Sorrentino, Marina
(2006)
The gold standard and the Great Depression in Italy.
MPhil thesis, London School of Economics and Political Science.
Abstract
Italy was in the Gold Standard between December 1927 and its de facto exit in December 1934. Furthermore from the late 1929 it was affected by an economic crisis comparable to those of other European countries, from which it started to recover significantly only in 1935. Hence, it would seem that as long as its currency was pegged to gold, the country was not able to recuperate from the Depression. In this study, the credibility of the commitment to the gold peg in the eyes of the international financial markets and the consequences of the crisis and thus also of the exchange rate policy in the industrial labour market have been investigated, also in the attempt to highlight the implications of the country's dictatorial political regime. It has been found that international financial markets anticipated a devaluation of the Italian currency from the autumn 1929. These estimated expectations seem consistent with the evidence gathered from documents of the time (both from archival sources and from the financial press). However these opinions do not appear to have been based on the usually considered macroeconomic variables. It has been argued that it may have been the dictatorial nature of the political regime to induce this markets' behaviour. Moreover despite the fact that during the Depression real labour costs do not seem to have increased beyond productivity in the industries more sheltered from international competition, further substantial reductions in nominal wages both in these industries and in those more exposed to international competition appear to have been needed to keep labour demand at its pre-crisis peak. It has been argued that the Fascist government may have refrained from using more its powers to cut wages at least partly because the industries it was more interested in were less affected by problems of rising real labour costs and because it could have been worried that further decreases in factory workers' living standards could have generated social instability. Both the evidence on financial markets' expectations on the Italian lira-gold parity and that on the industrial labour market support the assertion that an earlier currency devaluation, accompanied by expansionary polices, could have been beneficial.
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