The Economic History of Modern Italy 9780231893367

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The Economic History of Modern Italy

THE Economic History of Modern Italy

S H E P A R D B.

COLUMBIA UNIVERSITY

CLOUGH

PRESS

New York and London

1964

Shepard B. Clough is Professor of European History at Columbia University, in New York. Professor Clough has written many books, among them: A Centwy of American Life Insurance (1946), The Rise and Fall of Civilization (1957, paperback 1961), and Basic Values of Western Civilization (1960).

Copyright © 1964 Columbia University Press Library of Congress Catalog Card Number: 63-18434 Manufactured in the United States of America

To R.T.C. WHO AROUSED M Y S C H O L A R L Y IN ITALIAN

STUDIES

INTERESTS

Preface

T H I S book had its beginnings thirty-five years ago. In 1928 an extraordinary concatenation of events took me to Italy to write with Herbert W. Schneider a work which appeared under the title Making Fascists; and this enterprise led me to focus my attention upon economic and political aspects of Italian life. Subsequently other activities, including the writing of several books, got first call upon my time and energies, so that a projected economic history of modern Italy was postponed time and time again. But it was never abandoned and finally came to the top of my scholarly agenda. Within the last few years I have reached a stage in my studies of Italy which leads me to believe that I shall be rendering a service to those interested in Italian history by publishing my findings regarding the country's economic development. Italy's experience in matters economic should be illuminating to those who are concerned with phenomena like the diffusion of capital, labor, techniques, and business organization, like the relationship between economic development, population growth, and human welfare, or like the determination of those factors—the necessary concomitants—which by coming together in appropriate quantities and with propitious timing lead to economic growth. Italy's economic history provides, in fact, important data for the constructing of useful models concerning the "push-and-pull" effects in the spread of modern industry, the hardships occasioned when more people inhabit a land than the economy can take care of at existing levels of production with satisfactorily increasing levels of national income per capita, and the remarkable economic achievements which are possible when a society, even without great natural resources, devotes its energies and talents to the end of economic improvement.

viii

PREFACE

Rich as is the economic history of Italy in furnishing lessons for the economist, it is equally valuable in helping the general historian to clarify social, political, a n d intellectual trends a n d events which might otherwise remain obscure. Yet, in spite of this fact work by Italians in this field was very limited until recently. For years Italian scholars seemed to scorn b o t h the dismal science and the economic history of modern times. T h e y gave preference to the study of economic happenings d u r i n g the R o m a n Empire, the Middle Ages, a n d the Renaissance—to those periods when the Peninsula h a d positions of leadership in the European world. T h e y seemed almost ashamed to recount the economic story of their nationality since it had become an independent state. After the Second W o r l d W a r the attitude of Italians toward their own past changed profoundly. Now economics is held in high esteem a n d is attracting many of the best young scholars and recent economic history is getting attention from competent investigators. Perhaps this transformation has come about in part because Italian economic accomplishments in the last years have been something of which to be proud—have, indeed, been little less than miraculous. In spite of the recent upgrading of economic studies in Italy, the lack of a single, well-integrated account of all facets of Italian economic history since 1861 encouraged me to go forward with what has become the present book. I h o p e that this work will prove usef u l to the economist, to the historian, and to all students of Italian affairs and that it will be a useful guide to those who may be inspired to enter the field of Italian economic history. It is difficult for those who have never attempted to produce a book like the present one to imagine the effort which such an endeavor entails, especially for a person who is foreign to the area which he is studying. He must, to begin with, learn a new language; he must become acquainted with the physical geography of the land; he has to absorb a m o u n t a i n of literature and of statistical information; and he has to make i n n u m e r a b l e contacts with those competent in a wide range of specialties w h o can steer h i m to the data and the understanding which he seeks. His task requires, perforce, substantial outlays of time and resources. Consequently, the a u t h o r of a work like the one offered here becomes indebted to a

PREFACE

ix

large number of persons and organizations which lighten his task. T o name them in a preface is slight recompense for all that they do, but it is an acknowledgment of assistance which in the present case bears with it sincere thanks. Perhaps my first expression of gratitude should go to Columbia University, which has been my intellectual home for the past forty years. Few institutions, if any, furnish members of their staff an equally stimulating environment for the exercise of a profession in the social sciences, and rare indeed are university administrations which are equally generous and encouraging to those interested in research. T o the University's Council for Research in the Social Sciences I owe a special debt of thanks for travel grants which permitted two trips to Italy and on one occasion extensive field work within the country in order to learn by direct observation more about the country's economic geography, its industrial locational problems, and its agriculture. T o the Rockefeller Foundation I am also heavily indebted. T h a n k s to the Laura Spellman Rockefeller Memorial I got much of my early experience in France and Italy, including opportunities to perfect my knowledge of the languages of these two countries. Furthermore, the Rockefeller Foundation gave me a grant which permitted me to devote over a year of uninterrupted time to the writing of this book.* Because of my many peregrinations the libraries where I have worked have been extremely numerous. Among those which have served me most faithfully and most extensively are: Biblioteca Nazionale Centrale Vittorio Emanuele,* • the Biblioteca della Facoltà di Giurisprudenza, the Biblioteca di Storia Moderna e Contemporanea, the Biblioteca del Istituto di Statistica, and the Biblioteca della Banca Nazionale del Lavoro, all of Rome; the Butler Library and the Paterno Library of the Casa Italiana at Columbia University, the Baker Library of Dartmouth College, the library of • T h e Foundation also invited me for a pleasant stay at the Villa Serbelloni at Menaggio (Como) where I had my last encounter with my dear friend and colleague, the late Garrett Mattingly. • • Incidentally this institution has undertaken the publication of a vast Bibliografia Nazionale Italiana, but so little of the work has appeared in print that I was not able to make use of it.

X

PREFACE

the University of Venice (Ca' Foscari), and the Brera and the Bocconi University libraries of Milan. Among my intellectual friends in Italy I was able to count Luigi Einaudi, late President of the Republic, whose fertile and dynamic mind opened new vistas to me and whose high moral conduct in public life has remained a great inspiration. I also have among my present friends: Amintore Fanfani, Premier of Italy during my recent stay, who was much interested in my work and who took time from his busy life to make certain that all possible facilities were made available to me; Gino Luzzatto, dean of Italian economic historians, whose stimulating conversations are always delightful and helpful; Carlo Cippola, prominent economic historian of the younger generation, with whom I had hoped to collaborate in an economic history of Italy from the early Middle Ages to the present but whose activities drew his talents to other enterprises; and Armando Sapori, Rector of the Bocconi University at Milan, who not only encouraged me in my work but who also extended to me hospitality in the living quarters of professors in his institution and in his library. One of the most helpful of my younger friends in Italy was Carlo De Cugis, assistant to Professor Sapori and collaborator with Gino Luzzatto in an economic history of Italy, who generously made available to me studies which he had in preparation for publication and who was always ready to discuss with me knotty problems of documentation. Furthermore, I want to cite the names of my friends Leo Valiani of the Banca Commerciale Italiana of Milan and of Richard Hostetter, an American free-lance scholar, for their help in the history of labor and socialism; of Guglielmo Negri, of the University of Florence and of the administrative staff of the Chamber of Depu ties, for his many courtesies, especially as regards political-economic matters; of Luciano Morando of IRI's research staff, who was invaluable in clarifying many economic problems; of Luigi Ceriani, editor of the Quarterly Review of the Banca Nazionale del Lavoro, who assisted me with many bibliographical questions and who offered me the use of the bank's library where I was accorded royal treatment; of Stefano Somogyi of ISTAT, who clarified issues of population growth, family composition, and internal migration; of

xi

PREFACE

Maria Raffaella Caroselli of the Faculty of Jurisprudence in Rome, who aided me with bibliographies; of Paolo Baffi of the Bank of Italy, who helped me with banking questions and especially with the problem of inflation after the Second World War; of Benedetto Barberi of 1ST A T for his guidance in matters of national income and consumption; and of Giuseppe Medici, whose aid in the field of landholding and reform was extremely valuable. T h i s list of acknowledgments might be greatly lengthened if I were to mention the names of all those who have befriended me in Italy and who have made my visits there both pleasant and profitable, or if I were to cite all the authors whose works made my task lighter, but such a register would quickly exceed the bounds of reason. I do, however, want to make special mention of the Columbia University Press for its great record in publishing scholarly works and for its helpful cooperation in the publishing of this book, of Miss Phyllis Holbrook, of the Press's editorial staff, for her expert and sympathetic guidance of my copy through the printing process, of Mrs. Carol Moodie who helped prepare the manuscript, and of Rosario Romeo of the University of Rome who read and commented on the entire manuscript and whose vast learning and keen insight saved me from egregious slips. SHEPARD B .

East Peacham, July 26,1963

Vermont

CLOUGH

METRIC MEASUREMENTS CONVERSION T O ENGLISH MEASUREMENTS 1 meter 1 kilometer 1 hectare

1.09361 yards 0.62137 mile 2.47 acres

1 quintal of wheat 1 quintal per hectare 1 quintal of wheat per hectare

1 kilogram 1 quintal 1 ton

2.20463 lbs. 220.463 lbs. 2204.63 lbs.

3.67431 bushels 89.217 lbs. per acre 1.48692 bushels per acre

All measurements in this book are given in metric terms, for this is the way Italian statistical information is reported and the form in which the reader may bring information up to date from Italian sources.

Contents

i

The Main Lines of Italian Economic History

1

II

The Economic Aspects of Italian Unification

28

HI

Laying the Foundation for Economic Growth, 1861-1914

57

iv

Agriculture, Banking, and Commerce

99

v

Population, Emigration, Labor

133

vi

The First World War and Its Immediate Aftermath

170

vn

Fascism and Its Economic Policies

211

The Second World War and Its Immediate Consequences

260

VIII

ix x

Reconstruction and Development after the Second World War

288

National Income and the Welfare State

328

Appendix

367

Notes

385

Index

423

Figures

1. Political and Physical Map of Italy

5

2. A. Mineral Resources and Electrical Energy in 1960 B. Distribution of Rainfall, 1960

6 7

3. Italian Railway Network for 1848 and 1865

24

4. Migrations within Italy in 1958

137

5. Italian Population by Age Pyramids

140

6. T h e Corporative System, 1938

239

7. Structure of the Central Government for 1939

240

8. Areas Affected by the Agrarian Reform Laws

309

9. Apulia-Lucania Land Reform Area

311

10. T h e Major Holdings of I R I

336

The Economic History of Modern

CHAPTER ONE

The Main Lines of Italian Economic History

Italy, Mother of Arts, T h y H a n d was once our guardian And is still our guide.

BYRON, Childe

Harold,

Canto 4,47

J'avoue qu'il est difficile d'indiquer d ' u n e manière certaine le moyen de réveiller u n peuple qui sommeille, pour lui donner des passions et des lumières qu'il n'a pas, persuader des hommes qu'ils doivent s'occuper d e leurs affairs, est, je ne l'ignore pas, u n e entreprise ardue. . . . A. DE TOCQUEVILLE, De la démocratie en Amérique

ITALY'S contribution of men and ideas to Western Civilization has been remarkable. In ancient times the Italian peninsula was the transfer point for the passage of Greek culture to Western Europe and the scene of Roman achievements in engineering, architecture, public administration, and law. During the early Middle Ages, Italy alone of Western European areas had continued contacts both with Byzantium and the Arabic world, which allowed it to bring to the West much of the learning of the Middle East. T h e n from the tenth to the sixteenth century, it played a particularly strategic role in an economic and cultural revival. In this period Italians developed new methods of industrial and agricultural production, built u p a commerce with distant markets, and created an intricate system of bank credit and money exchange. Moreover, they produced not only many of the masterpieces of the Renaissance in painting, sculpture, letters, and music, but men like Leonardo da Vinci, Galileo Galilei, Christopher Columbus, and Amerigo Vespucci put Italy at the forefront in engineering, physics, exploration, and geography. Glorious as was Italy's past and great as was its role in the making of Western Civilization, the country failed to keep pace economically or culturally with England, France, and the Netherlands from

2

MAIN LINES OF ECONOMIC HISTORY

the latter part of the sixteenth century onward. T r a d e over the new routes to the Americas and the Far East favored Europe's Atlantic ports at the expense of Italy and this shift of commerce led to a transfer of the center of economic activity to North Sea areas. Here a concentrated demand for goods put so much pressure upon producers to increase output that it provided an incentive to improve productive techniques. And improved techniques contributed to a shift northward of leadership in both industry and agriculture. Italy's economy, and in truth Italy generally, dropped from the main current of Western European development and fell into an economic backwash. Production became restricted by being directed largely toward local needs; and large scale commerce with distant markets first failed to grow and subsequently actually fell off as the Portuguese, the English, and the Dutch dominated in the Indian Ocean. T h e n to make matters worse Italy became the victim of foreign invaders, the battleground of warring factions, and the object of attacks by Ottoman Turks, climaxed by the Battle of Lepanto in 1571. These struggles took much of Italy's energy away from constructive pursuits and sapped her spirit of enterprise, which seems to have declined in direct ratio to the fall in economic opportunities. Nor did Italian political states, often controlled by self-seeking foreigners, take action to remedy the situation. By the eighteenth century Italy had become what today would be called an economically backward country. Over 80 per cent of her active population was engaged in agriculture; her industrial production was at the handicraft stage; commerce was at a relatively low level; banking and credit were extremely limited; and entrepreneurial and inventive activity were at a near standstill. T o be sure, Italy's position was not an entirely unique one, for Scandinavia, Spain, Portugal, and much of Germany and Austria found themselves in similar circumstances. They all seemed to lack that economic vitality which was by the latter half of the century characteristic of England and which was to lead to changes that contributed to the industrial revolution. Nor for that matter did they have the economic vigor of that region across the English Channel which stretched from Paris to Liège or of that area across the Atlantic which was called New England to which the new techniques rapidly

MAIN LINES O F ECONOMIC

HISTORY

3

spread. Consequently the subsequent economic histories of those countries on the periphery of the heartland of industrialization are concerned with the manner and rate in which they were able to catch u p with pioneers in economic change. They furnish case studies of how economically underdeveloped segments of European civilization were able to achieve economic growth. Each of these cases presented different problems and experienced different degrees of success and different rates of development. Of the areas in question, Germany had particularly rapid growth after 1870 with the introduction of the latest and most efficient methods of mechanized industrial production and with the extensive exploitation of its abundant coal and iron resources. Scandinavia had a slow, orderly, and balanced growth with capital obtained from agriculture and forests, with important iron resources, and with a highly skilled and literate labor force. Parts of Austria, similarly, adopted mechanized production, although like Sweden without great fanfare or dramatically sudden changes; Spain and Portugal largely failed to get into the swing of things at all; and Italy had a long period of gestation, from 1860 to the 1890s, before it could claim to be really on the path of modern economic development.

CHARACTERISTICS O F ITALIAN E C O N O M I C HISTORY

T h e slowness with which Italy achieved economic growth can be illustrated by national income data (see Appendix). These indicate that remarkable strides forward on both national and per capita bases were not achieved until about 1898 and that the most dramatic increases were not made until after the Second World War. In subsequent pages the reasons for the slow start and the ultimate jumps ahead will be explained in some detail. Suffice it to say here, Italy as a whole had difficulty in bringing together all the factors of economic growth in large enough volume to effect change. It failed partly because of the lack of rich natural resources, partly because of unfamiliarity with improved techniques of production, partly because of the small amounts of venture capital, and partly because of the absence of a strong and b u r n i n g desire for economic growth. Even when the Italian economy did begin to expand, absolute

4

MAIN LINES OF ECONOMIC HISTORY

amounts of Italian national income were markedly inferior to those of the leading economies of Western Civilization. Italy had, in fact, a per capita national income in 1958 that was three-sevenths that of France and three-fourteenths that of the United States and was even below that of Ireland. 1 One basic reason for the relatively poor showing of Italy in comparison with other countries of Western Europe is to be found in the geographical characteristics of the peninsula. In the first place, Italy was not abundantly endowed with one of the most fundamental resources of all time—fertile land. T h e country is surrounded in its Northern reaches by a great semicircle of Alps, which render only meager agricultural crops per hectare and then only at great labor. South of them, is the Po Valley or Po Plain, which reaches from Piedmont to Venetia and the Romagna, and which is the richest agricultural area of the nation. T h e area South of the Po Valley is divided by a long ridge of mountains, the Apennines, which are so high and reach so close to the sea that arable land is limited to mountain valleys, high plateaus, or coastal plains, which except for the Apulian Plain, are very narrow. Moreover, these mountains have slopes which are so precipitous and so barren that they shed their water in spring torrents and have almost no natural reservoirs and few continuously flowing rivers. As a consequence only half of Italy is cultivable, that is, about 15,854,000 hectares of which a considerable portion is marginal land. By comparison, France, with a smaller population, has arable amounting to 21,436,000 hectares. Furthermore, Italy is not richly endowed by nature with any of those inorganic resources which have allowed men of Western Civilization in the last two centuries so extraordinarily to extend their supplies of building and power producing materials. Italy has very little coal and that of poor quality, with production in 1959 amounting to less than two million tons of which more than half was lignite. Its mineral deposits are also limited, although it has sulphur in Sicily, some iron ore particularly on the island of Elba and in the Valley d'Aosta in the Alps, and some oil, recently discovered near Ragusa and Gela in Sicily. Undoubtedly the country's most important, known natural resource is natural gas, located mainly in

Brenner St.Gatthard Tunnel Srmplon Past ll ^

c

\ \

« •>

^

t-

„VICE'S

,

i \

V.'NIC

FIG. 1. P O L I T I C A L AND PHYSICAL MAP O F ITALY

6

FIG. 2A. M I N E R A L

MAIN LINES O F E C O N O M I C H I S T O R Y

RESOURCES AND E L E C T R I C A L ENERGY IN

1960

Lombardy, in Emilia-Romagna, Apulia, and Sicily, the p r o d u c t i o n of which in 1959 a m o u n t e d to 6,117,559,000 cubic meters. T h i s vast supply was not discovered, however, until after the First W o r l d W a r and played no important role in Italy's economic development until after the Second World War. T h e n , too, Italy has in the N o r t h several rivers, whose waters are kept at a relatively steady level by

MAIN LINES O F E C O N O M I C H I S T O R Y

7

\ 1/

Precipitation

I

I Under 1000 mm.

r n 1 0 0 0 - 2 0 0 0 mm.

Prevalent winter rain

/ ^ ^

Prevailing winds

¡ ¡ ¡ ¡ ¡ ¡ 2 0 0 0 - 3 0 0 0 mm.

—

• • Over 3 0 0 0 mm.

• * — Winter

>• Summer

FIG. 2B. D I S T R I B U T I O N O F RAINFALL, 1960

melting Alpine snows or by n a t u r a l storage in m o u n t a i n lakes, such as Lakes Como, Garda, Lugano, and Maggiore. T h e y provide considerable water and power for agriculture and industry.* In addition to its relative poverty in those resources which were i m p o r t a n t in the mechanization of industry, Italy was also handicapped by difficulties in internal transportation before the railway • Over three times more electricity was produced from water power in Italy than from thermal plants (both coal and gas) in 1959. In the United States in the same year only 20 per cent of electricity camc from hydroelectric plants.

