The Wealth of the Provinces: The Rise and Fall of the Interior in the Political Economy of Argentina, 1880-1910

A dissertation presented

by

Lucas Llach

to

The History Department in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the subject of History

Harvard University Cambridge, Massachusetts May 2007

© 2007 – Lucas Llach All rights reserved.

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Professor John H. Coatsworth

Lucas Llach

The Wealth of the Provinces: The Rise and Fall of the Interior in the Political Economy of Argentina, 1880-1910

Abstract

Argentina enjoyed a period of unprecedented economic growth between the federalization of Buenos Aires in 1880 and the Centennial of independence in 1910. This dissertation deals with one aspect of the Argentine political economy which, it is argued, was a decisive driving force of the country’s economic policies across the whole period: regional interests. As a country characterized by extreme geographic inequalities, the policy preferences of the various regions were diverse and often clashed with each other. The Interior, and particularly the poor provinces outside the fertile Pampas, sought for expansionary fiscal and monetary policies to pay for their economic development, while the richer regions favored less unorthodox policies. The Interior was generally protectionist, and the Pampas mostly free trade. The political economy outcome depended on the relative power of these two broadly defined regions. In the decade of 1880, under the administrations of Julio Roca and Miguel Juárez Celman, the Interior reached the height of its power. Economic policies followed quite neatly the interests of the regions that supported the presidencies of Roca and Juárez. Protection was granted to the Interior’s production. The abundance of external capital in the 1880s allowed for an impressive an ultimately unsustainable expansion of credit and railways in the Interior. Institutions and policies responded to economic interests: trade,

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monetary, banking and railway legislation were tailored to the Interior’s hope of rapid economic development. The 1890s left two lasting marks in Argentina’s political economy. The severe economic and political crisis of 1890 that resulted from the policies of the 1880s forced a shift in the direction of fiscal orthodoxy. A more fundamental change began to take place as a consequence of the 1895 national census. The census, resisted for many years by the Interior politicians, implied that the Pampean region, which received most of the immigration, increased decisively its political representation and power. When Argentina began its recovery, and particularly as growth accelerated during the 1900s, the new regional balance of power was tilted towards the Pampas. The contrast with the 1880s was striking in every respect: the Interior industries were taxed and received no further protection while inflation of costs and an oversupplied internal market eroded their profitability; railways and credit concentrated more and more in the Pampas; and fiscal policy followed the more orthodox outlook of politicians of the Litoral. Except for the special case of Mendoza, the Interior receded relative to the booming Pampas.

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To my parents, Magdalena Estrugamou and Juan Llach, who drove me –and taught me how to drive– along the roads of the old Argentine Interior.

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Table of Contents

ACKNOWLEDGEMENTS .............................................................................................................................V CHAPTER 1. INTRODUCTION: AN UNEQUAL UNION......................................................................... 1 CHAPTER 2. A WEALTH OF PAPER ....................................................................................................... 11 2.1. THE LOCATION OF PROGRESS ................................................................................................................ 11 2.2. MONEY ILLUSION .................................................................................................................................. 22 2.3. SOFT BUDGETS ...................................................................................................................................... 61 CHAPTER 3. MILLIONS DISSOLVED IN THE DUST........................................................................... 69 3.1. TRACKS OF GOLD, TO THE MOON ........................................................................................................... 70 3.1. RANCHO FINANCE, GAUCHO BANKING .................................................................................................. 90 CHAPTER 4. THE ECONOMIC CONSEQUENCES OF UNEQUAL FEDERALISM....................... 106 4.1. VISIONS OF A CRISIS............................................................................................................................. 106 4.2. THE POLITICAL ECONOMY OF UNEQUAL FEDERALISM .......................................................................... 113 Unequal federalism and provincial finances ........................................................................................ 125 4.3. INEQUALITY, REPRESENTATION AND THE BATTLE FOR THE CENSUS .................................................... 133 4.4. POWER TO THE POWERFUL: STATE BANKS AFTER THE CENSUS ............................................................ 142 CHAPTER 5. TAXATION WITH REPRESENTATION ........................................................................ 152 5.1. REGIONAL INTERESTS AND THE POLITICAL ECONOMY OF TAXATION.................................................. 152 5.2. THE INTERIOR IN THE OFFENSIVE: THE PROTECTIONIST DRIVE, 1880-1890 ........................................ 160 5.3. THE INTERIOR ON THE DEFENSIVE: THE FREE TRADE REACTION, 1890-1899........................................ 187 5.4. THE INTERIOR ON THE DEFENSIVE (II): IMPUESTOS INTERNOS AND REGULATION, 1890-1899 ............. 207 5.5. FINDING A COMMON GROUND: THE CONVERSION LAW OF 1899......................................................... 218 5.6. THE INTERIOR AND THE TAX POLICY OF PROSPERITY, 1900-1910........................................................ 232 CHAPTER 6. A PROMISE UNFULFILLED............................................................................................ 240 6.1. SHIFTING THE LOCUS ........................................................................................................................... 240 6.2. THE RISE AND FALL OF THE INTERIOR ................................................................................................. 256 APPENDIX 1. DISTRIBUTION OF ELECTORS, DEPUTIES AND SENATORS ACCORDING TO PROVINCIAL INCOMES, 1880-1904 ....................................................................................................... 269 APPENDIX 2. THE POLITICAL ECONOMY OF UNEQUAL FEDERALISM. A MODEL............. 274 REFERENCES ............................................................................................................................................. 277 SECONDARY SOURCES ................................................................................................................................ 277 PRIMARY SOURCES. NON-PERIODICALS AND OFFICIAL SOURCES. ............................................................... 297 PRIMARY SOURCES. NEWSPAPERS, MAGAZINES AND OTHER PERIODICALS. ................................................ 298

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Acknowledgements

Compounded interest makes debts larger as time goes by. A dissertation that takes some substantial amount of years to get completed becomes as piled with debts as Argentina in 1890. I cannot help but mention Professor John Coatsworth in the first order of my gratitude. With hindsight, my only regret with John’s advice is not to have followed it more thoroughly than I did. Apart from intellectually sharp and challenging, he was patient and encouraging – not to mention his unwavering support in making ends meet through letters of recommendations that I imagine excessively generous. He had something to do in my receiving the Amalia Lacroze de Fortabat Scholarship, the Mellon Fellowship for Latin American Studies and the GSAS Dissertation Completion Fellowship. I am extremely helpful for this financial support, as I am with the Fulbright Foundation in Buenos Aires for backing me financially during my first years at Harvard. I was lucky to conduct this research precisely at a time when some of the most brilliant Argentine historians were working on the same period. Pablo Gerchunoff, Paula Alonso, Roy Hora and Fernando Rocchi were all at some stage of their dealings with turnof-the-twentieth century Argentina as I wrote these pages. It was relieving to find Pablo asking himself some of the very questions I was myself asking, and it was even better to find out that sometimes our answers would be similar and sometimes not. Paula’s admirable work on the politics of the PAN calmed down my anxieties for the lack of a proper consideration of the histoire événementielle in my work. Be it luck or virtue, it turned out that my own story could be complementary to hers. Roy Hora read and commented in detail a first version of this manuscript. Apart form making an enjoyable

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company for our economic history class, Fernando was generous in pointing me to materials I found very useful. Also at the Universidad Torcuato Di Tella, the presence of some of the major students of the period was encouraging. I recognize in Ezequiel Gallo some of the most decisive influence in my historical formation. I benefited greatly from his detailed comments on an early manuscript, from his advice on how to carry on with my research and from his uncommonly extraordinary common sense. Sharing a Rulo’s lunch with Pablo, Fernando, Ezequiel, Natalio Botana, Ricardo Salvatore and the usual gang provided some insights that just cannot be found in any bibliography. The Mellon Retreats for graduate students in Latin American history were an excellent opportunity to show my work and get to know that of others. I especially thank comments by Richard Salvucci, Dain Borges and John Womack Jr. My dissertation readers Roberto Cortés Conde and James Robinson were kind in reading and commenting on this work at a distance in spite of my suggesting some ungenerous deadlines. Alison Adams, my companion in the early years of the PhD, and Amílcar Challú, with whom I shared every one of the Mellon retreats, were both extremely supportive. The company of the Chamigo Harvard Association (Karina Galperín, Iván Petrella, Hernán Orgueira, Martín Goldberg, Lucio Morini, Nicolás Loi, Silvana Tenreyro, Astrid Dick and Christian Broda) made Harvard home. I received a lot of help as I went through the basic materials for this work. Mario Justo López was very kind in sharing some of his sources on provincial debts. Marina Sopeña did a great job analyzing the Archivo Roca and the minutes of the Banco Nacional. Sebastían Sorondo, Lucía Schumacher and Dolores Godio Báez also provided some very valuable help, material and moral. I was able to appreciate Ricardo Chamorro at the

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archives of the Cámara de Diputados as a hero of Argentina’s public service who built a wonderful historical database with the political and regional origins of deputies. The library personnel at the Universidad Torcuato Di Tella, the Academia Nacional de Historia, the Economy Ministry, the National Congress, the Banco Provincia, the Banco de la Nación, the Museo Histórico Sarmiento and -with some exception- the Biblioteca Nacional, made my task easier. On the home front and out of sheer honesty I have to say that completing this work was only possible after the divine intervention of two angels, Lola and Zoe.

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CHAPTER 1. Introduction: An Unequal Union

Outside the Helder Hotel in Buenos Aires, where deputies elected in 1880 to represent provinces of the Interior at the National Congress are staying, a carriage has unloaded bundles of hay. Somebody explains: "It's for the provinciano deputies to eat" 1 . By the same time (May 1881), the newspaper Las Provincias, founded in Buenos Aires with the explicit aim of giving a voice to the growing power of the Interior provinces in Argentine politics 2 , reacts against the reception of the provincianos by the porteño press. A naval exercise organized by the Ministry of Defense to impress the future Congressmen has met the mocking smile of the porteños: having come from inland, many of the men from the Interior have never seen a ship, so "How will these Deputies notice the imperfections, even the vulgarities, of the naval maneuvers?". Despise towards the provincianos was, according to Las Provincias, just another sign of the "wounded vanities" of the people from the Capital after military defeat in 1880 3 . The city of Buenos Aires had been designed as capital of Argentina only a few months before, by law of September 21st 1880. Resolving the so-called capital question included the bloody affair of repressing the rebellious province of Buenos Aires. The conflict between Buenos Aires and the national authorities headed by President Nicolás Avellaneda revolved around the 1880 presidential election. In 1879, Minister of Internal 1

Cárcano, Miguel (1976), La revolución por los comicios, Hyspamérica.

2

The opening editorial of Las Provincias (December 1st, 1880) read: "Why this name, Las Provincias? Because it is the one best describing our intentions. Because the provinces needed a voice here, in this great locus of intelligence. [...] Here, where the Provinces send the produce of their still infant but already worthy industries. The name stands for a program, the vaster that can possibly be conceived. A program that comprises the whole social and industrial life of the Republic"

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Las Provincias, May 5th, 1881.

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Affairs and ex-president Sarmiento had ordered the demilitarization of Buenos Aires police, a move partially inspired in his probable candidacy for the Casa Rosada against the governor of Buenos Aires, Carlos Tejedor. The official candidate, however, turned out to be Julio Argentino Roca, from Tucumán, leader of the Campaña del Desierto against the Indians and a man with support in almost every province of the Interior. When in April 1880 Tejedor lost against Roca in all districts but his home province and Corrientes, he rejected the results and organized military resistance. The struggle between Buenos Aires, first among the unequal provinces of Argentina, and the national government, recalled in many ways Mitre's uprising of 1874 – again a defeated presidential candidate from Buenos Aires rebelled with little success against the choice of most of the Interior. According to much of Argentina's historiography, 1880 was the starting point of a new era because it marked the final consolidation of the national state vis-à-vis local authorities all over the country. The more powerful challenger to national authority, Buenos Aires, had been finally tamed after the events of 1880. The disappearance or at least weakening of internal conflict from then on was certainly a novelty in Argentina, ravaged since independence by internal strife, most of which had a regional dimension to it, such as the long standing struggle between unitarios and federales. This dissertation is about an arena where regionally based conflict increased rather than disappear after the events of 1880, namely, economic policy. The regional configuration of political power between the governments of Roca (1880-1886) and José Figueroa Alcorta (1906-1910) can go a long way explaining many crucial aspects of the political economy of Argentina. The 1880s witnessed a very peculiar political economy. With their power base in the poor provinces of the Interior –which were the nerve of the

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Liga de Gobernadores–, the governments of Roca and Miguel Juárez Celman both had unfettered political incentives to indulge in a program of lavish national expenditures, sustained monetary expansion, extension of unprofitable railways to every corner of the country and inducement to fiscal profligacy in the provinces. (Chapters 2 and 3). The decade ended with one of the gravest economic crisis in the history of a country famous for the recurrence and intensity of its crisis. I contend in Chapter 4 that, given the combination of inequality between the members of the Argentine federation and the type of federal organization then in place (characterized by the lack of proportion between the economic importance of the provinces and their political power), the occurrence of a crisis was all but unavoidable. The availability of abundant external financing for most of the 1880s defined the characteristics of a crisis that would have otherwise taken place in some other manner. It was, rather, the peculiar political economy arising from Roca's triumph that guaranteed the occurrence of some sort of financial crisis. 1890 was, in this sense, a consequence of 1880. The contrast with the early 20th century is striking: in spite of a renewed generosity of capital markets, Argentina followed relatively orthodox fiscal and monetary policies at least after the turn of the century. I argue that this resulted from a combination of two factors: the increased wealth of provinces such as Santa Fe and Córdoba, plus the augmented representation of wealthy provinces, particulary Buenos Aires and Capital Federal, after the 1895 Census. While deputies were allocated in strict proportionality to provincial population, every province had two seats at the Senate, leading to overrepresentation of smaller districts both in Congress and in the body that defined presidential elections. In those conditions, an “alliance of the prodigal” such as that of the 1880s was

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likely. But the share of the province of Buenos Aires and the Capital Federal in the Electoral College that chose the president increased as its population grew faster than that of the Interior. These two districts represented just one-quarter of total votes until the update that followed the 1895 Census, but one third thereafter. Along with medium-sized provinces such as Córdoba, Santa Fe or Entre Ríos, they could easily impose a winning majority. These were provinces that just couldn’t free ride on the national budget. In Chapter 5 I look at the political determinants of tax policy. I contend that provinces unblessed with the country’s comparative advantages (ie., the provinces outside the Pampaean region) managed to build up, at the height of their political power (the 1880s) a protectionist system favoring regional products to extents unknown in Argentina and unprecedented until Peronism. While this protectionism did result in a rapid development of the sugar industry in Tucumán and the wine industry in Cuyo, it was in many ways an unfinished business: other provinces couldn’t find a productive place in the national market; there was no clear way out when the products completed import substitution; appreciation of the currency in real terms, resulting from the expansion of Pampean exports since the late 1890s, deteriorated their competitiveness; and with the growing political power of the Litoral region, this pro-Interior protectionism was under attack, suffered some setbacks and wouldn’t be extended to other products. There are four traditions to which this work is related. First, the regional dimension of the political economy of the period fits well into analysis of politics in a strict sense during the times of the Partido Autonomista Nacional. The influential work of Natalio Botana 4 analyzed the nature of the interaction between provincial and national politics for the whole

4

Botana, Natalio (1977), El orden conservador, Sudamericana.

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orden conservador (1880-1914). He describes the regime as one of gobiernos electores – the combination of constitutional provisions and the actual practice of elections gave the President the final decision over his own succession, the political sign of provincial authorities and even the composition of Congress. Argentine presidents had the final word over situaciones provinciales because the threat of a federal intervention constituted a limit on the autonomy of provincial governors. The whole system worked as a web of political dependence in which provincial governors, while ultimately subordinate to the President, played a crucial role. Governors could easily manipulate electoral results and designate candidates for the provincial and national legislatures. Crucially, they also drew the lists of the provincial representatives at the Electoral College that chose the president. Except for a brief period in the decade of 1900s, the system worked in each province as lista completa, that is, winner-takes-all, as in present day United States (though not anymore in Argentina). The presidential candidate controlling a number of provinces high enough to win a majority in the Electoral College would get the job. Paula Alonso 5 has studied in detail the political scene of every province during the presidencies of Roca (1880-1886) and Juárez (18861890), showing the conflict in each of them between political "leagues" responding to different presidential hopefuls for the 1886 presidential elections6 . The recent narrative of

5

Alonso, Paula (2002), "La política nacional entre 1880 y 1886 a través del Partido Autonomista Nacional", San Andrés. Also, Alonso, Paula (2005): “El desenlace de la comeptencia interliguista”, mimeo.

6

The frequency and intensity of national intervention in provincial politics was one of the main contemporary critiques to the political regimen, either from politicians themselves (such as D'Amico (1977), Buenos Aires, sus hombres, su política (1860-1890)) or, early in the twentieth century, from writers studying the functioning of the federal system (for example, Rivarola, Rodolfo (1908), Del régimen federativo al unitario, Peuser.).

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the period by David Rock also heightens the role of regional alliances in defining the political outcomes 7 . In Botana's analysis, federal intervention is the stick that punishes rebellious governors. The redistribution of economic benefit to the provinces is, in the view I present, a carrot that can efficiently replace or complement that stick. We will meet governors reminding presidents of their pre-electoral material promises and provincial representatives in Buenos Aires trying to direct the budget to their homeland. At times, these demands would exceed what the national government considered convenient, but prudence was often sacrificed in the name of politics. The fact that the coalition sustaining Roca and Juárez included the poorer provinces, who perceived no immediate cost (for instance, in the form of higher taxes) from grossly unbalanced budgets aimed at promoting their rapid development, gave an expansive stance to economic policy, which would manifest violently in 1890. A second tradition related to this work is the literature on the causes of the 1890 crisis. As any over-borrowing crisis, the crash of 1890 had both a credit supply and a credit demand component, none of which wholly explains the other: if somebody is willing to lend, a country can borrow or abstain from borrowing; if a country wants to borrow, there may or may not be lenders willing to supply credit. Most of the explanations of the 1890 crisis have emphasized demand factors. Here I follow that tradition but with a twist: I'm more interested in understanding the political economy of those demand factors rather than in explaining the mechanism and timing by which monetary and fiscal expansion led to devaluation, default and depression. 7

Rock, David (2006), La Construcción del Estado y los movimientos políticos en la Argentina, 1860-1916, Prometeo Libros.

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My work is also related to previous research that has shed new light on the degree of correspondence between economic and political power during the belle époque. Discredited the old revistionista and dependentista schools, for whom economic policy was dictated by foreign interests, the question remained of which were the local groups with the upper hand over national economic policy. In this sense, recent work by Roy Hora on commercial policies has been illuminating 8 : the most economically powerful social group (the Pampean landowners) was the main victim of decisions over national tariffs. Although worried about the effect of tariffs on their exports –especially because of the fear of retaliation at external markets– the clase terrateniente was particularly incapable of articulating a political force to counteract the significant protectionism of the Partido Autonomista Nacional. According to Hora, Argentine trade protection was not only a result of the revenue needs of the national government but also one of the means by which the party of Roca was expecting to extend economic development to key industries in the provinces that were the core of its constituency. Three decades after the classic of Carlos Díaz Alejandro9 , the idea of a moderately to highly protectionist Argentina during the belle époque has come of age. Recently, John Coatsworth and Jeffrey Williamson 10 have looked at the early Latin American experience in a comparative perspective. They find that Argentina, like its neighbors, was never the free trading nation predicted for land abundant countries by Rogowski's political economy 8

Hora, Roy (2000), "Terratenientes, empresarios industriales y crecimiento industrial en la Argentina: los estancieros y el debate sobre el proteccionismo 1890-1914". Desarrollo Económico. vol. 40, n. 159, oct.dic; Hora, Roy (2003). Los terratenientes de la pampa argentina. Una historia social y política 1860-1945. Buenos Aires, Siglo Veintiuno; Hora, Roy (2006), “La política económica del proteccionismo en Argentina, 1870-1914”, XIV International Economic History Congress.

9

Díaz Alejandro, Carlos (1970), Essays on the Economic History of Argentina.

10

Coatsworth, John and Jeffrey Williamson (2002). "Always protectionist? Latin American tariffs from Independence to the Great Depression", mimeo.

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model 11 . Since the pioneering work of Adolfo Dorfman 12 and Ezequiel Gallo 13 , we know that industrialization was quite intense in pre-World War I Argentina. The political economy of manufacturing protection is present in the work of Fernando Rocchi on industrialization 14 . Like Hora, Rocchi mentions the provinces of the Interior interested in manufacturing development as one of the influences over commercial policies. The granting of commercial privileges to extra-Pampean provinces stressed by both Rocchi and Hora agree with the conclusions of previous studies on specific regional economies, notably those for the cases of Tucumán and Mendoza 15 . This dissertation offers a possible explanation for the timing of Argentine protectionism: its height coincided with the supremacy of the Interior in Argentine politics, around the 1880s. With the decline in the power of the inland provinces, the protectionist system was gradually eroded. Every historian is a children of her times. The discussion of protectionism and its political economy was at the heart of the historians' debate over belle époque economic policies while Argentina flirted, embraced and finally –between the seventies and the nineties of the twentieth century– abandoned import-substituting industrialization. Gradually, other economic issues have come to occupy the front stage in Argentina's

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12

Rogowski, Ronald (1987) "Political Cleavages and Changing Exposure to Trade", The American Political Science Review, vol. 81, 4. Dorfman, Adolfo, Historia de la industria argentina. Buenos Aires: Solar Hachette. First published in 1942

13

Gallo, Ezequiel (1988), “La expansión agraria y el desarrollo industrial en la Argentina (1880-1930)”,. Anuario del IEHS, 13.

14

Rocchi, Fernando (1997), “Building a Nation, Building a Market: Industrial Growth and the Domestic Economy in Turn-of-the-century Argentina”, dissertation for the University of California at Santa Barbara.

15

For example, Balán, Jorge (1977), "Una cuestión regional en la Argentina: burguesías provinciales y el mercado nacional en el desarrollo agroexportador", in Desarrollo Económico, april-june; Supplee, Joan Ellen (1988), "Provinical Elites and the Economic Trasnformation of Mendoza, Argentina, 1880-1914”, Ph.D Dissertation, University of Texas at Austin; Guy, Donna (1980), "Argentine Sugar Politics: Tucumán and the Generation of the Eighty", University of Arizona Press; Sánchez Román, José Antonio (2001), "Tucumán y la industria azucarera ante la crisis de 1890", Desarrollo Económico, vol 41, 153.

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economy and its economic history. The inflationary experience of the 1980s and the ensuing stabilization of 1991 inspired researchers as Roberto Cortés Conde and Gerardo Della Paolera to investigate the roots of monetary instability in the nineteenth century. By the beginning of the 21st century, Argentina had accumulated twenty years of uninterrupted practice with constitutional federalism. The economic consequences of federalism – especially, its particular fiscal dynamics– have been emphasized by many analysts of Argentina's economic depression of 1999-2002. My work is an attempt to look back at another period when federalism was a decisive aspect of national economic policy, particulary on the fiscal and monetary fronts. In this sense, a fourth kind of work to which this chapter is related is the discussion among economists and political scientists on the fiscal consequences of a federal organization. In Argentina, the debate has revolved around the tax-sharing agreement by which the central government and the provinces distribute national revenues (the coparticipación federal de impuestos). Critics of coparticipación sometimes assume that before 1935, when coparticipación was inaugurated, the federal system was no burden for the national budget. My work tries to show precisely the opposite. Even in the absence of a tax-sharing agreement, a federal organization can be a problem for aggregate fiscal accounts. In particular, I introduce a dimension absent in the discussion on federal fiscal finances: the relative political power of rich and poor members of the union. I will argue that in a system where provincial representatives have power over budget and monetary decisions, richer provinces will tend to favor more responsible fiscal policies, and viceversa. The 1880s are very special because the members of the governing coalitions were the poorer provinces, more prone to unbalanced budgets, and because the system of winner takes all coupled with the power to control local elections gave provincial authorities the key to the Casa Rosada. Things would gradually change with demography 9

and economic development: as the city and province of Buenos Aires grew in size, and as some provinces other than Buenos Aires (for example, Mendoza, Santa Fe and Tucumán) managed to attain some degree of material progress, a coalition of the poor and prodigal like the one dominating the 1880s would become less likely. Between 1905 and 1929 Argentina enjoyed periods of ample credit opportunities, as in the 1880s, but she managed to abstain from excessive debt accumulation. Growth was only interrupted by crises of external origin, like the one in 1913. The tragedy of the unequal didn't repeat itself. Much of this dissertation is about the voices of the representatives of the Interior and their influence over national economic policies. The evidence comes from both primary and secondary sources. Among the former, the national press, government documents dealing with banking, fiscal affairs and statistics and letters from provincial governors to the presidents are major sources. Still, this dissertation relies on the parliamentary records (Diarios de Sesiones) more than on any other source. While the Diarios de Sesiones have been profusely used by historians, economic and not, it is with a difference the wealthiest source of information on economic policies and there is ample room for further historical research using the Diarios as a source. The Diarios de Sesiones are particulary worthy when it comes to listening in Buenos Aires, were national authorities resided, the voice of the provinces.

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CHAPTER 2. A Wealth of Paper

This theory of equilibrium, as some understand it, reminds me of the communists, who want to equilibrate in the social order. They are the true levelers. Fortunes must be the same, they say, because the rich are a bad influence for society and a burden on the majority, which is poor. This is what some want to do in the political order of the republic: ‘Buenos Aires is already very rich, and its influence causes suspicions and anxieties in the other Provinces, and might endanger the Argentine nationality’ [...] Their means of leveling are certainly original. I would understand and applaud that equilibrium if it were reached by improving the moral and material situation of the other Provinces; but impoverishing the rich so as to avoid hurting the general organism – that is practicing communism in politics... Leandro N. Alem 16

2.1. The Location of Progress Geography and demography defined three basic characteristics of the Argentine economy, recently used to explain the whole trajectory of development since 1880 17 . The Argentine economy came into being with equality in one dimension and inequality in two others, all of them related to initial endowments of economic resources. First, the high landlabor ratio made Argentina a comparatively equal country in terms of functional income distribution. By 1929, for example, Argentine wages would be higher than British wages in spite of a lower overall productivity18 . Second, the abundance of natural resources led to massive comparative advantages in rural activities and, symmetrically, comparative disadvantages in manufacturing. In other words, factor endowments led to a wide inequality

16

La federalización de Buenos Aires. Debates y documentos. Buenos Aires, EMECE Editores, 1980, p.229.

17

Gerchunoff, Pablo and Lucas Llach (2004), Entre la equidad y el crecimiento, Siglo XXI editores.

18

Williamson, Jeffrey (1998), "Real Wages and Relative Factor Prices in the Third World 1820-1940: Latin America", Harvard Institute of Economic Research, Harvard University, Cambridge, MA.

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between sectors of production. Third, the spatial coincidence of the most productive region and the obvious port for Atlantic commerce (a geographic accident unique at least in the bigger countires of the Americas) implied a huge productivity difference between the Pampas (including Buenos Aires, Santa Fe and Southern Córdoba) and the rest of the provinces. These pages deal with the third of these assimmetries. By 1880, the economic disparity between Buenos Aires and the Interior was immense. Though incomplete as a measure of economic development, provincial budgets give us an idea of the relative economic standing of the Argentine provinces 19 . In 1880, the budget of the province of Buenos Aires –with the city still belonging to the provincial state– amounted to 5,462,000 pesos fuertes, or 58% of the combined budgets of all 14 provinces, for a population of 32% of the national total. In per capita terms, the budget of Buenos Aires was 11.2 pesos per capita, against an average of 2.5 elsewhere. While these numbers probably overestimate the income gap across provinces, as the capacity of the provincial state to collect taxes would normally increase more than proportionally with economic development, the difference is large enough to suggest an abysmal economic divide between regions in 1880. The income gap between Buenos Aires and most of the rest of the country had widened considerably since independence. In the seventy years between its revolts against Spain in 1810 and against Roca in 1880, the porteño economy managed to transform itself from an entrepot of colonial trade with a dependent rural sector to a successful export economy of pastoral products. External trade based on cattle derivatives, including hides, tallow and jerked beef dominated the business until mid-century, when they began to be 19

Budget data from Agote, Pedro (1888), Informe sobre la deuda pública, bancos, acuñación de moneda y presupuestos y leyes de impuestos de la Nación y las provincias.

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gradually replaced by wool and sheep hides 20 . The sheep boom starting in 1850 made the province of Buenos Aires worth a lot more in 1880 than forty years earlier: a hectare of land north of the Salado River sold at two thirds of a peso (gold) in the 1840s but at almost 20 gold pesos in the early 1880s 21 . The region of Mesopotamia (Entre Ríos and Corrientes) and Santa Fe, which along with Buenos Aires comprise the Litoral provinces, did share some of the rural-driven dynamism of their rich neighbor. A first approximation to their development is demographic growth. Population in the Meospotamia and Santa Fe multiplied by more than eight between independence and the 1869 census, the rate actually exceeding that of Buenos Aires. The three provinces took advantage of their location, with access through the Paraná River to the ports of Buenos Aires or Montevideo, where their own pastoral products found their way to international trade 22 . The remaining ten provinces (Mendoza, San Juan and San Luis in the Cuyo region, Tucumán, Salta, Jujuy in the Northwest, La Rioja and Catamarca in between, plus Córdoba and Santiago in the geographic center of the country) fared worse during the six decades to 1870. Population growth lagged behind that of the Litoral, and only tripled between independence and 1869. The gap in urbanization rates between the Litoral and the Interior widened in 1820-1860: while in the Litoral the rate increased from 36.8 to 45.7, in the

20

See, for example, Sábato, Hilda (1989), Capitalismo y ganadería en Buenos Aires: la fiebre del lanar, Sudamericana and Brown, Jonathan (1979), Historia socioeconómica de la Argentina, 1776-1860, Siglo XXI.

21

Sábato (1989), 63.

22

Brown (1979), 364.

13

Interior it actually declined, from 18.4 to 15.9 23 . We can only speculate on the reasons of the relative decline of the Interior. In the first place, the Northern and Western regions had been traditionally dependent on the Potosí trade, both by acting as intermediaries with Buenos Aires and as direct suppliers. The decline of Potosí during the nineteenth century severely damaged these Interior economies and led to a painful restructuring towards the system with center in Buenos Aires. The geographical shift wasn't easy in the face of provincial taxes to trade (like the alcabala) and poor transport facilities 24 . In the second place, the civil wars of the nineteenth century hit these provinces harder than Buenos Aires. A third possible reason explaining the decline of the Interior is import penetration. By lowering the relative prices of imports, the demise of the protective colonial system –only marginally reversed with Rosas' customs law 25 (Chapter 5)– may have displaced local manufactures in sectors such as wine (important in Cuyo), sugar or tobacco 26 . The year 1876 is for two reasons a landmark in the history of the Interior economies. Argentina, traditionally a net importer of agricultural goods, exported wheat for the first time in 1876. This was not a porteño development but the material result of the new type of society that began to grow out of small-scale farming in Santa Fe by Swiss and Italian immigrants 27 . Another crucial development was the gradual extension to the North of the

23

Salvatore, Ricardo and Carlos Newland (2003), “Between independence and the golden age: The early Argentine economy”, in Della Paolera, Gerardo and Alan Taylor (2003), A New Economic History of Argentina, Cambridge University Press.

24

On the other hand, the elimination of alcabalas following the 1853 Constitution hit provincial finances hard (Cortés Conde, Roberto et. al . (2000), “Las finanzas públicas y la moneda en las provincias del Interior”, in Academia Nacional de Historia, Nueva historia de la nación argentina, volume 5, Planeta).

25

For a moderately optimistic assessment of the impact of the Ley de Aduanas in the Interior economies see Panella, Claudio (2000), La Ley de Aduana de 1836 y su incidencia en las provincias: Un aspecto de la economía rosista.

26

Brown (1979), 343ss

27

Gallo, Ezequiel (1983), La Pampa Gringa, Sudamericana.

14

Ferrocarril Central Argentino, the Interior's first trunk line. The Central, planned in the 1850s by the government of the Confederación and built by a British company who received in exchange profit guarantees and land grants, reached Córdoba in 1870. By 1876 an extension of the line, the State owned Central Norte, had touched Tucumán. The reduction in freight costs between Tucumán and Buenos Aires due to railways has been estimated at between 90% and 95% 28 . Investment followed business opportunity, and soon Tucumán was transforming its small and primitive sugar industry into a modern business which twenty years later would be big enough to supply the whole national sugar market 29 . Santiago del Estero took part in the sugar boom, and it is customary to date the beginning of modern agriculture in Santiago around 1870 30 . Córdoba benefited from its special location, at the center of the Central system. The publication in early 1881 of internal trade figures by Córdoba's statistical office was greeted as a sign of a booming Interior: products entering Córdoba from other provinces had increased by 67% between 1878 and 1880, with more than average performance by provinces such as Santiago and La Rioja, which tripled their previous records 31 . In Tucumán and elsewhere, the perspective of a proximate arrival of the railways could prompt investment, an increase in land values and –as Paul Goodwin has argued–

28

Pucci, Roberto (1991), "Azúcar y proteccionismo en la Argentina, 1870-1920", en Campi, Daniel, ed., Estudios sobre la historia de la industria azucarera argentina.

29

The progression of sugar production in Tucumán is: 1870: 1400 tons, 1881: 13.000 tons; 1895/96: between 130000 and 169000 tons. Girbal de Blacha, Noemí (1991), "Estado, modernización azucarera y comportamiento empresario en la Argentina (1876-1914)", in Campi, Daniel, ed., Estudios sobre la historia de la industria azucarera argentina.

30

For example, Tasso, Alberto (1995), "Población, desarrollo agrario y modernización en Santiago del Estero, 1869-1914", in Teruel, ed., "Población y trabajo en el Noroeste argentino, siglos XVIII y XIX", Universidad Nacional de Jujuy. Unidad de Investigación en Historia Regional.

31

Las Provincias, March 18th, 1881.

15

even immigration in advance of the tracks themselves 32 . The experience of the Cuyo provinces is a case in point. Even if the railways would only reach Mendoza and San Juan in the mid 1880s, the expansion of the Central Argentino in the 1870s initiated the eastward movement of the Cuyano economy in spite of the wheat-induced growth of Chile (the main market for Mendocino and Sanjuanino products in previous decades) during the California mining boom. Also in Santiago, where tracks were only starting to be built in 1882, El Ferrocarril noted that "valorization has reached such an extent in this province that last year a league of land in the frontier was selling at three hundred chirolas [around 42 fuertes] and today Don Máximo Etchecopar has sold at 600 fuertes the league in the same frontier" 33 . The coincidence, in a span of five months, of the defeat of Tejedor (June 1880) and Roca's inauguration (October 1880) was perceived in the Interior as the beginning of an era when the regional economic balance would change in favor of provinces other than Buenos Aires. In Córdoba, a district at the core of the government's coalition during the whole 1880s, the political and economic dimensions of the 1880 struggle were perceived as closely linked. In that year, Antonio Del Viso, governor of Córdoba and later a minister of Roca, wrote to Juárez Celman about the conflict with Buenos Aires: "We will fight and we will win. We will complete the railways and stimulate immigration to the Interior. That will be our first priority" 34 . Roca himself hinted that the lagging provinces of the Interior would

32

33 34

Paul Goodwin and Sylvester Damus debated on the timing of economic change in the Interior . Goodwin, Paul (1977), "The Central Argentine Railway and the Economic Development of Argentina, 1854-1881", Hispanic American Historical Review, 57, 4. Damus, Sylvester (1978), "Critique of Paul Goodwin's 'The Central...'", Hispanic American Historical Review, 58, 3. From Santiago del Estero's El Ferrocarril, quoted in Las Provincias, March 15th, 1882. Quoted in Cornblit, Oscar, Ezequiel Gallo and Arturo O'Connell (1962), "La generación del 80 y su proyecto: antecedentes y consecuencias", in Desarrollo Económico, Vol. 1, N. 4.

16

receive special treatment during his term in office, and anticipated the two main instruments through which progress would irradiate from Buenos Aires to the rest of the country: money and railways. The Banco Nacional would increase "the services provided to the people of the Interior" 35 , and railway policy would consist of "completing the great iron arteries which will unite the extremes of the Republic with the Litoral – already Santiago, the last province to emancipate from barbaric caudillaje, surprises us, when we least expected it, asking us a rail line in the name of its sixty eight irrigation channels and its blossoming wine and sugar industries" 36 . In line with Alberdi's thought, economic development in the Interior was seen as the only enduring alternative to recurring war. Thus was Las Provincias arguing early in 1881: There's only one remedy to civil war, and that is creating wealth. Wealth creates at the same time power and order. What the country needs to defeat the rebels is production figures. The higher these are, the more impotent the rebels. Work will kill the leisurely, who are a hindrance to progress. Here an argument... more powerful than weapons. More powerful than all the repressive elements invented to end civil wars. Four Argentine provinces, Tucumán, Salta, Jujuy and Santiago, have produced in the past year, which has just ended in blood and tears, 820.000 sugar arrobas and 5.000 pipes of brandy [...] The wines of La Rioja and San Juan are well known all over the Litoral, and their consumption has reached immense proportions. These figures that illuminate, so to speak, with the placid torch of progress the way that pacified provinces are following, are more than sufficient to disarm the lowest instincts 37 .

With Roca's motto of paz y administración, the hour of material progress had finally arrived: "the economy marks that serious, practical and useful era of a nation, an era that 35

Mensajes de Roca de 1880 a 1886, Publicaciones del Museo Roca, Buenos Aires, 1966, 12.

36

Mensajes de Roca de 1880 a 1886, 15.

37

Las Provincias, January 7th, 1881. The connection between economic development of the provinces and political stability had been advanced by a previous generation of provincianos. For example, Florencio Varela had argued in the same vein in 1846, though on a less optimistic note regarding the chances of equalization: "It is not possible nor rational to expect peace and amicable coexistence between different provinces in the same nation when some are in complete destitution while others live in plentiful abundance and the difference is not due to natural causes [...] The provinces at the heart of the Republic, like Catamarca, La Rioja and Santiago, will never be able to advance in the same measure as Buenos Aires, Santa Fe or Corrientes, situated on navigable rivers. But those differences do not offend because they are a result not of the injustice of men but of nature". From Varela, Felipe, "Sobre la libre navegación de los ríos", in Halperín Donghi, Tulio, ed. (1995), Proyecto y construcción de una Nación, Ariel.

17

England, the United States and other countries have laboriously attained, and which we now begin. All this agitation about banks, loans, roads, budgets, new industries, big businesses or small savings are the proof that we have reached the happy hour of serenity, judgement and practical life." 38 Calls for an extension of progress to the Interior fluctuated, in 1881 as later in the decade, between an emphasis on the reality of deprivation of the provinces of the Interior and a confidence on their incipient or potential wealth. On the one hand, "industrial statistics reflect today the state of dejection of the population of the Interior provinces" 39 , "in an embryonic society [the editorialist is talking about Catamarca, suffering two consecutive years of bad harvests] there's no capital accumulation, nor products of urban industries to compensate for the lack of agricultural production" 40 , and The progress of agriculture, industry, river navigation and railway construction have improved the economic and even the political conditions of some provinces, but deteriorated relatively the position of others. While Santa Fe, Entre Ríos and Córdoba have received the benefits of colonization, navigation and easy transport, Salta, Jujuy, Catamarca, San Luis, La Rioja and others have been left to their own, futile efforts, to try reach the heights of their sisters. We don't count Buenos Aires in this comparison as she has received the benefits of its huge population, its geographic position and its status as seat of the national authorities [...] To maintain a necessary balance in our political life we need not only laws, but their actual enforcement by administrative measures that raise industry, stimulate agriculture and make possible an autonomous movement of the provinces that haven't yet received the benefit of the Nation's public works [...] There are provinces leading a pauper, meager life, with an administration that would embarrass a village, while others have prodigal budgets which would honor a Republic. We don't think we should deprive a province of what she naturally possesses so as to give it to the one who lacks it; but if the Federal Government is going to be a fact, the national authorities should seek a political as 41 well as an economic equilibrium.

On the other hand, spokesmen for a pro-Interior economic policy saw in the provinces boundless potential for economic development: "Marble from Córdoba, sugar 38

Las Provincias, July 7th, 1882.

39

Las Provincias, February 4th, 1881.

40

Las Provincias, December 11th, 1880.

41

Las Provincias, September 21st, 1881.

18

cane from Tucumán, Salta and Santiago, cereal from Santa Fe, wines from San Juan, the many products from Mendoza, kerosene from Jujuy, cattle from Entre Ríos, everything is attaining an extraordinary degree of progress" 42 , and all that would be clearer for porteños with the Continental Fair of 1882. This event, organized by the Club Industrial, gained the material support of Roca's government. By a law of October 1881, a subsidy was voted to invest up to 30,000 pesos to "stimulate, help to collect and ship national products in the whole Republic" 43 . Every province presented its claim to fame and progress. Not only Santa Fe ("that yankee province at this fair") with its agricultural products and Tucumán ("the province with sugar of the best quality and biggest scale") looked prepared for modernization, but also Entre Ríos ("60 kinds of timber"), Santiago ("sugar, timber, rice, tobacco, leather products"), Córdoba ("marbles, cereal, fabrics, timber, furs and many other products of nature and men...as well as samples that denote the European style of its ammunition factory"), Mendoza ("with its wines and cereals it's placed at a higher level than the other provinces"), San Juan ("an artistically decorated wine collection, worthy minerals, fine vicuña fabric, fruits, horseriding apparel"), San Luis ("its collection of minerals is incomplete but makes it clear where the basis of prosperity rests"), Corrientes ("yerba mate, bees, a huge sweet potato and fine liquors that obtained prizes in Paris and Philadelphia"), La Rioja ("whose future is guaranteed by its famous mines, exhibits 1500 kinds of minerals..."), Salta and Jujuy ("where villages will spring up as soon as they receive the fertile visit of the locomotive") 44 .

42 43

44

Las Provincias, October 10th, 1881. Quoted in Eiras, Carmen Teresa (1978), "La exposición continental de 1882", Separata del IV Congreso Nacional y Regional de Historia Argentina. Las Provincias, March 15th, 1882.

19

Tucumán was an obvious example for other provinces, anxious to imitate or even surpass her. Thus "Salta, though in a less happy position [than Tucumán] relative to the Litoral, is closer to Chile, Bolivia and Perú... if Tucumán is asking for a hundred more wagons to export its products, then Salta would need two hundred more... Salta is the richest province in the Republic and the one with the vastest and happiest future..." 45 . Whatever their actual poverty, every province could claim for her the brightest destiny. Later in the decade, Deputy Lucio Mansilla would support Joaquín V. González proposal for a railway extension to La Rioja asserting that "the richest province in the republic, and the poorest –because we have these paradoxes in our country– is La Rioja... La Rioja is naturally wealthy, I've seen that, because it's not only a mining province, but also suit for agriculture and cattle raising, but has to fight with the obstacles of nature" 46 . Even Jujuy was naturally rich, thought Deputy Calvo when debating in 1882 on the branches of the Banco Nacional: "I've seen in the United States great cities growing at the side of oil mines, and in Jujuy I find oil mines all over the place... how can we neglect such a rich province?" 47 . Expectations on mining prospects during the 1880s reflected, more than in any other industry, the widespread notion of an immense wealth lying asleep in various Eldorados across the provinces of the Interior. A message from the Executive explaining the creation of a committee of mining engineers anticipated that "unexplored minerals could be, as in Chile and Bolivia, the source of prosperity and wealth" 48 . The editorialist of El Interior, a

45

Las Provincias, September 3rd, 1881.

46

Diario de Sesiones de la Cámara de Diputados (in what follows, DSCD), 1887, Sept. 16th, 943.

47

DSCD, Sept. 19th, 1882, 379.

48

DSCD, June 11th, 1884, 251.

20

newspaper from Córdoba, marveled in early 1882 under the headline "The future of Córdoba" that There's a fact, an important fact, that is becoming more frequent lately, and that should attract the attention of both the government and speculators: the discovery of mines. Each year, each month, even each day, there's a report of a new vein, of a spring of precious metals, of a seam of gold, of a source of wealth, that the earth was hiding and is now uncovered – like a tribute that will soon change the economic situation of our land. What a grand coincidence that in the period of law, of peace and of work, in the governments of Roca and Juárez Celman, this Province, their favorite Province, seems to hail them as if answering their call to industry, exhibiting itself as the new California of South America! 49

Unfortunately, the early 1880s were years of false starts in gold, silver and lead. It wasn't the scarcity of capital, specialized workers or initiative that impeded any significant progress. Two new mining societies were formed in Córdoba during the Roca years (La Industrial and the Sociedad Minera de Rara Fortuna), but fortune remained elusive for them. The metallic content of most of the explored mines turned out to be poor, and there was progress of some note only in the less valuable marble and limestone 50 . Governors who had supported Roca for his 1880 election were quick to remind him of their provinces' material needs. Juárez Celman, already governor of Córdoba by 1881, was as insistent in his claims of allegiance as in his economic requests. "20,000 pesos are for the central government a grain of sand. And I'm asking you just 10,000 which you can get anywhere with a little will" 51 , he wrote to Roca early in 1881 before giving him assurances that he would resist Dardo Rocha's moves against the president. In March, a letter by La Rioja's governor Francisco Bustos demanded that the Ministry of Education help finance the construction of two schools, one in Chilecito and the other in the provincial

49 50

51

Quoted in Las Provincias, January 1st, 1882. Riquelme de Lobos, Norma and Vera de Flachs, María C (1977), "La explotción minera en la provincia de Córdoba durante la primera presidencia de Julio A. Roca", IV Congreso de Historia Nacional y Regional. Archivo Roca, 14, Juárez Celman to Roca, February 10th 1881.

21

capital, and immediately communicated that "our rank and file increase in number and discipline, and we'll have nothing to fear in a long time" 52 . Julio Concha, Governor of San Luis, thanked Roca in May for a post he gave to a Rafael Cortés, guaranteed that he planned an administration that would "absolutely respond to His Excellency's policy" and suggested that Roca's promises of support would better "make themselves felt, especially in relation to the subsidies that this Government receives from the Federal Government" 53 . Governor José Segura of Mendoza anticipated to Roca that "I'll talk to you later about important public works for this province, which I'm sure you'll promptly take care of, thus fulfilling the promises made to this poor and toilsome people, always so sacrificed and ever forgotten by the previous Governments. I'm counting on your support so that some projects that the Deputies of Mendoza will present in Congress have a favorable treatment" 54 . Two months later he was in fact writing "you'll forgive me for reminding you of your promise regarding the coal mine of our friend Reta" 55 , and after a few weeks he was asking for a federal bailout on Mendoza's provincial debt (discussed below) 56 . Meanwhile, Anacleto Gil of San Juan requested an Engineer to study the works of defense of the Salí River 57 .

2.2. Money Illusion The bright prospects for the Interior around 1880 could seem somewhat exaggerated given the tough economic experience during the previous decade. However promising some 52

Archivo Roca, 15, Francisco Bustos to Roca, March 13th 1881.

53

Archivo Roca, 16, Julio Concha to Roca, May 14th 1881.

54

Archivo Roca, 16, José Segura to Roca, May 14th 1881.

55

Archivo Roca, 17, José Segura to Roca, July 4th 1881.

56

Archivo Roca, 17, José Segura to Roca, July 28th 1881.

57

Archivo Roca, 16, Anacleto Gil to Roca, June 3rd 1881.

22

developments in the Interior, the 1870s were, overall, difficult years for the Argentine economy. The world depression starting in 1873 hit Argentina hard. Avellaneda presided over a period that exemplifies well the extreme vulnerabilities of belle époque open economies. There were two sides of the economic shock, which are worth explaining since they would resurface again during the 1880s: the monetary and the fiscal aspects of the crisis. On both counts, the scope for reactive economic policies as a response to the crisis was limited by the relative weakness of the national government in relation to Buenos Aires. Monetary policy was limited because of the predominance of the Buenos Aires bill, the moneda corriente (m/c), in economic transactions. Money in Argentina was made up of both metallic coins and paper money. Metallic currency took the form of gold and silver foreign coins, with predominance of silver in the Interior and gold in Buenos Aires. Paper circulation included bills from the Banco de la Provincia de Buenos Aires, the Banco Nacional and smaller private and provincial banks. For 1880, the shares of each type of currency have been estimated as follows: metallic, 28.7%, Buenos Aires paper 61.9%, Banco Nacional paper 3.2%, smaller banks 6.2% 58 . For the 1870s we lack data of issues by the smaller banks; the remaining circulation in 1875 can be estimated as follows: metallic coins 40.7%, Buenos Aires paper 50.4%, Banco Nacional notes 8.8% 59 . Paper of the Banco Provincia de Buenos Aires was convertible to gold between 1867 and 1876 at the rate of 25 pesos m/c to 1 peso fuerte (the gold unit of account until 1881). If the rules of the game are respected, and monetary expansions have to be backed by an increase in gold or silver, currency convertibility implies that seigniorage is bound by the 58

Agote, Pedro (1881), Informe del Crédito Público.

59

Elaboration on Agote (1881) and Cortés Conde, Roberto (1989), Dinero, deuda y crisis, Sudamericana.

