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“Nada de Papeluchos!”: Managing Globalization in Early Porfirian Mexico

Published online by Cambridge University Press:  05 September 2022

Thomas P. Passananti
Thomas P. Passananti*
Affiliation:
San Diego State University
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Abstract

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This essay argues that in the early Porfiriato Mexican officials deftly negotiated the pace and sequencing of the country's reinsertion in the world economy. Despite the government's financial weakness, officials flouted international conventions and obtained the foreign capital necessary to spark growth before settling the foreign debt, in default for more than fifty years. Rather than simply accommodating powerful private financial interests, the government's plans and policies often provoked conflict with its bankers and creditors. However, by employing a wide set of strategies that ranged from manipulating competitors to selectively not enforcing agreements to exploiting nationalist sentiment among local elites, Mexican policymakers preserved their autonomy and advanced a coherent set of policies. In addition to successfully exploiting international capital markets, the Mexican government also successfully maneuvered to establish a more competitive local market. The government's ability to exploit these capital flows, without undermining domestic support, helps explain the regime's early economic growth and political resilience. The findings of this essay extend to the financial realm previous historical scholarship that has noted that the early Porfirian regime enjoyed a surprising degree of autonomy from its economic partners.

Resumen

Resumen

Este ensayo argumenta que, en el período temprano del Porfiriato, las autoridades mexicanas negociaron deliberadamente el ritmo y la secuencia con los que el país se reinsertara en la economía mundial. A pesar de la debilidad financiera del gobierno, las autoridades desafiaron convenciones internacionales y obtuvieron el capital extranjero necesario para estimular el crecimiento económico antes de pagar la deuda externa que se hallaba en default por más de cincuenta años. En vez de simplemente acomodarse a los poderosos intereses financieros privados, los planes y las políticas gubernamentales usualmente provocaron conflictos con banqueros y acreedores. Sin embargo, al combinar varias estrategias, desde la manipulación de competidores hasta la elección de no honrar ciertos acuerdos y explotar los sentimientos nacionalistas entre las elites locales, los políticos mexicanos preservaron su autonomía y lograron avanzar un conjunto de políticas coherentes. Además de explotar los mercados de capitales con éxito, el gobierno mexicano también incrementó la competitividad del mercado local victoriosamente. La habilidad del gobierno de explotar estos flujos de capitales sin desestimar el soporte doméstico ayuda a explicar el crecimiento económico y la fortaleza política del período temprano del régimen de Porfirio Díaz. Los hallazgos de este ensayo contribuyen a la literatura histórica y financiera que notara que el mismo gozó de un sorprendente grado de autonomía frente a sus seguidores económicos.

Type
Research Article
Information
Latin American Research Review , Volume 42 , Issue 3 , October 2007 , pp. 101 - 128
Copyright
Copyright © 2007 by the University of Texas Press

References

1. Jacques Kulp, Mes Souvenirs, AH PB.

2. The literature on the impact of the railroads on Mexican economic development is large and still lively. See the classic analysis, John H. Coatsworth Growth Against Development: The Economic Impact of Railroads in Porfirian Mexico (DeKalb, IL: Northern Illinois University Press, 1981), and for a provocative counterpoint, the essays in Sandra Kuntz Ficker and Paolo Riguzzi, Ferrocarriles y vida económica en México (México: El Colegio Mexiquense, Ferrocarriles Nacionales de México: Universidad Autónoma Metropolitana Xochimilco, 1996).

3. One of the subjects of this essay is the founding and development of Mexican banks in the early 1880s. The essay provides new archival evidence and advances several new claims about this process, but it also draws on the pioneering institutional and social history of these banks done by Leonor Ludlow (cited throughout). Moreover, my work places the creation of the banking system within the broader context of the Mexican government's political economy as well as the often-competing strategies of foreign and domestic bankers. For a more critical appraisal of government's role in public finance in the early 1880s see work of Carlos Marichal, the leading authority on Mexican public financial history—for example, “La crisis de 1885: Coyuntura critica en la evolución de las finanzas mexicanas,” in Jorge Silva y Leonor Ludlow, eds., Negocios y ganancias: Fiscalidad, crédito e inversión en México: siglos XVIII a XX, (México: (México: Instituto de Investigaciones Dr. José María Luis Mora: Instituto de Investigaciones Históricas-UNAM, 1994), 419–44; see also Don M. Coerver, The Porfirian Interregnum: The Presidency of Manuel González of Mexico, 1880–1884, (Fort Worth, TX: Texas Christian University Press, 1979), especially chapter six.

