reading of classical texts on economic liberalism, was no secret to anyone inside the bank of italy. to understand the central bank ’ s modus operandi in those years we must consider the powerful influence exerted by the predominant economic culture. it was not a market culture. its influence, combined with vested interests, often directed economic policy towards solutions that did not follow the market. in italy, keynesianism only acquired a foothold in academia towards the middle of the 1960s and the version that gained credence among policy - makers had a distinctly more dirigiste flavour than that prevailing internationally : not only did economic policies to support demand earn plaudits from politicians and economists, but more generally, above and beyond the actual keynesian propositions, they saw broad government intervention in economic activity, especially investment, as the means of perpetuating the growth of the 1950s. development, industrialization and social and distributive conflict were the issues that attracted the best minds and the vision of political leaders. what was asked of monetary policy was to produce growth, capital formation, the narrowing of the gap between italy and its european partners, and balance - of - payments equilibrium. price stability was a secondary concern. the autonomy of the central bank was not viewed as essential to stability. in italy, interest focused on the real economy ; the role of money, the causes and effects of inflation were not common subjects of inquiry. baffi ’ s studies on money thus constitute a notable exception. the discussions that franco modigliani had in 1967 with the top management of the bank of italy during the development of the econometric model exemplify the difficulty of describing the problems of monetary policy at that time using today ’ s language and criteria. in those meetings governor carli defined the bank ’ s main objective as that of fostering a sufficient level of income to allow investment that would close the distance between italy and the other members of the european economic community. 4 the governor mentioned price stability only as a subordinate aim, and it was interpreted, moreover, solely as alignment with the level of international prices, that is to say an objective for the defence of competitiveness. the pre - eminence of the objective of price stability did not have formal sanction ; it was not shared by public opinion, nor was it comprehended in academic and political circles. monetary management was increasingly entrusted to administrative controls on credit, namely the ceiling on the growth in bank lending ( introduced in 1973 ) and

nationalism transformed into anti - semitism. what interests us here, however, is the fact that baffi attributed his sound judgement at the time to a “ diet of classical texts of economic liberalism ”. 1 this left an enduring mark on his training as an economist that was reflected in his subsequent theoretical output, less so in his policies, which were influenced by the formidable constraints existing during his time as governor. economic liberalism, according to luigi einaudi, was not so much an economic doctrine as a way of reasoning, which takes an apparently simple rule and, through systematic use of theory, derives indirect and distant effects that are often the opposite of their proponents ’ intentions. undoubtedly, one of the main characteristics of baffi ’ s thinking was his focus on indirect effects, on the links between the various elements of the economic system. his concern to make plain the relation between real and financial phenomena was at the root of the “ national monetary balance sheet ” developed in the aftermath of the war, the embryo of today ’ s financial accounts. in 1953 baffi was a member of the committee appointed to pronounce on the reform of iri ’ s bylaws and its future role. while the majority of the committee favoured the creation of a ministry for state holding companies and an increased role for iri in promoting economic growth, baffi and a few others held that the solution lay above all in sound regulation of the market. 2 p. baffi, “ giorgio mortara e la banca d ’ italia ”, in id., nuovi studi sulla moneta ( milan : giuffre, 1973 ). ministero dell ’ industria e del commercio, l ’ istituto per la ricostruzione industriale ( turin : utet, 1955 ), vol. ii, pp. 575 - 85. the 1960s and 1970s were, by admission of baffi ’ s predecessor, governor carli, the period when political power was most closely interwoven with monetary, financial and supervisory policy ; it was also the most dangerous time for the repercussions on the performance of the economy, both then and later. 3 in the first half of the 1970s, and particularly between 1973 and 1976, a dense web of constraints and rules developed regarding banks ’ portfolios, subsidized credit, interest rates, and capital movements. baffi never came out openly against this, but his scepticism, rooted in his