23

demand of money: money supply only increases in response to demand. That was not exactly the case for the notes of the Buenos Aires during the convertibility period 18661876. Cortés Conde and –for a later period– Gerardo della Paolera 60 have described the system as an asymmetric gold standard: money would increase when gold entered the bank but wouldn't fall proportionally in response to gold withdrawals. On the contrary, the Banco de la Provincia de Buenos Aires actually increased paper in circulation during the critical years between 1873 and 1876 in spite of capital flight (or, more precisely, to counteract the monetary effect of the metallic drain): while gold holdings at the bank fell from 5.5 million fuertes in 1872 to 2.3 in 1875, its notas metálicas (one of the two types of paper issued by the Banco Provincia, the other being moneda corriente) rose from 5.7 to 16 million 61 . Such an increase in the money supply at a time of declining demand resulted in the demise of conversion between paper bills and gold. Beyond its technical aspects, the detachment of Buenos Aires notes from its gold standard raised delicate political issues dealing with nothing less than the very nature of the nascent Argentine state. The authority decreeing the end of conversion was the Legislature of the Province of Buenos Aires. While in principle this was natural given that the notes being depreciated had been issued by the provincial bank, in practice it meant that the value of Argentine paper money depended on decisions of provincial authorities. In fact, the run on the Banco Nacional was immediate after the Banco Provincia decreed inconvertibility, and the national government had to follow suit declaring the Banco Nacional notes inconvertible and freezing circulation of paper of the Banco Nacional at its current value. Remarkably,

60

61

della Paolera, Gerardo (1988), "How the Argentine Economy performed during the International Gold Standard: a Reexamination". Ph.D. dissertation, University of Chicago. data from Cortés Conde (1989), appendix.

24

the run had taken place in spite of the comparatively solid financial position of the Banco Nacional 62 . With the link between paper and metallic money severed, what would define the value of money? To a great extent, the purchasing power of paper currency would depend on the willingness of the government to receive it for tax payments. In this sense, with the suspension of convertibility the national authorities did have the means to influence the value of money. National revenues probably trebled tax collections by the province of Buenos Aires in 1876 63 . This meant that, with convertibility suspended, the treatment by national authorities of Buenos Aires' moneda corriente for tax purposes was a crucial determinant of its value. In this regard, a continuum between two extreme options was available. Buenos Aires paper money could be received either as valor escrito, as justo equivalente or as a combination of both. Valor escrito meant that, for tax purposes, Buenos Aires paper money would be as good as gold, that is, 25 pesos m/c would suffice to cancel a tax obligation of 1 peso fuerte. The principle of valor escrito would mean that money was circulating as curso legal (legal tender), ie., that the government was legally bound to accept it at its gold value. (Curso legal is sometimes confused with, but different from, curso forzoso, which meant, in addition, that the depreciated paper had to be accepted by private creditors –especially, depositors– in payment of debts). The alternative of justo equivalante meant that paper currency would be accepted at its market rate to cancel a tax obligation payable in gold. Justo equivalente was the principle established by the Constitution for private and provincial paper. During the operation of the Oficina de Cambios there was no such

62

63

Quintero Ramos, Ángel (1970), Historia monetaria y bancaria de Argentina (1500-1949), Biblioteca Financiera FMI-BID-CEMLA. The multiple is actually for the 1880 budgets, Agote (1888).

25

dilemma as the gold backing removed any practical difference between both principles. The dilemma appeared with the interruption of convertibility in 1876, and each option had a different implication for the ability of Buenos Aires to finance its expenditures without raising taxes, that is, by printing money. With the principle of valor escrito, further issues of paper money by Buenos Aires would probably result in less depreciation than with justo equivalente, but at the expense of a reduction in the gold value of national revenues. The capacity of Avellaneda's national government to undermine Buenos Aires economic power by not accepting its bills at valor escrito was, however, hindered by the other aspect of the economic crisis, namely, the fiscal effect. National revenues relied mostly on tariffs, so the contraction of imports naturally resulting from a crisis in the external sector meant fiscal weakness and a chance of default. In 1871 Sarmiento had contracted the largest loan in the country's history, and Avellaneda was forced to implement a harsh austerity program to avoid default on this and other debts. In spite of a major adjustment on the expenditure side (-50% in pesos fuertes between 1874 and 1876), revenues covered only half of the expenditures in the worst year of the crisis (1876) 64 . With capital markets closed, the most obvious alternative to further adjustment or outright default was monetization of the deficit, but that was not an option as long as paper from the Banco Nacional, partially owned by the national government, remained at the margins of the Argentine monetary system. The only remaining possibility was a loan by the Banco de la Provincia, which carried not only an interest rate (4%) but a steep political price. By the agreement of September 1876, the Banco de la Provincia issued 10 million fuertes for a

64

Cortés Conde (1989), appendix.

26

loan to the national government 65 . In exchange, the national treasury was bound to accept the provincial notas metálicas (not only the 10 millions being borrowed, but up to a maximum of 22 million, an amount that exceeded actual circulation) at valor escrito for tax payments, except 50% of the tariffs which had to be cancelled either in gold or at justo equivalente. Crucially, the agreement also established that national tax collections agencies in the province of Buenos Aires wouldn’t accept the bill of the Banco Nacional, and that the total issue by the Banco Nacional in that province couldn’t be increased 66 . The compact between the province and the central government consecrated the supremacy of Buenos Aires in the Argentine monetary market. With the military defeat of the province in 1880, money would be the first arena where the national government and politicians from the Interior would look for redress. The predominance of the Banco de la Provincia paper currency, and its unstable value, had been a delicate issue for previous governments as well. During the period of civil wars, Buenos Aires managed to impose a seigniorage on the Interior, were Bolivian silver coins dominated 67 . Jeremy Adelman recounts the "battle for monetary authority" during the 1850s and 1860s as an uphill process both in Buenos Aires and, especially, in the Confederación. Urquiza's attempts to build an autonomous monetary regime "started badly... [and] then they got worse" 68 . A Confederate peso issued by the National Bank of Rosario just couldn't get off ground given the structural financial weakness of the 65

66 67

68

An exciting narrative of the Sept.1876 agreement between Avellaneda’s government and the Banco Provincia can be found at Szafowal, Mariano (forthcoming), “Et tu, Banco de la Provincia, contra me”, in Gerchunoff, Pablo, ed. Desorden y progreso. Bancos y moneda. Recopilación de leyes y decretos, 1854 a 1890, Buenos Aires, 1890. Irigoin, María A. (2003), “La fabricación de moneda en Buenos Aires y Potosi, y la transformación de la economía colonial en el Río de la Plata, 1820-1860’ in A.M. Irigoin & R. Schmidt, eds., La desintegración de la economía colonial, Biblos. Adelman, Jeremy (1999), Republic of Capital, Stanford University Press, 262.

27

Confederación and the wide circulation of foreign coins all across the Interior. Meanwhile, in Buenos Aires, Finance Minister Norberto de la Riestra tried to set the porteño peso on a firmer ground after its decline during the September 1852 revolution against the Confederación. He conducted a stringent monetary policy and replaced short-term financing by long term credit. But his efforts were impotent given that the prohibitive tariffs set by the Confederación for imports not coming directly to ports on the Paraná made it impossible for Buenos Aires to compensate, as it had usually done, external deficit in its Atlantic trade with surpluses against the Interior provinces. The international crisis of the late 1850s only made matters worse. Finally, in the wake of Pavón, the Buenos Aires government forced the Bank –against its 1855 autonomous charter– to print 185 million pesos, almost as much as the 202 million issued between 1836 and 1859 – a move that only added to the feebleness of porteño currency. With Bartolomé Mitre President of a unified Argentina, moneda corriente of Buenos Aires was finally stabilized, but the question remained of which government, national or provincial, would be the sovereign in monetary affairs. The constitutional provisions admitted no double meaning: article 108 stated that "the Provinces... cannot mint currency, nor establish banks with currency issuing rights". Two schemes were considered by the national government to curb Buenos Aires monetary supremacy. Finance Minister Dalmacio Vélez Sarsfield proposed a reform of the Buenos Aires bank charter so as to make it a national bank. De la Riestra, instead, favored the establishment of a free banking system resembling that of the United States. Both attempts failed in face of autonomic opposition from Buenos Aires 69 . The tension between the centralizing notions of Vélez

69

Cortés Conde (1989), 30.

28

Sarsfield proposal and the decentralizing tendency of De la Riestra's scheme would resurface all along the 1880s. During the administration of Sarmiento (1868-1874) an important step was taken in the direction of the national government's involvement in the monetary market. The Banco Nacional was created by a law of 1872 and began its operations in 1873 after the government paid in advance for its shares. Though legally a private bank, the participation of the national government (who could designate three of its twelve directors) made it its natural financial and monetary agent. Competition with the Banco de la Provincia, almost a monopoly until then, surfaced very early as Banco Nacional's new clients and shareholders transferred their assets from the Banco de la Provincia 70 . However, the events of 1876 were a clear sign of the fragility of Sarmiento's creature. The bank's capital had to be reduced from its original amount of 20 million to just 8 million fuertes 71 . For Roca's government, the consequences of the 1876 contract between the central government and the Banco de Buenos Aires remained a more urgent question than the ultimate architecture of the monetary and banking system. After the events of 1880, the capacity of the government of Buenos Aires to debase the currency in which most of the national revenues were paid for appeared intolerable. During the year 1881, this was the paramount economic issue – referred to simply as la cuestión económica. There were essentially three courses of action that could deprive Buenos Aires of its seigniorage: the nationalization of the Bank of Buenos Aires, the reestablishment of the gold standard (which, if properly enforced, would place a limit on the actual issue of the Buenos Aires

70 71

Cortés Conde (1989), 81. Quesada, Sixto J. (1901), Historia de los bancos modernos : La moneda y el crédito. Buenos Aires: M. Biedma.

29

bank and eliminate any difference between justo equivalente and valor escrito), and the settlement of the 1876 debt, which would automatically reverse the curso legal clause. Nationalization of the Buenos Aires bank was considered but finally rejected. During late 1880 and 1881 the Bank received attacks in Parliament and the press. When in mid1881 Tucumán considered a loan from the Bank of Buenos Aires, the porteño press ironically remarked: "Our great credit institution... doesn't belong only to Buenos Aires. It is the common property of the central government, the provinces and whomever knocks the doors of its Treasury with the tip of a bayonet, because otherwise we would be giving avaricious proof of miserable local selfishness" 72 . Las Provincias reacted by publishing the Bank's resume of the previous thirty years: "Without the Banco de la Provincia there would have been no Cepeda nor Pavón. The mutiny of 1852 wouldn't have taken place. Entre Ríos wouldn't have been invaded in 1853. Admiral Coe wouldn't have been bought off. There would have been no bloodbath in Cuyo in 1863. The 1880 revolution wouldn't have taken place [...] Who has opened the doors of the bank with the tip of their bayonets? Those who used those bayonets to impose over the whole Republic. Those who needed the gold of the Buenos Aires bank to devastate and dominate the provinces" 73 . Las Provincias favored the idea of nationalization as superior to a resumption of the gold standard because "an ample and uniform circulating medium would benefit the country", while metallic circulation [that is, convertibility] was still impossible as the rapid development of national wealth required "great elasticity in the money issues and prodigality in the granting of credit", both of them incompatible with the maintenance of a proportional gold reserve. Nationalization of the Banco de la Provinica would have the 72

Quoted in Las Provincias, July 1st, 1881.

73

Las Provincias, July 1st, 1881.

30

happy consequence of "the continuity of inconvertibility, the profusion of money issues and its profusion to all the provinces" 74 . An annual report of the Finance Minister of Salta was quoted in favor of an active monetary policy. The provincial official argued that insufficient revenues were understandable in "a province so full of natural wealth" only because of the lack of credit, which in turn was due to a scarcity of money. "We have repeatedly argued", commented Las Provincias, "that we need to increase rather than suppress curso forzoso issues, and extend them to every province, as the most effective means of developing production in the Interior". The newspaper's conclusions were exactly the same as Salta's Finance Minister's, for whom "the circulation of paper currency would all of a sudden fill the demands of industry, and raise it from the prostration it is currently suffering" 75 . Las Provincias even elaborated on a theory of what we would call today a flexible exchange rate system. Interestingly, the case for curso forzoso was presented as a specificity of newer countries, which incidentally underscored the dangers of following to its conclusions the lines of European economic thought. First, the profit rate in the older European countries tended to be lower than in newer countries, a regularity that stemmed from the fiercer competition observed in more mature markets. This made currency oscillations especially fearful as they could diminish profits to such an extent as to affect production levels, a more unlikely event in Argentina, where profit rates were higher in the first place. Second, the more rapid increases in production in newer countries meant chronic monetary shortages in a system based on gold. Third –and less originally– Las Provincias maintained that under convertibility currency is subject to the "repulsion and attraction" of gold by foreign markets, while with curso forzoso "no European crisis will 74

Las Provincias, May 15th, 1881.

75

Las Provincias, May 17th, 1881.

31

perturb the national circulation" 76 . The most obvious evidences of the benefits of curso forzoso were wealth of the province of Buenos Aires itself –only occasionally on gold– and the fact that Argentina had been able to recover from the 1870s crisis (which started under convertibility) with curso forzoso in place. Previsions of an active monetary policy through a nationalized Banco de la Provincia or by its fusion with the Banco Nacional dissipated, however, as Roca's government indicated that it favored a combination between the two remaining alternatives: settlement with the Banco de Buenos Aires of its 1876 debts and resumption of the gold standard. Those two principles were behind the two most important monetary laws of the early 1880s, both enacted in 1881: law 1107 of September 25th stipulating the settlement of the debt with the Banco de la Provincia and law 1130 of November 3rd creating a new gold unit, the peso oro, and a corresponding paper currency, the peso moneda nacional, sometimes called peso papel. The law of monetary unification has received much more attention by historians, but the settlement of the debt with the Banco de la Provincia was more hotly debated in Parliament and the press because of the political issues at stake. Three proposals were presented at the Chamber of Deputies in 1881, in advance of the government's own project, to deal with the question of the notas metálicas. As early as the second session, Nicolás Calvo of Buenos Aires put into consideration of the Chamber a law consisting of two articles that granted valor escrito to Buenos Aires notes for every tax payment, thus reinforcing the power of Buenos Aires money 77 . In the next session, Marco Avellaneda from Tucumán presented another project, in line with one advanced by

76

Las Provincias, May 18th, 1881.

77

DSCD, May 11th, 1881, 19.

32

"senators from Buenos Aires" 78 , which planned a fusion between the Banco Nacional and the Banco de Buenos Aires, but on Buenos Aires terms. The national government would have two directors but the remaining four would be chosen in a way that would maintain the provincial government's leverage in the Bank's decisions 79 . A third project was presented in the fourth session by Tristán Achával Rodríguez (Córdoba) and other Interior deputies (Sosa, Rosas and Castellanos), stipulating the stamping of a national seal to a part of the Banco de la Provincia issue (in the amount of the debt). Those bills would be a national debt and accepted at valor escrito, but the remaining Buenos Aires bills would lose their legal tender status. The aim was to avoid the fact that the Directors of the Banco de Buenos Aires could "raise or diminish the value of this fiat money, raise or diminish the nation's revenue..." a situation that, though never justified, "had an explanation before the last political developments, before the Capital was established in Buenos Aires and our political regime definitively organized in the whole republic" 80 The government's project was presented in late May and discussed until mid-August. It stipulated the creation of sixteen million fuertes of public debt (Fondos Públicos) to cancel the debts with the provincial bank (not only the loan of 1876 but also other smaller obligations). The cancellation of those debts would entail the suspension of the principle of valor escrito for Buenos Aires paper money starting in 1882, unless –and this was a superfluous condition– moneda corriente rose back to par. Absalón Rojas, deputy for Santiago and head of the Finance Commission, presented the government's project for debt

78

Goyena on DSCD, July 14th, 1881, 419.

79

DSCD, May 13th, 1881, 22.

80

DSCD, May 16th, 1881, 34.

33

cancellation as the solution of "our domestic affairs, our family accounts, so to speak" 81 . The contract of 1876 contained some clauses which were "depressive of the Nation's dignity", understandable only in the special circumstances prevailing five years before. The change of circumstances was not only economic but especially political: "those clauses could only be imposed by those who demanded them [...] but we have the right to expect nobler ideas, higher and more patriotic feelings [...] from those who are now in command of the destinies of the province of Buenos Aires". A law of Congress had decided the permanent seat of the national authorities; likewise, Rojas argued, the Parliament should resolve "the problem of our economic organization". The political content of the government project was clearcut: ending Buenos Aires sovereignty in the money market. To some deputies, the plan wasn't bold enough. Achával Rodríguez (Córdoba), for example, protested against the very notion that the provincial Legislature of Buenos Aires, who had to confirm whatever Congress decided on this matter, had the right to oppose the revocation of the contract. He would vote in favor of the project only because "The men who now suggest these procedures are the ones who a year ago were opening the doors of greatness and prosperity for the country, the men who gave the nation its definitive organization, spending long days in the swamps of Belgrano [then a village in the suburbs of Buenos Aires, where the national authorities resided during the 1880 armed conflict]...". Achával Rodríguez quoted Alberdi's 1860 attack on Buenos Aires provincial paper: "The control of the Nation's capital, port and Treasury (the product of that port's custom) by Buenos Aires not only creates an inequality that is a permanent cause of civil war but also supports and guarantees a sore that devours the trade of the Nation, who

81

DSCD, 1881, July 13th, 1881, 368.

34

is forced to trade her products in the Buenos Aires market in exchange for that paper of public debt, ever fluctuating as the security of the government who issues it. Nobody but the local Government of Buenos Aires maintains that kind of false money in its own interest and at the expense of the of the country's freedom" 82 . Others joined the attack on Buenos Aires reviving the idea of nationalization. Thus Deputy Gallo recounted that in "one of the most advanced provinces of the Interior" news of the federalization of Buenos Aires were greeted with joy, but that "some men of intelligence told me: yes, federalization of Buenos Aires is a great event; but it needs to be completed [...] the Province of Buenos Aires has to cede its bank too" 83 . Paradoxically, some Buenos Aires deputies did favor nationalization, though on Buenos Aires terms (that is, with provincial control of the Bank’s board), as a way to save the privileges of the bank. Thus Pedro Goyena assured: "Yes, the noble Buenos Aires has given its capital city, has made this sacrifice [...] Don't distrust the spirit of Buenos Aires when you see the province resisting the destruction of its bank. Buenos Aires wants the benefits of this credit institution to be extended all over the country" 84 . The government's plan raised three kinds of objections by Buenos Aires deputies. Some, like Nicolás Calvo and Luis Sáenz Peña, disputed the constitutional right of Congress to revoke a contract between two legal entities. Also, many Buenos Aires deputies stressed the dangers of suddenly demonetizing the Banco de la Provincia paper. Talk of demonetization pointed not only to the fact that Buenos Aires paper wouldn't be accepted at valor escrito, but also that it would be subject to a constitutional provision

82

DSCD, July 13th, 1881, 395.

83

DSCD, Aug. 8th, 1881, 757.

84

DSCD, July 14th, 1881, 419.

35

mandating that national revenue agencies would only receive provincial paper currency of the province where they were located in. With the end of curso legal, Buenos Aires paper money wouldn't be accepted by agencies in other provinces nor –crucially– in the recently federalized city of Buenos Aires in the event of a replacement of Buenos Aires money by a different paper currency in the Capital. Calvo, for example, saw in this rejection the possibility of a run on the Buenos Aires bank, because by limiting the use of the Buenos Aires bills "all that mass of paper would accumulate and fall in the vaults of the Bank, thus placing it in immense danger" 85 . In the third place, the fact that going back to gold was an escape clause to demonetization raised once more the issue of the relative advantages of conversion, and prompted the debate on the more fundamental question of the most convenient monetary policy. Here there were two basic positions: some argued that monetary policy had to be expansionary, so conversion was not advisable, while others maintained that monetary policy had to be expansionary even if Argentina went back to gold. Unanimous preference for an expansionary monetary policy rested however on different motives. For Buenos Aires deputies it was a way of defending curso legal of Buenos Aires bills. Pedro Goyena, for example, attacked the received wisdom on the gold standard, and seduced Interior deputies with the prospect of an inconvertible paper money circulating widely in the provinces. If the paper of Buenos Aires was the cancer that many denounced, argued Goyena, "it must be a very strange form of cancer that actually fattens the sick [...] I desire for every Province a cancer like the Banco de Buenos Aires [...] Sirs, wouldn't you desire for the places you come from, a wide circulation of the bank bill, with all its defects? A

85

DSCD, Aug. 5th, 1881, 708.

36

vicious circulation, an irregular circulation, can be a disease, won't be the perfect life, but it's life after all!" 86 . Estanislao Zeballos, born in Santa Fe but deputy for Capital ("so my feelings are in balance") established the clear link between monetary policy and the need to stimulate the economies of the Interior: "our duty is to worry more for the provinces of the Interior than for Buenos Aires, and they need circulating medium". The recent developments of sugar in Tucumán, wines in Cuyo and the prospects of mining in La Rioja, all depended on the ample supply of porteño money. But the current level of the money stock wasn't enough in the Interior. He calculated that circulation stood at 11.66 pesos per capita for the whole country, but that was the average of 42.86 pesos in Buenos Aires and only 2.17 in the Interior. "Two pesos and seventeen cents per head! That is a lack of life comparable to a man who needs two pounds of meat but eats only two ounces. Of course such a man would die [...] We need to throw prodigally the Buenos Aires bill to the Interior of the Republic, thus opening the way for the great transformation of this country" 87 . This deeper question of how monetary policy would be decided was left unresolved. But the national government succeeded in depriving Buenos Aires money from its curso legal. The precise date of the end of Buenos Aires' legal supremacy in the money market was left to the will of the central government, who could choose to withdraw the notas metálicas issues instead of paying the debt to the Banco de Buenos Aires for their redemption. Whenever the recovery of the notas was completed, the bill of Buenos Aires would lose its legal tender status. It is difficult not to associate the granting to the national government of the right to directly withdraw the notas with the rapid appreciation of Buenos Aires money, which was also supported by the more peaceful political outlook and 86

DSCD, July 14th, 1881, 418.

87

DCSD, Aug. 5th, 1881, 714.

37

the better shape of the balance of payments in both its current and capital accounts 88 . By late 1881, Buenos Aires paper was back at its conversion rate of 25 pesos per peso fuerte. The other important piece of monetary legislation in 1881 was the so-called law of monetary unification. This was actually the third attempt in six years at establishing a national metallic unit. In 1875 a law had mandated the minting of the peso fuerte, still a gold unit of account rather than an actual coin, and a corresponding silver piece (peso fuerte plata) weighing 16.27 times more than the gold unit, but Avellaneda’s government didn’t carry out the minting. In 1879, the government had sent a proposal to Congress to reform the 1875 law, creating a gold unit of 1.6129 grams and a silver unit of 25 grams, thus establishing bimetallism at the customary 15.5 to 1 rate. This second proposal was the basis of the law of monetary unification of 1881, which created the peso oro. Such a law was deemed crucial to end with "monetary anarchy" in the Republic. However, it should be kept in mind that the law of monetary unification dealt basically with metallic coins and was mute about the more substantive issue of monetary policy. It is probably more descriptive to call it "law of coinage", as does Quintero Ramos 89 , than of monetary unification. As Deputy Ocampo said during the debates, "there are two main points in this proposal: the change of our monetary unit, and the adoption of a doble patrón (double standard) at the fixed rate of 15 1/2" 90 . Apart from the change of unit, then, the main substantive issue raised by the law was that it established a bimetallic system, and the debates revolved precisely around this point. In principle, there were four possible alternatives: gold standard, silver standard, double 88

Quintero Ramos (1970), p. 84.

89

ibidem.

90

DSCD, Oct. 14th, 1881, 260.

38

standard (doble patrón) or parallel standard. The difference between the last two requires some explanation. With bimetallism in its doble patrón version a stable relation existed for the minting of silver and gold coins. A currency of equal legal value could be obtained at the Casa de la Moneda by minting a certain amount of gold or 15.5 times that amount of silver. With patrón paralelo, instead, the Casa de la Moneda would mint both silver and gold coins but the relationship between them would result from the market relative price between silver and gold. As many deputies noted, doble patrón was subject to Gresham's law: in 1881, the market relationship between silver and gold was around 18.4 to 1, so nobody would take gold to the Casa de la Moneda because by buying silver at market rates and minting it more pesos could be obtained 91 . The government's project opted for a bimetallic system in its double standard version, with a ceiling on silver coinage so as to limit the Gresham law effect. The grounds of the government's choice of bimetallism were no secret. Absalón Rojas explained the position of the majority at the Finance Commission: "Should we adopt the single standard on gold, as the minority of the Commission has suggested? No, answer thirteen provinces where the only circulation is on silver and whose transactions are based on silver, whose people know of no other coins but silver [...] Should we, on the contrary, adopt the single silver standard? No, answers Buenos Aires, where the basis for transactions is gold, whose circulation is paper and most of whose people don't even know the silver coin" 92 . What were the criteria for establishing the maximum amount of silver to be minted? As Finance Minister Romero explained, the original project presented in the Senate allowed for up to 2 pesos per person, but the High Chamber modified it to 4 pesos, "because two pesos 91

Global Financial Data, www.globalfindata.com.

92

DSCD, Oct. 14th, 1881, 230.

39

wouldn't be enough to satisfy the currency needs in the Interior of the Republic" 93 . Romero had agreed ("Senators know the Interior better than I do") on the condition that the Executive could decide to stop minting in case it foresaw that a depreciation of the silver coin relative to the gold piece could follow. Article 7 forbidding the monetary use of foreign coins (for contracts, prices or to back paper money) starting in 1882 was feared by deputies of the Interior: In what condition will the provinces of Entre Ríos, Santa Fe, Córdoba and San Juan, who use cuatro bolivianos stand? In what conditions will the provinces of the North and West of the Republic, from La Rioja to Jujuy, who have quintos de Sol remain? And what about the other provinces of Cuyo, who use the Chilean 16 cent coins? True, they can sell them. And I know that the big businessmen, the private banks, those who have great quantities of metal will sell their silver to the Governmet, but what about the mass of the population, all the people who have silver coins? 94

Deputies Ocampo from Catamarca and Bouquet from Córdoba, among others, pressed for a specific clause that committed the government to collect foreign silver coins in the Interior. Silver holders benefited from its overvaluation for monetary purposes 95 . Most of the silver collected between November 1881 and December 1883 was made up, in fact, of Chilean and Bolivian coins 96 . However, silver played no significant role in the Argentine monetary system. Most of the redeemed silver was sent to London, and a

93

DSCD, Oct. 14th, 1881, 280.

94

DSCD, Oct. 20th, 1881, 329.

95

96

According to Quintero Ramos (1970), p.90, the redemption of foreign silver didn't recognize the full metallic content in the case of some Chilean and Bolivian coins, partially reversing the advantage of silver's overvaluation vis a vis gold for monetary purposes. However, Las Provincias thought the redemption price of the peso boliviano (72 cents moneda nacional per piece, by decree of the national government, in Registro Nacional 1882, volume 2, p.715) was very satisfactory (Las Provincias, November 5th). In fact, in the Northern provinces the cuatro chirolas composing the Bolivian peso were the basis of paper circulation at the rate of 56 cents of a fuerte (close to 58 cents moneda nacional) per Bolivian peso (Las Provincias, January 6th, 1883), and the equivalence tables of the Municipality of Tucumán established a rate of 58 cents of a fuerte (close to 60 cents moneda nacional) per Boliviano (Nicolini, Alberto (1977), "La ciudad de Tucumán en el período 1880-1886", IV Congreso de Historia Regional). Las Provinicias (November 4th, 1882) stated that "whether the Boliviano is worth one more cent or not" mattered less than the deeper debate on monetary policy – an evidence that it did matter. Quintero Ramos (1970), 94.

40

complementary law of 1883 partially reversed the 1881 law stipulating that monetary issues would only be convertible to gold. At the same time, a presidential decree of December 1883 ordered the banks of issue (the banks of Buenos Aires, Córdoba, Santa Fe plus the Banco Nacional and the private Otero y Compañía) to exchange their outstanding bills for new notes expressed in moneda nacional, to be redeemed in the recently created peso oro 97 . The great monetary laws of 1881 (the debt settlement with the Banco de Buenos Aires and the law of coinage) and its complementary decrees set the basis for a monetary system based in privileged banks of issue. The laws of 1881 didn't establish any mandatory relationship between gold reserves and paper notes issued by the banks. Each bank was free to follow whatever its charter stipulated. In the case of the Banco Nacional, paper issues "could not exceed the double of its capital, and the bank should always maintain a specie reserve equivalent to a fourth of all notes" 98 . With a mere 3.2% of national circulation, the Banco Nacional seemed poorly prepared for the expansionary spirit of Roca's coalition. In his message to Congress, Roca stated that "there won't be a monetary and banking system while there isn't a general banking law that facilitates the extension of credit and capital in every direction, to decentralize it and protect it, obtaining likewise uniformity and vigor in internal commerce" 99 . In 1882, supporters of an active monetary policy revived, once more, the idea of nationalization of the Banco Provincia. This time the government appeared to be seriously backing the move. Sixto Quesada recounts the attempts during 1882 of nationalizing the

97

Quintero Ramos (1970), 97.

98

della Paolera, Gerardo (1988), 6.

99

Mensajes de Roca de 1880 a 1886, 47.

41

Bank and of the "many articles and pamphlets published" 100 . Negotiations between the national and the provincial governments may have started around June 1882 101 , and the height of the nationalization wave was reached between August and September 1882. The national and provincial government studied the chances of a new contract along the following lines: the Banco de Buenos Aires would increase its circulation to 40 million fuertes (against a total of around 28 million in 1881 102 ), the bill of the Banco would again be curso legal for a period of fifteen years, branches would be established in every provincial capital whenever the national government asked for it, loans by branches would be redeemed at 5% quarterly, half of the members of the local Directive Councils would be designed by the provincial governors and half by the Bank's directors, and there would be a loan of unspecified amount to the national government 103 . Agreement between the national government and the province proved difficult, however, and the balance seemed to tilt in the direction of strengthening the Banco Nacional. This second possibility was actually the one anticipated by Roca in the opening sessions of the 1882 Congress, when he suggested the conversion of the Banco Nacional into a State bank 104 . The most important actions in monetary matters between 1882 and the end of the Roca administration dealt with the reinforcing of the Banco Nacional so as to make it capable of pushing the money supply towards the provinces, while at the same time placing limits to the role of the Banco de la Provincia. There were three landmarks in this process:

100

Quesada (1901), 204.

101

In the June 21st session in the Chamber of Deputies, Deputy Astigueta proposed to ask the Executive for information on the negotiations with the Banco de la Provincia, DSCD, June 21st.

102

Cortés Conde (1989), appendix.

103

Las Provincias, August 21st, 1882.

104

Mensajes de Roca de 1880 a 1886, 47.

42

the increase in the capital of the Banco Nacional (1882), the issue of small change notes (1883), and the acceptance of curso forzoso accompanied by a further increase in the Banco Nacional outstanding notes (1885). All three changes were outside its prerogatives as a privileged bank, so they needed legal sanction by Congress. Paradoxically, parliamentary action in favor of a stronger Banco Nacional was initiated by defenders of the Banco de la Provincia. Ezequiel Paz, deputy for Capital, proposed an increase in the Banco Nacional's capital to the amount originally planned of 20 million fuertes, thus allowing for an expansion of its paper (which was limited to the double of its capital). Also, most of the new capital would be provided by the government, who would as a consequence hold a majority vote. Paz argued that strengthening the Banco Nacional was the best way of stopping the government's harassment of the Banco Provincia: Should we distrust the government's men? If we do, why shouldn't we fear that the Executive will set itself on the Banco de la Provincia...? Why shouldn't we fear that if we don't give the Banco Nacional the means to foster prosperity, the National Government will be always harassing the Banco de la Provincia, to nationalize it by reason or by force and bring thus all kinds of conflicts... Neighbors shouldn't antagonize... Maybe by reinforcing the Banco Nacional we will be saving the Banco de la Provincia 105

The proposal by Paz was presented when sessions were ending and the Chamber was already discussing the 1883 budget, but a preference motion was voted to treat it immediately. As Bouquet pointed out, "Dealing as it does with this element of life that the provinces need so badly, we cannot say 'we will treat it later'; one can wait here in the Capital; one can wait in the province of Buenos Aires, because in the Capital and in Buenos Aires there's plenty of credit, but in the rest of the Republic we will remain neglected, in the

105

DSCD, Sept. 18th, 1882, 356.

43

most absolute need of resources. We cannot have the same criteria when we're dealing with the Interior as when we are dealing with Buenos Aires" 106 . Deputies from the Interior enthusiastically supported the idea of fortifying the Banco Nacional, as did President Roca. Apart from the defensive argument for the Banco Provincia, the single reason advanced to support the increase in the Banco's capital and its credit capabilities was the unanimous view that only by an active monetary policy would the Interior economies rise to their expectations. Thus for Absalón Rojas: "It was in the desire of satisfying this urgent need that the Commission supported this proposal, because we cannot keep the Interior of the Republic in its current state; with no circulation, with no life, with no means of giving impulse to the industries that would develop if there was capital there; it is with the aim of filling that immediate, real and positive need that everyone of us living in the Interior feels" 107 . Apart from the general scarcity of currency, deputies lamented the short terms of loans in the Interior and their high interest rate (12% to 15%, according to Bouquet). Why was there such a lack of capital and currency in the provinces? On the one hand, the Interior was perceived as having a sustained shortage of production in relation to consumption – that is, a trade deficit with Buenos Aires. Currency flowed from the provinces to the Litoral, and more specifically to Buenos Aires, as a consequence of this excess of needs over means, as Deputy Gallo argued. On the other hand, as Deputy Calvo noted, capital wasn't attracted to poor provinces in the first place. A system of free banking, as the one envisaged in the 1860s by Vélez Sarsfield or by the authors of a more recent proposal presented in Congress, wouldn't lead to the establishment of banks in provinces 106

DSCD, Sept. 18th, 1882, 325.

107

DSCD, Sept. 18th, 1882, 337.

44

that were "authentic deserts, and only have sixty, seventy or eighty thousand people for a territory of a hundred, a hundred and fifty or two hundred thousand square kilometers... Is there any sense in assuming that in those provinces without production, without consumption and without trade, banks will spring up as ombúes, that free banks will establish in Jujuy, or even grow up in Salta, which is one of the most advanced provinces?" 108 . The pull of capital by the Capital had to be offset by the push of the Banco Nacional towards the Interior: "to lead it to the provinces we need to push it there, as immigration and colonization are pushed; push it through protective laws, with the guarantee of the government's power" 109 . The corollary was pretty obvious: there was a need either of a State bank or at least one "in which the political powers intervene, as the development of public wealth cannot be left to individual action". Only then, Deputy Bouquet argued, would the provinces be well prepared to receive the coming railways, extending the cultivation of sugar cane in the North and plowing the terrain for the vineyards in Cuyo. Two lonely voices rose in opposition to the enlarged Banco Nacional. Lahitte remained skeptical of its capacity to influence in any significant way the wealth of the provinces, and feared abuse by the national government. Marco Avellaneda was especially concerned with the consequences of an active monetary policy. Predominance of the government in the enlarged bank, in combination with the chronic budget deficits, would lead to excessive currency issues and a potential inability to convert notes into gold. A potential curso forzoso of the Banco Nacional would lead to a wholesale run on banks,

108

DSCD, Sept. 19th, 1882, 378.

109

Deputy Paz, DSCD, Sept. 18th, 1882, 332.

45

including the Banco de la Provincia 110 . Avellaneda would finally prove right, and after curso forzoso was decreed in 1885 Paz would regret having proposed the law of 1882, "which turned out to be the sword that destroyed the honor, the wealth and the prosperity of the Nation" 111 . In November 1882, with the law already sanctioned, Roca telegraphed a notice to provincial governors explaining that by supporting the expansion of the Banco he was expecting to grant enough capital and credit to the provinces so they would be able to develop "their wealth, their industries and their trade" 112 . A year later, Wenceslao Pacheco, president of the Banco Nacional, boasted in the institution's annual report for the year 1883 that the results of the Banco's action had exceeded the highest hopes and that its credit was behind the expansion of sugar in Tucumán, Santiago, Corrientes and the territory of Chaco, as well as that of other industries all across the Republic; circulation had increased from less than 4 million to more than 15 million; 7 new agencies and branches had been added to the previous 31; the interest rate charged was the lowest in the country and the same in every branch ("so that people from Jujuy get credit at the same rate as people from Buenos Aires"); and terms had lengthened in the branches to take into account the slower motion of business in the Interior 113 . The priority given to the Interior showed up in the evolution of credit. The annual reports of the Banco didn't specify the distribution of resources per branch but only distinguished between its Casa Central in Buenos Aires and Sucursales 114 110

DSCD, Sept. 18th, 1882, 347.

111

DSCD, Oct. 1st, 1885, 126.

112

quoted in Las Provincias, November 11th, 1882.

113

Banco Nacional (1884), Anuario de 1883.

114

At the beginning of 1882, there were 17 sucursales (branches), one in every provincial capital except La Plata and Santa Fe, plus additional branches in Gualeguay, Gualeguaychú, Concepción, Rosario and Concordia. There were, in addition, 14 agencies all over the Interior.

46

Outstanding credit, made up of bills of exchange and current account advances, totaled in 1881 3.8 million for the Casa Central and 4.8 million for the branches, but increased to 12.8 million at Casa Central and 20 million for the branches in 1883. In his address to Congress of May 1884, Roca echoed Pacheco's claims: "The Banco Nacional has benefited from your laws and is now a great and solid institution, one of the most powerful levers of the surprising development of trade and industry which lately is noticeable in the provinces of the Interior. Wine and sugar producers from Mendoza, Santiago, Salta and Tucumán, ranchers from Córdoba and farmers from Santa Fe and Entre Ríos are sitting in this Chamber, and they can testify whether this establishment, provided by our Constitution, has carried out the duties envisaged by our constitutional delegates." 115 In 1883 came a further concession to the Banco Nacional, by granting it the right to issue small change notes up to an amount of 6 million pesos. The ostensible aim of the law of small change was the fact that the silver coins minted in accordance to the 1881 law hadn't been put into circulation and wouldn't be enough to satisfy the needs of commerce. According to Deputy Paz, the causality was precisely the opposite: silver coins weren't delivered to the market to make room for further issues of paper money by the Banco Nacional. The question of emisión menor was no minor subject: it actually led President Roca to dismiss Finance Minister Romero due to his public statements against the project. Romero had indicated that a similar proposal by Senator Baltoré stipulating the issue of 8 millions would be against the monetary law of 1881, and that it might lead to the fall of the Banco Nacional 116 .

115

Mensajes de Roca de 1880 a 1886, Publicaciones del Museo Roca, Buenos Aires, 1966, p. 101.

116

Roca to Romero, Museo Roca Archive, August 24th, 1883. Document number 83.06

47

Again, economic and political issues were at stake. For Roca, there was no "ostentation" of the national power but just the means of "providing the Treasury with six or eight million, free of charge, adding to circulation that has an ample field of action in the increasing prosperity of the Republic 117 . Many Buenos Aires deputies had a different interpretation. The redemption of small change by banks, stipulated by the law of 1881, hadn't been enforced yet, and the project envisaged an immediate withdrawal. Deputy Paz tried to force into the debate his alternative proposal of a free banking system, starting with the small change. If, instead, the government's project was approved, the Bank of Buenos Aires would suffer and a monetary crisis would result from the contraction in the money supply. Paz lamented that "the former enemies of the supremacy of Buenos Aires over the provinces are now the supporters of this nascent domination of the provinces by the Banco Nacional with its headquarters in the city of Buenos Aires". For Paz, the move was political and revealed the old antagonism between the Interior and Buenos Aires. When warned by a deputy for San Juan not to exploit antipathies that did not exist he answered: "Are you sure they don't? The manner I see you voting in every matter reveals that they do exist". 118 The last important measure during Roca's term dealing with the Banco Nacional followed the declaration of curso forzoso in 1885. As Marco Avellaneda and Ezequiel Paz, among others, had predicted, convertibility of the paper currency didn't last long. Between mid 1884 and the summer of 1884/85, gold withdrawals and remittances to Europe pressed on the metallic reserves of both the Banco de la Provincia and Banco Nacional 119 . The inability of the government to place a substantial loan in London, as will be explained

117

Roca to Romero, Museo Roca Archive, August 24th, 1883. Document number 83.06.

118

DSCD, Sept. 27th, 1883, 709.

119

Banco Nacional (1885), Anuario de 1884.

48

below, added to the perception of a proximate departure from the gold standard. Also, a hike in tariffs voted for the year 1885 appears to have stimulated imports in advance of the tariff, adding to an abnormal demand for gold. In June the Banco de la Provincia stopped converting its bills into gold, but the Banco Nacional continued to do so. In January 1885, the Banco Nacional gave in. The government issued several decrees declaring the curso forzoso for the banks of issue. This meant that, in spite of inconvertibility, paper currency would be accepted as gold, that is, at valor escrito, for tax payments and for the settlement of private debts nominated in national currency and without a gold clause 120 . In February, a second Finance Minister (De la Plaza) resigned in disagreement with the continued inflation of Banco Nacional's notes 121 . This time he was replaced by the man behind that inflation, the Banco's president Wenceslao Pacheco. The January decrees needed parliamentary sanction, which was only voted in early October 1885. Curso forzoso was a done deal, but the debate was fierce over other decisive aspects. First, the concession of curso forzoso to the banks' notes carried the obligation of freezing the amount of circulation at current levels, with a sole exception: the Banco Nacional could raise its issue to the amount established by its own charter, that is, 40 million pesos, of which around 28 million were in circulation. A second significant stipulation established that each bank benefiting from curso forzoso had to charge the same interest rate in every branch. Another debated proviso was the one extending valor escrito to the cancellation of private debts.

120

The stipulation of the principle of valor escrito (Article 4 of the law) for private debts (in 21st century Argentine parlance, pesificación de deudas) was subject to a great deal of debate in Congress.

121

That was the explanation of Thomas Osborn, the American consul. Quoted in Louro de Ortiz, Amalia and Olga Bordi de Ragucci (1986), "Las raíces del 90: la crisis de 1884-1885", IV Congreso de Historia Nacional y Regional.

49

Once again, the exception made for the Banco Nacional's money was attacked as a device against the Banco de la Provincia and was defended in the name of the development of the Interior. The weight of local sentiment was clear as ever. As Lucio Mansilla confessed, "I'm motivated by a local spirit in this debate, because, after all, I was born in this province and the Banco de la Provincia is a beloved institution for all the porteños" 122 . The demand from Buenos Aires was that new issues by the provincial bank should also be allowed. There appears to have been some bargaining in this direction between the Banco Provincia, some Buenos Aires deputies and government, with the personal involvement of Roca, but an agreement by which "we gave the vote for the increase in the Banco Nacional's issue in exchange for a limosna vergonzosa [presumably, an unacceptably small issue] for the Banco de la Provincia de Buenos Aires" was rejected. The political background of these debates was the rough competition for the presidency. Presidential elections would take place only six months later. Since mid 1885, Roca had signaled he would back his brother in law Juárez Celman; and since much earlier it was clear that Roca's most powerful political enemy was Dardo Rocha, governor of Buenos Aires between 1881 and 1884 and supported by the provincial governor Carlos D'Amico. The political use of the Banco de la Provincia to foster Rocha's presidential ambitions during

122

DSCD, Sept. 28th, 1885, 44. The quotes that follow are from the same debate.

50

1885 is well established 123 . The influence of pre-electoral politics was also felt in some of the Banco Nacional branches 124 . The arguments in favor of further emissions by the Banco Nacional all rested on the shared conviction that the Interior needed more money. As Deputy Ocampo, remarked "I've been waiting for a reason, either by the Minister, or by the deputies favoring the project, that demonstrated the convenience of the increase in the bank's issue [...] and I've heard this single reason: the provinces need more paper; the provinces have little circulation; and it's necessary to give them more". Every deputy supporting the project indulged in descriptions of the drought of money observed in the Interior. "The province of Buenos Aires may have enough, but not the Interior" (Funes, Santa Fe); "In the branches of all the provinces of the Interior bills are lacking" (Civit, Mendoza); "Requests for new emissions have been piling up, because the issue of the Banco Nacional is not enough for the provinces’ needs of circulation" (Maglione, Entre Ríos); and Pacheco himself, indicted by Paz and others as responsible for the curso forzoso, was applauded when he defended the his administration of the Banco and asked for more:

123

D'Amico, Carlos (1977), Buenos Aires, sus hombres, su política (1860-1890), Centro Editor de América. Latina, Buenos Aires. First edition 1890, p. 127. (D'Amico succeeded Rocha as governor and helped him financially with Buenos Aires money). In 1885 Rocha would bribe priests from Catamarca so that they would preach eternal torment for those who voted for Juárez. (Rato de Sambucetti (1977), "El presidente Roca y los candidatos a su sucesión presidencial", IV Congreso de Historia Nacional y Regional).

124

For example, in Santiago del Estero, where as early as 1883 Roquista faithfuls complained that the credit policy of the Banco in the province was being defined by the Rochistas in its provincial board (Consejo Consultivo). The national authorities of the Banco ordered the director of the Tucumán branch to oversee the state of the Santiago branch before approving further credits. After the director was replaced by a Roquista in 1885, several credits to the province were approved and the Santiago branch was the most favored one following the increase of the Banco’s capital in 1885. See Saguier, Eduardo R., Un debate histórico inconcluso en América Latina, 1600-2000: Cuatro siglos de lucha en el espacio colonial peruano y rioplatense y en la Argentina moderna y contemporánea, volume XI, chapter 9. Published electronically in http://www.er-saguier.org/, and minutes of the Banco Nacional’s board, years 1883 to 1885.

51

Before the increase in the Banco's capital, the provinces only new interest rates of twelve, eighteen, twenty four, thirty six per cent (Yes! It's true!) Today, the provinces have money on the same terms as the nation's Capital (Applause) There is no industry, no legitimate industry that hasn't been protected by this cabeza de turco [scapegoat], this poor Banco Nacional, in every province, in the whole Republic. Cattle raising in Entre Ríos and Corrientes; manufactures in Córdoba; agriculture in Mendoza, in San Juan, and those sugar mills in Santiago, in Tucumán, in Chaco, what are they? What is that prodigious, surprising movement of the provinces in the last few years? It is the life, the action, the capital, carried there by this Banco Nacional! 125

Once again, skeptical deputies explained the structural nature of the Interior's want of money. The distribution of monetary circulation ultimately depended on demand, not supply. If Tucumán and Santa Fe had more currency than the rest of the provinces it was precisely because they produced more than what they consumed, as Ocampo explained. "But if another province, as now happens, spends 100 and produces 50, it has to pay for the other 50. How? With further emissions. So send as many bills as you want to the Interior, they are going to come back. Whereto? Here, were the excess of consumption over production has to be settled". Paz –who had previously advocated pushing the money to the provinces– even proposed a practical demonstration of the futility of those efforts, suggesting to seal the new issues and so that deputies would verify "how many of those bills you see remaining in the provinces whose citizens sent you to represent them". The Banco Nacional soon took advantage of its new privileges and issued paper up to a level close to the authorized limit (43.2 million in 1886, counting the small change notes). Credit was preferentially directed to the branches. During Roca's term, credit at the Casa Central multiplied by 14 and that extended by branches increased 26 fold, from 2.5 million fuertes in 1880 to 65 million pesos papel (the equivalent of around 46 million fuertes). Credit from the Banco Nacional played a major role in the two successful cases of development of Interior provinces during the 1880s. In Mendoza, the Banco Nacional merged with the

125

DSCD, Oct. 2nd, 1885, 153.

52

province’s largest bank, whose former owner, the Roquista businessman Tiburcio Benegas, was placed in charge of the Banco Nacional local branch 126 . In Tucumán, credit by the Banco Nacional multiplied by four between 1882 and 1892 127 . Gradually, however, other means were sought to direct credit to the Interior. First, the provinces would look for a way to replicate the long term credit market existent in Buenos Aires through the Banco Hipotecario de la Provincia. The absence of mortgaged, long-term credit was a permanent complaint of the Interior, at least since the early 1880s. As happened with the money supply, opinion in favor of extending to the Interior the economic benefits enjoyed by Buenos Aires fluctuated between two different solutions: stretching out a porteño institution or starting one from scratch. Just after Roca inauguration the dominant idea seemed to be to extend the services of the Banco Hipotecario de la Provincia de Buenos Aires to the rest of the provinces. Las Provincias heralded the idea and announced "ceaseless propaganda until it is a fact” 128 . Extension of mortgage credit to the provinces would be beneficial for them and for the porteño bank as well, inasmuch as the Interior would benefit from longer term loans and the bank would be lending against land that supposedly had more margin to revalue than that of Buenos Aires. El Interior from Córdoba saluted the first moves in this direction, and eagerly expected the arrival of the Hipotecario's president, Llambí Campbell, reportedly in Entre Ríos opening the first branch of the mortgage bank in the Interior. This was early in 1882, yet times of relative peace between Roca and Rocha. Meanwhile, the porteño press attacked Rocha's policy. La

126

Supplee (1988), 172.

127

Juárez Dappe, Patricia Isabel (2002), The Sugar Boom in Tucumán: Economy and Society in Northwestern Argentina, 1876-1916, Ph.D. dissertation, University of California at Los Angeles, 143.

128

Las Provincias, February 13th, 1882.

