Chapter IV
the Economic Problem
Loans—Budgets—Paper money—The formation of national capital.
Unexploited wealth abounds in America. Forests of rubber, as in the African Congo; mines of gold and diamonds, which recall the treasures of the Transvaal and the Klondyke; rivers which flow over beds of auriferous sand, like the Pactolus of ancient legend; coffee, cocoa, and wheat, whose abundance is such that these products are enough to glut the markets of the world. But there is no national capital. This contrast between the wealth of the soil and the poverty of the State gives rise to serious economic problems.
By means of long-sustained efforts, an active race would have won financial independence. The Latin-Americans, idle, and accustomed to leave everything to the initiative of the State, have been unable to effect the conquest of the soil, and it is foreign capital that exploits the treasure of America.
Since the very beginnings of independence the Latin democracies, lacking financial reserves, have had need of European gold. The government of Spain used to seize upon the wealth of her colonies to satisfy the needs of a prodigal court, and to prevent its own bankruptcy. The independence of America was won with the aid of English money, hence the first of the necessary loans. Canning encouraged the South American revolutionaries, and the English bankers gave their support to their plans, in the shape of loans to the new governments. Colombian, Argentine, and Peruvian agents solicited heavy loans in the City of London, without which assistance the Spanish power could never have been defeated.
The republican régime thus commenced its career by assuming imperious financial responsibilities. Before commencing to practise a policy of fiscal economy, it was necessary to accept the conclusion of the most urgent loans, but once the European markets were open the financial orgy commenced. In 1820 Señor Zea concluded the first Colombian loan; in 1821 the government of that country declared that it could not ensure the service of the debt. The necessities of the war with Spain and the always difficult task of building up a new society demanded the assistance of foreign gold; loans accumulated, and very soon various States were obliged to solicit the simultaneous reduction of the capital borrowed and the rate of interest paid. The lamentable history of these bankrupt democracies dates from this period.
Little by little these financial contracts lost all semblance of serious business. In the impossibility of obtaining really solid guarantees the bankers imposed preposterous conditions, and issue at a discount became the rule with the new conventions. A series of interventions in Buenos-Ayres, Mexico, San Domingo, and Venezuela, diplomatic conflicts, and claims for indemnity resulted from this precarious procedure. Moreover, thanks to the protection accorded by their respective countries, foreigners acquired a privileged position. The Americans were subjected to the jurisdiction of the ordinary courts, before which they could demand the payment of their claims on the State; foreigners enjoyed exceptional treatment. A statute was enacted in their favour, and their governments supported them in the recovery of unjustifiable claims. Sir Charles Wyke, English minister to Mexico, wrote to the Foreign Office in 1862: "Nineteen out of twenty foreigners who reside in this unfortunate country have some claim against the government in one way or another. Many of these claims are really based on the denial of real justice, while others have been fabricated throughout, as a good speculation, which would enable the claimant to obtain money for some imaginary wrong; for example, three days' imprisonment which was intentionally provoked with the object of formulating a claim which might be pushed to an exorbitant figure."[1]
In face of the string of debts which arose from the loans themselves, or from claims for damages suffered during the civil wars, the governments could only succumb. The immorality of the fiscal agents and the greed of the foreigner will explain these continual bankruptcies, which constitute the financial history of America.
The descendants of the prodigal Spanish conquerors, who knew nothing of labour or thrift, have incessantly resorted to fresh loans in order to fill the gaps in their budgets. Politicians knew of only one solution of the economic disorder—to borrow, so that little by little the Latin-American countries became actually the financial colonies of Europe.
Economic dependence has a necessary corollary—political servitude. French intervention in Mexico was originally caused by the mass of unsatisfied financial claims; foreigners, the creditors of the State, were in favour of intervention. England and France, who began by seeking to ensure the recovery of certain debts, finally forced a monarch upon the debitor nation. The United States entertained the ambition of becoming the sole creditor of the American peoples: this remarkable privilege would have assured them of an incontestable hegemony over the whole continent.
