Interlude: It's the economy stupid
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Excerpt from Mussolini: The Rise and Reign of Il Duce by Christopher Hibbert (2008)
By the spring of 1941, the world stood on fire—but Italy, paradoxically, was beginning to thrive. While bombs fell on London and tanks were about to rumble through the Ukrainian steppe, Mussolini's neutral Italy emerged not as a bystander, but as an economic colossus in gestation. At the center of this unexpected revival was the quiet return of an old name: Alberto De Stefani.
Reinstated as Minister of Finance in September 1939, De Stefani—a classical liberal economist ousted in the 1920s—was not Mussolini's typical appointee. He was no fiery Fascist grandstander. Instead, he was a dry-eyed technician of markets, statistics, and supply curves. And he arrived in Rome with a singular mission: to untangle the web of inefficiencies, controls, and corporate bloat that had strangled the Italian economy since the onset of autarky.
De Stefani's reforms were sweeping. The wartime emergency was used not to entrench the state, but to liberate the market. Price controls on basic goods were abolished in early 1940, allowing farmers and producers to respond to demand rather than quotas. State-owned enterprises deemed non-essential were quietly privatized, particularly in textiles, food processing, and light manufacturing. The infamous Battaglia del Grano, once a nationalist obsession, was scrapped. Italy began importing Canadian wheat through Swiss intermediaries, with Mussolini's De Stefani's blessing.
Tax policy was overhauled to reward capital investment. Corporate taxes were slashed, particularly for firms that produced machinery, transport vehicles, or military supplies. A new "Strategic Investment Fund" offered state-backed loans for factory modernization and infrastructure development, with priority given to ports, railways, and oil refining. Labor laws were relaxed, giving firms more flexibility to hire and fire, but with increased wage protections for skilled workers—particularly engineers, machinists, and logisticians. De Stefani believed industrial labor, not peasant labor, was the soul of the modern empire.
Neutrality, far from being an economic anchor, became a windfall. Italy's ports—Trieste, Genoa, Naples—became Europe's arteries of wartime trade. German exports, bound for South America and the Middle East, flowed through Italian docks and were repackaged under neutral flags, often Greek or Turkish. For this privilege, Germany paid handsomely. Entire railway lines were nationalized solely for Axis goods, with tariffs negotiated by Mussolini himself. One Allied diplomat dubbed it the "Black Transit Gold"—Italy made billions in lira, marks, and Swiss francs.
Even the Allies traded, albeit discreetly. Through Turkish and Greek intermediaries, British and even Soviet agents purchased Italian chemicals, steel components, and machine tools. All neutral. All deniable. The Vatican, with its global financial web, played a silent but vital role in laundering transactions.
Perhaps most striking was how Mussolini balanced this economic revival with his military modernization, often walking a tightrope between rearmament and restraint. Where Hitler used conscription and forced labor, Mussolini relied on incentives. Military contracts were auctioned, not commanded, with competition encouraged among private firms. Fiat, Ansaldo, Breda—all were made to bid for government contracts under a new Ministry of Military Procurement, headed by the technocratic Italo Marchesi.
Rather than build weapons for show, De Stefani's team emphasized modular production and standardization. Army logistics officers worked directly with civilian factories to ensure compatibility. The new M13/40 tanks, for example, used interchangeable parts with Italian civilian tractors—a deliberate policy to simplify repair and reduce costs.
Rationing was avoided by importing food through neutral trade and leveraging Italy's new colonial resources. Libya's ports boomed with traffic from Syria and Somalia, and agricultural production in Tunisia—now an Italian province—was redirected to support both civilian and military needs. Italian settlers and Jewish immigrants alike were incentivized to farm, with generous subsidies and transport links.
Mussolini also pulled off a feat few had thought possible: mass integration without mass unrest. Arabs in Tunisia and Libya, granted Italian citizenship and military service eligibility, formed a new class of skilled laborers and colonial troops. Jewish settlers in Tripolitania, many from Germany and Poland, were granted tax breaks and autonomous schooling. The economy became a polyglot creature—Italian in rhetoric, but multinational in function.
The Italian Labor Front was transformed from a propaganda vehicle into a recruitment and training hub, establishing technical institutes in Naples, Palermo, and Benghazi. "Romanitas," Mussolini declared in a 1940 speech, "is not race—it is capacity."
By mid-1941, Italy's GDP had grown nearly 15% since 1939—astonishing in a time of global war. Unemployment in the north had fallen to its lowest level since the 1920s, and industrial output had increased by 22%. Inflation remained low, buffered by gold inflows and De Stefani's cautious monetary policy.
Critics in London and Washington remained skeptical. They saw Mussolini's maneuverings as cynical, opportunistic, or simply lucky. But within Italy, a different story emerged. Mussolini—by accident or instinct—had fused free market liberalism with a rationalized military-industrial state. Not as ideological purity, but as cold logic.
As Hibbert notes in his biography:
> "In these years, Mussolini ceased to be the caricature. He became something stranger. A man with the ambitions of Caesar, but the instincts of Rockefeller. He shouted less, calculated more. And while Europe burned, Il Duce quietly built a machine of state that could endure fire without becoming ash."