53

Prensa, for example, questioned the Hipotecario's "charity" policy 129 . Entre Ríos, Santa Fe, Córdoba, Tucumán and the Cuyo provinces were soon entering into contracts with the Banco Hipotecario de la Provincia to set up local branches. The strategy of extending the Banco Hipotecario de Buenos Aires was replaced, however, by yet another step in the empowerment of the Banco Nacional. The most natural hypothesis to explain this shift is political: by 1883, Roca and Rocha were open enemies. In October 1884, while the government was struggling with little success to place a loan voted the previous year for Public Works, it felt anyhow that time had come to intervene directly to extend mortgaged credit to the Interior. The idea was to open a sección hipotecaria in the Banco Nacional rather than creating a new bank. There was a tradeoff in the financing alternatives considered. The original project envisaged the issue of 20 million pesos to fund the new mortgage section which would lend cash to borrowers in the Interior. But the doubts of many Congressmen regarding Argentina's standing in the international credit market led them to propose a scheme based on cédulas hipotecarias, which would need a lesser amount of fresh money to begin with. Cédulas, used widely by the Buenos Aires mortgage bank, were negotiable securities extended to borrowers against their landed property. Borrowers contracted an obligation with the bank in exchange for a cédula they sold in the capital markets for whatever they could collect. The bank committed itself to pay the bearer of those securities a certain amount of interest and amortization (usually established in paper pesos) on specified dates. In contrast to the original project, cédulas would press on the market only as they were issued, thus cushioning the effect on Argentine credit. Deputies favoring the original project –for example, Civit– dreaded that

129

La Prensa, April 18th, 1882.

54

the cédula system might imply steep discounts when a cédula issued in one of the provinces had to be sent to Buenos Aires for its negotiation. Once again, some Buenos Aires deputies attempted a losing battle against both drafts, pointing out, as usual, both practical and legal obstacles. Lahitte, for instance, anticipated that the objective of carrying capital to the provinces wouldn't be met. Out of the 16 million that might be obtained for a nominal amount of 20 million, explained Lahitte, 5.5 million pesos would correspond to Buenos Aires but only 50,000 to Jujuy if the distribution was decided according a very straightforward demographic criterion. Of course, there were other opinions regarding distribution. The law was voted with a proviso, not present in the original plan, establishing that every branch at a provincial capital would be endowed with at least 800,000 pesos (close to the average of 1.06 million that results from dividing the 16 million by the 14 provinces and the Capital). Also, Lahitte warned that the presence of what amounted to a new national bank was against provincial autonomies, essential to a federation 130 . Thirst for money in the Interior was denounced once again, and the proposed solution was of course new issues of paper, whether cédulas or bills. Funes of Córdoba, in favor of cédulas, defended paper against gold – or moderation: Deputy Lahitte laments: «Oh! We are going to fill the Republic with paper! Oh, gold and silver!» But gold and silver are uncomfortable, annoying, out of fashion. Who's going to carry gold and silver, getting his hands dirty? Who's going to carry that materiality?... There's nothing better than the check... The Minister's project has the problem that it is too small. I would have preferred that he presented a larger project... Fifteen million! What are fifteen million? In four days they'd be over, used up here in Buenos Aires... [The cédulas plan] stipulates twenty five million; I would rather vote fifty, or one hundred. But it's better to start with less, so as to avoid frightening certain people, who have never seen millions, and when somebody says «millions» they exclaim «Oh, millions!»"

130

DSCD, Oct. 29th, 1884, 719.

55

The original plan was approved, but the fears of those opposing it materialized soon: the government was unable to place the bonds and the mortgage section at the Banco Nacional couldn't open. Only in 1886 was the idea revived, but now as a new institution, complete with its own directory and branches all over the country. Against the constitutional argument of deputies like Villamayor, who saw the danger of intrusion of the national government in the provinces, Pacheco underlined once more the advantages for the Interior: I shall note the immense lack of proportion between, on the one hand, the Capital and the province of Buenos Aires and, on the other hand, the national territories and the rest of the provinces. Here trade has at least two hundred million pesos at its disposal, supplied by banks in the Capital and the Hipotecario and Provinica. And what do provinces have? Barely forty million supplied by the Banco Nacional. But the provinces represent more than two thirds of our vast territory, and also represent at least, two and a half million people, compared to one million people here that have two hundred million to work and progress. And I ask: isn't it more dangerous to keep those provinces in depression and poverty? 131

The idea of a mortgage bank competing with the one in Buenos Aires was perceived as particularly hostile to the province. It wasn't only that cédulas of properties in the Interior would rival with those mortgaging Buenos Aires land; in addition, an article was included at the last minute granting the Banco Hipotecario Nacional exclusiveness to operate in the Capital Federal. Again, the political content of institutional building by Roca's government was obvious for everybody. La Prensa argued: "To those believing that they are attacking Rocha and D'Amico by hurting the Banco Hipotecario Nacional we would ask: Would you vote for the added article if the province was being governed by Pellegrini, Casares, Cambaceres or Quirno Costa [all of them Roquistas]?... To reach its colossal destiny, the Nation doesn't need to put its hands on veiled resources by attacking

131

DSCD, Aug. 18th, 1886, 686.

56

provinces, exacerbating enmities or torturing justice. Let's heal the wounds..." 132 . There was a roll call vote (votación nominal) for this article, an exceptional occurrence that makes it possible to identify whether deputies tended to vote according to provincial interests. The result was 42 for the article and 24 against. Of those against, 17 (71%) were either from the Capital or from Buenos Aires, two district that taken together held only 29% of the seats in the Chamber. Figure 2.1. Deputies’s vote on the article of the BHN exclusiveness in the Capital

The Senate endorsed the project modified by the Lower House on September 14th, 28 days before the end of Roca's administration. It was the last of the many laws during Roca's term dealing with money. The first one (settlement with the Banco Provincia) had been introduced to parliament 22 days after the initial sessions of the first Congress under Roca.

132

La Prensa, August 27th, 1886.

57

In between those dates, Congress had voted for the law of coinage (1881), the increase in the capital of the Banco Nacional (1882), the law on small change (1883), the mortgage section at the Banco Nacional (1884) and the curso forzoso (1885). In every one of those laws a major concern was the development of the Interior, and to certain extent the push of capital towards the provinces was accomplished. In Mendoza, for example, the opening of the Hipotecario bank was a major financial event. In its first year of operation (1887) it mortgaged 770,000 pesos, most of it on rural land, and the following year as much as 2.2 million 133 ; something similar happened in Tucumán, with the majority of a combined total of 10 million pesos granted between 1887 and 1891 going to sugar development 134 . But that wouldn't be enough. In 1887, with Juárez Celman president, the provinces would bid for a simpler way of getting their hands in the money: create it themselves through their own banks, as explained in Chapter 3. Between 1881 and 1886, Argentina's paper money supply, counting only that of the Banco de la Provincia de Buenos Aires and the Banco Nacional, rose from an amount in pesos fuertes equal to 35.4 million pesos moneda nacional to 70.3 million pesos moneda nacional, an increase of 98% 135 . This grand total decomposes as follows: Banco de la Provincia, 33.6 million to 27.3 million; Banco Nacional, 1.7 million to 43.3 million. The share of the Banco de la Provincia fell from 95 to 38 per cent – a figure closer to Buenos Aires relative economic importance. Roca succeeded in depriving Buenos Aires of a national money. As the January decrees stated, "for the first time the national government makes use of an essential attribute of its sovereignty, because in earlier times the 133

Supplee (1988), 177. To get a sense of the figures, recall that the provincial budget reached 600,000 in 1887 and 534,000 in 1888.

134

Guy (1980), 51.

135

Cortés Conde (1989), appendix.

58

government of each province authorized the curso legal in its locality and imposed it on the people" 136 .

Figure 2.2. Circulation by the Banco Nacional and the Banco Provincia, 1881-86

Source: Cortés Conde (1989), Quintero Ramos (1950).

Part of the increase in the money supply during Roca's term took place in the last couple of years, after the demise of convertibility. Until 1884, the money stock had risen by 60% since Roca's inaguration 137 . Was the active monetary policy of the Banco Nacional the cause of the fall of the gold standard? It is not obvious. Expectations of a devaluation, such as the one experienced during the second semester of 1884, can have either monetary or real fundamental causes (or a combination of both), in the following sense: either there's a perception that money supply is outpacing –or will outpace– demand, so a nominal

136

quoted in Cortés Conde (1889).

137

The figure is probably an underestimation because it's based on year-end data, when both banks had recovered part of their issue precisely through conversion.

59

correction of both exchange rates and internal prices will follow; or the state of the balance of payments (which depends on the conditions for imports and exports in addition to capital movements) is perceived as unsustainable, so that a real devaluation (currency depreciation in excess of internal inflation) will result. Of course, in both cases there will be capital flight and an abnormal fall in the demand for local money in advance of the actual devaluation 138 , but that is part of the mechanism by which the devaluation takes place rather than the origin of the run against the peso. Was money growing at an unsustainable rate? It is hard to tell. At least a good part (and, at most, all) of the increase in the money supply fed the increasing demand of the boom years 1880-1884. During that period, imports –an indicator of economic activity– and national public expenditures –one of the determinants of aggregate demand– grew hand in hand, 107% and 117% respectively. Also, the gradual displacement of metallic circulation might have helped to give room to such an increase in the mass of paper money. What does remain clear is that if monetary policy is at least partly to blame for the inconvertibility, the government's role in the process was quite the opposite of what Alan Taylor and Gerardo Della Paolera believe it was. They have recently argued that "absent direct government control of the money supply, the behavior of the banks of issue would determine the viability of the new regime" and that "lacking any direct control over the monetary system, the government could do little more than resort to moral suasion [to restore convertibility

138

As deputy Funes graphically explained: "it was said: the curso forzoso is going to come. It was hard for me to believe it; I knew that the government would make every effort to avoid it... but the curso forzoso came. Everybody got paper in one hand to convert it with the other, to send it to Europe or Montevideo, thus losing two, three or four per cent; but what difference did it make, when they were making a profit of 46%", quoted in Louro de Ortiz and Bordi de Ragucci (1986).

60

after 1885]" 139 . If monetary policy led to devaluation it wasn't in spite of the government but because of it. As Nicholas Bower, the local agent for the Barings, commented in 1884, “under the financial question there is still the old antagonism between the national government and the province of Buenos Aires” 140 . 2.3. Soft Budgets The alternative explanation for the 1885 departure from gold stresses the role of Argentina's balance of payments. Shocks affecting exports, imports or capital movements could be behind the abandonment of the gold standard and devaluation expectations. The more extreme view of their role in the 1885 inconvertibility was presented by John Williams. Williams, a Harvard student of F.W. Taussig, traveled to Buenos Aires for his dissertation to study Argentina as a case that could illustrate the mechanism of external adjustment under a paper standard that Taussig had established theoretically. He presented the crisis of 1885 as the perfect example of the incompleteness of the monetary view of devaluation: "In 1884 paper was converted into gold at par; there were no issues whatsoever of paper money: yet an unfavorable balance of payments, by causing a demand for gold for export, raised the price of gold, exhausted the resources of the banks, threatened a commercial crisis and forced the suspension of payments. In other words, paper depreciated without any change in its quantity" 141 . For Williams, the reason behind the adverse movement in the balance of payments in 1884-1885 was the excessive borrowing by the government in the previous years. In fact, the correlation between 139

Della Paolera, Garardo and Alan Taylor (2001), Straining at the Anchor, National Bureau of Economic Research.

140

Rock (2006), 188.

141

Williams, John (1920), Argentine International Trade under Inconvertible Paper Money, 1880-1890, Harvard University Press.

61

government expenditures and imports (both roughly doubled) is high enough to support Williams' contention that fiscal policies during the early Roca years were behind the deterioration of the current account. The increase in public debts (national and provincial) in 1881-1885 accounts for 70% of total borrowings 142 . But arguably private borrowing was also stimulated indirectly by government's expenditure, through its effect on economic activity and imports. Also, out of the 30% that was private, half was in railways. As I will argue below, to the extent that some of the investment in railways carried a public guarantee, it was akin to public debt. Of course, a necessary condition for the increase in public and private external debts was the availability of foreign capital. And it's clear that three events made Argentina a safer place to invest in the 1880s than in the 1870s: Avellaneda managed to control the financial crisis of the late 1870s without defaulting on the debt, Roca's campaigns against the Indians added 20 million hectares to the country's productive land 143 and the resolution of the "capital question" alleviated political tensions. In fact, Argentina's specific country risk, as compared to that of Brazil, the United States or Italy, declined precipitously in the early 1880s. In 1883, for example, a loan for 12 million gold pesos by the national government had a demand that exceeded thirty five times that amount 144 .

142

Williams (1920), 43.

143

Hora (2003), 53.

144

Las Provinicias, June 6th, 1883.

62

Figure 2.3. Country risk under Roca Percent spread of Argentine and other bonds over the British consol, 1880-1886 6.0

5.0

Argentina Brazil New South Wales Chile

4.0

3.0

2.0

1.0

0.0 1 0 2 3 5 4 6 81 80 82 83 85 84 86 l/8 l/8 l/8 l/8 l/8 l/8 l/8 n/ n/ n/ n/ n/ n/ n/ Ju Ju Ju Ju Ju Ju Ju Ja Ja Ja Ja Ja Ja Ja

Source: Global Financial Data, www.globalfindata.com. Yields from the following bonds. Argentina: 6s Public Works Loan; Brazil and Chile: 5s bonds; Australia: New South Wales 5s; Chile: UK: 2 ½% consol.

Say's Law, however, isn't truer for capital than for commodity markets: supply doesn't create its own demand. Argentina's borrowing during the early Roca years was quite extraordinary by international standards. That happened in spite of the higher interest rates they carried, compared, for example, to Brazil. It is impossible not to conclude that the British investor felt at least marginally less secure placing his money in Argentina rather than Brazil or Italy. True, credit supply could be upward sloping in the interest rate (that is, further borrowings could imply a higher interest rate) and in that case it could be that Argentina wasn't riskier in principle but that it was so only because it demanded more credit than other debtors. But then again we are back in a demand side explanation. The

63

notion of an insatiable Argentine demand is vivid in the account of contemporary observers. The Investor's Monthly noted in November 1884 that during that year that the 8 million pounds of new capital created in the category Foreign Governments "chiefly comprise Argentine issues" 145 , and in December pointed out that "Apart from the Argentine Confederation, loans by foreign Governments have been conspicuously absent this year, as they were in 1883, when the amount under this head fell off largely" 146 . By Latin American standards, Argentina's indebtedness stands out as exceptional during the early 1880s: while British capital in Mexico grew by 24% and in Brazil by 22%, in Argentina it doubled (+126.6%) 147 . By 1885 Argentina owed Britain the same as Brazil, and more than Mexico and Perú, all of them ahead of Argentina in 1880. Roca himself implicitly attributed the end of convertibility to the excessive debt accumulation when in his 1885 address to Congress he stated that "a strict and prudent economy in both private spending and national and provincial budgets will suffice for things to go back to normal in one or two years" 148 . For Pacheco, the causes of "this situation we're carrying since 1884 was caused by the alarm existing in Europe by our inability to float our bonds, or because they had in mind all the public works undertaken by the national government and by some provinces, and the obligations they'd entered in" 149 . "Among those provinces" Pacheco blamed Buenos Aires, but was rebutted by Paz, who'd rather place the blame in the national government:

145

The Investor's Monthly, November 1884, p.526.

146

The Investor's Monthly, December 1884, p.577.

147

Data from Vázquez Presedo, Vicente (1978), El caso argentino, Eudeba.

148

Mensajes de Roca de 1880 a 1886, Publicaciones del Museo Roca, Buenos Aires, 1966, 214.

149

Pacheco at Congress, DSCD, Sept. 28th, 1885, 65.

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The Finance Minister says the crisis is not a banking crisis. In that way he defends himself from any responsibility he may have, because if he said that the crisis was a banking crisis, he would have to confess that he has caused this situation. So what does he do? He says: 'It's a financial crisis, brought about by luxurious public works, by the excessive expenditures' And I ask: where have those expenditures come from? From the Casa Rosada! From the very patriotic, very national sentiments of General Roca 150

What was the political economy behind Argentina's demand for credit? A preliminary task is to look at the numbers involved, which can be done by two alternative procedures. One is to verify the purposes of the different bonds issued during the period. That is exactly what Minister Pacheco did in the 1885 Anuario de Hacienda. Out of a gross increase in the public debt of 78 million, 24.2 million (31.1%) was related to the process of nationalization of the currency described before: 17.6 million for the settlement of the debt with the Banco Provincia plus 6.6 million for the increase in the capital of the Banco Nacional. An additional 18.9 million (24.2%) were a result of the nationalization of some of Buenos Aires' debts federalized along with the capital city. Finally, 34.8 million (44.6%) were obtained from bonds earmarked for public works, especially railways, the Riachuelo Port and the sewages system of the Capital. Pacheco's methodology, replicated by Cortés Conde, suffers however from a serious shortcoming. Financing that is supposedly earmarked not necessarily ends up being used for what it was originally meant to be used. What really matters is the evolution of public spending. Primary expenditures (that is, not counting interest payments) in 1881-1884 were on average, in gold terms, 63% higher than in 1880. The difference (13.2 million) was made up of an increase of 6.9 million in ordinary expenses (10.1 in 1880 to 17 million, on average, between 1881 and 1884), an increment of 7.6 million (1.5 to 9.1 million) in expenditures by the Ministerio del Interior (Internal Affairs ministry) authorized by leyes

150

DSCD, Oct. 2nd, 1885, 173.

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especiales, and a fall of 1.3 million in spending stipulated by special laws for other branches of the Administration. Although ordinary expenses did increase substantially (+70%), the big budget novelty of the Roca years were these special laws for the Internal Affairs ministry, providing for expenditures that were on average six times as they had been at the beginning of the decade. What kinds of expenditures were being voted by these laws? The annual reports of the Finance Minister did classify each expenditure due to special legislation according to the specific law mandating it. An analysis of the most important items attributed to special laws dealing with the Internal Affairs ministry suggests that most of the public works undertaken were in the Interior, some in the Capital and almost none in the province of Buenos Aires. Out of 61 items of more than 15,000 pesos in the 1881-1884 budgets attributed to special laws of the ministry of Internal Affairs (which comprised 95.7% of all investments under that heading), I could identify 42 as clearly directed to a province or region. Of those, none was in the Province of Buenos Aires; 7 were related to the federalization of the city; 7 dealt with public works in the Capital and the remaining 28 ordered expenditures benefiting the Interior. Taken together, those laws represented 32.5 million pesos, with the following breakdown: items related to federalization, 2.7 million (8%), public works in the Capital, 6.7 million (21%), expenditures in different places of the Interior, 23 million (71%) 151 . By far, the single most important type of investment through 151

I have classified expenditures for the port of Buenos Aires as resulting from federalization. The perception when the works started was that, due to federalization, the national government had to complete what the provincial government had started. Already in 1880, Victorino de la Plaza, on finding out that the provincial government was voting a budget for its continued involvement with the works, wrote to Roca that "The works being carried out by the province have a national character. It will probably be the most important port in this city. Now that we'll have the definitive capital in this city, it would be quite irregular that the province continued with the works", and added that the port could turn into a profitable undertaking. De la Plaza to Roca, 1880, no date, Museo Roca, 80.51. The figures were obtained from the Anuario del Ministerio de Hacienda, 1880-1885.

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special legislation was the expansion of railways, an estimated 50% of those 32.5 million 152 . The largest loan for new expenditures 153 during the Roca years was voted by Congress on October 25th, 1883. The original intention of the Executive was to issue as much as 80 million pesos. The idea of a massive loan came immediately under fire from the porteño press. The Roquista newspapers would of course compare the very productive use of the funds ("railways, telegraph lines, roads, dams, bridges") with what they thought was the use of external credit in the 1860s, under Mitre ("bloody and disastrous wars, embarrassing capitulations to the savage Indians") 154 . It was hoped that there would be plenty for everybody. Just to mention one example: 10 millions were proposed for the perforation of artesian wells to get water out of the desert. The Executive apparently had in mind the droughts affecting Catamarca and La Rioja. Two weeks after the idea of the loan was made public, Las Provincias published that Roca had ordered Engineer Jegón to travel from San Luis, were he was installing the machinery for a well, to Catamarca and La Rioja, where new wells would be put in place 155 . Probably aware of the hard times it might face when trying to place such an amount (equal to 2.5 times the government's income) in London, Roca finally presented at Congress a humbler proposal, of 30 million pesos of Public Funds, that is, a sum fairly equal to a whole year of tax collections. Even then the government found it difficult to float 152

I arrived at that share (a total of 16.37 million) by summing up expenditures attributed to laws specifically dealing with railways and an estimation of the share corresponding to railways in the case of expenditures authorized by more general laws. These latter estimations were based on the assumption that the percentages applied every year to each of the purposes of the law were equal to the shares originally contemplated in the law.

153

A later loan of 42 million was in part a conversion loan.

154

Las Provincias, August 5th, 1883.

155

Las Provincias, August 23rd, 1883.

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the bond and by June 1884 there was a blip in the prices of Argentine securities in London. Yields stabilized when "an authoritative statement that the 6,000,000 pounds [30 million pesos] would be issued in installments extending over a couple of years reassured the markets" 156 , but prices remained low in expectation of a devaluation (which if accompanied by curso forzoso would erode the gold value of the government's receipts) and reached a nadir by January 1885, when curso forzoso was decreed. Intimations from the international capital markets didn't last long. In February 1885 there was already a "prominent recovery of Argentine issues" 157 from its January lows and by mid-year Argentina was again sucking gold from the London market to such an extent that the Investor's Monthly considered it a factor that could well lead to a hardening of the British interest rate. When in October 1885 Pacheco faced Congress to defend curso forzoso, and blamed it on the less than stringent fiscal policy of the early Roca years, porteño deputies resisting the further issue of notes by the Banco Nacional remarked the contradictions of Roquista fiscal policy: The Finance Minister says that it was the excess of others what brought the financial crisis, but not many days ago we've seen him here pompously speaking in favor of the expenditure of 15 million for the contract with Lucas González... It seemed as if the president of the Republic was proposing the erection of a bronze pedestal to place on top of it the statue of Lucas González, as the first railway man in the Republic... The minister has warmly and enthusiastically contributed to the triumph of this new expenditure of 9 million we have voted to let Salta and Jujuy have their share of the benefits of the railways 158 .

156

The Investor's Monthly, June 1884, p. 249.

157

The Investor's Monthly, February 1885, 51.

158

DSCD, Oct. 5th, 1885, 174.

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CHAPTER 3. Millions Dissolved in the Dust

In Rosario we aren’t yet that apart from the life of Buenos Aires. Today, the trip between these two cities (300 kilometers) takes five hours. The rest of our journey, leading us to the city of Tucumán, 1,100km away, will make us feel a change of environment [...] As I woke up in the morning, with a beautiful sun, my first discovery was that we were traveling in the midst of an impenetrable cloud of dust. I’ll be forever grateful to the President of the Republic, Figueroa Alcorta, who had lent me his special wagon to make my trip more comfortable. I slept well, in an excellent bed and with the windows carefully closed. But the Argentine dust knows of no obstacles. The words of the Bible, warning us that we will return to the dust, turn into reality in this country. My wonderful room, my fancy restroom with its shower, my belongings, my luggage and myself were all covered by a thick veil of flimsy dust, sinister to look at but even more annoying to breath. Georges Clemenceau, paragraph “The Argentine Dust”, La Argentina del Centenario, 1910

Some people with imagination cherish the project of transforming Tucumán into a winter resort, and exclaim: “This will be like Nice!” But it’s just a dream. The sea, the contours of the coast and the city itself would be lacking. A pretty perspective of far away mountains would be enjoyed, but is a landscape without river, lake or sea waves worth for the leisurely? Moreover: how would the dust be suppressed? Jules Huret 159

159

Huret, Jules (1988), De Buenos Aires al Gran Chaco, Hyspamérica. First edition 1911.

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3.1. Tracks of gold, to the moon 160 The 1880s were years of frantic expansion in Argentine railways. Working tracks increased from 2,384 kilometers in the day of Roca's accession (October 12th, 1880) to 13,693 km in 1892, when the last projects of the 1880s were completed 161 . By the end of Pellegrini's presidency, there were all sorts of railways: in Buenos Aires and every province of the Interior; of standard, medium, and narrow gauge; publicly owned, by the provinces or by the central government; privately owned, enjoying or not a State guarantee. Railway expansion lacked any sort of planning. The absence of a plan was denounced repeatedly: in advance of the expansion 162 , when it was already a fact 163 , and in retrospect by railway historians 164 . This section doesn't attempt to summarize the fascinating railway history of this period, but only to establish the degree and motivations of State involvement in railway construction, as well as to approach its economic costs and benefits.

160

This section borrows heavily from recent literature on the history Argentine railways during this period, especially from Mario Justo López thorough work (López, Mario Justo (1994), Historia de los ferrocarriles nacionales, 1866-1886, Lumiere and López, Mario Justo (2000), Ferrocarriles, deuda y crisis, Editorial de Belgrano). Also, Sylvester Damus has recently made available in CD format a wealth of quantitative information on Argentine railways (Damos, Sylvester (2000), “Materiales para la historia de los ferrocarriles argentinos”, http://www.storm.ca/~sdamus/primera.htm). Silvana Palermo has provided a very complete study on state-owned railways. Palermo, Silvana Alejandra (2001), "The Nation Building Mission: The State Owned Railways in Modern Argentina, 1870.1930", Ph.D. dissertation, State University of New York

161

Damus (2000), Materiales para el estudio de los ferrocarriles argentinos, CD.

162

For example, in 1881 two different proposals were presented in Parliament to establish a general railway plan. Dávila and José C. Paz presented a project that classified railways in three categories: those connecting the provinces to Buenos Aires, those connecting Interior provinces with each other, and those that had as their main justification the defense of some provincial interest (DSCD, July 1st, 1881, 252). The same year Zeballos (DSCD, July 6th, 1881, 279) argued that in view of the vibrant demand for new railways Congress should have objective criteria to decide which lines were "fantasies" and which were "very good".

163

In his 1891 address to Congress, Pellegrini pointed out: "The many concessions that Congress has decided lately have a general defect: they are not subordinated to a general plan establishing the present and future needs of the country. We've lacked a uniform criterion in the sanctioning of railway laws, which frequently oppose one another", quoted in López (1994), 334.

164

For example, López (2000) considers that "The gravest mistake in railway policies was the absence of a general plan", p. 79.

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At Roca's inaguration there were two main railway networks, one in Buenos Aires and one in the Interior. In Buenos Aires, the Ferrocarril Oeste (provincial), the Ferrocarril del Sud (private) and shorter lines around the capital (Ferrocarril Buenos Aires Puerto Ensenada and Ferrocarril Norte) formed a 1,000 km long system, disconnected to the Interior system. Railways in the Interior were organized around the private and guaranteed Central Argentino and its publicly-owned extensions, the Central Norte (to Tucumán) and the Andino (heading to the west from the Central Argentino but yet a short NE-SW line from Villa María in Córdoba to Villa Mercedes in San Luis). There were also minor railways in Mesopotamia – the state-guaranteed Argentino del Este along the Uruguay River, between northern Entre Ríos and southern Corrientes, and the insignificant Primer Entrerriano. As Colin Lewis has argued, the Ferrocarril del Sud and the Central Argentino, both running since the sixties, provided a contrast between two different motives of railway construction: while the Central Argentino was "a pioneer line linking two distant centers of population; its aims were primarily political, to populate and to create national unity", the Ferrocarril del Sud in Buenos Aires "was built to the dictates of 'economic' policy. The railway passed through populated territory and was only extended to meet known demand" 165 . Of course, the different in aims showed up in profitability: while the Ferrocarril del Sud enjoyed hefty profits during the tough 1870s (only once below 6% since the Sarmiento administration), the Central Argentino could do without the 7% guarantee only in 1881, eleven years after its completion. The other State owned lines were even less

165

Lewis, Colin (1968), "Problems of Railway Development in Argentina, 1857-1890", Inter-American Economic Affairs, vol. 22, no. 2.

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profitable than the Central. The Argentino del Este actually lost money during the second half of the 1870s, and the Central Norte averaged 3% in 1877-1881 166 .

Figure 3.1. Argentine railways, 1880

Source: Damus (2000)

From a political economy perspective, an important statistic of the railway system in 1880 was the number of provincial capitals connected: in the Interior only Córdoba and Tucumán had direct access to the networks. The capitals of Entre Ríos, Santa Fe and Corrientes on the Paraná River were in less need of railways, and their territory had already 166

López (1994), appendix.

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seen some railway construction by 1880. San Luis, though not its capital, was already connected. Seven of the thirteen Interior provinces had no railways at all: San Juan, Mendoza, Catamarca, La Rioja, Jujuy, Salta and Santiago del Estero. Eventually, the connection of all the provinces to one single network would be a combined achievement of the Roca and Juárez administrations 167 . It seemed only appropriate that the final word of Roca backing the Juárez Celman candidacy for the 1886 presidential election was given in a meeting with governors in Mendoza celebrating the arrival of the train, in April 1885 168 . Reaching the provinces with the rail was a shared aspiration at the beginning of the decade. Railways, like credit, would be a lever for the development of the wealth of the provinces. In his annual report for 1880, Santiago Cortínez, Avellaneda's Finance minister, stated that "It is convenient to go get the production of the Andean and Northern provinces so that their wealth, in a greater part still dormant, contributes to the national treasury. We're in the way and we must not stop. The terrain is fertile; let's plant the seed with time so that the harvest is good and plenty" 169 . Roca shared was no less enthsiastic, and at his inauguration he imagined that the “greatest glory” of his administration would be that the railways visit Salta, Jujuy, Mendoza and San Juan in three years time 170 . Las Provincias echoed the railway mania of Roquista papers in the Interior. La Voz de la Juventud of San Luis could hardly believe that the railway, until not long before "a dream, or a distant hope in the mist of uncertainty" would soon reach the puntano capital, "to shake our sleepy

167

Strictly speaking, La Rioja had to wait till late in the 1890s to see its capital linked, but in 1891 the tracks had already reached Patquía, 70km from the city. Jujuy was connected in 1892 when the Güemes - Km 953 section was completed, Salta in early 1891, Catamarca in 1889, Mendoza and San Juan in 1885 and Santiago in 1884. Damus (2000).

168

Alonso (2005).

169

Anuario del Ministerio de Hacienda (1880), XLI.

170

Quoted in Guy (1980), 33.

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nerves, waking us up to the new attitude of a working life" 171 . El Oasis, also from San Luis, favored a direct line to San Juan from the provincial capital, so as to make it an entrepot for Cuyano trade 172 . The Revista Riojana had been promoting for a while the idea of a track from the Central Norte to the mines of La Mejicana in Famatina, and in 1881 published a note by Deputy Ávila who described the prospect of that railway as "a revolution, a guerrilla, a movement of trial and error to make the Republic understand the inexhaustible wealth of Famatina" 173 . El Ferrocarril, a Santiagueño paper, discussed the costs and benefits of different layouts for the extension from the Central Norte line to the provincial capital. It favored Frías as the junction with the Central Norte simply as a matter of urgency, because otherwise "we would have to remain God knows how many years more with our industrial progress checked" 174 . When the porteño Ferrocarril Oeste reached Arrecifes, Las Provincias confessed mixed feelings: "Today it's time to congratulate the Province of Buenos Aires; tomorrow we'll do the same with the national government, when the rails of the North and the West reach cities more important than Arrecifes" 175 . Roca was aware of the provincial urgencies: "There where the rail appears, whatever its destination, the products of the land, trade and population spring up as if by magic. The anxiety of the people for such a powerful agency of wealth is certainly understandable" 176 . Ultimately, they were all glossing the "first railway man in the Republic", Lucas González, who in 1868 was already convinced that "a railway to Cuyo and the extension of the Central Argentino to the north, to Jujuy, will transform immediately the economies of the Interior, 171

Quoted in Las Provincias, January 7th, 1881.

172

Quoted in Las Provincias, September 16th, 1881.

173

Quoted in Las Provincias, May 11th, 1881.

174

Quoted in Las Provincias, April 17th, 1881.

175

Las Provincias, May 28th, 1882.

176

Mensajes de Roca de 1880 a 1886, Publicaciones del Museo Roca, Buenos Aires, 1966, 60.

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filling them with population and wealth and ending with the montonera and the civil war, which has been until now, more or less, the natural state of those provinces" 177 Roca's will to expand progress geographically made the extension of the railway lines to the North and to the West desirable. Politics made it indispensable. Provinces still unvisited by the train were all part of Roca's coalition, but not unconditionally so. For the two northernmost provinces, Salta and Jujuy, the moment coincided with the War of the Pacific, which could have the happy side-effect of redirecting southwards, through Salta and Jujuy, the Bolivian Pacific trade. Electors from Salta and Jujuy made it clear in 1880 that they would support the candidate who committed himself to a rapid extension of the railways to those provinces 178 . The persistent lobby of Salteños and Jujeños in favor of this line was crucial to keep the very expensive works going. The difficulties of the terrain made it, with a difference, the dearest railway in the country. The cost per kilometer was estimated in 1883 at around 36,291 gold pesos, almost 50% higher than the kilometric cost of the other main State line, the Andino ($24,000 for San Luis - Mendoza) 179 . Salteños and Jujeños were often disappointed by the slow pace of progress. Senator Francisco Ortiz of Salta wrote to Governor Moisés Oliva in April 1881 that "while the Andino is about to reach San Luis and has 1,500 workers at its service, our line hasn't departed the Tucumán station and doesn't have one peón" 180 . In 1882, Ortiz asked the Executive for reports on some defective locomotives and wagons recently purchased for the Central Norte181 .

177

Gonzánez, Lucas (1868), Revista Argentina, p.388.

178

Palermo (2001). Also, Pérez de Arévalo, Lilia and Garrido de Solá, María Inés, (1986) "La política ferroviaria del president Julio A. Roca en el norte argentino", IV Congreso de Historia Nacional y Regional.

179

López (1994), 153 and 220.

180

quoted in Pérez de Arévalo and Garrido de Solá (1977), 594.

181

DSCD, July 12th, 1882, 617.

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At times, Jujeños and Salteños would quarrel over the layout of the line. A first decision on how to start from Tucumán was agreed, but there was dilemma as to whether the trace should proceed through the fertile Lerma Valley in Salta, reaching the provincial capital and only later Jujuy; or, rather, go directly to Jujuy through Cobos, where a branch could depart to Salta. The Salteños were quick to make the first move. Francisco Ortiz was writing to Roca as early as January 1881 that "we are happy with the hope of seeing you here, in three years time, on a train. It seems that according to the engineers' explorations there's no difficulty in reaching Jujuy through Salta... to be perfect, the layout has to be along the Lerma Valley" 182 . Less than a month later a José Manuel Hernández was trying to touch Roca's military and pecuniary sensitivities: "You shouldn't forget that the arrival of the railway to Salta and Jujuy through the Lerma Valley is an urgent and immense need, because it's on this side where our Republic could be threatened [by Chile] from the North and the West". The trace through Lerma would facilitate the exploitation of "millions of gold ounces", of "the gigantic wealth of this region, coveted by the Chileans" and of "silver and other precious metals" 183 . Salteños set up a Committee petitioning Roca for the Lerma option, and the provincial government was authorized by law to try to reach an agreement with the national administration, and even to finance any difference in cost if it was necessary 184 . Jujeños were not as vociferous as Salteños but not less determinate. At a meeting of Jujeño neighbors to consider the matter Mr Cosme Belaunde had second thoughts on the Jujeños choice of nationality: "If the train doesn't come through Cobos directly to Jujuy, I propose, sirs, that the Province separates from the Argentine

182

Archivo Roca, 14, Francisco Ortiz to Roca, January 15th 1881.

183

Archivo Roca, 14, José Manuel Fernández to Roca, January 15th 1881.

184

Las Provincias, October 14th, 1883.

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Confederation and that it either joins Bolivia or maintains and independent existence" 185 . The solution to so hard a dilemma was simply to have it both ways by spending some extra money: from a junction at Güemes, one line would proceed through the Lerma Valley to Salta and a different one to Jujuy. That was probably the price for the allegiance of two provinces which had had Rochista infatuations at some point during Roca's presidency; both ended up supporting Juárez in 1886 186 . Riojanos and Catamarqueños were no less eager to jump into the train. Their line was necessary because they were poor – and because they were rich. Without the railway, argued Riojanos and Catamarqueños, they suffered the unfair competition of provinces which did have one in the markets for the goods they all produced. Thus, "Instead of progressing, the provinces of La Rioja and Catamarca have been regressing lately" 187 . But investment in the La Rioja and Catamarca line (which would start from Recreo on the Central Norte and part ways to the provincial capitals at Chumbicha) would be a profitable deal for the national government, because "the sierras of Aconquija in Catamarca and Famatina in La Rioja conceal an incalculable wealth" and because "men of knowledge have calculated that the western departamentos of Catamarca alone can produce 40 million liters of wine, a considerable amount which could not only satisfy the needs of the Republic but even be exported, thus contributing to national wealth" 188 . Legislation for the extension of the Central Norte from Tucumán to the North had been voted in 1879, but funds were needed to start the job. Ten days before Roca's

185

Quoted in Pérez de Arévalo and Garrido de Solá (1977), 599.

186

Alonso (2002).

187

Deputy Ocampo in DSCD, June 13th, 1881, 139.

188

Deputy Acuña, DSCD, July 11th, 1881, 344.

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inauguration, a loan of 12 million pesos was contracted in Paris for the northward extension of the Central Norte and for the Andino. It was only the first of a series. Again in 1883 the failed Public Works loan provided 6.3 million for the line. The contract with Lucas González voted a few days before the laws of curso forzoso and opposed by Paz would add, during the second half of the eighties, a total of 20 million of loans related to the line (and its branches), after a series of upward corrections. Again, money is good for any purpose so it would be arbitrary to calculate the cost of the line as the full amount of these bonds. An estimate of the total value of the extension was made by the Department of Civil Engineers in 1883, when the construction had barely started, establishing it at 17 million pesos for the Tucumán-Salta-Jujuy section only. Expenditure data from official sources is not precise enough as to calculate the specific outlays for that section, but the cost of the extension to the north plus the branches to Santiago, Catamarca and La Rioja can be estimated. I arrived at a figure of 27 million assuming an interest rate of 6% and carrying the value to 1889. Was that a significant contribution to Argentina's public debt? In 1880, the national public debt stood at 58 million fuertes, or 61.5 million gold pesos. Carrying it with 6% interest to 1889 takes it to 110 million. In 1889, the national debt stood at 306 million gold pesos, but 159 million of that amount was related to National Guaranteed Banks legislation, which, as explained in a later section, was connected with monetary policy and was legally debt of the banks, not the government. Not counting that indebtedness, national financial obligations stood at 146 million in 1889, a net increase of only 36 million for the eight years 1881-1889. According to my estimates, then, the Central Norte extension with all its branches contributed with 74.6% of the increase in the national, non-banking public debt. That's for a line that hadn't yet started to run to Salta and Jujuy (there was a trickle of traffic

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to Metán, halfway between Tucumán and the northern capitals), nor had it reached La Rioja. The train had shown up in Catamarca as late as June 1889. Santiago was the only one of the six capitals benefiting during the 1880s from the extensions of the Central Norte. After the 1890 crisis, the Central Norte would be a favorite target for the porteño press’ attacks on the financial mismanagement of the 1880s. Thus, for example, the very orthodox financial weekly El Economista Argentino would complain in 1892 that The group of narrow-gauge lines in the Northwest of the Republic is the clearest proof of incompetence. The lowest cost of any of these feeble and thin railways is 12,230 gold pesos per mile, not including payments for expropriation, and the most expensive reaches the almost incredible price of 31,500 pesos [...] When the cost of the land is added, these inferior lines would probably reach an average figure of around 20,000. Can anyone doubt that these have been the most expensive lines in the world? [...] Six million pounds is too high a price for lines that can barley be worth two – the 4 million pound difference can be considered a fine for having a Dirección General de Ferrocarriles. At 5%, the waste in the construction of 370 miles of a one-meter gauge represents an annual burden of 200,000 pounds. 189

The Andino railway was a less complicated affair, but marginally so. Like their counterparts in Salta and Jujuy, Mendocinos and Sanjuaninos also had an issue about trace. Sanjuaninos would rather have a direct connection to San Luis thus avoiding the commercial intermediation of Mendoza. This was possibly a case showing that small politics might have large consequences. During 1881, Sanjuanino deputies presented a proposal, voted by Congress, mandating studies for the direct line from somewhere in the province of San Luis to the Sanjuanino capital. In 1882, San Juan's strongman, ex-governor and national senator, Agustín Gómez, drifted towards Rocha, which meant that the president "had lost San Juan, because Gómez kept the province under his thumb" 190 . By May, a message of the Executive presented at Congress advised against the studies for the direct line, as that would delay the works of the original plan on the San Juan-Mendoza 189

El Economista Argentino, July 23rd, 1892.

190

Alonso (2002), 23.

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line. In June the government's motion was considered at Congress, and obtained a favorable vote. This was in spite of interest and wisdom: interest of deputies from San Luis, like Pereira, and wisdom by deputies as Zeballos, who maintained that the vote meant "the slow ruin of the province of San Juan... Sanjuaninos will migrate to Mendoza, which is closer to the Litoral, because they will have cheaper consumption goods... in three years the province will be completely empty and poor" 191 Notably, Sanjuanino deputies, who had introduced the proposal nine months before, voted for the law cancelling the studies. How could they? Either they were really urged to ride a train home as soon as possible, or it was only Sanjuanino politics. Letters to Roca coming from San Juan register worried Sanjuanino voices lamenting that Rochismo was depriving the province of the president's favor 192 . The Andino line was not the burden on government finances that the Central Norte extensions represented – but it was no profitable business either. Special rates were enacted for freight going to Mendoza and San Juan so as to stimulate the Cuyano commerce. Also, in spite of peso depreciation, tariffs were maintained in nominal terms because if they were raised as in private railways, "the provinces of the Interior would have remained in a very bad condition, especially for the export of their products, which can't bear high freight rates" 193 . In 1886, the expenditures to revenues ratio –the most widely used index of efficiency– reached 71.2%, above the average for all the railways (57%) and profits were only 1.3% of the original investment. This should be compared, of course, to the interest rate the government was paying for the bonds that financed the investment, whose yield averaged slightly above 6% during Roca's government. How much did the Andino cost?

191

DSCD, June 21st, 1882, 403.

192

Alonso (2002), 23.

193

López (1994), 140.

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Counting only what was expended during Roca's term (that is, without the Villa María Villa Mercedes line), Mario Justo López estimated 12.8 million, or 18.1 million in 1889 money at 6%. The cost of the Andino is equivalent to 49.9% of the increase in public, nonbanking debt during the 1880s, but it was privatized with a guarantee at what looks as a fair price ($24,000 gold the kilometer). It shouldn't be counted, then, as a net addition to public debt but as an increase in outstanding guarantees. Around the middle of the decade a change in the role of the government in relation to railway policy began to take place. The law authorizing the 9 million contract with Lucas González already signaled some retreat in the State's involvement with railways. The works of the Central Norte extension wouldn't be continued por administración (that is, with the government directly engaged in the job) but, rather, contracting it out to the private sector 194 . The central government also gave the provinces a hand with their own railways. In mid-1884, when it was already public that London wouldn't absorb the 30 million loan, the national Congress decided to support a line planned by the government of Entre Ríos from Paraná to Concepción, also contracted with Gónzalez. The project by the Entrerriano Deputy Gilbert stipulated that the national government would contribute with half of the interest account of the debt that Entre Ríos was taking on to have the Paraná - Concordia line built. The congressional debate on this proposal anticipated the arguments heard in Parliament during the years of Juárez Celman: Entre Ríos was poor, so it needed a railway; Entre Ríos was potentially rich, so it needed a railway. Gilbert made reference to the "successes" of the Andino and the Central Norte:

194

Actually, the contract with González authorized by the law of 1885 wasn't signed until Juárez became presient. López (1994), 228.

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Of course, the present state of any region in the Republic cannot be a basis for any sort of profit calculation for tomorrow's production. When the railway was going to Tucumán, members of Congress were surprised that a line would be built in places that produced nothing, and in this same Chamber it was said that Tucumán would bring nothing but oranges, and that San Luis and Mendoza had nothing to bring. Even today we hear that La Rioja has nothing to produce, that Catamarca has nothing to send; and yet, all the deputies, and among them myself, are determined to extend the railway to those provinces, to make of them what Tucumán is today 195 .

Like in monetary matters, it was Paz who raised the orthodox voice. He touched two of the most sensitive issues dealing with the political economy of federalism during the 1880s: the profitability of railways and the national assistance to provincial finances. Paz argued that I want railways for all the provinces, but when we can and as we can... We all say: let's vote, let's vote, these are reproductive works for the country. ¿How are they reproductive? We have a living example in the Tucumán railway. We've spent in it 8 million fuertes, and it's been thirteen years since we're paying 6% for that capital, but it produces less than 4% of the primitive capital... The line now under debate will be reproductive, but when? Who knows when?

Paz went on with some unpleasant arithmetic on the Andino, the Central and the Argentino Este ("which is bleeding the Treasury"), and demanded the presence of the ministers involved to know their opinion on the nature and opportunity of the project. Both Irigoyen and De la Plaza (ministers of Internal Affairs and Finance) backed Gilbert's plan, though making it clear that the financial situation "is tight and difficult". Paz also predicted that in the event of financial difficulties in Entre Ríos the central government would be forced to carry the burden of the provincial debt so as to avoid a deterioration of Argentine credit, "like it's been done in the past". He was alluding to the nationalization of provincial debts in 1881, to which we'll return later. The retreat of government from railway construction soon went further than a shift towards contracting with the private sector or supporting provincial lines. Private provision with public guarantees soon replaced direct government building or funding. The 195

The debate on this line is in DSCD, July 18th, 1884.

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realization that railways were a constant drain on public finances was possibly the main reason why the system of guarantees gradually replaced construction by the government or via contractors. The difference between both systems, however, was less important than it looks at first sight. Typically, the guarantee meant that during a certain period (usually 20, but sometimes as much as 55 years) the government would pay the companies whatever amount was necessary for them to round a certain rate of profit (always between 5% and 7%) over an original capital, which was also established at the time of the concession at a certain amount of gold pesos per kilometer (normally between 20 and 35 thousand). The government's contribution would be disbursed yearly when profits didn't reach the agreed rate, but returned gradually by the company if and when its net earnings without guarantees exceeded that standard profit. From a financial point of view, all the difference between granting a guarantee and building the line directly was one of liquidity: at no point would the government have to pay the capital back for a guaranteed line. But the effect on the government's solvency was basically the same. In the guaranteed case, the government assumed an obligation equal to the gap between guaranteed and actual profits; if the line, instead, was built directly and financed through debt, the annual net cost to the government was the difference between the interest payments on the debt contracted for the line and the railway's profits. Already during Roca's term a couple of guaranteed railways were voted, all of them in the Interior – the very expensive San Juan - Chumbicha line (30,250 gold pesos for each of the 530 kilometers, at 5%) connecting the Central Norte and the Andino systems, and the Santa Rosa - Orán railway between Jujuy and the Bolivian frontier, 6% for 220 kilometers

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on a capital of 20 thousand per kilometer 196 . A very important development for the consolidation of the guaranteed system was the opening of the Buenos Aires al Pacífico line from Mercedes to Villa Mercedes, linking Cuyo to Buenos Aires directly. It was a concession from the 1870s reactivated during Roca's term, at 7% for a total of 11.6 million pesos. During the Juárez administration, the policy change intensified. The move from direct involvement to the guaranteed system has been sometimes explained as a result of a supposedly laissez faire stance of Juárez Celman. It seems more likely that the shift was related to the less than satisfactory experience of direct involvement with the Central Norte and the Andino. Both lines were sold under guarantees to private companies – with relief. Minister of the Interior Wilde wrote to Roca after the sale that both lines had been "burning my hands" and that profits could be presented as 2 per cent only by "fantastically underestimating the initial capital"197 . Railway fever peaked in 1887 and, after a respite in 1888, escalated to impossible extremes in 1889. These were the times of "railway delirium" 198 , when the country was "suffering from railways in the brain" 199 . The malaise took the form of guarantees. Between late 1886 and 1889, 350 million gold pesos of guarantees were granted, including 41.4 million to formerly state-owned railways undergoing privatization (the Andino and the Central Norte). Most of those railways would never be built, but it's worth to take a look at the counterfactual railway map of the 1880s mania (see map in next page, and compare to the one in page 72). The map shows only those railways in which the national government

196

López (1994), 70.

197

Wilde to Roca, Museo Roca Archive, January 15th, 1888 (document number 83.05).

198

Lewis, Colin (1983), British Railways in Argentina, 1875-1914. A case study in foreign investment. The Athlone Press.

199

Lewis (1983), 71.

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was involved directly or through guarantees. Provincial lines and private non-guaranteed railways are not shown. The counterfactual network hints at the nature of State involvement in the railway bubble of the 1880s. Thirty of the thirty two lines were intended to benefit the Interior, the remaining two fostering expansion to territorios nacionales like La Pampa and Río Negro. None of the railways appears to have had as its main beneficiary the province of Buenos Aires.

