RIVISTA « Rivista di storia economica» DI STORIA ECONOMICA Founded by Luigi Einaudi in 1936 Second Series Volume 2 1985 Second Series International Issue Editors: Luciano Cafagna, Università di Pisa; Pierluigi Ciocca, Banca d'I- talia; Gianni Toniolo, Ca' Foscari, Università di Venezia. Editoria! Board: Paul Corner, University of Reading; Stefano Fenoaltea, Swarthmore College; Giangiacomo Nardozzi, Università di Firenze; Giuseppe Tattara, Ca' Foscari, Università di Venezia; Vera Zamagni, Università di Firenze. PAOLO BAFFI Foreign Correspondents: Paul Bairoch (Switzerland), Université de Ge- The Bank of Italy and Foreign Economists, nève; Jon Cohen (Canada), Scarborough College, Toronto; Antonio Go- mez and Gabriel Tortella (Spain), Universidad de Alcala de Henares; 1944-53: A Personal Memoir * Peter Hertner (Federai Republic of Germany), Istituto universitario eu- ropeo, Firenze; Maurice Lévy-Leboyer (France), Université de Paris X, Nanterre; Patrick O'Brien (United Kingdom), St. Antony's College, Oxford; William Parker (United States), Yale University; Herman Van der Wee (Belgium), Katholieke Universiteit te Leuven. Of my thirty five years at the Bank of Italy between the Editoria! Assistant: Michela Crosato. resumption of my post in June 1944 and my resignation as Manuscripts, books for review, and other editoria! materiai should be sent Governar in October 1979, these periods stand out in my mind to: Gianni Toniolo, Rivista di storia economica, Dipartimento di Scien- as those in which a Keynesian demand boost was actively con- ze Economiche, Ca' Foscari, Università di Venezia, 30123 Venezia te!. (041) 27861. sidered: 1948-49, the last nine months of 1951 (following the col- lapse of the Korean boom), 1958, 1964 and 1975. The present Enquiries about subscriptions and other administrative matters should be essay extends the analysis of the first two of these episodes con- sent to: Rivista di storia economica, Giulio Einaudi editore in a. s., 1 via Biancamano 1, 10121 Torino te!. (oII) 53 36 53. tained in an earlier piece, drawing attention to some of the 1986 Subscription Price: $ 35. cultura! influences that shaped our thinking those first two times the issue was raised. The Rivista di storia economica publishes, in Italian, three issues a year. The International Issue, which appears annually with the generous financial In the wake of the new Bank law of March 1936, Governar aid of the Banca d'Italia, presents, in English, a selection of the papers Azzolini had strengthened the Research Department of the Bank published over the year. of Italy, recruiting Campolongo, De Vita, Di Nardi and myself; a number of other promising young people were assigned to the Supervision Agency. The Research Department was further ex- panded aver the following thirteen years, and around 1948-49 its staff included accomplished scholars like Caffè, Ercolani, * An earlier version of this paper was presented at the Conference on Keynes in ltaly held at the Faculty of Economics and Commerce of the University of Florence onJune 4, 1983. For their comments on that draft I am particularly grateful to Vin- Contents cent M. Barnett jr., Edward M. Bernstein, Federico Caffè, Pierluigi Ciocca, An- tonio D'Aroma, Michael G. Dealtry, Sir John Hicks, Albert O. Hirschman, Lucio Izzo, Andrew M. Kamarck, Libero Lenti, Franco Mattei, Cesare Merzagora, Paul Paolo Baffi, The Bank of Italy and Foreign Economists, r944-5J: A Persona! N. Rosenstein-Rodan, Mario Sarcinelli, Sergio Steve, and Paolo Sylos Labini. Many Memoir p. r. of these individuals were partici pants in the events described below, and some of Michael D. Bordo, The Impact and International Transmission of Financial their comments and observations are reproduced in the notes. Fora number of ar- Crises: Some Historical Evidence, r870-r933 p. 41. chival sources I owe particular thanks to Ada Rossi and to the publishers Einau- di, Laterza, and Neri Pozza, whose goodwill is greatly appreciated. For her bibliographic assistance I would like to thank Dr. Maria Vittoria Ercolani. The Continued on inside back cover quotations from Italian texts and letters have been translated into English. 2 Paolo Baffi The Bank of Italy and Foreign Economists, 1944-53 3 Guidotti, Masera, Occhiuto, Parravicini, Rosania, and others. Our relations were friendly, but we did not hold working Department, and became friends with O'Brien, future governor seminars; and the habit of discussing the draft chapters of the of the Bank. Bank's Annua! Report, 2 both among ourselves and with the - Directors, was then just beginning. This paper cannot therefore The liberation of Rome found Grafftey-Smith, about to be speak to the views on demand management of the Department as promoted to Brigadier Generai, in the Allied Contro! Commis- a body (though I shall referto it as "we"), but remains rather a sion as Chief Financial Officer. Three delegates from the persona! memoir, documenting