8

MAIN U N E S O F ECONOMIC H I S T O R Y

age. Indeed, the country possesses but one river—the Po—which is partially navigable for small vessels, and it has no land routes extending the entire length or width of the peninsula that are not cut at least once by mountains. T h u s , not only was the construction of canals connecting distant parts of the country impossible, but all land travel was difficult before the coming of railways. By way of compensation Italy does have seas around it, which has facilitated coastwise travel, but distances were great, that from Genoa

to

Palermo being over five hundred miles. Moreover, she has a few good natural ports—Genoa, Venice, Naples, Palermo, and Trieste. Unfortunately, however, these harbors were not strategically located for capturing much ocean carrying, for they were far-removed from the most economical routes between Western Europe and the Americas or the Far East, even after the opening of the Suez Canal in 1869. T h i s meant that Italy did not enjoy the concentration of demand for increased production in port areas which came with the development of foreign commerce. Inasmuch as nature was not bountiful in bestowing her riches on Italy, except for beauty and sunshine, Italians have had in recent times to import considerable amounts of raw materials and in order to pay for them have had to get foreign exchange from tourists' expenditures, emigrant remittances, and most importantly from exports of finished goods. But in order to compete in the world's markets, Italy has had to develop products of high quality, which require the input of special skills; has had to reduce costs to low levels, usually by employing cheap labor or by organizing on a particularly efficient basis; or has had to sell on low profit margins. Unfortunately the country's economic development has varied widely by regions—and, indeed, regional variations have constituted one of the major characteristics of Italy's economic history. T h e South, which comprises the provinces of Abruzzi and Molise, Campania, Apulia, Basilicata, Calabria, Sicily, and Sardinia, has experienced much less economic growth and has a much lower national income per capita than does the Center (Tuscany, Umbria, the Marches, and Lazio) and the North (Piedmont, Liguria, Lombardy, T r e n t i n o and Upper Adige, Venetia, Venetia Julia, and EmiliaRomagna). 2 In 1953, the South, which has 41 per cent of the land

MAIN LINES OF ECONOMIC HISTORY

9

area of Italy and 37 per cent of the population, accounted for but 19.6 or 21.2 per cent of the country's national income, depending on whose estimate is used, and accordingly realized on a per capita basis only 41 per cent of the nation's average.* T h e gap between North and South, and especially between Northwestern Italy and the South, existed at the time of political unification (1861), but it is certain that this gap has widened in the course of the last hundred years.3 For reasons which I shall discuss in more detail later, the South was never able, as was the North, to bring together the essential factors of economic growth in the same proportion and with the same propitious timing. After the political unification of Italy statesmen came to realize that something had to be done to raise the South to some semblance of economic parity with the North. T o this end the new state began to equip the South with roads and especially railroads, which hitherto had been lacking; it forced compulsory education upon a notoriously uneducated area (in 1871 the percentage of illiterates over six years of age was 59 in the North and 84.1 in the South); and after the Second World War it undertook a massive program of investment and development to improve the Southern situation. Finally, Italy's economic history in the last hundred years has been characterized by the large role which the state has played in effecting economic change. Private enterprise was unable to amass very large amounts of venture capital for investment in productive equipment, for savings in a relatively poor agricultural economy are difficult and Italy did not have great natural resources that might have attracted foreign capital. It did not develop a large commerce that resulted in a high division of labor, that is, in one individual's • T h e Central Institute of Statistics has recently adopted another grouping of provinces in order to have more homogeneous regions. Region I, Northwest Italy, includes Piedmont, Val d'Aosta, Liguria, and Lombardy; Region II. Northeast and Central Italy, comprises Trentino-Alto Adige, Venetia, Friuli, Venetia Julia, Emilia-Romagna, the Marches, Tuscany, Umbria, and Upper Lazio, including Rome; Region III, Southern and Insular Italy, includes Southern Lazio (Frosinone and Latina), Campania, Abruzzi and MolUe, Apulia, Basilica La, Calabria, Sicily, and Sardinia. In 1959 Region I had 19 per cent of the land, 25 per cent of the population and 39.5 per cent of national income; Region II had 38 per cent of the land, S7.2 per cent of the population, and 39.2 per cent of national income; and Region III had 43 per cent of the land, 37.8 per cent of the population and 21.3 per cent of national income.

10

MAIN LINES OF ECONOMIC HISTORY

specializing in the production of a given product and purchasing in the market the goods and services necessary to meet his other needs. It could not develop, without aid, a large industry so that more people would be employed at tasks in which their contributions to national income would be greater than they would be in agriculture. Nor could private initiative provide many of the public utilities, such as roads, canals, and railroads, which it had to a large extent furnished in England. In fact, in states like Italy and Germany the ambitions of statesmen for the development of their economies far outstretched the capacities of the private sectors and thus led them directly to use the power of the collectivity for effecting economic growth. As we shall see, the Italian state bore what has been estimated to have been at least half the cost of building the railways; it was largely responsible for the creation of a metallurgical industry, for the growth of shipbuilding, and for the establishment of a merchant marine; it controlled banking in order to favor industrial development; it helped industries to such an extent that its holdings now account for some 10 per cent of the value added by industrial production; and it established such extensive welfare policies for labor that benefits, such as family allowances, old age pensions, and social insurance payments amounted in 1959 to 11 per cent of Italy's national income. No precise date marks the beginning in Italy of a conscious, concentrated, and well-recognizable desire for economic growth. Certainly the advantages to be derived from greater economic activity either on an individual or collective basis were always apparent enough, as the fine houses and good living of the well-to-do and the strength of rich states attested. And from time immemorial some individuals from the lower rungs of the social and economic ladder strove mightily to improve their lot and succeeded by becoming clerics, by managing the affairs of the wealthy, or by engaging in some small scale economic activity. Yet the number of such persons was not large and the great mass of the population did not stir itself to achieve economic progress. In the late seventeenth century and certainly in the eighteenth century, however, evidence was to be found to show that more

MAIN LINES OF ECONOMIC HISTORY

11

thought and a higher value were being given to economic growth. Indications of a new attitude were particularly marked in the writings of economic theorists. For example, mercantilists, who were essentially concerned with increasing the economic power of the state, became involved in the question of economic development and perforce had to spin theories regarding it. Physiocrats, under the leadership of the French Dr. François Quesnay (1694-1774), fumed over restrictions on commerce, and especially those upon the grain trade directed at keeping grain at home to avoid famine; over rigid rules and regulations pertaining to manufacturing, which had been established by guilds to maintain their monopolistic positions; over wasteful agricultural practices; and over antiquated tax systems. Many of the philosophes addressed themselves to problems of economic growth because rising populations (in Italy the number of people is said to have increased from eleven to seventeen or eighteen million during the eighteenth century) had placed more pressure upon the land, on the static system of seigneurial tenure, and on employment opportunities in towns. And many economic thinkers—of whom the most famous were the English classical economists, Adam Smith (1725-90), Thomas Robert Malthus (1766-1834), and David Ricardo (1772-1823)—set about finding general and natural laws of economic behavior with which manmade policies should conform. 4 Italians in the eighteenth century were caught up in the movement of the Enlightenment with its confidence in the ability of man to improve the world, with its search for fuller knowledge of the physical universe, and with its optimism in the future. One of them, Giambattista Vico (1668—1744), contributed a major work to the new line of thought with his Scienza nuova in which he tried to describe the laws governing the progress of the human race and those determining the rise and fall of civilizations. And many of them, like Giuseppe Baretti (1716-89), got from stays abroad inspiration from English and French thinkers. Those heads of states who wanted to understand and to improve society were led to the study of economic theory, to a belief in economic progress, to a reconsideration of state economic policies. Accordingly they made efforts to discover what other peoples were

12

MAIN LINES O F E C O N O M I C H I S T O R Y

thinking and they turned their own power of analysis upon the economic questions of the day. Carlo Emanuele III, king from 1730 to 1773 of the Kingdom of Sardinia, and Pietro Leopoldo, Duke of Tuscany from 1765 to 1790, sent emissaries to the Court of Louis XV of France to get the latest thought on Physiocratic doctrine. Maria Theresa, ruler of the vast Hapsburg territories from 1740 to 1780, brought her ideas of economic change to Lombardy; Clemente XI, Pope from 1700 to 1721, created the Congregazione del Sollievo for the management of economic and social affairs; and Clemente XII, Pope from 1730 to 1740, established a Congregation, Super Mercibus Forensibus, to study questions of international trade. 8 Governments and private citizens joined in the formation of a number of academies, the most famous of which were perhaps the Georgofili of Florence (1753), the Academy of Science at T u r i n (1652), and the Lincei of Rome (circa 1603) in which discussions were held on the economical issues of the day.* Italians did not, however, have to rely entirely on foreign sources for awakening to the advantages of economic development and to some of the obvious impediments to progress. Ferdinando Galiani (1728-87), secretary to the Neapolitan Ambassador to Paris from 1759 to 1769, wrote about the role of money in facilitating the exchange of goods and about the need to adjust commercial policies to the special circumstances of any region. 8 Cesare Beccaria (173894), who is now best known for his work on crime and the treatment of criminals, wrote also on economic problems, especially upon the advantages to be derived from a division of labor, and upon demographic questions, notably upon a more rapid rate of population growth than of food supply.** Pompeo Neri (1706-76), in Tuscany, criticized the system of internal tolls and customs duties, eight of which had to be paid on a bale of wool passing from Leghorn to • Those discussions led to the introduction of agricultural education in the University of Florence and at Naples. At Chiavari there was founded in 1791 the Società Economica. And foreign books on social and economic questions had a good market among intellectuals in Italy, if one may judge from the numbers of such works as the Grande Encyclopedic, Le Tableau Economique by Doctor Quesnay, and the Wealth of Nations by Adain Smith, which one finds in private Italian libraries of the eighteenth century. • • He helped found in Milan in 1764 the review II Caffè which was an important means of disseminating the new ideas.

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IS

Cortona some sixty miles away. Sallustio Bandini (1677-1769), also of Tuscany, wrote on trade, land reclamation, and land reform. Pietro Verri (1728-97), in Lombardy, described the anarchy in the monetary system of his country and the impediments to commercial intercourse. T h e Abbé Antonio Genovesi (1713-69), at Naples, held the first chair of economics in Europe and taught the doctrine of greater productivity. And a host of writers advocated the reduction or abolition of seigneurial dues, the doing away with trade restrictions, and the suppression of guilds with their monopolistic practices. Not only did all this thinking about economic problems contribute to the creation of a state of mind favorable to economic progress, but it led to concrete reforms that tended to break the traditions which bound the Italian economy to the old ways of doing things. Among the pioneers in the field of policy changes was Carlo Emanuele III (1730-73), of the Kingdom of Sardinia, and the Grand Dukes Pietro Leopoldo (1765-90) and Ferdinando III (1790-1829) of Tuscany. They undertook land reclamation projects, introduced new ploughs, hit at the practice of forbidding the sale of land, allowed peasants on royal lands to become full-fledged owners of land free of manorial obligations, abolished certain seigneurial dues, established the freedom of commerce in grains, and broke up some large estates. 7 Maria Theresa abolished manorial justice, guilds, restrictions on the inheritance of land, and fees to be paid upon inheritance. She ordered the sale of large estates if not properly cultivated and encouraged land improvements, among which was irrigation that permitted rice cultivation between the Ticino and Adda Rivers. Benedict XIV, Pope from 1740 to 1758, introduced freedom of commerce in grain (1740) and Pius VI, Pope from 1775 to 1779, began work on the drainage of the Pontine Marshes. And the Bourbons at Naples undertook land reclamation, as in the control of water on the Lower Garigliano. These changes were facilitated by agricultural prices moving generally upward after 1746, which, along with the increase in population, tended to raise the price of land. In Northern Italy agriculture became generally more of a profit-making enterprise than it had been previously; that is, it was conducted more on a capitalistic

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basis, with crops being raised and sold for money in distant markets to unknown buyers rather than being produced primarily to satisfy the needs of growers or of the local community. And common lands were sold to purchasers who hoped to make a profit from them. Some peasants, especially in mountainous regions, got clear title to their holdings through the payment of indemnities for the abolition of seigneurial obligations, but others were forced off their holdings either because they could not get along without common land for pasture and woodland or because they refused to pay higher rents. In such cases, their lands were consolidated to form larger farms, which made capitalistic agriculture more feasible, and capitalistic farming permitted the introduction of new machines and new techniques, especially that of the rotation of crops. By the time of the French invasions of Italy during the Great Revolutionary and Napoleonic periods, the breakdown of the old manorial system of agriculture was clearly taking place in the North, but this was less true in the Papal States and almost completely absent in the South, where as late as 1786 a large percentage of the people came under seigneurial justice rather than under the courts of the state. T h u s when the French extended their landholding reforms to Italy—the giving of the peasants clear title to their land, the seizure and sale of the estates of clerical enemies of the regime, and the abolition of seigneurial obligation of all kinds—the shock was not so severe in the North as it was in the Kingdom of the Two Sicilies.8 Furthermore, trade in land and the purchasing of land by nonnobles was speeded up by inflation in Italy, as in France. T h u s by 1815 when Napoleon was finally overthrown, agriculture in Italy had entered into the capitalist system so firmly that the reactionary forces of the Restoration were powerless to restore the seigneurial regime. When seigneurialism was finally outlawed after unification in 1861, there was only a remnant which remained to be eradicated. T h e development of agriculture along capitalist lines not only indicated an awakening of Italians to ideas of economic growth, but provided a direct stimulus to industrial activity. T h e new agriculture created a more extensive market for farm tools and other needs of the husbandryman. Also, it required so much of the farm

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worker's time that he could not produce at home many necessities, like cloth and tools, and had to buy them in the market. T h e selling of more agricultural products in distant markets created the need for better means of transportation, such as on roads and in coastwise shipping, which stimulated industries producing tools, wagons, harnesses, and ships. Slight beginnings of change in industry were registered by the middle of the eighteenth century. Not only were the guilds sharply criticized, but they were gradually abolished—in Tuscany in 1770, in Lombardy in 1787, in Sicily in 1786, in Napolitania in 1821, and in Piedmont in 1844 (after having been earlier abolished and then reestablished with the Restoration). And with the disappearance of these monopolies, entrepreneurs were free to enter the major trades in the hope of making profits. T o satisfy their ambitions, they aimed at markets greater than merely local ones, and the larger markets required production on a scale greater than was possible in artisanal workshops. Along several of the rivers which flow from the Alps and from the Northern Apennines new life appeared in the textile trades. T h u s at Biella in Piedmont, at Schio in Venetia, and at Prato in Tuscany woolen manufacture took a firm hold, which it has not relaxed to the present day. At Schio a Venetian patrician Nicolò T r o n , who had resided in England, founded in 1738 an establishment which was the first in Italy to use the fly-shuttle and which grew until it had 44 looms and 500 workers, some of whom were undoubtedly organized on the domestic system. T h e silk industry also showed signs of growth, particularly in Lombardy in the neighborhood of Como and in Piedmont, near T u r i n and Mondovi, with the number of reels increasing from 126 in 1730 to 272 in 1787, and which at the latter date gave employment to 16,143 workers. And the cotton industry took root especially near Milan (along the Olona and Lambro rivers), where some factories had as many as 500 workers.* * An image of industrial England was already being established in the Italian mind. One entrepreneur tried to build an Italian "Manchester" at Capodistria on the Istrian Peninsula, b u t his project failed. Clearly many of the workers mentioned in the last paragraphs combined their employment in the textile trades with work in agriculture. In the winter when little could be done in the fields, both men and women welcomed a chance for

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Among other industries which expanded in the latter half of the eighteenth century were glass, metal working, and sugar refining. Cheap window glass was particularly important because it enabled workers to have light in cold and inclement weather and thus to extend their working hours. T h e iron industry, the making of tools, the construction of wagons, and the making of builder's hardware developed especially at Brescia and along the Tuscan coast as more goods were carried to market and more houses were built to accommodate the growing population. T h e n the paper industry had a boom, particularly at Fabriano in the Marches and at Bologna, as reading, letter writing, and bookkeeping became more general. And sugar refining was extended as larger supplies of molasses became available at low prices, especially from the New World.

NATIONALISM AND ECONOMIC GROWTH

T h e extent of these changes both in agriculture and in industry should not, however, be exaggerated. In general, it may be said that by the outbreak of the French Revolution a few of the leaders in Italian society had become imbued with a greater desire for economic growth than their immediate forebears had been. Moreover, they realized that economic progress could be effected only by shaking up the system of the old regime, by eliminating many of the existing restrictions on commerce and on industry, and by granting a greater range of economic opportunities to Italian entrepreneurs. And there were a few hardy individuals, as we have seen, who effected changes both in agriculture and industry, limited as these changes may have been. T h e events of the French Revolution and Napoleonic periods did, however, make profound alterations on Italian life. French armies overran the country, except for the islands, and either annexed their conquests outright or established some sort of satellite regime in them with French inspired constitutions and reforming laws. Savoy was annexed in 1792 and Piedmont in 1802; Reggio, Modena, Bom a k i n g e x t r a income. M u c h of t h e textile work for s o m e t i m e was carried o n at h o m e . U n d e r this " d o m e s t i c system" t h e looms, s p i n n i n g wheels, a n d o t h e r machinery a n d raw m a t e r i a l s were o w n e d by m e r c h a n t - e m p l o y e r s .

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logna, and Ferrara became the Cispadana in 1796; and Genoa became the R e p u b l i c of Liguria in 1797. In the same year a new political grouping, the Cisalpine Republic, comprising the Cispadana territories and Lombardy, the Valtellina, a n d Venetian territories to the Adige, was created, and, when transformed into the Kingd o m of Italy (1805) with Napoleon as King, it included all Venetian territory, even that of Istria. and the Dalmatian possessions, and later part of the Papal States (1808). R o m e was made a republic in 1798 a n d virtually annexed to the French Empire (1809); Naples became the P a r t h e n o p e a n R e p u b l i c in 1799 and then the Kingdom of Naples in 1806; and Tuscany, placed u n d e r the administration of Elisa B o n a p a r t e and her husband, was treated as a French departm e n t after 1807. At the beginning of the French conquests, the more liberal elements in the Italian p o p u l a t i o n greeted the newcomers as liberators. T h e y rejoiced at the defeat of their traditional enemy, Austria, and welcomed the principles of liberty, equality, and fraternity, the abolition of the remnants of the seigneurial system, and the freeing of internal commerce. Moreover, the French aroused within Italians a spirit of national pride. N o t only did they themselves provide an example of national mission, but they took positive steps to create it within Italy. Napoleon, for example, invited 450 Italian leaders to a Consulta at Lyons which elected h i m to a ten-year term as President of the Cisalpine Republic, and h e went to Milan to be crowned King of Italy with the traditional crown of the Lombards—and on both occasions he m a d e references to the past greatness of Italy and of the Italians. T h e n , too, the very establishment of an Italian Kingdom, which united into one political state a n u m b e r of formerly independent principalities, gave reality to a dream of long standing.* Moreover, the C o n t i n e n t a l System, whereby England was to be forced into economic collapse by being prevented f r o m selling its products u p o n the C o n t i n e n t or from engaging in any trade with Continental lands, inspired Italians to thoughts of economic grandeur, for the markets which were no longer to be supplied by the English could • T h i s reaction may be illustrated by Vincenzo Monti (1754-1828), who sang the praises of Napoleon. Monti was, however, a political chameleon.

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not be entirely satisfied from French sources and Napoleon indicated that after France the Kingdom of Italy should benefit most from the new opportunities. 9 As the French indulged in excesses in Italy, demanded high levies in men and money, went off with many of Italy's art treasures, or failed to make the Continental System help more than it hurt, new reactions to the French took place. Vittorio Alfieri (1749-1803) became anti-French, after some of his property in Alsace had been seized, and wrote the famous Misogallo in 1799 which was a diatribe against the invaders and an appeal to Italians to recover their past glory. And Ugo Foscolo (1778-1827) railed against the Treaty of Campo Formio (1797) in his Lettere di Jacopo Ortis and glorified Italy's past and promise of the future in his I Sepolcri. T h u s impetus was given to the growth of Italian nationalism which in a highly emotional and anti-foreign way stood for the notion that Italy should recover its greatness and that this could only be achieved through a resurgence of Italian spirit, national unification, and economic power. After the fall of Napoleon these ideas were developed further in the movement known as the Risorgimento. Then, more fervently than during the Napoleonic period, Italian writers devoted themselves to the praise of the nation. Silvio Pellico (1789-1854), one of the chief contributors to the patriotic review at Milan, II Conciliatore, used the anti-foreign theme in his Le mie prigioni (1832), an account of his experience in the Austrian jail of the Spielberg,* and so, too, did Alessandro Manzoni (1785—1873), the most famous novelist of this period, in his I Promessi Sposi (1827). Giacomo Leopardi (1798-1837) and considerably later, Giosuè Carducci (18351907), the most famous of Italian poets of the nineteenth century, sang the glories of the Italian nation. Indeed, in the half century prior to unification, nationalism was the predominant theme in Italian letters. Historians like Carlo Troya (1784-1858) glorified the exploits of Italians during the Middle Ages; G. P. Vieusseux (1779-1863) began a collection of documents in Italian history, the Archivio Storico Italiano; and Cesare • Austria used this jail especially for Italian political prisoners.