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Figure 3.2. Lines guaranteed in the 1880s

Red: railways actually built during the 1880s under national guarantees or receiving guarantees after privatization. Black: State-owned railways in 1892. Blue: guaranteed railways canceled. Grey: pre-1880 Lines: 1. Interoceánico Buenos Aires - Yumbel, 2. Resistencia - Tartagal, 3. San Juan - Chumbicha, 4. Chilecito - La Mejicana, 5. Reconquista-Formosa, 6. San Juan - Salta, 7. Chumbicha - Tinogasta through Andalgalá, 8. extension from Tinogasta - Chile, 9. Goya - línea NEA, 10. Chaco Austral, 11. Ñanducita Presidencia Roca, 12. Nueve de Julio - San Rafael, 13. Rufino - Bahía Blanca, 14. Mendoza - San Rafael, 15. Villaguay - Mercedes, 16. San Rafael - Ñorquín, 17. San Pedro - Rosario de la Frontera, 18. Jujuy - Bolivia, 19. Villa María - Colastiné and Reconquista, 20. Paraná - Monte Caseros, 21. Santa Rosa - Orán, 22. San Cristóbal - Tucumán, 23. C. Norte extensión to Salta and Jujuy, 24. Recreo- Chumbicha - Catamarca, 25. Deán Funes - Patquía, 27. Mendoza - Uspallata., 28. Buenos Aires al Pacífico, 29. Bahía Blanca - Nueva Roma, 29. Villa María - Rufino, 32. Frías - La Banda. Source: Elaboration on Damus (2000)

A couple of observations will suffice to wrap the argument up. First, most of the lines weren't built because of the financial crisis exploding in 1890. Most of the concessions were cancelled soon after Juárez Celman's resignation in August, 1890. Some did go on

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and, in spite of the deep crisis of the early 1890s, 1891 was the most intense year of railway construction until 1911, with 2,553 kilometers added to the network. A longer term consequence of the failure in many of the guaranteed lines was the demise of the system and even the rescission of outstanding guarantees in the 1890s, which cost the government 58.5 millions 200 . Another general observation is that the geographic distribution of the lines receiving guarantees didn't follow any economic criteria – or, strictly speaking, they respected only Mansilla's dictum: "Good railways are the ones that are built, and bad the ones that aren't" 201 . In only one day of October 1889, 72 million gold pesos of tracks were guaranteed. These were, so it was said, railways to the moon. Everything, even an elaborate defense of eccentric railways in the deserts, was possible in the Juarista years. Before La Prensa parted ways with Juárez, the newspaper commended the guarantees received by remote tracks: "The railways in the deserts respond to serious aims of government and of progress: they will close the secular period of silence and loneliness that is the norm there, and a time of business and progress, of industries and trade, will start" 202 . The railway from San Juan to Chumbicha, for example, would put Cuyo and the west of Catamarca and La Rioja in communication with "their natural port... Bahía Blanca [400 km farther from La Rioja than the port of Rosario]" 203 . Any railway would receive a guarantee as long as it wasn't in Buenos Aires. As Senator Mendoza argued, "outside the Province of Buenos Aires, in no region of the Republic can you build railways without a guarantee" 204 . 200

Williams (1920), 134.

201

DSCD, volume I, p. 933. (89?)

202

La Prensa, July 29th, 1887.

203

La Prensa, September 10th 1887.

204

Diario de Sesiones de la Cámara de Senadores, September 19th, 1889.

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Again, provincial deputies were usually the promoters for concessions benefiting their regions. As before, both the poverty of the present and the wealth of the future were invoked to justify the guarantees. When defending the railway from Chilecito to the mines of Famatina, Joaquín González of La Rioja could argue in the same sentence that "There's no province offering better prospects for railways than La Rioja, I contend that in spite of the smile of some deputies" and that "being so distant from the brain of the Republic, from the Capital, the wounds and pains that tear our hearts out in La Rioja aren't felt here" 205 . Mansilla, turned into Juarista leader in Deputies, provided his characteristics arguments in support: "Our country has an incalculable future, and those who make arithmetic or even geometric estimations will prove wrong; we need to make them capricious, fantastic" 206 . The existence of a parallel line wasn't an obstacle when it came to get a Congressional guarantee. Thus the San Cristóbal (Santa Fe) - Tucumán line was approved less than a month after another concession (with no guarantee) was granted for a line of the respected Buenos Aires Rosario company heading to Tucumán from Sunchales, also in Santa Fe. Of course, the few of these lines that were actually built suffered from low returns. San Cristóbal to Tucumán, for example, lost money in every year except one during 1891-1896. The average profit rate for the guaranteed lines in that period was a hundredth of 5% 207 . True, these were crisis years, but somehow the lines in Buenos Aires managed to enjoy respectable profits in the same period, 4.8% for the Oeste and 4.4% in the case of Ferrocarril del Sur.

205

Williams (1920), 134.

205

DSCD, Sept. 16th, 1887, 935.

206

DSCD, Sept. 16th, 1887, 937.

207

López (2000), appendix.

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The frequency and size of the guarantees were clearly perceived as adding pressure to the decline in Argentine credit and the increase in the gold premium, that is, the depreciation of the peso. The price of gold had become a problem for Juárez since at least late 1887 208 , when it crossed the 150 mark (paper pesos per 100 gold pesos) for the first time since presidential elections. All along 1889 the gold premium was the most prominent economic and political issue. As more obligations were voted, the opposition papers would chart the correlation between guarantees granted and the price of gold. In Congress, calls for moderation came from the solitary voices of Wenceslao Escalante in Deputies and Aristóbulo Del Valle in the High Chamber. Escalante's resistance for a second line to Bolivia, for example, which would only "interrupt the silence of the desert with the sterile whistle of a locomotive" 209 , was in vain. Juárez had declared earlier in 1889: “Remember that the great Republic of the North has grown only after the locomotive crossed forests, mountains and deserts” 210 . It seems that at some point the government's attitude did change as it perceived that its own future depended on the price of gold and, thus, indirectly, on the guarantees game. Already in his 1888 message Juárez had shown some concern over the mechanism of guarantees: "The government pays in guarantees a considerable sum. What the railways give back is relatively insignificant, and this should be taken into account so as to avoid multiplying the guarantees" 211 . In early October 1889, with the economic situation almost out of control, and gold well over 200, the Juarista deputies quarreled over a motion by Juarista Deputy Arias proposing the deferral of all projects carrying a guarantee, but it was rejected. It appears that in late 1889 Congressional pressure for more guaranteed lines 208

Pellegrini to Roca, Museo Roca Archive, December 20th, 1887 (document number 87.07).

209

DSCD, Oct. 3rd, 1889, 6.

210

Rock (2006), 194.

211

López (2000), 294.

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was stronger than the government's will to refrain, as Juárez didn't make use of his veto power. When Senator Del Valle called Minister Pacheco to Parliament to help him decide whether a new set of guarantees should be voted, the minister seemed trapped between the political requirements of Congressional Juarismo and economic common sense. He argued that it was Congress, not the Executive, who should decide on the merits of railways lines. Del Valle accused him of "lavarse las manos" (washing his hands, as Pilatus) and the guarantees were approved. With the gold over 200, the October railway fantasies were probably superfluous to trigger the economic crisis, but they led many contemporary observers to underline the link between railway guarantees and the price of gold. The most prominent among them was the French economist Paul Leroy Beaulieu, one of the most frequently quoted authors in the Argentine parliamentary debates of the 1880s. La Prensa, now decidedly anti-Juarista, was happy to reprint an article he had written for the Economiste Français, titled "The Situation of the Argentine Republic and the Gold Premium". Leroy Beaulieu perceived the connection between the development of the Interior, railway guarantees, and the price of gold: The Argentine government is mistaken in relation to railways. It grants guarantees to whomever asks for them. We don't see any reason why it would be advisable for four and a half million inhabitants of the Argentine Republic to disseminate from the sea to the Andes. At best, they would concentrate in the regions close to the ocean or to navigable rivers... What's the point of this system of artificial dispersion, by the means of railways, of a still limited population that would rather live in less remote districts? 212

3.1. Rancho finance, Gaucho banking Juárez Celman inherited from Roca an expansionary stance in monetary and railway policy. In both areas, Juárez accelerated Roquista tendencies. In the case of monetary 212

La Prensa, October 24th, 1889.

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management, the Juarista period has to be analyzed in relation to a third sphere of economic policy, namely, provincial finances. The trece ranchos (or "thirteen mud huts", as the Interior provinces were called) took as much advantage as they could from the abundance of external finance during the 1880s. It is fair to say that they were assisted and encouraged by the central government, in at least three ways: federal bailouts, loans by the Banco Nacional, and borrowing through the mechanism of the National Guaranteed Banks. The decade started with a national bailout to some provinces. This had been in response to very early requests of Roquista governors (like José Segura, see page 22). Unsurprisingly, the law nationalizing debts of San Juan, La Rioja, Santiago and Mendoza originated in the Executive. Roca accompanied the proposal with an emphatic message urging Congress to sanction it as soon as possible 213 . The sums involved weren't significant, but the constitutional interpretation implied by the decision was clear: provinces would be helped whenever they had troubles servicing their debts. When pressed by Calvo to explain what would be the arguments against a fifth, or a sixth or a seventh province that asked for a debt pardon, Absalón Rojas simply answered: "But the other Provinces don't have debts", to which Calvo answered "But they will" 214 . The following year, Antonio Gallino, governor of Corrientes, explained to Roca that a much criticized sale of land in Misiones by his province had been intended to avoid burdening the national treasury with new provincial debts, something that "would unavoidably have happened" 215 as Corrientes had no means to meet its obligations without that sale. As mentioned earlier, Deputy Paz opposed the financial help of the central government to a Entrerriano railway in 1884 because in case of

213

DSCD, Sept. 13th, 1881, 1126.

214

DSCD, Sept. 16th, 1881, 1208.

215

Gallino to Roca, Archivo Roca 21, January 15th, 1882.

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a default by Entre Ríos the national government would have little option but to bail the province out. Borrowing was, as a consequence, the rational choice for governors who cared about their provinces. But the will of the borrower needs the will of the lender to be fulfilled. In many instances, the larger provinces managed to place loans abroad. This was not only the case for Buenos Aires; Entre Ríos and Santa Fe also issued bonds in London during Roca's period. But when they weren't able to borrow abroad, they could still ask the national government for a loan. At that stage political connections were crucial. When in 1883 Gravier of Córdoba needed a hand from the central government so as to get a loan bearing an interest rate low enough to make it compatible with local constitutional provisions limiting the amount of interest expenses, he wrote to Juárez asking him to work in behalf of the province. Gravier was urged to get the loan so as to start "the great public works we have in mind" 216 . Negotiations of the provincial authorities and the English bankers Mallmann and Company for a 3 million peso loan failed, however, because of the illiquid conditions that Argentina faced in 1884. Olmos, the provincial finance minister, was able to compensate this loss with a credit of 1 million by the Banco Nacional 217 . If the market wasn't friendly, the national government could replace it in the meantime. Córdoba managed to secure a loan from Morton Rose in 1886 218 . Loans by the Banco Nacional to provinces grew steeply during Juárez term. After the resignation of Juárez, Vicente Casares, designed by Pellegrini at the Banco Nacional,

216

Gravier to Juárez Celman, September 29th, 1883, quoted in Louro de Ortiz and Bordi de Ragucci (1986).

217

Giordano de Rocca, Graciela (1977), "Génesis y fracaso de un empréstito de la provincia de Córdoba (1883-1885)", IV Congreso de Historia Nacional y Regional.

218

Del Río, Manuel (1900), "Las finanzas de la provincia de Córdoba en los últimos veinte años", Dirección General de Estadística de la Provincia de Córdoba.

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produced a devastating report on the behavior of the Banco under the Juarista Angel Sastre. The allegations of corruption were widespread 219 , but second in importance to the condemnation of financing to provinces. The Banco had lent money to Córdoba, Salta, La Rioja and Santiago for at least 40 million gold. The long list of grievances had in its top five the following four related to provinces: "employment of the bank's capitals in long term loans and bonds operations [most of which were provincial]", "ordinary loans to provincial governments for their administrative needs, whose conditions were never or irregularly met", "purchases of provincial bonds which the bank wasn't able to place in the market, nor it will be able for a long time" and "funds spent in the withdrawal of illegal monetary issues by the provinces" 220 . What were those illegal issues by the provinces? The answer takes us to the third nationally-sponsored path to provincial prodigality: the system of bancos nacionales garantidos, national guaranteed banks. Legislation for a system of free banking had been an option since Mitre's times, favored by orthodox circles in Buenos Aires. Deputy Paz, for example, had proposed a free banking scheme in 1882. By 1887, this time-honored artifact of classical economics appeared as a functional instrument of Juarista politics, a happy coincidence that paved its way in Congress. The law of 1887 didn't appear by surprise but followed the lines of the Roquista monetary experience. After yet another increase in the capital of the Banco Nacional in 1886, the Executive power still thought that the scarcity of notes in the Interior justified a bolder move. The message of Pacheco (Juárez first Finance minister) recommending the guaranteed banks legislation specifically stated that the 219

This report has led Israel Latersztain to conclude that the main cause of the 1890 was Juarista corruption, a widespread notion in the 1890s. Latersztain, Israel (2002), "Los bancos se roban con firmas", Master’s thesis, Universidad Torcuato Di Tella.

220

Memoria del Banco Nacional, 1890.

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government had had no plans of further monetary laws, but that it couldn't remain passive given "the continued observations with respect to the present state of the banks and the tightness of business... a scarcity of money is felt, especially in the provinces..." 221 . No wonder Pacheco's effigy decorated one of the faces of the bills resulting from the banking law of 1887, the other one reserved for Juárez Celman himself 222 .

221

DSCS, Sept. 29th, 1887, 655.

222

This was the case of some of the bills issued by the banks of Santiago del Estero and Tucumán. La Rioja and San Luis had on their notes the portraits of Roca and the author of the Civil Code, Dalmacio Vélez Sarsfield. The most common bill (circulated by every bank under guaranteed banks legislation) was less polemic, with independence heroes Admiral Guillermo Brown and General Carlos Alvear on their sides.

94

Illustration 3.1. Notes of the Bancos Nacionales Garantidos

95

The economics and the political economy of the guaranteed banks legislation have been analyzed in some detail elsewhere 223 . The banking reform stipulated that any institution, private or public, could be accepted as a bank of issue as long as its currency was fully backed by national bonds specifically created for that purpose. These bonds had to be paid in gold by the banks, who would receive interest for them as long as they remained solvent. The bills would be issued in the name of each bank, but the reality of curso forzoso implied that they would all have the same value for tax purposes, and would thus trade at par with each other in the money market, no matter the issuing bank's financial position. The combination of free banking and curso forzoso also had the implication that monetary issues could run ahead of demand: banks would be able to inflate their currency to the extent that they managed to obtain gold for the bond purchases. Unlike a system of free banking with gold convertibility, under which the limits to money supply are defined by the demand for money, the Juarista scheme of guaranteed banks would only be bound by credit availability. In view of this potential shortcoming, the law required that Congress approved each additional issue by the banks in excess of the one set originally when each bank registered as a guaranteed bank. Supposedly, then, monetary policy would depend on the behavior of the banks but limited by both credit conditions and congressional decisions. In practice, however, the national guaranteed banks managed to circumvent the 1887 law by more or less illegal means. If credit markets were adverse, they were able to pay for the

223

The political economy of Juarista banking policy is masterfully described in the penetrating work of Tim Duncan (Duncan, Tim, (1983), Government by Audacity, Ph.D. dissertation, University of Melbourne). Cortés Conde (1989) and della Paolera and Taylor (2001) are among the analysts of the economic aspects of the national guaranteed banks legislation.

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bonds with pagarés, promises to pay that specified neither dates nor sanctions in case of non-compliance. Also, some banks issued notes in excess of the authorized limits. Sixteen banks were incorporated to the system of national guaranteed banks: the Banco Nacional, the Banco de la Provincia de Buenos Aires, two private banks, and one bank for each of the thirteen provinces of the Interior except Jujuy. The maximum monetary issue "for each of the new banks to be founded, respond to the need of decentralizing the capital and push it so that it establishes in the provinces that needed the most" 224 . While the allotment for the provinces of the Interior was less than for Buenos Aires, when expressed as a share of the provincial revenues it's clear that they received proportionally more than Buenos Aires. The distribution of the new notes issues ended up as follows:

224

DSCS, Sept. 29th, 1887, 655.

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Table 3.1. Increase in authorized provincial issues, 1887-1891 Bank

Banco de la Provincia de BA Banco de Santa Fé Banco de Córdoba Banco de Salta Banco de Tucumán Banco de Mendoza Banco de La Rioja Banco de San Juan Banco de Entre Ríos Banco de Catamarca Banco de Corrientes Banco de San Luis Banco de Santiago

Increase in Per capita As a share of authorized provincial issue revenues 15563720 24 1.0 15000000 58 20.3 13000000 44 16.2 4307000 40 17.0 3600000 21 8.4 3000000 32 6.8 3000000 49 35.3 1656000 22 7.0 8544000 38 7.3 2390491 12 14.0 3163500 21 4.2 630000 9 1.7 3766470 25 14.2

Source: 1887: Quesada, I, 202. 1891: Memoria de la Caja de Conversión (1891).

As explained, banks wouldn't always comply with the rules of the game. As a matter of fact, one of the most dramatic moments of the 1890 crisis occurred in parliament when Senator Del Valle denounced "clandestine" issues by the provincial bank of Catamarca. Retrospective investigations by the Caja de Conversión, the monetary authority inaugurated by Pellegrini in the midst of the crisis to centralize currency issues, concluded that Córdoba had issued currency for double the amount it had been authorized. The clause stipulating the purchase of public funds was also frequently breached – here also the province of Juárez was the most notorious offender. Only 56% of the authorized issue had been backed by bonds, or 26% of the total issue, legal and clandestine 225 . The cordobés bank was described by the president of the Caja as being “always the last one in complying with the

225

Memoria de la Caja de Conversión, 1891.

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laws, and when it did, it was only to the extent that they provided advantages; but the bank always eluded those prescriptions which implied an obligation” 226 . The incentives for the provinces to spend more, by issuing currency through the provincial banks or by taking on debt –supplied by the central government or by the credit markets, but in either case with a high chance of bailout– was hard to resist. The increase in provincial expenditures during the last few years of Juarismo is hard to believe. The case of Córdoba is, again, emblematic. Provincial expenditures stood at 850,000 pesos in 1885 and by 1888 they had reached 20 millions while the peso had depreciated only slightly. To get a sense of the numbers: the figure for 1888 is equivalent to 1,162 pesos per person in 2002 money, which is 46% more than the 792 pesos that the province of Córdoba actually spent, per head, in 2002. While most provinces contracted debt, the effect seems to have been more intense, proportionally, for some of the provinces of the Interior. During the period of the great provincial indebtedness, 1886-1890, provincial expenditures in all 14 provinces multiplied by 2.27 227 . Considering only the thirteen Interior provinces, the multiple is 4.16, but for Buenos Aires it's just 1.56. Buenos Aires had increased expenditures earlier in the decade. When the whole of the 1880s are considered, the distribution of provincial debts, according to Cortés Conde (1989), was:

226

Memorias de la Caja de Conversión, 1892.

227

Dirección General de Estadística, Anuario estadístico, several issues.

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Table 3.2. Increase in provincial debt, 1880s Bank

Buenos Aires Santa Fe Entre Ríos Córdoba Tucumán Mendoza San Juan Catamarca Corrientes San Luis Salta La Rioja

Debt contracted in the 1880s (million gold pesos) 40.94 56.28 9.83 20.38 2.96 4.90 1.98 2.96 4.96 0.73 5.00 4.00

Per capita

62.85 219.07 44.02 69.58 17.47 51.80 26.33 15.38 32.52 10.42 46.65 65.34

Source: Cortés Conde (1989).

In Chapter 2 I showed how laws relating to State banks during Roca’s government were mainly directed at pouring money to the Interior of the Republic. The decision by Juárez Celman to accelerate the diffusion of credit to the Interior by decentralizing the banking system through National Guaranteed Banks legislation didn’t mean that geopolitical considerations were absent at the banks depending directly on the central government. In particular, laws and projects related to the Banco Hipotecario Nacional in the late 1880s raised, again, the issue of the Interior’s development. There was a close involvement of Congress in the Banco Hipotecario affairs, as the charter stipulated that Parliament had to vote each new issue of cédulas.

100

Illustration 3.2. Prospectii of provincial bonds in London and Paris

San Luis: The prospectus showed the province’s place in the national map and stated that it was conveniently located “in the center of the Argentine Republic […] The multiplicity of railways crossing the province demonstrate the important role that the Confederation assigns to this province, the richest of them all in precious metals […] The climate is healthy, and favorable to the cultivation of all the cereals, whose yields equal those of the Provinces of Buenos Aires and Entre Ríos, reputed for their fertility”

101

Catamarca: “its climate presents exceptionally healthy qualities, which favor immigration […] Ranching is extensively and advantageously practiced; the vine is cultivated on a grand scale; and the wines produced in the province are the object of an important export trade […] the province possesses the rich silver mines of Aconquija, currently exploited, and numerous deposits of copper, iron, silver and gold”. Mendoza: “It is one of the richest in the country in every genre of products; the wines are in constant progress in quantity and quality […] it possesses many industries: the exploitation of mineral wealth (gold, silver, copper, etc.), large scale ranching…” San Juan: “It is one of the best managed provinces in the Confederation; it is rich; its lands, fertile in the most part, are proper for agriculture; the exploitation of mining wealth has reached a notable development”

102

Two considerations dominated Congressional debates over the Hipotecario’s policy: the rapidly changing economic context and the will to diffuse credit to the Interior. The Banco Hipotecario was both an expansionary force in the booming years to 1888 and an integral part of the diverse strategies to combat the crisis thereafter. In any of those roles, the question of geography was paramount. A tension existed all along the period between market conditions for mortgage credit and the priorities of provincial representatives. A 1888 law to increase cédulas gave 41,6% to the Capital and the Province of Buenos Aires, but even that distribution was probably unwarranted by a very slow market in the Interior of the Republic, which had prevented the actual issue from reaching the authorized limits. The province of Buenos Aires still felt discriminated against by the Hipotecario: as Goyena complained, “there appears to be no intention of making loans in the province of Buenos Aires”. 228 During the year 1889 a further issue of cédulas by the Banco Hipotecario was discussed, as part of Minister Rufino Varela’s economic plan to deal with the relentless rise of gold. A rift soon arose between porteño and provinciano deputies regarding the distribution of credit per province. While Ernesto Pellegrini and others asked for an increase, over the amounts stipulated by the Executive’s project, for Capital and Buenos Aires, deputies for the provinces demanded that any additions should be portioned proportionally. The rationale for each position was quite the opposite: while Pellegrini underlined high demand of credit in the Capital, Carbonell from Santiago argued that the supply of credit was short in the Interior and could only be enlivened through the Banco

228

DSCD, July 25th, 1888, 330.

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Hipotecario, given the “absolute absence of credit institutions” 229 . Carbonell, along with Olmedo from Córdoba, also pressed to include an article that tripled the ceilings for individual loans granted by the branches of the Banco Hipotecario. Varela’s successor in the Finance Ministry, Wenceslao Pacheco –former president of the Banco Nacional, with a previous experience as Minister of both Roca and Juárez– replaced the project with a plan to issue gold bonds through the Banco Hipotecario, a strategy aimed at avoiding the high interest rates of peso loans in times of currency instability. In his attempt to reach some sort of financial adjustment, Pacheco opposed the clause allowing a freer hand to branches in the concession of credits. Carbonell and Olmedo had to give in because, as Olmedo recognized I don’t think we would be honoring this law by giving more amplitude to the local councils of the provinces; the distrust that these, so to speak, several ramifications of government arouse abroad is well known. Certainly, if we had a unitary government –of which I’m a radical enemy, as I think the federal is best– we would for this reason enjoy a better credit in Europe. 230

On the verge of Juarez resignation (July 1890) came a new minister (Juan Agustín García, who followed the brief Ministries of Pacheco and Francisco Uriburi) a new proposal to increase credit through the Banco Hipotecario Nacional, and a new scramble for money by the provinces. This time the proposal consisted of a straightforward issue of 100 million bills that would compete with those of the Guaranteed Banks. The ostensible aim was to compensate for an alleged monetary crunch in the Interior: Most of the provinces are in a lamentable state; life is completely paralyzed in at least three quarters of them, because of the lack of circulation. In this respect, the provinces of the Litoral are in better conditions than those in the Interior 231 .

229

DCSD, Aug. 7th, 1889, 372.

230

DSCD, Oct. 31st, 1889, 857.

231

Deputy Malbrán in DSCD, July 11th, 1890, 254.

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In the Interior, people had to resort “to barter, like tribes in primitive times” 232 . The geographic allotment of the issues –which never materialized as the government would soon fall– had been established according to the actual use of funds of a previous tranché of cédulas. Minister García, who had been president of the Banco Hipotecario, explained that the actual request for credit had been quite different from the legislative distribution of cédulas; not only in the Capital and Buenos Aires, but also in some provinces, like Santa Fe, Entre Ríos and Córdoba, requests had been “infinitely larger than the quantity determined by law”, in others, like Catamarca “there had been an excess of authorized cédulas over actual requests, and the remaining was redistributed to other provinces” 233 . The new law, based as it was on actual requests, increased the share of Buenos Aires and the Capital. Crucially, the project departed from previous practice in including a large amount for the province of Buenos Aires, hitherto left to its own banking devices.

232

DSCD, July 11th, 1890, 259.

233

DSCD, July 11th, 1890, 271.

105

CHAPTER 4. The Economic Consequences of Unequal Federalism

“Don’t you dare bring in a Deus Ex Machina Ending” Creative writing instructor Robert McGee (played by Brian Cox) in the movie Adaptation

4.1. Visions of a crisis The economic crisis of 1890 was one of the hardest in Argentina's economic history. Imports halved between 1889 and 1891. The rough estimates we have for GDP speak of a recession of 15% in two years, a record only surpassed during the First World War and during the depression of 1999-2001 234 . Argentina defaulted on its debt and currency depreciated to 400 pesos per gold peso –up from a parity of 100– at its maximum. There was net emigration in 1891 – the only time in the whole period from national organization to 1914. Why did it happen? Explanations of the crisis can be classified in at least three categories: credit supply explanations, credit demand explanations and the monetary hypothesis. Though John Williams' principal aim wasn't to explain the 1890 crisis but to study Argentina of the 1880s and 1890s as an example of a floating exchange rate system, he implicitly endorses a credit supply explanation 235 . As in many emerging markets crisis of the late 20th century, in Williams' work the boom happens because of the heavy lending of the late 1880s and the bust occurs when capital flows reverse. The Williams thesis was adopted, with some qualifications, by Raúl Prebisch a few years later236 .

234

Della Paolera (1988), appendix.

235

Williams (1920).

236

Prebisch, Raúl (1991), Obras 1919-1948, volume I.

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Two British authors, H S Ferns 237 and Alec Ford 238 combined supply and demand factors to explain the borrowing excesses of the Juárez years and the ensuing crisis. Borrowers had borrowed and lenders had lent so heavily because of erroneous expectations on investment returns. Investments, especially in railways, took a longer time to mature than what British and other creditors were ultimately prepared to wait for. Much of the imported capital had been used for investments that were justified in the long run by their high productivity, but the crossing through a bridge of gold from the shore of opportunity to that of prosperity had been blown up by impatient foreign creditors. The 1890 crisis was, in this interpretation, a "development crisis" (crisis del progreso), as it was argued by many Argentine politicians and observers in the 1890s. Recently, Pablo Gerchunoff, Fernando Rocchi and Gastón Rossi defended a similar thesis: there were missed expectations on the part of both borrowers and lenders especially regarding the evolution of the prices and quantities of Argentine exports 239 . Pure demand side explanations, on the other hand, point to the abnormal fiscal and monetary behavior of the Argentine government. In the most thorough work to date on the Juarista years, Tim Duncan (1983) presented the crisis as a result of a fiscal policy that tried to maximize in the short run the rate of economic growth. Juárez was, in Duncan’s view, a developmentalist avant la lettre. Duncan stresses the fact that the central government was ultimately responsible for most of the country’s indebtedness, including most of the nominally private or provincial obligations, such as, respectively, railway guarantees and

237

Ferns, H S (1966), Gran Bretaña y la Argentina en el siglo XIX, Solar Hachette.

238

Ford, Alec (1966), El Patrón oro: 1880-1914, Inglaterra y Argentina, Instituto Torcuato Di Tella.

239

Gerchunoff, Pablo, Fernando Rocchi and Gastón Rossi. Seminar at Universidad Torcuato Di Tella, August 8th, 2003.

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Guraranteed Banks bonds. Table 4.1 shows the different types of public debts incurred during the 1880s, as of end-1889.

Table 4.1. Public debt, 1889

Type of debt

Debt outstanding (million gold pesos) 146

National debt, (not counting bonds related to Bancos Nacionales Garantidos)

286 154

Railway guarantees Provincial debts of which Bancos Garantidos debt

69

Source: Cortés Conde (1989), López (2000), Damus (2000)

On top of these public borrowings, there was the very special case of the cédulas, most of them owed by the Banco Hipotecario de Buenos Aires, though there were also –as we have seen in Chapter 2– some cédulas issued by the Banco Hipotecario Nacional. In British financial circles the question of whether they carried a public guarantee was repeatedly discussed 240 . As of 1889, national and provincial cédulas issued in pesos stood at 289.5 million pesos (200 provincial plus 89.5 national), and gold ones at 25.5 million gold pesos (7.5 provincial plus 18 national). Converting the peso cédulas to gold at the quotation for late 1889 (around 220 paper pesos per 100 gold pesos), investments in these financial instruments amounted to approximately 156 million gold pesos. A word should also be said in relation to railway guarantees. Many of them would be cancelled because of the crisis

240

For example, The Investor's Monthly, April 30th, 1888

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before the contracts with the companies had been signed. Still, from the point of view of creditors these were obligations that would weigh on Argentine credit in a no-default scenario. The fact that most of the borrowings were public leads Duncan to stress the overwhelming role of the State in the Argentine indebtedness of the 1880s – and, thus, in the origin of the crisis. According to Duncan, the mark of Juárez administration was audacity: Juarista officials were so concerned with accelerating economic growth that even when the prospect of a default on Argentine obligations came to be very visible they were audacious enough to stick to a collision course. Duncan speculates on the possibility of a deliberate path towards default and renegotiation on harsh terms. While there were huge and ever increasing outlays by the Ministry of Interior, little was set aside to cover the increased interest expenditures as more pesos were needed to repay hard currency loans. In Duncan’s view, economic brinkmanship was a result of Juarez and his associates’ fixation with progress. In other explanations of the 1890 crisis, the fiscal hypothesis combines at some point with a monetary explanation, as bonds guaranteeing monetary issues by the banks represented a substantial share of public debt. Both Cortés Conde (1989) and Della Paolera and Taylor (2003) emphasize the role of the National Guaranteed Banks, a causal factor typically mentioned by contemporaries of the crisis but toned down in later analyses of the crisis. In addition to the direct effect on indebtedness, banking legislation had specific monetary consequences that helped trigger the crisis. For Cortés Conde, the monetary channel is crucial because curso forzoso meant that the gold value of tax receipts declined with the increase in the gold premium. To the extent that excessive monetary issues by the

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guaranteed banks depreciated the currency, they weakened the government's financial position and its repayment capacity. Della Paolera and Taylor present the failure of Bancos Nacionales Garantidos as a typical example of the institutional fragility that has characterized Argentine economic history. In Chapter 2 I argued that credit demand has to be at the heart of any explanation of the credit rationing that Roca’s government faced in 1885, because the price of borrowings was higher in Argentina than in comparable countries. It is unlikely, then, that Argentina was irresistibly seduced into debt. The evidence is identical for the second part of the 1880s: country risk was higher in Argentina than in Chile, New South Wales or Brazil. On average for the boom period 1886-1888 Argentina paid a full percentage point more than Chile and Brazil; and 1.5% more than the Australian province. While the difference appears slim in absolute terms, it is more significant when compared to the generally low risks of the late 1880s. Argentina’s average risk doubled that of New South Wales, exceeded Chile’s by two thirds and was 50% higher than in Brazil.

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Figure 4.1. Country risks during Juarismo and beyond Percent spread of Argentine and other bonds over the British consol, 1886-1890 6.0

5.0

Argentina Brazil New South Wales Chile

4.0

3.0

2.0

1.0

0.0 85 86 86 86 86 87 87 87 87 88 88 88 88 89 89 89 89 90 90 90 c/ ar/ un/ ep/ ec/ ar/ un/ ep/ ec/ ar/ un/ ep/ ec/ ar/ un/ ep/ ec/ ar/ un/ ep/ e D M J S D M J S D M J S D M J S D M J S

Source: Global Financial Data, www.globalfinancial.data.com. The yields used to calculate country risks are not exactly comparable as bonds included here have different maturities. Also, for each country more than one bond is included in the series. The stars indicate a change in the bond being considered. In the case of Argentina, for example, the yield of the 1867 Public Works bond is taken into account until its maturity in 1888, and later replaced by the 1886 Customs Loan. Only in the case of Argentina does the switch have a meaningful effect on the yield, so I built a chained-index, with April 1888 (red star) as a base. Starting from that level, the yield moves as the yield of the Customs Loan actually did. In the case of Chile, Brazil and New South Wales, the change of bonds doesn’t show up as a change on the yields, so I graphed the original Global Financial Data series.

What made Argentina different, then, was not the generosity of its creditors but the prodigality of its debtors. As Duncan points out, the government was involved in almost all of these borrowings. While the overwhelming role of the public sector cannot be questioned, the motives behind those policies went beyond just a passion for economic growth and a bluff to foreign creditors. Structural political and economic factors deeply rooted in the Argentine federation were at work. Duncan recognizes that a “provincial

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perspective was promoted by a constitution that regarded provinces as potentially equal states” 241 , but then goes on to describe his policies as a specific result of Juarista policies and politics. As I showed in Chapter 2 and 3, most of the explicit or implicit public debt of the 1880s, including paper money, was incurred in connection to the desire of the governments of Roca and Juárez to let the Interior provinces take part in the progress of the Pampas. In this sense, Juarismo shared with Roquismo more than what the divergent economic results suggest. Most of the national debt, for example, was generated during Roca's administration. This should come as no surprise given that non-interest expenditures expressed in gold reached a value in 1884 that wasn't surpassed until 1889. As I tried to argue, a central feature of Roca's program was the very expensive extension of railways to every provincial capital. With Juárez Celman in government, railway development directed at the Interior took the form of public guarantees, for an amount that in 1889 exceeded public debt. Provinces also contributed directly to public indebtedness. Their behavior was in part induced by the national government's bailouts at the beginning of the decade and by loans through the nationally-sponsored system of guaranteed banks. If, finally, monetary policy fuelled the crisis by depreciating the peso and thus making interest payments dearer (as convincingly argued by Cortés Conde), then the role of what may be called the political economy of federalism is even more clear. Under both Roca and Juárez Celman the pressure to increase the money supply came from the provincial interests that were the essence of both presidents' political coalitions.

241

Duncan (1983), 400.

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If the political economy of federalism can go a long way explaining the crisis of 1890, it also runs the very common risk of trying to understand a specific event (such as the economic crisis) by reference to a more or less constant factor (say, federalism). The argument needs to be sharpened. What was so special about Argentine federalism that led to this extravagant financial behavior? If the country’s tendency to spend more than its income was so entrenched in Argentina’s economic and political geography, how did Argentina manage to turn itself into a success story during the four decades following 1890? True, during the 1890s another over-borrowing crisis would have been impossible in any case given the absence of external credit. Argentina only reentered credit markets in the decade of 1900s, after negotiating a debt settlement in 1893. But during the 1900s Argentine did refrain from accumulating debt in the 1880s fashion. Why? In the next section I outline what may audaciously be termed a “theory” of unequal federalism.

4.2. The political economy of unequal federalism The combination of economic inequality and disproportionate political representation made Argentina’s federalism during, at least, the 1880s a very special case. What exactly do I mean by inequality and disproportionate representation? As should be clear by now, I’m always thinking in terms of regional interests, rather than looking at class, race or ideological cleavages. The approach seems appropriate for a period in which political representation was restricted. There exists a definition of elite broad enough to encompass every relevant political actor of the period and yet precise enough to have an operational meaning. Class conflict doesn’t seem to have played a significant role in the political economy of the period – at least until the early years of the twentieth century, when the

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Socialist party entered Parliament and both socialist and anarchist groups began to emerge on the fringes of the Argentine political scene 242 . Different regions may have different economic interests in very diverse areas of economic policy. For the time being I will consider just one: fiscal policy, in the specific sense of a preference for a certain level of public expenditures. (In Chapter 4 I consider the provinces’ preferences for different types of taxation). In the Appendix 1 I develop an economic model in which provincial representatives vote for a national budget. Provincial representatives differ only in two ways. The provinces they represent may be big or small, in terms of economic size; and they can be rich or poor, in terms of per capita income 243 . My contention is that the preference of each province for a certain level of national expenditures will depend on its relative economic size and per capita income as compared with the other provinces’– or, equivalently, to the national average. The lower the size and per capita income of a province, compared to the average, the higher the level of national expenditures the province will favor. In the next two paragraphs I outline the argument, which is presented formally in the appendix. Take, first, differences in provincial economic size. Consider a plan of national expenditures allocated to the 14 Argentine provinces on a per-province basis, such as a program of railway building that will reach every provincial capital. Assume for the sake of simplicity that the cost of each extension is the same, and that provinces contribute to the national Treasury in proportion to their economic size. Each province would receive 1/14 of the total railway budget. Provinces bigger than 1/14 of the economy would contribute more 242

As Duncan bluntly asserts, “I have not found either social structure of social class necessary to explain the evolution of the relationship between politics and the economy during this period”, Duncan (1983), 64

243

Both dimensions are somehow correlated: economic size is the product of population and per capita income. However, this correlation can be stronger in some periods than in others, as I show below.

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than 1/14 of the total cost, so they would receive less than their contribution; smaller ones would contribute less than what they receive – a calamitous deal for Buenos Aires (representing close to two-thirds of the Argentine economy in 1880) but great business for poor Jujuy (0,20%, or 1/500 of the national economy in 1880). The argument also applies to differences in per capita income. Consider now a program of national expenditures which will benefit citizens equally on a per capita basis. For example: in the monetary debates of the 1880s references to the amount of monetary holdings per capita were typical (though in the end more was given, on a per capita basis, to poorer provinces, see page 67 in Chapter 2). Again, citizens of poorer provinces –in terms of per capita income– would benefit and those of richer provinces would lose with a program of national expenditures distributed equally on a per capita basis: the poor would try to tax the rich, and the rich would try to avoid being taxed 244 . The evidence presented in the previous chapters shows, precisely, that fiscally orthodox voices came from the Litoral, either from porteños or from deputies representing relatively wealthy provinces, such as Santa Fe (Escalante is a typical example). Why did the fiscally prodigal have the upper hand during the 1880s? It is at this point that the question of political representation becomes crucial. Formally, Argentina’s political system resembled that of the US: each province elected to Congress two senators and a number of 244

My argument is, essentially, an application to provinces of the well known relationship between inequality across individuals and individual fiscal preferences. The impact of inequality on tax rates was first proposed by Romer (1975). The basic idea is that the larger the income differences between rich and poor, the higher the tax rate the median voter will prefer. (“Under certain regularity conditions on the distribution of abilities, individual preferences will be single-peaked with respect to tax rates. For a given government revenue requirement, the poorer individuals tend to favour higher marginal tax rates, while those with the greater earning capacity have their well-being maximiezed at relatively low marginal tax rates”. Romer, Thomas (1975), “Individual Welfare, Majority Voting and the Properties of a Linear Income Tax”, Journal of Public Economics, XIV, 163-165)). Alesina and Rodrik (Alesina, Alberto and Dani Rodrik (1994) “Distributive Politics and Economic Growth”, Quarterly Journal of Economics, 109, 2) extend Romer’s idea to study the influence of inequality on economic growth, through this fiscal channel: “The greater the inequality of wealth and income, the higher the rate of taxation, and the lower growth”.

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deputies in proportion to its population. The number of presidential electors for each province was double the number of Congressional representatives (for some strange reason, Argentine constitutional drafters innocuously doubled the number of electors by province of their American model, where the electors of a given state are equal to the number of the representatives in both Houses). In Argentina and the US, then, districts with less population are more represented than populous ones when it comes to a presidential election. What made Argentina different form the US, and probably an extreme case compared to other federations, was the wide dispersion of population and income across provinces. This made it possible for a collection of poor provinces of minimal economic importance to dictate economic policy in their own interest. For the year 1880, for example, I’ve taken provincial budgets as a proxy of economic size. If tax modernization or provincial State building proceeded hand in hand with economic development, provincial public expenditures as a share of the district’s economy should be higher in richer provinces. Estimating economic size by provincial budgets probably overstates, then, provincial differences in income. Anyway, the gaps between provinces are of such magnitudes that even a significant downward correction in the degree of inequality shouldn’t hurt the argument mortally. Figure 4.1 shows the relative political and economic power of the Argentine provinces by 1880, compared to the American States as a benchmark. In both cases, districts are ordered form left to right according to economic size. The dot for the province of Córdoba, to take one example, represents the combination of: (i) economic power: in the X-axis, the combined economic size of Córdoba and provinces smaller than Córdoba, expressed as a share of the national economy and (ii) political power: in the Y-axis, the sum of presidential electors for the same group of

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provinces (that is, Córdoba plus provinces with smaller economies), as a share of the Electoral College. Figure 4.1. Economic and political provincial power Accumulated GDP and accumulated electors by district in Argentina and USA, 1880

Source: Argentina. Electors from Botana (1977), budgets Anuario de la Dirección General de Estadística. US electors from Wikipedia, “United States Congressional apportionment”, income from Easterlin, Richard (1960), "Interregional income differences", in Trends in the American Economy in the Nineteenth Century, report to the NBER, Princeton University Press. Not all the labels for the US States are shown. Capital Federal voted as part of Buenos Aires in 1880, but is graphed separately.

The dot for Córdoba should be read, then, this way: the group of provinces including Córdoba and smaller ones, representing less than 20% of national GDP, could make up a comfortable majority (around two thirds) when it came to elect the president. Compared with the US, Argentina seems an extreme case of divorce between political and economic provincial power. A majority in the Electoral College could be reached in Argentina with provinces representing just a 15% of the national economy; the corresponding figure for the US was 34%, and included states like Texas, Connecticut, Virginia and Georgia.

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The choice of Córdoba as an example is not random. Córdoba was the stronghold of the Liga de Gobernadores organized by Juárez Celman to support Roca in the 1880s, which he inherited himself in 1886 245 . The model doesn’t capture exactly the composition of provincial alliances for presidential elections – but fairly so: districts other than Capital and Buenos Aires were all inside the winning alliance with the sole exceptions of Corrientes in 1880 and Tucumán in 1886; Buenos Aires (which in 1886 included the capital city) did oppose both Juárez and Roca, though in 1886 electors of the Capital controlled by Roca voted for his brother in law 246 . It is, then, fair enough to say that both Juárez and Roca headed a very powerful political alliance made up of very weak provincial economies. Two related developments between the 1880s and the 1900s gradually aligned political and economic power across provinces. On the one hand, a handful of provinces (Tucumán, Mendoza, Córdoba and Santa Fe) grew in size: they represented in 1880 less than 10% of the national economy, but their share had increased to 21% by 1898. Along with moderately successful Entre Ríos and relatively stagnant Corrientes (which taken together contributed an additional 10% both in 1880 and 1898) they comprised, by the

245

In January 1886, Roca declared that Buenos Aires had historically been distanced from the rest of the provinces, and that it was in Córdoba were the “national feeling” resided. (Alonso, 2005). Rock (2006), 121, describes the formation of the Liga and its antecedents.

246

But even the most optimistic Juaristas were sure of defeat in the Capital in 1886. Pellegrini told Juárez, two days before the election, that they were a minority and there was no way they could win. Crucially, Juaristas ignored an order by Judge Tedin, sympathetic to the coalition of Rochistas and Irigoyenistas opposing Juárez, to ban voters from the Registry in three Juarista districts. The result of the election was disputed in Court and finally approved by Congress (Alonso, 2005).

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1900s, a group of considerable economic size 247 . Free riding on the national budget was no longer an option for them. There was another change closing the gap between political and economic power characteristic of the 1880s: the Census of 1895. The first national Census had taken place in 1869 to distribute deputies according to population, as provided by the Constitution. In spite of a very clear mandate establishing a 10-year period between Censuses, only in 1895 was the population counted again (I return below to the motives of this sixteen-year delay). Differences in demographic trends had a decisive impact on political representation. The concentration of immigrant population in the Litoral raised the electoral weight of districts in this region. Buenos Aires and Capital increased their share in the Electoral College from 25% with the 1869 Census to 35% after the approval of the 1895 Census (1898). With Santa Fe –by then a rich, export-oriented economy– they made up a triad of 44%, up from a combined total of 30% before the Census. This was a winning force: by securing the support of one additional medium sized province (Córdoba, Tucumán, Mendoza or Corrientes) or any pair from the other eight provinces, they would have the upper hand in the Electoral College and in the lower House of Parliament 248 . This “Census effect”

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It would probably be an excess of economic determinism to associate the wealth of Buenos Aires, Santa Fe and Entre Ríos -compared to most of the other provinces of the Interior- with the formation in the early 1890s of the Liga Nacional, an alliance of those three provinces supporting the candidacy of Roque Sáenz Peña for the 1892 election. As argued by both Alonso (2005) and Rock (2006), the Liga was more of an attempt by the remains of Juarismo to oppose the power of Roca, for whom recovering those powerful provinces back from their Juarista sympathies was harder than in the case of smaller districts of the Interior.

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This sort of electoral math was typical in contemprary political speculation. For example, Luis Leguizamón, working for Rocha’s candidacy in 1884, wrote to this political boss that, on top of provinces such as Buenos Aires and Tucumán which were easy opposition wins, “We need 21 electors. We have to win two of the populated provinces or three like Jujuy and Rioja which give only 8 electoral votes”. The following year, the Rochista paper El Nacional also concluded that four swing states (Jujuy, Santiago, San Luis and San Juan) would decide the election, otherwise close as “Juárez Celman’s candidacy presents 72 votes against 96 that repudiate him”. (Alonso, 2005).

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combined with the “Development effect” to narrow the gap between political and economic power of the Argentine provinces (Figure 4.2).

Figure 4.2. The Census and Development effects, 1898 Economic and political power of Argentine provinces, 1886, 1898 and “counterfactual” 1898

Source: as in Figure 4.2. 1898, “no census counterfactual” reflects the actual economic data for the provinces in 1898 but electors distributed as before the Census.

Is it possible to more precise on the likely stance of fiscal policy in a setting like this one, in which provincial representatives vote according to their economic size and per capita income? Will the middle-sized and middle-income provinces stand with the rich and frugal or with the poor and prodigal? A helpful framework at this point is the median voter theorem. In our context, the median voter prediction would be that budgetary decisions will tend to follow the will of the voter who is exactly in the middle of the distribution when voters are ordered by their fiscal stance. The reason is that his decisive vote allows him to

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bargain with either the frugal or the prodigal so as to help them get the majority. If his vote is leaning to the prodigal, the frugal will try to reach him with a more generous budget than their own optimal choice; conversely, the prodigal would try to bribe the median voter with a more austere fiscal policy than their ideal one if he's about to support the smaller budget. As long as the median voter's ideal budget is in between that of the frugal and that of the prodigal, the losing side would rather offer the median voter a deal closer to his preferences, as a better option that losing the vote altogether. The budget finally voted will thus be close to the one favored by the median voter. Assuming, then, that smaller and poorer provinces tend to vote for more generous budgets, and that the stance of fiscal policy follows that of the median voter, two critical determinants for fiscal policy would be (i) relative total income of the median voter: the ratio of total provincial income to average provincial income of the province that holds the key median vote, (ii) relative per capita income of the median voter: the ratio of per capita provincial income to average per capita provincial income for the median province, when ordered by per capita income. Who is, in this context, the voter? As I hope to have made clear, both Congress and the president had power over fiscal decisions. So we should try to discover who was the median voter in the Senate, who in the Chamber of Deputies and who in the Electoral College that defined presidential elections. For the following set of tables, I ordered the members of the Houses and the Electoral College according to relative total income and relative per capita income. Again, I estimated provincial incomes with provincial revenues. For each political level (Senate, Deputies, Electoral College) I singled out the relative total and relative per capita income of the median voter’s province. Also, I calculated the relative total and relative per capita

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income of the median member of the president's coalition in the Electoral College. The results for the years coinciding with presidential elections are shown in Table 4.2. The tables show a gradual increase in the median voter’s provincial relative income and per capita income in both the Electoral College and Chamber of Deputies, less so in the Senate. The graphs in Appendix 1. complete the picture. The difference between, on the one hand, the administrations of Roca (1880-1886) and Juárez (1886-90) and, on the other hand, the elections after the Census is striking. The election of 1892 marks a period of transition 249 . The contrast is especially visible in the line "median winning elector": members of coalitions like the ones of Roca and Juárez Celman were rational in their support of a generous fiscal policy, for which they would pay less than what they would receive. It is important to underline that there exists, across the whole period, a strong, positive correlation between provincial total and per capita income. This is crucial as it means that certain provinces would find it in their interest to vote systematically for generous budgets, whatever the nature of the projects under consideration. In 1886, for example, the simple correlation between relative total and relative per capita provincial income was as high as 0.98; the number never fell below 0.80: 83% in both 1880 and 1892, 89% in 1898 and 91% in 1904. Of course, some degree of correlation is to be expected as total income is the product of per capita income and population. But the correlation is too robust to be meaningless. Again, the US can serve as a benchmark: correlation between relative total and relative per capita income across the American states in 1880 was just 7%.

