domination by the political parties. On this point Einaudi remained an “early” liberal.

Instead, the establishment of a Constitutional Court appeared in his view less effective for the guarantees. Einaudi was very sceptic about the impartiality of such Court.

The last significant set of legislative measures concerned the institution of the abrogative referendum. Einaudi underlined that the referendum was perfectly compatible with the parliamentary system. He reiterated this concept in the years after to support its enforceability on tax regulations to be used as a stumbling block to “bold” reforms in financial and social regulations.

During the sessions, Einaudi would intervene on various economic issues; this was his best contribution to the drafting of the constitutional charter. Here too, the need to incorporate a social protection system into a strategy was central in order to protect economic freedom without damaging social cohesion. The fight against the monopolies of patents, of anonymous cascade companies, of industrial plant licensing and of customs barriers, the rejection of any economic planning by the government, the recognition of freedom in schools for the exercise of the free profession throughout the country, the transformation of the latifundium, collaboration in the management of companies, the protection of savings and of the exercise of credit: all of these points were part of his approach.

Many of Einaudi’s positions would not be incorporated in the Constitution.

7. First President of the Republic

When Luigi Einaudi ended his experience within the Costituente he decided to depart from active politics. In fact, in the months after, the political climate would be heavily marked by the electoral campaign for the political voting of 18 April. The growing national conflict between the Christian Democrats and the Communist Party was exacerbated by the tones in a style of “clash of civilisations” and supplemented by a freezing in the international framework, which was to be increasingly constrained in a bipolar confrontation. As Einaudi had predicted, the power of the parties supported by the proportional electoral law to form the Republican Parliament ended up in dramatising the political dynamics, in preventing a free debate of ideas and in radicalising the positions of political parties on the playing field.

Einaudi could not participate in that electoral campaign because of the third transitory provision of the Constitution. This exclusion persuaded him even more of the progressive reduction of the spaces granted to the defence and affirmation of truly liberal ideas.

The outcome of the consultations, however, would soon draw him back to the top of the State. The overwhelming victory for the Christian Democrats who won an absolute majority of seats gave to Alcide De Gasperi the possibility to chose the new President. After the failure of Carlo Sforza candidature on the proposal of left wing of Christian Democrats, the majority of the parliamentary groups agreed on Einaudi who was elected on 11 May 1948, on the fourth ballot, with 518 votes in favour out of 871.

On 12 May, Einaudi was sworn in before the gathered branches of the Parliament. In his inaugural speech, the first President of the Republic recalled the spirit that had always guided his participation in the process of rebuilding the Country. The reference to a personal past and to his own monarchical faith had not prevented him from showing towards the new republican regime something more than a mere association, in the conviction that on 2 June the Italians had proved, to themselves and to the world, that they had achieved real democratic maturity. He declared his full trust in the parliamentary system and in the free exchange of ideas. Also he strongly confirmed the challenge that the State and its ruling class had to face in interpreting the spirit of the Constitution: preserve within Society all the elements that would ensure the freedom of the human person against the omnipotence of the State and private arrogance; as well provide equal opportunities to everyone regardless of “the fortuitous cases of birth”. Thus, the themes he had addressed during his period in Switzerland and reiterated during his battles from the benches of the Consulta and the Constituent Assembly had strongly resurfaced.

He would repeatedly return to many of these themes during his long seven-year term. The burdensome nature of his new post would never depart him from his studies and journalistic activity which he would personally follow while refusing the appointment of a presidential press officer. On several occasions, he would personally deal with the interpretation of his constitutional duties. He confirmed this approach in one of his first articles published in the Corriere della Sera a few days after his election. Responding to the social democrat Umberto Calosso who hoped that the new president would not leave his collaboration with the newspaper in the name of the impartiality of his office but would go back in the defence of liberalism, Einaudi replied that liberalism was nothing more than a terminological puppet, very different from the substance of the ideas defended by liberals in the economic field. In the closing he stated “Has professional passion pushed me beyond the limits of confidentiality that the office imposes on me? I hope not”.

A President-Professor, as many would later write, who would continue to reconcile his personal interest in study with the political role that history had assigned him. This was demonstrated by the numerous volumes that he would publish in those years where his vision on the history of economic thinking, on the scientific contribution of Italian economists in the first half of the century, on the importance of knowledge as a foundation for effective and motivated choices, and on the distinction between liberalism and socialism, returned to the fore. This is demonstrated, at the same time, by his concern for the defence and promotion of culture, to which he was to devote himself personally. As an example he personally catered for a growth of the Quirinal library and personally paid with his personal compensation for the activities of the Accademia Nazionale dei Lincei, he co-chaired.

With the same rigour as a scientist, Einaudi interpreted and exercised the powers assigned to the President of the Republic by the Constitution. He imprinted an absolutely personal style in this new institutional figure thus contributing to better outlining the relationship between the formal and the actual Constitution. Einaudi was the first ever President and in addition to the tasks provided for by the Charter he was also required to turn into real action a function coded in the fundamental rules but never exercised before: of this function he would, at times, give a “loose” interpretation, and at times one perfectly corresponding to the constitutional wording.

He began by framing presidency as an independent power and guarantor of the institutional balance. In spite of the controversy that followed the publication of the above-mentioned article in the Corriere della Sera, Einaudi maintained a full cooperation and debate with all political and social forces without giving up with his natural diffidence towards extremism, be it right or left.

On a more strictly political level, the line followed would be illustrated a posteriori by Einaudi himself in a note presented to the Accademia dei Lincei at the end of his term of office, and published by Giovanni Spadolini in the Nuova Antologia with the title Di alcune usanze non protocollari attinenti alla Presidenza della Repubblica italiana.