It was, in the words of one British economic observer in 1941, "the most unlikely miracle of the war."
By the spring of 1941, the world stood on fire—but Italy, paradoxically, was beginning to thrive. While bombs fell on London and tanks were about to rumble through the Ukrainian steppe, Mussolini's neutral Italy emerged not as a bystander, but as an economic colossus in gestation. At the center of this unexpected revival was the quiet return of an old name: Alberto De Stefani.
Reinstated as Minister of Finance in September 1939, De Stefani—a classical liberal economist ousted in the 1920s—was not Mussolini's typical appointee. He was no fiery Fascist grandstander. Instead, he was a dry-eyed technician of markets, statistics, and supply curves. And he arrived in Rome with a singular mission: to untangle the web of inefficiencies, controls, and corporate bloat that had strangled the Italian economy since the onset of autarky.
De Stefani's reforms were sweeping. The wartime emergency was used not to entrench the state, but to liberate the market. Price controls on basic goods were abolished in early 1940, allowing farmers and producers to respond to demand rather than quotas. State-owned enterprises deemed non-essential were quietly privatized, particularly in textiles, food processing, and light manufacturing. The infamous Battaglia del Grano, once a nationalist obsession, was scrapped. Italy began importing Canadian wheat through Swiss intermediaries, with Mussolini's De Stefani's blessing.
Tax policy was overhauled to reward capital investment. Corporate taxes were slashed, particularly for firms that produced machinery, transport vehicles, or military supplies. A new "Strategic Investment Fund" offered state-backed loans for factory modernization and infrastructure development, with priority given to ports, railways, and oil refining. Labor laws were relaxed, giving firms more flexibility to hire and fire, but with increased wage protections for skilled workers—particularly engineers, machinists, and logisticians. De Stefani believed industrial labor, not peasant labor, was the soul of the modern empire.
Neutrality, far from being an economic anchor, became a windfall. Italy's ports—Trieste, Genoa, Naples—became Europe's arteries of wartime trade. German exports, bound for South America and the Middle East, flowed through Italian docks and were repackaged under neutral flags, often Greek or Turkish. For this privilege, Germany paid handsomely. Entire railway lines were nationalized solely for Axis goods, with tariffs negotiated by Mussolini himself. One Allied diplomat dubbed it the "Black Transit Gold"—Italy made billions in lira, marks, and Swiss francs.
Even the Allies traded, albeit discreetly. Through Turkish and Greek intermediaries, British and even Soviet agents purchased Italian chemicals, steel components, and machine tools. All neutral. All deniable. The Vatican, with its global financial web, played a silent but vital role in laundering transactions.
Perhaps most striking was how Mussolini balanced this economic revival with his military modernization, often walking a tightrope between rearmament and restraint. Where Hitler used conscription and forced labor, Mussolini relied on incentives. Military contracts were auctioned, not commanded, with competition encouraged among private firms. Fiat, Ansaldo, Breda—all were made to bid for government contracts under a new Ministry of Military Procurement, headed by the technocratic Italo Marchesi.
Rather than build weapons for show, De Stefani's team emphasized modular production and standardization. Army logistics officers worked directly with civilian factories to ensure compatibility. The new M13/40 tanks, for example, used interchangeable parts with Italian civilian tractors—a deliberate policy to simplify repair and reduce costs.
Rationing was avoided by importing food through neutral trade and leveraging Italy's new colonial resources. Libya's ports boomed with traffic from Syria and Somalia, and agricultural production in Tunisia—now an Italian province—was redirected to support both civilian and military needs. Italian settlers and Jewish immigrants alike were incentivized to farm, with generous subsidies and transport links.
Mussolini also pulled off a feat few had thought possible: mass integration without mass unrest. Arabs in Tunisia and Libya, granted Italian citizenship and military service eligibility, formed a new class of skilled laborers and colonial troops. Jewish settlers in Tripolitania, many from Germany and Poland, were granted tax breaks and autonomous schooling. The economy became a polyglot creature—Italian in rhetoric, but multinational in function.
The Italian Labor Front was transformed from a propaganda vehicle into a recruitment and training hub, establishing technical institutes in Naples, Palermo, and Benghazi. "Romanitas," Mussolini declared in a 1940 speech, "is not race—it is capacity."
By mid-1941, Italy's GDP had grown nearly 15% since 1939—astonishing in a time of global war. Unemployment in the north had fallen to its lowest level since the 1920s, and industrial output had increased by 22%. Inflation remained low, buffered by gold inflows and De Stefani's cautious monetary policy.
Critics in London and Washington remained skeptical. They saw Mussolini's maneuverings as cynical, opportunistic, or simply lucky. But within Italy, a different story emerged. Mussolini—by accident or instinct—had fused free market liberalism with a rationalized military-industrial state. Not as ideological purity, but as cold logic.
As Hibbert notes in his biography:
> "In these years, Mussolini ceased to be the caricature. He became something stranger. A man with the ambitions of Caesar, but the instincts of Rockefeller. He shouted less, calculated more. And while Europe burned, Il Duce quietly built a machine of state that could endure fire without becoming ash."
It was, in the words of one British economic observer in 1941, "the most unlikely miracle of the war."