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Of course, the accuracy of provincial figures can be questioned. For example: the downward adjustment in the province of Buenos Aires’ tax collections in the two years following 1890 looks suspicious: 50%. It is partly because of this unlikely drop that other provinces’ shares increase by 1892.

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Table 4.2. Fiscal stance of median voters in the Electoral College and the Houses I. Relative total income of median voter 1880

1886

1892

1. Median elector

Córdoba

0.73 Corrientes

0.45 Tucumán

0.50

2. Median deputy

Córdoba

0.73 Córdoba

0.49 Entre Ríos

1.13

3. Median senator

San Juan

0.26 Tucumán

0.26 Santiago

0.41

Median winning elector Average 1, 2, 3

Tucumán

0.31 Corrientes 0.57

0.45 Santa Fe 0.40

1.20 0.68

1898

1904

1. Median elector

Entre Ríos

0.85 Entre Ríos

0.89

2. Median deputy

Santa Fe Entre Ríos Corrientes

1.44 Santa Fe 0.85 Entre Ríos 0.38 Mendoza

1.50 0.89 0.34

Córdoba

0.7 Córdoba 0.79

0.75 0.81

3. Median senator Median winning elector Average 1, 2, 3

II. Relative per capita income of median voter 1880

1886

1892

1. Median elector

San Juan

0.67 San Juan

0.38 Santa Fe

0.85

2. Median deputy

Córdoba Catamarca Córdoba Córdoba

0.49 Entre Ríos 0.45 0.36 Santiago

1.13

3. Median senator

0.73 Córdoba Corrientes 0.53 Santa Fe 0.51 0.51 Córdoba 0.61

0.33 Entre Ríos 0.41

1.03 0.87

Median winning elector Average 1, 2, 3

1898

1904

1. Median elector

Tucumán

0.87 Entre Ríos

0.92

2. Median deputy

Santa Fe Entre Ríos Córdoba

1.20 Santa Fe 1.13 Entre Ríos 0.52 Córdoba

1.44 0.85 0.55

Tucumán

0.87 Mendoza 0.85

0.71 0.87

3. Median senator Median winning elector Average 1, 2, 3

Source: Number and distribution of votes: Botana (1977). Data on income: elaboration on provincial budget data by the Anuario de la Dirección General de Estadística of corresponding years.

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0.62

Figure 4.3. The small and poor, the big and rich Relative total and relative per capita income of Argentine provinces, 1886

Relative per capita income

3.50 BA

3.00 2.50 2.00 1.50 1.00

CAP ER SL MEN CRR SJ TUC SF CBA CAT SAL SAN

0.50 0.00 0.01

JU

LR

0.10

1.00

10.00

Relative total income, log scale

There are several limitations to the argument. First, budget numbers are shaky and only gross approximations to provincial income. Second, preferences of provincial representatives over fiscal policy may have other determinants in addition to provincial incomes. Third, the model assumes that national expenditures are distributed according to either a per capita or a per province basis, but all too often outlays benefited specific actors (in Chapters 2 and 3 I tried to argue, precisely that the national budget was more generous to the Interior than to Buenos Aires). However, the model is still useful to spell out the connections between economic inequality across provinces, political representation and fiscal policy. Beyond the subtleties, the bottom line of the story is straightforward: before the Census, an alliance with economic interests quite different from, and even opposite to those of Buenos Aires was

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possible, and actually took place; after the Census, an alliance of the prodigal against Buenos Aires was no longer feasible. The contrast can be embodied in one person, Julio Argentino Roca. Roca’s presidency in the turn-of-the-century (1898-1904), backed by Buenos Aires through the Acuerdo with porteño politicians as Mitre, was quite conservative on fiscal matters – almost a reverse image from his 1880s administration. Gerardo Della Paolera and others 250 have recently built an all time ranking of Argentine presidencies according to a Fiscal Pressure Index, capturing the effort of each administration “to cope with the intertemporal solvency constraint”, with fiscally conservatives at the top and big spenders at the bottom. Out of 30 administrations between 1862 and 1999, Roca’s 1880s presidency ranks 25th and Juárez Celman’s 30th, while Roca’s second period stands number one. Unequal federalism and provincial finances The combination of economic inequality across districts and a system of political representation leading to prevalence of the small and poor should affect not only national financial behavior, as explained above, but also provincial fiscal policies. For all the recent research on the fiscal consequences of federalism, the most robust result is the idea that the expectation of a bailout by the national authorities to states forming a federation leads to opportunistic behavior by provincial authorities. It is more sensible for provinces to accumulate debt if they perceive that they will be helped by the federal government in case of a debt default than in a no-bailout scenario. In the event of a default the cost they will

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Della Paolera, Gerardo, Irigoin, María Alejandra and Carlos Bozzoli (2001), “Passing the buck: Monetary and Fiscal Policies” in Della Paolera, Gerardo and Alan Taylor, A New Economic History of Argentina, Cambridge University Press.

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suffer in terms of a worse credit rating would be at least partially offset by the national help to provincial finances. But what, then, defines bailout expectations? Rodden 251 , for example, argues that an important determinant is the degree of provincial taxing sovereignty. Where provinces are perceived as financially dependent on the national governments –through tax-sharing agreements, grants or loans to provinces– voters take into account the quantity and quality of local goods to judge the performance of the central government, which is deemed partly responsible for their funding. In such contexts, the central government would be politically pressed to bail provinces out in hard times. Otherwise, voters would punish it at the ballot box. The argument, however, seems fitter for a case of democratic voting than for a political system like that of Argentina in the late 19th century. There is no reason why bailouts couldn’t be considered as one of the many kinds of national spending with beneficiaries in specific provinces. Actually, a bailout benefits a province in manner even more specific than regional railways or banks. The inequality argument, then, can also be applied here. A general bailout benefiting provinces equally in per capita terms will have the vote of poorer provinces. A general pardon of a specified amount per province will have the vote of smaller provinces. In a context such as late 19th century Argentina, where bargaining among provinces played such a central role in economic policy making, it would be only natural to assume that provincial leaders were quite confident in their ability to impose a central bailout should the capital markets become unfriendly.

251

Rodden, Johnathan (2004), “Achieving Fiscal Discipline in Federations: Germany and the EMU”, paper presented for “Fiscal Policy in the EMU: New Issues and Challenges”, Brussels, November 2004.

126

It is, of course, hard to find statements by provincial representatives recognizing that debt was being contracted in the expectation of an eventual bailout by the central government. However, the bailout of the early 1880s (see Chapter 2) couldn’t be unknown to them. Also, the debts incurred by some provinces bore no proportion whatsoever with their repayment capacity. Smaller provinces were able to secure funds with token guarantees only because of the intervention of the Banco Nacional. The case of La Rioja is emblematic. The decree incorporating the Banco de La Rioja to the system of National Guaranteed Banks (October 1st, 1888) stipulated that the Banco Nacional would hand over 1 million paper pesos to La Rioja in exchange of for an equivalent amount of gold deposited by the Riojano bank in the Banco Nacional. How could La Rioja get its hands on such an amount, equivalent to around 10 times the 1887 provincial budget? We read in the minutes of the Banco Nacional The Governor of La Rioja, Don Francisco Bustos, and the President of the Banco Nacional have agreed that: • The Banco Nacional buys the whole amount of the provincial 4 million gold pesos Loan, at 6% interest and a firm price of 81%, ie., an amount of 3,240,000 gold. • The Banco Nacional will hand over to the provincial authorities 1,000,000 at the signature of this contract, 1 million in six months time, and the remaining 1,240,000 a year from now 252

What guarantees did La Rioja give to the Banco Nacional against this amount, 30 times La Rioja’s annual budget? I couldn’t find a word on record until 1893, when finance Minister José Antonio Terry presented in Parliament his famous Informe Terry 253 , a report which amounted to a well-documented explanation of the 1890 crisis. In one of the annexes to the Informe, the President of the Caja de Conversión (the institution created by

252

Minutas of the Board of the Banco Nacional, September 12th, 1888.

253

Terry, José (1893), Exposición sobre el estado económico y financiero de la República Argentina, Buenos Aires, Compañía Sudamericana de Billetes.

127

Pellegrini to manage the currency after the failure of the system of National Guaranteed Banks) reported to the ministry of his vain efforts to recover lands that had been collateralized by the provinces to the Banco Nacional for loans contracted in relation to the Guaranteed Banks, recently transferred to the Caja:

The provinces of La Rioja and Santiago should have also given to the Caja guarantees in the form of public land for the issues of their banks, but in response to the several requests by the Directory of the Caja, the government of La Rioja has declared that it is not only impossible to mortgage the 1,000 leagues mentioned in the General Bond received by the Caja from the Banco Nacional in relation to the founding of La Rioja’s bank, but that even 50 leagues would be impossible, as the State owned land in the province isn’t bigger than four leagues. This event shows the little care taken in the handling of the Banco Nacional money, and the abuses committed, because Mr Cobo of that province said that when the loan was contracted the public land had already been sold.

A year later the question of provincial debts began to be settled in Congress. Salta and Santiago del Estero had also guaranteed the loans of the Banco Nacional with various extensions of land belonging to the provincial states. Salta and Santiago had collateralized around a fourth and a fifth of the provincial area.254 However, when deputies had to vote for a debt settlement stipulating the write-off of debts against the nationalization of those tracts of land, voices arose immediately against such an amputation of provincial wealth. In the crucial article of Law 3216, the handover of “lands and other values” was replaced by a more ambiguous reference to “values that provinces will offer” in ad-hoc arrangements with the national Executive 255 . The proposals to write off provincial debts with the Banco Nacional with no further obligations was supported not only by the provinces directly affected but also earned the sympathy of representatives of other provinces, who speculated on a more favorable bargain in the process of nationalizating their own provinces’ external

254

DSCD, Oct. 25th, 1894, 347.

255

DSCD, Dec. 3rd, 1894, 860.

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debts. The crucial session in which the Chamber approved Law 3216, and a companion law (3215) mandating agreements between external creditors and national and provincial authorities, took place in secret. The pardon without compensation raised the outcry of the orthodox economic press of the city of Buenos Aires, which denounced that “members of the Commission seem to be plenipotentiaries of their provinces rather than representatives of the Argentine people, which is their constitutional character; otherwise it is hard to understand their forgetting that the National Treasury is in no position to be burdened with a mountain of debts, without compensation”. 256 The presumption that provinces in financial trouble would be able to successfully press for national assistance, as it had happened at the beginning of the 1880s, turned out to be a self fulfilling prophecy. It meant that provinces that didn’t take advantage of the flow of credit to the last drop would be reducing the future amount of national assistance. This rationale set in motion a dynamic by which each province had to borrow as much as it could so as to avoid being the least favored in the event of an across-the-board debt writeoff. The scramble included, first and foremost, the very province of Buenos Aires. In the year 1889 alone, the Banco de la Provincia issued $169 million paper cédulas 257 . That is close to $100 million gold at the average 1889 quotation, equivalent to around two thirds of the 1889 national debt and ten times Buenos Aires’ tax collections in 1887. From the viewpoint of Buenos Aires, there might have been a different type of rationale reinforcing the link between inequality across provinces and bailout expectations. Buenos Aires was probably a case of “too big to fail”: a Riojano default is imaginable without a collapse in

256

El Economista Argentino, Dec. 8th, 1894.

257

Williams (1920), 82.

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the federal government’s credit; but if left to sink, Buenos Aires’ credit would not sink alone. Apart from the extenuating settlement negotiations for old debts, the question of provincial borrowings faded away as capital markets became adverse. In the midst of the crisis, however, some provinces managed to secure a way of forced borrowing, through the issue of “Treasury bonds” that looked, felt and smelled like real money. As early as 1891, the director of the Caja de Conversión denounced widespread plans across the Republic of pseudo-monetary issues. In his annual report to the President, he warned that Your Excellence should be informed that, alleging scarcity of circulation in the Interior, or other causes, some banks and provincial governments have issued or are planning to issue different sorts of paper to replace the legal currency, such as the deposit certificates with all the physical characters of money issued by the Banco de Cuyo, the bills of the Santa Fe Treasury, the projected Treasury bonds of Santiago del Estero, and so on 258 .

From that year onwards, a chapter on “local issues” –or, more optimistically “monetary unification”– was a classic in the reports of the Caja de Conversión. In 1892, the report of the Caja recognized the monetary stringency caused by the crisis (a natural result of the run from money in times of depreciation, as noted by Della Paolera 259 ) but couldn’t approve the behavior of “banking establishments, Provincial Governments and private companies, all of whom have breached the law by putting in circulation bonds, bills, certificates, and so on”. The Caja sent a letter to the financial ministers of all the provinces, asking them whether “in that Province, the Government or the Banks there established have circulated illegal issues”, with the result that

258

Memoria de la Caja de Conversión, 1891.

259

Della Paolera (1988).

130

The Governments of San Juan, Santa Fe, La Rioja, San Luis and Tucumán answered that they didn’t have any of the cited issues; but the first of them declared that the Banco de Cuyo was preparing to issue up to 500.000 in certificates (obligaciones) [...] the governments of Salta, Catamarca and Santiago del Estero said they had issued Treasury bills with interest, so they couldn’t be considered money, and the Finance Minister of Mendoza, under national intervention, said that he had found in the Treasury 28.000 in documents of unknown origin, and found out they were vales issued by the Banco de Mendoza, which circulated just like money. 260

The 1893 report repeated the complaints on local monetary issues and imagined a political economy of monetary contraction: plans for reducing the national money supply would fail as long as local issues weren’t forbidden – monetary conditions were such that any room left empty by the national circulation “would be replaced by that title, certificate or bond, without guarantee, illegal, that is unlawful money but that in is money, as it fills the same needs”. For the first time, the Caja pleaded the President for a law forbidding “the issue of any sort of paper whose form, inscription, size, etc. could be mistaken for national paper money” 261 . At some point in 1893 a project to that effect was presented by the Executive, but never discussed 262 . The question lingered on for years. As late as 1906, José María Rosa, president of the Caja de Conversión, detailed the provincial issues as follows Mendoza has issued bonds called "letras de tesorería", worth one and five pesos and resembling the bills issued by the national government. I attach two bills of one peso each. Circulation of this bills amounted in July to 1,350,000 pesos 263 and a new issue of 2 million has been voted at the Chamber of Deputies [...] San Juan has laws allowing issues of up to 4,240,000 pesos, 700,000 264 of which are already circulating [...] Salta ... 350,000 265 [...] Tucumán ... 800,000 266 [...] Jujuy... 250,000 267 ... 268

260

Memoria de la Caja de Conversión, 1892.

261

Memoria de la Caja de Conversión, 1893.

262

Exposition of Minster Terry, DSCD, Oct 29th, 1894, 351.

263

That is, around two thirds of Mendoza's annual budget of 1906.

264

Aproximately 90% of San Juan's 1906 budget.

265

Two thirds of Salta's 1906 budget.

266

One third of Tucumán's 1906 budget.

267

One third of Jujuy's 1906 budget.

268

Memoria de la Caja de Conversión, 1906.

131

In 1907, Rosa managed to convince the Finance Minister Lobos of demanding the withdrawal of those provincial issues to the governors, and the Executive presented a proposal forbidding them. The Executive message reflected a new orthodoxy on the role of money in regional development, quite apart of the monetary ideas of Roquismo and Juarismo: In our provinces there’s a recurrent excess of spending over their economic capacity, and this explains the new form of this abuses [ie, monetary issues] Our provinces won’t get richer through these means […] I understand the aims of those governments that use these issues, and it may be reasonable when they are directed to finance public works; but they forget that if these are reproductive works, they may find better ways of financing them; and if they aren’t, then they should wait for a better opportunity. 269

By that time, some provinces had already been successful in bidding the national government for new borrowings. As early as 1895, with the effects of the crisis only recently subsiding, the province of Tucumán secured a $1 million loan for public works. The Congressional debate was bitter. Financial Minister Romero, who had presided over the 1881 pardon of provincial debts, lamented the “uncomfortable position” in which he was placed by Tucumán’s requirement, but in his defense of the national finances he couldn’t help but note that “I don’t know of any loan to a province that has ever been paid back” 270 . Eliseo Cantón of Tucumán responded that Tucumán was a rich province and “no shady debtor”, and won the day by a margin of just one vote.

269

Mensaje of President Figueroa Alcorta accompanyin the project forbidding illegal issues, in Rosa, José María, ed. (1909), La reforma monetaria en la República Argentina, Imprenta Editorial de Coni Hermanos.

270

DSCD, Sept. 20th, 1895, 919.

132

4.3. Inequality, representation and the battle for the Census Abstract as it may seem, the idea that national fiscal policy managed or at least heavily influenced by poor provinces that would all but free ride on the national budget was present in some of the more elaborate complaints of the porteño press following the crisis of 1890. Thus in the nineties El Economista Argentino, a local emulator of the London’s Economist with undisguised Mitrista sympathies, would systematically argue that the Interior’s meddling in high national finance bore no proportion with its slim contribution to the national Treasury: A great part of the Senators and Deputies occupying a congressional bench represent provinces that aren’t worth such a proportion, ie., such a political and economic volume so as to make them deserve a place side by side with others and meriting consideration on such a scale. It is a true anomaly that those provinces have been admitted as federal states and accorded the right to influence and decide with their vote in the solution of delicate financial matters that do not affect them but in a minimal part, as they contribute in a truly infinitesimal proportion to the National Treasury, from which they take much more than what they bring to. 271

The flip side of the coin was, of course, the limited influence of some conspicuous districts: The undue representation in the Senate of provinces that are so only in the name, reduces the weight of those that, because of their wealth and their superior state of illustration and culture, should have a decisive influence in the matters that affect the development of that wealth and the institutional, intellectual and moral progress of the country [...] It’s impossible to admit as fair an equal consideration to, on the one hand, representatives of communities that not only lack awareness of their own rights and duties but are also insignificant entities as production and consumption centers, and whose interests shouldn’t have a great weight in Congressional deliberations; and, on the other hand, the representatives of the people of provinces of higher civilization and wealth, whose opinions should prevail because of their true interest in adopting a healthy administrative regime and a proportional distribution of burdens and benefits. 272

The incarnation of the perverse fiscal ways of the Interior was, naturally, the group of Roca, Juarez and their associates. In the early 1890s, with Roca’s long time ally Carlos Pellegrini 271

El Economista Argentino, January 13th, 1894.

272

ibidem.

133

still in power, El Economista Argentino was somewhat relieved by the fact that the inevitable financial retrenchment caused by the crisis would put an end to the peculiar politics of the Córdoba School: First with Roca, and later with Juárez, young men came from the provinces with no more capital than their will to indulge as much as possible in the joys of life... Juárez Celman and other pontiffs of the Cordoba School [la escuela de Córdoba] established their grip on the whole Republic with the money that bribes the wills; now their corrupting agent has run out, so those of them who remain in power must fall ... After spending the money of the public banks, and every resource that the Nation and the Provinces managed to secure, the Córdoba School tends to decline. The liberal school, instead, based as it is on kindness, morality and justice, is destined to become stronger every day. 273

El Economista Argentino presented a contrast between the sober financial management of Buenos Aires men, in charge until 1880, and the excesses of the 1880s, when they were replaced by elements of the Interior: With the Nation reconstructed [in the 1860s] the benefic influence of Buenos Aires dominated public affairs, as those who had implanted an orderly administrative regime and a severe control on taxes and spending in the province of Buenos Aires made themselves felt in the general government and in the provinces imitating it. Things didn’t change much during the 1870s, as the governments made huge efforts to cope with the crisis that affected the country. The federalization of the city of Buenos Aires, which reduced the importance of the homonymous province, brought the preponderance of new elements and a sudden shift in the administrative, financial and banking regime. Although the effects of those changes took some time to become visible, it is fair to note that the shift has been, to a great extent, the origin of that lack of direction in the financial management and in the decadence and ruin of the State banks. With the conservative and conscious elements that had helped raise the Nation’s credit eliminated from public offices, and replaced by political characters with no other merit than their political loyalties, a good regime was no longer possible. That was the beginning of the series of abuses and mismanagements that have made Juarez’s 274 presidential term so bitterly famous.

The attack of El Economista Argentino to the economics of the Interior included the more obvious question of provincial finances. A detailed comparison of budgets in the five years to 1891 filled the pages of the financial weekly in late 1892:

273

El Economista Argentino, Dec. 30th, 1892.

274

El Economista Argentino, Jan. 30th, 1892.

134

Not counting the budget of the national government and that of Buenos Aires, we find an impressive increase of 300% in five years. Has the progress of the provinces been so extraordinary and general to justify such an amazing growth in their expenditures? [...] As a general rule, it is the poorer provinces that have increased their budgets faster [...] The following provinces have quadrupled their expenditures: Santa Fe; Salta!; Jujuy!!. The following have multiplied outlays by five: Córdoba!! Catamarca!! And, finally, Santiago, the legendary Santiago, deserves a distinction for having multiplied six times, in five years, the amount of its spending!!! [...] Studying seriously all these budgets it is easy to find the origin and the cause of the political and economic crisis our country has been suffering for a long time... 275

If the ultimate source of financial recklessness was Argentina’s political system, then a sustainable solution required nothing short of an institutional overhaul, beginning by a constitutional reform. The 1890s witnessed a growing concern in the porteño opinion with the functioning of Argentine federalism. Most of the critical reflections on federalism expressed during the 1890s included economic factors among the reasons why the practice of federalism in Argentina departed from the ideal of the constitution. Thus, for instance, Manuel Gorostiaga asked in 1892: Do we actually have a federal regime? In most of its constitutive States, autonomous life, essence of the federal system and the ultimate reason for its existence, is simply impossible. First of all, because they lack the minimum of economic resources needed to fill their most pressing needs [...] A State whose means are not enough to support the basic necessities of its government, and therefore lacks economic independence, can never be a Federal State. In practice, we have a centralist, a unitary government, with all the inconveniences of personal government but with none of its benefits 276

The minimal demographic and economic scale of some of the Argentine provinces contrasted with their swollen institutional apparatus:

275

El Economista Argentino, Dec.17th, 1892.

276

El Economista Argentino, June 4th, 1892.

135

The United States, with a population of 70 million, has a Head of State, a substitute Head of State, an Upper House, a Lower House, a Supreme Court; seven of the fourteen Argentine provinces have the same institutions [...] It is understandable that the U.S. or the Argentine Republic have two Chambers to discuss their important laws, but why have two Chambers in cases like Córdoba, Entre Ríos, Santa Fe, ¡Mendoza!, provinces that even have a hard time in finding people of competence to fill whose posts?... Recently, a Senator in the National Congress, when asked why he held simultaneously three posts for his province (Senator, Minister and Judge), declared that Jujuy only had one set of men, which needed to be placed in every provincial job, at a rate of two or three posts per capita, because otherwise the administration would paralyze [italics in the original]. 277

The consequence of provincial poverty was financial dependence on the National Treasury, both directly via subsidies to provincial states or indirectly, through national spending in the provinces. Such a system altered the economic bases of a federation. Provinces were described by El Economista Argentino as “unitarias para pedir, federales para dar”: they happily received all sorts of financial assistance from the central government, but when it came to contribute to the national treasury, they became jealous guardians of their federal autonomy 278 . While a substantial cut in financial assistance to the provinces was desirable, the ultimate cure for fiscal recklessness was a fundamental change in Argentina’s constitutional regime: It is bad politics that leads us to bad finance. Long ago we should have had a Constitutional Reform, putting an end to this parody of autonomous states, whose revenues would hardly be sufficient for a modest county [...] The Government needs to be centralized ... so as to end with this anomaly of undeveloped provinces that represent nothing in terms of population, civilization and wealth having considerable influence in the management of public affairs, absorbing resources from the Treasury and discrediting it with their shameful disorders 279 .

The political and economic crisis of 1890 helped inspire one of the best known reflections on Argentine federalism before World War I. Though published only in 1910, José Nicolás

277

El Economista Argentino, Dec. 24th, 1892.

278

El Economista Argentino, Jan 21st, 1893.

279

El Economista Argentino, July 6th, 1894.

136

Matienzo had presented one chapter of his Gobierno Representativo Federal 280 in La Prensa as early as 1891 281 . In that piece, Matienzo recognized that the idea of replacing the Argentine federal system by an altogether unitary regime floated in the porteño circles. He quoted as an example a recent book by Juan Ángel Martínez, in which the author presented the very argument that Rodolfo Rivarola would develop twenty years later in the other classic on Argentine federalism 282 : why not consecrate into law, through a unitary Constitution, the reality of Argentina’s very centralized federal system? According to this precursor of Rivarola, economic matters were among the questions in which the central government made itself felt in the provinces: In this so-called federation, the national government is present in every act, even the most insignificant, of these so-called autonomous provinces. Having a legal right to intervene, the central government intervenes in a way that everybody finds indispensable. In politics, in finance, in education... 283

Calls for a constitutional reform of Argentina’s federal system never reached, however, a political stage. The closest it came to a centralizing constitutional reform was, curiously enough, a last minute attempt by the Juárez Celman government to ban borrowing by provinces – when it was already too late 284 . As suggested before, what did change the political economy of Argentina’s federalism was the 1895 Census.

280

Matienzo, José Nicolás (1910), El gobierno representativo federal en la República Argentina, Imprenta de. Coni Hermanos.

281

La Prensa, July 12th 1891, “El sistema federal”.

282

Rivarola, Rodolfo (1908).

283

Juan Ángel Martínez, Sistema Político Argentino, as quoted by Matienzo (1910).

284

La Prensa, April 13th, 1890. This overtures by Juárez Celman seem to fit into Balestra’s opinion that by 1890 Juárez was feeling a victim of “a regime of omnipotence that was oppressing him”, a regime in which the presidential power was too dependent on that of provincial governors. According to Balestra, that’s the reason why Juárez proposed, in the 1890 inauguration of Congressional sessions, an electoral reform replacing the winner-takes-all principle in elections for national deputies with a single-member district system which would debilitate the governors’ influence on national deputies. DSCD, July 14th 1905, 960.

137

The Second National Census should have taken place in 1879, and Avellaneda’s government sent a proposal to Congress to that effect. It is understandable, however, that population wasn’t counted again in the midst of the economic and political crisis occurring in the late 1870s. During the 1880s, however, both the political and the economic scene made the Census possible – though not convenient to the political alliance in power. Avellaneda’s project was left to rest. In 1881 Deputy Lagos García from Buenos Aires urged the Constitutional Commission of the Chamber to work on the matter, as “some provinces are not represented proportionally in this Congress, so that entire sections of the Argentine population do not enjoy political rights to the same extent that other sections – an inequality in representation that shouldn’t persist” 285 . Throughout the decade, the question of the Census remained outside the declared interests of Congress or the Executive, in spite of the demographic revolution going on in Argentina: between the First Census in 1869 and the year 1890 population had almost doubled. The demographic evolution showed, however, wide regional disparities. The numbers had tripled in Santa Fe and the city of Buenos Aires, and multiplied by 2.4 in the province of Buenos Aires. In other important provinces (Entre Ríos, Córdoba, Corrientes, Mendoza and Tucumán) population had grown between 50% and 80%. But in some marginal provinces the increase had been less than 30% (Catamarca, Santiago, Salta, Jujuy), and somewhat more in the remaining, Western provinces (San Luis, San Juan, La Rioja). By the beginning of the 1890s, pressure came from porteño circles to comply with the constitutional mandate. Already in its first year, El Economista Argentino was criticizing

285

DSCD, June 13th, 1881, 140.

138

the Annual Report of the Ministerio del Interior, in which Minister Zapata declared the inconvenience of a new Census. The alleged obstacle was that as long as the constitutional ratio of 20,000 inhabitants per deputy remained in place, the Chamber would become to numerous and costly. The obvious solution, preferred by El Economista Argentino, was to alter that clause, but that would need a constitutional reform 286 . In 1893, the Executive presented a project for a new census; Congress procrastinated 287 but voted for the proposal the following year. The debate showed where resistance to the Census coming from. As expressed by Deputy Ayarragaray from Entre Ríos I fear that the citizens of the capital, who have a double political capacity, who can be and are deputies for the Capital and at the same time represent the district of the Province of Buenos Aires...I fear that those two electoral districts, confounded as they are, would eventually produce a subversion in our Constitutional order 288 .

Eventually, the Census took place, in 1895. The results needed Congressional approval, which came only in 1897, more than a year after the results were known. Letters from the Legislatures of Santa Fe and Buenos Aires, two of the big winners in terms of political representation, urged Congress to approve the Census 289 . Again, some voices were raised against the ascendancy of the Litoral provinces, particularly in relation to the Presidential election. Deputy Astrada from Córdoba warned that

286

El Economista Argentino, June 11th, 1892.

287

DSCD, Jan. 5th, 1894, 913.

288

DCSD, June 20th, 1894, 237.

289

DCSD, July 28th, 1897, 371.

139

According to the 1869 Census, the current representation is 42 deputies for the provinces of the Litoral and 44 for the Interior; I say that this balance has guaranteed the federal regime of the country. When I consider the figures of the last census, I see that, with the basis of 20,000 inhabitants per deputy, the Litoral will have 126 representatives and 67 the rest of the provinces [...] The province of Buenos Aires and that of Santa Fe, adding to them this capital, will have in their representation a share which won’t be matched by the scarce representation of the Interior [...] Two provinces and a city will decide the most important question, the most fundamental electoral decision that Argentine citizens are allowed to make: two provinces and a city will choose the president [...] 290

Astrada reflected also on the economic consequences of the Census: What interest can guide the deputies of Tucumán and Mendoza to vote for the approval of the Census? Does anybody ignore that the Litoral and the Interior have diverse economic interests? Does anybody ignore that it is convenient for the Litoral to go resolutely towards free trade, while the needs of the provinces makes them forcefully protectionist? Will they be able to come and defend their interests? Will the province of Tucumán secure bounties for its sugar and Mendoza protection for its wines, against the decisive votes of the Litoral? 291

Shortly after the approval of the Census, a constitutional convention was summoned so as to change the representational fraction of 20,000 people per deputy 292 . The Convention registered, once again, the resistance to the Constitutional mandate of representatives from the relatively stagnant populations of the Argentine Interior. A Special Commission composed the proposal for the new Article 37 of the Constitution, replacing the 20,000 figure by 33,000, with a renovation clause following each Census. But Silvano Bores of Tucumán presented an alternative formula by which foreigners would be excluded from the population count on which representation would be based. Bores and his opponents dwelt on the definition of the word habitante, which since the Constitution had been interpreted in Article 37 as including the foreign born. But the core of Bores’ position had less to do

290

DSCD, Aug 2nd, 1897, 410ff.

291

ibidem. In Chapter 5 I’ll return to the regional dimension of the question of free trade and protectionism.

292

The call for a Convention also stipulated reforms in the direction of increasing the number of ministers and declaring free-trade ports in the South of the Republic. A deputy from Buenos Aires (Demaría) tried to add a special-majority rule to vote for new borrowings, but was opposed by Deputies Ferrer and Vivanco from Córdoba.

140

with words than with numbers. As his Tucumano colleague Zavaleta explained when he made a similar proposal, The dispatch from the Special Commission would entail a representation of 120 deputies, with the following breakdown: 76 for the Litoral and 44, an insignificant minority, for the rest of the Republic [...] According to the reform I propose to this honorable Convention, representation will be as follows: Capital, 13, Buenos Aires, 25 [...] ie. out of a total of 116 deputies, 65 would correspond to the Litoral and 51 to the remaining provinces. So what I’m asking is not impossible [...] although the Litoral will still hold a majority, it won’t be the two-thirds majority that results from the Commision’s article.

The 1895 Census represented a substantial shift in the geographical distribution of political power across provinces. Demographic velocities continued to differ in the late 1890s and early 1900s, so that by 1905, when a new Census should have taken place, redistribution of benches would also have benefited the Litoral at the expense of the Interior. The majority still held by the Interior in the Senate helped them procastinate for another decade – only in 1914 would the new population count take place. In 1909, Deputy Gonnet of Buenos Aires was complaining that Around four years ago the Executive presented to this Chamber a project […] for a new census […] The proposal was voted by this Chamber and passed on to the Senate. The Senate, however, let the project rest, and as the years passed it expired […] When we look at the political aspect of the question, we can say with all truth that we are not living under a democratic regime and that we don’t even live under the regime of the Constitution. We aren’t under a democractic regime because the government, as it is currently constituted, is not representing the majority of the Argentine people […] because in none of its three great branches that have an elected origin –the Presidency, the Senate and the Chamber of Deputies– is the true number of citizens counted, as we know that the population has increased considerably in a part of the Republic’s territory, and that increase is not being computed in the organization of this Chamber, the democratic Chamber, because we don’t have a true census 293 .

293

DSCD, July 5th, 1909, 295.

141

4.4. Power to the powerful: State banks after the Census The 1890s were difficult times for Argentina 294 . The debacle of Juarismo left politics in a state of flux. For at least five years since the resignation of Juárez in 1890, the remains of Juarismo, the old Roquista guard of the PAN, the Cívicos of Mitre and the nascent Radical Party were all significant political forces, but without enough strength dominate the Argentine political scene. 295 The Acuerdo between Roca and Mitre to support Luis Sáenz Peña for the 1892 presidential election did help condense a critical mass of power, but it soon evaporated as Sánez Peña repeatedly failed to form a stable cabinet satisfying both Cívicos and Roquistas. Sánez Peña’s experimentation even included a short-lived cabinet dominated by the Radical Del Valle in 1893. Gradually, however, his administration saw an increasing influence of Roquistas, especially after the ex-president stood with Sáenz Peña in repressing the Radical revolts of 1893. By the time Saenz Peña was forced to resign in 1895, Roca was again the most prominent political figure and the obvious presidential candidate for 1898, when he succeeded José Evaristo Uriburu. Economic policy in the early 1890s revolved around the economic crisis. Pellegrini’s (1890-1892) quite erratic policies included failed attempts to save the Banco Nacional and the Banco de la Provincia from bankruptcy and an agreement with external creditors that would prove very short lived. But during Pellegrini’s term there were also significant institutional innovations that would last long, against many odds 296 . In fiscal policy, the creation of impuestos internos on a national scale departed from the practice of leaving 294

Particulary the first half of the decade, the “quinquenio difícil” described in Gallo, Ezequiel (1980), “Un quinquenio difícil: las presidencias de Carlos Pellegrini y Luis Sáenz Peña”, in Ferrari, Gustavo and Gallo, Ezequiel, La Argentina del Ochenta al Centenario, Sudamericana.

295

For the 1890s politics, see also Alonso, Paula (2000), Entre la revolución y las urnas, Sudamericana and Etchepareborda, Roberto (1980) “Las presidencias de Uriburu y Roca” in Ferrari and Gallo, op.cit.

296

A detailed account of these innovations can be found in Della Paolera and Taylor (2001).

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internal trade as an exclusively provincial tax base – a matter of an intense debate presented in Chapter 5. On the monetary front, two critical innovations were the creation of the Caja de Conversión (1890) and of a new State bank, the Banco de la Nación Argentina (1891). The Caja would assume responsibility for money creation and the Banco for credit activities – two functions that remained blended during the 1880s under both the system of privileged banks of issue (until 1887) and of the National Guaranteed Banks (1887-1890). The design of both institutions reflected the widespread notion that the failure of the system of Guaranteed Banks was at the heart of the economic crisis. Crucially, the Caja was supposed to issue currency against gold, and this only after an undefined quantity of the outstanding issue had been redeemed and parity with gold restored. Meanwhile, the charter of the Banco Nación included a proviso forbidding loans to provinces and municipalities, and limiting credit to the central government. Also, the public character of the Banco de la Nación was not intended at its inception but resulted from the failure to attract private shareholders and of their replacement by the central government. The Banco was, then, a commercial bank with Directors designed by the Executive. This had the consequence that, compared to the Banco Nacional, the influence of Congress in the day to day operations of the Banco Nación was more limited. The stringent monetary institutions created in the midst of the crisis were one of the obstacles to monetary activism after 1890. The other was the Acuerdo itself, which meant that orthodox porteño voices at least had veto power when representatives of the Interior tried to exploit the slim room that remained to supply credit to the Interior economies, as they had done in the 1880s. In 1894, for example, Deputy Tristán Almada of Córdoba

143

presented a study of the monetary situation in the Republic, estimating the existences of paper currency out of the Capital. Out of a grand total of 300 million pesos in circulation, Almada calculated that only 40 million were neither at the banks or circulating inside the Capital. Actual circulation outside the Capital amounted to 12 francs per head, much less than the 50 or 60 francs that Leroy Beaulieu –with a difference, the international authority on economics most quoted and respected in the Argentine Parliament– considered appropriate for Argentina. While the province of Buenos Aires was included among the districts short in circulation, Almada’s proposal to remedy the alleged shortage of currency was much more generous, proportionally, to the Interior. Almada sought an issue of loans by the Banco Hipotecario Nacional totaling six millions and distributed according to a scale that ranged from 130,000 for Jujuy (half of Jujuy’s budget in 1894) to 800,000 for Buenos Aires (6% of the province’s annual expenditures) (Figure 4.4) 297 . Almada’s monetary study and his proposal were devastated by Alfredo Demarchi of Buenos Aires and failed to gain Congressional approval 298 . But the following year Uriburu’s government passed a law with an authorization for 30 million cédulas and a distribution according to the shares of the last Juarista project (Chapter 3, page 104). With the remission of the crisis, in 1898, Roca’s government sent to Congress a new project of cédulas issue. This time the distribution was left at the discretion of the Hipotecario Directors. The project was voted in the Senate but faced some obstacles in the Chamber of Deputies. Again, the most delicate question was distribution across provinces. By the end of the century, however, the Interior as such was less and less a meaningful economic entity: prosperous Córdoba, for example, couldn’t be compared to provinces like 297

DSCD, July 13th, 1894, 302.

298

DSCD, Sept. 12th, 1894, 762ff.

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La Rioja and Catamarca. This time, then, distribution across provinces faced not the Interior against Buenos Aires but the Pampean region against the Western and Northern provinces of Argentina. All in the Interior agreed with Almada of Córdoba that specifying the distribution of cédulas was preferable to leaving it in the hands of the Hipotecario officials. The system of explicit proportions hadn’t been observed by the Banco (Chapter 2, page 103), but it was better than no system at all: If the cédulas are lent where there are more requests, all of them will be lent in the Capital and not a single peso will go to the Interior [...] Somebody objected to me: [if the distribution isn’t stipulated by law] we will ask, and they will give us! [...] But that way we would be forcing the provinces to come beg what they deserve by their own right; we would be forcing governors and their representatives in Congress to come with their hat in their hand to ask 100 or 100,000 cédulas! Why shouldn’t we establish the percentages by law? With the percentages in place, it happens that the Capital received 50 per cent, not the 35 per cent it should have. If with these limits the directors weren’t able to resist the pressure, what will happen tomorrow if this brake is suppressed? They will give all the credit to the Capital and nothing to the provinces! 299

Deputies were conscious, though, that the share going to each province would depend on their respective political representation – and that after the Census the smaller provinces of the Interior were at a disadvantage: All the provinces, rich and poor, are represented in tis Chamber, some with thirty deputies, others with two; and the inequality in representation will define the inequality in the number of pesos received by each of them 300 .

This common sense principle wouldn’t avoid, however, quarrels over the specific percentages. The proposal by the Finance Commission of the Lower House, modifying the sanction by the Senate, established that a second block of districts following Capital (20%) and Buenos Aires (15%) was given 12% each: Sante Fe, Entre Ríos and Córdoba (see Figure 4.4). Tucumán and Mendoza received only 5% and San Juan 4%, with the seven

299

DSCD, Dec. 15th, 1898, 420.

300

DSCD, Dec. 9th, 1898, 344.

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remaining provinces accumulating only 15%, including districts with just 1 per cent (Jujuy, La Rioja, Catamarca). The tucumanos Cantón and Bores couldn’t accept finding their province so apart from the Pampean block. A competition of provincial economic prowess ensued, with Llobet of Santa Fe arguing that the 12% trio of provinces more than doubled the economic importance of the other three 301 , and Bores replying that railway traffic in Tucumán was heavier than in Córdoba and comparable to Santa Fe 302 . The project was finally voted in the Senate following the plans of the Executive (ie., without specifying the distribution) but the Commission’s proposal is, still, an indicator of the growing political weight of the provinces taking part of the agricultural boom of the 1890s and their gradually changing attitudes towards their former economic allies of the old Interior.

Figure 4.4. Distribution of Hipotecario’s credit in Lower House proposals, 1895-1901 45% Gouchon 1901

40% 35%

Executive 1896

30% 25% 20%

Finance Commission 1898

15% 10%

Almada 1895

5% Ju juy La Ri oj Ca tam a ar ca Sa lta Sa n Lu is Sa n Ju an Co rri en te s Sa nt iag o Me nd oz a Tu cu m án Sa nt aF e Có rd ob En a tre Rí os Ca Bu pit en al os Ai re s

0%

301

DSCD, Dec. 9th, 1898, 343ff.

302

DSCD, Dec. 15th, 1898, 421.

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During the first decade of the twentieth century, legislation related to the Banco Hipotecario departed more and more from its original role as promoter of the Interior. Again, projects sometimes tell an important part of the story. A proposal by Emilio Gouchon of the Capital for cash loans by the Hipotecario amounting 100 million specified a distribution (Figure 4.4) that would have been inconceivable in the 1880s: based as it was on property tax collections, 65% went to the Capital and Buenos Aires, and 84% to the five richest districts 303 . Eventually, the idea of establishing in Parliament the distribution of credit was abandoned altogether. In 1904, an attempt by the sanjuanino Domingo Cortínez to refinance mortgage debts in his province was replaced by an increase in the authorized issue of cédulas, without specifying distribution, to up a total of 115 million. To no effect, representatives from the Interior asked for more, as Every deputy knows the need for credit, especially in the Interior of the Republic [...] The provinces have only the Banco de la Nación, with all the inconveniences that are well known because of the depressing way it was established. The only available source is the Banco Hipotecario, because there aren’t other mortgage banks making loans outside the Capital and Buenos Aires. In these centers the need for this institution isn’t felt as strongly as in the others, where production needs to be stimulated so as to encourage population, which is scarce 304 .

Again, when in 1908 a new cédulas issue was voted, the question of distribution wasn’t discussed at all 305 . In 1909 the Finance Commission in the Senate regretted that a law reforming some conditions of a new series of cédulas did nothing to ease the flow of mortgage credit to the Interior, but gave in:

303

DSCD, Sept. 2nd, 1901, 589.

304

DSCD, Sept. 2nd, 1904, 46.

305

DSCD, May 13th, 1908, 82; June 19th, 1908, 379.

147

The Commission thinks that some additional reforms could be introduced, so that cédulas find an easier way to the Interior of the Republic, where their action is more needed, where there are no banks [...] but as the Finance Minister has declared to the Chamber it isn’t yet time for a reform in that direction... 306

When a wholesale reform of the Banco Hipotecario’s charter was voted the following year, President Figueroa Alcorta’s message included no mention of those concerns. The report of the Hipotecario’s president accompanying the Executive’s proposal listed the aims of the changes in the charter: the prompter recovery of bad loans, the strengthening of the Banco’s reserve fund, the promotion of savings in cédulas and the advancement of agriculture 307 . The projected charter contained, if anything, some privileges favoring loans in the Capital: they could reach up to 50 per cent of the mortgaged property (as opposed to 30% in the provinces) and 60% in the case of small, working class houses. This “unfair and selfish” 308 article was finally removed at the Lower House, but no specific provisions favoring the Interior were included. As for the Banco Nación, it just didn’t inherit the Banco Nacional’s concern for the Interior economies. Juaristas were among those opposing the creation of the Banco Nación. Sure, politics counted more than pure economic interests, but the strict limits on loans and the modest size of the starting capital of the Banco were perceived, also, as placing limits to its action in the Interior. Thus the fervent Juarista Olmedo of Córdoba not only criticized Pellegrini’s government for

306

DSCS, June 14th, 1909.

307

DSCD, Aug. 31st, 1910, 281.

308

DSCD, Sept 9th, 1910, 418..

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sending to the provinces inspectors whose mission was to publish through the press whatever information they could find showing that every bank, government, municipality, and public treasury in the provinces was full of the evils of electoral politics, and full of papers that couldn’t be shown without embarrassment, proving the lootings and the abuses 309

but also found that the Banco’s capital was negligible in comparison to all the operations he assumed it should further in the Interior of the Republic: What can a bank with just 45 million paper pesos do when it has to serve the 50 million that the ingenios of Tucumán need; the 100 million necessary to foster the viniculture in San Juan and Mendoza; what is demanded to stimulate ranching and agriculture in Santa Fe, Córdoba, Entre Ríos and Corrientes; the 100 million required to suck out the treasuries hidden in their mines... 310

The Banco Nación’s action concentrated, however, in the Pampa Húmeda. The distribution of branches, compared to those of the Banco Nacional, reflects clearly the nature of the Banco (Figure 4.5). The concentration of the Banco de la Nación in the Pampa accelerated during the first decade of the century. Only one branch in the extra-Pampean provinces was set up between the 1898 Census and the Centenario of 1910, in San Rafael (Mendoza) 311 . In Congress, Buenos Aires and the Interior fought for the geographic direction of credit: in 1895, for example, Angel Ceretti of Mendoza tried in vain to avoid the burning of 6 million pesos stipulated as part of the attempt to go back to gold. Instead, he proposed that the 6 million were given to the Banco de la Nación, “particulary to the provinces, which suffer from a complete absence of circulation” 312 . Demaría of Buenos Aires had proposed, instead, that the 6 millions be dedicated to “persons that apply them

309

DSCD, Oct 1st, 1891, 15.

310

DSCD, Oct 1st, 1891, 18.

311

There were also new branches in the national territories of Misiones, Formosa, Chaco, Neuquén, La Pampa, Río Negro, Chubut and Santa Cruz. The expansion of the Banco Nación in Buenos Aires during the 1890s came to fill the void left by the Banco de la Provincia after its fall in 1891.

312

DSCD, June 21st, 1895, 153.

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directly to the cultivation of land” 313 . A few years later (1899) Llobet of Santa Fe insisted that part of the Banco’s capital (40%) should be directed to agriculture – again, Pampean provinces were finding a common ground. Figure 4.5. Branches of the Banco Nacional (1890) and the Banco Nación (1898, 1910)

1890 References: 1 branch ,

1898

1910

5 branches

When the charter of the Banco was modified in 1904 to cope with the needs of what was by then a rapidly growing economy, no references to the prosperity of the Interior were heard – except one. The Nación’s original charter forbade loans to provinces and municipalities. The article (“The Directory cannot make loans to governments nor municipalities, except to the National Government, whose credit cannot exceed 20 per cent

313

DSCD, June 17th , 1895, 120.

150

of the Banco’s Capital”) was discussed again in the new charter, with the following reaction: Sr. Luro (Capital). The Commission thinks that this article is crucial [...] It is a limitation imposed on the States to contract loans with a Bank that, in spite of its present good shape, is always exposed to more contingencies than other banks. The province of Buenos Aires, being a prosperous State which could perfectly enter into a credit operation with the Banco de la Nación, is in this respect equated with the most modest of the Argentine provinces [...] If we look backwards, this article sounds very sensible. Sr. Padilla (Tucumán). I find the reasons given by the President of the Commission perfectly sound with respect to provincial governments; but I find no similar reasons to ban operations with municipalities. Several deputies. Worse! Worse! (Laughter). Sr. Padilla. I see that the honorable deputies are under a bad impression with respect to municipalities. Several Deputies. And with reasons! (Laugher). Sr. Padilla. I see that the honorable deputies for the Province of Buenos Aires are the ones who laugh the most. 314

314

DSCD, Sept. 7th, 1904, 86.

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CHAPTER 5. Taxation with Representation

What magical means should we resort to so that factories, sugar mills and wineries appear in the towns of the Interior? We have two ways: easy and cheap railways, and an open, brave, constant protection, through the suppression of taxes on production and through the Customs Laws. President Julio A. Roca 315

5.1. Regional Interests and the Political Economy of Taxation Regional interests and regional conflict between federalization in 1880 and the Centennial of 1910 were as apparent in the receipts side of the budget as they were in the spending side. The regional dimension to tax policy in Argentina had a venerable tradition, predating national organization. Sovereignty over the Buenos Aires Customs House was probably the single most salient economic issue at stake during the first half-century since independence. Nationalization of the Customs House after reunification of Buenos Aires to the Confederación, following the battle of Pavón, effectively transferred from the provincial to the central government the only tax base which could conceivably sustain a national State. As discussed in Chapter 2, the economic autonomy of the central government was completed as late as 1880, with the replacement of Buenos Aires’ money by a national currency. By 1880, taxes to international trade, most of it taking place through the Customs of Buenos Aires, remained the lion’s share of national tax collections. As shown in Figure 4.2, import taxes dominated the picture: for the whole period 1864-1910, two thirds of total

315

As quoted by the Mendocino Senator Ceretti, DSCS 1894, 706.

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revenues came from tariffs, with 10% stemming from taxes on exports and the rest from other sources. In 1880 the combined share of trade taxes hovered around 80% of the government’s income. The relative importance of taxes to external trade declined only after 1890, when impuestos internos (excise taxes originally including alcohol, matches and beer and gradually covering more items) were created. The central government completed its income with charges on services such as port storage and the post office, and with taxes collected in the city of Buenos Aires inherited from the province after federalization in 1880: the contribución directa (a real estate tax) and other levies such as stamps and licenses.

Figure 5.1. Tax receipts by the national government, 1864-1910

Source: Cortés Conde (1989). Total income includes tax collections plus other sources of income such as net sales of government teal assets.

