October 2016 newsletter – Marcello de Cecco

Marcello de Cecco was widely celebrated as an authority on the evolution of the international monetary system. His most famous book is Money and Empire. The International Gold Standard, 1890-1914 (Blackwell, 1974). A first version of the book was published in Italian by Laterza in 1971, with the title Economia e finanza internazionale dal 1890 al 1914. A later version was Einaudi’s Moneta e impero (1979). The argument by de Cecco was original and provocative, and is nicely anticipated in the two quotes opening the book. The first (only in the Einaudi edition, and slightly inaccurate) is from Oscar Wilde’s The Importance of Being Earnest: ‘Cecily, you will read your Political Economy in my absence; the chapter on the Fall of the Rupee you may omit. It is somewhat too sensational.’ The second was from Codex Justinianus: ‘By no means will gold be given to the barbarians, but rather, if amongst them any is found, get as much of it out of them as possible, with subtle ingenuity’.

By the end of the 19th century the system of the gold standard was becoming fragile. Britain had manufacturing exports in decline relative to GDP (due to competition from the United States and Germany), while becoming a capital exporter: it remained, however, dependent on the world market for raw materials and on the Empire as an outlet. Britain enjoyed a monopolistic position thanks to non-tariff protection, while the Empire had a trade surplus relative to the rest of the world, but a deficit relative to Britain as a centre. The exception was India, because it succeeded in having a trade surplus, which was deposited in London. As Marshall and Keynes had very clearly in mind, this created the conditions for an effective gold exchange standard surrounding the gold standard. India became the pivot of the international settlement system, allowing Britain to square her trade accounts with the rest of the world.

De Cecco debunked the myth of the gold standard. As in the first two decades of the 19th century, Britain was now a case of free trade imperialism: laisser faire was maintained in the letter but not in the spirit. The gold standard has never been ‘automatic’: monetary policy was as discretionary as ever — thanks exactly to its impurity. When the price of silver relative to gold started to fall, and with enduring commodity price deflation, monetary reforms and revolutions in financial institutions characterised every country and area. The gold exchange standard works only if the power of the centre vis-à-vis the periphery is unchallenged, something which was fading away; in the meantime the reforms muted the system into a ‘pure’ gold standard. The system was destabilised. The international financial setting had become polycentric and oligopolistic, with the US acting as a financial colony realising its trade surplus in gold. In the same British financial system a few all-purpose banks displaced merchant bankers and discount houses, and eroded the position of a Bank of England still conducting banking activities. Even before the War, when the risk of a European conflict materialised, the internal tensions caused the collapse. The tree felled by the crisis was already rotten.

Money and Empire captures de Cecco’s worldview. His approach was historical, aware of institutions and actual developments, but also theoretically informed and moving from the preoccupations of the present: ‘every history is contemporary history’. In Schumpeter’s terminology, he was in fact a living testimony of the power of ‘monetary analysis’ versus ‘real analysis’. De Cecco championed Friederich List as the intellectual antagonist to Ricardo's static and abstract international monetary views, where theory was identified with reality. Adding dynamism and history, the German economist inquired into the true causes of the wealth of nations, and saw in economics one of the arts of statesmanship. Increasing returns and asymmetries among nations lead to List’s view of modernisation as ‘revolution from above’: his recipe was state intervention, and the blending of protectionism and corporatism. But he was not an ‘arch-protectionist’. De Cecco fully understood that opposing free trade and protectionism as polar opposites is meaningless: free trade is a form of economic policy, and protectionism is appropriate in some stages of economic growth.

De Cecco was born in Rome in 1939, the 17th of September, and died in Rome the 2nd of March 2016. He graduated in Law (Parma) and Economics (Cambridge). He taught at the Universities of Norwich, Siena, the European University Institute (Florence), La Sapienza (Rome), at the Scuola Normale Superiore (Pisa) and at LUISS (Rome). He collaborated with the Historic Research Office of the Banca d’Italia. His columns in ‘Affari e finanza’, the weekly supplement of La Repubblica, will remain as lucid commentary on economic developments.

His 1967 book, Saggi di politica monetaria (Essays on monetary policy), included four essays. The first, about the international gold exchange standard 1944-1965, prefigured his main area of research. The other three are jewels of a politically informed account of Italian monetary policy since the late 1940s until the early 1960s (the dynamics of money supply; the evolution of its financial structure; the 1947 stabilisation policy). Though the rational trend for the continental banking system should be towards a corporative planning, the governors of the Bank of Italy fostered liberalisations, favoured small banking, and neutralised the State in a reprivatised Italian financial system. The brutal anti-inflationary stabilisation promoted by Luigi Einaudi in 1947 proclaimed the peculiar attitude of Italian economic policy: malign neglect of Keynesian unemployment (and fatalistic acceptance of low capacity utilisation rates); migration as the only envisaged solution for structural unemployment; and accumulation of gold and/or reserves as the overriding target. The Marshall Plan was dramatically underutilised, and Italy escaped stagnation only thanks to the international boom induced by Korean War, to the State investments in early 1950s and the later export-led drive.

De Cecco came back again and again to the mid-1960s as a fundamental juncture. Italy’s half-century long decline was triggered by the inability of the Italian bourgeoisie to build a forward-looking answer to distributive conflicts and the competitions of new areas. First the restrictive monetary policies, then the stop-and-go policies, cut the ground under industry. Big firms engaged in an ‘accumulation without investment’. De Cecco provided an original ‘Ricardian’ argument to account for the following years of sustained workers' struggle: though the labour market registered increasing rate of unemployment, firms’ labour demand concentrated on the core section of the male workers’ labour supply, those able to tolerate dramatic increases in labour intensity. The sequence of devaluations of the Italian Lira deepened a vicious circle in which Italian firms specialised in low-tech, labour-intensive small firms. De Cecco supported fiscal expansionary policies, without embracing the idea of the unconditional positivity of an explosion of the public debt like in the 1980s.

Dissatisfaction with the policy combination of devaluation with high public debt explains why de Cecco favoured European monetary unification for a long while, even though he knew quite well the contradictions of the euro. The single currency was a French project resisted by Germany, which coupled trade mercantilism to money/credit neo-mercantilism: a self-defeating zero-sum approach. He particularly insisted on the deadly combination of national dynamic of public debts with international liberalisation of the government bond market. He also lamented the lack of a common fiscal policy, and thought a solution was a federal Europe. He questioned current accounts disequilibria as the cause of the crisis: it is a contradiction to strive vigorously towards monetary union and consider national current account deficits and surpluses as important policy variables.

He told me once that in another country he would have been recognised for what he was, an ‘enlightened conservative’. There was a grain of truth, but also a passion for provocative paradoxes. In a 1977 paper he called Ricardo and Keynes enlightened conservatives who lived in troubled times. Labour was marginal and workers secondary (though capable of revolt) in both authors: the real protagonists were capitalists, financiers or rentiers. Capital accumulation in Ricardo and full employment in Keynes were means of social stabilisation: the solution was cheap food in Ricardo, cheap money (plus State direct investment) in Keynes. But in fact de Cecco was always careful never to divorce his inquiries about power and economics from a civil democratic (and even patriotic) engagement. Those who met him, as well as those who read him, know that he had a lot of fun.

De Cecco leaves his wife, Julia Bamford (Professor of English Language at the Orientale University, in Naples), two sons, Vincenzo and Francesco, and three grandchildren.

Riccardo Bellofiore
Università di Bergamo