ItalianLuigi Einaudi and the Middle Class
by Luca Tedesco
A common thread in Einaudi's early 20th century thinking was the conviction that only the existence of a morally and economically solid middle class independent of the state was a sure guarantee of social stability and civil progress.
Parallel to the Giolittian booming economy, Luigi Einaudi's prolific contributions to La Riforma Sociale, Salvemini's L'Unità, and Albertini's Corriere della Sera underscored the imperative for a renewal of the bourgeoisie and the productive classes rooted in the principles of free competition. Concurrently, Einaudi delivered a scathing critique of “parasitic” capitalists who relied on protectionist policies and state contracts to sustain themselves. These individuals were derisively labelled as "drillers" in a 1912 article, an epithet that alluded not only to the drilling operations in Libyan territories but also to the plundering of the state budget.[1]
For Einaudi, the disintegration of the foundational values underpinning the economic prosperity of civilised nations — namely individual “thrift” and “industriousness” — became indisputable in the aftermath of the First World War. In this period, all social strata, but especially the entrepreneurial class, increasingly resorted to “begging” for state aid and benefits even more than the working class[2]. The practice of shifting the costs of industrialists' errors to the state—through inflated supply prices and subsidies—became so entrenched that “even the excesses of cooperatives and radical leagues, who also sought to exploit the public purse, appeared minor by comparison”. Einaudi lamented the failure of the traditional “independent classes”, whom he described as embodying a rural and civic democracy, to resist this wholesale assault on the state [3]. Productive classes who did not sell their products to state had not opposed this malpractice thus revealing their alienation from the national community. Einaudi defined these ones as “the ancient in depend class”[4] to constitut the “the face of the rural and urban democracy” [5] which however failed to grasp the essential notion that “they themselves are the state to consider that any harm inflicted upon the state was, in essence, an affront to themselves”[6]. Similarly, the "industrious but passive and ignorant majority […] the usual majority that struggles and keeps silent” which had witnessed without protest the occupation of by peasants and workers being “spurred by the example of industrial and financial elites”[7].
Einaudi identified the root of this crisis not in economic failings but in ethical decay. The “poison” corroding post-war Italy, he argued, “was fundamentally moral in nature, manifesting trough emotions as envy, hatred, pride, greed, robbery, misery, vengeance, and ignorance”[8]. These were by-products of the war, which had “injected in both the ruling classes and the populace moral illnesses more disruptive than those causing economic failure”[9]. The collectivist policies of wartime, fuelled by monetary inflation, had fostered a widespread belief “pre-existing in latent form, that the state was a guarantor of happiness and security of all”[10]. Consequently, the temptation by various societal groups, including industrialists and bankers, to “renounce their economic independence” and “align themselves with the state, naively hoping to shift the risks of enterprise onto public shoulders while retaining the profits for themselves”[11].
The Great Depression would later lead Luigi Einaudi to draw parallels between Keynesianism and the fascist corporatist model, thereby reinforcing his conviction that balanced economic development was rooted in small enterprise, preferably family-run, rather than in large enterprises inclined towards monopolistic practices. Illuminative in this regard is an article published in the autumn of 1932, in which the Piedmontese economist proposed that the annual flow of national revenue was derived not primarily from large, “regulated, disciplined, constrained” enterprises, but rather from small and medium-sized enterprises, whose foundation lay in the “indissoluble family unit”[12]. Scholars have rightly observed that it was the crisis of the 1930s that brought Einaudi and much of Catholic intellectual thought into alignment in their rejection of the emerging American mono-oligopolistic industrial paradigm. Both regarded this model as dangerously homogenising, eroding diversity in tastes and consumption patterns[13]. The resistance to conflating “capitalist development with large-scale, Taylorist production — a stereotype that dominated European cultural thought between the two world wars—rendered Einaudi’s economic model especially apt for interpreting the phase of horizontal development that would characterise Italy’s economy after 1945”[14].
One of Einaudi’s earliest measures as Minister of the Budget was the reconstitution, in July 1947, of the Inter-Ministerial Committee for Credit and Savings. This committee was originally established by the 1936 Banking Law then abolished in 1944. It was tasked with supervising monetary policy, safeguarding savings, and overseeing the credit system. In August, the committee introduced a system of mandatory bank reserves, effective from 30 September. Einaudi defended this decision, rooted in the need for credit contraction, by emphasising the imperative of “protecting savers” which he framed as a central objective of government policy.[15] Writing in the columns of Corriere della Sera, he asserted: “The banks are wrong to blame the Treasury and the Bank of Italy for a credit restriction that is the inevitable consequence of their conduct over the past 14 months. Having granted industry all, and indeed more than they received from depositors, banks have reached a threshold in their use of funds [...] that it would be perilous, indeed reckless, to exceed”[16]. Even in the weeks preceding his assumption of ministerial office, Einaudi had highlighted the devastating impact of the war and subsequent currency devaluation on the incomes of “millions of medium and small savers”[17].