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Meanwhile, tax revenues in the provinces concentrated on the provinces’ contribución directa, stamp duties, licenses and, in some cases, provincial excises. Provinces also received a national subsidy for education through a matching-sum scheme by which they were granted a transfer in proportion to their own investment in basic education, the proportion being higher for poorer provinces. Additionally, during some years in the 1890s and 1900s, poorer provinces received a subvención nacional with no strings attached. In some extreme cases such as Jujuy, Catamarca and La Rioja, the national contribution to provincial finances, not counting the nationally-sponsored provincial borrowings explained in Chapter 3, could reach as much as half the provinces fiscal resources. The fact that external trade taxes represented the bulk of the national government’s receipts led to a recurrent intertwining of fiscal need and protectionist pressures when it came to designing and redesigning tax policy. The high profile of the tax question was accentuated by the fact that until 1899 the Ley de Aduana was voted each and every year. Starting in the twentieth century, the main tax laws (which included, by then, impuestos internos in addition to tariffs) gained a permanent character, ie, remained in place unless they were explicitly modified. In Argentina, as in other countries, the question of protectionism versus free trade was the most visited arena of economic conflict and debate during the nineteenth century. The regional underpinnings of the trade question were clear since independence. With the main exporting business always confined to the rural industries of the Pampas (cattle raising and processing in Entre Ríos and Buenos Aires during the whole period, the Buenos Aires sheep boom around mid-century and the expansion of agriculture starting in the

154

1870s in Santa Fe and penetrating Buenos Aires and Córdoba during the final quarter of the century), the states of the Litoral, and particularly its leading province, tended to favor free trade. In the case of Buenos Aires, external commerce also supported a prosperous exportimport business in the port city, an additional reason to endorse low tariffs. This valid generalization for the Litoral’s generally free trade stance was not without its exceptions. An early counterexample of protectionist sentiment in the Pampas was in the wheat sector, whose higher labor requirements in relation to ranching placed it at a comparative disadvantage in the decades before mass immigration. Also, in the 1860s a group within the Sociedad Rural Argentina sought protection for a projected cloth company which would elaborate wool and thus dampen the depressing effect on the wool trade of declining international prices 316 . A later exception to Pampean free trade came with the gradual appearance, in the final quarter of the nineteenth century, of an import competing industry residing in the Capital and pressing for tariff protection 317 . In the Interior, meanwhile, traditional studies have systematically stressed the pain that the free trade policies following independence inflicted on traditional industries that had risen with the help of Spanish mercantilism and the natural protection of transport costs. From very early on, tariff policy gave some limited consideration to specific industries of the Interior. In his 1946 classic, for example, Miron Burgin stated that the 1822 tariff of Buenos Aires, which remained in place for ten years, “protection was awarded to the wine and brandy industries of Mendoza and San Juan, and to the sugar industry of Tucumán, at the expense of the consumers in Buenos Aires”. This initial 316

Chiaramonte, José Carlos (1971), Nacionalismo y liberalismo económicos en Argentina: 1860-1880. Solar/Hachette.

317

Rocchi, Fernando (2006), Chimneys in the Desert: Industrialization in Argentina during the Export Boom Years, 1870-1930. Stanford, CA: Stanford University Press.

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protection was, however, moderate compared to what would be the case later: sugar and wine, to take two prototypical products of the Interior, paid 20 and 25 per cent respectively. Wheat and flour received a much better treatment, with a sliding scale that could reach as much as 66 per cent 318 . Rosas’ Customs Law of 1835, sometimes described and even celebrated as an act of economic nationalism and a sign of a protectionist, pro-Interior Federal sentiment in Rosismo was, if anything, more of a developmentalist tariff than one aiming at progress outside of Buenos Aires. As a rule, elaborate products paid a higher tax than inputs and primary products – but there was no obvious care in protecting industries in the Interior 319 . Even that moderate departure from free trade was abandoned with the Anglo-French blockades of the 1840s 320 . During the 1850s, tariffs remained lower in Buenos Aires than in the Confederación. In 1862, the first customs laws voted after reunification retained the liberal character of Buenos Aires duties 321 , with the highest ad-valorem rates at 20%. There was also a small export tax. Export taxes were accepted by the 1853 Constitution, but the reforms of 1860 demanded by Buenos Aires to rejoin the Confederación stipulated the elimination of duties on foreign sales by 1866. However, with the financial stress caused by the Paraguayan war a Constitutional reform took that elimination back so that export taxes remained, to this

318

Burgin, Miron. (1946), The Economic Aspects of Argentine Federalism 1820-1852. Cambridge, Harvard University Press, 71.

319

Burgin (1946) , 238.

320

Burgin (1946), 247.

321

Chiaramonte (1971), 88.

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day, in the hands of Parliament. Apart from that, tariff innovation was negligible during the 1860s 322 . The 1870s present a quite different picture. Already in 1870 there was a moderate move towards protection with the creation of a 25% category for a very limited number of products, most of them produced in the Interior, such as wine, sugar, liquors and tobacco 323 . But the economic crisis of the 1870s forced Avellaneda’s government one step further. The Executive’s project for the 1876 Customs Law contemplated an increase of the general tariff to 25%, partly to compensate for the reduction in export duties needed to help exporters in a time of falling prices. The protectionist movement led by Vicente F. López managed to grant Avellaneda’s essentially fiscal tariff some protectionist overtones by creating a 40% category for garments, shoes and other items 324 . The same developmentalist sentiment was echoed by Pellegrini the following year while attacking an attempt by the Executive to make the tariff more uniform by increasing duties on inputs such as coal and wire and revert the recent increases in final goods.

322

This characterization of Argentina as a free trading nation until at least 1870 seems to be at odds with recent research by economic historians on comparative commercial policies and their effect on economic growth. For example, Douglas Irwin places Argentina as a case of high protection/high growth combination (Irwin, Douglas (2002), “Interpreting the Tariff-Growth Correlation of the Late 19th century”, The American Economic Review, vol. 2, no. 2) using data of 1870 for protection. The measure of protection in this literature is the ratio between tariff revenue and imports. Given the maximum duty of 20% during the 1860s, it is puzzling that Argentina’s ratio was as high as 25%. The fact that imports were recorded at official values, as opposed to market prices, cannot explain the puzzle. Divergence between official and market values can certainly distort this ratio as a measure of real protection. For example: if all imports had an official price of $100 but a market price of $50, a $10 tariff –whether ad-valorem at 10% or specific– would appear as a 10% protection instead of the correct 20%. But in any case the calculated ratio should equal the weighted average of ad-valorem duties, with the weights corresponding to the import share of each tariff category in total imports. Any ratio lower than the highest tariff could result from certain combinations of import shares. For example: the decline of the receipts/imports ratio during Roca’s presidency was largely a consequence of an increasing share of untaxed or lightly taxed capital goods in total imports. A ratio higher than the highest tariff bracket is harder to explain and remains a mystery.

323

DSCS, 1870 and 1872.

324

Panettieri, José (1983), Proteccionismo, liberalismo y desarrollo industrial. Debate Nacional. Biblioteca Política Argentina, Centro Editor de América Latina.

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In this chapter I take the story at that point and analyze Argentina’s commercial policies, and tax policies at large, between federalization in 1880 to the Centennial of 1910. The question isn’t new, and in many ways I rest on previous studies. My main contention here is that during the whole period regional conflict was a prime determinant of tax policy –second only to mere fiscal needs– and was reflected in the evolution of both taxes to external trade and impuestos internos. The 1880s, at the height of the Interior’s influence in national policies, Argentina’s protectionism reached unprecedented levels, which would remain unparalleled in the country for the following fifty years. Roca presided over a fast, intense and quantitatively significant process of import substitution in critical Interior industries. Specific regional studies on Tucumán and Mendoza in this regard are well known 325 . In this chapter I place the cases of Tucumán and Mendoza in the larger context of the national debates on tax policies, adding some measures of commercial protection and presenting evidence on other sectors, in addition to wine and tobacco, through which the Interior attempted to integrate itself into the national economy via tariff walls. The regional rift still open by the events of 1880 also manifested itself in the debates on the export tax. The attempt to practice good economics by eliminating the export tax was repeatedly resisted by the anti-porteño forces, though finally passed in exchange for an increase in protection for economic activities residing outside of Buenos Aires. After the 1890 crisis, a free trade reaction with its center in Buenos Aires and the Capital, associated to political groups born or strengthened after the 1890 revolution, fought a losing battle against protectionism. Limited concessions to this free trade pressure were

325

The most complete studies in each case are, respectively, Supplee (1988) and Guy (1980). Balán (1978) presented the cases of Mendoza and Tucumán together, as the great centers of non-Litoral development.

158

granted during the decade, but successfully resisted when it came to critical industries of the Interior. There were two other important consequences of the 1890 crisis. First, the creation of impuestos internos, initially a purely fiscal measure that gradually evolved towards becoming an instrument for the taxation of industries perceived as excessively benefited by the Argentine tariff system. While still holding a majority in Congress, the Interior avoided several attempts to include its main industries from the impuestos internos system. Deputies from the affected provinces counterattacked by converting the impuesto interno into some form or fiscal stimuli for their provinces’ industries, by using it either to finance an export subsidy (sugar) or place competing products at a disadvantage (wine). However, in both cases fiscal treatment ceased to be so preferential with the increasing political power of Pampean interests after the 1895 Census. A second consequence of the 1890 crisis had to do with the exchange rate. The prevalence of a devalued currency during the 1890s was a welcome side-effect of the economic malaise for import competing industries with large outlays unrelated to the exchange rate (particulary, labor), such as those in the Interior. Though not exactly a fiscal policy, the prevalence of a low exchange rate mimicked the effect of a tariff as it increased the internal peso price of import competing goods. In this respect, the great innovation around the turn of the century was the Conversion Law of 1899, establishing a fixed exchange rate between paper and gold pesos, though at a level much lower than the papel/oro parity of 1881-1884. While the ostensible aim of convertibility was to reinstate Argentina into the international gold standard, it was openly justified as a way of containing the deflationary effect of currency appreciation on tradable goods. The political

159

economy of this crucial measure has traditionally been understood in terms of domination of national policies by the landed exporting interests. I argue that: industries of the Interior were at least as interested in a weak currency as the Pampean exporters; projects of an exchange rate freeze were presented earlier –and thus, given currency appreciation, at a lower exchange rate– by representatives from the Interior; and that during the debates around convertibility in 1899, representatives of the Interior were among the most favorable to a weak exchange rate. Convertibility resulted more from an alliance between exporting industries of the Pampas and the import-competing production of the Interior winning over commercial and financial interests in the Capital rather than from any mechanic dictate from the Pampean exporters. As in the realm of monetary and spending policies, the early twentieth century saw a declining influence of the Interior in tax matters. As import substitution in the Interior industries promoted by protectionism of the 1880s and the weak peso of the 1890s reached its own limits, inflation eroded rates of protection and profitability. Industries in the Interior were spared from the tariff cuts of 1905 in spite of the attack by porteño representatives – notably, Socialists– but no additional protection was granted, nor were any prospective industries residing in the Interior seriously contemplated for a new import-substituting drive. As the Centennial approached, it was increasingly clear where the engines of economic growth and the pillars of political power really stood.

5.2. The Interior in the Offensive: the Protectionist Drive, 1880-1890 “We need kings with the name of Presidents” – the famous Alberdian dictum for Latin American constitutional design did materialize in Argentina’s institutional setting.

160

However, the role of Congress was not a minor one. As stressed by Paula Alonso 326 , the Argentine parliament was a significant political actor in the late nineteenth century. Congressional debates found their way into the daily press and were a prime channel of political expression. In the specific case of tax polices, Congress in general and the Lower House in particular 327 carried a decisive weight. The Executive had no autonomy whatsoever in the definition of tax policies. Every year Congress had to vote rates and bases for all the national taxes. While in some cases Congress did repeat with little or no modification the laws from the previous year, the rule was, rather, intense parliamentary activism on tax matters. Very often the tax debates were the single most debated issue in a given year, at least as measured by the hundreds of pages they took in the Diarios de Sesiones. The results of Congressional clashes often contradicted, sometimes significantly, the original tax proposals of the Executive. Of course, this was less frequent when the Executive enjoyed a comfortable majority in the Houses, as happened during most of the 1880s. But even then debate was fierce and some of the Executive’s projects were voted with relevant changes. During the 1880s, tax activism concentrated on the Customs Law. While less important as a source of income (Figure 4.2), export taxes excited as much passion as tariffs. The removal of export taxes had always been a desideratum of Argentine economic policy, perennially checked by the needs of the Treasury, such as those related to the Paraguayan war in the 1860s and the financial crisis in the 1870s. The road towards definite

326

Alonso (2000),230ff.

327

The Argentine Constitution established that declarations of war and tax laws must be have Deputies as the initiating Chamber.

161

removal would be long and full of setbacks. Suppression in 1887 only lasted three years, and definitive elimination would have to wait until 1906 328 . During the 1880s, the question of the export tax showed two things: alignments were mostly regional, but regional cleavages could be more complex than just Litoral versus Interior. In 1881, the Executive proposal for the Customs Law included as novelty a sixty five cents tax on exports of live animals, in addition to the items already paying duties when sold abroad (animal products such as wool, jerked beef, hides and tallow). The move was designed to help the meat salting establishments (saladeros) residing mainly in Entre Ríos, but also in Buenos Aires and more marginally in Santa Fe and southern Córdoba 329 . The internal price of the saladeros’ main input would fall as a result of the export tax on cattle, thereby compensating the depressing effects on their final product of the jerked beef tax, which was allegedly displacing the Entrerriano product from the Brazilian market, to the benefit of saladeristas in Uruguay and Rio Grande do Sul. Opposition to the tax on cattle came from provinces exporting live animals, particularly the Cuyo region, still dedicated overwhelmingly to fattening cattle, and from the rest of the Interior, where most of that cattle was bred. Mallea, deputy for San Juan, argued against the tax in terms of equality of imposition. With Chile engaged in the War of the Pacific, Cuyo and the Interior would suffer the consequences of the tax:

328

Export taxes reappeared later in Argentina’s history. From the 1940s to the 1980s, export taxes (called retenciones), or multiple exchange rates mimicking the effect of export taxes, were an important source of government income. They were eliminated again in the 1990s though re-imposed after the economic crisis in 2001.

329

As described by Carlos Pellegrini in DSCS, Dec.10th, 1881, 1295.

162

The Constitution prescribes that taxes ought to be equal across the Republic. The Executive’s proposal, though formally constitutional, breaks that equality up, because constitutional equality isn’t the same as effective equality. It wouldn’t be the same for those who export cattle from Cuyo than for those exporting from other exporting provinces. And the evil for Cuyo is the evil for all the Interior […] The consequences would be fatal for the Interior of the Republic 330 .

Rojas from Santiago del Estero completed the idea: The provinces of the Interior, cattle breeders, send it to the Andean provinces; these carry it to Chile. The question is who will ultimately pay the tax […] It won’t be the Chilean consumer, of course. It is the Argentine producer in Santiago, in Córdoba, in Salta who will pay the tax; it is the intermediary in the Andean provinces who will pay the tax 331 .

The argument based on equality was obviously weak. The cattle tax was nothing but a compensation for another inequality, that of the export tax on animal products. That was precisely Deputy Boquet’s line of reasoning: I have pictured myself as a Customs official, faced with the export of a living animal. I would have asked myself, and would have a hard time answering, whether I should tax that cattle or not. I would have read the present laws taxing the animal’s bones, ashes, hides, all the parts of the animal; and would have said to myself that if there were no explicit exception in the law stating that all those parts are tax-free when the animal is alive, when life is animating that body, then it should be taxed; life is, after all, no reason for exception […] This export tax is surely weighing unequally on different states. But we have this singularity: all the capital dedicated to elaborate these animal products in the Litoral provinces are taxed at 6 per cent, while the capital residing in Cuyo pays no contribution to the National treasury. What do these provinces produce? [...] These provinces produce wines, raisins, etc. Those articles pay no duties to the Nation […] Is it natural, is it wise, to demand that in spite of this complete tax exoneration for Cuyano products, they should still be benefited, and the Litoral provinces harmed? 332

Ultimately, the question was less a constitutional argument over equality of imposition but a problem of regional interest. Out of eleven Deputies speaking in the session, two from Buenos Aires and two from Santa Fe defended the tax on cattle; four representatives from provinces of Cuyo or the North argued against it; and only Cordobeses were divided, with two spokesmen against and one for the tax. At some point, the issue of a government action 330

DSCD, Nov. 23rd, 1881, 849.

331

DSCD, Nov. 23rd, 1881, 858.

332

DSCD, Nov. 23rd, 1881, 853.

163

coming to rescue regions less favored by nature surfaced again. Achával Rodríguez opposed the tax on the equalizing grounds that were so common in monetary and spending decisions discussed in previous chapters: It has been said: failing to tax cattle exports would amount to a special protection towards the provinces of the North, to the provinces of Cuyo. I don’t believe that not creating this tax means a special and direct protection to those provinces. But I won’t press on this point. Even accepting that observation, I declare that if there really was a protection to the provinces of Cuyo and the North, Congress would be right in granting it, thus responding to a true necessity […] In the new order in which the country has just entered, after conquering leagues of desert and giving them out to all types of industries, we must prepare for a fact that would inevitably take place. The ports of the Atlantic, the South of the Republic, will powerfully attract the Nation’s life in that direction. Immigration, capitals, all the elements of life will flow to the South, with preference over the Northern part of the Republic. It is possible, then, that if the political powers of the Nation are not farsighted, the Northern part of the Republic may languish, and maybe soon […] The legal function of the political powers of the Nation is to distribute proportionally the vitality across all of the Nation’s surface […] If there is some special protection to the provinces of Cuyo, to the provinces of the North, by not creating this duty, if by doing so we stimulate the germs of wealth in those 333 provinces, let us not create it, and we will be doing good.

The weight of the Executive was, however, on the creation of the tax. The budget situation was not yet comfortable in 1881. Minister Romero recognized that provinces outside the Litoral would be the ones paying the new tax (as opposed to the existing situation, in which “We have some Argentine provinces that contribute with almost all of the export tax, and others with similar production that don’t contribute to the Public Treasury with one real […] the provinces of the Litoral are paying a tax that producers in inland provinces aren’t paying” 334 ) but reminded their Deputies that the central government had recently condoned provincial debts on San Juan, Mendoza, La Rioja and Santiago: “Wouldn’t the inconveniences resulting from the tax be compensated beforehand by the previous sanction of this same Congress?” 335 . The blight fiscal picture presented by the

333

DSCD, Nov. 23rd, 1881, 868.

334

DSCD, Nov. 23rd, 1881, 877.

335

DSCD, Nov. 23rd,1881, 874.

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Minister and the Commission’s spokesman convinced a majority. Unfortunately, though Deputy Gil Navarro asked for a roll call vote (“because it has been said that some Deputies will vote harming the interests of certain localities” 336 ), only the overall result is stated in the parliamentary record. In the Senate the debate was no less bitter. Carlos Pellegrini, famed as a protectionist since the 1870s, proposed “in the name of the interests of the Litoral provinces and in the name of the livestock industry” 337 to substitute an across the board, additional import tax of 7 per cent for all export taxes. Minister Romero couldn’t approve of this fiscally risky move and managed to form a majority against it. Opinions were neatly predictable on provincial grounds. Senators Baibene of Corrientes (a cattle breeding province and thus one of the most affected by the tax on live animals) and Igarzábal from San Juan attempted to eliminate the cattle tax voted in the Lower House; the two senators for Buenos Aires, Pellegrini and Del Valle, insisted with a second proposal limiting the tax exemptions to wool –the bonaerense product par excellence– and processed meat (carne conservada, category which included jerked beef and the still experimental frozen meat); Entrerriano senators, meanwhile, concentrated on the defense of the cattle tax. The Chamber finally voted for the elimination of the export tax on cattle and processed meat only, but the sanction was ultimately overruled by the Lower House. The pressure of the Interior was ultimately too strong, and the tax on live animals lasted only for one year. In 1882 it was eliminated by the Chamber of Deputies in opposition to the Executive’s Customs Law project. Entrerrianos tried vainly to compensate for the expected increase in cattle costs by proposing a sliding scale of export taxes, with 336

DSCD, Nov. 23rd, 1881, 899.

337

DSCD, Dec. 10th, 1881, 1296.

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lesser duties for processed meat, and higher for wool. This was an improbable attempt, as it antagonized Buenos Aires while offering no obvious benefits to the Interior 338 . A technological novelty helped increase the pressure for a flat elimination of the export tax. A request by a Drabble Company for tax exemptions for both the export of frozen meat and the import of the machinery needed to elaborate it met with a favorable sentiment in Roca’s government. In 1883 the Drabble project was discussed in Congress. Immediately, two Entrerriano representatives, Teófilo García and Apolinario Benítez, saw a window of opportunity and suggested a rephrasing of the project so that exports of “meat processed by any of the diverse systems used in the Republic” 339 , including of course the saladero product, be exonerated from the duty. Every single opinion on this larger project is understandable on a regional dimension. Other Entrerrianos, like the Leguizamóns and Gilbert, spoke in favor, as well as Galíndez and Calvo from Capital Federal and Lagos García and Delfín Gallo representing Buenos Aires. Opponsing voices rose from everywhere except the Litoral: Mallea (San Juan), Astigueta (Tucumán), Ocampo (Catamarca) and Rojas (Santiago) saw no reason to “sanction a commitment not to tax processed meat in general, when nobody has asked for this advantage and when this industry can live without this protection” 340 . The general case against the export tax was easy to sustain and allowed for quite an impressive show of economics wisdom. Lagos García, for instance, illustrated the old Torrens argument on the terms of trade stating that it could be sensible to tax exports in cases such as Italian sulphur, Indian opium, Brazilian coffee and Chinese tea, as they were 338

DSCD, Oct. 6th, 1882, 670ff.

339

DSCD, May 28th, 1883, 114.

340

DSCD, May 28th, 1883, 124.

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all but monopolists in world markets; but that rationale was absent for Argentina’s animal products, suffering from Australian and American competition 341 . In favor of the equality between refrigerated and jerked beef, Gallo argued that “if one of those industries is eventually going to kill the other, should we protect the one that is destined to victory, and kill the other through the imposition of duties only because it is used to feed slaves?” 342 . The debate also showed the adaptability of constitutional arguments to more powerful considerations. Deputies from the Interior initially opposed the 10-year exemption for all types of meat on constitutional grounds, arguing that Congress was thus restricting its own taxing powers for the future. However, when a majority voted in favor of the broader exemption, they were happy to propose, and managed to approve, an even broader article so as to include live cattle among the items which couldn’t be taxed for the next decade 343 . Since 1884, the question of the export tax became intertwined with the sensitive issue of tariffs. Further steps towards the suppression of taxes on external sales to include the all important wool trade would imply a sacrifice for the Treasury unless they were accompanied with tariff hikes. This could be no caveat for an administration that had already shown, in the first half of its term, a firmly protectionist tendency. It is necessary to take one step backwards to 1881 before entering the post-1884 tax debates on commerical policies for both the internal and external direction of foreign trade. On the imports side of the picture, one general direction of tax policy since the early years of the Roca administration was the increasing incidence of fixed (or “specific”) duties

341

DSCD, May 30th 1883, 150.

342

DSCD, June 1st 1883, 180.

343

DSCD, June 1st 1883, 187.

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as opposed to ad valorem duties 344 . Through 1880, only a couple of relevant products (wheat and corn as well as their flour and its products, such as crackers and noodles) paid a fixed duty. The first Customs Law voted during Roca’s administration, in 1881, added to this list wine, beer and yerba mate, among other less important products. The second, in 1882, also included sugar. The ostensible aim of the switch from ad valorem to specific duties in some products was the alleged superiority of the fixed duties as a base for calculating tax collections, which would thus become independent of aforo assessments 345 . The real motives were quite different. First, the shifts from ad valorem to fixed duties often coincided with an increase in the actual rate for the products involved. That was the case for the two archetypical Interior commodities, sugar and wine. In the second place, pressure for adopting the fixed duty was probably a natural defensive reaction in the deflationary world between the 1870s and the 1890s. Wholesale prices of Argentina’s main commercial partners at Roca’s inauguration were 15% below those prevailing six years earlier (Figure 5.2). Fixed rates protected somewhat internal prices, whereas with ad valorem duties prices would fall in proportion to their international value if importers were successful in pressing for a corresponding adjustment in aforos. A third reason why local producers preferred the fixed duty was its tendency to restrict more than proportionally the articles of lesser quality with which they competed for a market. Through the fixed duty, “we will force the 344

There were two ways of taxing imports: fixed and ad valorem duties. Specific duties were established as X cents per unit, e.g., 5 cents per liter of wine. Ad valorem duties were stated as a percentage of the aforo or official value. For a certain aforo value, the ad valorem rate implied a certain level of fixed duties, namely, the product of the ad valorem tax and the aforo. Congress decided on both the specific and ad valorem duties, but the determination of aforo values was left to the Executive. Neither fixed nor ad valorem duties were a correct measure of the level of protection. The ratio of the fixed duty (or the implied fixed rate in the case of ad valorem duties) to the C.I.F. price level is the actual tariff rate. The difficulty to obtain series of international prices for each product line has prevented economic historians from calcultating actual rates of protection, even for specific products. Estimating a general level of protection represents still another obstacle. The common sense solution of using actual import shares as weights to calculate an “average” tariff rate implies a significant distortion because tariffs affect import quantities.

345

Minister Romero in DSCS, Dec. 10th, 1881, 1288.

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products of inferior quality out of our internal market. Only the products of first class quality, which our modest industries are still unprepared to produce, will be able to bear the fixed tax” 346 .

Figure 5.2. Wholesale Prices in Core Countries

Source: Global Financial Data. Weights are 50% for Britain, 1/6 for each of USA, France and Germany.

Though initial increases in tariffs during the early Roquista years were not restricted to products of the Interior, and responded in part to the budgetary difficulties of the very early 1880s, preference for inland productions was clear from the start. In addition to wine –with a 50% ad valorem duty in the Executive project, turned into a fixed rate of 5 cents per liter by Deputies– tobacco, alcohol and liquors had their tariff raised from the 40% to the 50% category with the 1881 Customs Law. Some Interior economies, notably 346

Mensaje del Poder Ejecutivo a la Cámara de Diputados sobre el Presupuesto, DSCD, July 4th, 1883, 454.

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Tucumán, were net exporters of these products. Other products paying 40%, not located mainly in the Interior –such as textiles– were left in that lower category. In 1882, the switch of sugar –the Tucumano staple– from an ad valorem to a specific tax, with a considerable increase in the implied rate (see Figure 5.4 below) was the only modification in tariffs. Both defenders and opponents of the tariff increases aided their arguments with a fiscal motive: the tariff hikes will raise tax collections, said the ones; they will hurt it, because of the resulting decrease in import quantities, responded the others. The fact that only some commodities and not others changed categories made it clear that the argument wasn’t really over the elasticity of demand. Higher tariffs had a regional justification, and were in harmony with a new era in which “this most notorious phenomenon is taking place: these classes of products from the provinces are finding their way to the consumers in Buenos Aires, and are displacing the articles brought from abroad” 347 . The very idea of import substitution was explicitly stated by Minister Romero: If we can substitute for external imports with our own production, then we would have reached one of the greatest achievements that every nation aspires to. We would have attained that desideratum of the United States that has raised them to the prosperity they now enjoy […] It is true that the introduction of those articles will diminish, but with their increased production the general needs of life would grow, and imports of other commodities will increase, comepensating the fall in those products. So, if provinces such as Tucumán and Córdoba won’t introduce foreign sugar, will they consume less? On the contrary: since they will have more wealth, the national income increases 348 .

In the Senate, opposition to the increase in the wine tax came from the Litoral provinces of Santa Fe and Corrientes. Senator Baibiene asked the Chamber whether it was convenient to tax the article to favor an industry located “in very specific sections of our Republic” 349 . The larger political connotations associated to the porteño defeat of 1880 were not absent in 347

Deputy Bouquet in DSCD, Nov. 22nd 1881, 829.

348

DSCD, Nov 22nd, 1881, 832.

349

DSCS, Dec. 10th, 1881, 1285.

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the Congressional debates. Deputy José C. Paz of the Capital Federal, founder of La Prensa and member of the Mitrista military forces in both 1860 and 1874, denounced “a spirit of intolerance” when he proposed a reduction in the tariff for furniture, defended by Bouquet on the grounds that wood processing was starting to flourish as railways reached the production centers in the provinces 350 . A larger move towards fixed duties was attempted in 1883. The 1883 project already contained the compromise that would guide tax policy for the rest of the decade: a gradual removal of export taxes with its effect on the Treasury compensated by a step-up in tariffs. Ninety four articles would pay a specific charge, rather than the previous fourteen. The fixed duties, old and new, were to be subject to increases. The Budget Commission in the Lower House prepared two memoranda showing the implied elevations in tariff rates. Again, traditional Interior industries appeared disproportionately favored by the whole regime change. The increments were moderate (less than 10 percentage points of the official value) in garments, larger (between 20 and 50 points) in wines, soaps, alcohol and liquors; and exorbitant (more than 100 p.p.) in tobacco and some luxuries with no local competition such as champagne and Havana cigars. In products such as “cheese, all classes”, the move towards a specific duty would mean, according to Roca’s Budget Message, “a tax of just 20 or 25 per cent for the higher qualities, but much more for the inferior classes. Does the country need to import low quality cheese? Is there any convenience in letting low quality cheese come and compete with the one we can

350

DSCD, Nov. 22nd, 1881, 835.

171

produce?” 351 . The increases would allow for the removal of export taxes in everything but wool and hides. The plan was considered a “radical and brusque change in our tax system” 352 and its discussion was left for the following year. The 1884 Customs Law (effective January 1885) tuned out to be the most debated tax law of the decade. The Budget Commission could not settle on one single project so a majority and a minority proposal had to be presented to the Chamber. The Executive’s project, supported by the Commission’s majority, departed from the 1883 attempt in that it planned for an outright elimination of all export taxes and that the compensation with tariff increases was restricted to a shorter list of articles, particularly inland products such as sugar (5 to 7 cents), yerba mate (5 to 7), ordinary wine (5 to 6) and alcohol (with a fixed duty it would pay 103% as opposed to the previous 50%). Clothing and shoes, more of a porteño industry, were to be raised from 40% to 45% and beer –with production in Buenos Aires as well as in other provinces– from 10 to 15 cents. In the minority proposal, meanwhile, some exports remained taxed and there was no surcharge for wine. Interestingly, the project finally voted included aspects of both proposals in the direction more favorable to most Interior economies: some export taxes remained, as in the minority project, but all the tariff increases included in the Executive’s project were voted. The result, more favorable to the budget than any of the original projects, was probably influenced by the tough financial situation of late 1884, with the London market hard for new bonds and a banking and monetary crisis a few months away. Actually, the very expectation of a complete removal of export taxes effective on January 1st. 1885 had 351

DSCD, July 4th, 1883, 455.

352

DSCD, Oct. 4th, 1883, 880.

172

probably contributed to an increasingly precarious external situation, as exporters were retaining their merchandise in the hope of selling tax-free early in 1885. The tax law was voted extraordinarily in advance for Argentine standards to avoid these speculations 353 . Again, the regional dimension was also paramount. The tariff on tobacco was raised during the debate, because “the current tax [50%] is too low and it’s placing the industry outside of the natural protection that is has the right to demand, because the provinces of Corrientes, Entre Ríos, Santa Fe, Córdoba, Santiago and Tucumán can produce tobbaco” 354 . The beer tax had defenders both in and outside of the Litoral. It was no coincidence that Deputy Vidal from Buenos Aires chose beer as a symbol of import substitution in the name of national union: I desire that in the province of Córdoba, as in the rest of the republic, beer and any other articles that are easy to produce and for which we are endowed with natural inputs, be at the lowest possible price. And the way to achieve this is to increase the import duties of those articles, so there are incentives for production inside the country. I have the great hope that the provinces of Cuyo give us wines and alcohol superior than the one coming from Europe […] The day this may happen, as the day when Tucumán manages to produce sugar enough to provide for the whole Republic, I will support high duties for this articles […] So serious matters shouldn’t be tainted by localism […] I had the honor of giving my vote for the federalization of what now is the Republic’s capital […] any idea that implies antagonism between provinces I will always combat.

On the export tax question the alignment was almost strictly regional. “The export taxes are suffered by only one province in the Republic”355 , protested Villamayor – a sensible claim after the demise of taxes on the exports of the saladeros in 1882. The answer was obvious: “It is clear that the province producing more wool should pay more duties, because it’s the wealthiest” 356 . Out of 19 deputies from the Capital and Buenos Aires, 17 (89%) voted for the complete suppression, as did 2 of the 3 Entrerrianos in the Chamber. 353

DSCD, Aug. 25th, 1884, 783.

354

DSCD, Sept. 13th, 1884, 1008.

355

DSCD, Sept. 11th, 1884, 971.

356

DSCD, Sept. 15th, 1884, 1030.

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For the rest of the provincial representatives, only 27% (10 out of 37) raised their hands for the across the board elimination (Figure 5.3). With the financial crisis looming, the removal of the duties on external sales would have to wait until the following period of precarious stability. Figure 5.3. Deputies’ votes for the removal of export taxes, 1884

The opportunity to remove export taxes came early in the Juárez administration. Again, the strategy was to compensate for the demise of export taxes with tariff increases. Juarez fame as a laissez faire president was not warranted by his fiscal policies, neither on the outlays –as we have seen in Chapter 3– nor on the income side of the budget. Protectionists won one battle very early in Juárez mandate. In November 1886 a law was voted to guarantee the capital on a sugar refinery planned by Ernesto Tornquist in Rosario, a concession which “could represent a great benefit for the sugar producing provinces” 357 . In her study on sugar and the Generación del 80, Donna Guy maintained that the refinery 357

DSCD, Nov. 17th, 1886, 809ff.

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project was more palatable to the Litoral deputies than the alternative of raising tariffs 358 . An upward revision had been floated the week before by Deputies Terán from Tucumán and Giménez and Carbonell from Santiago, on the grounds that sugar prices were suffering with the appreciation of the peso as the financial difficulties of 1885 subsided. In an obvious maneuver to gain the Cuyano support, Terán added to his proposal that “as I’ve been told that wines suffer from the same conditions, I propose that an equivalent increase is granted for the wine industry”. The list of merits of the sugar industry was long: One of the great advantages of this industry is that it displaces similar products brought from abroad, draining gold out of the country […] This industry fosters the population of the country: the forty of fifty industrial establishments in Tucumán, Santiago, Salta, Jujuy and Chaco provide with at least a hundred thousand jobs, counting the workers’ families […] Another advantage is that this industry attracts technical immigration […] Also, this industry benefits ranching activities. Córdoba, for example, has developed large scale ranching. This province has been the most benefited, because large quantities of cattle have been sold to the sugar establishments in Tucumán […] Another advantage: it favors the development of other industries, such as alcohol, now produced on a large scale. 359

The increase in the duties for sugar and other products was blocked in 1886 by a narrow margin, but not for too long. Juárez Celman’s first Customs Law proposal included the elimination of some, but not all, of the export taxes and no tariff increases. The presidential budget message contained an optimistic assessment of industries in the Interior but was cautious regarding the need for further protection 360 . However, the Budget Commission did change substantially the law in the direction of higher duties. This was another instance of the larger autonomy that Juárez granted to Congress and to the provincial governors in some of the more sensitive areas of economic policies. As explained in Chapter 3, the railway mania of the late 1880s was in many ways a Congressional affair, compared to the 358

Guy, Donna (1988a), “La política azucarera tucumana y la generación del 80”, Desarrollo Económico, vol. 28, no. 111, 515.

359

DSCD, Nov. 10th, 1886, 666ff.

360

DSCD, May 30th, 1887, 45.

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Executive’s prevalence in that area during the Roquista administration; and that authority over monetary policy had been effectively transferred to the provinces with the Guaranteed Banks legislation. These delegations were probably a price that Juárez Celman was prepared to pay for his fast accumulation of power at the expense of Roquista forces in many provinces 361 . Once again, the proposed step-ups in tariffs were concentrated in agro-industries disproportionately located in the Interior. The Commission’s report mentioned not only wine and sugar among the articles receiving additional protection but also oil (as “all the deputies know that olive trees are being planted across the Republic”) and typically regional preparations such as conserves, jams and cheese 362 . Again, renewed protection could be justified on fiscal grounds. With Argentine export prices on the fall in 1887, the Commission proposed an across the board elimination of the remaining taxes on external sales. The move was eventually supported by Pacheco, the Finance Minister, as a way to cope with deterioration in the terms of trade. The combination was attractive for both Buenos Aires, the main producer of taxed exports, and the Interior. Only Escalante from Santa Fe (a cereal producing province and thus untouched by either import or export duties in a direct way) resisted, defending the original, more conservative project 363 . The main changes introduced by the 1887 law were 2 cents increases in both refined sugar and wine (from 7 and 6 respectively), and a shift from 25 to 30% in the general tariff for food. By 1888, Argentina’s legal protection to its industries in general, and to the Interior’s production in particular, had reached its climax. Protection had increased for all the actual 361

Alonso (2005).

362

DSCD, Sept. 23rd, 1887, 1042.

363

DSCD, Nov. 5th, 1887, 838.

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and prospective products of the Interior, most notably sugar and wine but also alcohols, tobacco, yerba mate, cheese and regional foodstuffs in general 364 . Customs laws wouldn’t change substantially for the rest of the 1880s. During the following decade, calls for reform would come from the free trade camp but would remain unsuccessful in the presence of urgent needs of the Treasury. To my knowledge, actual rates of protection for Argentine products in this period have never been calculated, because of the difficulties involved in obtaining actual, C.I.F. prices for imports. Figure 5.4 shows an approximation to actual ad valorem duties for one single product, sugar. Protection is calculated as the ratio between the fixed or fixed-equivalent duty for sugar and the price of British sugar imports 365 . The upward trend during the 1880s is very clear: actual ad valorem protection increased from around 20% to around 90% during the decade of Roca and Juárez.

364

At this point it should be noted that, while protection to Interior industries in this period is generally recongized, the most thorough works on Tucumán and Mendoza remain skeptical of any deliberate and decisive pro-Interior protectionism. For Donna Guy, tariff changes were presented “as a purely fiscal measure” but “no one could overlook the beneficial effect they had on the domestic sugar industry” (Guy (1980), 51). According to Supplee (1988), 289, “Despite local support and several petitions, these early [1886] appeals carried little weight against the free trade sentiment of the majority of national congressmen”.

365

Transport costs differences from suppliers such as Brazil shouldn’t make much of a difference between Argentine and British import prices. Some anecdotal evidence suggests that British import prices were in fact close to Argentine import prices. In 1891, England was paying the equivalent of 10.3 cents of peso oro for a kilo of sugar. Deputy Molina estimated in that year that Argentine import prices were around “1 peso oro the 10 kilos”, or 10 cents the kilo (DSCD, June 15th, 1891, 164). In 1897, with the English price at the equivalent of 6,6 cents of peso oro, Deputy Garzón mentioned a price of 5 centavos per kilo, C.I.F. in Buenos Aires (DSCD, Jan 3rd, 1898, 770). For 1880, Argentine aforos for sugar were 15% over British import prices. Price declines thereafter weren’t reflected in the aforo, so that by 1893 the official Argentine appraisal was 2.5 times the British price. A significant downward correction in 1894 lowered the ratio to 1.37.

177

Figure 5.4. Effective tariff rates for sugar, 1876-1890

Source: International price is English price from Martineau, G., “The Statistical Aspect of Our Sugar Question”, Journal of the Royal Society, 1899. Duties from Anuario de la Dirección General de Estadística (1896): “La variación del gravamen aduanero de importación durante los últimos 20 años”, p.49ff. Duties were paid in pesos, so devaluation meant a decrease in the duty/price ratio. From 1885 to 1889, a 15% charge was added to the duties to compensate for this effect. From 1890 on, duties were paid in gold.

But even accurate calculations of protection rates are a poor measure of the attractiveness of an industry and its competitive edge. Take again the case of sugar. With fixed duties, a decrease in world prices would entail a fall in the gold price of sugar and a decrease in profitability, but would show up as an increase in protection. Also, a devaluation of the currency when duties were payable in pesos at the parity rate whatever the actual exchange rate (as was the case until 1890, when Pellegrini’s government decided that duties had to be paid in gold) would imply a fall in the protection rate, although the peso price of sugar would be increasing relative to non-tradable goods (or, put differently, the gold cost of sugar would be declining more than the internal gold price). Figure 5.5 presents an alternative measure of competitive advantage for the sugar industry: the Argentine “real” price of sugar (ie., its price relative to a broad basket of goods) in

178

comparison with the international real price of sugar. This new estimation takes into account the fact that a devaluation of the currency implies an increased advantage for import competing industries in comparison to a representative good. It thus reflects the combined influence that protectionism and the real exchange situation have on the fate of the Argentine sugar producer compared to the foreign producer. Figure 5.5 shows that in spite of a decrease in the international real price for sugar during 1880-1895, the Argentine real price for sugar grew substantially. In fact, in spite of the national economic crisis, the early 1890s were in a sense a golden moment for import substituting industries in the Interior such as sugar. The mix of protection and a devalued exchanged rate implied a record competitive edge for these products. From a gold-standard parity of 1:1 and an average of 1.47 for 1885-1889, the exchange rate of the paper peso reached a nadir of 4.35 to the gold peso in late 1891 and would only fall (ie., appreciate) below 3 to the gold peso in 1896. The combination of protectionism during the 1880s and a depreciated currency in 1889-1895 implied a more than fourfold increase in the real price of sugar relative to the international real prices for sugar.

179

Figure 5.5. “Real” prices of refined sugar, Argentina and the world, 1880=1

Source: as in Figure 5.4. After 1896, sugar price follows the USA price, www.globalfinancialdata.com. Real price is the ratio of the sugar price to a general price index. Sugar prices in Argentina are import prices plus the tariff.

The story for wine (Figure 5.6 and Figure 5.7) is similar: the increase in duties during the 1880s raised the effective tariff. The real price of wine in Argentina, and its ratio to the real international price for wine, increased further with currency devaluation. The real wine price in Argentina reached its highest mark in the early 1890s and declined thereafter. Real prices in comparison to international prices also declined after 1895, but had peaks in times of sudden drops in the international price for wine, when Argentine tariffs prevented a proportional decrease in local prices, thus raising the local/international price ratio366 .

366

“International” prices for wine are French prices as explained in the sources for Figure 5.6. Though transport costs should make the C.I.F. price higher than French prices, it should be noted that Bourdeaux wines were less important than cheaper Spanish wines in Argentine imports. For 1880, the Argentine aforo for ordinary wines was very close (5% difference) to the French price. In 1891 Deputy Molina stated that “a pipa of ordinary wine in our port sells for 34 pesos oro” (DSCD, June 17th, 1891, 171). That’s about 6.2 cents a liter. The French price in 1891 was 5.6, so it can be considered as a reasonable approximation. In 1897 Deputy Del Valle estimated that “a pipa of Spanish wine… costs 25 pesos” (DSCD, Jan 13th. 1897, 844), about 4.5 cents a liter, with the French price in my series at 4.79. In any case, price levels are less important than price trajectories for the argument to stand.

180

Figure 5.6. Effective tariff rates for wine, 1876-1890

Source: international wine prices: French wines, Annuaire Statistique vol. 1993. París, 1934. Duties from Anuario de la Dirección General de Estadística (1896): “La variación del gravamen aduanero de importación durante los últimos 20 años”, p.49ff..

Figure 5.7. “Real” prices of wine, Argentina and the world, 1880=1

Source: as in Figure 5.6. Real price is the ratio of the wine price to a general price index. Wine prices in Argentina are import prices plus the tariff.

181

The crucial effect of the exchange rate on the sugar, wine and other import-competing industries of the Interior was noted by contemporaries from very early on. Already in 1891 Tucumán’s finance minister was pleading to the director of the Caja de Conversión not to demand an immediate reduction of non-guaranteed bank notes, stating that loans would be repaid as “there are exceptional circumstances favoring Tucumán: in the sugar industry alone, the value has been tripled due to the lower taxes and the state of gold” 367 . The benefits for the Interior of a depreciated currency had already been noted in the 1880s, and were constantly repeated during the 1890s. As noted above, in 1886 Deputy Terán had sought for increased protection as a compensation for currency appreciation. In 1894, Radical deputy Barroetaveña, who advocated a stronger peso to relieve pressure on consumption prices, accused the sugar industry of prospering with the depreciated peso at the expense of the consumer: Conspicuous representatives of [the sugar] industry have declared that it won’t be able to compete with the foreign product without the 100% tax, nor with the gold at parity. So that currency revaluation, which is a need for all the inhabitants of the Republic and to which all the efforts of the government should be directed, threatens to death the Tucumán sugar industry. Or, put differently, the development of the Tucumán sugar industry requires a huge depreciation of the currency, in the ruinous proportions we currently witness: its greatness, its wealth, means the impoverishment of the whole country. 368

Deputy Ceretti from Mendoza was ready to accept that charge as far as the wine industry was concerned. In his 1896 defense of Cuyano wines against an attempt of imposing on them an internal tax (discussed below), Ceretti argued that wine enjoyed no special protection, but rather benefited from the delicate monetary situation characteristic of the first half of the 1890s:

367

Memorias de la Caja de Conversión, 1891.

368

DSCD, Nov. 22nd, 1894, 649.

182

What is really protective in the country is what I call Argentine bimetallism, ie., the depreciation of our paper currency, the existence of the inconvertible peso. That is what really favors our industries, to such an extent that whenever gold falls short of 300 all the industries are vacillating, and the day it reaches 200 they will all die if tariffs aren’t raised in proportion to the depreciation [sic] of the currency. 369

Agustín Alvared had used exactly the same argument in 1894 as he tried to displace Spanish wines from the local market by lowering the maximum alcohol content that was allowed without paying an extra duty: There has been talk of protective duties, even of prohibitive duties. No such things exist. What has had an influence in this situation is the depreciation of paper, which has favored extraordinarily the products of the Interior, not the tariffs.

The role of the gold premium in promoting import-competing industries was also clear to foreign observers. William E. Bear, a regular contributor to The Economic Journal on rural matters, wrote in 1895 a piece on “The Agricultural Progress of the Argentine Republic” 370 . He dealt both with Pampean exportable products and import-competing industries of the Interior. Bear noted the very recent character of agricultural development in both areas and the all but accidental character of one of its main drives: exchange rate depreciation: Although bad government, the squandering of money in war, and reckless financing have kept capital from productive employment in the country and ruined its credit, one indirect result, as will be presently shown, has been, during the last few years, to stimulate agricultural development in an extraordinary degree. This, however, is a recent occurrence […] So considerable had been the progress of sugar production in the tropical districts that it amounted to about 90 per cent of consumption in 1893 […] About 85,000 acres were under vines in 1893, not reckoning vineyards of less than a hectare each […] The planting of vines has since made much progress. […] Tobacco occupied about 13,000 acres in 1891 and, like vines, yielded a good profit […] The gold premium has greatly stimulated all the branches of agricultural industry mentioned above, and especially those which require a large amount of labor. Some of them have also been materially aided by high protectionist duties. 371

369

DSCD, Nov. 20th, 1896, 309.

370

Bear, William E. (1895), “The Agricultural Progress of the Argentine Republic”, The Economic Journal, vol 5, no. 20.

371

Bear (1895), 523-24.

183

The spectacular competitive situation of the Interior industries in the early 1890s was captured statistically by the 1895 Census. The area under vines in San Juan and Mendoza was reported as increasing from 6,000 to more than 15,000 hectares between 1888 and 1895. Sugar cane cultivation, reaching a mere 3,000 hectares in the whole country in 1878, had risen to 20,000 in 1888 and 60,000 in 1895, with 55,000 of them located in Tucumán. Cultivation of tobacco, still an early-infant-industry, rose from 3,000 hectares in 1888 to 15,700 in 1895, almost half of them in Corrientes 372 . The Census replicated the discourse on import substitution, an attractive idea in the aftermath of a balance of payment crisis. In the case of sugar, The Argentine Republic, which up to 1894 was a consumer of foreign sugar, in 1895 managed to supply itself, and began to turn into an exporter […] We have definitely acquired the great advantage of liberating ourselves from the five to six million tribute that we were paying abroad for the imports of sugar. 373

In wine, The country is still far away from producing the wine it needs for its consumption, as it is forced to import each year for some six or seven million pesos oro; but this amount tends to diminish as a consequence of national production, and the day can be foreseen when it will be able to provide itself completely, at least in ordinary wines 374

In tobacco the direction was the same, though the day of self-sufficiency was still farther away:

372

Segundo Censo de la República Argentina, vol. 3, pp. XLVIII ff.

373

ibidem.

374

ibidem.

184

The great increase in the area dedicated to tobacco between 1888 and 1895 had the result of decreasing the tribute paid abroad by the Republic for tobacco imports. In 1888, the year of the first Agrarian Census, in which tobacco growing covered 3,234 hectares, tobacco imports reached the sum of 1,587,571 pesos oro […] and by 1890 they had reached pesos 2,554,017. With the increase in tobacco cultivation in the Republic, there was an immediate fall in imports, which descended gradually, up to 340,000 pesos in 1894; although imports recovered in the following year, reaching again 1,200,000 pesos, it is obvious that the increase had been much stronger if the national production hadn’t helped reducing it. 375

The data we have on Argentine imports and production gives a clear idea of the extent of import substitution in distinctively Interior industries. Consistent figures of production are available only for sugar, so only in that case can we calculate the ratio of local production to domestic absorption. Import substitution was intense: production of all types of sugar rose from 30% to 96% of local demand between 1880 and 1896 (Figure 5.8). For other non-Pampean import-substituting commodities, Figure 5.9 shows the share of that commodity in total imports. The decline is gradual in wine, steep in sugar and late in tobacco, which –as discussed in the following section– received additional protection in the early 1890s. The aggregate quantities involved in these three commodities were significant. Taken together, they represented 50% of food, drink and tobacco imports in 1880, and 17% of total imports. Their share in total imports had fallen to 7% in 1894.

