Production, Credit, and Prices – The new Loan

«The Economist», 14 Febbraio 1920, p. 320

Rome, February 1

Italian statistics are greatly in arrear, and it is possible only with the greatest difficulty to discover figures relating to the economic development of Italy during the war. That production has been, on the whole, shrinking, may be judged from the following comparison between agricultural production in 1913 and 1918:

Greater variations up and down are shown in the figures for mining and manufacturing industries:

Except in the cases where the difficulty of procuring materials was overwhelming, Italian industry has made a great and in several instances a successful effort toward increasing production and meeting the war needs.

The increase in values was far greater than the decrease of output. The substitution of water-power for coal has been the cause of great capital investments, and of the various increases in mineral and steel industries. In a previous letter (Economist, January 24^th) I gave figures on the increases of the share capital of the joint-stock companies. The increases, which in the years previous to war totalled from 100 to 200 million lire yearly, reached 1,285 millions in 1917 and 2,954 million lire in 1918. A recent calculation gives the figures of a total of 4,414 joint-stock companies existing in Italy at December 31, 1918. The total share capital – practically in Italy all the share capital is ordinary capital – amounted at that date to 11,782,905,381 lire.

The financing of public companies and private firms has caused large increases in the figures of loans and discounts by the banks. Here is a comparison for the three issues banks (Bank of Italy, Bank of Naples, Bank of Sicily) (in millions of lire):

The four great ordinary banks (Banca Commerciale Italiana, Credito Ita-liano, Banca Italiana di Sconto, and Banco di Roma) show the following movements in the principal items of their balance-sheets (in millions of lire):

Monetary and credit inflation is responsible for much of the great rise in prices. According to Professor Bachi’s Index Number, the rise was as follows in 1919. The basis is, as in the Economist’s Index Number, 1901-5, 100. The classes are the same as in your indexes.

As prices increased between 1914 and November, 1919, from 119.8 to 547.1, or, say, 356 per cent., whereas the total production of goods has probably remained the same, or even diminished, while the note issue (banking and State) increased from 2,800 to 18,000 million lire (in round figures), or 540 per cent., it is reasonable to fear that the upward movement of prices has not spent itself. Public opinion and Governmental circles have fortunately been aroused at last to a recognition of the gravity of the situation. The sixth national loan is meeting with a remarkable success. At the end of January the sum subscribed was already over 12 billion lire, or the double of the fifth loan, which had won the Italian record with a figure of 6 billions. The Treasury Minister, Signor Schanzer, has repeatedly stated that the proceeds of the loan will be devoted only to reduce the amount outstanding of Treasury bills and of notes issued. If a permanent check is put to new note issues, one may hope to see the end of the rise in prices.