In the history of Latin America loans symbolise political disorder, lack of foresight, and waste; it is thanks to loans that revolutions are carried out, and it is by loans that the caudillos have enriched themselves. Old debts are liquidated by means of new, and budgetary deficits are balanced by means of foreign gold. When the poverty caused by political disorder becomes too great the American governments clamour feverishly in the markets of Europe for the hypothecation of the public revenues, and the issue of fresh funds, offering to pay a high interest, and recognising the rights of suspended creditors.
On the one hand the budget is loaded to create new employments in order to assuage the national appetite for sinecures, while the protective tariffs are raised to enrich the State. Thus the forces of production disappear, life becomes dearer, and poverty can only increase. America has until lately known little of productive loans intended for use in the construction of railways, irrigation works, harbours, or for the organisation of colonies of immigrants.
The product of the customs and other fiscal dues is not enough to stimulate the material progress of a nation. So application is made to the bankers of London or Paris; but it is the very excess of these loan operations and the bad employment of the funds obtained that impoverishes the continent. The excessive number of administrative sinecures, the greed of the leaders, the vanity of governments, all call for gold; and when the normal revenues are not sufficient to enrich these hungry oligarchies, a loan which may involve the very future of the country appears to all to be the natural remedy.
The budgets of various States complicate still further a situation already difficult. They increase beyond all measure, without the slightest relation to the progress made by the nation. They are based upon taxes which are one of the causes of the national impoverishment, or upon a protectionist tariff which adds greatly to the cost of life. The politicians, thinking chiefly of appearances, neglect the development of the national resources for the immediate augmentation of the fiscal revenues; thanks to fresh taxes, the budgets increase. These resources are not employed in furthering profitable undertakings, such as building railroads or highways, or increasing the navigability of the rivers. The bureaucracy is increased in a like proportion, and the budgets, swelled in order to dupe the outside world, serve only to support a nest of parasites. In the economic life of these countries the State is a kind of beneficent providence which creates and preserves the fortune of individual persons, increases the common poverty by taxation, display, useless enterprises, the upkeep of military and civil officials, and the waste of money borrowed abroad; such is the "alimentary politics" of which Le Play speaks. The government is the public treasury; by the government all citizens live, directly or indirectly, and the foreigner profits by exploiting the national wealth. A centralising power, the State forces a golden livery upon this bureaucratic mob of magistrates and deputies, political masters and teachers.
To sum up, the new continent, politically free, is economically a vassal. This dependence is inevitable; without European capital there would have been no railways, no ports, and no stable government in America. But the disorder which prevails in the finances of the country changes into a real servitude what might otherwise have been a beneficial relation. By the accumulation of loans frequent crises are provoked, and frequent occasions of foreign intervention.
A policy of thrift would have led to the establishment of economic equilibrium. Foreign gold has poured in continually, not only in the form of loans but in the shape of material works—railways, ports, industries, and industrial undertakings. It is in this way that English capital has accumulated in the Argentine, Uruguay, Brazil, and Chili, where it has become a prominent factor in the industrial development of the country. In the Argentine it amounts to 300 millions, in Brazil to 150 millions, in Chili to 51 millions, and in Uruguay to 46 millions of pounds sterling.
New problems arise from the relation between the size of the population and the amount of the capital imported. The increase of alien wealth in nations which are not fertilised by powerful currents of immigration constitutes a real danger. To pay the incessantly increasing interest of the wealth borrowed, fresh sources of production and a constant increase of economic exchanges are necessary; in a word, a greater density of population. The exhaustion of the human stock in the debitor nations creates a very serious lack of financial equilibrium, which may result, not only in bankruptcy but also in the loss of political independence by annexation.
The solution of the financial problem depends, then, upon the solution of the problem of population. Immigrants will solve it by increasing the number of productive units, by accumulating their savings, by irresistible efforts which lay the foundations of solid fortunes. It is true that the wealth which they will create will also be of foreign origin, but in the second or third generation the descendants of the enriched colonists will become true citizens of the country in which their fathers have established themselves. They will have forgotten their country of origin, and will mingle with the old families which conserve the national traditions.