On the occasion of the launch of the “reconstruction loan” in autumn 1946, which concluded in January 1947 with the near-unanimous support of all political parties, Einaudi credited its success to “those bees of subdued buzzing called ‘savers’ ”. The outcome, which exceeded not only the “probable” but even the “plausible”, expectations was attributed to what he solemnly termed the “patriotism of the subscribers”[18]. This initiative raised 231 billion lire through cash contributions, treasury bills, and the conversion of accrued state debts for military supplies—a significant achievement, although still insufficient to meet the substantial financial demands of reconstruction.
In an October 1947 parliamentary address, the Minister for the Budget extolled the historical virtues of savers and emphasised their crucial role in the nation’s reconstruction efforts: “Italian savers, with their own resources, ensured the rebuilding of railways and roads. They performed a labour which, in hindsight, when reconsidered in its entirety must be recognised as monumental. It must also be acknowledged that this reconstruction—saving means rebuilding, it is the very essence and foundation of reconstruction—would not have been possible without the interim support for surviving, for eating and clothing provided by American relief efforts. Yet the Italians did not simply rely passively on external assistance. They demonstrated their worthiness of such aid by striving to rebuild and saving, so as to eventually stand on their own”[19]. The government’s measures in October 1947 to restrict credit to industry and commerce, combined with a dramatic reduction in bank liquidity, decelerated the velocity of money circulation. This forced industrialists to release stockpiled goods into the market, thereby contributing to price stabilisation.
Einaudi’s rationale for these policies is fully comprehensible only when one considers the pivotal importance he attributed to savers in maintaining a sound and healthy economy. In the aforementioned parliamentary speech, the Minister for the Budget issued a stark warning: “It is far too convenient to convert one’s profits into tangible assets while simultaneously seeking direct or indirect state subsidies in lire for the operations of one’s primary business. The mechanism is plain: by requesting subsidies—knowing full well that such subsidies can only be granted through increased monetary circulation—one can be virtually certain that the subsidy, initially worth one billion in purchasing power, will ultimately be repaid as a nominal billion, but with purchasing power reduced to half or even one-third of its original value. This results in a transfer of wealth—from whom to whom? From the ordinary savers, the modest individuals who have deposited their money and purchased public debt securities […] to the advantage of those who have devised this sophisticated yet exploitative method of financing their enterprises without personal sacrifice”. [20]
As early as April 1945, the Piedmontese economist, writing in Risorgimento liberale, elucidated the devastating effects of social disintegration brought about by inflation. He observed, on the one hand, that “there are those who remain anchored to their fixed assets, such as individuals on fixed incomes, private pensioners, and those with tied income. They once lived on a hundred lire of income but, with prices multiplied tenfold, twentyfold, or fiftyfold, they now face destitution, unchanged in income yet starving”. On the other hand, he noted the rise of “black marketeers and opportunistic traders who reap vast profits with every cycle of goods. Between these extremes are those whose incomes have increased, some fare better, some worse against price increase […] but all complain—those in the former group with just cause, and those in the latter driven by envy of others’ fortunes and fear of losing their own”.[21]
For Einaudi, inflation represented nothing less than a “social tragedy”, a “fratricidal struggle”, and “social chaos”. He identified it as a primary cause of the destruction of the middle classes, whom he regarded as the cornerstone of any democratic society, and of the rise of authoritarian regimes.
In 1946, Einaudi emphatically reiterated his view of inflation as a scourge: “because it destroys the middle class; it enriches the undeserving while impoverishing the blameless; it sows hatred and envy between classes; and it lies at the root of the convulsions that define our age”[22].
In language that almost echoed the imaginative grandeur of Marx’s Manifesto, which celebrated the historic achievements of the bourgeoisie which had done far more than the Pyramids in Egypt, the Aqueducts in Rome and the Gothic cathedrals, Einaudi vividly wrote that the middle class had given rise to “the splendour of the ancient Greek city-states, the greatness of medieval Italian and Flemish cities, and now forms the backbone of Western civilisation itself”.[23]
The deflationary policy shift, according to its proponents, was credited with saving the Italian currency from the hyperinflationary collapse that had devastated Germany in the aftermath of the First World War. The “orthodox stance on monetary and fiscal policy, including the reconstitution of currency reserves”[24] however would face “strong criticism not only from the left but also from the administration of the Marshall Plan”[25]. American officials, in their Italy Country Study, published in February 1949 but drafted in the latter half of 1948, contended that the principal objective of economic policy had to be the expansion of employment[26]. To this end, they advocated abandoning deflationary measures in favour of substantial public investment to address the persistent weakness in consumer demand.
