When Liberals Fell in Love With Benito Mussolini

Today marks 100 years since Benito Mussolini became Italy’s prime minister. His first governments pursued austerity and suppressed the labor movement — earning him the praise of liberal economists both in Italy and abroad.

The first session of the Benito Mussolini's council of ministers. Mussolini is at the end of the conference table; Minister of Finance Alberto de Stefani is two seat to Mussolini's right. (Ullstein Bild via Getty Images)

When we speak of concepts like “totalitarianism” and “corporatism,” it is often assumed that fascism stands very far from the liberal market society that went before it, and which we are still experiencing today. But if we pay closer attention to Italian fascism’s economic policies, especially during the 1920s, we can see how some combinations typical of both the last century and our own were experienced already in the first years of Benito Mussolini’s rule. A case in point is the association between austerity and technocracy. By “technocracy,” I refer to the phenomenon whereby certain policies that are common today (such as cuts in social spending, regressive taxation, monetary deflation, privatizations, and wage repressions) are decided by economic experts who advise governments or even directly take over the reins themselves, as in several recent cases in Italy.

As I explain in The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism, Mussolini was one of the greatest champions of austerity in its modern form. This was in large part because he surrounded himself with the authoritative economists of the time, as well as champions of the emerging paradigm of “pure economics” — still today the basis of mainstream neoclassical economics.

Just over a month after the Italian fascists’ March on Rome in October 1922, the parliamentary votes of the National Fascist Party, the Liberal Party, and the People’s Party (or the popolari, a Catholic party and predecessor of Christian Democracy) introduced the so-called “period of full powers.” In so doing, they granted unprecedented authority to Mussolini’s minister of finance, economist Alberto de Stefani, and his colleagues and technical advisers, in particular Maffeo Pantaleoni and Umberto Ricci (unlike the former two, a man of liberal ideology).

Mussolini offered these economic experts the opportunity of a lifetime: to mold society on the ideal of their models. From the pages of the Economist, Luigi Einaudi — celebrated as a champion of liberal anti-fascism and, in 1948, the first president of Italy’s postwar democratic republic — enthusiastically welcomed the authoritarian turn. “Never was such absolute power entrusted by a Parliament to the Executive . . . The renunciation by Parliament of all its powers for so long a period was received with general cheers by the public. Italians were sick of talkers and of weak executives,” he wrote on December 2, 1922. On October 28, on the eve of the March on Rome, he had declared: “Italy needs at the helm a man capable of saying No to all requests for new expenditure.”

The hopes of Einaudi and his colleagues were fulfilled. Mussolini’s regime implemented bold reforms promoting fiscal, monetary, and industrial austerity. These changes worked in unison to impose hard toil and sacrifices from the working classes and ensure the resumption of the capitalist order. This order had been widely challenged in the previous biennio rosso (red two years) by numerous popular uprisings and sophisticated experiments in postcapitalist economic organization.

Among the reforms that succeeded in silencing any drive toward social change, we can mention the drastic reduction in welfare spending, the dismissals of civil servants (over sixty-five thousand in 1923 alone), and the increase in consumption taxes (VAT at the time, regressive because paid mainly by the poor). These sat alongside the elimination of the progressive tax on inheritances, which was accompanied by an increase in interest rates (from 3 to 7 percent from 1925 onward), as well as a wave of privatizations which scholars such as economist Germà Bel have termed the first large-scale privatization in a capitalist economy.

Moreover, the fascist state implemented coercive labor laws, which drastically reduced wages and banned trade unions. The final defeat of workers’ aspirations came with the Labor Charter of 1927, which closed off any avenue for class conflict. The Charter codified the spirit of corporatism, the aim of which, in Mussolini’s words, was to protect private property and to “reunite within the sovereign state the pernicious dualism of the forces of capital and labor” which were seen as “no longer necessarily opposed, but as elements that should and could aspire to a common goal, the highest interest of production.”

Finance Minister De Stefani hailed the Charter as an “institutional revolution,” while liberal economist Einaudi justified its “corporatist” definition of wages as the only way to mimic the optimal results of the competitive market in the neoclassical model. The hypocrisy here is stark: economists, so adamant in protecting the free market against the state, had little problem with repressive state intervention in the labor market. In Italy there was an uninterrupted fall in real wages that lasted for the whole interwar period, a unique trend among industrial countries.

International Enthusiasm

Meanwhile, the rising rate of exploitation ensured a surge in profit rates. In 1924, the London Times commented on the success of fascist austerity: “the development of the last two years have seen the absorption of a greater proportion of profits by capital, and this, by stimulating business enterprise, has most certainly been advantageous to the country as a whole.” This is the typical narrative capable of promoting and gaining acceptance for austerian doctrines even today: ordinary people’s consent to sacrifices is built on the rhetoric of the common good.

In short, at a time when most Italian citizens were demanding major social changes, Austerity required Fascism — a strong, top-down government that could impose its nationalist will coercively and with political impunity — for its prompt success. Fascism, conversely, required austerity to solidify its rule. Indeed, it was the draw of austerity that led the international and domestic liberal establishments to support Mussolini’s government even after the Leggi Fascistissime [literally: “most Fascist Laws”] of 1925–6 that installed Mussolini as the nation’s official dictator.