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Balbo (1789-1853) gave a clarion call with his Le speranze d'ltalia (1844). Linguists fought over "purity" of the Italian language, so that the country would have a single, universally recognized national tongue. And political theorists, publicists, and political leaders, like Giuseppe Mazzini (1805-72) in his newspaper, La Giovane Italia, wrote stirring appeals to the Italians to unite politically in order to be able to develop the best that was in them, or like V. Gioberti (1801-52) in his Primato morale e civile degli Italiani (1843) and in his Rinnovamento civile d'ltalia (1851) made proposals for practical methods for uniting the country.* Writers on economic matters similarly turned to the problem of how to make Italy great, arguing that the nation had to be economically strong to achieve its destiny. Inspired by English economic theorists of the time, like Richard Cobden and Nassau Senior, and by Frenchmen like Jean Baptiste Say, Frédéric Bastiat, and St. Simon, they advocated political unification to get a larger market for the encouragement of bigger and more economical industrial establishments and for a greater division of labor. They wanted more freedom in economic enterprise, greater savings and investments, a better system of transportation, and the introduction of the most efficient techniques of production. T h r o u g h o u t Italy economists and publicists gave currency to this liberal-nationalist-technological theory of economic growth. Among them was Gian Domenico Romagnosi (1761-1835), philosopher, jurist, and economist, who was continually persecuted by the Austrians for his liberal ideas. T h e r e was Federico Confalonieri (17851846), who drew up elaborate plans for economic enterprises, including steamboat service on the Lower Po and a great civic center at Milan. And there was Carlo Cattaneo (1801-69), a pupil of Romagnosi, who preached the doctrine of economic growth and expressed the hope that closer economic ties would lead to a federation of all Italian states and ultimately to the creation of a United States of Europe. 10 T h e views of these men were spread abroad in a • In the Primato Gioberti proposed unification in the form of confederation under the Presidency of the Pope; but in the Rinnovamento, h e advocated the establishment of an Italian kingdom by the House of Savoy.

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n u m b e r of reviews, of which II Conciliatore, Annali universali di statistica, and II Politecnico were the best known.* T h e y were advanced by a n u m b e r of societies, such as the Associazione Agraria Subalpina for agricultural questions, f o u n d e d by Cavour in 1844, the Istituto di Incoraggiamento di Palermo, the Royal Institute for the Encouragement of the N a t u r a l Sciences at Naples, a n d various regional academies. And they were publicized especially by "congresses of scientists," which sometimes brought together as many as 2,500 national leaders, but were held almost without interruption f r o m 1839 to 1847. T h e n , ultimately these doctrines became generally accepted by men of affairs, both in business and statecraft. T h u s in the period between the fall of Napoleon and the creation of a unified Italian state, national ambition came to be added as a potent factor to all the others which were contributing to economic growth.

E C O N O M I C D E V E L O P M E N T IN T H E

RISORGIMENTO

In the years from 1815 to 1860 the general direction of economic change, which h a d been evident prior to the French Revolution, was maintained, even though progress was slow. Some improvements were made in agriculture with the beginning of the use of commercial fertilizers, like guano from Peru, with the introduction of agricultural machines, usually known as macchine americane, with the confiscation a n d sale of certain monastic and church lands in the Kingdom of Sardinia (laws of May 22, 1855), and with the increase of small holdings. Also, industrial establishments were founded and mechanization continued its slow pace forward. T h e sulphur mines of Sicily developed to a point where they accounted for 90 per cent of world production. T h e n u m b e r of spindles in the leading cotton centers of Lombardy increased from 101,644 in 1845 to 123,064 in 1859 and in Piedmont in about the same proportions, while in the neighborhood of Salerno, south of Naples, cotton plants owned by Swiss and directed by Swiss technicians grew 'II Conciliatore appeared at Milan from 1818 to 1819; the Annali was published from 1833 to 1838; and II Politecnico appeared from 1839 to 1844 and then again from 1860 to 1865.

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so that one company, that of Giovan Ciacomo Egg, had in 1834 five hundred looms in operation and employed 1,300 workers. T h e woolen industry began to be mechanized, particularly at Biella; and a newcomer to the trade, Luigi Marzotto, founded an establishment at Valdagno which was to grow to be one of the most important in Italy. And the silk industry continued to expand, that in Piedmont having in 1850 about twice the production which it had in 1750.11 T h e machine-building industry developed with the production of equipment which included spinning jennies, mechanical looms, water wheels, printing presses, and railway carriages, and employed in 1860 some 9,000 workers. Arms manufacture grew especially in the Arsenals of Naples and T u r i n and in the Ansaldo plant at Genoa. Shipbuilding, although reaching only a maximum of 34,000 tons a year before 1857, expanded, the most important yards being Orlando at Genoa, Westermann at Sestri Ponente, and the stateowned establishment at Castellammare di Stabia near Naples.* Moreover, this industry along with the textile trades and railways, played an important role in introducing machinery, in extending knowledge about machines from the necessity of making repairs, and in creating satellite industries. Also in the period from the fall of Napoleon to the unification of Italy, some improvements were made in money and banking, which were so necessary in developing a division of labor and bringing together the savings of the many for investment. In the case of Italy, much was to be done to improve money in order to give it greater circulation. In some of the states, individual provinces and towns had their own coinages, with different weights, different metals, and different systems of division. Tuscany alone had twenty-four such currencies. Moreover, banknotes were not popular, because so many people had suffered from the paper issues of the French, particularly in Piedmont, Lombardy, Venetia, and Tuscany, that they looked askance at anything which did not have intrinsic value. Although monetary unification was not achieved until Italy was united politically, a few reforms were made before 1861. T h e bimetallic and decimal system, which had been introduced by the French in • Shipbuilding also developed at Trieste and nearby Monfalcone, for there Austria created its military marine.

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Piedmont, was maintained and was subsequently adopted by the Papal States and Parma. Moreover, banks were established which had the right to isspe bank notes. Among the most famous of these was the Banca Nazionale Sarda (1849), which resulted from the fusion of the Bank of Genoa and the Bank of Turin. T h e n there were the Banca Nazionale Toscana (1857), the Banca di Sconto e Anticipazioni of Parma (1858), and the Banco di Sicilia (1850, 1861), and the Banco delle Due Sicilie (1808).* Paper money became somewhat more widely used, especially in Piedmont, for there the government "forced" the community to accept its treasury notes as legal tender, a corso forzoso, during the first war of independence (1848) and thereby people came to realize that paper money did not necessarily lose value—in this case prices did not go up to any appreciable degree—and that it was much more convenient to use than metal. Then, in addition to these banks, which provided regular banking services as well as playing the role of embryonic central banks, other institutions grew up which added to the credit system of the country. Among them were the savings banks, the casse di risparmio, which grew rapidly after the founding of the Cassa di Risparmio at Milan in 1823.** There were banks which engaged primarily in commercial banking, that is, making short term loans on commercial transactions, like the Banca Romana di Sconto (1834). And there were private banks, frequently supported by foreigners, which were interested in financing enterprise, like the Cassa Industria e Commercio at Turin, backed by James Rothschild of Paris, which added to its name in 1856 Istituto di Credito Mobiliare.f Also, as a sign of the growth of a money economy, insurance began to expand, for people had more risks on which a monetary value could be placed and * T h e last two banks issued certificates to depositors, which served as a circulating medium. T h e Banco delle Due Sicilie was founded by Joachim Murat along the same lines as the Bank of France. •• Some of the old pawnshops turned into savings banks. T h e most famous of this kind was the Monte dei Paschi of Siena. t T h e Cassa was headed at first by Luigi Bolmida, a Rothschild correspondent. After 1856 it acted like a credit mobilier. In the negotiations for its development, Cavour became involved and cleverly played the Pereire Brothers off against Rothschild. T h e new institute had capital of 40 million lire. It was interested in railways, in the Rubattino shipping company, in glass (Vetreria Piemontese), and in Ansaldo.

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more of a need to share these risks with others in order to distribute losses. Among the insurance companies were La Riunione Adriatica di Sicurita (1838),* Assicurazioni Generali (1831),12 and Lloyd Austriaco di Trieste (1833), organized on the same principles as Lloyds of London. Lastly, a further evidence of developing capitalism was the founding of an exchange, La Borsa di Torino (1850), which by the middle of the century was an effective mart for trading in basic commodities and securities. Important as were all these changes which acted and reacted on each other and gradually began to create in Italy some of the necessary conditions for economic growth, no single development equaled that of railway building. Investments required to construct and equip railways exceeded the capital which was put into any other industry in the nineteenth century and furthermore involved a great deal of risk, for costs were difficult to estimate because of lack of experience and returns were not large until lines were entirely completed. These facts go far to explain the development of the corporate form of business organization in conjunction with railway building and the role of the state in providing assistance to railway builders. Indeed, the resources of a great number of people had to be merged in order to get sums adequate for the task in hand and risks had to be shared, for danger of loss was great. On the other hand, the possibilities of gain were also great which contributed to a growth of investment banking and to the movement of large sums from one area to another on short notice—in brief, to foreign lending on a scale hitherto unknown. Building railway networks meant that a great labor force was employed for money wages and that workers became accustomed to going to the market for their purchases. It meant that new techniques were introduced, especially the steam engine, that they became familiar to large numbers of people as they were actually traveling exhibits, and that they were henceforth to be adapted by the more enterprising to perform various hard tasks. It meant, too, that distant markets and sources of raw materials could be tapped and that there could be a greater division of labor. Finally, * Rased on the Adriatico Banco di Assicurazioni, founded in 1826.

1IO. 3. I T A L I A N RAILWAY N E T W O R K FOR 1848 (LEFT) AND 1865 (ABOVE)

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it meant, in the case of Italy especially, that economic ties would tend to b r i n g together particularly distant areas. As Massimo d'Azeglio, the Piedmontese novelist a n d statesman remarked, "Railways will serve to sew u p the Italian boot," a n d this was the view of Cavour, Cattaneo, and, in fact, of nearly every i m p o r t a n t p u b l i c figure. N o r were military considerations left o u t of account—the Austrians t h o u g h t that the Milan-Venice line would help them protect their provinces a n d the Piedmontese t h o u g h t that connections between Genoa, Alessandria, T u r i n , a n d Novara would allow them to concentrate forces for an attack, on Austria which many thought was sure to come. Railway b u i l d i n g in Italy developed somewhat later than it did in England, France, a n d Germany, a n d it progressed more slowly, owing to lack of political unification, general economic backwardness, a n d high costs of construction because of m o u n t a i n s and the need for i n n u m e r a b l e tunnels a n d bridges. Yet, in spite of everything, railways began to be built in the late 1830s, sometimes by private companies a n d sometimes by states. T h e first lines were usually between heavily p o p u l a t e d areas a n d were designed mostly for passengers, as was generally the case t h r o u g h o u t Europe. T h e first line to be opened was that which ran f r o m Naples seven kilometers along the bay to Portici (1839). It h a d been sponsored by Ferdinand II, who, however, refused to take p a r t in the i n a u g u r a l r u n for fear of accident. In 1840 the thirteen-kilometer line between Milan and Monza was o p e n e d ; in 1842 the Padua-Mestre line of thirty-three kilometers was finished; in 1846 Venice was joined to the m a i n l a n d by a railway causeway that required 80,000 piles; a n d in 1848 the eight kilometers f r o m T u r i n to Moncalieri were inaugurated. Soon, however, plans for a complete n a t i o n a l network began to be drafted. Here the pioneer was Carlo Ilarione Petitti, whose Strade ferrate italiane 13 was published in 1845 a n d whose ideas were given great publicity by Cavour in " E t u d e des chemins de fer en Italie," in the Revue Nouvelle (1846). T h e basic concept of these men was that there should be two lines r u n n i n g down the length of the peninsula: one f r o m M i l a n a n d T u r i n to Piacenza a n d then on to Bologna and Brindisi; the other from Genoa to Reggio-Calabria via R o m e and Naples. T h e n they envisaged transversal lines at intervals with

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R o m e as a center in the m i d d l e of the boot, a railroad f r o m Genoa to the French b o r d e r on the Riviera, a n d a n o t h e r f r o m Genoa to T u r i n , Le M o n t Cenis, and beyond to Chamb^ry, a n d lines f r o m T u r i n to Milan a n d Venice with branches to the Lakes a n d to Trent. Gradually these lines began to come i n t o being, so that by the time of unification the country h a d some 1,623 kilometers built and 1,442 under concession. Of those already in o p e r a t i o n P i e d m o n t h a d 850 kilometers, Lombardy-Venetia, 522, Tuscany, 257, a n d the Kingd o m of the T w o Sicilies some 100. 14 At first most of the locomotives a n d other advanced technological e q u i p m e n t for railways were imported, especially f r o m E n g l a n d and France, and usually f r o m companies connected with foreign banks which were involved in financing Italian enterprise. Nevertheless, some of the simpler parts of e q u i p m e n t , like railroad carriages, were early made in Italy, as for e x a m p l e at the Pietrarsa Arsenal at Naples and A n s a l d o ^ t Genoa, b u t the local m a c h i n e industry soon began to acquire the necessary techniques to f u r n i s h more complicated things like locomotives. Ansaldo t u r n e d out its first locomotive at Sampiertlarena, near Genoa, in 1854 a n d Pietrarsa, its first soon afterward. W h a t the total carrying of the railroads was at the time of unification it is difficult to say, b u t by 1872 the n u m b e r of tons carried one kilometer was 677,894,479 (excluding animals) and the n u m b e r of passengers carried one kilometer was 1,203,655,438. T h e age of mobility had arrived. Furthermore, moves were m a d e to reduce the effectiveness of manmade impediments to trade. A tariff u n i o n of Piedmont, Tuscany, and the Papal States was discussed in 1847 and 1848, which was evidence of the need of greater political scope for the new economy. And Piedmont effected a d o w n w a r d revision of her tariffs by treaties with England in 1843 and 1846, which was evidence that opportunities for larger exports were deemed desirable by an economically backward country that was a t t e m p t i n g to achieve growth.

CHAPTER

TWO

The Economic Aspects of Italian Unification

We have adopted a policy of action—a policy of progress. Instead of attempting to balance expenditures with receipts by economies which would mean renouncing any idea of betterment or of great enterprise, we have preferred to promote works of public utility, to develop every factor of growth which our State possesses, to develop in all parts of the country every possible industrial and economic activity of which the nation is capable, C A V O U K

A L T H O U G H in the late eighteenth century and in the periods of the French Revolution and of Napoleon the traditional economy of Italy was shaken by the introduction of new aspirations regarding economic development and although especially from 1830 to 1860 new industries were founded and the country, particularly in the North, was acquiring a new means of transportation, the Italian economy lagged at the middle of the nineteenth century well behind those of the economically most advanced countries. A greater motivation than had yet appeared in the peninsula was needed before Italy showed evidence of an earnest and concerted effort to develop its economy to a level comparable to those of its neighbors. T h i s motivation, as has already been suggested, was in part provided by nationalism. T h e role of nationalism in the economic development of latecomers in the family of European nations has undoubtedly been underestimated. T h e people who cherished common historical traditions, had common styles in the arts, usually spoke the same language or closely related dialects, believed that they formed a unity or a nationality, and developed a strong emotional feeling and attachment for that nationality, came finally to think that they had a great mission to perform, then they became convinced that they had a "culture" to preserve and to export for the enlightenment of

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29

others; and, as they began to claim that they were "great," they t h o u g h t they had to be endowed with statehood, that is, they h a d to form independent and sovereign political units, a n d that they had to be economically strong to fulfill their destinies. T h e desire for political unity and economic strength was derived, in part, f r o m the fact that many of the nationalities which were becoming conscious of themselves became involved in war. T h i s was because political jurisdictions had previously been built u p by a lord's acquiring land through inheritance, conquest, or marriage with little or n o consideration for the cultural unity of a people. Consequently, as nationalities did not coincide with existing political boundaries, leaders of national movements came inevitably into conflict with those princes whose holdings divided the nationality, a n d especially with those of another language, a n o t h e r set of historical traditions, or of another culture. N o r were these differences susceptible of being resolved by negotiation, for, on the one h a n d , princes h a d too much at stake to give way easily; and, o n the other hand, nationalists were not only intransigent in their d e m a n d s b u t were q u i t e willing, perhaps even anxious, to fight to enforce them. In the case of Italy, the problem of nationalism a n d of political unification of the nationality was extremely complex a n d h a d many ramifications. In the first place, Italy was divided into several principalities a n d although they were not equal in power, there was for a long period no one division which was strong e n o u g h or located strategically enough to draw the others into its orbit. I n the second place, a foreign power—Austria—not only held L o m b a r d y , Venetia, the T r e n t i n o , and Gorizia (Trieste), b u t h a d intervened in other Italian states to m a i n t a i n existing regimes and, thereby, existing political divisions. Most important of all, however, Austria h a d tried to preserve the integrity of the Papal States, so that thereafter an attack on Austria appeared to be a threat to the temporal power of the very C h u r c h to which the majority of Italians were adherents and for which many foreign Catholic peoples had an emotional concern. U n d e r such circumstances it is little wonder that Italian nationalists were u n a b l e to formulate a clear and generally accepted policy of unification and that they concocted a variety of alternative ways

30

ECONOMIC ASPECTS OF UNIFICATION

of action. Some subscribed to the Abbé Gioberti's plan for a loose confederation of Italian states under the leadership of the Pope. Others supported Mazzini's project for an Italian republic, which would become part of a European federation. And still others backed the notion that unification would have to be accomplished by one of the Italian state's taking the leadership in bringing the others to its side. As time went on, it became ever more apparent that unification could not be effected peacefully, for those princes who would lose by it were unwilling to make the necessary sacrifices, and those who wanted it had nothing to offer by way of compensations. Moreover, it was clearer that the number one enemy to unification was Austria and that any attack on Austria would be opposed by Pius IX. At all events hostility to Austria grew apace. Not only was there a latent antipathy to this state because of its occupation of Lornbardy since 1713, because of the many Austrian invasions of Italy during the French Revolutionary and Napoleonic periods, and because of the occupation of Venetia in 1815, but there was growing concern with Austrian intervention in Italy to suppress liberal movements. Indeed, in 1820-21 Austria interfered in the Kingdom of the Two Sicilies to maintain the repulsive Ferdinand on the throne and in Piedmont to support the reactionary Charles Felix against the more liberal Charles Albert. In 1831 it intervened again to put down uprisings against Papal rule in the Romagna and the Marches and in Parma and Modena; and in 1846 in Ferrara. Finally, in 1848 and also in 1849, Austria poured troops into Italy to stop national-liberal movements in Venice, Milan, Tuscany, and the Two Sicilies. In the process it broke the Piedmontese army at the first battle of Custoza and at the battle of Novara (1848). French troops intervened in Rome to suppress a Republic which had been set up there. In the light of such experience the idea that a war against Austria was essential to the process of Italian unification became fixed and with it came the belief that this war would have to be led by the Kingdom of Sardinia. Not only was this state one of the chief centers of Italian nationalism, one of the more powerful of the Italian states, and politically one of the best organized with its Statuto of

E C O N O M I C ASPECTS O F U N I F I C A T I O N

31

1848, but it was also a buffer between France and Austria and as such was in a position to play its neighbors off one against the other. Victor Emmanuel II, who succeeded to the throne in 1849,* solicited the support of France and England in getting better peace terms from Austria. Moreover, in his various proclamations he did not hide his intentions of doing the next time what the Piedmontese had failed to do in 1848 and 1849. Why Piedmont had been defeated in its first military effort against Austria was clear enough—it did not have the strength to cope with Austrian power. T o develop the necessary power from its own resources seemed like such an interminable task that thoughts turned logically to the possibility of enlisting foreign aid. T h e most probable source of this assistance, inasmuch as it was unlikely that England could be persuaded to wage land warfare against Austria, was France, especially after Louis Napoleon assumed imperial power in 1852. T h e new Emperor dreamed of remaking the map of Europe on the principle of nationality. Moreover, it was obvious, if Italians were to try once more to win their independence and to achieve unification that they should have a common policy, coordinate their efforts, and present a united front to the foe. Then, too, it was evident that Italy had to have a strong economy in order to have an effective striking force of its own both to win allies and to conduct a successful military campaign. T h e preparation of Italy for a war of unification along these lines was given direction particularly by Count Camillo Benso di Cavour (1810-61). As the younger of two brothers, Cavour had been forced to make his way outside the bosom of the family. He had tried a military career but abandoned it in 1831 in disgust with Charles Albert. He subsequently spent considerable time in the Savoy part of the Kingdom of Sardinia, took trips to nearby Geneva and to more distant Paris and London, apparently to become better informed regarding politics and economics. He ran the family estate at Leri in the Vercellese, acquired considerable wealth from his agricultural activity, from trade, and from speculation, became inter• Charles Albert, who had replaced Charles Felix in 1831, abdicated after the battle of Novara in favor of his son.

