They say that only the Greeks know what tragedy is. Wish that it were so. Italians, too, can speak of their own great tragedie. In fact, they are on the verge of an economic one right now. The country's financial future lies in the balance. But what should Italy do? They should look to the past, and stop repeating bad habits.
From 1859 to 1914, the Italian nation went heavily into debt. Perhaps eager to glorify the new Italian state on the world stage, politician promised the Italian populace anything and everything that a modern state could supply. Public schools, roads, infrastructure, the “Regio Esercito” (The Royal Italian Army) – all were handsomely paid for by issuing government bonds. No social desire was left unsatisfied. No public work was spared.
The result: In June 1914, on the eve of World War I, Italy’s debt was a staggering 15,766,000,000 lira. The debt was so great in fact that one-half of all Italian government revenue had to be used to service the interest on that debt.
Italy’s 20th century was beginning amid mountains of debt.
Those same mountains of debt are with Italy today. According to the latest news, Italy has a debt of just over 1.8 trillion euros. Italy’s debt-to-GDP ratio stands at 120%.
Can we compare 1914 Italy with Italy's current problems?
Professor James MacDonald’s book A Free Nation in Debt: The Financial Roots of Democracy gives us a clue: He says, in essence, that we should use sound money to make the comparison.
The term lira comes from the Latin word libra, meaning “pound.” It was a term of measurement and the substance it measured was real money – gold and silver. But by the early 20th century, however, the Italian lira was no where near equal to a pound. In fact, after centuries of debasement and devaluations, an Italian lira was only set at 4.5 grams of silver.
Therefore, in 1914, Italy was actually in debt by 70,947,000,000 silver ounces. In today’s value, that silver would be the equivalent of 1,830,432,600,000 euros. (In US dollars, it would be $2,600,917,020,000).
The conclusion is undeniably striking: in real terms, Italy's debt burden today is virtually the same as it was back in 1914.
The implications of this knowledge are two fold: First, it demonstrates the irrefutable fact that silver (like gold) has an immense storage-of-value ability. In fact, it is more than just an ability; it is its very nature to be uncompromisingly stable. Not even 100 years of Italian war and debt and political turmoil could shake silver of its monetary steadfastness. It is, as they say, argento massiccio.
Despite the best efforts of Italian monetary authorities to devalue away debt (when the country still used the lira) and despite depreciation in the euro over the last decade, according to silver, Italy is in exactly the same debt situation as it was close to a century ago.
For the sake of the Italian people, let's hope that the country's debt burden actually falls over the next 100 years when measured in sound money.
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