One of the first topics was the relationship between the Presidency and the Council of Ministers. Among the existing customs that Einaudi was to change there was first of all the signature of the decrees planned on a fixed day of the week; this was a legacy of the monarchy. There were several reasons for this choice. Firstly, the intense activity of government seemed to him incompatible with timing given for signature. Secondly, it appeared inappropriate that the meeting between the ministers and the Head of State gave to the President of the Republic even if only informally a role that did not belong to this one since the government was responsible for the general policy of the country and the figure of the Prime Minister was provided for by the Constitution. Such custom would finally assign to the president a merely formal function only and prevent him from exercising the obligation, provided for in the Charter, to examine measures to verify their compliance to Law. This last point represented one of the most important aspects of his presidential term. In compliance with institutional roles and tasks, Einaudi, assisted by his collaborators, would submit all government decisions to a careful legal and substantial analysis. With the ministries, he would set a relationship of constant exchange and dialogue also based on his reading of reports that the ministers were required to submit on a regular time basis to the Head of State for information, i.e. reports on diplomacy, on public order and defence, on the administration of justice and on economy. In this same track, Einaudi also inaugurated the custom, alongside the already planned “courtesy visits”, of “relation” visits that is meetings with the Chief of Police and the Commander General of the Carabinieri.

Information activities to get the knowledge necessary to perform his duties and reiterate, taking for granted the absolute skills of technicians and “bureaucrats”, the strong sense of responsibility that should feature the political class to the advantage of the country.

A responsibility he would endorse when he faced one of the most complex issues in the implementation of the Constitution: the presidential signature on governmental measures before submitting them to the Parliament and the possibility for the President to express and state his disagreement.

Actually, the Constitution provides at Article 74 that the President, before promulgating a piece of legislation, can address the Houses with messages to request for a revision. Luigi Einaudi would utilise this option only four times throughout his presidency: in April 1949, about the AoL concerning the allowance to military personnel assigned to factories as workers and about the AoL on measures in favour of those who had made land reclamation works; in January 1950 about the AoL concerning employees in the judiciary system and, finally, in November 1953, about the AoL extending by one year the payment of rights and compensation to the personnel of the Ministries of Finance, the Treasury and the Court of Auditors.

Historical reconstructions show some evidence that originally Einaudi intended to use the same instrument to express his dissent against the government as well. However, this procedure was not compatible with the reference to the “concurrence of wills” mentioned in the Constitution between the President and the Government in the presentation of bills. Although he never made any official statement, Einaudi had an ongoing exchange with the government through advice, questions, exhortations: that is, he utilized the institution of Authorisation provided for in Article 87 of the Constitution whose rationale was to assign to President a role beyond mere formality.

Commenting on this choice, Einaudi would emphasise this was an “extensive” interpretation of the prerogatives assigned by the Constitution to the Prime Minister who, in Article 95, was indicated as the person responsible for leading the general policy of the Country. This responsibility, and the direct relationship between the executive and the legislative powers enshrined in the Vote of Confidence however, would not deny the President the right to verify the conditions of Confidence going so far as to provide for the dissolution of the Houses in extreme cases.

The consideration of the functions assigned to each power of the State would drive him, in certain circumstances, to protect with the same care the prerogatives being due to the Presidency of the Republic: the right, for example, to choose the five senators for life appointed by the president without giving prior information, or the right to appoint the Prime Minister and the ministers upon this latter's proposal.

In two cases only, Einaudi would personally participate in the political struggle: on the occasion of the difficult approval of the electoral law in 1953 and the long-standing issue of Trieste, the following year.

On the first point, about the modification of the electoral system with the introduction of a majority bonus system which modified the formation of governments based on a proportional-only system, the President would express his consent, albeit subject to the condition that an excessively high prize would not be provided. The reasons for his fight against the proportional voting system and his view that a uninominal, or at best a plurinominal system would respond better to the need for government stability were still at the roots of his choice.

A note published in Lo scrittoio del presidente showed that Einaudi had been one of the main witnesses of and players in of the problem of Trieste, and in the clash with Yugoslavia under Tito. In a consultancy sent to ambassador Manlio Brosio, he reportedly suggested the possibility of constructing, by internal law and not through an international convention, a free zone that would allow Trieste to preserve its natural role of “intermediation between the overseas ports and the Slavic-German hinterland”. Despite the controversy that accompanied the President's direct involvement, the suggestion would have an impact in the conclusion of the negotiations that would lead to the agreement signed on 5 October with the United States, the UK and Yugoslavia

In reality, apart from that specific episode, foreign policy would never be Einaudi's cup of tea for official action. His interest was mostly limited to indications, suggestions, and advice essentially for issues concerning the economic consequences of the Country international choices. Along this track and in continuity with the past, he would focus a particular interest on the problems of European unification, both at a political and economic level. On several occasions, he repeatedly stated the difficulties of establishing economic relations with the Eastern bloc and the importance of first building unity on sound political foundations in order to make a more orderly process of economic integration.

Many of his thought during his presidential term would remain unfulfilled in terms of concrete policy. A few years later Einaudi himself would make them the subject of one of his best-known publications, Le prediche inutili.

At the end of his term in office in 1955, Luigi Einaudi would return to deal with the issues he had always dealt with, enriched by the far-reaching experience he had acquired at the top level of institutions. From the ranks of Giovanni Malagodi Liberal Party, to which he had reconnected, but as a free man, he continued his battles “against”: inflation, monopolies and planning, the socialist myth, uniformity, the prevalence of party logic over individual thought; and his battles “for”: freedom in all its declinations, equality of square one, the prevalence of liberalism over socialism beyond similarities and beyond differences, and education.