The Economist, for example, which on November 4, 1922, sympathized with Mussolini’s aim of imposing a “drastic cutting down of public expenditure” in the name of the “the crying need for sane finance in Europe,” rejoiced in March 1924: “Signor Mussolini has restored order, and eliminated the chief factors of disturbance.” In particular, “wages reached their upper limits, strikes multiplied.” These were the factors of disturbance, and “no government was strong enough to attempt a remedy.” In June 1924, the Times, which called fascism an “anti-waste” government, praised it as a solution to the ambitions of the “Bolshevist peasantry” in “Novara, Montara, and Alessandria” and “the brutal stupidity of these folk,” seduced by “experiments in so-called collective management”.

The British embassy and the international liberal press continued to rejoice at Mussolini’s triumphs. The Duce had succeeded in bringing together both political and economic order — the very essence of austerity. As archive papers show, at the end of 1923 the British ambassador to Italy reassured observers in his country that “foreign capital had overcome the not unjustified diffidence of the past, and was once again coming to Italy with confidence.” The diplomat often emphasized the contrast between the ineptitude of Italy’s post–World War I parliamentary democracy — deemed unstable and corrupt — and the efficient economic management of Minister De Stefani:

Eighteen months ago, any instructed observer of national life was bound to come to the conclusion that Italy was a country on the downgrade. . . . It is now generally admitted, even by those who dislike Fascismo and deplore its methods, that the whole situation has changed . . . a striking progress towards the stabilization of State finances … strikers [decreased] by 90 percent and working days lost [decreased] by over 97 percent and an increase in national savings of 4,000 [million lire] over the preceding year; indeed they exceed for the first time the prewar level by nearly 2,000 million lire.

The celebrated successes of austerity in Italy — evaluated in terms of industrial peace, high profits and more business for Britain — also had a repressive face, which went far beyond the institutionalization of a strong executive and the circumvention of parliament. The embassy itself reported numerous brutal actions: the constant assault on political opponents; the burning down of socialist headquarters and labor chambers; the dismissal of numerous socialist mayors; the arrest of communists; and many other notorious political murders, the most important of which was the killing of the socialist parliamentarian Giacomo Matteotti.

But the message was unequivocal: any concern about fascism’s political abuses vanished in the face of the successes of its austerity. Even the champion of liberalism and governor of the Bank of England Montagu Norman, after expressing distrust of a state like the fascist one under which “anything in the way of otherness” had been “eliminated” and in which “opposition in any form [was] gone,” added: “this state of affairs is suitable at present and may provide for the moment the administration best adapted for Italy.” Similarly Winston Churchill, at the time head of the British treasury, explained: “Different nations have different ways of doing the same thing. . . . Had I been an Italian, I am sure that I should have been with you from start to finish in your victorious struggle against . . . Leninism “

Both Norman and Winston Churchill pointed out in their private and public comments how illiberal solutions inconceivable in their own country could well apply to a “different” and less democratic people like those of Italy, with “double standards” that contemporary readers might well recognize.

Indeed, even when liberal observers raised doubts, these were not of concern for democracy, but rather for what would happen without Mussolini. In June 1928, Einaudi wrote in the Economist that he feared a vacuum of political representation, but even more so a collapse of the capitalist order. He spoke of the “very grave questionings” in the minds of the Englishmen:

When, again, in the inevitable course of nature the strong hand of the great Duce is removed from the helm has Italy another man of his calibre? Can any age produce two Mussolinis? If not, what next? Under weaker and less wise control may not chaotic revulsion follow? And with what consequences, not merely for Italy, but for Europe?

The international political world became so enamored of Mussolini’s austerity that it rewarded the regime with the financial resources it needed to further solidify the country’s political and economic leadership, in particular by settling the war debt and stabilizing the lira, as recounted in Gian Giacomo Migone’s classic The United States and Fascist Italy.

The ideological and material support that the Italian and international liberal establishment provided to the Mussolini regime was certainly no exception. In fact, the mixture of authoritarianism, economic expertise, and austerity inaugurated by the early “liberista” (economically liberal) fascism has had many epigones: from the employment of the “Chicago Boys” by Augusto Pinochet’s dictatorship, to the support of the “Berkeley Boys” to Suharto’s dictatorship in Indonesia (1967-1998), up to the dramatic experience — recently back in the limelight — of the dissolution of the USSR.

In that instance, the government of Boris Yeltsin effectively declared war on Russian legislators who opposed the IMF-backed austerity agenda that Yeltsin courted to stabilize the Russian economy. The peak of Yeltsin’s assault against democracy came in October 1993, when the president called in tanks, helicopters, and 5,000 soldiers to rain fire on the Russian Parliament. The attack killed more than 500 people and left many more wounded. Once the ashes settled, Russia was under unchecked dictatorial rule: Yeltsin dissolved the “recalcitrant” Parliament, suspended the constitution, shut down newspapers, and jailed his political opposition. Much as it did with Mussolini’s dictatorship in the 1920s, the Economist had no qualms in justifying Yeltsin’s strongman actions as the only path that could guarantee capital order. The famous economist Larry Summers, who served as a Treasury official during Bill Clinton’s administration was adamant that, for Russia, “the three “-ations” — privatization, stabilization, and liberalization — must all be completed as soon as possible. Maintaining the momentum of reform is a crucial political problem.”

Today, these same liberal economists do not make concessions to their own compatriots. Larry Summers is on the front line in advocating for monetary austerity in the USA, where he prescribes a dose of unemployment to cure inflation. As always, the solution of mainstream economists is require working people to absorb the lion’s share of hardship through lower wages, longer workdays, and welfare cuts.