INTRODUCTION

The Italian financial stabilization of 1947–48 has provoked a heated controversy among economists and historians. The debate revolves around three related issues: the economic wisdom of deflation, its political-ideological motivation, and the role of external forces, in particular, of the United States. The first issue has generated the most discussion yet is probably the easiest to resolve. Keynesian and left-wing critics have tended to endorse De Cecco's judgment that “… from September 1947 to the outbreak of the Korean War, the authorities' conduct was totally inexcusable.” This school contends that the liberal economists pursued misguided policies in defiance of the latest economic science. They mistakenly presumed that the economy was operating at full capacity, and their monetary stringency condemned the country to a wasteful, needless depression. Devaluation alone, according to some, would have sufficed to spur exports and augment essential imports and reserves, thus easing inflationary pressures. The stubborn pursuit of tight money in a period of high unemployment and excess industrial capacity is impossible to justify on economic grounds alone.

Einaudi's defenders, on the other hand, have argued more convincingly that Keynesian doctrine did not apply to an economy still dominated by a large agricultural sector and suffering from extensive dislocation, shortages, and other bottlenecks. Devaluation, accompanied by the stimulation of internal demand, would have induced a flood of imports at higher prices, bringing renewed inflation and severe pressure on limited foreign currency holdings.