52

ECONOMIC ASPECTS OF

UNIFICATION

ested in many great enterprises which were to add to the economic well-being of his state, and developed a deep interest in politics. In 1836 he became a m e m b e r of the Superior Commission of Statistics; in 1839 he became involved in the Compagnie Savoyarde which hoped to develop steam shipping on the u p p e r R h o n e , and to connect Chambéry with Lake Bourget by canal a n d railroad; in 1841 he helped to found the Associazione Agraria for the improvement of agriculture; and in 1847 he established a newspaper, Il Risorgimento, of which he was the director and the editor. T h i s m a n of many talents became a m e m b e r of the cabinet of Massimo d'Azeglio in the Kingdom of Sardinia in 1850 a n d P r i m e Minister in 1852, a post which he held until 1859, with the portfolios of Foreign Affairs and Finance. From the beginning of his Premiership, Cavour endeavored to draw divergent political groups together. H e effected a "marriage" in the first connubio between the Center Right a n d the Center Left, which gave s u p p o r t to his government • and he backed the Società Nazionale, an organization that was not only the first of truly national scope b u t also the first that stood for a political truce among those working for unification. 1 In addition, Cavour maintained his activity in economic affairs with the hope of developing the economy of Piedmont. H e built railways, encouraged industry, projected the Cavour Canal from Chivasso to the Ticino, northeast of Novara, in order to aid rice culture, and began work on the railway tunnel through Mont Cenis (Col de Fréjus) that was to unite Piedmont with Savoy and that was opened finally in 1871. H e built new fortifications at Alessandria and moved the navy's arsenal from Genoa to La Spezia where it would be less pregnable to attack. Cavour also tried to put his country's public finances in order. H e believed that greater economic activity would result f r o m greater freedom of trade both at home and abroad and that improvements in production would provide greater receipts f r o m the tax system. In this he was not entirely mistaken, for business did grow, at least Piedmont's foreign commerce more than doubled from 1851 to * Because of some of his liberal policies in t h e m a t t e r of t r a d e a n d religion, like his s u p p o r t of a bill s a n c t i o n i n g civil marriages, he lost some of the votes of t h e R i g h t , which played a role in the connubio policy.

KCONOMIC A S l ' t C T S OK U N I F I C A T I O N

33

1858,2 and tax revenues increased so that the budget for ordinary expenditures, which had been badly out of balance, was nearly in balance in 1859. H e removed the import duty on grain in 1853 and reduceil other tariffs in trade treaties with Belgium, France, and England. And he reformed the treasury's administrative system, increased the tax on "mobile" wealth, and raised consumers' taxes. T h e need for a better fiscal policy was pressing because Cavour had heavy financial obligations to meet. H e had the costs of the war of 1848-49 a n d the indemnity to Austria to pay, which together amounted to 295 million lire in r o u n d figures * and he had to face large outlays connected with the economic crisis of 1853-54, that involved a failure of crops, famine, and a cholera epidemic. Moreover, inasmuch as he was making plans for the ultimate unification of N o r t h e r n Italy by war—and wars were then the biggest drain of all on public funds 4 —he had to see to it that the credit of his state was good so that he could borrow when the need arose. And borrow lie did. In fact, the public debt of the Kingdom of Sardinia increased f r o m 313,792,465 lire in 1850 to 1,045 million on J a n u a r y 1, 1860 (including 400 million for the cost of the war of 1859 and the assumption of the Lombard debt) and the service on the debt rose from 25 million in 1850 to 51,795,055 in 1860.»

T H E PROCESS O F P O L I T I C A L

UNIFICATION

Cavour's thoughts about unification, which were to involve wars that were to cost so much, were predicated u p o n the belief, as has already been indicated, that Sardinia would need foreign assistance against Austria and that the best chance of getting this aid was from France. Furthermore, Cavour believed that the conflict should be conducted solely against Austria and not against other Italian states, for thus it would be clear that Piedmont was not engaged in a conflict of aggrandizement at the expense of other Italians and also the Concert of E u r o p e would not be tempted to intervene to protect the Papacy or become disturbed by the formation of a strong power in the Mediterranean. Cavour's first step in the realization of his program was to get the support of England and France for his cause and to restore con-

M

ECONOMIC ASPECTS O F UNIFICATION

fidence in Piedmontese arms. T o this end he joined these powers in the Crimean War against Russia (1854-55) with a contingent of 15,000 men •—a maneuver which worked so well that even though he failed to embroil his Allies in a war against Austria, as he at one moment hoped to do, he did win them clearly to his long range purpose. T h e n at the peace conference at Paris (1856), he made such a masterly presentation of Italian complaints against Austria that the Concert of Europe recognized the validity of his claims and a certain legitimacy of his purpose. For the moment it looked as though matters would rest there, but events played into Cavour's hands. On January 14, 1858, an Italian nationalist, Orsini, threw a bomb at Napoleon III as the Emperor was about to leave his carriage for the opera. Several persons were killed by the explosion, but Napoleon came away unscathed. He was, however, deeply impressed by this event of the seriousness of the Italian problem. At least, shortly thereafter he invited Cavour to Plombières, a watering place in the Vosges Mountains, and there the two worked out the Plombières agreement J u l y , 1858). According to its terms and subsequent arrangements, France was to provide 200,000 men and Piedmont 100,000 men in a war against Austria. After victory there would be created a N o r t h e r n Italian Kingdom including the Kingdom of Sardinia, Lombardy, Venetia, a n d the Romagna. T h e n there would be a Central Kingdom comprising Tuscany and territory from Papal Lands to the Duchy of Parma, but the Patrimony of Saint Peter would c o n t i n u e u n d e r the Pope, who would be the head of an Italian C o n f e d e r a t i o n . Finally, if Ferdinand II of the Kingdom of the T w o Sicilies abdicated, a newSouthern Kingdom under Luciano Murat would be set up. For its aid France wanted Nice and Savoy, a d e m a n d to which Cavour agreed as to the latter but protested as to the former, and the hand of Clotilde, the eldest daughter of Victor E m m a n u e l , for Prince Jer o m e Napoleon. Finally, a formal secret treaty was signed between * E n g l a n d g a \ e t h e K i n g d o m of S a r d i n i a a loan of 50 m i l l i o n lire at 3 per cent p l u s 1 per ccnt for a m o r t i z a t i o n to h e l p c o \ e r Sardinia's e x p e n s e s in this war a n d agreed to t r a n s p o r t the S a r d i n i a n force to the t h e a t e r of o p e r a t i o n .

E C O N O M I C A S P E C T S OF U N I F I C A T I O N

35

France and Piedmont, January 24, 1859, which affirmed that the two powers would respect the sovereignty of the Pope. At a diplomatic reception on New Year's Day, 1859, Napoleon I I I announced to the Austrian Ambassador, Hubner, that he regretted relations between their two countries were not so good as they once had been—a statement which was interpreted as unfriendly, if not threatening. Subsequently, as tensions mounted Russia proposed a European congress to deal with the Italian situation, but the Pope and Austria were strongly opposed to such a meeting. At last, England suggested general disarmament in order to save the peace. Napoleon accepted this idea and recommended that Cavour do likewise. Cavour was so upset at this turn of events that some of his biographers believe that he wanted to take his own life. However, Austria itself played into Cavour's hand in time to prevent such a drastic measure by issuing an ultimatum to Piedmont that it disarm immediately. Thus Cavour instead of being beaten, had just the causus belli which he wanted. In addition, he had the satisfaction of seeing the Concert of Europe turn against Austria because of its extravagant demands. War was declared in April and operations began in May, 1859. T h e conflict was a relatively brief one, for after the Battle of Solferino,* on June 24, France signed an armistice at Villafranca (July 8, 1859) without consulting its ally. T h e reasons for this sudden action were many and not entirely clear. In part, Napoleon did not revel in war, as had his uncle, and after the victories of Magenta and Solferino he knew that his armies had to face the Quadrilateral (the famous fortresses of Peschiera, Mantua, Verona, and Legnano) and that here the opposition would stiffen. Furthermore, the war was not popular in France for a great variety of reasons. Losses of men were heavy both from battle and from an epidemic of typhus that raged in the army. Operations were costly, 75 million had been spent by the end of June. French Catholics feared that eventually • T h e French moved some 150,000 men and 300 cannons with their supplies to Italy. T h e y came partly by ship to Genoa and partly via the Mont Cenis, but the fact is that except for the Mont Cenis pass they moved either by steam railway or by steamship.

36

E C O N O M I C ASPECTS O F U N I F I C A T I O N

the temporal power of the Pope would be threatened. Many thought that their armies had done enough in liberating Lombardy and in permitting the formation of a Northern Italian Kingdom, which would add to it not only the conquered territory but also Tuscany, Modena, Parma, and the R o m a g n a . * T h e n there was England whose new ministry under Palmerston did not look with favor on the extension of French influence in Europe. And most important of all there was Prussia, who mobilized 400,000 men on the Rhine— a direct threat to either France or Austria, or both. Victor Emmanuel accepted the Armistice, over the violent opposition of Cavour, who resigned as premier (July 13, 1859) • • only to return to power in January, 1860. T h e n a general treaty of peace was signed at Zurich (November 10, 1859),f which provided that Lombardy, with the exception of Peschiera and Mantua (part of the Quadrilateral), should be ceded to France who would then cede it to Piedmont and that Piedmont should pay France 60 million lire to help cover the costs of war and 100 million lire more as reim bursement of a like sum that France had paid Austria in assuming Lombardy's public debt. 8 Finally, in order to give expression to the nationalist principle of the self-determination of peoples, plebiscites were held in various areas which had in one way or another asked to join Piedmont, and also in Nice and Savoy which, as had been requested at Plombières, were ceded to France. While these dramatic changes were taking place, the minds of Italian nationalists were at work on how to bring the rest of the Papal States, that is, Umbria and the Marches, as well as the King• Circumstances in these states varied considerably. Massa and Carrara revolted April 27-28, 1859, and asked to be annexed to Piedmont. T h e Grand Duke of Tuscany left Florence with his family April 28 and a government was subsequently formed under Baron Ricasoli. Its constituent assembly voted for annexation to Piedmont, September 3. Francis V of Modena left his duchy and Cavour sent an emissary to organize a government there. T h e Modenese constituent assembly voted for annexation, August 20. In Parma the Grand Duchess departed after the Battle of Magenta; and a government was named by Victor Emmanuel. Its constituent voted for annexation, September 12. Francis Joseph and Napoleon III jointly asked the Pope to institute reforms and lay government in the Romagna and the Marches, Austrian troops left June II, and a constituent in Ro:nagna voted for annexation, September 7. • • His successor was Alfonso La Marmora. t It was actually composed of three separate treaties: (a) Austria-Sardinia, (b) Austria-France, (c) France-Sardinia.

ECONOMIC ASPECTS OF UNIFICATION

37

dom of the T w o Sicilies into United Italy. Mazzini and his followers were particularly active in the formulating of plans of this kind, but the more conservative elements, represented by Massimo d'Azeglio, Cavour, and Victor Emmanuel II, were inclined to consolidate the already considerable achievements and not to risk them by antagonizing Napoleon III or by provoking Austria to a new conflict. T h e Mazzinians were able, however, to win the intrepid Garibaldi to their scheme for an armed expedition to the Kingdom of the Two Sicilies, in the hopes that such a force, in cooperation with local insurrectionists, would overthrow the Bourbon regime. Such a plan was nothing new. In 1857 Carlo Pisacane had led a band by sea for this purpose. But when he landed at Sapri, near Salerno, a Neapolitan force seized his small band. When rumors of the plan began to spread about, the more cautious leaders looked upon the undertaking with a jaundiced eye. Alfonso La Marmora, Cavour's successor in 1859 and general of the Piedmontese troops during the war against Austria, tried and almost succeeded in convincing Garibaldi of the futility of the enterprise. Massimo d'Azeglio, governor of Milan, successfully opposed the shipment of guns from Milan to the expeditionary force. Cavour, back as premier in January, 1860, adopted a "wait-and-see" attitude. And Victor Emmanuel II took a somewhat equivocal position, publicly opposing the expedition and secretly giving Garibaldi reason to believe in his support. At all events, the expedition was not prevented from taking ships from the Rubattino Company nor from boarding arms collected by the Società Nazionale. Although Garibaldi momentarily hesitated in his plans after the intervention of La Marmora, he decided to take his chances when news reached him of a revolution in Sicily. He was not stopped from setting sail from Genoa, May 5, 1860, nor from making his way to Tuscan ports for more supplies, nor from proceeding to Marsala at the toe of Sicily. From the moment of his landing on the island, Garibaldi's success was phenomenal. Not only did he quickly overrun Sicily, but on August 20 he crossed the Straits to the mainland, on September 7 he entered Naples, and on October 1 he decisively defeated the Neapolitan troops at the Battle of Volturno.

38

ECONOMIC ASPECTS O F UNIFICATION

All this happened so quickly that the Concert of Europe had hardly had time to collect its wits before the action was completed, and even Cavour had lost the initiative in the cause of unification. Francis II of Sicily suggested to Piedmont a plan of collaboration between the two states. Instead Cavour sent two agents, first L a Farina and then Depretis, to organize a government in Sicily. Also when Victor Emmanuel was put in a position where he had to do something to stop Garibaldi from crossing the Straits, he sent an agent to the "Leader of the T h o u s a n d " imploring him to desist, but at the same time telling him how to reply to the message—that he [Garibaldi] could not stop a movement aimed to force the Neapolitans from a regime that was odious to the national cause. Now exactly what Cavour had feared might happen was a grave possibility—that Garibaldi would attack the Papal States—which was almost certain to arouse the Concert of Europe to intervention. Furthermore, there was a danger that Mazzinian

republicanism

would get the upper hand in the newly conquered territories, which would mean that they would not readily come into the new Italian state under Victor Emmanuel II. Cavour was much perturbed at the turn of events and decided upon a course of action to forestall both Garibaldi and republicanism. Garibaldi was aware of Cavour's attitude and on September 11 wrote to Victor Emmanuel demanding the dismissal of Cavour. Garibaldi replaced Depretis, the Prodittatore

of Sicily, with a Repub-

lican, Mordini, and stated that the question of annexation of the conquered territories to the future Kingdom of Italy would be put off until after the end of the war. T o the end of countering these measures Cavour devised a plan which provided for sending an armed force into the Papal territories of U m b r i a and the Marches and then to push on to prevent Garibaldi from moving on Rome. T o this scheme he got the approval of Napoleon I I I , who feared the complications which an attack on Rome by Garibaldi would bring,* on condition that the Pope be left with the Patrimony of Saint Peter, which meant the province of Lazio, and that no attack be made on Venetia, which would have brought Austria into action. • It should be remembered that French troops were still in R o m e to protect the Tope.

ECONOMIC ASPECTS OF UNIFICATION

39

T h u s it was that Piedmontese armies were sent into U m b r i a and the Marches. T h e y were easily successful in their campaign against Papal troops u n d e r the command of General J o u h o l t d e Lamoriciere, of French nationality, w i n n i n g the Battle of Castelfidardo, September 18, and taking Ancona at the end of the same m o n t h . T h u s they were in a position to stop Garibaldi, b u t a way h a d to be devised to prevent recourse to arms—to prevent a conflict a m o n g national leaders. In fact, Garibaldi was checked by plebiscites. Voting in the Marches and Umbria was heavily in favor of these two provinces' joining the Kingdom of Italy, and, indeed they were annexed. T h i s fact contributed mightily to a strengthening of the cause of annexation in the Kingdom of the T w o Sicilies and consequently to a weakening of republicanism. T h e n plebiscites were held in the territories overrun by Garibaldi a n d they, too, went one-sidedly for annexation (October 21, 1860). U n d e r these circumstances. Garibaldi was deprived of part of his program and he patriotically conceded to Victor E m m a n u e l at a famous meeting at T e a n o (October 26). H e gave u p his title of "dictator" and retired to his Island of Caprera. T h u s most of the Italian nationality was united in a political state by a series of fortuitous events—the first Italian miracle. Subsequently the few areas of the nationality remaining outside the political fold were added: Venetia in 1866 when Italy joined Prussia against Austria in the Seven Weeks' W a r ; R o m e was taken in 1870, when the French withdrew their troops to fight the Prussians; a n d T r e n t a n d Trieste were acquired at the end of the First W o r l d W a r . South T i r o l , which was G e r m a n speaking, was also obtained after the First W o r l d W a r .

UNIFICATION O F T H E CURRENCY AND O F PUBLIC FINANCE

T h r o u g h o u t the entire process of Italian unification n o gains were m a d e without recourse to war. W a r as an i n s t r u m e n t for bringing nation-states into being h a d the effect of n o u r i s h i n g a martial spirit and, more importantly for o u r study, in p r o l o n g i n g the view that national wealth could most readily be o b t a i n e d by

40

ECONOMIC ASPECTS OF UNIFICATION

territorial acquisition r a t h e r t h a n by economic growth within existing boundaries. F u r t h e r m o r e , war a n d the military establishments needed to wage war were enormously costly a n d had the effect of diverting large a m o u n t s of capital a n d labor f r o m productive to essentially destructive activity. Moreover, in war one played for such high stakes and the game became so all-absorbing that one could devote little thought to other matters of statecraft. Indeed, in the case of Italy, military concerns were so great a n d political unification of the whole peninsula came so fast that little t h o u g h t a n d p l a n n i n g were devoted prior to 1861 to economic problems devolving f r o m bringing together many states —to their different systems of taxation and tax collection, their different tariffs, their different moneys, their different public debts, their different banks of issue, their different commercial a n d civil codes, and their different administrative organizations. However, once political u n i o n h a d been achieved, what to do about each of these issues became a m a t t e r of great urgency. T h r e e of these issues were resolved fairly readily; the tariffs of Kingdom of Sardinia being at once extended to the entire state thus creating a customs u n i o n ; a new civil code being drafted (1865) and applied everywhere; and the public administrative system being unified by 1865. All the other questions caused, however, considerable difficulty. Of the r e m a i n i n g problems one of the most basic was that pertaining to the monetary system. T h e f o u n d i n g fathers were convinced that the new national state should have a unified standard in order to facilitate all operations of public and private finance and to provide an ever-present r e m i n d e r of political unification. T h e realization of their goal was a complicated one, for in 1861 there was not only the new lira of Piedmont b u t there was the lira of Tuscany which was only .84 of the Piedmontese lira; there was the Austrian florin in L o m b a r d y a n d Venetia, which was worth 2.47 Piedmontese lire; there was the ducat of the T w o Sicilies, valued at 4.25 Piedmontese lire; and the scudo romano of the Papal States of 5.23 Piedmontese lire. 7 T o b r i n g some order out of this chaos, it was decided to establish the Piedmontese lira with its decimal divisions and its bimetallic

E C O N O M I C ASPECTS O F U N I F I C A T I O N

41

base in the ratio of one p a r t gold, nine-tenths fine, to 15.5 parts silver as the new Italian lira a n d to retire all other currencies. T h u s new coins h a d to be m i n t e d a n d exchange rates established for existing currencies, which some in the South felt were disadvantageous to them. 8 T h e n in 1865 Italy j o i n e d France, Belgium, Switzerland, a n d subsequently other states in the L a t i n Monetary U n i o n , * so Italy was on a bimetallic system with the ratio of silver to gold of 15.5 to one and with limits o n the a m o u n t of silver coinage which could be p u t in c i r c u l a t i o n . * • T h e unification of the p a p e r currency proved to be m u c h more difficult than that of metal, for the process involved banks in states which did not want to give u p their privileges of issuing banknotes. T h e largest of these banks of issue was the Sardinian N a t i o n a l Bank in T u r i n , which h a d come to b e i n g in 1849-50 with the merger of the Bank of Genoa a n d the Bank of T u r i n . It h a d in 1865 a capital of 100 million lire a n d several branches, including one in Milan, and banknotes of 119 million in circulation in 1866. T h e r e was the T u s c a n Bank, with banknotes of 22 million in 1866 and the T u s c a n Credit Bank with 500,000 lire in p a p e r money at the same date. T h e r e were the Banca R o m a n a (brought into the Italian state system in 1870); the Bank of Naples, which did not issue real banknotes but polizze or fedi di credito against deposits and in the n a m e of the depositor (something like m o d e r n cashiers checks)—paper which a m o u n t e d to 96 million lire in 1865—and the Bank of Sicily, which also issued fedi like the Bank of Naples, with 26 million in circulation in 1865. Good b a n k i n g policy suggested that Italy have one central bank of issue in order to p e r f o r m those essential f u n c t i o n s of all central banks: controlling t h e money supply, providing f u n d s for those b a n k i n g institutions which m i g h t be in difficult circumstances; changing the money rate in order to c u r b booms a n d to prevent deep depressions; a n d h e l p i n g to sustain orderly economic growth by an extension of credit. But the issuing of banknotes was very • T h e convention was signed on December 23. • • In 1873 silver was cheap in relation to gold. Hence the Union decided to mint silver as a token of bimetallism. T h i s was called the " l i m p i n g s t a n d a r d . " for silver " l i m p e d " behind gold.