In keeping with his theoretical framework, which classified as “fair” taxation based solely on consumed income, Einaudi expressed strong opposition to the idea of taxing wealth accumulation. He regarded such a policy as antithetical to “economic advancement, social stability, and familial solidity”, arguing that it would deter wealth creation and inhibit income growth. “To save and thereby enrich oneself, to increase one’s fortune [...] to expand the factory, to improve the land [...] what is that? Is it a crime?” […] - the Piedmontese economist asked rhetorically. Today we seem to have lost the sense of what saving, fruitful industriousness, initiative, and organisational ability truly mean”[27].
Einaudi’s reference to social stability revealed the political motivations underpinning the measures he championed. These policies were aimed at fostering what has been described as a stabilisation of relations between social classes. While these measures offered protection to certain segments of the middle classes, such as white-collar workers and those on fixed incomes, they simultaneously curtailed investment opportunities and restricted access to credit for artisans and small-scale entrepreneurs.
[1]L. Einaudi, I fasti italiani degli aspiranti trivellatori della Tripolitania, in «La Riforma sociale», March 1912, p.161-193. [The Italian fame of the aspiring drillers of Tripolitania].
[2]Idem, La condotta economica e gli effetti sociali della guerra italiana, Bari-New Haven, Laterza, Yale University Press, 1933, p. 264-281 [The economic conduct and social effects of the Italian war].
[3]Ibidem, p. 279.
[4]Ibidem, p. 406.
[5]Ibidem, p. 9 - 10.
[6]Ibidem, p. 26.
[7]Ibidem, p. 279.
[8]Idem, Cronache economiche e politiche di un trentennio (1893-1925), Einaudi, Turin 1961, vol. V, p. 33. [Economic and political chronicles of a thirty-year period].
[9]Idem, La condotta economica e gli effetti sociali della guerra italiana, cit., p. 387. [The economic conduct and social effects of the Italian war].
[10]Ibidem, p. 29 - 30.
[11]Ibidem, p. 407 - 408.
[12]L. Einaudi, Bardature della crisi, in «La Riforma sociale», Sept. - Oct. 1932. [Harness of the crisis].
[13]L. Paggi, Strategie politiche e modelli di società nel rapporto Usa- Europa (1930-1950), in Idem (edited by), Americanismo e riformismo. La socialdemocrazia europea nell’economia mondiale aperta, Einaudi, Turin 1989, p.97. [Political strategies and societal models in the US-Europe report] [Americanism and reformism. European social democracy in the open world economy]
[14]Ibidem
[15]L. Einaudi, Vincoli del credito, in «Corriere della Sera», 7 Sept. 1947, p. 1. [Credit constraints].
[16]Ibidem.
[17]Idem, Il pugno di mosche dei risparmiatori, in «Corriere della Sera», 4 May 1947, p. 1. [The empty-handed savers].
[18]Idem, Successo del prestito, ivi, 19 Jan 1947, p. 1. [The success of the loan]
[19]Idem, Politica economica e finanziaria, in Idem, Interventi e relazioni parlamentari, Fondazione Luigi Einaudi, Turin 1982, vol. II, p. 733 (Parliamentary address on 4 Oct. 1947). [Economic and financial policies] [Parliamentary address and reports]
[20]Ibidem, p. 723 - 724.
[21]Idem, L’alzamento della moneta, in «Risorgimento liberale», 15 Apr. 1945, p. 1. [The rise of currency].
[22]Idem, La coda della vacca, in «Corriere della Sera», 26 Oct. 1946, p. 1. [The tail of the cow]
[23]Idem, Avvenire dei ceti medi, in «Corriere della Sera», 16 marzo 1947, p. 1. [The future of the middle class]
[24]G. Toniolo, La crescita economica italiana, 1861-2011, in Idem (edited by), L’Italia e l’economia mondiale dall’Unità a oggi, Venice, 2013, p. 30. [Italian economic growth] [Italy and the world economy from the Unity to the present]
[25]Ibidem
[26]M. de Cecco, L’economia italiana vista dall’estero, in G. Toniolo (edited by), L’Italia e l’economia mondiale dall’Unità a oggi, Venice, 2013, p. 200. [The Italian economy seen from abroad] [Italy and the world economy from the Unity to the present]
[27]L. Einaudi, Manomorte tributarie, in «Risorgimento liberale», 1° marzo 1946, p. 1. [Tax mortmains]