Italy had suffered for more than twenty years under Mussolini’s Fascism, which inflicted high rates of taxation, wage and price controls, and government-owned industries upon the people. These Fascist economic policies crushed any hopes for a democratic society, or for the free expression and discussion of opinions and ideas.
After the war, and after the fall of Mussolini and his Fascism, Italians worked toward having a truly democratic society. The instrument they would use to build this society was the free market.
The Fascists had imposed a sort of ‘crony capitalism’ or ‘state capitalism’ which was a ‘planned economy’ or a ‘command economy.’ To undo the harm caused by Fascism, a different direction was needed: a laissez-faire economy, in which the government didn’t intervene to control wages or prices, in which tax rates were kept low, and in which the government didn’t own a significant percentage of the means of production.
An economist named Luigi Einaudi was a leader in the restoration of Italy as a free society. Under his leadership, Mussolini’s high Fascist tax rates were reduced, Keynesian economics were rejected, and public expenditures as a percent of GDP shrank. The lira, which was a sad joke on the international currency markets of the 1970s and 1980s, was valued and reliable during the 1950s and 1960s.
From approximately 1945 to 1965, Italy enjoyed a social and economic renaissance, much of it due to the leadership of Luigi Einaudi, as historian Piercamillo Falasca writes:
Luigi Einaudi’s influence was crucially important. A careful monetary policy curbed inflation for at least twenty years (in 1959 the Financial Times celebrated the lira as the most stable Western currency); free-trade agreements helped Italy to re-enter the international market; a fiscal reform (the Vanoni Act, named for the minister who designed it) cut tax rates and simplified the tax collection system. In an era dominated by Keynesian ideas and easy spending, Italian public expenditure remained relatively controlled: in 1960 public expenditure barely reached the level of 1937 (30 percent of GDP, with a significant share of fixed-capital investments), whereas in other European countries it had risen dramatically.
The deep philosophical underpinning of Einaudi’s thought rested, in part, on his view of human nature. This is true of any political, social, or economic system: whatever one believes about human nature will dictate how one attempts best to structure communal life.
Long before Einaudi, thinkers like Adam Smith had explored various differing archetypes like ‘the prudent man,’ ‘the self-made man,’ or ‘the good family father.’ Einaudi ruminated on these and other paradigms, as historian Alberto Giordano writes:
Einaudi very often stressed the importance of another model, the independent entrepreneur who, at his own risk and following the intuition of his genius, opens new roads for himself and for mankind. We cannot explain, Einaudi writes many times, the legitimacy of profits and the very idea of progress — though moral, political or merely economic — without relying on this peculiar character.
These different personalities can interact with each other in a market economy. If they have more freedom to negotiate and voluntarily settle with each other, then not only will prosperity increase for all parties, but a more democratic society will result.
The amazing postwar recovery of Italian society and the Italian economy reveals the conjunction of free societies with free markets: democracy and civil liberties thrive in a laissez-faire environment.