events as I remember them and as American armed forces (Henry Tasca, Andrew Kamarck, George they emerge from my private papers. Willis) had arrived at the Bank, meanwhile, and were eager for I shall begin from before 1948, both to recali the problems documentation on Italy. Others would also come to the Research which occupied us rather more, at the time, than the less urgent Department with frequent requests for informa!ion: for exam~le, one of expanding demand, and because the turning-point of my Hans Landsberg of the OSS (now in Washmgton as Semor life-the appointment to head the Research Department, and, Fellow Resources for the Future) and Hans Cohrssen, former shortly after that, the meeting with Einaudi-occurred in 1944-45. assista~t of Irving Fisher, of the Psychological Warfare ~oard. My familiarity with English, acquired over a long sen~s of As a student, I had had in 19 3 1 the opportunity to hear Sir translations, and my training in statistics helped me form fnend- William (later Lord) Beveridge, then Director of the London ships with these men also. School of Economics. Campolongo and I were together in Lon- With the transfer of the centrai admm1strat1on of the Bank to don, with scholarships from the Bocconi University of Milan. I the North, retirements, and impending purges, the Research was much struck at the time by the sight of the W elsh miners Department was short of personnel at th!s time. (',.sa result: and tramping in single file along the edge of the sidewalk singing thanks also to the cordial relations I enJoyed wlth the Alhes, I mournful dirges and begging pennies, and of the laid-up ships and was left at the head of the Department despite my comparatively stilled cranes in the port. low rank. Meanwhile, a court of "justice" brought Azzolini's During the next five years, I reviewed various works by career to a dramatic end, just as my own would end, some_ thirt~- Beveridge and Keynes, among others, for the Giornale degli five years later. His replacement in Januar~ ~945 by Emaud1, Economisti. who had shown an mterest in some of my wntmgs of the 1930s, Having moved to Rome, I read Keynes' s Generai Theory for consolidated my anomalous position. the first time; but when in September 1938 Arena invited me to There was considerable enthusiasm for joint cultura! proJects transiate it I was weary of translation work, and let the task pass with the Americans, among them a "review of reviews" and a to Campolongo' (whose translation proved second to none). ' new Carnegie Foundation series on the history of the war. The While serving in the war, I took advantage of my leaves (due latter was discussed with Gino Luzzatto and Ugo La Malfa. The principally to the public loan campaigns) to reread the work. I Foundation had invited Tasca to put forward proposals; but after made a long summary of it, with comments and digressions, discussions with Carnegie officials Hirschman warned us that the which incorporated the interpretations of the more difficult project was stillborn, because the Foundation was w_holly preo~- passages that were emerging from discussions with Dominedò, a cupied with the problem of the ~tomie bomb. A de~1vat1ve proJ- former colleague at the Bocconi Institute of Statistics (directed ect a series of volumes on Italy s postwar economie problems, by Giorgio Mortara) who was a much stronger mathematical wa~ instead partially realized. This project won the support of economist than I. I later lent this thick dossier to Mario Zagari, Einaudi who entrusted it to Bresciani Torroni. The series even- and it was lost, with many other papers, when he was arrested for tually idcluded monographs by Coppola ~l'_A?na on reconstruc- anti-fascist activities in the autumn of 1943. tion, by Medici on agricolture, by Parrav1cm1 on the banks, and Meanwhile, two further study trips to London (in 1937 and by Steve on the fiscal system.' My own volume, on the bal~~ce of payments was never completed, in part because my pos1t1on 1939) had allowed me to visit with the Overseas and Foreign at the Rese~rch Department kept me busy with a number of Department of the Bank of England, testing and deepening my other tasks. book knowledge of the City. I met Grafftey-Smith, head of the I was then involved in the reorganization of the Department, 4 Paolo Baffi The Bank of ltaly and Foreign Economists, 1944-53 5 with its attendant human problems, and in the preparations far Resistance, the economy and its prospects. Our mission lasted a the overprinting of bank-notes or some other farm of currency month and resulted in reports sent to both Washington and renewal. I was also a member of the Treasury Commission far - Rame. During that month Einaudi and Soleri carne to Milan, to financial reconstruction, where currency renewal was intensely prepare the extension to the North of the loan identified with debated; and I had to research, and discuss with the Allies Soleri's name.