42

ECONOMIC ASPECTS OF UNIFICATION

lucrative and those banks which had had the right of issue did not want to surrender their profitable business. By playing upon sentiments of regionalism they were able to retain their cherished privileges, but thereby they deprived their country of a central bank. As it was, Italy had in 1861 five banks of issue to which one more was added with the annexation of Rome in 1870. Subsequently, as it turned out, the Sardinian National Bank grew the fastest, had the largest network of branches, and by 1874 had one-third more capital than all the other banks of issue put together, so that it came close to being de facto a central bank. Furthermore, it became that de jure in the course of time. In 1893 the Banca Romana was in trouble and was liquidated and the two Tuscan banks of issue, which were also hard pressed, merged with the Sardinian National Bank to become the Bank of Italy. Then in 1926 the Bank of Naples and the Bank of Sicily were deprived of their right of issue, leaving the bank of Italy alone in the field.9 Almost as knotty as the question of money and banking was that of the unification of public finance. In the first place, a decision had to be reached about the public debts of the various states. Not only did these debts vary in size and burden per capita, but they differed also in the manner in which and the purposes for which they had been brought into being. Should the new state, for example, assume the public debt of the Kingdom of the T w o Sicilies which had in part been created by getting Austrian troops to put down liberal, nationalist movements, or should it take over debts that had arisen from citizens' refusal to pay their taxes; or should it assume the Sardinian public debt which had grown, in part, by public improvements, like railways, that Cavour had wanted, and by expenditures for wars. In fact, the War of Unification against Austria had cost nearly 400 million lire—89 million for the conduct of the war, 145 million for three-fifths of the Lombard-Venetian debt, 100 million to France for another part of the Lombard debt which France had paid Austria, and 60 million to France for part of its costs of the war. 10 Fortunately such delicate issues, involving as they did matters of patriotism and of regional pride, were happily resolved in March, 1861, by Count Bastogi, Leghorn banker and Minister of Finance,

ECONOMIC ASPECTS OF UNIFICATION

43

who proposed and got accepted the principle that United Italy should assume the public debts of the predecessor states—a sum that amounted to about 2,400 lire. On January 1, 1860, the debts of the states were in millions of lire:

11

Kingdom of Sardinia, 1,045, Lorn-

bardy, 156; Tuscany, 139; Parma and Piacenza, 14.7; Modena, Reggio, and Massa, 18.88; Romagna, the Marches, and Umbria, 36.29; Neapolitan Provinces, 520; Sicily, 187. Furthermore, there was the Herculean task of bringing together the budgets of the prior states into a national budget, for budget practices varied widely and estimates of both receipts and expenditures were almost impossible to make with any degree of accuracy. No one knew, for example, how much tax evasion there was; only an oracle could have forecast what military expenditures would be to cope with brigandage, or to keep an army at fighting trim for fear of international complications; 1 2

and even a

supernatural

power would have been hard pressed to know how much the founding fathers would pay out for public works, especially railroads. How difficult budgeting was—or at least achieving any semblance of a balance—can be gathered from the fact that in 1861 the deficit for the year was expected at first to be 268 million, and was ultimately 505 million. In 1862 the deficit at the beginning of the year was expected to be 319 million, but turned out to be 400 million, which was almost twice receipts; and in 1863 the deficit was 382 million.* In fact for the four years 1861-65 deficits amounted to 2,178 million, or to 47 per cent more than receipts. T h e desperateness of the treasury's situation was such in these early years that recourse was had to borrowing. Indeed, from 1861 to 1865 the public debt rose by 2,660 million or more than the total amount of the public debt of United Italy in 1860. Moreover, this debt was contracted on very unfavorable terms, with bonds being issued at 70 or 71 per cent of par and with interest at 5 per c e n t , * * and much of it was held abroad, the interest paid by the state to • T h e Minister of Finance in the Urbano Rattazzi government from March 3, 1862, to December 8, 1862, was Quintino Sella, the principal maker of financial policy in the early years of United Italy. He was followed by Marco Minghetti in the Farini government. Sella was back in the La Marmora government of 1865 and in the Lanza government from 1868 to 1873. •• The real interest was actually at 7 per cent because of the original discount.

ECONOMIC ASPECTS OF UNIFICATION

44

foreign holders increasing from 32 million lire in 1861 to 98 million lire in 1866.13 T h i s growth of the public debt because of regular deficits in the state's balance sheet called for heroic action, but such action was slow in coming. At first, the attention of those concerned directly with public finance was focused primarily on matters of taxation and especially on the problem of unifying taxes. In 1861 and 1862, Piedmontese indirect taxes—low customs duties, a registry tax, a stamp tax, mortgage taxes, a transport tax, a tax on travel and express deliveries—and a 10 per cent "war time" increase in direct taxes were extended to the rest of the kingdom; 1 4 and in 1864 consumer taxes were revised so that there was one which provided revenue for local governments and one for the central treasury. Then, in so far as direct imposts were concerned, it was realized that the unification of real property taxes would be impossible without a new, standardized valuation of property, which would take a long time, IS so a scheme of "equalization" was adopted, with each region being given an arbitrary quota to meet. Regional quotas for property tax (in millions of lire)

Piedmont Lombardy Parma Modena Tuscany Ex-Papal States Naples Sicily Sardinia

1864 18.7 19.1 2.8 3.5 7.8 12.0 33.9 9.6 2.6

1867 20.1 17.7 2.5 3.5 8.3 11.6 33.5 10.2 2.6

Mean tax on land per hectare (in lire) 1882 n.a. • 5.29 5.41 6.38 3.16 4.25 4.14 3.20 1.38

• Not available. Source: Isidore Sachs, L'Italie, ses finances et son développement 1859-1884 (Paris: Guillaumin, 1885), pp. 317 and 328.

économique

T h e tax on "mobile wealth"—on sources of income other than real property such as stocks, bonds, and mortgages—also gave concern, for it varied widely from place to place and did not exist at all in the Kingdom of the T w o Sicilies and the ex-Papal States. This tax was revised and applied throughout the kingdom on the basis of "regional ability to pay." Each province was given a quota to meet according to a formula which gave a weight of 20 per cent to

ECONOMIC ASPECTS OF UNIFICATION real

property

taxes,

20

per cent

45

to population,

20

per cent

to

a m o u n t s p a i d by the s t a t e in s a l a r i e s a n d p e n s i o n s a n d by c o r p o r a t i o n s in d i v i d e n d s , 10 p e r c e n t t o t h e r e c e i p t s o f posts a n d t e l e g r a p h s , 10 p e r c e n t t o h a l f t h e a m o u n t o f r a i l w a y m i l e a g e in o p e r a t i o n . 1 6 BUSINESS S U B J E C T T O T H E T A X ON M O B I L E W E A L T H . 1881 Revenue (in millions of lire)

Category B of the tax Textiles-hides and leather Agriculture Commerce Food Different professions Medicines Chemicals, sulphur, tea, coffee, etc. Education-fine arts Clothing Artisanal goods Artistic and mechanical goods Wood and iron manufactures Metals and ore Building materials and glass Transports and shipping Paper Banking Rents Other

Number

Source: Isidore Sachs, L'Italie, ses finances 1859-1884 (Paris: Guillaumin, 1885), p. 358.

of

taxpayers

9,762 54,270 43,774 51,962 56,684 13,667 4,832 26314 1,134 5.005 6.292 21.292 873 12321 11,629 4,408 3.975 12,705 700

17.7 35.4 31.5 25.9 27.7 9.1 8.1 17.6 1.0 3.0 4.7 9.5 5.2 9.9 26.9 4.4 32.9 21.4 0.7 et son développement

économique

L a s t l y , t w o sorts of t a x e s w e r e m a d e u n i f o r m f o r t h e e n t i r e c o u n try:

" b u s i n e s s t a x e s , " as o n i n h e r i t a n c e s , o n i n a l i e n a b l e

property

(mainmorte), o n corporations, o n mortgages, a n d o n the registration o f deeds; a n d " n u i s a n c e t a x e s , " as o n " c o n c e s s i o n s " s u c h as h u n t i n g r i g h t s , the r i g h t t o o p e n a t h e a t e r , o n titles o f n o b i l i t y , a n d

the

s t a m p t a x e s o n tickets, c h e c k s a n d so f o r t h . R E C E I P T S FROM D I F F E R E N T T A X E S (in millions Direct taxes 1862 1867 1872 1877 1882

129 226 334 355 388

Business taxes 55 77 132 158 169

of

Taxes on consumption goods 184 256 357 433 530

Source: Isidore Sachs, L'Italie, ses finances 1859-1884 (Paris: Guillaumin, 1885), p. SIS.

lire)

Various 6 8 6 4 4

Total 374 567 829 950 1,087

et son développement

State lottery 35 44 66 68 72 économique

46

ECONOMIC ASPECTS OF UNIFICATION

In spite of all these efforts at creating a uniform tax structure for the new country, revenues did not catch up to expenditures and so new taxes were constantly being conjured up, debated, and usually cast aside. T h e ricchezza mobile tax was, however, increased and one new impost adopted—a tax that caused so much political trouble that special mention of it should be made here. This was the famous "macinato" or tax on grinding grain. Quintino Sella had proposed a tax on flour in 1862 in order to have a tax which would bring the poorest elements of society into the brotherhood of taxpayers, but he had gone out of office before his unpopular suggestion had been given serious consideration. When he returned to the Ministry of Finance in 1865, he advanced his basic principle again, but with a variation—a tax on grinding grain. T h i s was taken u p seriously and after much debate, and because of great deficits, was enacted into law (promulgated July 7) in 1868 when Luigi Cambray-Digny was Finance Minister. According to the terms of the new law there were to be graduated taxes on the grinding of grains. T h e highest was to be on wheat, and then followed in succession those on corn or maize, rye, oats, and last on all other grains, dried vegetables, and chestnuts. Such arrangements meant that the regional incidence of the tax varied according to the kind of grain which was predominant in the diet. T h u s the South thought that it was being put upon because it ate quantities of wheat flour and pastes, and it believed Piedmont and Lombardy were being favored because people there ate large amounts of corn meal mush (polenta). Moreover, there were those who thought that the "macinato" resulted in social discrimination, because flour products bulked large in the diet of the poor. Finally, the tax caused trouble, because millers were held responsible for paying it and mechanical counters were put on their grindstones to measure the amounts of grain ground by the number of turns of the stones.* In the light of these circumstances the tax had its strong opponents from the first, and the Left, which replaced the Historical • There were some 61,000 mills in Italy, of which nearly two-thirds were run by water wheels and one-third by animal power. Steam and wind mills existed, but were very few in number.

ECONOMIC ASPECTS Ol

UNIFICATION

47

Right in 1876, made abolition of this impost part of its program. Although in 1876 the tax produced 82.511 million lire out of total tax receipts of 925 million lire, the budget situation was subsequently good enough so that the tax could be done away with. In 1879 Parliament voted to abolish the levy on the lesser grains in 1880 and first to reduce that on wheat and then to get rid of it entirely in 1884.*

S E I Z U R E A N D SALE O F C H U R C H

PROPERTIES

Changes in the tax system effected by the Destra Storica increased tax receipts from 6.96 per cent of the national income in 1862 to 11.38 per cent in 1880. In the very year that the Right lost control of the government (1876), an actual excess of receipts over expenditures was realized for the first time in Italy's two major budgets—the ordinary for annually recurring expenses of government and the extraordinary for nonrecurring expenses, like those for wars and capital improvements. Before this happy state of balanced budget was reached the public debt had gone up by leaps and bounds—from 3,131 million on January 1, 1862, to 10,769 million on January 1, 1877. And the rising public debt had led the statesmen of the day to search arduously for new sources of revenue. Unfortunately receipts from the taxes just discussed were slow to attain the volume needed and consequently recourse was had to what many considered measures of desperation. These were: (1) the seizure and sale of those properties belonging to religious orders and the Church which were not used for religious purposes; (2) the sale of the domain of the state, that is, certain properties belonging to the state; (3) the sale of state railways to private companies; and (4) the instituting of the Corso Forzoso, that is, declaring the paper money of the banks of issue to be no longer convertible into gold or silver. T h e question of the state's seizing the property of religious orders and of the Church had, as has already been mentioned, been an issue since the French Revolution and had been partially carried • Taxes on spirits, coffee, sugar, and pepper were raised to offset in part the losses from doing away with the "macinato."

48

ECONOMIC ASPECTS OF UNIFICATION

out in Piedmont (1855). With the unification of Italy relations between Pius I X and the state became more tense than ever, partly because unification meant a threat to the temporal power of the Pope and partly because the Pope harbored foreign forces within his territories. T o cut through the dilemma Cavour had prepared a policy of Libera Chiesa in Libero Stato, which was very close to a separation of Church and state. 17 Pius I X refused, however, any such arrangement and, indeed, looked upon Cavour as an arch enemy. Nevertheless, when the Piedmontese laws pertaining to religious orders and the Church were extended to Italy (from 1860 to the law of August 21, 1862), they were not applied rigorously. For the moment no monasteries or convents were suppressed in Sicily, Tuscany, Emilia, or Lombardy and many were allowed to continue in Umbria, the Marches, Naples, and Piedmont. 18 In fact, there were still 2,400 religious houses with 47,000 members, and the income of monasteries, bishoprics, and of religious chapters was estimated to have been 50 million, although many parish priests lived in real poverty. Also, both the state and local governments spent millions every year for religious purposes. As time went on Pius' position against the new state and its principles became more adamant and in his encyclical Quanta Cura and in the accompanying Syllabus of Errors (1864), he condemned nationalism liberalism, and everything else which undermined his temporal position. On the other hand, the Italian parliament began to give less consideration to religious issues and to think more of the wealth to be obtained by expropriating the property of religious orders. Finally, after a long parliamentary struggle and in the excitement generated by the War of 1866, the laws of July 7, 1866, and of August 15, 1867, were passed. These laws provided for the suppression of monastic orders and the seizure of their property; the expropriation of much of the real property of the Church not used for religious purposes; and an extraordinary 30 per cent tax on other ecclesiastical property except that of parishes and of a few other organizations engaged strictly in matters concerned with religion. In all, property estimated to be worth 1,700 million was taken. 19 T h e considerable sum thus acquired was placed under the control of a department known as the Domain of the State, which had in

ECONOMIC ASPECTS OF U N I F I C A T I O N

49

addition to Church properties, the iron mines on the Island of Elba, forests, mineral springs, arsenals, some irrigation canals, and common lands, especially sea swamps and mountain tops. T h e whole thus administered from 1860 to 1882 had a total value estimated at 1,928 million. T o turn this vast holding into funds which could be used to pay the debts of the state was not so simple as might be imagined. So far as land was concerned, the law prescribed that it should be sold in small lots in order to satisfy the land hunger of the peasants and to get more intensive cultivation. Desirable as this may have been, it meant that not much land could be put on the market at any one time for fear of driving the price down and that purchasers had to be given terms in which to make payments (usually fifteen years) because they had little capital. Sidney Sonnino in an official investigation of the sale of ecclesiastical lands contended that the rich got the lion's share. At public auctions the poor were scared away. Furthermore, there was some antipathy to the purchase of land previously held by religious orders or the Church because of fear that titles to the property might some day be successfully contested by former owners or because of religious scruples. And, in fact, there were serious disturbances over the issue, particularly in Palermo in 1866. T o prevent or to control disturbances resulting from the sales, there was created in the capital of each province a commission composed of the prefect, the president of the court, the state's attorney, and two law enforcement officers. In spite of everything, however, the religious properties seized by the state began to be disposed of, along with a considerable portion of the Old Domain. Sales were, however, so slow and the need for immediate funds so great that Finance Minister Quintino Sella extended a practice begun in 1864 whereby a private concern—Societa Anonima per la Vendita dei Beni del Regno d'ltalia—was created to advance the treasury moneys at once in return for the right to sell state property on terms advantageous to itself. 20 Moreover, following the passage of the law on ecclesiastical property in 1867, the state began to issue bonds which could be used for paying for property acquired—a practice which gave the treasury funds at once but which was expensive, for the bonds sold on the average at 20 per cent below par.

50

ECONOMIC ASPECTS OF UNIFICATION

A detailed history of the disposal of the Domain properties, including that of ecclesiastical properties, unfortunately does not exist. 21 Yet certain salient aspects of the story are well known. In the first place, not all the properties taken were actually sold, for many religious buildings were given to municipalities or provinces for schools or public administration and some properties which were seized were later given back to various claimants. It would seem that u p to 1882 property f r o m the Old D o m a i n was sold to a value of 317.8 million l i r e 2 2 and that ecclesiastical properties a m o u n t i n g to 570.6 million were disposed of. 23 Of this latter sum, 502.4 million were for r u r a l properties involving over 600,000 hectares with an average price of 835 lire per hectare. 2 4 T h e sums realized by regions were as listed in the accompanying table. Amounts realized (in millions of lire) Naples | Sicily ) Lombardy and Venetia Piedmont and Liguria T h e Marches and Rome Emilia Tuscany Sardinia

205

Approximate percentage of total land surface 7 2

79 61 52 48 41 9

2 6 6 2 3 2

Source: Isidore Sachs, L'Italie, ses finances et son développement I859-I884 (Paris: Guillaumin, 1885), p. 304.

économique,

W h a t the total social and landholding effect of these land sales was is very difficult to estimate. Clearly many of the large estates which had belonged to religious orders or the Church were broken u p a n d the n u m b e r of farm owners actually increased. Yet many of the small purchasers were unable to meet their payments, because of the fall of agricultural prices after 1874, and had to sell to rich proprietors. Undoubtedly some of the buyers were actually acting as agents for wealthy principals who wanted to create large holdings for themselves or to r o u n d out their existing properties. 2 5 A n d it is not certain that on balance the new owners cultivated the land better than the former ones, for some of the new purchasers wanted to realize a quick profit and this might be done by overcropping or by cutting off the standing timber, thus contributing to deforestation.

ECONOMIC ASPECTS OF UNIFICATION

51

By comparison with the sale of the properties of the Old Domain and of the former holdings of religious orders and the Church, the sale of state railways was a simple matter. At the end of 1864 the state had in operation 566 kilometers of railways out of a total of 3,396 kilometers, the rest being divided among several companies. In 1865 a decision was reached to consolidate the entire rail network into separate companies, and to sell them to private concerns, an operation which netted some 200 million. 2 8 T h e benefit which was derived from this action was, however, shortlived, for most of the railways did not prosper and the state began to take them over in 1868. In fact, by 1884 the state owned 6,097 of the 9,867 kilometers of Italian railways, and was co-owner of 418 kilometers more. 2 7 Accordingly the "sale" of railways brought little relief to the national budget.

T H E P U B L I C DEBT AND T H E CORSO FORZOSO

T h e sale of the church lands, of properties of the Old Domain, and of railways did not produce enough to stop the public debt from growing. And the larger it grew, the heavier became the interest burden and the more difficult the finding of sums for other purposes, as can be seen in the accompanying table. E X P E N D I T U R E S OF T H E S T A T E (in millions of lire and percentages) Interest on public debt 1862-66 1867-71 1872-76 1877-81 Percentages 1862-66 1867-71 1872-76 1877-81

205 314 366 406 21.3 37.0 36.3 35.8

Military defense 344 166 193 206 30.0 18.5 19.0 19.7

Sourcc: Rosario Romeo, Risorgimento HI.