The ideal of peoples whose economic condition is dependence is naturally autonomy; without it all liberty is precarious. A considerable stream of exports flows from America to Europe to pay for imports and the interest on foreign capital. Only this large exportation of products, as in the case of the Argentine, Mexico, and Brazil, can maintain a favourable commercial balance. The Argentine economist Alberto Martinez has demonstrated that as in his country there is neither an economic reserve nor a national capital, the diminution of exports causes serious financial disturbances; exchange is unstable, the rate rises, trade falls off, and credit is suspended.
In other countries the economic system is instability itself. It depends almost entirely on two or three agricultural products—coffee, cane-sugar, and rubber—and the incessant fluctuations in the prices of these products, which constitute the wealth of the country. One does not observe the regularity of the exports of the Argentine and Brazil, nor any important industrial development. To remedy the lack of equilibrium in the budget and to pay the interest on the foreign debt, the State, the guardian of the public fortune, once more resorts to loans. The creation of a national capital is thus an urgent necessity for these prodigal democracies.
By stimulating the development of agriculture, by creating or protecting industry, by diminishing the budgetary charges by the reduction of useless bureaucratic employments and sumptuary expenses, the Latin-American governments could gradually establish the necessary reserves.
On the other hand, fiscal agreements, commercial treaties, and railways must contribute to the solidarity of these nations among themselves. Europe has invested vast sums of capital in America; she sends thither large quantities of the products of her industries, but there are peoples more favoured than others by this invasion of capital. It should be possible by a series of practical conventions to lay the foundations of a Zollverein. The dependence of certain republics as compared with others should tend to make them commercially independent of Europe. Already a number of industries are being developed in America; in Brazil their yield attains the annual value of 46 million pounds; in 1909 the imports were diminished by 3 million pounds in consequence of this new economic factor. It may be supposed that in the still distant future the agricultural peoples of America will buy the products of their industrial neighbours, the Argentine, Brazil, and Uruguay. The unification of the monetary system will still further facilitate the development of this inter-state commerce, this trade between zones almost exclusively agricultural, and other regions both agricultural and industrial; thus closer economic relations will be the basis of a lasting political understanding. No American republic has yet reached the term of its economic development.
We may distinguish three periods in the evolution of the nations towards autonomy; during the first their dependence is absolute, in respect of ideas as much as of men and capital; such is the present situation of the majority of the Latin democracies. During the second period agriculture suffices for the national necessities and industry develops; the Argentine, Brazil, and Mexico are already in this state of partial liberty. Finally, the period of agricultural and industrial exportation commences, and the intellectual influence of the country makes itself felt beyond the frontiers. After France and England, Germany and the United States reached this glorious phase. Neither Mexico nor the Argentine nor Brazil is as yet flooding the world with its industrial products nor affecting it by its original intellectual activities; there is no culture or philosophy that we can properly term Argentine or Chilian. Europe is tributary to the Argentine for her wheat and meats, and to Brazil for her coffee, but ideas and machines come from Paris, London, and New York.
M. Limantour, who tried to save the Mexican railways from the Yankee capitalists, and the Argentine economists, who endeavoured to convert the foreign into a national debt, are preparing the way for the future reign of financial liberty; but this transformation depends on the increase of public or private wealth and the activity of immigrants, who in hospitable America soon become landed proprietors or merchants.
In the country districts, as in the cities, which are every day more numerous, the common wealth and the fiscal revenues are increasing, owing to the efforts of industrious men. Not only are foreign industrial undertakings being founded, but national institutions also, fed by national capital. When the necessary loans can be subscribed in the country itself, when railways and ports are constructed with State or private capital, or with the financial aid of other South American governments; when American multi-millionaires (there are already plenty of them in the Argentine) have effected the nationalisation of the public works now in the hands of foreigners, then the economic ideal of these democracies will be realised.
Latin America may already be considered as independent from the agricultural point of view; it possesses riches which are peculiar to it: coffee to Brazil, wheat to the Argentine, sugar to Peru, fruits and rubber to the Tropics. Its productive capacity is considerable. It may rule the markets of the world. The systematic exploitation of its mines will reveal treasures which are not even suspected. We may say, then, that even without great industries the American continent, independent in the agricultural domain, and an exporter of precious metals, may win a doubtless precarious economic liberty.
[1] Cited by F. Bulnes, El Verdadero Juarez, Paris, 1904, p. 29.