4. For arguments that assert an identity of interests between financiers and the Porfirian government, and claim that the cronyism, or “vertical political integration” distorted the economic trajectory of Mexico, see Stephen Haber, Armando Razo, and Noel Maurer, The Politics of Property Rights: Political Instability, Credible Commitments, and Economic Growth in Mexico, 1876–1929: (New York: Cambridge University Press, 2003) and Noel Maurer, The Power and the Money: The Mexican Financial System, 1876–1932 (Stanford, CA: Stanford University Press, 2002).

5. Ironically this is largely the old revolutionary critique of the Díaz regime wrapped in a new econometric skein.

6. For a work that claims that the Díaz government enjoyed a relative degree of autonomy from business elites, both foreign and domestic, see Robert H. Holden, Mexico and the Survey of Public Lands: The Management of Modernization, 1876–1911 (Dekalb, IL: Northern Illinois University Press, 1994). For another work that suggests the Díaz regime developed a degree of economic policy autonomy from private interests, albeit somewhat later, see Edward Beatty, “Visiones del futuro: La reorientación de la política económica en México, 1867–1893,” Signos Históricos, vol. 10, 2003, 39–56.

7. This argument is extended to the entire Porfiriato, and is fully fleshed out in my book manuscript, “Managing Globalization: The Politics of Finance in Porfirian Mexico” (forthcoming).

8. The debate about foreign business influence in Latin America is an old one. Once associated with the terms imperialism and dependency, it has increasingly been replaced or supplemented by “globalization.” Among representative interventions, see D. C. M. Platt Finance, Trade and Politics in British Foreign Policy, 1815–1914 (London: Clarendon Press, 1968) and “D. C. M. Platt: The Anatomy of ‘Autonomy,‘” Stanley J. Stein and Barbara H. Stein Latin American Research Review, vol. 15, no. 1. (1980), 131–146. For works specifically on Mexico that identify the agency of both foreign and Mexican actors see Friedrich Katz, The Secret War in Mexico (Chicago, IL: University of Chicago Press, 1981) and Jonathan Brown, “Foreign Investment and Domestic Politics: British Development of Mexican Petroleum during the Porfiriato,” Business History Review 61 (1987): 387–416; for a contrary sampling see John Mason Hart, Revolutionary Mexico: The Coming and Process of the Mexican Revolution (Berkeley, CA: University of California Press, 1997) and Thomas F. O'Brien, The Revolutionary Mission: American Enterprise in Latin America, 1900–1945 (New York: Cambridge University Press, 1996).

9. The literature on Mexico's foreign debt of the nineteenth century is vast. See the old, but still classic, Jan Bazant, Historia de la deuda exterior de Mexico (1821–1946), second ed. (Mexico: El Colegio de Mexico, 1981) and Barbara Tenenbaum, The Politics of Penury: Debt and Taxes in Mexico, 1821–1856 (Albuquerque, NM: University of New Mexico Press, 1986).

10. Mexico first experienced the more competitive North Atlantic capital markets in the 1860s, not as a sovereign debtor, but rather under French imperial control. In 1864 and 1865 French bankers issued two loans, the so-called azulitos, totaling 534 million francs. See Steven Topik, “When Mexico Had the Blues: A Transatlantic Tale of Bonds, Bankers, and Nationalists, 1862–1910,” American Historical Review 105, no. 3 (2000): 714–38.

11. For an excellent discussion of the issues at stake in the railroad subsidy plan, see Paolo Riguzzi, “Los caminos del atraso: Tecnología, instituciones e inversión en los ferrocarriles mexicanos, 1850–1900,” in Kuntz Ficker and Riguzzi, Ferrocarriles y vida económica en México, 64 ff.