War 92.0

9.5

Public works 97 71 122 180 10.0 8.4 12.1 15.3

e capitalismo

Other services 228 296 327 340

Total 966 847 1,008 1,134

29.2 36.1 32.6 29.2

100 100 100 100

(Bari: Laterza, 1959), p.

Indeed, the indebtedness of the state which was 3,131 million on January 1, 1862, was 5,533 million on January 1, 1866, and 6,929 on J a n u a r y 1, 1867. Furthermore, there was a trend toward the

52

E C O N O M I C ASPECTS O F U N I F I C A T I O N

debt's being more in the form of amortizable bonds or short-term treasury bonds instead of in perpetual bonds—the proportions of the former increasing from 11 per cent in 1862 to nearly 15 per cent in 1866.28 Also, about a third of the public debt was held abroad, which meant, first, that the Italian government had to have fairly large amounts of foreign exchange or gold to send abroad and, second, that the price of Italian government securities might fluctuate widely because of the uncontrollable speculation of foreign bondholders. 29 With its public debt great and held in such a manner as readily to become unmanageable, the Italian government was in a poor position to meet the exigencies of the deep economic depression of 1865-66. This downswing in business activity seems to have originated in America with the canceling of war contracts and the mass demobilization of the armies upon the conclusion of the Civil Wat and rapidly to have made itself felt in Europe. In Italy it came shortly after there had been a considerable economic expansion connected with railway construction, with moving the capital from T u r i n to Florence (1865), and to a widespread over-extension of credit. 30 Certain enterprises, like the growing of cotton in Sicily at high cost and the importation of cotton from India and Egypt at high prices, found themselves in a crisis once cheap American cotton became available again.* Moreover, the silk industry was ailing because of a disease of the worms, and grain growing, because of competition from overseas. Finally, threats of a new war meant that the pressure on the public finances of the potential belligerents—Prussia, Austria, and Italy—was particularly great. In these circumstances, confidence in Italian governmental securities and in Italian banknotes began to decline. Foreign owners of Italian government bonds started to sell their holdings with the price of Italian consolidated bonds falling in the Paris Bourse from 80 in 1860 to from between 75 and 67 in 1862, to 64.40 in 1865 and even to 43.90 in 1866, with a low of 36.44.31 Italians at the same time began to sell, too, not only for fear of a decline, but because consolidated bonds usually sold for more at Turin than at Paris, • T h e English bank of Overend, Guerncy, and Co. failed in 1866 from an overextension of credit in affairs of this kind.

ECONOMIC ASPECTS OF UNIFICATION

53

and by selling them they could get gold with which to buy bonds at lower prices on the Paris market. 32 Similarly, foreign owners of bonds began to send their holdings to correspondents in Italy for sale in order to get gold. Although the Italian treasury was thus able to retire some of its debt at low cost, the Italian banking and monetary system was put in an embarrassing position. T h e demand for gold in exchange for government securities caused such a shortage of gold that holders of banknotes and other bank deposits took fright and began to demand that banks pay them in gold. This "run on banks" made the National Bank not only short of gold but so short of all liquid funds that it threatened to stop discounting bills. This threat caused a hue and cry to be raised in trading centers, especially Genoa, and added to the general panic. T h e crisis was so ominous that the government asked Parliament for power to meet it by issuing decrees without recourse to the legislative bodies. This authority was granted on April 30, 1866, and on May 1 the government decreed the inconvertibility of banknotes —the famous Corso Forzoso. By this measure the National Bank was freed from the obligation of paying out gold for its banknotes, but for this favor the Bank had to agree to lend the state 250 million at 1.5 per cent interest—a sum that was raised to 278 million when Venetia was annexed and the Bank extended its operations to the new province.* In addition the National Bank was required to pay its notes out against the notes of other banks of issue up to the amount of these banks' metal reserves (this amounted to 13 million), which made the banknote circulation of the National Bank and of the effects of inconvertibility more nation wide. By a curious omission, the law establishing the Corso Forzoso failed to place any limit on the banknote issue of the National Bank. As a result the Bank took the opportunity greatly to increase its issue, which obviously might have led to a considerable inflation. T h e volume of its banknotes in circulation was augmented from * T h e Bank of Naples and the Bank of Sicily were similarly freed from paying gold for their warrants (Jedi). On May 6 the National Bank of Tuscany and on May 17 the Tuscan Bank of Credit were similarly freed. These banks were to freeze two-thirds of their metal reserves and against this rcccive equal amounts of notes of the National Bank.

54

E C O N O M I C ASPECTS OF U N I F I C A T I O N

137.7 million in May, 1866, to 470.1 million in 1869, exclusive of the 278 million given the state and IB million issued in exchange for the notes of other banks of issue. Only in 1868 • did the state curb this lucrative practice by establishing a ceiling of 750 million, inclusive of the 278 million and 13 million just mentioned. T h e wisdom of adopting the Corso Forzoso was hotly debated at the time,** and no consensus exists even at the present about the wisdom of it. Some argue that the measure was unnecessary, but they have in their favor the sudden beginning of economic recovery and the unexpectedly early termination of the Seven Weeks' War. Others contend that the outflow of gold had to be stopped to avoid greater losses and to avoid an uncontrollable inflation, and they have to support them the fact that the outflow of gold was stopped and that there was no serious loss in the value of the lira. Furthermore, those who have been critical of the establishment of inconvertibility have pointed to the flight of all currency, even metal coins, from circulation and to the inconvenience which this development caused in making payments. Indeed, the lack of a medium of exchange was so grave that mutual aid societies, savings banks, towns, and even individuals began printing paper bills, and this situation became so serious, in turn, that the government permitted banks of issue to put notes for small amounts in circulation. It was not until 1870 (law of March 11), that nonauthorized notes were forbidden. Moreover, opponents of the Corso Forzoso policy point out that the government soon realized the ease with which it could meet the calls upon it by giving the National Bank of Italy state securities of some kind and raising the limit of the Bank's issue so that the Bank could give it banknotes in return, which was the road to inflation. And they show, also, that the Corso Forzoso had the effect of reducing imports and foreign investments in Italy at the very time when the country should have been expanding its industrial plant. 33 T h e defenders of the policy of inconvertibility have contended, • September 3. Previous lo inconvertibility the National Bank had to have a metal reserve equal to one-third its note circulation. • • A Parliamentary Commission appointed to investigate the matter in 18G8 found against the necessity of inconvertibility.

55

ECONOMIC ASPECTS OF U N I F I C A T I O N

on the other hand, that the shortage of metal coins and the large amount of paper money got the Italians used to banknotes and that this in the long run easily offset temporary inconveniences. They show, too, that there was no runaway issuing of banknotes, as can be seen in the accompanying table on the circulation of banknotes, nor any appreciable rise in prices, the price index of gold going only from 1.046 in 1866 (1913 = 1.00) to a high of 1.137 in 1873 and wholesale prices only from .897 to .958 in 1868, and to a high of 1.051 in 1873.34 BANKNOTE CIRCULATION (in millions of lire)

1866 1867 1868 1869 1870 1871 1872 1873

Advances to the State National Bank and Consortium *

Issued by banks for their accounts

250 250 278 278 455 629 740 790

246 487 563 571 497 577 623 664

1874 1875 1876 1877 1878 1879 1880 1881

• See below p. 56. Source: Isidore Sachs, L'Italie, ses finances 1859-1884 (Paris: Guillaurain, 1885), p. 486.

Advances to the State National Bank and Consortium •

Issued by banks for their accounts

880 940 940 940 940 940 940 940

633 621 646 628 672 732 749 735

et son développement

économique

Furthermore, the defenders of the Corso Forzoso point out that although imports did fall off because of a lack of gold, exports increased because exchange rates were advantageous to foreign buyers. They maintain that exports were a stimulus to domestic economic activity 36 and that the policy strengthened the notion of bank control of currency and brought the country closer to the principle of central banking. They hold that because the Corso Forzoso allowed the managing of a huge public debit, it was in essence an example of the advantages of a "forced savings" operation, that is, it permitted the state to settle part of its claims for the debts contracted in the wars of unification and in the early economic expansion by savings from the economy which were actually involuntary. However people may judge the Corso Forzoso, they are agreed that abolishing it was a long drawn-out affair, because the needs of

56

ECONOMIC ASPECTS OF UNIFICATION

the Treasury were great. Once the budget was balanced or nearly so (in the early 1870s), it was possible to move toward convertibility. T h e first step in this direction was taken in 1874 (law of April 30), when Marco Minghetti was the Premier, by the formation of a Consortium of all the banks of issue. T h i s body was to issue 1,000 million lire in new, legal tender notes and was to give them to the Treasury in return for non-transferable government bonds. T h e banks of the Consortium were responsible for these new notes,* which bore the signature of a delegate of the Consortium and of the government. With these notes the Treasury was to pay off its existing debt to the National Bank of Italy, including 50 million lire in gold.** T h e paying out of gold was actually decreed April 7, 1881, when governmental finances were clearly in a healthier state. T h e Consortium was dissolved and the Treasury took over as its debt the outstanding notes of that body, agreeing to pay out gold and silver for them. In order to be able to make good on this pledge, the government borrowed 644 million lire of metal from France and England and began to make payments in hard money on April 12, 1883.f At first the sums thus paid were considerably restricted, but soon confidence in the system was such that the demand for metal was slight. Italians had become used to paper money and bank credit.3® • These notes were to be printed on white paper, and might be called White Backs, although they never have been. T h e government paid a low rate of interest for them. • • T h i s sum had been borrowed in 1870. Each bank of issue was to contribute its pro rata share to this amount of gold. Other provisions of the law were that the banknotes of the lesser banks of issue could circulate freely throughout the Kingdom and not be restricted to their own provinces, as hitherto. T h e issues were limited to three times the amount of metal or of the notes of the Consortium in their vaults. Moreover the lesser banks were to get back in installments from the National Bank gold and silver which had been provided that Bank in 1866. T h e banks of issue could use their metal to buy bills of exchange or securities guaranteed by the state, if payable in metal in three months. t T h e amount of banknotes which the banks of issue might put out was limited by this law to three times their paid in capital, but they had to be backed by gold or silver to one-third their total and two-thirds by commercial bills.

CHAPTER

THREE

Laying the Foundation for Economic Growth, 1861-1914

In no place in the world can railways find a more favorable field than here, a populous land . . . ready to welcome this powerful instrument of public and private prosperity,

CARLO CATTANEO

T H O S E economies which have in their times reached great heights of "national income" per capita have always been those which had a relatively great

division

of labor,

which

put

specially

large

amounts of human skill and technical knowledge into production, and which exchanged goods with others over great distances. T h i s observation, based on the experiences of economies from Ancient Egypt, Greece, and China down to the present day, has meant that leading economies have always had a large proportion of their populations in industry (including mining) and in tertiary branches of economic activity, such as commerce, transportation,

banking,

and other services. In the economic development of Western culture in the last century and a half the shift in the proportions of the active population from agriculture,

particularly the least mechanized branches of

agriculture, to industry and the tertiary trades has been particularly marked. In all the states where the highest national incomes per capita have been attained this transformation has been especially great. For a multiplicity of reasons, one of which was the relationship of amounts of human imput to prices for goods and services, persons employed in industry and the tertiary trades contributed more to national income per capita than did those in agriculture. In the case of Italy national income per capita has increased in almost direct proportion to the increase in those percentages of the

58

FOUNDATION FOR ECONOMIC G R O W T H

labor force which have gone into industry and the tertiary callings. Consequently, one reason for Italy's relatively poor showing in national income per capita has been its inability to shift more of its population out of low production agriculture. It should be noted that in 1959 the per capita contribution to the net national income of the private sector of the economy was for those engaged in agriculture 433,000 lire, for those in industry 759,000 lire, and for those in tertiary trades 569,000 lire. 1 Also in Italy's experience the "productivity" of workers in industry has increased more rapidly than it has in agriculture, that is, the gap between them has been widening. This accounts for a flight from marginal lands, which was noticeable in the period of great emigration just before the First World War and which has been a feature of the post Second World War period. Furthermore, in Italy the per capita contribution to national income of the tertiary sector has been low by international comparisons, which probably indicates "inefficiencies" in the management of tertiary establishments, as in the small shop, the excessive number of employees in banks, and backward methods of office workers. Lastly, Italy's national income has increased in relation to the increase in foreign commerce, although the correlation between the two is by no means perfect.* T h e development of Italian industry and the tertiary branches of the economy to a point where they contributed a half of Italy's national income was a slow process and required, indeed, fifty years before it was accomplished. This was in very large part not only because the economy was backward to begin with and needed fundamental equipment, such as roads, schools, and public buildings, 2 but also because it lacked capital for investment in productive plants and because its population was so large and labor so cheap that there was less of an incentive to replace men with machines than in those economies where labor was scarce. All economically underdeveloped countries have to have a modicum of equipment in public facilities in order to make use of their labor and resources, and these facilities require a great amount of investment that might otherwise go into more immediately productive enterprise. Furthermore, Italy's investment needs were espe• See Appendix table 14, p. 378.

FOUNDATION FOR ECONOMIC

GROWTH

59

daily high because industrialization required particularly large amounts of capital per worker—amounts that kept on increasing.3 So far as the population problem was concerned Italy had such a rapid increase in numbers that there were not employment opportunities for many workers at acceptable wages. Consequently in the great movement of population from countryside to cities many simply left the country altogether. T h e number of Italians actually "exported" permanently was very great, which meant that the nation had to bear the costs of rearing those who left and then got little benefit from them except for emigrant remittances. So far as capital for investment was concerned Italy attracted only moderate amounts from abroad, for it did not have natural resources or high purchasing power per capita for the rapid amortization of loans nor did it pursue a foreign policy that gave confidence to foreign investors. Those foreigners who did venture into the Italian market were frequently motivated by political considerations and speculative ventures and did not pursue steady developmental policies. Inasmuch as Italy had to rely heavily upon its own resources to finance its industrialization, particularly from the introduction of Corso Forzoso to the end of the Second World War, its rate of investment was restricted by what it could save out of current income. T h e amount that can be put aside voluntarily is notoriously small in agricultural economies in which the population is large in relation to its total resources and has very little over and above its current needs. It is especially small, too, in economies which have to import large proportions of the materials that they use and which have no great technological or locational advantages. Furthermore, saving for investment is also restricted by a population that does not have economic growth as one of its more important societal goals, in which much of the labor force early believed that it was being exploited in the very process of employment so worked less to be less exploited,* and in which the wealthier elements of the population, who were potentially the greatest savers,4 had a tendency to scorn economic activity and to stress conspicuous consumption, uneconomic eating and drinking, and a large amount of • As we shall see later, Marxian ideas were widely accepted in Italy by the end of the nineteenth century.

FOUNDATION FOR ECONOMIC G R O W T H

60

personal service. Finally, savings on a national scale for investment in productive plant are difficult when they are dissipated in reckless colonial adventures, which offer neither an outlet for the population or an o p p o r t u n i t y for economic development,* or when they are wasted in wars of devastation, like the First a n d Second W o r l d Wars. W h e r e motivation for growth is limited to a few leaders a n d voluntary savings are low, m u c h of the "savings" process is "forced." T h i s means that a borrower obtains and uses capital but does n o t pay back his debt in full. T h u s the state may get f u n d s by selling its bonds to individuals and banks and then settle its debt by collecting taxes or by inflation—by "forcing" people to divert some of their purchasing power to state enterprise, as was done by the Corso Forzoso. O r f u n d s may be obtained by private entrepreneurs f r o m banks or private security holders, and the private entrepreneurs, may if they are u n a b l e to settle their debts, thus "force" their lenders to save. As we shall see later on, large scale Italian industry was financed by these types of forced savings—by a transfer of wealth from consumers to industry. 5 Yet, in spite of all the handicaps under which it operated Italy did achieve some economic growth in the first thirty-five years of its existence as a unified state. W h a t was of the greatest importance was that it was laying a f o u n d a t i o n which was necessary for u l t i m a t e development. A m o n g the m a j o r components of this national, economic i n f r a s t r u c t u r e were railways, an iron a n d steel industry, a merchant m a r i n e a n d s h i p b u i l d i n g plants, a textile industry which could compete with foreign plants, and a b a n k i n g system which could foster savings for investment. T o a consideration of the development of each of these branches of economic activity we now turn.

TEXTILE

INDUSTRIES

In Italy, as in the other Western European countries, one of the chief pioneering industries, if indeed, not the chief one, in the * T he Kuropean population of Italian colonies was in 1938 about 100,000. In Libya there were about 95,000. in Eritrea some 4,000, a n d in Somaliland 2,330. T h e balancc of trade a n d payments between Italy and her colonies was heavily unfavorable to Italy.

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61

mechanization of production a n d the centralization of activity in factories was the textile trade. Early textile machines used methods which were very close to those employed in textile h a n d i c r a f t production and hence were readily understood by workers; a n d they did not require vast amounts of capital a n d could be operated successfully if few in n u m b e r , which m e a n t that e n t r e p r e n e u r s could start in the textile trades with small a m o u n t s of capital and expand plant by plowing back, profits. Moreover, locational factors of the trade were such that textile factories could be situated on relatively small streams where water power was available or after the coming of the steam engine could be placed wherever coal was available at low cost. Raw wool and silk were p r o d u c e d in Italy a n d had been worked for centuries at the h a n d i c r a f t level a n d cotton could be brought to Italian ports at little higher cost t h a n to Liverpool, Le Havre, or Ghent. Lastly, a mass m a r k e t for textiles, especially cotton and wool, existed, because of habits in dress, bedding, a n d interior decoration. In the early part of the n i n e t e e n t h century new textile machines began to make their appearance in Italy. Charles L a m b e r t , f r o m the woolen center of Elbeuf (France), was invited by M u r a t to come to the Kingdom of Naples to introduce " F r e n c h " techniques for making woolens and in effect came to the South in 1809 with machines and began operations on the Island of Liri. In 1816 Pietro Sella installed carding and s p i n n i n g machines in his plant at Biella, Piedmont, which was to become a great center of woolen manufacture, with such firms as Zegna a n d Rivetti. Similarly, machines in the cotton industry were b r o u g h t to Italy f r o m more advanced industrial countries. T h e Miiller brothers, Giacomo a n d Maurizio, introduced the first mechanical s p i n n i n g jenny in Italy in 1808 at Intra, Piedmont; C o u n t P o r r o L a m b e r t e n g h i was the first to apply steam power to spinning (1816); Pasquale Borghi created a spinning mill at Varano, near Varese in L o m b a r d y , in 1819; the Ponti brothers introduced the s p i n n i n g m u l e in 1823 at Solbiate, Como; and a Swiss group, of w h o m the first was Giacomo Meyers of Zurich, laid d u r i n g Murat's reign the f o u n d a t i o n for a cotton textile industry at Salerno, the most i m p o r t a n t one in the South. 8 After the unification of Italy the mechanization of the textile trades went on at a more rapid pace. Plants became m o r e concen-

62

FOUNDATION FOR ECONOMIC G R O W T H

trated in what were considered favorable locations, especially in Lombardy, Piedmont, and Venetia large concerns became firmly established; a n d the entire industry did m u c h to make Italians familiar with the advantages of industrialization a n d with m a c h i n e techniques, to contribute to capital formation, and t h r o u g h exports to earn much-needed foreign exchange which could go to pay for Italy's imports. T h e cotton industry was the most easily mechanized, for only a small handicraft cotton trade existed and anyone who entered this field recognized that the use of machines was essential in order to be successful and consequently from the first accepted mechanization as the sine qua non. T h e industry located mainly on rivers in the N o r t h with their relatively steady volumes of water and with fairly fast drops in level. More particularly, it centered along the Adda, Oglio, Olona, Lambro, a n d T i c i n o Rivers near Milan, the Dora Riparia in the Susa Valley and at T u r i n , and along similar Alpine streams. T h o s e places not only had motive power, but they were also close to large markets which was a great advantage inasmuch as it was much cheaper to transport the raw product than finished goods. In 1900 Lombardy had 44 per cent of the cotton spindles and 55 per cent of the looms in Italy, while Piedmont had, respectively, 28 and 25 per cent. T h e first cotton firms were mostly one-man enterprises, like Borghi, previously mentioned, Costanzo Cantoni at Legnano, and Felice Fossati at Monza, or family businesses like those of the Swiss group at Salerno or Grainicher and Malan at Pralafera near T o r r e Pelice in Piedmont. As plants grew, however, the corporate form of organization was used more and more, beginning with the Cotonificio Triestino in 1871 and continuing in 1872 with M a n i f a t t u r a cli Cuorgne in Piedmont and the Cotonificio Cantoni in Lombardy. As was to have been expected, corporations grew faster than one-man concerns because of their ability to get capital in the money markets. Indeed, their capital tripled from 1900 to 1908." Nevertheless, the size of plant remained medium—between twenty and fifty thousand spindles and between fifty and five h u n d r e d looms. In these trades the o p t i m u m size was not of giant dimensions. Some idea of the growth of the cotton industry can be obtained from imports of raw cotton (practically all of it had to be brought

