Carnival! is primarily based on the film Lili, which was directed by Charles Walters from a screenplay by Helen Deutsch. The film was released in March 1953. This source was acknowledged on the production-credits page of the playbill in a slightly unusual way: it said, "Based on material by Helen Deutsch." The title of the film was not mentioned.
Since much of the dialogue in the musical's book was taken from the screenplay, crediting Deutsch prominently was only fair. In addition, she had originally been hired to write the book and then had been fired, so this billing may have been a contractual necessity.
Sources for Lili
The film Lili was itself an adaptation. According to the screen credits, it was "Based on a story by Paul Gallico." The title of the story was not mentioned. This has caused some confusion over the years as two published works by Gallico — a short story titled "The Man Who Hated People," and a novella titled The Love of Seven Dolls — contain plot elements found in Lili, as well as characters with similarities to those in the film. The novella, however, wasn't published till 1954, the year after the film was released. The story was published in The Saturday Evening Post in October 1950, and it seems to have never again appeared in print. Neither work is close enough to Lili to be considered more than a general inspiration.
The playbill for the original production of Carnival did offer another clue to the source of the film. This was found, after the cast and production team biographies, in the section devoted to staff and additional credits, where it said, "'Carnival!' was originally based upon a story entitled 'The Seven Souls of Clement O'Reilly' by Paul Gallico." This has caused confusion because it seems that no story with that title has ever been published.
A footnote in John Anthony Gilvey's biography of Gower Champion, Before the Parade Passes By, states, "A note that Deutsch appended to the original libretto for Carnival and which she later insisted be inserted as a preface to [Michael] Stewart's final version ... names Gallico's The Seven Souls of Clement O'Reilly as inspiration for her 1951 screenplay, Lili. Neither periodical indexes nor Gallico's own short story anthologies bear the title of such a work." Gilvey concludes that "The Man Who Hated People" must be considered the source, especially since Deutsch, in the same preface, stated that Love of Seven Dolls was not the source for Lili.
What Gilvey doesn't mention as a possibility is that the story was unpublished and may have been written specifically to provide a basis for the film. Indeed, before Lili, MGM had twice announced that it would be producing a screen adaptation of Gallico's story "The Seven Souls of Clement O'Reilly," first as a part of an anthology film to be titled Jealousy, and then on its own, with Ralph Meeker and Pier Angeli in the leads.