Italy Economy and Finance – The First Period of the War (1940-1943)

By | February 20, 2022

According to THREERGROUP, the effects of the war activity are quickly evident, immediately after the first period of euphoria. First of all, production and trade contract. Industrial production, which in 1938 was 14.1% higher than that of 1928, shows a gradual reduction and reaches an average level of 35% in the year 1943, lower than the pre-war one; agricultural production in the meantime fell by a fifth. Trade is fading: the volume of imports in 1942 drops to 78% and that of exports to 54% in 1938. And, while international traffic is greatly reduced by sea, those through the rail network and road are growing. It is indeed true that the trade balance is managed to close with an excess of exports (in value) in 1941 and 1942, in excess of the surplus of 1939, but this is largely attributable to the shipment of goods to the African colonies, and takes place at the cost of serious depletion of the country’s stocks. All this sheds light on the progressive contraction of the level of material existence of the Italians; in 1943 the average daily availability of food per capita drops to around 2000 calories; clothing is not renewed, or renewed with self-sufficient products; the black market is thriving, with prices increasingly distant from those officially determined. in 1943 the average daily availability of food per capita drops to around 2000 calories; clothing is not renewed, or renewed with self-sufficient products; the black market is thriving, with prices increasingly distant from those officially determined. in 1943 the average daily availability of food per capita drops to around 2000 calories; clothing is not renewed, or renewed with self-sufficient products; the black market is thriving, with prices increasingly distant from those officially determined.

The picture, from the official findings, however, seems less serious. Although the signs of a laceration of the dense network of constraints are becoming more and more evident, the inflationary consequences are in fact not yet evident: the overall monetary circulation (banking and state) at 31 December of each year, which passes from the 100 index of 1938 (22.5 billion lire) to 127 in 1939 (28.5 billion), to 158 in 1940 (35, 5 billion), and then jumped to 244 in 1941 (54.9 billion) and to 352 in 1942 (79.2 billion), does not see a parallel increase in the wholesale price index (from 100 in 1938 to 152 in 1942) and the cost of living (from 100 to 161) officially recognized. The movement of the two curves will have a very different reciprocal rhythm only starting from 1943. Meanwhile, the increase in extraordinary state expenses is very rapid, while the revenues cover an increasingly reduced part of the total (the 50% increase in tax revenue exchanges and that of 30% of direct taxes are in fact largely neutralized by the fall in customs revenues).

Although still fairly effectively managed, the credit system is gradually beginning to suffer the consequences of inflation. Firms “self-finance” themselves to an ever greater degree; the orientation of investments moves away from public works, from construction, from industries producing peace goods. Deposits in credit companies and post offices, even considering the currency devaluation, do not appear to be contracted in this first period; their consistency goes from 85.9 billion at the end of 1938, to 94.5 in 1939, 111.7 in 1940, 143.6 in 1941, 180.8 in 1942. The movement of investments and divestments in joint stock companies marks, in the five-year period 1938-42, a net increase of 22.7 billion: but the figure is scarcely indicative, given the monetary variations. In the mentioned period, while the loans to industry made through IMI and the Consortium for subsidies on industrial values ​​increased, on average the loans to public works, made through the credit consortium for public works and the institute of credit for public utility companies; the land credit also remains stationary; on the other hand, building and hotel credit contracted, as well as agricultural improvement credit. Credit institute for public utility companies; the land credit also remains stationary; on the other hand, building and hotel credit contracted, as well as agricultural improvement credit. Credit institute for public utility companies; the land credit also remains stationary; on the other hand, building and hotel credit contracted, as well as agricultural improvement credit.

In the fiscal field, the years 1939 and 1940 did not introduce innovations of particular importance; we limit ourselves to an attempt to improve the tax system through the general revision of the tax assessments and the formation of the new building cadastre and the ordinary tax on assets is introduced on a real basis; after the exchange tax, the general income tax is replaced and an extraordinary additional tax is instituted on the complementary income tax. In addition, an extraordinary tax is established on the greater profits dependent on the state of war, with progressive rates from 10 to 60%, and a new special tax, which affects the surplus value realized in the transfer of real estate. These last measures,

The tighter the links of the discipline in 1942 in the face of the persistent increase in the prices of shares: the purchasers of shares are obliged to use the same amount in treasury bills at 3% subject to the establishment of joint stock companies, increases of capital and the issuance of bonds with the authorization of the Ministries of corporations and finance, it is obligatory for newly established companies and those that increase the share capital to invest 20% of the share capital or of the capital increase in treasury bills. However, all the attempts, which began in 1941 and continued in 1942, in order to channel the availability towards public employment, had modest results and only managed to contract the volume of business, not to contain the rise of securities.

Italy Economy and Finance - The First Period of the War (1940-1943)