12. Evidence of policymakers' fear of the costs of settling the debt early are indirect but numerous and compelling. Throughout nineteenth-century Mexico, public officials perceived that a depleted treasury was intimately linked to political revolt. This linkage, captured in the nineteenth-century Mexican proverb, “when salaries are paid, revolts fade,” was noted by a key porfirista, Justo Sierra, The Political Evolution of the Mexican People, (translated, Charles Ramsdell, 1969), 191. When Díaz's immediate predecessor, President Sebastián Lerdo de Tejada, attempted to arrange the old debt, the congressional commission opposed it and the matter was dropped. See Leonor Ludlow, “Manuel Dublán: La Administración Puente,” in Ludlow, ed. Los Secretarios de Hacienda y sus Proyectos, tomo II, (México, D.F.: Universidad Nacional Autónoma de México, 2002), 146–147. Moreover, that the settlement of the English Debt was an intensely domestic political issue, is also supported by the political firestorms that did erupt, in 1884 and then again in 1885, when the González and then the Díaz administrations, sought to settle the debt. For the congressional debates and public response to the 1884 debt accords see the contemporary journalistic account, Salvador Quevedo y Zubieta, Manuel Gonzalez y su Gobierno en México (México, D.F.: Estab. tip. de Patoni, 1884), 282 ff. and Cosio Villegas, Historia Moderna de Mexico Vida Politica I (México, D.F.: Editorial Hermes, 1972), 780 ff. For the 1885 dispute see Cosio Villegas, Historia Moderna de México Vida Política II (México, D.F.: Editorial Hermes, 1972), 215–274.

13. For a recent work on the Bondholders and Mexico, see Michael Costeloe, Bonds and Bondholders: British Investors and Mexico's Foreign Debt, 1824–1888 (Westport, CT: Praeger Press, 2003).

14. For the Committee's efforts to starve Mexico of funds and more specifics of the judge's ruling, see Wynne, State Insolvency and Foreign Bondholders (New Haven, 1954), pp. 36–39.

15. Velasco to SRE, August 30, 1880, Legajo II, no. 404, AH SRE.

16. In spring 1879, the Mexican government, through financial intermediaries, was seeking a five-million-peso foreign loan. See Manuel Alvarez to Edouard Noetzlin, October 17, 1879, C. 629 AH PB. See also “Extract from a letter of Mr. M. R. Alvarez, dated Veracruz, September 18, 1879,” C. 629 AH PB.

17. Carlos Pacheco to Porfirio Díaz, March 31, 1882, CGPD Legajo 7, 244.

18. See David Landes, Bankers and Pashas (Cambridge, MA: Harvard University Press, 1958), especially 315 ff.

19. On their activities in the Ottoman empire, see James Thobie, “European Banks in the Middle East,” International Banking, 1870–1914, edited by Cameron and Bovykin (New York: Oxford University Press, 1991), especially 406–413. See also the joint-stock banks promoted by Bischoffscheim and Goldschmidt, Stephan Chapman, The Rise of Merchant Banking (Boston: Allen & Unwin, 1984), pp. 133–34; on the interests of these bankers in the 1864 Maximilian debt see P. L. Cottrell, “Anglo-French Financial Co-operation, 1850–1880,” The Journal of European Economic History 3, no. 1 (1974): 75–86; and more recently his “The Coalescence of a Cluster of Corporate International Banks, 1855–75,” Business History 33, no. 3 (1991): 31–52, which considers the reach of these banks into Latin America.

20. For a reconsideration of the role information asymmetries played see Philip Keefer, “Protection Against a Capricious State: French Investments and Spanish Railroads, 1845–1875,” The Journal of Economic History 56, no. 1 (1996): 170–192.

21. Edouard Noetzlin to Mortimer Schiff, July 25, 1925, Roll 684, JSP AJA.

22. For the best account of the Bischoffscheims' activities, see Kurt Grunwald, Türkenhirsch (Jersusalem: Israel Program for Scientific Translations, 1966), especially, pp. 13–20.