ICH NI) VI ION KOR E C O N O M I C G R O W T H

63

in from abroad), which went u p from 12,400 tons in 1861 to 201,900 tons in 1913. Moreover, the exportation of cotton yarn went u p from 100 tons in 1861 to 14,600 tons in 1913 and that of cotton cloth, from 300 tons to 49,400 tons in the same years. After some protection was granted the industry in the tariff of 1878 and especially after it got high rates in the tariff of 1887, imports fell off and the national industry controlled the home market. Nevertheless, in the economic depression of 1907-8, the cotton industry was so severely hit that the largest bank in the trade, the Società Bancaria Italiana, was threatened with disaster. W h e n the trade had weathered the storm, it formed cartels—the Cotton Association in 1910 to control production and the Italian Cotton Institute in 1913 to fix prices. By the outbreak of the First World W a r the cotton industry had grown to be of considerable importance. It h a d profited from the fact that its products enjoyed the favor of consumers, partly because of their price, to such an extent that whereas cotton textiles comprised only 4 per cent of the country's textile production at the beginning of the nineteenth century, as compared to 18 per cent for linen, they had by the end of the century almost completely replaced linen and had been substituted for a variety of woolen goods, such as knit underwear, flannels, and stockings. Moreover, the industry had a good financial position and had become well mechanized. In 1876 it had h a d only some 764,852 spindles and 15,517 mechanical looms (England had half a million looms at the time) but in 1900 it had 1,876,129 spindles and 70,600 looms, and in 1914, 4,620,000 and 120,000, respectively. 8 T h e history of the woolen industry in Italy d u r i n g the first fifty years after unification had many features which were similar to those of cotton, although evolution was slower, mechanization was less extensive, and woolen goods did not have so strong a position in the export business as did the cottons. As was the case with the cotton industry, woolen m a n u f a c t u r e tended to be concentrated in the North, particularly at Biella and the Valsesia (Piedmont), in Lombardy, Venetia, and the Florence-Prato region of Tuscany. In wool, as in cotton, the early firms were one-man companies and relatively small, but as the business grew the corporate form was usually

FOUNDATION FOR ECONOMIC G R O W T H

adopted, the first two corporations being L a n e Rossi at Schio, Venetia, a n d Carlo A n t o n g i n i ( M a n i f a t t u r a di L a n a ) in Borgosesia, Piedmont. A l t h o u g h there was not great concentration in the wool trade until after the First W o r l d W a r , in the course of time particularly successful companies began to stand out. A m o n g these leaders were Lane Rossi, Filatura e Tessitura di T o l l e g n o in the Biella area, a firm which had been begun by Maurizio Sella, an a r d e n t advocate of mechanization, the firm of Valerio Massimo Bona at Caselle a n d Carignano in Piedmont, that of Luigi Marzotto at Valdagno in Venetia, a n d Kossler Mayer a n d C o m p a n y of Prato, Tuscany, where a specialty was m a d e of coarser goods, particularly "shoddy" products. T h e industry h a d a trade association, the Associazione Laniera, created on the initiative of Alessandro Rossi in 1877. F u r t h e r m o r e , in 1905, when the trade was in crisis, some of the largest concerns, including Bona, T o l l e g n o , Borgosesia, a n d Marzotto, created a kind of cartel, the Consorzio di Filatori di Lana a Pettine, which controlled 195,000 spindles. In the earlier part of the n i n e t e e n t h century, Italian wool m a n u facturers t u r n e d out mostly carded products, b u t after the protection afforded by the tariffs of 1878 and 1887 they began to make the finer combed products a n d took long strides forward in this line in the twentieth century. T h e s e better quality woolens and the expansion of the industry required that Italy import more of the raw product and she t u r n e d to Australia, New Zealand, South Africa, a n d La Plata region for supplies. Also, the expansion of the industry necessitated greater mechanization, and there was. A l t h o u g h at the beginning of the twentieth century nearly half of Italian woolen looms and a third of the spindles were h a n d operated, power driven machines h a d largely taken over by the o u t b r e a k of the First W o r l d War. T h e n u m b e r of spindles for combed wool increased from 94,000 in 1894 to 433,000 in 1914 a n d those for carded wool from 251,000 to 450,000 within the same period, and the n u m b e r of mechanical looms went u p from 6,507 in 1894 to 17,029 in 1914. T h e s e advances were not insignificant, but Italy was obviously behind the leader, England, which had 2,800,000 spindles in wool in 1914. Nonetheless, whereas

F O U N D A T I O N FOR E C O N O M I C G R O W T H

65

Italy had imported nearly half of its woolen goods in 1871, it was able to satisfy the home market in 1914 and it had a small export trade. 9 Of the other Italian textile industries before the First World War—silk, rayon (after 1907), hemp and jute—silk was traditionally most important. T h e growing of the worms had been introduced into Italy from the East in medieval times and the country had become a large producer of raw silk. Considerable amounts were exported, 2,600 tons in 1861 and a maximum of 10,400 tons in 1906, the major part of which went to France. Other branches of the Italian silk industy, silk reeling and silk weaving, remained at almost the handicraft level until the end of the nineteenth century. In 1870 there were only 250 mechanical looms to 12,000 hand looms, while in 1898 the respective numbers were 3,000 and 12,000, and in 1908, 2,642 and 14,224. T h e trade association in this industry was the Associazione Serica Italiana. T h e future of silk was, however, not bright. About the time of Italian unification diseases hit the silk worms, which required rigorous control of eggs to develop a strain that was immune to them. T h e n in the decade immediately prior to the First World War, Far Eastern competition began to be felt,* and the rayon industry, which was to offer a substitute product, put in an appearance.** T h e silk industry subsequently lost importance and is now about sufficient for the necktie trade. So far as linen, hemp, and jute are concerned, little need be said —because they never attained major importance. Hemp, raised in the Romagna and Emilia and Northern Campania, was used in the North mainly for cloth and sacks, while in the South it was used for making ropes, cord, and twine. Jute, which was obtained from Russia before the Crimean War, began to be imported into Italy • Far Eastern production was low cost because of very low wages and also because the worms could work on the trees there, whereas in Italy mulberry leaves have to be b r o u g h t to the worms which are raised in sheds. In its heyday Italian raw silk production was about 50,000 tons live weight and imports were between 15,000 and 17,000 tons. • • T h e first company of i m p o r t a n c e was CINES at Pavia. T h e control of this company was obtained by the Società di Navigazione Italo-Americana (SNIA), which in t u r n was controlled by Giovanni Agnelli of F I A T fame. T h i s led to the SNIA VISCOSA in 1922.

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F O U N D A T I O N FOR E C O N O M I C G R O W T H

f r o m I n d i a d u r i n g that conflict a n d provided the basis for a sizable industry of 58,000 spindles in 1910 a n d 3,100 looms. Withal, the textile industries were i m p o r t a n t in the Italian industrial setting. I n the period 1866-70 they climbed ahead of the food industries as the largest c o n t r i b u t o r to n a t i o n a l income of all m a n u f a c t u r i n g a n d they held this position of primacy until 1906-10 when they were surpassed by the o u t p u t of the mechanical industries. 10 F u r t h e r m o r e , in this period a n d perhaps later they had the largest working force a n d they c o n t r i b u t e d heavily to Italian balance of payments t h r o u g h their exports. Indeed, they provided a classical example of how a country might become a "workshop for the w o r l d " by i m p o r t i n g raw materials a n d exporting finished goods. 1 1

BUILDING T H E

RAILROADS

Italy h a d at the time of unification, as we have already seen, 1,623 kilometers of railways in o p e r a t i o n a n d 1,442 u n d e r construction or u n d e r contract for construction. Of the rails actually being used, P i e d m o n t and L o m b a r d y had over 90 per cent, which meant that the rest of Italy was extremely poorly supplied, a n d the farther south one went the worse was the situation. By 1896, however, Italy h a d 16,053 kilometers of railways, which included all the principal lines * a n d the Mezzogiorno h a d its full share in relation to land surface, p o p u l a t i o n , a n d c o n t r i b u t i o n to national income. 1 2 T h e b u i l d i n g of railways t h r o u g h o u t Western C u l t u r e in the nineteenth century was big business a n d had an e n o r m o u s impact upon economic activity and economic institutions. Not only did railways make possible the b r i n g i n g together of raw materials that hitherto had been impossible to u n i t e because of transportation difficulties and the t a p p i n g of markets which had been remote from producers, b u t railway construction gave a fillip to industrial activity, to the formation of j o i n t stock companies, to investment banking, to the practice of h i r i n g labor for wages,** and to swings in the business • T o t a l kilomctrage reached a height of 23,277 in 1941. • • I t has been estimated that over 2 million people were employed directly in railway construction in Central and Western Europe in 1870. Most of these

F O U N D A T I O N FOR E C O N O M I C G R O W T H

67

cycle because of waves of expansion connected with new construction. L E N G T H O F RAILWAYS BY R E G I O N 1861 Piedmont-Liguria Lombardy Tuscany Emilia, T h e Marches ) Umbria, Lazio ) Naples Sicily Sardinia Venetia

743 403 361

Total added 1860-7) 603 462 638

Kilometers in operation in 1884 • S.63 3.51 3.99

474

1,032

3.20

184

1,383 390 152 0

2.83 2.56 3.05 2.92

353

• T h e mean of railway kilometers per square kilometer a n d per 10,000 population. Source: Atti Parlamentari, July 25, 1874, p. 3,349.

Especially in economically backward areas, like Italy, railway building had particularly great importance, for no other undertaking came anywhere near equaling it in either magnitude or kind. In fact, from 1861 to 1877 the Italian state put out 678.3 million for the operation of railways and 694.3 million for construction, or a total of 1,372 million, while private companies up to 1882 invested another 1,000 million.* These sums represented 20 per cent of the national debt and nearly twice the national budget for the latter year. For the entire period from 1861 to the First World War, the state spent, for railway construction, the enormous amount of 12,600 million, which was about equal to the total national income of 1900.13 Immediately after unification there was an almost frantic effort on the part of the government to get railways built where they did not exist. Literally to bind the country together with rails, the state was, at first, lavish in the aid it gave. It put out 100 million for railways in the year 1860-61, which was about 20 per cent of the total budgets of the state for 1862. As we have already seen, however, by 1865 public finances were in such a condition that the government workers had previously been underemployed in agricultural pursuits a n d it was impossible, once a railway line was built, to get t h e m to go back to farming. * T h e latter a m o u n t was actually 1,600 million, b u t 600 million represented state subsidies a n d so was included in the state's investments.

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decided to sell all oi its railways to private companies • for the purpose of raising funds a n d to consolidate Italian railways into four m a j o r networks for m o r e efficient operation. T h e s e companies which took over the Italian railways were the C o m p a g n i a delle Ferrovie Alta Italia with its holdings in the P o Valley, the Compagnia delle Strade F e r r a t e R o m a n e with its lines along the Tyrr h e n i a n Sea from the French border to the south of Rome, the Società Italiana delle Ferrovie Meridionali with lines f r o m Emilia to A p u l i a on the Adriatic Coast with connections to Naples, and the Società Anonima Vittorio E m a n u e l e with its holdings in Calabria and Sicily. 14 W i t h a l railway building went forward in Italy at a rapid pace, but it was beset with all the difficulties encountered in other countries and with some extra ones peculiar to Italy alone. Some companies were overcapitalized; some let construction contracts at high costs to "favored sons," sometimes owned by m a n a g e m e n t ; some accepted finished lines which were so rough that accidents were freq u e n t ; and some bought e q u i p m e n t which was so poor that its use became a sporting event. In many areas, costs of construction were more than had been estimated, largely because of the great n u m b e r of tunnels which had to be built t h r o u g h rock to get railways over the rugged terrain. And almost as frequently freight receipts were less than expected because of lack of production a n d the low purchasing power of the p o p u l a t i o n . U n d e r these circumstances there was in Italy, as in most E u r o p e a n continental countries, an earnest d e m a n d from the public that the state intervene to abolish financial abuses a n d to keep the rail services intact, and from the railway companies themselves that the government take their unprofitable property off their hands. Already in 1868, following the depression of 1865, the Victor Emmanuel Company was in such financial straits that it had to close down a n d the state had to engage a new company to c o n t i n u e b u i l d i n g the lines that had been assigned to the b a n k r u p t concern and to operate the part already completed. In the same year it took over some of * T h e stale continued to own one short line of 53 kilometers from Bussoleno to the Mont Cenis T u n n e l , then under construction.

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GROWTH

69

the more expensive lines of the R o m a n a , such as the one from Massa to the French frontier, which h a d a stretch f r o m La Spezia to Genoa with i n n u m e r a b l e rock tunnels.* T h e n when the Western Civilization—wide economic crisis which began in 1873 hit Italy, and railroading was less profitable, the state b o u g h t u p the Alta Italia, including the holdings in Venetia, a n d began to operate it in 1878; in 1882 it took over the entire R o m a n a network and in 1884 the Meridionali. At the latter date there were 6,097 kilometers of railways in the hands of the state, 3,152 r e m a i n i n g in the possession of private companies, a n d 418 owned jointly by the state and private concerns. T h e state's lines were valued at 1,765 million lire. 16 Also in 1884 a new general plan for Italy's railways was adopted by the state in order to reduce its expenditures for this form of transportation a n d at the same time to continue construction of secondary lines. T h e s e goals were to be accomplished by the redistribution of the railways into four m a j o r networks—those on the Mediterranean a n d in the northwest constituting the Mediterranean lines, those on the Adriatic a n d in the Apennines, the Adriatic, those in Sicily, the Sicilian, a n d those in Sardinia, the Sardinian. Both the Adriatic line a n d the M e d i t e r r a n e a n line came into Rome, Milan, a n d Naples. However, in the n o r t h the Adriatic line was oriented toward Austria a n d the M e d i t e r r a n e a n line toward France. T h e n the new plan envisaged that these four networks would be operated by private companies u n d e r very special terms: the state would own the roadbeds a n d stations a n d the operating companies would provide the rolling stock and other necessary e q u i p m e n t . New construction was to be financed by bonds issued by the companies, b u t with interest a n d amortization charges guaranteed by the state. Railway rates would be fixed by agreement between the state and the companies a n d gross receipts would be divided according to a f o r m u l a which provided roughly for 10 per cent to go to reserves a n d to payment for rolling stock acquired from the government, 62.5 per cent to the companies, a n d 27.5 per cent to

• Costs of railway construction in Italy at the time were about 200,000 lire per kilometer. On the Ligurian line, they were d o u b l e that figure.

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the state.* T h e n if the net earnings of the companies exceeded 7.5 per cent on the paid-in capital, the state got one-half of the excess. These contracts were to run for 60 years, renewable at 20-year intervals. For the implementation of these arrangements • • contracts were made with various private companies—the so-called Conventions of 1884-85. By them the Mediterranean network was placed in the hands of the Società Italiana delle Strade Ferrate del Mediterraneo, founded by banks of T u r i n and Rome; the Adriatic lines were leased to the existing Società delle Ferrovie Meridionali, backed by the Credito Mobiliare, which took the name of the Ferrovie Adriatiche; the Sicilian lines were leased to the Società Italiana delle Strade Ferrate della Sicilia; and the Sardinian lines, to the Ferrovie Sarde. For a great many reasons this scheme for handling the railways of Italy did not prove to be so satisfactory as contemporaries had expected. T h e companies thought that they did not get a large enough share of the operating profits and began asking for additional amounts. Furthermore, they had discovered that some of their most lucrative undertakings were in the building of new lines and they realized that opportunities of this nature were coming to an end. On the part of the state, there were those who felt that the companies were getting too much from what was a public utility and that state operation would help to assuage the demands of socialists. Moreover, they were strongly of the opinion that the state could deal more satisfactorily than private companies with labor unions, which had early begun to organize railway workers and had a propensity for striking. 16 Hence when the first renewal date arrived in 1905, the Conventions were abandoned by mutual consent and the state took over the operation as well as the ownership of the railways—at least of 14,782 kilometers of them, valued at five billion lire, leaving 2,296 kilometers still in private hands. Although Italy had as much travail in getting its railways built as did any of the Western European countries, it finally accomplished • T h e s e proportions were altered if the receipts exceeded 112 million for the Mediterranean and 110 million for the Adriatic. They were different, too, for Sicily. • • Incidentally, these were inspired by French plans adopted first in 1859.

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the task. T h e process, was, as has been mentioned, a stimulus to economic activity and to the development of new techniques. Moreover, Italy made some i m p o r t a n t contributions to the industry, particularly in the construction of tunnels and bridges which were needed in such large numbers. T h e M o n t Cenis or Fréjus T u n n e l of 13.6 kilometers, the first to be driven with p n e u m a t i c drills, was opened in 1871. T h i s passageway began a new era in Italian communications with E u r o p e beyond the Alps a n d made possible such dramatic services as the Valigia delle Indie via Italy, a fast trainship-service between London and India. T h e Saint G o t t h a r d , of 14.9 kilometers, was opened in 1882 and increased traffic with Switzerland and Germany. And the Simplon, 19.7 kilometers (the longest in Europe), was opened in 1906.* Furthermore the railways did tie Italy together, as had been expected, and they gave a mobility to people, goods, and communications that was revolutionary. T h e r e was a great extension of travel and transport, of the telegraph system, which was clearly connected with railroads, and of the mail service. G R O W T H OF RAILWAY TRAFFIC IN ITALY

1872 1891 1903

Passengers carried one kilometer 1,203,655,438 2,122,608,773 2,885,515,548

Tons of freight carried one kilometer 677,894,479 2,037,874,546 2,572,574,307

* For 1890. A slight change in the method of calculation of the statistics was made in 1900.

In fact, the n u m b e r of letters sent increased f r o m 108 million in 1861 to 484 million in 1894 and to 1,515 million in 1914 and the n u m b e r of private telegrams from 100,000 in 1861 to 7.9 million in 1894, and to 21 million in 1914. H e r e was a veritable revolution which facilitated a greater division of labor.

THE MERCHANT MARINE

As important as railways were in the creation of a foundation for the economic development of Italy, shipping was considered at the • T h e second longest in Europe is the tunnel between Bologna and FlorenceGalleria dell'Appennino. It is 18.5 kilometers and was opened in 1934.

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time of unification also to be crucial to the growth of the new nation. Analogies from the history of Italy made strong arguments for such a belief. Rome had achieved its high place in the world by dominating the Mediterranean and by drawing upon its littorals for foodstuffs and raw materials—and fell from its pinnacle of power when its control of the sea was lost. In fact, the Dark Ages in the West were, at least in part, attributed to a decline of commercial intercourse in the Mediterranean and the Renaissance was believed, also in part, to have been made possible by a revival of commerce, especially by Venice, Genoa, Florence, and Pisa. 17 In addition to the lessons of history, however, the advantages, if not the necessity, of a well-developed merchant marine were clear, if Italy were to develop economically. With so much coastline, with the long north-south haul, and with many usable ports, coastwise shipping was able to carry cheaply and efficiently goods and passengers between many parts of the nation. With the need for importing so much in the way of raw materials and the sale abroad of finished products to pay for imports, distant carrying was perforce necessary and, Italians argued, should be done by themselves to save on payments to foreign carriers. And lastly, a strong merchant marine was essential in order to provide a basis for a military marine— and with so much coastline Italy had to control the seas around her, or be allied to the power or powers which did, or be prepared to take the consequences.* In the first half of the nineteenth century the merchant marines of the various Italian states had a reasonably good record. T h e fleet of the Kingdom of the T w o Sicilies doubled from 1829 to 1859 and at the latter date consisted of 2,988 ships comprising 212,965 tons; and that of the Kingdom of Sardinia also grew, in 1859 its ships numbering 2,920 of 215,661 tons. Indeed, the total fleet of United Italy in 1862 was 9,413 vessels of 654,174 tons, of which 57 were steam vessels displacing 10,228 tons. T h i s made the Italian fleet the • T h e vulnerability of Italy to the sea is an old, old story, going back to ancient times. Napoleon was never complete master of Italy because he could not control the seas a r o u n d it. O n e of the considerations which led Italy to join the Entente powers in the First World W a r was the fact that they dominated the Mediterranean. T h e foolishness of p u r s u i n g a contrary policy was made clear by Italian experience in the Second World War.

