How to Pay for the War: Military Spending and War Funding in Italian Economic Thought (1890–1918)

This essay examines Italian Economic thought regarding military spending and war finance between the end of colonial expansion and the end of the World War I. In the last decades of the nineteenth century, most Italian economists held anti-militarist opinions. In particular, the Giornale degli Economisti proposed a reorganization of the national army in the direction of reducing costs and inefficiencies, acquiring a central role for liberal and democratic political components unfavourable to rearmament and colonial expansion. The defeat at Adua (1896) marked the peak of militant anti-militarism among Italian economists. This antimilitarist front was broken only at beginning of the twentieth century, when the colonial problem came to the fore in the context of economic expansion, under Giolitti’s governments. In this new political context (concluded with the Italian conquest of Libya, in 1911), military spending was utilized to support the growth of national industry, and public opinion, motivated by nationalist groups, began to show consensus on colonial expansion. Italian economists focused attention on the colonial economy and the financial means required for the war effort. The experience of the Libyan colonial war was at the basis of Federico Flora’s essay on war finance, the first systematic treatise on this topic published in Italy (Flora, 1912). Flora proposed a pragmatic view of the problem of war finance, in contrast with ‘Smithian dogmatism’, predominant among Italian economists. The experience of World War I confirmed Flora’s opinion that modern conflicts could be subsidized only with great expansion of the public debt, in the form of loan and paper-money circulation. However, most economists proposed again, during and after the war, Smithian dogmatism as the best financial policy (Einaudi, 1914; Pantaleoni, 1916).