The Economics of High Wages and the Policy Implications: Francesco Saverio Nitti’s Contribution

The aim of this paper is twofold. First, it aims at providing a reconstruction of Francesco Saverio Nitti’s theory of the functioning of the labour market and economic development. It will be shown that Nitti’s view is based on the conviction that the increase in production ultimately depends on State intervention, in the form of labour market regulation above all, while the increase in public debt has counterproductive effects. He predicts a wage-led growth regime which operates ‘on the supply side’, conceiving the functioning of a capitalist economy as intrinsically dynamic, and taking into account both purely economic arguments and sociological and psychological effects. Second, a reconstruction will be made of the links existing between Nitti’s theories and his policy prescriptions. It will be shown that these ideas were at the basis of Italian economic policy at the beginning of the 20th century, with particular reference to public intervention aimed at contrasting the increasing interregional divergences between Southern and Northern Italy, labour market regulation and the management of public finance.