Dip Into Gold

One of the major moves by which Benito Mussolini jacked his country above the status of a second-class power was to put the lira, previously a wobbly joke currency, squarely on gold (TIME, Jan. 2, 1928). Soon at Pesaro the Lira Monument was reared, cut deep with II Duce's promise to defend the gold lira to the last drop of Italian blood. Since then nothing has occurred to convince the Dictator that any other statesman who inflates, debases or trifles with currency values is not dead wrong. Last week with U. S. President Roosevelt, British Prime Minister Baldwin and Japanese Premier Okada all wrong in Benito Mussolini's opinion, he found it excruciatingly difficult to keep on being right. Cut-rate dollars, cut-rate pounds, cut-rate yen and the rest of the Great Powers' goods-dumping moves have provided such keen competition for Italian exports that not even the most drastic dictating has been able to achieve for Italy a favorable balance of trade. Her excess of imports over exports for the first five months of this year was 1,157,000,000 lire ($95,552,500). Today II Duce is seeking a solution by the conquest of Ethiopia reported by recent geological surveys to be gratifyingly rich in precious metals, oil and other untapped earthly riches (TIME, Feb. 25). He was last week ready literally to defend the lira with Italian blood. Abruptly by a super-drastic step he placed Italy's entire gold resources under his Dictator's thumb.

By Paragraph I of Article IV of the Royal Decree of Dec. 21, 1927 not even II Duce himself could reduce the gold cover behind Italy's lira below 40%. Last week the purchase of war supplies had piled up at the Bank of Italy half a billion lire ($41,250,000) worth of bills on which foreign munition makers demanded prompt payment. To have sold enough lire on foreign exchange to meet these bills would have broken the market for the lira, forced its devaluation. This could be avoided by paying out half a billion in gold from the Bank of Italy's reserves of five and a half billions. Though a desperate expedient, such withdrawal of gold from behind the lira would, paradoxically, prevent its fall on foreign exchange, because the world markets would not be glutted with lira offerings. With regret

Il Duce handed to King Vittorio Emanuele

III and the monarch signed last week a fresh royal decree "suspending temporarily" the 40% gold coverage requirement in the decree of Dec. 21, 1927. They both felt so badly about this that the new decree was not published in the Italian Press, promptly stirred hornets' nests of gossip wherever Italians gathered.

"Ten Billions!" Results were that Dictator Mussolini formally assumed the absolute discretion over Italy's gold most foreigners had supposed he always possessed; shipments of munitions to Italy continued at lowest gold cash prices; the lira, after falling nearly 1/2-c- on international exchange last week, bounced back; and activity quickened furiously on Italy's bourse. Fiat motors rose from 394 lire to 401; Snia-Viscosa rayon from 401 to 410 and Montecatini mines from 188 to 193. These movements of course reflected fear by Italians that eventually the lira will be forced off the gold standard. Abroad many a headline writer splashed ITALY GOES OFF GOLD TO PAY FOR WAR! Actually Italy has not been on a true gold standard for some years, and last week's decree did not unhook the lira from its pegged relation to gold which II Duce has sworn to defend, and Italian Government bonds, after weakening, closed a week's end at their previous levels. In the money marts of London, Manhattan and Paris wiseacres opined that a year or more may pass before the lira lapses into danger of being forced off its peg.

Efforts by Rome correspondents to simplify the situation led to a round of rumors that "Mussolini's war is likely to cost ten billion lire" ($825,000,000). This "inside figure" was based on nothing more profound than multiplying by the extremely convenient figure ten the sum II Duce says he has already spent on belligerent preparations, namely one billion lire ($82,500,000). The budget of Italy has not balanced throughout Depression, and the public debt, which stood at 97 billions ($8,002,500,000) two years ago, has now topped 105 billions.

Thus far this year Dictator Mussolini's moves have produced an Italian boomlet with the index of general production at 106.8% of the country's prosperous year 1928. Not wholly confined to war industries, since II Duce presses on relentlessly with his Fascist public works, the index has risen also in peaceful trades, soaring to 184% of 1928 activity in the building sector. Unemployment, which stood at 1,160,000 in January 1934, was down to 750,000 last week, due partly to army recruiting, partly to the boomlet's creation of more work and partly to spreading it thinner by introduction of the 40-hour week last October. The general price level, which II Duce has tried to force down (TIME, May 30, 1927 et seq.) has risen some 15%. Wages, more obedient to dictation, are down 20%.

The general Italian economic picture last week was thus one of strong crosscurrents. Conservative in keeping the lira pegged, II Duce remains liberal in expenditures for social service, radical in his policy of war preparedness at any price. Profoundly influenced by Niccolo Machiavelli, the great Florentine who understood Italians better than anyone else, Dictator Mussolini considers that in an hour when all investments are bad, the best is to speculate on a program of conquest or, better still, obtain Ethiopia by intimidation. No leader ever fell and no people ever revolted or were basically unhappy, Il Duce feels, while they were expanding their frontiers.

*That is, in French which Mussolini speaks fluently but Starace not at all.

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