23. Eric Bussiére, Paribas: Europe and the World, (Paris: Banque Paribas, 1992), 45–46.

24. Manuel Alvarez to Edouard Noetzlin, October 17, 1879, C. 629 AH PB.

25. Manuel Alvarez to Edouard Noetzlin, October 17, 1879, C. 629 AH PB; New York Times, June 21, 1879.

26. Manuel Alvarez to Edouard Noetzlin, October 17, 1879, C. 629 AH PB.

27. Velasco to SRE, December 15, 1879 #217, Legajo II France, AH SRE. For the government's concurrence see SRE to Velasco, December 27, 1879, #220, Legajo II France AH SRE.

28. Velasco to SRE, March 15, 1880, Legajo III, no. 495, AH SRE.

29. Velasco to SRE, August 7, 1880, AH SRE.

30. See the series of editorials in El Siglo XIX (México) January 17, 20, 21, 1880.

31. The opposition of local financiers excluded from the eventual bank project loomed as political and economic risk for Díaz's successor, Manuel González. When President González consulted an adviser about the project he was warned that “the national bank is going to harm profoundly many local interests and provoke a struggle that could be dangerous. Capital employed today in loans and in credit operations will be the first to suffer a strong blow, and the competition is going to be terrible for them, and it is natural that a reaction against the bank will be the first consequence of its founding.” Quote taken from Ralph Roeder, Hacia el México moderno: Porfrio Díaz, Vol. I (México, D.F.: Fondo de Cultura Económica, 1973), 207. The adviser was prescient, because events unfolded precisely in this way.

32. Hegewisch to Noetzlin, with cable from Manuel Alvarez, December 4, 1880, C. 629, AH PB.

33. Hegewisch to Noetzlin, October 20, 1880, C. 629, AH PB.

34. Quevedo y Zubieta, Manuel Gonzalez y su Gobierno, pp. 107–8 and 249ff.

35. Velasco to SRE, August 19, 1880, France Legajo III no. 514 AH SRE.

36. Velasco to SRE, August 17, 1880, France Legajo III no. 512 AH SRE.

37. Only Banque Franco-Egyptienne held more shares, 16,000. By comparison, Noetzlin received only 2000 shares.

38. See Ramón Guzmán to Baring Bros., Februrary 10, 1883, and then again December 19, 1883, HC 4.5.46 BBA GL.

39. For a complete breakdown of the origins of the various shareholders of Nacional see the marvelous, groundbreaking essay by Leonor Ludlow, “El Banco Nacional Mexicano y el Banco Mercantil Mexicano,” Historia Mexicana 39, no. 4 (1990).

40. From Ludlow's appendix it is noted that there were six subscribers from Veracruz, two from San Luis Potosí, and one from Guanajuato, and more than fifty from Mexico City. Ludlow, “El Banco Nacional Mexicano y el Banco Mercantil Mexicano,” 1019–1020.

41. Richemont to St. Hilaire, June 13, 1881 Correspondence Politique vol. 71, Mexique, AMAE.

42. Antionio de Mier to Sr. Presidente del Banco Franco-Egipcio, November 13, 1882, Comunicaciones 2, AH BNM. Furthermore, a key participant (on the side of Nacional), Pablo Macedo, admitted that, “algunos dijieron entonces, que en la suscripción del primitivo capital del Banco [Nacional]... haya presidido cierto espíritu de exclusivismo que no dio entrada a todas las principales firmas de la plaza.” See Pablo Macedo, Tres Monografías (México: J. Ballesc, 1905), 354.

43. Financial circuits were not coordinated on putatively national lines. That is why the Barcelonettes, nominally French, were outside the small group of Northern Europeans of British, Parisian, and northern German stock who were the principal recipients of Mexico's allocation of shares.

44. Richemont to St. Hilaire, May 13, 1881, Correspondence consulaire et commerciale, Mexico, vol. 9, AMAE.

45. Velasco to SRE, June 30, 1880, #497 AH SRE.

46. Morgan to Blaine, Papers Relating to the Foreign Relations of the United States, 1881, U.S. Government Printing Office, 1882, p. 798.

47. La Voz de Mexico, November 4, 1881.

48. Leonor Ludlow was the first to describe some of this bank conflict. See “La construcción de un banco: El Banco Nacional de México (1881–1884),” in Leonor Ludlow y Carlos Marichal, eds., Banca y poder en México (México, D.F.: Grijalbo, 1986).