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third in Europe after England and France, the fleets of the German states not yet having been brought together by political unification. Furthermore, the shipping industry was not concentrated in the North, as were so many of the more prosperous branches of the economy, but had a healthy regional distribution. Also there were at least two strong and well-managed companies in the shipping industry, the Ditta Ignazio and Vincenzo Florio of Palermo, and the Società Rubattino of Genoa. 18 T h e r e was an enterprising spirit illustrated by the first steamship built in the Mediterranean being launched at Naples in 1818—the "Real Ferdinando"—and by the founding of the Transatlantica Company in 1857 for the building of steam and sail vessels to provide regular services to New York and Montevideo.* And at least the Kingdom of Sardinia had well-established policies for supporting their merchant fleets by contracts for maintaining specified services, including postal services. At the time of unification the statesmen of the day not only realized the importance of merchant shipping to Italy, but they let their enthusiasm for a great Italy carry them away in this field, as they did in so many others. From the outset they assumed the responsibility of paying those subsidies agreed to by the constituent states, and in addition launched a new program of governmental aid. They agreed to make loans without interest to shippers in order to get more tonnage, a program which resulted in quickly giving Italy 40 new vessels and contributed to raising the total tonnage to 1,012,164 in 1870, and to tripling the amount of steam tonnage by the same date. Furthermore, the founding fathers gave financial assistance to shipping companies on condition that they provide additional carrying services. Among those thus aided was the Società Anglo-Italiana Adriatico-Orientale, which had a regular run from Venice to Egypt. Its franchise was for 15 years, but was not renewed because the company was foreign. Its ships were the first out of • Ships in the service to New York were to have Genoa as their home port. They were to touch at Marseilles, Barcelona, Malaga, Gibraltar and Madera. T h e outward voyage was to take 22 days. Similarly the ships on the Montevideo run were to have numerous ports of call. T h e i r outward voyage was to take 38 days. T h e Transatlantica was to get a subsidy from the Kingdom of Sardinia for each voyage in the sum of 22,000 lire for New York and 30,000 lire for Montevideo. T h e company lost two of the four ships in 1859 and abandoned the New York run. It closed its doors shortly after unification.

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Italy to employ compound steam engines. T w o others also aided were the Trinacria, which developed a service to the Levant, but which lasted only from 1869 to 1876, and the G. B. Lavorello, for a service to America, which also was of short duration. For many reasons the Italian merchant marine ran into troubled financial waters in the 1870s a n d remained in them for a long time to come. In the first place, the public was beginning to show a marked preference for steamships instead of sailing vessels, and, as we shall shortly see, Italy had a weaker competitive position in steam than in sail. Steamships were able to maintain schedules with a greater degree of regularity than were sailing vessels, for they were more independent of the weather and they could be navigated much more easily than sail in some areas, like the Suez and the Red Sea, which became i m p o r t a n t arteries of commerce after the opening of the Canal in 1869. Nevertheless, sail and steam were able to compete with one another for some time, for there were serious drawbacks to steam vessels. Until the middle of the nineteenth century the single-acting steam engines used in vessels were so inefficient that a ship could bunker only enough coal for very short voyages and had in any case to devote so m u c h of its cargo carrying space to machinery and fuel that it had little left for pay-loads. In fact, in the first half of the nineteenth century steam was employed mainly on short hauls where the traffic was heavy and later as a supplement to sail on longer runs. N o t until the c o m p o u n d engine was developed, which employed the steam coming from driving one engine to drive a second and a third, were economies effected that made the use of steam feasible for long hauls. T h i s type of engine came into use in Italy in 1862, b u t even after that date, steam vessels on very distant routes, like those to the East, had to have coaling stations at various intervals and coaling stations were expensive to establish and to maintain. Moreover, improvements were made in sailing vessels (the clipper ship is a good example), which increased their speed and maneuverability. T h e race between sail and steam was thus a hard fought one, but already in the 1860s there were indications that steam would eventually win, for in that decade the rate of growth of steam tonnage was greater than that of sail. T h e n in the 1870s the world tonnage

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75

of sail began to fall especially in the more profitable branches of water carrying, which was clear evidence of the final outcome of the struggle. Indeed, by 1890 world tonnage was only three-fourths that of steam, and by 1914 it was less than one-twelfth. While this transition was being made, a shift from wooden vessels to hulls of iron and then of steel was taking place. And as this shift occurred larger ships became possible, Italian steam vessels averaging 179 tons in 1862 and almost 1,000 tons in 1914.* This meant, in turn, new yards in which to build the larger vessels, deeper harbors, and larger docks. Unfortunately for Italy, these changes placed her under serious competitive handicaps. In the first place, much new capital, of which Italy was notoriously short, was needed in both shipbuilding and shipping, for steam vessels were much more expensive than sailing ships and so too were the port facilities which they required. Second, although Italy had timbers for wooden vessels and canvas for sails, she was short of iron and steel plates, did not at first produce a sufficient number of steam engines, and had inadequate facilities for producing auxilliary gear. And what she did produce of these things was high priced, particularly after the tariff of 1887 which gave protection to the metallurgical industry. T h i r d , because Italy was dependent on other areas for technology in shipbuilding in this period and made no important contributions of her own, her ships were usually technically less advanced than those of her competitors. Fourth, because of high priced construction and technical inferiority, many Italian shippers bought vessels abroad, 1 9 and many shipbuilders were unable to get enough orders to maintain a steady schedule of production, which meant that their yards were not fully utilized and that their labor force was dissatisfied. Last, the increased use of steam and steel led to a greater need for coal, which Italy had to import at high prices. Indeed, Italy's imports of coal went up from 240,000 metric tons in 1861 to 4,696,000 in 1894, and to 10,834,000 in 1913, which meant a deficit in foreign trade that amounted in 1880 to 40 million lire out of total merchandise imports of 1,000 million. 20 In addition to these handicaps occasioned by the shift from sail • In 1876, 64.6 per cent of Italian ships were under 1,000 tons, but in 1913 only 1S.8 per cent were under this size.

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to steam, Italian shippers faced other serious difficulties. For one thing, foreign carriers—the Austrians from Trieste, the French from Marseilles, and all others passing from the Atlantic to the Black Sea, the Near East, or to the Suez and beyond—could call at Italian ports without going much out of their way, whereas Italian carriers had as a rule to make detours to call at foreign ports, except for Spain. Then, Italian shippers engaged in coastwise trade suffered from the competition of railways which were built u p and down the peninsula and could reach nearer to more points of final destination than could ships. And those who concentrated in shipping to the islands, to Sardinia and Sicily, did not prosper because of the lack of economic development in both places and consequently the lack of cargo. As though the plight of Italy's shippers and shipbuilders was thus not bad enough, it was to become even worse as a result of economic depressions which cut drastically the country's already relatively small foreign commerce. In 1874, an economic slump began that was to last until the late 1870s, during which the value of foreign trade fell by 12 per cent and freight rates on some products by as much as 50 per cent. 21 T h e n from 1888 to 1893 there was another crisis, including a tariff war with France, which brought foreign trade down by 20 per cent, and had such serious results that there were severe social disturbances. Unfortunately these two deep downswings in economic activity and in prices came at crucial times for Italian shippers and shipbuilders. They coincided with the shift from sail to steam and thus added to the existing bearishness of investors in putting their funds into these industries. T h e second one came at the time when emigration was beginning on a large scale and found the Italian shipping industry so ill-equipped that it could not handle this lucrative business. In the light of all these difficulties it is little wonder that the Italian merchant marine did only 45 per cent of the carrying in and out of Italian ports in 1871 and that this percentage declined to 21 in 1894.22 Given these conditions and the desire of leading statesmen that Italy have a strong merchant marine, it is not surprising that the state pursued a policy of assistance to shipbuilding and shipping

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77

which undoubtedly aided in preventing the situation from getting worse than it was.* As we have already seen, the state began after unification to give annual sums to shippers who would maintain schedules on certain runs or perform certain services, like carrying the post. T h e n somewhat later, it gave tax advantages, including rebates on materials imported, for the construction of iron and steel ships and bounties per ton for the building of all types of vessel. T h e sums thus provided were, however, small and 'had little effect. So, when the impact on Italian shipping of the economic crisis of 1874 and years following began to be clearly discernible, the state greatly expanded its shipping subsidy program. In 1877, it adopted a policy of giving subventions to shippers who would maintain certain services, like those to India and South America, which would be adequate, based on the shippers' own balance sheets, to provide a "reasonable return" on capital invested. T h e main beneficiaries of this plan were two well-established companies—Florio of Palermo and R u b a t t i n o of Genoa, which merged in 1881 to form the Navigazione Generale

Italiana. Coastwise shipping did

not

benefit from the 1877 plan. T h e new company had 89 ships in the year of its creation with a total tonnage of 67,029 and was the second largest shipper in the Mediterranean, being surpassed only by the Messageries Maritimes of Marseilles. Subsequently it grew until in 1904 it had a tonnage of 224,142, but it did not keep its fleet up-to-date (in 1904, 72 of its 102 ships were between 20 and 4 0 years of age); it charged high rates, and gave indifferent service. In fact, the Navigazione Generale in order to get into emigrant trade had two subsidiaries, L a Veloce and l'ltalia, the second of which it acquired from the HamburgAmerican Line. Inasmuch as the 1877 system of aid did not revitalize either the Italian shipping or shipbuilding industry—nor even the company that got the lion's share of the favors—a new plan was adopted in 1885 (law of December 6). It provided for the continuation of aid by means of contracts for the performing of specified services, but • T h e position of French shipping and shipbuilding was not unlike that of the Italian, and the two countries adopted similar remedial policies, with France usually leading the way.

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in addition it gave both navigation and construction bounties. T h e former were designed to favor Italian ships in international competition and thus omitted aid to vessels in the coastwise trade. They were granted to ships for distances covered beyond Suez or Gibraltar, if the vessels met certain specifications and if they carried certain minima of cargo or passengers. Moreover, this aid was guaranteed to last for a 10-year period so that shippers could expand their facilities with a knowledge that they would be getting help. And the navigation bounties were also meant to encourage Italian shippers to buy Italian-built ships, for navigation bounties were not to be paid on foreign built vessels until they had flown the Italian flag for at least a year. A special bounty was given for carrying coal. Subsidies for the building of Italian ships provided, as previously, for the rebate of duties paid on imported materials needed in construction and for payments of specified amounts per ton of displacement. These latter sums favored iron-steel vessels, being four times for this type of ship those given to wooden-sailing vessels, and special bounties were provided according to horsepower for steam engines, according to weight for boilers, and according to specifications which would allow the ships to be used in case of emergency for military purposes.* T h e law of 1885 proved to have little effect on the growth of either shipping or shipbuilding. T h e rebates on duties paid for materials used in construction were an admission that the metallurgical and machine industries in Italy were being protected and maintaining high prices on what they provided to builders. Construction bounties were not enough to bring Italian prices for ships down to a point where they were commensurate with English prices. And navigation bounties turned out to be of assistance primarily to sailing vessels, for these vessels could afford to go on long voyages with little cargo in order to earn the subsidies because their costs of operation were low. In spite of the poor results of the subsidy plan of 1885, the government thought that the basic principles of the arrangements were * T h e actual amounts were 60 lire per gross ton for iron and steel vessels, 15 lire for wooden-sail ships, 10 lire per horsepower of engines, and 6 lire per quintal of boilers.

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sound and that what was essentially needed was to increase the amount of the assistance. Accordingly rates were raised in 1888 and 1889, but when they did not appear to be accomplishing the desired task, aid was given through lucrative contracts in 1893 and then by means of very generous subsidies in 1896. As previously, contracts were granted for the maintenance of shipping services between stipulated points, in the hopes that these services would open up new markets for Italian goods and in time become profitable enough to operate without aid. Thus the Apulia Company was given a contract for a service that went from the Italian Adriatic coast to Dalmatia and Albania and then on to Egypt, the Red Sea, and India. T h e Nederland Company (of Dutch nationality) was paid for going from Genoa to Batavia, a run which it was expected would be taken over eventually by an Italian company. And the Navigazione Generale, still the chief beneficiary of the "aid by contract system," received subsidies for a whole network of services, especially in the Mediterranean and the Atlantic. Under the new contracts—which required governmental expenditure of the not insignificant sum of 12 million lire—the contracting companies had to use vessels which met certain specifications regarding steam and steel construction; in addition, the contracts stipulated that given percentages of the fleets of the Italian companies be Italian built. The subsidy plan of 1896 continued the existing practice of giving both bounties for distances covered in navigation and for the construction of vessels in Italian yards, but these forms of aid were not only much more generous, as has been mentioned, but were given on very specific conditions. Thus navigation bounties were extended to cover shipping in the Mediterranean, even coastwise shipping, as well as that beyond Suez and Gibraltar, but subsidies were graduated so that they became less as ships got older, were higher on Italian-built vessels than on foreign built, favored steam over sail, and were greater for the long hauls to the East or to the Americas where competition was greater than on short hauls in the Mediterranean. And construction bounties were not only generally larger than previously, but they, too, were graduated to favor steamsteel vessels over sail.

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At last it seemed that the government had devised an effective system of aid. At least the response to the law was much more than had been anticipated. U p to December 31, 1900, the amount of 13,842,000 lire had been paid out in navigation bounties, of which 3 million lire were to sail, 8 million lire for construction subsidies, and 2 million in customs rebates. Construction in Italian yards had gone up from an average of 7,113 tons per year in the years prior to the law to 63,294 tons in 1900. And new companies, the more important of which were the Società Veneziana di Navigazione a Vapore (1900) for a service from Venice to Calcutta,* the Lloyd Italiano (1904) for the emigrant trade, and Lloyd Sabaudo (1906) for general shipping, came into being in some instances, it was believed, primarily to get the governmental handouts. As can readily be imagined, the shipping subsidy plan of 1896 received a considerable amount of criticism on the grounds that it resulted in too large governmental expenditures and that both shippers and shipbuilders had too much of a good thing. T h e n there were others, especially those of the liberal school of economics, who frowned on subsidies as a matter of principle on the ground that the Italian shippers should be able to compete with foreigners. There were the socialists who wanted the state to desist from aiding capitalism by props of this kind and who advocated state ownership and operation of the shipbuilding yards and of the entire merchant marine. And there were those within the industry who wanted state aid to take the form of contracts for services rendered. Opposition to the arrangements of 1896 was great enough to be able to cause changes, albeit somewhat gradually. In 1901 it was decided that limits would be placed on total amounts to be paid out in any one year, and this principle of limitation was maintained until 1913. Furthermore, the subsidy rates were reduced in 1911 and 1913, and at the later date it was decided to abolish them altogether by 1915. And many of the contracts for services and postal carrying were opened to competitive bidding, which led the Navigazione Generale to restrict its operation and even to sell some of its ships to the winners of the bids. • I t hail a contract for this r u n t h a t gave it an a n n u a l subsidy of 1.1 m i l l i o n lire.

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GROWTH

In spite of these changes, however, state aid to shipping from 1900 to the First World War was sizable. From 1901 to 1911, 14 million was paid out in navigation bounties under the 1896 plan and 34,764,000 lire under other laws. In all, from the founding of the unified Italian state to 1914 the Italian government aided the shipping industry in the amounts of 500 million lire through contracts and 166,789,000 lire through subsidies. 23 This generous assistance certainly facilitated the shipping and shipbuilding industries to effect what was for Italy the difficult transition from sail to steam. T h e country acquired a fleet which was twice that of 1862 and capable of carrying, displacement ton for displacement ton, much more in a year than could the sailing vessels of the earlier period. Yet Italy was unable to maintain its earlier position in international comparisons. Its fleet fell to sixth place among European powers in 1914, had a decline in its percentage of European tonnage from 7.4 per cent in 1875 to 4.7 per cent in 1895, and to 3.5 per cent of world tonnage in 1914, and at the latter date was accounting for but 31 per cent of the traffic in Italian ports. What the results would have been without state aid, it is impossible to say, but probably they would have been much worse than what they were with it. N E T TONS OF SHIPPING IN ITALY

Steam 1862 1872 1882 1892 1902 1912 1914

10,228 37,860 104,719 201,443 448,404 762,274 934,396

Sail 443,946 992,913 885,285 609,821 570,403 374,835 337,262

Percentage under 10 years of age

Percentage steam constructed in Italy

48.2 50.0 27.4 27.5

6.7 3.4 (1885) 22.7 (1900) 30.9 (1913)

Source: E p i c a r m o Corbino, II protezionismo marittimo, pp. 105, 110, 111, a n d his Statistica Marittima (Naples: 1944). Also Sommario di statistiche italiane, 1861-1955 ( R o m e : I s t i t u t o Poligrafico dello Stato, 1958), p. 138.

THE FERROUS METAL INDUSTRY

T h e building of the merchant marine and even more the construction of the railways were, as has already been emphasized sev-

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eral times, a great stimulus to Italy's process of economic growth. They not only helped in the development of institutions that were essential for effecting savings and investment, for organizing business enterprise, and for creating an extensive division of labor, but they also gave a fillip to industries which produced materials directly for them, notably ferrous metallurgy and the machine trades.24 As can be seen from the accompanying table, these last two industries grew, respectively, 20 and 9 times in the period from 1861 to the First World War and among major industries were rivaled in growth only by the chemicals, rubber, and electricity. By 1914 the metallurgical and machine trades together were more important, measured by value added, than any other single branch of industry. They helped Italy in effecting the great transition from wood to steel—one of the important technological changes in the economy from 1870 to 1914. Yet, strategic as these industries were in Italy's economic growth, they were small by comparison with those of England, Germany, or the United States. In 1901 they constituted but 12 per cent of the country's manufacturing production, while Germany's contributed 26 per cent. In 1861 Italy produced but 26,551 tons of pig iron and 30,000 tons of wrought iron to England's 3,890,000 tons of pig iron in 1860 and 215,000 tons of steel in 1870. And although by 1894 Italian production was 10,329 tons of pig iron, 111,729 tons of wrought iron, and 54,614 tons of steel,* these amounts seem dwarflike beside England's 8,960,000 tons of pig iron in 1890 and 3,260,000 tons of steel in 1895. Moreover, Italy was an importer of ferrous metals and machines throughout this period, importing in 1861, 36,700 metric tons of scrap and pig iron, 59,600 tons of steel and wrought iron, and 4,900 tons of machines, and in 1894, 276,500 tons of pig iron and scrap, 84,100 tons of steel and wrought iron, and 23,200 tons of machines. There is little doubt that one of the major reasons for Italy's slow economic growth in this period was precisely the weak state of all these industries. They were not great enough to make the country a real industrial leader nor a major military power. The chief reasons for Italy's backwardness in the metallurgical • Italy hit a high steel production in 1889 with 157,899 tons. This was not surpassed until 1903.

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83

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APPENDIX

573

APPENDIX TABLE 8. PERCENTAGE RATE OF ANNUAL G R O W T H OF INVESTMENTS AND CONSUMPTION Investments Gross Net Consumption 1874-1893 2.74 4.47 Oil 1894-1913 7.75 11.18 2.08 1920-1939 4.09 4.47 1.38 1951-1958 7.03 8.39 4.13 Source: Benedetto Barberi, "Aspetti dinamici e strutturali di un secolo di sviluppo economico dell'Italia," L'economia italiana dal 1861 al 1961, p. 668. APPENDIX TABLE 9. PERCENTAGE RATE OF G R O W T H OF CAPITAL IN AGRICULTURE AND IN O T H E R SECTORS (annual means) Total Agriculture Other sectors 1874-1893 0.95 0.61 1.30 1894-1913 1.50 1.35 1.65 1920-1939 2.10 1.50 2.58 1951-1958 3.37 1.16 4.73 Source: Benedetto Barberi, "Aspetti dinamici e strutturali di un secolo di sviluppo economico dell'Italia," L'economia italiana dal 1861 al 1961, p. 676.

APPENDIX ho

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