375

ibidem.

185

Figure 5.8. Production and imports of sugar (thousand tons)

Figure 5.9. Shares of sugar, ordinary wine and tobacco in total imports

Sources for Figure 4.8 and 4.9: Anuarios del Comercio y la Navegación, various years. In Figure 4.9, wine and sugar were computed at market values and tobacco at official values.

186

Import substitution in liquors and spirits, which represented an additional 3.5% of total imports and 10% of food and drinks in 1880, is harder to pin down because of classification changes in the import data, but it must have been significant. For example: imports of brandy, for which we do have consistent data, fell from 3 million liters in 1880 to less than 160,000 liters in 1894.

5.3. The Interior on the defensive: the free trade reaction, 1890-1899 The very effectiveness of the protectionist-cum-devaluation policies of the 1880s and the early 1890s in raising internal prices of specific commodities put those policies under attack right after the 1890 crash. While a connection between protectionism and the financial crisis of 1890 was hard to articulate, the case could be made that the consequences of the crisis were hardened by the combined impact of devaluation and protection on consumer prices. During the 1890s, the nascent Radical party, based in Buenos Aires, held a firmly laissez faire discourse in defense of the urban consumer. The cívicos nacionales, followers of Mitre, also sympathized with free trade as long as low import taxes didn’t collide with fiscal orthodoxy. Commercial policy innovation during the 1890s was complicated by the fact that the governments of the 1890s were dominated by the Acuerdo between the free trading Mitristas and the protectionist Partido Autonomista Nacional. As early as 1891 legislative projects were being submitted to reduce tariffs and limit the effects of exchange rate depreciation on the urban consumer. Víctor Molina, deputy for the Capital and soon to turn into a prominent Radical figure, presented with Buenos Aires’ Deputy Juan A. Domínguez a project with sizable slashes in tariffs, including a reduction in the sugar duty from 9 (refined) and 7 cents (unrefined) to 5 and 3 respectively, and in wine from 8 to 5 cents. Molina’s plan also included cuts for coffee, tea, mate, rice, brandy, 187

cooking oil and kerosene, and limited the gold quotation for the payment of custom duties to a maximum of 300 376 . The plan made it through the Budget Commission but with limitations in the case of the more sensitive articles: wine and brandy disappeared from the list and the sugar reduction was moderated. Molina regretted the rejection by the Commission to the cut on the wine tariff, and read a joint letter by the Spanish, French and Italian trade chambers in Buenos Aires, where they “express[ed] their unanimous sadness in realizing that the commission in the Lower House in charge of studying your proposal to reduce duties on staples, excluded wine… from that list” 377 . The speaker for the Commission, Quesada, made clear the reasons for moderation: The commission has taken into account that it should forcefully provide protection for the country’s products. The provinces of Tucumán and Santiago, the territory of Chaco, who have made huge sacrifices to establish cane plantations and sugar mills, cannot be abandoned. Something similar happens with wines, whose duties Deputy Molina wants to reduce. Vine plantations in Mendoza, San Juan and other provinces, and even in Entre Ríos and Buenos Aires, constitute an important industry, which must be protected. thus the commission has not accepted the cuts in these articles 378 .

Even that softer plan against protection had a hard time in the Lower House. Molina stated the argument of the classics in favor of free trade: with protection, costs are higher for the unprotected sectors through an effect on labor demand (“This excessive taxes influence production… By endearing labor, it is impossible to compete with foreign industries” 379 ). He tried to play the regional card accordingly:

376

The 300 limit for the gold quotation had actually been introduced the previous year by Molina in a suplementary project to the 1890 Customs Law.

377

DSCD, June 17th, 1891, 173.

378

DSCD, June 15th, 1891, 160.

379

DSCD, May 15th, 1891, 30.

188

Has the Chamber figured a situation in which the huge production of the province of Buenos Aires, the immense production of Córdoba, of Chaco, of Corrientes and Entre Ríos were faced, by this process of endearment of consumption articles, with a lack of available men for ranching and agriculture? Has it figured the consequences of this fact? […] This is my thesis: every endearment of consumption makes labor more expensive; and the endearment of labor brings destruction of production.

Before and after entering into specifics of the project, the sugar question remained central. Molina wasn’t shy when it came to attack vested interests behind protection: The interests of the great capitals invested in sugar mills is invoked, and it is said: “Everything will be ruined; a great wealth is going to be destroyed by this law” […] This is unreasonable. Help the mills with the interest for their capitals; help them with some amortization; but do not force the people of this country to pay off those capitals in two or three years through hunger, deprivation and even the death of many industries that depend on sugar [….] 380

In favor of the tariff cuts spoke Larsen de Castaño (Buenos Aires), Magnasco (Entre Ríos) and Novaro (Capital). Resistance from Interior deputies, particularly from the Northwest, was fierce from the start. Deputy García of Tucumán fought vainly to postpone consideration until the Executive’s project was presented to Parliament. The Santiagueño Benjamín Giménez denied Molina’s accusations that opposition to his project was a mandate of a sugar trust, and replied that “The deputies from the provinces will know how to answer you” 381 . Giménez and Eliseo Cantón, from Tucumán, displayed every possible defense of the sugar tariff and of protection in general: protectionism had made many countries rich, and was especially necessary in “young” countries, as it had been in the U.S. 382 ; sugar tariffs were high elsewhere in the world 383 ; the sugar industry was important in many provinces, not only Tucumán 384 ; the high price of sugar was mainly due to 380

DSCD, June 15th, 1891, 164.

381

DSCD, July 17th, 1891, 312.

382

DSCD, July 20th, 1891, 337.

383

DSCD, July 20th, 1891, 339.

384

DSCD, July 20th, 1891, 338.

189

currency depreciation, not protection 385 ; sugar wasn’t such an important item in the consumption of the lower classes 386 . Tucumanos pleaded for “two or three more years of protection for the sugar industry, and it will be able to supply all of the country’s consumption” 387 – and they got them. The crucial article on sugar was rejected by a 25-18 majority. The other dispositions of Molina’s plan were voted in the Lower House but remained without treatment in the Senate. Eventually, it was the Executive’s Customs Law for 1892 that made it through Congress. The debate showed that protectionists still had the upper hand. Only one of the cuts in Molina’s project remained; and there were actually increases in some items, such as tobacco (because “there are three or four provinces producing tobacco” 388 ) and wood. Resistance to a shift towards free trade in the early 1890s was not only a question of principle and provincial interests. With public finances effectively bankrupt, a conservative approach to tariff legislation stemmed first and foremost from very basic budgetary instincts. In fact, in the Customs Law voted in 1890 there had been upward corrections in several duties. Some increases, with no clear regional pattern, entered the permanent section of the tariff code, where the maximum ad valorem tariff reached 60% for the first time; others (basically on tobacco and alcoholic beverages, including wine) were introduced as emergency measures. These 1890 tariff hikes were part of a larger fiscal move by Vicente Fidel López, the first Finance Minister of the Pellegrini government. Tax

385

DSCD, July 20th, 1891, 341.

386

DSCD, July 20th, 1891, 342.

387

DSCD, July 20th, 1891, 351.

388

DSCD, Nov 4th, 1891, 435.

190

collections were expected to benefit from four other measures: payment of tariffs in gold or in pesos at market exchange rates (instead of being paid in pesos at parity plus a charge); the reestablishment of export taxes; new taxes on banks and insurance companies; and internal taxes on production (impuestos internos) of the articles that were being charged with extra tariffs. Impuestos internos represented an authentic novelty in the Argentine tax system. Before 1890 there were no excise taxes collected by the central government, as a consequence of two Constitutional articles: number 4 establishing that the National Treasury stemmed from “the proceeds from import and export duties, the sale of public land… and other contributions that the National Congress votes for, as well as from loans and credit operations…” and number 67 which stipulated that Congress could legislate on “import duties… export duties… and direct contributions” 389 . López’s fiscal plan immediately raised this constitutional objection 390 , which would be repeated time and again during the 1890s by opponents of the federal excise taxes. However, given the circumstance of a fiscally starved government in a context of a shrinking tax base (ie., external trade), the debates on impuestos internos all along the 1890s would not seriously question their existence, but rather who was paying them, and how much. In principle, the criterion behind internal taxes was one of devolution: industries exceedingly benefited by tariff protection, or receiving tariff surcharges, were taxed so as to compensate, at least in part, for the extraordinary profits derived from the high import duties. Deputy Beracochea, who presented the Budget Commission’s dispatch on Vicente F. López’s plan, put it this way: 389

Constitución de la Nación Argentina.

390

DSCD, Jan 3rd 1891, 847.

191

For years the Nation has made huge sacrifices to tone up, so to speak, the national industries. In this path of sacrifices, tariffs have almost reached the limit where they become prohibitive, thus harming not only the national Treasury… but also the consumer… So it has been the whole country, the people and the government, who have helped the national industries in their first few steps. Protection is like a guarantee, and the guarantee has to be given back in cash to the State… I believe that the protection to the national industry has been fair, but there has to be correlation in justice: those who have received protection and can now live by themselves should contribute, in moments like these, to remedy the distress of the Treasury... And the alcohol industry is precisely in this situation. 391

The combination of emergency tariffs and internal taxes of Lopez’s plan was, all in all, beneficial for the products involved. For the main tobacco category, for example, the extra tariff of 2 pesos oro per kilo implied an increase from 36% to 340% in the ad-valorem tariff, calculated over the aforo value 392 , and it received no internal tax. Wine imports were also surcharged with no internal taxes in exchange. The parliamentary treatment of the alcohol tax, which received both a tariff sucharge and an internal tax, showed the power of Congress vis-à-vis the President and the continued strength of Interior elements. Alcohol was produced mostly from corn in Buenos Aires and Santa Fe (52% per cent of national production of alcohol according to the 1895 Census 393 ) and from cane and sugar (46%) in the Northwest, particulary Tucumán, where the distilling sometimes took place directly in the sugar mills. Proportionally, the alcohol industry was much more important for Tucumán than for the Litoral. The surtax was 5 cents of peso oro per liter, and the internal tax finally voted amounted to 7 centavos papel, that is, with gold hovering in the 300-400 range, between half and one third of the tariff surcharge. In the Executive’s project, the 5 centavo oro tariff was effectively compensated with a 15

391

DSCD, Jan 2nd 1891, 825.

392

Anuario de la Dirección General de Estadística (1896): “La variación del gravamen aduanero de importación durante los últimos 20 años”, 49ff.

393

Tercer Censo Nacional, vol. 3, CXXXVI.

192

centavos papel impuesto interno. The Tucumano Eliseo Cantón recalled in the debate the dealings with the Executive on the alcohol internal rate: When this tax reached the Chamber (the Executive’s project, not this one proposed by the Commission) it was me, in the Commission, who made the first observation to the Minister, with data I had on the economic capacity of this industries. The minister told us that one of the most important distillers in the Republic had declared that the distilling industry in both Buenos Aires and Santa Fe could tolerate a 15 centavo tax. I told him: ‘It is possible that in the Litoral they can withstand it, but not in the Interior. 394

Thus the Budget Commission watered the contribution down to 8 cents, but during the debate Cantón went still further and proposed the 7 cent tax, which won after a very close vote. Molina’s free trade project in 1891 and López fiscal package of the previous year indicated that path that the tax policy would follow during the rest of the decade. In commercial policy, fiscal constraints would contain the free trade reaction pushed forward by the Radicals and other free traders of the Litoral. Whatever concessions they were, the protected Interior industries managed to avoid them thanks to the still dominant majority of the Interior provinces in Congress. Meanwhile, attempts to apply the criterion of devolution to the main inland industries by taxing them with impuestos internos would be blocked by the affected provinces. Moreover, representatives from Cuyo and the Northwest managed during most of the 1890s to tinker with the impuestos internos system in ways that would actually help their industries cope with the difficulties of an import substitution process that was already reaching its limits. The internal tax to wine and sugar would only pass the Congressional test after the geographic redistribution of Congressional benches that followed the 1895 Census.

394

DSCD, Jan 6th 1891, 911.

193

The effect of tariffs on the consumer underscored by Molina was the favorite argument of the turn-of-the-century free traders, but not the only one. As emphasized by Roy Hora 395 , a very common free-trade argument during the 1890s was the threat of retaliation by the countries competing with Argentina’s protected industries in the local market. The list of countries invoked as reacting against Argentine tariffs is very telling of the nature of Argentine protectionism. In 1891, when the tobacco tariff was increased to stratospheric levels, Deputy Olmedo from Córdoba feared for the state of the ranching industry in the Litoral and some inland provinces, given the increase in duties to the Argentine production as a retaliation to the Argentine Custom Law, the imposes heavily on Brazilian tobacco, sugar and other items 396

and considered that Taking into account the interests of the Litoral and the part of the inland region of the Republic dedicated to agriculture and stock raising, it might be sensible to reduce this tobacco tax, and the tax to sugar and other products coming from Brasil, Paraguay and so on, and thus benefit the interests of the ranching industry, threatened by the high taxes to our meats, and the agricultural region, threatened by the high duties on our cereals. 397

The attack on the exorbitant tobacco tax resurfaced in 1893. The ostensible reason for a project of the Budget Commission lowering tobacco tariffs was to contain smuggling from Paraguay, but again the argument was made –by Berduc, of Entre Ríos– that high duties were against Argentina’s own export industries: we consume no more than three millions of Brazilian production, while Brazil takes twelve millions of our production […] It is not only jerked beef, though jerked beef is an important part. We have Argentine flour; we have Argentine wheat […]; we have the live animals we take to Brazil. We are taxing then the production of certain provinces, such as Buenos Aires, Entre Ríos and Santa Fe, by placing high duties on Brazilian imports. 398

395

Hora (2000).

396

DSCD, Nov. 4th, 1891, 432.

397

DSCD, Nov. 16th, 1891, 542.

398

DSCD, Oct. 18th, 1893, 95.

194

In 1894 Brazil was mentioned again as retaliating against Argentina’s protectionism. A proposed reduction in the highest ad valorem tariff bracket, from 60% to 50%, would make no difference as the products involved are not the ones that provoked the tariff hostility from nations as Brazil, France and Spain. It is well known that landowners are uneasy with the prospect of a tax on jerked beef; and that the high duties Brazil charged on our flours were a reaction to the excessive taxes we imposed on coffee, sugar and Brazilian tobacco. 399

In the cases of France and Spain, the conflictive issue was, of course, wine. An increase in the wheat tariff by France in 1894 400 was presented by free traders as a reaction to Argentine protection, without much evidence to support it. The threat by Spain to close the Cuban market to Argentine jerked beef if Congress voted an increase in the wine duty was more of a real thing 401 . Another typical argument of the free traders, anticipated in the retaliation argument, was the unequal treatment of provinces by the tax code. In the pages of El Economista Argentino, for example, “The Need of a Reform in our Tax System” was declared so that “the union, which is a fact in the political order, is also a reality in the economic order”. The weekly argued that

399

Deputy Barroetaveña in DSCD, Nov. 9th, 1894, 488.

400

Hora (2000), 472.

401

DSCD, Nov. 9th, 1894, 502.

195

The cause of all the evils of this country, both in the political and in the economic sphere, has been the misconception that the interests of some provinces are in conflict with those of others [….] Starting from that assumption of that antagonism, peoples have looked at each other with mistrust, trying each of them to gain advantages at the expense of the rest. Thus have the long struggles of so many years come, struggles that have only ceased with the establishment of a system that, while satisfying the aspirations of a majority, did not take into account everybody’s interest. The Constitution has wanted that the General Government have the means to fulfill its duties, and that everybody would contribute equally to that object; but the current tax system does not respond to this aim of the Constitution […] Taxes obtained at the Customs fall disproportionately on provinces that consume foreign goods, leaving the other provinces in a better position. 402

A few years later, El Economista Argentino offered its own historical interpretation of the rise of protectionism as an essentially Juarista affair: Until fifteen years ago, the tax laws only had it mind collecting the necessary resources to finance public spending […] But from 1887 onwards… when the ideas and interests of the inland provinces reigned supreme, a protectionist reaction took place, with the law of the Guaranteed Banks and the considerable increase in tariffs for the products that those provinces produced or were thought capable of producing. It was through that decisive protection that industries were born or grew, although not in the scale they would have grown if they had been closer to the Litoral and the quality of their products were better… Those who have thus violated distributive justice, with a legislation that has favored exclusively regional industries and damaged those located in other sections of the country, who have had an independent life, didn’t notice they were violating the laws of time and space, and have thus sown insurmountable difficulties that will impede the complete success 403 of their efforts.

After the critical Pellegrini administration, the debates for a reform in Argentina’s tariff system in the direction of free trade were intense, but the results were meager. A first priority of free traders, in which they did have some success, was to gradually remove the tariff surcharges of López’s 1891 fiscal plan. The duty on tobacco, for example, was slightly reduced in the 1892, though it remained at a much higher level than before the Pellegrini reforms 404 . But in the same year other attempts were dismissed: a proposed reduction in wine, for example, was rejected by the Budget Commission, and the Lower

402

El Economista Argentino, Jan. 21st, 1893.

403

El Economista Argentino, May 20th, 1899

404

DSCD, Nov. 4th, 1892, 102.

196

House vetoed a proposal by the Senate of reducing by two cents the sugar tariff. 405 A small increase in vegetables oils was voted to promote olives, peas and their processing. 406 The case of tobacco remained very special due to its still exorbitant level, which apparently led to its collapse in the import statistics due to smuggling 407 . El Economista Argentino calculated in early 1894 that the tariff rate for one type of Virginia tobacco was 5000% 408 . In 1893, the Sáenz Peña government proposed a drastic reduction in the tobacco duty as the main change in the Customs Law, but it was blocked in parliament, with deputies quoting “telegrams received from Córdoba, from Tucumán, from Santiago, from Salta… so that the opinion [against the reduction] is unanimous” 409 . The defense of tobacco, still more of a project than an established activity, showed that there were hopes of replicating in the provinces the spectacular successes of sugar and wine. Rice was another case in point. An increment in its tariff was voted in 1893 because its cultivation was “gaining ground in the Interior” and its protection would “provoke a great progress in that industry” 410 . A bolder attempt to reform Argentine tariffs took place in 1894. The previous year, Finance Minister Terry thought that “the present duties are possibly too high” 411 , but that lowering them demanded both a firmer budgetary footing 412 and a detailed study. He thus set up a Special Commission to study the tariff question. The Commission, composed of 405

DSCD, Dec. 21st, 1892, 734.

406

DSCD¸ Dec. 24th, 1892, 734.

407

DSCD, Aug. 11th, 1892.

408

El Economista Argentino, June 2nd, 1894.

409

DSCD, Oct 18th, 1893.

410

DSCD, Dec. 18th, 1893.

411

ibídem, 59.

412

DSCS, Nov. 25th, 1893, 742.

197

legislators, businessmen and traders, worked for ten months during 1894 amid great public agitation over the matter. This was, according to the most complete study on the early Radicals 413 , the single most important policy issue mobilizing the new party beyond its demand for electoral reform. The press in Buenos Aires was aligned according to party affiliation, with the Radical El Argentino staunchly proclaiming free trade, the Roquista La Tribuna Nacional on the protectionist camp and the Mitrista La Nación occupying the middle ground 414 . Apart from studying in depth the cumbersome structure of Argentine tariffs that had resulted from years of ad hoc legislation, and trying to propose a more consistent law accordingly, the Special Commission had a free(er)-trade inspiration and aims. The Commission was supposed to limit the exaggerated protection granted during the previous years 415 . Its president, Deputy from Santa Fe Lorenzo Anadón, was an open free trader 416 . According to Minister Terry’s presentation to Congress of the Commission’s studies, the crux of the deliberations had dealt with the most protected commodities: “three categories of our trade have been subject to a passionate debate in the Commission, calling the attention of the government because of their influence on the economic policy of the country, namely: sugar, wine and tobacco” 417 . The Commission’s report and its resulting Customs Law project, however, fell way too short of the free traders’ aspirations. As the speaker for the Budget Commission reported when presenting the project, “all the free trade of this Commission could be summed up in this reform: the lowering of the 60% rate that our tax legislation had for 413

Alonso (1994), 240.

414

ibídem.

415

DSCD, Oct 8th, 1894, 57.

416

Rocchi (2006), 215.

417

DSCD, Oct. 8th, 1894, 59.

198

protective tariffs, to 50%. This 10% is the exact measure of the concession to free trade” 418 . Barroetaveña, a Radical and the most outspoken free trader in the Lower House, noted that the reforms left untouched the emblems of Argentine protectionism: 419 Those very high duties that the speaker has not dealt with, those tariffs that exceed the 60%, that are over 90% and in some articles higher than 200%, are against the precepts of our Constitution, because they are not reasonable protection to our industries, but imply the prohibition of the foreign article […] the speaker hasn’t explained to the Chamber why tariffs as high as those for oil, wine and sugar, articles of popular consumption, are maintained […] He hasn’t explained why the 200 to 500 per cent tariff to Paraguayan tobacco is left untouched. 420

Barroetaveña thus established a difference between the abusive protectionism in favor certain regions and the more moderate protection that, along with currency depreciation, was benefiting manufacturing industries in the Capital. The prospects of these two kinds of beneficiaries were quite different: It’s been like ten years since laws were promulgated in our country announcing that from then on there would be tariff protection to industries. Many have developed; we have reached the present state of crisis and as a way of salvation a shift in course towards the constitution, towards lowering these protective duties, is demanded […] The industries that have attained a the greatest development under our protective laws are the sugar industry in the North of the Republic, the wine industry in Cuyo, the production of alcohols in Tucumán and the Litoral, and the garments and shoemaking industry in the Capital […] The shoemaking industry can develop and compete with the imported product […] the opposite happens with the great protected industries of sugar and wine […] and the national tobacco industry has been a complete failure 421

The prospect of the provincial economies was prominent all along the great tariff debates of 1894. Barroetaveña saw no trouble in the crisis that he acknowledged would follow in the North if his free trade philosophy won the day:

418

Deputy Berduc in DSCD, Nov. 9th, 1894, 484.

419

See also p. 192 above

420

DSCD, Nov. 9th, 1894, 488, 489.

421

DSCD, Nov. 21st, 1894, 635, and DSCD, Nov. 22nd 1894, 649, 653.

199

Will some workers lose their jobs In the North? But, how much does a worker make in the Tucumán sugar mills? Between 15 and 20 pesos a month. How much does a worker in the colonies of Santa Fe or Buenos Aires earn? More than 100 pesos; and the former is a night away from Tucumán. So if as a consequence of the closure of some sugar mills workers aren’t able to work there, they will easily find where to work 422

By making explicit the regional consequences of doing away with protectionism, Barroetaveña inflamed passions against his own cause. Eliseo Cantón was the more vociferous defender of protection as a tool of regional promotion. The wealth enjoyed by Santa Fe had ultimately been a consequence of the wheat tariff of the 1870s; the rest of the provinces should follow suit: The country cannot live eternally in this uncertainty and doubt, without knowing whether the free trade ideas will finally win in the Argentine parliament, or if, honoring its tradition, experience and prevision, Congress will forever continue with its policy of protecting industries. Commercial transactions, especially in sugar, wine and tobacco, are almost paralyzed these days… The farmer is waiting with its hand full of seeds, so to speak, the instant he will know whether he should lay them on the earth that fertilizes them and gives them life, or, rather, if the free trade ideas will prevail in this chamber and place him in a situation of leaving his lifetime job… Today, the santafesinos are proud of the vast and abundant production of cereals…we shouldn’t forget that the prosperity of Santa Fe, which extends to Buenos Aires and Entre Rios, has had in its origin the stimulating action of protection… Now let Santa Fe prosper and grow, but not at the expense of the prosperity of Jujuy, San Juan, Tucumán and Mendoza. The suffering of their population, diminished and impoverished, is not a solution... 423

Protectionists of the Interior joined forces in 1894 with a growing sense of economic nationalism stemming from manufacturing development in Buenos Aires, as explained by Fernando Rocchi 424 . Protectionism could be presented by the defenders of these rising manufacturing sectors in Buenos Aires as a national rather than a provincial sentiment. Thus deputies like Rufino Varela echoed the arguments of the Interior representatives to answer Barroetaveña’s quite brusque proposal of adjusting to the reduction of tariffs with

422

DSCD, Nov. 9th, 1894, 505.

423

DSCD, Nov. 9th, 1894, 491, 495, 505.

424

Rocchi (2006), 219.

200

internal migration, an idea that was present in the Special Commission’s report. Varela asked Do the Deputies really think, as it is proposed in the report of the Special Commission, that the Republic would win if people from Santiago, Tucumán, Salta and Jujuy came to harvest in Santa Fe and Buenos Aires, replacing the napolitanos?[...] We who want wine to prosper in Mendoza, San Juan, La Rioja, to produce wealth; and sugar, coffee and rice to prosper in Tucumán, Salta and Jujuy tell the truth, as we tell the truth when we want Entre Ríos, Corrientes, Buenos Aires, Santa Fe to produce valuable cattle and agricultural products that are easy to export 425

In this context, the attack on sugar that Barroetaveña attempted was easily defeated. In response to a proposed reduction in the sugar tariff, Cantón was happy to hypothesize on other possible industries for the Argentine North in a scenario where sugar was killed by free trade. Apart from sugar and tobacco, there were no “products of so high a value that they can withstand the extraordinary railway freights” 426 . He discarded coffee because of the frequent frosts; bananas, of little value; rice, because that would require amounts of water which, in combination with a burning sun, would be dangerous for public health; wood, due to the high volume/value ratio; and big scale ranching, requiring better pastures 427 . For Barroetaveña, the unfeasibility of industries other than sugar in the North didn’t give that region “the right to demand in its favor a surcharge of 100% to the rest of the republic” 428 , but the Chamber voted for continued protection by a 30-14 majority. Wine had a harder time in the 1894 debate. The question was not exactly the tariff level but the maximum alcohol content allowed at the ordinary duty of 9 centavos. The previous year that maximum had been lowered from 18 to 14 degrees to deter wine “falsification” – ie, adding water to highly concentrated imported wine. Wines with more 425

DSCS, Nov. 14th, 1894, 533.

426

DSCD, Nov. 22nd, 1894, 666.

427

ibídem.

428

DSCD, Nov. 22nd, 1894, 676.

201

alcohol would pay an additional duty in proportion to the excess. At the lower concentration, however, the cheaper Spanish wines couldn’t make it through the heat of the Equator without being spoiled, so they were actually coming in high concentration and paying a surtax that implied an effective tariff of 200 per cent 429 . The Commission’s project included a partial reversal, to 17º. The debate took place under the very concrete threat of Spanish retaliation. The Spanish government had agreed with its Argentine counterpart to wait for the result of the Argentine debate before decide accordingly on a restraint to jerked beef imports. Cuyanos clung to this fabulous device of protection against their main rivals in the local market. Ceretti and Alvarez, two Mendocinos defending the higher mark, stroke several times the regional chord. Ceretti argued that We can say that we’ve finished the first period of our industrial progress: building the railways that are necessary to protect our industries… But what will they transport? We have the need, then, of fomenting production, of placing the provinces in a condition to give elements of transport to those railways; otherwise they will be the ruin of the country. The wealth of this country isn’t in Buenos Aires: it is beyond the Plaza de la Victoria (Very good!) Four and a half million people are there, demanding work and protection for their industries (Very good!) 430

According to Ceretti, protectionism was the only for the provinces of the Interior to eventually attaini the degree of development necessary to survive without the help of national money. Instead of financing “the decay, the ruin, the misery of some provinces”, the government should concentrate in favoring in each locality, in each climate, in each province, the appropriate industry, to attain the economic independence of every state. This would be the complete happiness for this country: that each province were rich, that there were as many Buenos Aires as there are provinces 431 .

429

Estimates by Deputy Berduc, DSCD, Nov. 24th, 1894, 724.

430

DSCD, Nov. 23rd 1894, 697.

431

DSCD, Nov. 23rd, 1894, 707.

202

Ultimately the question was about the relative power of different provinces. Álvarez accused the Entrerriano Berduc of having summoned the Litoral deputies so that they defended jerked beef and abandon the Interior deputies, who were defending wine 432

Berduc admitted the regional character of the debate, but thought that “The question is who is creating this war: it is the Interior deputies who want the Litoral to die” 433 . Solidarity among Argentine provinces demanded that San Juan and Mendoza didn’t insist on a clause that jeopardizes the interests of other provinces that have the main industry of the Republic, the industry of nature, the industry that supports the country, the majority of the population, the consumers, the industry that exports, that pays taxes for 3 million pesos when it gets out and 7/8 parts when entering back as imports […] We haven’t denied protection to the industries of the wine provinces; but we don’t want to be hurt. We don’t have the right to ask you for protection, because we can perfectly live without it, but we have the right to say: We will help you, but don’t sacrifice us. 434

Unfortunately voting was anonymous and we cannot be sure of the regional breakdown of the 30-22 vote taking back the alcohol threshold to 17º, as the Litoral demanded. The fact that ranching was important in both Corrientes and Córdoba, two swing states on economic policy issues with numerous representation in the Chamber, probably made a difference; their 17 deputies could decide the vote by joining either the 36 deputies of the Litoral’s core (Capital, Buenos Aires, Santa Fe and Entre Ríos) or the 33 of the rest of the Interior. Also, the wine provinces were not as strong as the sugar provinces: Mendoza and San Juan had a total of 6 deputies; Salta, Jujuy, Santiago and Tucumán could make up a strength of 17. Moreover, Berduc’s passionate reaction was probably warranted by fact that in this case the 432

DSCD, Nov. 30th, 1894, 820.

433

ibídem.

434

DSCD, Nov. 24th, 1894, 721, 723.

203

adverse consequences of protectionism wouldn’t be limited to an indirect effect working through factor demands –which we aren’t sure, for that matter, that deputies really understood– but would rather entail the very direct consequence of closing an important market to one of the Litoral’s main products. When Barroetaveña put forward a motion to reduce the wine tax to 7 cents, a move unrelated to the possibility of Spanish retaliation, it was rejected. The great debates of 1894 ended up in little more than the 10 per cent discount in Argentina’s highest tax bracket and a further movement from ad valorem to specific taxes in a generally downward direction. Out of the 206 tariff classes that, according to a 1896 report by the Dirección General de Estadística 435 , changed their rate at least once between 1877 and 1896, 122 were touched by the 1894 reform, with 87 reductions and 35 increases. While the products of the Interior were the main intended targets of the free traders –as witnessed by the fact that the only products whose tariffs were discussed at some length were sugar and wine– they maintained the legal protection acquired in the 1880s. Free traders did succeed in removing the “excesses” of the previous couple of years for tobacco and wine. The tobacco tariff was in fact reduced –though it remained at 300% for the most relevant category– and the imports of Spanish wines were normalized. The idea that the 1894 Customs Law was the first law moderating the protectionist crescendo started in the 1880s was typical. In 1895, for example, Deputy Llobet offered the following historical account of Argentine protection:

435

Anuario of the Dirección Nacional de Estadística, 1896, 49-69.

204

In 1878, I think, the first protective tariffs to sugar were voted, and after 1880 they were extended to all our Customs Law, to the extent that we have had rates of more than 500% for some products, ie., prohibitive tariffs. It is only natural that these experiments would face grave consequences, and that a reaction would come about, as it came a year ago […] We are all aware of the action by the Special Tariff Commission, whose result in our Customs Law was to alter, in many categories, the highest and most excessive tariffs 436 .

The action on the tariff issue was scant for the rest of the 1890s. The works of 1894 were seen as a first step towards a “permanent” Customs Law 437 . The themes of the Customs Law debates until the first permanent law in 1899 revolved around the 1894 issues. On occasion, cuts in the sugar tariff were considered by the Budget Commission but rejected before reaching the Congressional floor, as in 1895 438 . The tobacco duty was further moderated in 1896, without much resistance (which was probably due to the fact that tobacco never really surpassed its infant-industry stage in this period) 439 . Cuyanos attempted every now and then to take the alcohol threshold closer to the prohibitive 14 degree line. They failed in 1896, when Deputies overruled a shift to 16º voted in the Senate 440 ; but succeeded in 1897, and again in 1898, when a further lowering to 15º was approved in spite of the complaints of the “the representatives of the agricultural and ranching provinces, who have been sacrificing step by step the interests of our provinces, only to satisfy the increasing protection that [the wine provinces] demand day after day; just like eating makes you hungry, in the same manner works Mendocino protectionism” 441 . Meanwhile, a closer attention was being paid during these final years of the century to the protection of the manufacturing sectors of the Capital. While this “urban”

436

DSCD, Dec 4th, 1895, 574.

437

As expressed, for example, by Deputy Llobet in DSCD, Dec. 6th. 1895, 582.

438

DSCD, Dec. 6th, 1895, 585.

439

DSCD, Jan. 5th, 1897, 826.

440

DSCD, Jan. 13th, 1897, 843.

441

Deputy Ferrer in DSCD, Dec. 26th, 1898, 485.

205

protectionism did have its supporters, as Rocchi has established 442 , the general picture was also a defensive one, with manufacturers and their champions in Congress trying to maintain the shelter gained during the protectionist wave of the 1880s rather than calling for an increase in tariffs. Their defense against free traders was, however, less successful than that of the Interior industries. Many of these sectors were hurt somewhat by the (moderate) tariff reductions of 1894. Moreover, in 1897 the Senate proposed a ceiling of 60% to the specific duties in the “Various articles” category (which included everything except food, drinks and tobacco) whose ad valorem equivalents exceeded that maximum. Deputy Garzón opposed the move, arguing that If the Chamber has always voted protectionist taxes for all the Interior industries, it should vote them for the Capital as well. In 1894 I formulated this same request [and succeeded in the case of hats]. The Chamber followed this path because it had already decided to be protectionist, and it wasn’t fair to protect the industries located in some point of the country and not those residing elsewhere, as they are all national industries. 443

It should be noted that ideology, party affiliation or more prosaic motives must have been behind this defense of protectionism – Garzón was a Cordobés, and Dávila, also against the reduction, represented La Rioja. The ballot was tied and the president of the Chamber decided in favor of the 60% ceiling to manufacturing products. The free trade reaction of the 1890s to the protectionism of the 1880s was a real but ultimately failed threat to the industries of the Interior. Three other threats represented more significant dangers: (1) impuestos internos, (2) exchange rate appreciation, and (3) the limits to import substitution when most of the imports had effectively been replaced with local production. In the next two sections I explore how they dealt with these other threats.

442

Rocchi (2006).

443

DSCD, Jan 3rd. 1898, 770.

206

5.4. The Interior on the defensive (II): Impuestos internos and regulation, 1890-1899 Impuestos internos were a threat to the industries of the Interior for two reasons. In the first place, because –as discussed above– they were conceived right from their inception as a way of charging those industries benefited by the tariffs, and the Interior products were certainly the most protected ones. In the second place, some (wine, tobacco, alcohol) but not all (sugar) of the products of the Interior were, in a sense, “vices”, and thus a preferred object of imposition. Along with beer and matches, alcohols were among the first items to receive an internal tax, in 1890. However, the net effect of the 1890 tax reforms on alcohol favored local production as the internal tax represented less than the tariff surcharge (page 192). In the following year, impuestos internos were already aiming at the heart of Argentina’s Interior: a small tax on wine (2 paper cents, compared to 8 gold cents of the tariff, or around 30 paper cents) was proposed by the Pellegrini government, but wasn’t even considered in Congress 444 . The attack redoubled in 1892, and again the Budget Commission deleted from the Executive’s project articles 2 and 4 establishing a 5 cent tax to both wine and sugar 445 . However, with the budget in a real emergency and the debt question still unsettled, the Interior was forced into a transaction. The alcohol tax was raised in the project from 9 to 20 cents, thus removing the gains from the 1890 tariff surcharge. When Alurralde of Tucumán noted that “The tax proposed by the Commission is prohibitive because the Northern provinces won’t be able to bring the product to Buenos Aires, which

444

DSCD, Nov. 6th. 1891, 494.

445

DSCD, Nov. 30th, 1892, 378.

207

is the only consumption market of real importance in the Republic” 446 , Minister Romero – back in the Finance Minister with the Sánez Peña government after his experience in the early Roquismo– warned that “If the Chamber resolved to diminish the tax on alcohol, my duty would be too ask her to re-impose the tax on sugar and wine” 447 . According to Joan Suplee, the Mendocinos actually supported the increase in the alcohol tax so as to raise the cost of producing artificial wine produced in the Litoral, which competed with their own, natural product 448 . In 1893 wine finally entered the impuestos internos system. But it did so with a twist that actually favored the Cuyo provinces. Before the yearly tax law was voted, Congressmen discussed a regulation on wine sales. A restrictive definition of “natural wines” was adopted so that artificial wines, produced mainly in Buenos Aires, couldn’t be labeled as wines. More importantly, “the Dirección General de Impuestos internos would control the production of artificial wines” 449 . The corollary of this law, apparently resulting from a deal struck between Mendocinos and Persident Sáenz Peña 450 , was that only artificial wines would pay the excise tax, thus increasing the competitive edge of Cuyano wines in the internal market. With the ardent support of Mendocino Agustín Alvarez 451 , a 10 cent tax was voted for artificial wines in the Impuestos internos law, while natural wines remained untaxed 452 .

446

DSCD, Nov. 30th, 1892, 380.

447

DSCD, Nov. 30th, 1892, 382.

448

Suplee (1988), 312.

449

DSCD, Sept. 4th, 1893, 538.

450

Suplee (1988), 312.

451

DSCD, Nov. 8th 1893, 268.

452

DSCD, Nov. 6th 1893, 242.

208

The Cuyano strategy of expanding the local market share for their wines through regulation was not an option for representatives of Tucumán and other sugar provinces, as they had already reached the boundaries of the Argentine market. But they also managed to turn the threat of Impuestos internos into an opportunity. In both 1892 and 1893 Congress had resisted the Executive’s attempt to tax the production of sugar 453 . Sugar was also left out of the extensive codification of Impuestos internos in 1894, when 100 clauses were added to the previous 26, although Minister Terry had established in his Budget message the “necessity of the impuesto interno and the extension of its scope as projected by the Executive, by including among the articles taxed tobacco and sugar” 454 . (Tobacco was in fact included in the law in 1895. The tax was originally conceived as imposing only internal production but was eventually extended to imports “so as to avoid discouraging so many small businessmen who have ventured with admirable readiness into this new branch of cultivation in our soil” 455 ). By 1895 the sugar industry was already experiencing symptoms of overproduction. A bumper harvest had sent the sugar price from 4.79 pesos per arroba in 1894 to 2.84 in 1895. With Presdient Uriburu ill in late 1895, the Centro Azucarero lobbied on acting President Roca for his support on a national sugar bounty law, urgently needed to “send abroad all of part of this year’s excess production” 456 . The project dispatched by Roca established a 4 cent internal tax on sugar which would finance a 12 cent bounty for up to twenty-five million kilos of sugar exports 457 , and was discussed in spite of the very uncharacteristic date, mid-January. Against the customary opposition of Barroetaveña, the 453

Footnote 444 above and DSCD, Nov. 6th. 1893, 244.

454

DSCD, Oct. 8th, 1894, 59.

455

DSCD, June 26th 1895, 174.

456

Quoted by Barroetaveña, DSCD, Jan 15th, 1896, 1167.

457

Guy (1980), 96.

209

bounty scheme was voted in Deputies thanks to the support of most (77%) of the Interior deputies and also 46% of Buenos Aires, province and city (Figure 5.10). It was, however, too late for the Senate to confirm the vote, and the issue was postponed for the following year 458 .

Figure 5.10. Regional breakdown of votes for the sugar bounty scheme, 1895

The opportunity to revive the bounty scheme came back with the 1896 debate on impuestos internos. This time the inclusion of natural wines and sugar in the system was entirely the work of the Budget Commission as a result of having less sanguine fiscal expectations than the Executive 459 . According to Deputy Gilbert from Entre Ríos, who

458

Guy (1980), 109.

459

Moreover, the need for an increase in taxes was more vividly felt when plans were revealed that Argentina would start paying amortization of its debt one year in 1897, a year in advance of the date stipulated in the agreement with foreign creditors (DSCD, Dec. 11th, 1896, 424).

210

defended the Commission’s report, the time had come for both emblems of the Interior’s economy to begin paying back what they’d received: As is well known, our Customs legislation has been penalizing imported articles so as to stimulate and develop the national industry. The Commission has thought that, proceeding with justice, rectitude and equity, it should resort to this national production to tax it, so that the country is compensated for the sacrifices that have been hitherto been made to aid the establishment of those industries. 460

The estimated collections of the taxes planned for sugar and natural wines were by no means negligible for the provinces, nor for the national government: 6.4 million pesos, about twice the combined budgets of Mendoza and Tucumán, and 4% of the total calculated receipts for the central government. The reaction of the affected provinces was instantaneous: the Centro Vitivinícola of San Juan warned Congress that “the projected tax on national wines will bring the ruin of the majority of the businessmen in this province” 461 ; a similar petition by Mendocinos also predicted that the effect of the new tax would be “the ruin of the industry, as the proposal stands for no other interests than those of the cortadores [artificial wine producers] of the Litoral” 462 ; the Governor of Mendoza himself pleaded Congress to refrain from voting a duty involving “the danger of a public calamity” 463 ; and the “sugar planters, producers and traders” from Tucumán reminded Congress that “the only way to overcome the danger currently threatening [the sugar] industry is to follow the example of the advanced nations, and there’s no other formula than the one proposed by Deputy Cantón” 464 . Cantón’s proposal was a restatement of the taxcum-bounty scheme of 1895, with a 4 cent internal tax (which, incidentally, would also fall 460

DSCD, Nov. 6th, 1896, 176.

461

DSCD, Nov. 9th, 1896, 198.

462

ibídem.

463

DSCD, Nov. 13th 1896, 220.

464

DSCD, Nov. 16th 1896, 241.

211

on imports, as was customary for the impuestos internos commodities since tobacco was included) in exchange for a 12 cents subsidy for exports up to 35% of production. His arguments were not new: as many as 650,000 people lived directly or indirectly for sugar, and We should make sure that all the areas of Republic produce what they are capable of producing. We shouldn’t limit ourselves, nor for one moment, to the beautiful province of Buenos Aires and those of the Litoral where the livestock industry prospers and exports meat, hides and wool; no. It is necessary that the Cuyo provinces give us their delicious wines; that the Northern provinces provide us with sugar, coffee, tobacco, the delicate chirimoya; and that the provinces of the northwest elaborate all these products and a higher yielding sugar, because their land is more fertile. 465

The opposition to Cantón’s project denounced it as a maneuver by the Unión Azucarera 466 , a sugar cartel which since 1895 had been trying vainly to control local prices and had stockpiled sugar in the process 467 . Minister Romero’s observation that leaving the sugar industry to its own devices in that critical moment would imply a regression of fifty years, “forcing us to pay tribute for a product that the consumer cannot do without” 468 was dismissed by the drastic rebuttal of Barroetaveña: The Argentine Republic won’t retrogress fifty years! It will keep on prospering! The Litoral, which is developing in such an expansive manner, without the need of exceptional protections, will give the example; and those peoples of the North, who expect everything from the government’s favor, who expect everything from the Providential State, will develop in more appropriate economic forms. 469

Barroetaveña was joined by three out of four Litoral deputies, but representatives of provinces outside the Litoral voted massively (85%) in favor of the bounty (Figure 5.11) so that the scheme was approved with a 29-26 majority. 465

DSCD, Nov. 13th, 1896, 229.

466

DSCD, Nov. 13th, 1896, 230.

467

Guy (1980), 97.

468

DSCD, Nov. 16th 1896, 256.

469

DSCD, Nov. 18th, 1896, 279.

212

Wine was also saved from the internal tax, and actually benefited from the law. The Commission’s plan had placed “this small tax to pure wines and has elevated the one paid by artificial wines” 470 . The Mendocino Villanueva estimated that the 2 centavos tax implied a 10% of the price received by wineries and as much as 50% of the industry’s profits, and compared the proposal to a doubling of the national property tax in the Capital: “We would have a mutiny, exactly what happened these past days in San Juan and Mendoza, where meetings took place leaving aside party differences to protest against this Commission’s plan” 471 . The debate on the wine tax took three whole sessions in the Chamber, and the duty on natural wines was finally rejected, though a new tax was voted for a special kind of artificial wine 472 . An increase in the beer tax had been voted before the dismissal of the wine tax, so Almada from Córdoba tried to take that increase back, as “We all know that there are no beer factories outside Buenos Aires and Córdoba; we have sanctioned the suppression of the wine tax to favor the provinces that produce that beverage” 473 and asked for a similar benefit, but couldn’t attract a majority in his favor.

470

DSCD, Nov. 20th, 1896, 303.

471

DSCD, Nov. 20th. 1896, 316.

472

DSCD, Jan. 4th, 1897, 775.

473

DSCD, Jan 5th, 1897, 818.

213

Figure 5.11. Regional breakdown of votes for the sugar bounty scheme, 1896

The triumphs of 1896 were temporary. The financial result of 1896 was disastrous: receipts covered barely half of total expenditures 474 , and many payments were made out of 1897 tax collections 475 . Wenceslao Escalante, a fiscally orthodox critic of early Roquismo (Chapter 2), and the last Finance Minister of Uriburu’s presidency, presented for 1898 an adjustment program including expenditure cuts, tax hikes and, once again, the tax on sugar –with no bounties in exchange– and natural wines. The fiscal urgency was such that the alcohol tax was doubled starting in October, when tax laws usually had an annual cycle. Impuestos internos were discussed late in December, with two sessions in December 23rd and Christmas Eve entirely dedicated to wine. This time the Budget Commission had taken natural wines out of the project, but the Minister himself sought to revert to his adjustment plan by participating in the sessions. Against the tax spoke the David Chaves of San Juan

474

Anuario of the Dirección Nacional de Estadística, 1896.

475

DSCD, Sept. 6th, 1897, 590.

214

and Benito Villanueva of Mendoza. Villanueva’s main argument was one of equality of imposition: the 2 cents on wine tax implied a rate of 10%, compared to 6% for nonexported sugar, 4% for some cattle products and none for many other commodities including cereals and import-competing manufactures. Also, wines had the additional disadvantage of having to compete with the artificial product, whose tax was being widely evaded 476 . Escalante answered the obvious: the combination of a 10% internal tax and circa 100% tariff was much more favorable for the wine industry than the alternative of a purely fiscal tariff of 25% 477 ; and cereals and cattle products only ask that they are not left in the shadows; they only ask for freedom. They are not defended by tariff protection; they don’t grow at the expense of imports and Customs collections; they haven’t received from consumers hundreds of millions […] These are the industries with which we pay all of the country’s consumption, subsequently taxed with tariffs so as to favor the industries that [Deputy Villaneuva] is right in defending but not in asking for a tax exemption. 478

The Chamber finally voted against the tax on natural wines. The sugar question progressed along the same lines. The Executive’s abolition of the bounty was not only rejected, but an increase in the subsidy was voted. These were the two final victories of sugar and wine in Impuestos internos. The Interior was less successful in defending two other important commodities: both the tobacco and the alcohol tax were significantly raised in 1897 479 . The tax on natural wine could finally pass legislative trial due to the strongest possible motive of them all: war. With the very concrete threat of an armed conflict with Chile, tax hikes were enforced in August 1898 to finance military purchases, including an across the board additional 10% tariff, increases in impuestos internos, and the creation of a 476

DSCD, Dec 24th, 1897, 574.

477

DSCD, Dec 24th, 1897, 583.

478

DSCD, Dec 24th, 1897, 589.

479

DSCD, Dec. 28th, 1897, 628.

215

4 cents tax on natural wine. These tax laws were voted in secret sessions, and –as related later by Deputy Chaves– “no opposition was made, because it was a patriotic duty to remain silent” 480 , although grape growers and wine producers in Mendoza were so disappointed that they had proposed that their province quit Congress in protest. By the year’s end negotiations with Chile were already under way, and the impuestos internos law for 1899 projected a 2 cent tax for natural wines. This time Cuyanos felt that they wouldn’t win the battle, and concentrated in convincing the Chamber to enforce immediately the 2 cent tax in replacement of the 4 cent duty, which they did. It is reasonable to speculate that the diminished representation of the non-Litoral Interior in the Lower House, which took place precisely in 1898 in accordance to the results of the 1895 Census, was one of the reasons why Mendocinos and Sanjuaninos picked an easier battle. The provinces outside the exporting centers of Santa Fe, Entre Ríos and Buenos Aires (city and province) were the natural allies of Cuyo in the protectionist camp, but could only count now on 42.5% of the Chamber’ votes (51 out of 120 deputies; 27.5% without Córdoba and Corrientes) instead of the previous 58% (50 Deputies out of 86; 38.3% without Córdoba and Corrientes). *

*

*

By 1899, precisely when the tax laws were voted for the first time with a permanent character, the two symbols of the Interior’s economy, sugar and wine, had been incorporated to the impuestos internos system. In neither case is it clear whether the net effect of their incorporation and related legislation was an actual burden. Sugar was taxed but received the bounty in exchange. The government did make a profit with the tax-cumbounty system: while the bounty scheme lasted (1897-1905), the government retained

480

DSCD, Nov. 9th, 1898, 175.