49. La Voz de México, August 31, 1881.

50. Richemont to St. Hilaire September 13, 1881, Correspondence Politique vol. 71 Mexique AMAE.

51. Given the relative scarcity of capital in Mexico, it was not surprising that the local financial elite had not founded a bank.

52. Manuel Ibáñez, August 29, 1881, (emphasis mine) quoted in Ludlow, “El Banco Nacional Mexicano y el Banco Mercantil Mexicano,” pp. 1005–6.

53. Coutouly to Freyeinet, May 10, 1882, Correspondence consulaire et commerciale Mexico Vol. 9, AMAE.

54. Again, see appendix II (anexo II) of Ludlow, “El Banco Nacional Mexicano y el Banco Mercantil Mexicano,” 1020–25.

55. In May 1882, soon after Mercantil opened for business, it thanked Díaz for his support and assured him that the bank would serve the nation so long as it enjoyed the protection of key local patrons. See letter from Mercantil to Porfirio Díaz, May 1882, quoted in Ludlow, “Banco Nacional Mexicano y Banco Mercantil Mexicano,” 1011.

56. Mexican Senate, México, Congreso, Cámara de Senadores, Diario de los Debates, 1884; 1885.

57. Libro de Actas, Banco Mercantil Mexicano, Diciembre 11, 1882, AH BNM.

58. For more details see Banque Nationale Mexicaine, Rapport du Conseil du Administration, (Paris, 1883).

59. Reviewing its fiscal year 1883, Nacional admitted that Mercantil had the majority of commercial business.

60. Banco Mercantil Mexicano, Memoria que el consejo de administración del Banco Mercantil Mexicano presenta a la asamblea general de accionistas convocada para el dia 22 de enero de 1883 (México, D.F.: n.p., 1883).

61. The rates of return are based on the calculations found in, Joaquín Casasús, La cuestión de los bancos á la luz de la economía política y del derecho constitucional (México, D.F.: Impr. de F.D. de León, 1885), pp. 116–25.

62. Noetzlin made this very clear in his conversation with Velasco. February 14, 1882, Legajo III, AH SRE.

63. See here the extensive correspondence between Noetzlin, Velasco, and Secretaria de Relaciones Exteriores, February 14, 1882, March 16, 18, 21, 1882—all of which treats the French efforts to have Nacional's shares traded on the London Stock Exchange, Legajo III, AH SRE. For Noetzlin's request for power to treat with London stock exchange, see Libro de Actas, 1884, AH BNM.

64. See HC 4.5.46–47, BBA GL.

65. See here the archive of the Committee of Bondholders, “Meeting with Noetzlin,” January 13, 1883, BBA GL.

66. Lionel Carden to Lord Granville, May 5, 1883, PRO FO 50, vol. 442.

67. México, Secretaría de Hacienda, Memoria de la Secretaría de la Hacienda 1883–84, lxiii-lxvi. Tipografía de Gonzalo A. Estera, 1886.

68. Actas de Consejo, vol. 2, BNM February 23, 1883, AH BNM.

69. Banker's Magazine, August 1885.

66. Lionel Carden to Lord Granville, May 5, 1883, PRO FO 50, vol. 442.

67. México, Secretaría de Hacienda, Memoria de la Secretaría de la Hacienda 1883–84, lxiii-lxvi. Tipografía de Gonzalo A. Estera, 1886.

68. Actas de Consejo, vol. 2, BNM February 23, 1883, AH BNM.

69. Banker's Magazine, August 1885.

70. Indeed, as John Coatsworth recently noted, Haber et. al, have suggested as much. See Coatsworth, “Structures, Endowments, and Institutions in the Economic History of Latin America,” Latin American Research Review 40, no. 3 (2005): 143.

71. In one historian's memorable phrase, prior to the Porfiriato, “the empresarios and other groups that made up the emerging dominant class in Mexico ruthlessly manipulated the state for private gain to the detriment of class interests, economic growth, and political stability.” See David Walker, Kinship, Business and Politics: The Martínez del Río Family in Mexico, 1824–1867 (Austin, TX: University of Texas Press, 1986), p. 22.