216

between 30% and 40% of sugar tax receipts, handing out the remainder as export subsidies 481 . But it should also be noted that the impuesto interno applied to imported sugar as well, so that there was some additional protection in exchange for national taxation. A similar argument can be made for wine: it was finally taxed, but regulation of the national wine market did contribute to some widening of local demand for Cuyano natural wines, and imports were further endeared by paying the impuesto interno. For other commodities on which the hopes of the Interior rested in the early 1890s, such as tobacco and alcohol, the net effect of national policies was clearly restrictive, at least after the tariff increases early in the decade. Alcohol and tobacco provided the lion’s share of impuestos internos: in 1899, for example, each provided one third of excise tax collections (and as much as 13% of total national receipts) while sugar and wine taken together represented one sixth of impuestos internos, in spite of their being much bigger industries. Alcohol especially was increasingly looked upon as a formidable source of revenue, and even the possibility of a State run alcohol monopoly was proposed by Pellegrini and seriously considered, though finally rejected, by President Roca in 1898 482 . By the turn of the century, national economic policies weren’t as friendly to the Interior industries as they had been in 1880-1895. True, some industries managed to more or less maintain the government’s favors (sugar and wine), but others (tobacco and alcohol) were being harmed. More importantly, what strikes in the comparison with the eighties is omission rather than action: no new industries were being considered as potential levers for the Interior development, and the new stimuli to the existing ones (sugar export bounties, restriction to artificial wines) weren’t as potent as the early protectionism of the Roquista481

Guy (1980), 124.

482

Guy (1980), 115.

217

Juarista decade. Actually, sugar bounties and wine regulation were probably less important in the minds of Tucumanos and Cuyanos than the delicate monetary situation of the late nineties. Both groups were among the first to warn on the perils on exchange rate appreciation, and the most consistent advocates of cheap currency. In what follows I describe how they attempted to avoid peso valorization – a feat in which they were only partially successful. 5.5. Finding a Common Ground: the Conversion Law of 1899 Argentina pursued very restrictive monetary policies during the 1890s, in contrast to the frantic expansionism of the 1880s. The monetary base was practically fixed in nominal terms in the decade following 1892. Money supply actually fell somewhat due to the decrease in financial intermediation that followed the 1890 crisis 483 . With money supply constant on declining, the increase in the demand for money caused by the economic recovery and by the gradual descent of the interest rate led to currency appreciation. The process of valorization wasn’t smooth: movements in international prices and interest rates as well as political news defined an unstable path for gold quoted in pesos, but in a downward direction (Figure 5.12), particularly after the 1893 debt settlement.

483

Della Paolera (1988).

218

Figure 5.12. Exchange rate in Argentina, 1883-1910

Source: Global Financial Data.

Currency appreciation had a different impact on the diverse sectors of Argentina’s young economy. Of course, appreciation without a proportional movement in prices entailed a bonus in the terms of trade of non-tradable vis-à-vis tradable activities. But there were also differences within the tradable sector. While tradable sectors as a whole stood to lose from appreciation, the impact was harder for those commodities whose international prices were already in decline. Since the gold discoveries of the mid-1890s, world prices began to recover from the long deflation of the 1870s, 1880s and early 1890s. Wheat, wool and corn, which comprised around two thirds of Argentina’s exports in the decade, all reached a nadir at some point in the mid 1890s. However, in all three cases they eventually began a recovery, and by the end of the century they were closer to their 1890 price. For a value of 1890=100, in 1900 wool had reached 92, wheat 84 and corn 98. Wool and wheat

219

were actually higher than in 1893 (the peak in the gold quotation in terms of paper pesos), and corn was at the 1893 level in 1900. It is harder to compile the international prices relevant for Argentine manufacturers competing with imports. A weighted average of wholesale price in Argentina’s main suppliers provides some approximation. The index also has a low in the mid 1890s (1896=63, with 1890=100) and by the end of the century it had reached the 1890 value. For Argentina’s manufacturers and exporters, then, exchange rate depreciation avoided imported deflation during the early 1890s, and exchange rate appreciation in the late 1890s dampened international inflation. The net effect of exchange rate appreciation since the 1893 peak was still deflationary for all these commodities, as shown in Figure 5.14. But in the case of the two main Interior commodities the deflationary effect of appreciation was stronger: by the end of the century, wine had lost half of its 1893 price and sugar 40%. It should come as no surprise, then, that producers of the Interior were at least as interested as Pampean exporters and industrialists of the Capital in stopping the decline in the gold quotation in terms of the paper peso.

220

Figure 5.13. Paper peso prices of Argentina’s tradable commodities, 1893-1900

Source: As Figure 5.4 for sugar, as Figure 5.6 for wine and Global Financial Data for the rest. * Wholesale: as in Figure 5.2, weighted average of wholesale prices in UK (1/2), USA (1/6), Germany (1/6) and France (1/6).

The idea of eventually returning to the gold standard before the currency reached par was a shared aspiration after the 1890s crash. Monetary experimentation in the 1880s was looked upon as the immediate cause of the crash. While many in the 1890s did remark the benefits of a devalued currency, there remained few outspoken papelistas (advocates of inconvertibility as better permanent system than the gold standard) in the 1890s. As early as 1892, for example, Minister Romero had endorsed the idea of eventually fixing gold at 250 (2.5 pesos papel per peso oro) in an open letter to President Sánez Peña 484 . But the question lingered on as to when to stabilize the currency for good, and at what rate. Just as the effect of depreciation on profitability had been celebrated by the defenders of the Interior

484

El Economista Argentino, Nov. 12th, 1892.

221

industries (page 182), appreciation represented a considerable menace. Voices warning the damning effects of appreciation were heard whenever appreciation accelerated. One such case was 1896, when gold fell from 3.30 in January to 2.75 in October. In the November debate on the sugar bounty, Deputy Davila stated that “with a significant fall in gold, foreign sugar is a powerful rival” 485 , and it was in the same month when Ceretti of Mendoza argued that what really protected wines was the depreciated currency, and that “the day [the exchange rate] reaches 200 [the industries] will die if tariffs aren’t raised” 486 . With the prospect of war looming in 1897 and 1898, the downward pressure on gold took a respite, and by August 1898, while extraordinary taxes were being voted to pay for war materiel, the rate was still at 2.75. As soon as it became clear that war was going to be avoided, appreciation resumed in full force. In October 1898, with gold still at 2.50 but in a clear downward direction, a plan was unveiled to fix the value of the currency at that rate 487 . The man behind the plan was Ernesto Tornquist. Tornquist was a prominent industrialist and financer who perfectly fitted Jorge Sábato’s controversial description of the Argentine elite as a class that followed a rational strategy of diversification in the context of a volatile economy 488 . It is significant for our argument, however, that one of Tornquist’s most important and dynamic activities in the previous years was in the sugar industry. He had founded the Refinería Argentina in 1888 –a virtual monopoly in the refining business and possibly the biggest manufacturing company in Argentina 489 –, 485

DSCD, Nov. 13th, 1896, 233.

486

DSCD, Nov. 20th, 1896, 309.

487

El Economista Argentino, October 8th, 1899.

488

An updated discussion of Sabato’s thesis can be found in Hora, Roy (2002), “Landowning Bourgeoisie or Business Bourgeoisie? On the Peculiarities of the Argentine Economic Elite, 1880-1945”, Journal of Latin American Studies, vol. 34, no. 3, 587-623.

489

Hora (2002), 609.

222

organized the Unión Azucarera cartel en 1895 and was president of several sugar factories 490 and a member of the board of the Compañía Azucarera Tucumana, which elaborated a quarter of Tucumán’s sugar 491 . Interestingly, the Caja de Conversión in Tornquist’s plan would be forced to hand out pesos unlimitedly at the 2.50 rate, but not necessarily to offer gold against pesos at that value. In other words, the plan set a limit to appreciation but not to depreciation, with the incidental advantage that such a conversion needed a smaller initial gold backing. El Economista Argentino, who favored a gradual appreciation along a predefined scale, was outraged, and attributed Tornquist’s heresy to his “desire to come in the rescue of certain industries […] his plans sets a boundary to benefit some, without guaranteeing the others that a new and violent reaction won’t come and harm them […] Conversion at 250 or 200 would be a violation of the public’s trust” 492 . Tornquist adherence to monetary orthodoxy wasn’t warranted by his previous intervention in the sugar market as a “skillful manipulator of syndicates”493 . The weekly reacted on similar terms to a proposal by Carlos Pellegrini which replicated Tornquist’s scheme. In December 5th 1898, with gold close to the 2 pesos line, Deputy Soldati of Tucumán proposed that a minute be sent to the Executive asking for “whatever project can protect our national industries from the dangerous competition of the similar foreign products resulting from the rapid valorization of our currency” 494 . No mention was made in his argument to the competitive situation of exports. The rapid valorization of the paper 490

Guy, Donna (1984), “Dependency, the Credit Market and Argentine Industrialization, 1860-1940”, Business History Review, no. 58.

491

Guy, Donna (1988b), “Refinería Argentina, 1888-1930: límites de la tecnología azucarera en una economía periférica”, Desarrollo Económico, vol. 28, no. 11.

492

El Economista Argentino, Dec. 10th, 1899.

493

El Economista Argentino, Dec. 17th, 1898.

494

DSCD, Dec. 5th, 1898, 303.

223

peso would make possible “the import of products hitherto not introduced or introduced in small quantities” 495 . His example was, quite naturally, sugar, and his proposed solution wasn’t to fix the exchange but, rather, to establish a system by which tariffs would move automatically to compensate for variations in the exchange rate. The calls for a reaction to valorization reached a climax in mid 1899, when rallies by commerce and industry marched in Buenos Aires with petitions for Congress and the President seeking to remedy the evils of deflation. This was early in the second Roca administration and such a spontaneous and massive movement of the fuerzas vivas was regarded by La Prensa as a complete novelty, particularly at times when Roca had managed to reestablish a firm presidential authority for the first time since the late 1880s 496 . A June 28th meeting of importers and wholesale traders demanded lower tariffs and a less odious enforcement of impuestos internos 497 . The movement led to a Congressional query to Finance Minister José María Rosa, who defended the system of impuestos internos on fiscal grounds and delivered no plans of tax reforms 498 . Meanwhile, a larger rally was being organized by the Unión Industrial Argentina for late July on a protectionist and antivalorization platform 499 . In contrast to the merchants’ movement, which was entirely a porteño initiative with some support in Rosario 500 , endorsement to the manufacturing rally came from all over the country. Telegrams of support were received from such unlikely places as Chilecito (pop.: 7,900 in 1895) in La Rioja and Choya (pop.: 9,100) in Santiago

495

ibídem.

496

La Prensa, July 14th, 1899.

497

La Prensa, July 5th, 1899.

498

DSCD, July 7th, 1899, 386ff.

499

La Prensa, July 26th, 1899.

500

La Prensa, July 23rd, 1899.

224

del Estero, and many localities of the Interior sent delegates to the rally 501 . La Prensa, an uncompromising observer and at times critical of the demonstrators’ demands, calculated an attendance of between 45,000 and 60,000 to the manufacturers rally of July 26th. Simultaneously, 5,000 people marched in Mendoza and 3,000 in Tucumán. The demonstrators in the Capital handed a petition to Congress and reached the Plaza de Mayo, where they were received by Roca and part of his cabinet. From the balconies of the Casa Rosada, Francisco Seguí, leader of the manufacturers, presented their case as clearly in conflict with those of the merchants: the manufacturers rally was in response to the merchants’ demonstrations, he said, so that “the final judgment in the solution to our economic problems is fair and well founded” 502 . While the level of tariffs was certainly one of the dividing lines between the merchants’ and the manufacturers’ demands, the exchange rate was probably a more urgent concern. Significantly, the Liga Agraria, which included “some of the most important landowners of the province of Buenos Aires” 503 supported the July 26th rally, a movement with identical exchange rate priorities but opposite commercial policy preferences, and not the merchants’ demands, whose alignment on those issues was exactly the reverse. If protectionism was the real issue at stake, Roca’s speech from the Casa Rosada balconies wasn’t very political: “It will be necessary to moderate the protectionist system in whatever exaggerations it may have” 504 . The idea of a prompt conversion of the currency at a rate weaker than parity was certainly in the air in July 1899. On July 10th, Deputy Cabral proposed that Minister’s Rosa

501

La Prensa, July 27th, 1899.

502

La Prensa, July 27th, 1899.

503

quoted in Hora, Roy, “Sueños democráticos: las ideas de la Liga Agraria sobre el Estado y la política de fines del siglo XIX”, http://www.udesa.edu.ar/files/institucional/articulos/30/hora.doc

504

La Prensa, July 27th, 1899.

225

Congressional query on internal taxes was broadened so as to include an inquiry on “his ideas on conversion” 505 , a reasonable demand given that internal taxes were voted in peso terms, not in percentage rates. A few days later “an unexpected hike in gold” was linked to rumors of financial projects by a “well known financier”, presumably Tornquist 506 . On July 28th Deputy Morel insisted on questioning the Executive on its conversion plans, proposing himself a fix at 200 on a program of budgetary cuts 507 . Early in August, the arrival from Europe of Pellegrini, still a close associate of Roca and an enthusiast of a swift resumption of the gold standard, added to the perception of a proximate conversion. With Roca in Brazil and Pellegrini effectively in charge of government, it was soon clear that in his meetings with Minister Rosa the details of the conversion were being discussed. In the week of August 5th to 9th gold shot up from 215 to 230 paper per 100 gold. The final project was sent to Congress later in August. The Congressional debates surrounding the 1899 Conversion Law have been analyzed in some detail by Ezequiel Gallo 508 . The main controversy dealt with the rate at which to fix the currency to gold. The project established a rate of 44 gold cents to the paper peso, or 2,27 paper pesos to the gold peso. The main argument against this value came from those who thought that for legal reasons convertibility should wait until the paper peso reached parity with the gold peso, such as Senator Anadón and Deputy Emilio Mitre. The dangers of so profound an appreciation, even if it proceeded along a predetermined scale, were brilliantly

505

DSCD, July 10th, 1899.

506

La Prensa, July 19th, 1899.

507

DSCD, July 28th, 1899.

508

Gallo, Ezequiel (1997), “El contexto histórico de la ley de convertibilidad de 1899”, in Martirena-Mantel, Ana María, ed., Aspectos analíticos e históricos de la convertibilidad monetaria: jornadas realizadas los días 4 y 5 de diciembre de 1996.

226

explained by Rosa in exactly the same terms as Keynes would oppose Churchill’s decision to take the pound back to parity in 1925 509 . Aside from the legal underpinnings and from the general economics costs and benefits from appreciation, the debate on the rate was also a question of interest – particularly, of regional interests. Both import substituting and export oriented activities stood to gain from a devalued rate, while non-tradable sectors (especially importers, financial interests and utilities) would benefit from further appreciation. In regional terms this meant that the Interior and the Pampas, including Buenos Aires, would favor the cheaper rate, with opposition coming from the Capital Federal (except from the comparatively small manufacturing sector). In fact, precisely that geographic alignment towards the Conversion law is suggested by the petitions presented in Congress while Rosa’s plan was being discussed. Solicitors from small agricultural towns in the Pampas supported the government’s project: neighbors from Junín applauded that “the fixation of the paper’s value will give us a base of calculation to better determine the cost of our consumption in relation to the returns of our production” 510 ; farmers from Chacabuco praised a proposal that “will benefit production, establishing a reasonable rate of exchange” 511 ; and the Rural Society of Gualeguaychú in Entre Ríos sympathized with “any

509

It may be worth stating Rosa’s argument against a descending scale in the exchange rate proposed by Deputy Santiago O’Farrell: “To establish a gradually descending rate is to decree the disequilibrium, the cessation of economic life, a permanent state of crisis. Those who propose the sliding scale imagine that the law can make the price of everything fall gradually and harmoniously year by year. This is the gravest mistake: the price of wages, rents, interest payments, locally produced goods, real estate and many others are naturally resistant to the movements of gold, and their movements take place with extreme sluggishness. What will happen with each fall in gold? A disequilibrium will necessarily take place between prices that are sensitive to the movements of gold and prices that are resistant to them, and to each of these disequilibria a new one will be added every semester. We will then have the perfect monetary disequilibrium and disorder”, DSCD, Oct. 20th, 1899, 61.

510

DSCS, Sept. 16th, 1899, 677.

511

DSCS, Sept. 16th, 1899, 678.

227

project that the Senate sanctioned to stop the fast valorization of the currency” 512 . Manufacturers, merchants and farmers from Tucumán, including influential surnames such as Terán, Posse, Padilla and Nougués, “aware of the difficulties that these activities are now going through”, adhered to “these redemptive projects” 513 . Mendocinos went even further and in a petition with 2,804 signatures they asked for a rate of 2.50 instead of 2.27, as “the industries in this province have started and developed with gold at a rate higher than 250, and have suffer incalculably from valorization […] it will be ruinous if debts have to be paid in bills of a higher value than when they were incurred […] the rate of 44 cents [2,27] entails a valorization which will only benefit creditors” 514 . On the other hand, 3,961 signatures from the Capital Federal opposed any conversion at a rate other than par, and targeted their criticism to “industries developed in the last few years under the protection given by our legislation, whose defects cannot be attributed to the decline in gold, although they do suffer from the transitions operated in the market” 515 ; they were joined in the opposition by a petition signed by the presidents of the Buenos Aires stock market and the French, Italian and Spanish Chambers of Commerce 516 . There are no records of the regional distribution of actual Congressional votes. We only know that with few exceptions senators and deputies favoring continued appreciation represented the Capital, such as O’Farrell and Mitre, and those supporting the fix, or an even cheaper rate, were either from Buenos Aires (Pellegrini, Luro) or the Interior

512

ibídem.

513

ibídem.

514

DSCS, Sept. 16th, 1899, 677.

515

DSCS, Sept. 16th, 1899, 679.

516

DSCS, Sept. 16th, 1899, 680.

228

(Uriburu, from Salta, who had delivered a speech at the Unión Industrial in July 517 and favored conversion at 250). While the law passed comfortably the test of general approval, the crucial article on the rate of exchange had a closer vote in Deputies, 44 to 34. If we are to believe Carlos Pellegrini’s inflamed rhetoric in the Senate, it was in fact a triumph of what twenty years earlier would have looked as an unlikely alliance between Buenos Aires and the Interior against the city of Buenos Aires: I believe, Mr President, that in these matters, in these economic battles that are just beginning, the dispute appears in conditions very similar to those present when our political struggles began. On the one hand the Nation, on the other hand, interests located in this Capital. With this huge difference, Mr President, that now the limit is not the Arroyo del Medio 518 because the rich Province of Buenos Aires sides this time with the Nation. The struggle is now between those who work and produce –the whole country– and a group of speculators supported by the porteño press. Who will Congress take side with? I don’t need to say it: it will be, yesterday as today, on the side of the country. 519

517

La Prensa, July 18th, 1899.

518

The Arroyo del Medio is the watercourse dividing the provinces of Buenos Aires and Santa Fe.

519

DSCS, Sept. 19th, 1899, 701.

229

Illustration 5.1. The road to conversion according to Caras y Caretas

1. October 22nd, 1898:

2. November 19th, 1898.

EL FLORICULTORQUINST

LA BAJA DEL ORO

Legend:

Legend:

Pidiendo el oro a la par / contra el papel gritó a coro / sin poderse imaginar / que podía reventar / por un entripado de oro 521

A su rosa entregado / la riega sin cesar y embelesado / goza con su fragancia y sus matices / sin temer que al regarla demasiado / se pudran sus raíces. 520

520

Illustration shows Torquinst watering Public Finance, in a likely reference to the financial cost of setting up a conversion fund. In the background, the gold coin is nailed to a scale at the 250 mark. Legend: To his rose dedicated / he waters it ceaselessly and marveled / he enjoys its fragrance and its aspect / not fearing that for watering her so much / her roots might rotten.

521

The rapid fall in the price of gold as a curse to many industries. Legend: Asking for gold a par / he shouted against paper / without imagining / he might well explode / of a gold stomach ache.

230

3. August 19th, 1899:

4. September 9th, 1898:

LA SUBA DEL ORO

EL HUEVO DE COLÓN

Legend:

Legend:

– Dígame, ¿ha regresado de Europa el Dr. Pellegrini? – Sí, señor, puede Usted subir. 522

Puestos a comparar la conversión / al huevo de Colón como problema / fácil es predecir la solución / y quién ha de tomar, en conclusión / el cócktel que preparan con la yema / del huevo de Colón. 523

523

We can tell from the cufflink that the man mixing the cocktail, with gold at 227, is Torquinst (compare to caricature 1). Legend: Set to compare conversion / to the Egg of Columbus as a problem / it’s easy to see the solution / and who will drink, in conclusion / the cocktail they prepare / with the Egg of Columbus’ yoke.

522

The arrival of Pellegrini from Europe was received by a market as a sign that conversion at a depreciated rate was approaching. Legend: – Tell me, has Dr. Pellegrini come back from Europe? – Yes, sir, you can go up.

231

5.6. The Interior and the tax policy of prosperity, 1900-1910 By the turn of the century, the Interior industries developed under the auspices of protectionism were not living up to the bright prospects of the mid 1890s. Sugar struggled on the verge of overproduction. With supply close to local demand, the sugar industry could hope at best to grow hand in hand with the national economy – slowly during the blip of 1897-1900, when the economy grew at an annual pace of just 1.8% 524 , faster thereafter, but in no case the mirage of the 1880s. Moreover, progress wasn’t smooth, but, rather, a series of booms and busts accumulating very little sustained growth 525 . In fact, the production record of 1896 wouldn’t be reached until the decade of the 1910s (Figure 5.14). The export bounty scheme did little to overcome the constraints of the national market, as sugar industrialists had a hard time finding export markets 526 and could hardly make a profit even with the subsidy, whose only practical consequence was to cut losses for the Unión Azucarera’s stockpiling. Moreover, the Brussels convention of 1902 forbade sugar bounties and the import of subsidized sugar by the signing parties, so that the bounty system had to be phased out. Provincial policies of taxing and limiting production were put forward in Tucumán to avoid short run price crises, but this only adjusted production to the needs of the national market, improving in no way the fundamental difficulty of a slowly growing demand in a protected market where imports had been all but substituted.

524

Gerchunoff, Pablo and Lucas Llach (2003), El ciclo de la ilusión y el desencanto. Planeta.

525

Juárez Dappe (2002).

526

Guy (1980), 113.

232

Figure 5.14. National production of sugar, 1880-1910

Source: Juárez Dappe, op.cit., 169. Guy, Donna (1984), “Sugar Industries at the Periphery of the World Market: Argentina, 1860-1914”, in Albert, Bill and Adrian Graves, eds., Crisis and Change in the International Sugar Economy, ISC Press.

The wine and grape industry was also under strain by the turn of the century. A crisis in 1900 was just bad luck (excessive snow in the Andes led to flooding in the vineyards), but the limits of the national market were already being felt in one of the stages of the industry, namely, grape growing. As a non-tradable product, its price was governed by internal supply and demand rather than by international prices. A “crisis of exuberance” 527 in the opening years of the century sent prices from $7.07 pesos per 100 kilos of grape in 1900 to 2.72 in 1902 528 . In this context of crisis, the representatives of the two most important extra-Pampean industries in a Congress already dominated by the Litoral turned from defensive to 527

Supplee (1988), 367.

528

Fleming, William (1986), Region vs Nation: Cuyo in the Crosscurrents of Argentine National Development, 1861-1914, Arizona State University, Center for Latin American Studies.

233

mendicant. In the case of sugar, the Brussels convention forced a dismantling of the bounty system. The Executive proposed a gradual demise of the export subsidies, starting in 1903, as a “conciliatory measure” 529 , but in the end a broader legislation was voted to regulate the local sugar market, which included the possibility of “reducing tariffs temporarily” when local prices surpassed the $3 peso mark, or when “the situation of the internal market” required it. On the other hand, the impuesto interno on sugar, whose original aim was to finance the subsidy scheme, was eliminated. Sugar legislation thus went back to its prebounty condition, with the difference that there was now a ceiling on local prices. As in the 1890s, during the initial decade of the 19th century sugar managed to withstand attacks from the free trade camp – for a while. A Commission established in 1907 to review official valuations suggested a replacement of the fixed duty by an ad valorem rate which would decline in time from 80% of the aforo (112.5% effective) to 30% in the course of five years 530 . The project wasn’t considered in Congress, nor was a similar attempt by Victorino de la Plaza which cut the fixed duties by 2 cents and established a similar sliding scale for the following years 531 . But a proposal along the same lines was finally approved in 1911, in what constituted the first successful attack on sugar protectionism since its inception in the 1880s 532 . A few years later, De la Plaza, now as President, would hail the end of the Conservative era by allowing the purchase of 30,000

529

DSCD, August 24th, 1903, 623.

530

García, Tubal (1920), La industria azucarera argentina y las consecuencias de su protección, dissertation for the Universidad Nacional de Buenos Aires, 112.

531

ibídem, 113.

532

ibídem, 114.

234

tons of imported sugar with no duty whatsoever, so that “the population doesn’t suffer from the endearment of such a necessary article” 533 . As for wine, the “crisis of exuberance” of the early 1900s was ultimately more of a blessing than a curse. The national government first responded to the crisis by sending to Mendoza a commission appointed by the Ministry of Agriculture. The Commission’s report pointed out longstanding problems as the causes of the wine crisis, such as an exaggerated investment in the 1880s and 1890s, a disregard for quality and a poor commercialization in the Litoral markets. More immediately relevant for the wine industry was the Commission’s suggestion that the impuesto interno be eliminated, promptly voted in Congress in August 1903 534 . The crisis also served as an opportunity to pass additional legislation against artificial wines. Projects in this direction had been presented by Mendocino Deputy Barraquero in both 1900 and 1901 535 , but only with the full-blown crisis of 1903 did he manage to get the attention and approval of Congress. Barraquero’s law forbade the word “wine” in any beverages which weren’t pure natural wines, defined in a stricter way than under the 1893 legislation. Ultimately, however, the reason why the Cuyano wine industry managed to grow out of the crisis was more fundamental than related to economic policy: in contrast to sugar, wine hadn’t yet reached the limit of national demand; there was still room for substituting Cuyano wines for imports (which was done without additional protection) and for artificial wines (with the help of the 1903 legislation). In the five years from 1895 to 1899, imports

533

Quoted in Kindgard, Adriana and Daniel Campi (2004), “La política azucarera argentina en las décadas de 1920 y 1930 y la cuestión de la ‘justicia distributiva’”, presented at Segundo Congreso de Historia Económica de la Asociación Mexicana de Historia Económica.

534

Fleming (1986), 34.

535

DSCD, July 18th, 1900, 550. and DSCD, July 15th, 1901, 292.

235

of ordinary wines still represented an average of 5.3% of total imports, while sugar had almost disappeared from import statistics. That difference in the degree of import substitution around the end of the century goes a long way in explaining the subsequent evolution of wine and sugar. While the area under sugar in Argentina grew at an annual pace of 3.1% between the censuses of 1895 and 1914 (61,000 to 109,000 hectares), cultivation of grapes extended from 23,700 to 101,000 hectares, at a rate of almost 8%. This fabulous increase took place in spite of a real price of wine that averaged during the 1900s 40% less than in the previous decade (Figure 5.7). In the second half of the 1900s, the market for ordinary wines was increasingly dominated by wines from Cuyo; the share of ordinary wines in total imports had gone down to less than 2% of imports 536 . The first decade of the twentieth century stands in marked contrast to the previous twenty years regarding tax policy. In an environment of general prosperity, the permanent character of tax laws from 1899 onwards meant that continuity rather than change was usually the line of least resistance. In commercial policy, only two types of demands for change had any real chance of success: tariff reductions in defense of the growing mass of urban consumers, and the phasing our of the export taxes that had helped finance the way out of the financial difficulties of the 1890s. The reform of the Custom Law voted in 1905 saw some progress in both directions: it eliminated export taxes and was seen as a step towards freer trade. As Terry –back in the Finance Ministry late in the second (1898-1904) Roca presidency and during the short Quintana administration (1904-1906)– put it, the 1905 Customs Law constituted “a plan started by the Executive and by Congress which has to develop in the course of many years, maybe six, nine or ten years, because in no country

536

Import data from Anuario de la Dirección General de Estadística, various issues.

236

tariff reforms are completed in twenty four hours” 537 . The original reform project presented by the Executive included forty tariff changes 538 , all of them in a downward direction, and concentrated on articles of popular consumption, including clothing, oil, noodles, yerba and matches. These reforms fell very short of the aspirations of the first Socialist deputy in Argentina, Alfredo Palacios, who demanded broader and more significant cuts, and whose real aspiration was “the complete liberation of Customs duties” 539 . Compared to the debates of the late 19th century, it is remarkable how marginal was the question of the Interior’s development in the 1905 Customs debate. The protectionist defense against the cuts came from Francisco Seguí of the Unión Industrial, –who opposed “this idea of [gradually] establishing a uniform tariff of 25 per cent” 540 – not from Deputies of the Interior. Actually, the somber notes played to describe state of the Interior economies, which paled in comparison to the Pampas, often came from representatives of the Capital or Buenos Aires. Deputy Oliver from the Capital, for example, regretted that “a great part of the provinces, those of the West and the North, are not taking part in this feast of agriculture and ranching” 541 . And it was Deputy Varela from Buenos Aires who opposed the reduction in the rice tariff as “all the provinces of the north are interested in strengthening the production of rice” 542 . While wine and sugar, still recovering from their own crisis, did maintain their nominal protection –though they were losing heavily in terms of relative prices, Figure 5.5 and Figure 5.7– there was no mention to new industries that

537

DSCD, Sept. 4th, 1905, 632.

538

DSCD, Sept. 4th, 1905, 631.

539

DSCD, Sept. 1st, 1905, 599.

540

DSCD, Sept. 5th, 1905, 651.

541

DSCD, Sept. 4th, 1905, 637.

542

DSCD, Sept. 1st, 1905, 599.

237

might spring up in the Interior with the aid of tariffs. The regional issue surfaced only when the proposal to eliminate export taxes was considered. Deputy Lucero of Tucumán put forward an article to maintain the export taxes and use the proceeds for “the building and financing of primary schools across in the whole republic” 543 . Iriondo of Santa Fe accused him of brining a regional issue to the Chamber, and Varela reminded him that Tucumán and other provinces should be grateful rather than demanding when it came to weighing distributive justice: Export duties are paid by only three provinces: Córdoba, Buenos Aires and Entre Ríos […] We could mention many protected industries, with tariffs set so high as to avoid competition from imports, with optimal returns, sugar among them; I would always support the present duty […] because these are industries whose shade has given life to a group of Argentine provinces, whose shade, it can be said, has cemented the Argentine nationality: wine in Cuyo, sugar in the North… But export taxes are anti-economical, anti-political and unfair!... Imagine, Deputy Lucero, if an article was added to your project stating that the sugar industry should pay for public education. It would be equally unfair. Why aren’t we discussing whether public education should be paid out of the tax on wine?

The elimination of all export taxes won the day. For the rest of the first decade of the century there were few substantial innovations on tax matters. Argentina was left with the protectionism of the 1880s moderated somewhat in the 1890s and the 1900s, and with a system of internal taxes falling mainly on alcohol and tobacco. Pressure from export sectors in the direction of free trade were softened by the general climate of prosperity and by the prospect that a fundamental reform would lead to worse alternatives, such as the inheritance tax supported by the Socialists. By the Centennial of 1910, the idea of creating via tariffs new productive niches for the Interior to integrate into an expanding national market was an outmoded strategy with no intellectual or political support. Sugar and wine were looked upon as a price that had been paid for, as Varela put it, “Argentine nationality”. That was 543

DSCD, Sept. 7th, 1905, 713.

238

also the vision of the beneficiaries of that protection, at least when they were inclined to honesty. When the French traveler Jules Huret visited Tucumán in 1910 and asked the sugar baron Nougués for an opinion on protectionism, he gave a “witty” reply: If Argentina stopped protecting its sugar, the country would soon divide in two. Buenos Aires, Santa Fe, Entre Ríos, Corrientes and a part of Córdoba would perfectly live on agriculture and ranching, but Tucumán would be ruined, and its neighboring provinces – Catamarca, La Rioja, Santiago del Estero and Jujuy– whose population lives on Tucumán’s prosperity, would fall into definitive misery. Here we have to work a lot. Those gentlemen from Buenos Aires can develop their economic theories smoking cigarettes in the Jockey Club, or from the armchairs of their studies, while their lands increase in value, the animals are fed themselves in the prairies and the strangers, the foreigners, work on their land so that wheat and corn grow. That is comfortable! 544

544

Huret (1988), vol. 1, 205.

239

CHAPTER 6. A Promise Unfulfilled

Let’s superimpose on the map of the nation, on its geographic and demographic condition, on the unequal distribution of population, the fourteen provincial governments, and let’s count how many of them are located on a sterile soil, on a population that sometimes decreases, on a destitute economic life and on a financial regime that can only survive on national subsidies; provincial governments that are legally autonomous, but that are not actually autonomous because beneath the autonomous political center there’s no autonomous productive center […] The discrepancy between their legal and their real autonomy is one of the factors that fatally breeds our clandestine constitutional practice. Carlos Saavedra Lamas 545

6.1. Shifting the Locus By the first decade of the twentieth century, the policy instruments used during the late 19th century to promote the development of the Interior had either disappeared or lost their former luster. An active and regionally targeted monetary policy was ruled out by the essentially passive system organized around the Caja de Conversión. State banks gradually redirected their action towards the Pampas (Chapter 4). The developmentalist protection of the 1880s, somewhat reinforced by the fiscal measures of the 1890s, was eroded by inflation and impuestos internos. For a couple of Interior products protection had gone as far as guaranteeing for them the whole of the local market (which meant an exhaustion of the dynamic initial effects of import substitution), but no new Interior products were being considered as prospective carriers of development and thus meriting protection. The general

545

DSCD, Sept. 1st, 1909, 34.

240

orientation of trade policy, as witnessed by the Customs Law of 1905, was in the direction of freer trade. A parallel shift of locus occurred in railway policy. With the dismissal of the guarantees system in the 1890s, after the excesses of the 1880s, the ability of the government to direct the trains towards the Interior was restricted to the publicly owned lines. But these were few and relatively unimportant after the privatization of the more profitable segments of the Andino (from Villa Mercedes to San Juan and Mendoza) and the Central Norte (city of Córdoba to Tucumán) during the Juárez Celman administration. The State remained in control of just a chunk of the Andino, from Villa María in Córdoba to Villa Mercedes in San Luis, and some extensions of the Central Norte (the one to Santiago had also been sold, while the government kept unfinished sections to the provinces of La Rioja and Catamarca, later grouped under the name Argentino del Norte, and the connection to Salta and Jujuy, called Central Norte Argentino). While in 1885, after the completion of the Andino, the share of the public railways in the national network had reached 33%, ten years later it represented only 7% 546 . The declining importance of public railways didn’t mean that the government contemplated passively the second bonanza of railroad development, between the turn-ofthe-century and World War I. On the contrary, given the marginal character of the public network at the end of the century, the extent of the new additions was quite impressive: 1000 new kilometers were incorporated to the Central Norte Argentino in 1900-1910, including a connection to Bolivia, the purchase to a French company of a line from Tucumán to San Cristóbal in Santa Fe province and a new rail from San Cristóbal to the

546

Palermo (2001), 94.

241

port of Santa Fe, a combination which completed a State-owned, narrow gauge system stretching from the Paraná River to the Bolivian frontier. Also, 800km were added to the Argentino del Norte, linking together the provinces of Catamarca, La Rioja, San Juan and western Córdoba. The most significant stretch was one in an atypical SW-NE direction going from San Juan to Córdoba (Serrezuela - San Juan, 363km) with a westward continuation to Santa Fe (Deán Funes - Laguna Paiva, 396km) completed in the early 1910s. In some ways, the expansion of the network in the Interior reminded of the previous wave of construction in the 1880s. Again, considerations of regional development were paramount when discussing the projects for these State owned lines in the Interior. The poverty of the provinces and its political consequences were the ultimate rationale for the government’s involvement. As Barraquero noted in a 1903 debate over the train from San Juan to Córdoba, While this capital has tripled its population, the majority of the Interior provinces have been depopulating and their economic annihilation is faster day after day; I’d ask, Mr. President: if we do not foster the harmonic progress of the nation, if in a few years this capital and one province hold more than half the population of the country, would the life of our federal system be feasible? 547

Like in the 1880s, quarrels over trace were also frequent. Riojanos, for example, thought that the connection between San Juan and Córdoba should be effected not through Serrezuela in the latter province but through a westernmost junction on Riojano soil, at Llanos in the line from Deán Funes to Patquía – a move that Public Works minister Emilio Civit considered sensible to revive the languishing Riojano branch 548 .

547

DSCD, Sept. 23rd, 1903.

548

DSCD, Jan 20th, 1902, 902.

242

The winds of change were, however, stronger than the forces of continuity. First, railway policy in the 1900s was less and less the parliamentary affair it had been in the 1880s, particularly during the mania of the Juárez years. It has even been argued, in the most comprehensive work on the State-owned railways, that “the economic and political crisis of 1890 put an end to the golden era or parliamentary politics” and that after the crisis “the technical elites and the legislators would guide federal railway building in the country” 549 . As was the case for fiscal policy in general, the crisis did seem to provide some lessons regarding the consequences of unfettered parliamentary activism in railway matters. The myriad of congressional concessions in the 1880s had not only been self-defeating as it led to unsustainable demands on public funding, but it also resulted in a quite irrational design of the network, with parallel traces, incompatible gauges and operational losses once the lines were working. In comparison, the State-owned railways in the Interior grown during the 1900s appeared far more coherent, centered as they were around two narrow gauge systems (the Argentino del Norte and the Central Norte Argentino) serving the regions were private capital wouldn’t flow in (La Rioja, Catamarca, northern San Juan, Salta, Jujuy and Bolivia) and eventually reaching the Litoral at Santa Fe. This new, bounded approach was reflected in the inclination to give up those lines that were not essential to the system: the stretch of the Andino that had remained in public hands (Villa María – Villa Mercedes) was considered a potential source to finance expansions in the Argentino del Norte and Central Norte 550 , and was finally sold in 1909. The creation in 1898 of a Ministry of Public Works in charge of railways helped to shape this national, professional perspective to the extension of the government owned railways according to a 549

Palermo (2001), 78.

550

DSCD, Dec. 16th. 1907, 43; DSCD, June 19th, 1908, 361.

243

“scientific plan”, as the engineer in charge of the Dirección General de Vías de Comunicación defined it in 1904 551 . A second difference with the 1880s was at the level of principles. The railway policy of the new century resulted from a national compromise between the economically disparate regions of the republic: the government did have a role in helping the Interior’s development through railway policy, but this help should not endanger the financial and economic equilibrium at last attained after convertibility. The national character of this compromise was reflected in the fact that the legislative debates on railways in the Interior were no longer just a result of local demands channeled through provincial deputies but also revolved around more comprehensive plans frequently voiced by representatives of the Litoral. For example, Francisco Seguí of Buenos Aires proposed in 1903 the construction of 1300 km of railways to complete a national network based on the meter gauge that dominated in the Interior, including a connection between the Capital and Rosario 552 . Rufino Varela, also a porteño, defended in 1905 the action of the second Roca administration in expanding the State-owned railways in the Interior 553 . Emilio Mitre thought in 1908 that “of all the problems urging a congressional solution there’s none more urgent than the rapid construction of railways in the republic” and proposed renting out the Andino to pay for the conclusion of the works on the national railways, i.e., the trains in the Interior. The extension of railroads to territories without political representation also attested the new, national approach to railway policies. By the end of the first decade of the century, the extension of the railway to the frontiers, whatever the political status of the

551

Palermo (2001), 102.

552

DSCD, July 24th, 1903, 330.

553

DSCD, Oct. 9th, 1905, 477.

244

territories involved, was at least as important a motive for railway policy as the promotion of regional economies. In fact, under Ministry of Public Works Ezequiel Ramos Mejía deputies of the provinces would opposed the “ferrocarriles faraónicos” proposed by the Minister as they thought they would divert funds from trains in their own geographies 554 . The more rational and more national approach to railways resulted in the third and most telling difference between the expansions of the 1900s and the 1880s in the trains of the Interior, namely, sheer scale. The additions to railway mileage in the Interior 555 between 1895 and World War I were less than the gains during the previous expansion, between the first Roca and Sáenz Peña: while tracks had expanded 4853 km in 1880-1894, they increased 4147 km in 1895-1914; on a per year basis, new tracks fell from 323 to 207 kilometers, or 36%. This decline cannot be attributed to a phase of maturity in the railway system. In the Litoral area, additions climbed from 7134 km in 1880-1894 to 13957 km in 1895-1914, or 475 to 697 kilometers (+46%) on a yearly basis. Put differently: in 18801894, railroad construction in the Litoral exceeded that of the Interior by 47%, while in the later period additions in the Litoral tripled comfortably those in the Interior. Figure 6.1 summarizes these evolutions.

554

Palermo (2001), 139.

555

For this computation, tracks in the Interior are those in provincial soil outside Buenos Aires, Santa Fe, Entre Ríos and the area to the east and south of an imaginary San Francisco – Río Cuarto line in the province of Córdoba. Tracks in those provinces and in the territory of La Pampa fall into the Litoral. Data on length, date and location of each section were obtained from Damus (2000).

245

Figure 6.1. At different speeds: extension of railways in the Interior and the Litoral

Source: Damus (2000).

While the expansion of private railways in the Litoral, particularly in the provinces of Buenos Aires and Santa Fe, occurred at a feverish pace, the national railways in the Interior not only paled in comparison but also faced obstacles and delays in their construction and operation. No less than five projects had to be discussed in Congress to vote additional funds for unfinished or decaying lines in the Interior 556 . In some cases, such as the train to Bolivia, more than a decade passed between the parliamentary sanction of a line and its actual operation. In 1908, the Central Norte’s rolling stock was described as “scarce, in the worst condition” and “disastrous” 557 but nevertheless voting funds for new material was a toilsome feat in Deputies. It should come as no surprise, given the huge political efforts to finish projected lines and keeping them alive, that the margin for substantial new projects in 556

DSCD, Sept. 27th, 1905, 213; DSCD, Dec. 16h, 1907, 43; DSCD, June 19th, 1908, 361; DSCD, Sept. 21st, 1908, 1325; DSCD, Dec. 14th, 1910, 592.

557

DSCD, Sept. 21st 1908, 1326.

246

the Interior wasn’t ample. When in 1910 29 million pesos oro of additional funding were voted to complete works in the national network and to “rebuild” the Central Norte and Argentino del Norte, the speaker for the Finance Commission in the Lower House put a figure to the unfulfilled demands of deputies seeking branches in their provinces: Many deputies of the provinces showed up at the Commission to ask for the inclusion of new branches in this project. The Commission was very interested in the requests and was initially inclined to accept them. But the Commission invited the Public Works minister and after hearing his reasons [she resolved] to keep it at 29 million pesos. The representatives of San Juan, for example, asked for an inclusion of a branch from Jachal to San Juan, a branch that costs, according to a first budget, 4,000,000 pesos oro; we received from the representatives of Mendoza a request to include a line from Algarrobal to that city, costing 5,000,000; the representatives of Catamarca and La Rioja asked for the inclusion of sections to Tucumán, and from Tinogasta to Chile, worth 15,000,000; a section requested from Alpacinche to Talapampa was 15,000,000; from Embarcación to Yacuiba, 3,000,000, and others that, according to estimates I have, would cost 80,000,000 pesos oro, although I think this figure should be rectified, going to 82 or 85 million.

Public works other than railways also acquired by the early 20th century a more centralized perspective in comparison to the locally motivated demands that had driven policy in the 1880s. This new, more centralized approach was reflected in a more sober assessment of costs and benefits, in the extension of public works to territories without congressional representation and in a more coherent planning. Small projects were still being presented by provincial deputies and justified in the destitution of the poorest provinces, particularly in the area of water supply for their capitals and irrigation for agriculture 558 . But eventually the main works on water supply, sanitation and irrigation would be carried out through laws of a national character. The 1902 law on water supply for provincial capitals of Jujuy, Salta, Santa Fe, Catamarca, La Rioja, San Luis, San Juan, Santiago and Corrientes was still being justified as a way of

558

Such as the projects by deputies Joaquín V González (DSCD, July 28th 1899, 534) and Carreño (DSCD, Sept. 20th 1901, 810) for La Rioja; deputies Daract (DSCD, July 5th, 1897) and Berrondo (DSCD, Sept 25th, 1901, 839) for San Luis; and deputies, Palacios and others for Santiago (DSCD, June 10th 1901, 180).

247

attracting immigration to the Interior; but only water supply and not sanitation could be contemplated given “the grave consideration of the Executive pointing to the very high expenditures that the complete sanitation works would demand” 559 ; and the law included not only works in the provinces but also in Bahía Blanca and, through a proposal by a deputy from Buenos Aires, Barracas in the outskirts of the Capital 560 . An earlier project by Soldati of Tucumán attempted to advance with sanitation works in all the provincial capitals, in part in response to a malaria outbreak in Santiago. Soldati proposed that the works be financed by a share of the impuestos internos, still questioned constitutionally as a national rather than a provincial source of income 561 . His project was left to rest and considered only in 1903, but faced the decisive opposition of the Finance Commission 562 . Instead, the Chamber voted the following year in favor of sanitation works in Santa Fe, Córdoba and Mendoza only 563 . Irrigation, certainly more relevant for the drier Interior than for the humid Litoral, received parliamentary attention but procrastination was the rule. Only in 1909 was a general irrigation plan considered. Exactly as in railways, demands came from the Interior but were given a national character by the Executive and the deputies from the Litoral. A plan by Mendocino Benito Villanueva contemplating irrigation works in San Luis, San Juan, La Rioja, Catamarca, Tucumán, Salta, Santiago del Estero, Jujuy and Mendoza was replaced by a project by Minister Ramos Mejía which listed rivers rather than provinces,

559

DSCD, Dec 17th, 1902, 571.

560

ibidem, 574.

561

DSCD, Sept. 25th, 1901, 840.

562

DSCD, July 29th, 1903, 365.

563

DSCD, July 6th, 1904, 354.

248

including several in national territories (Negro, Limay, Neuquén) 564 . The plan was defended by Buenos Aires deputy Carlos Saavedra Lamas in terms of “the problems of our institutional life”, as it would “give to nine or ten Argentine provinces real autonomy, as a indispensable basis for their legal autonomy” 565 . The gradual decay of the Interior as a destiny of public works shows up in the national budgets. Numbers speak by themselves: whereas in the years 1881-1884 of the first Roca administration outlays for public works in the Interior, including railways, represented 71% of all the public works, by 1906 they reached 39%. They were, thus, less of a burden for the Treasury: in every year between 1882 and 1885 expenditures for public works in the Interior had reached between 20% and 25% of tax collections; in 1906 they demanded just 8.7% of national resources, most of it (6.7% of government’s income) in railways; by 1910, after the bulk of the Argentino del Norte and the Central Norte systems had been completed, railway investment amounted to just 0,15% of tax collections, thus taking the total bill for works in the Interior to their lowest levels in decades. The new, national approach to the question of regional development was also reflected in the works of the Ministry of Agriculture. This agency was created in 1898 contemporaneously with the Ministry of Public Works, following the increase in the number of ministries decided by the same Constitutional Assembly that adjusted Congressional representation to the results of the 1895 Census. As a question of principle, the Ministry of Agriculture did respond at its inception to some of the claims for regional equilibrium so frequently voiced in the 1880s. In his message to Congress, the first minister of the branch, Emilio Frers, mentioned the connection between the political question of 564

DSCD, Sept 1st 1909, 25.

565

ibidem, 35.

249

federalism and the material problem of regional development as the ultimate foundation of the new ministry. His ideas are worth quoting at some length: That the creation of this ministry is a novelty for which the country is unprepared; that it isn’t forthcoming in these difficult times; that its same functions could have been filled with equal success by any of the other existing ministries; all that I won’t discuss, as much as I’m convinced on the contrary. But I do want to face one of the most severe objections that have been made, when it has been said that the aspirations of the Republic are concentrated today in the solution of the political problem and that those aspirations won’t be satisfied by a materialism presented in the forms of perspectives of wealth, cultivated fields and fat oxen. I believe that the creation of this ministry, responding to a deep aspiration of welfare, tends at the same time to the solution of the grave political problem frequently mentioned. I contend that it responds to a deep aspiration of civic life, a deep aspiration of autonomous life of the Argentine provinces. To solve the political problem it is necessary to solve more than anything the problem of the individual existence of each of the provinces. And I contend that to solve those problems, it is necessary that the provinces have their own resources, their own industries, their own trade. We need to grant them wealth and welfare, plenty of public works, communications, cultivated fields and fat oxen, so that they can survive independently of the national treasury, and thus free from the good or bad will of the national powers. We must try to make the poor provinces rich, and to double or triple the wealth of the rest […] not only to found the basis of the power and greatness of the nation, but also to make possible, and establish in practice and for good, the federative regime of 566 the constitution .

In the case of agricultural Santa Fe or Buenos Aires the problems to be solved by the new ministry were specific: how to best rotate crops, make the quality of the grain more uniform or introduce new varieties. Elsewhere, the questions were more basic: “Catamarca, poor Catamarca, Salta and Jujuy: is it possible that apart from the wealth hidden in their mountains, they can offer a product of easy transport that can raise them from the prostration they now suffer?” 567 . As had happened in the 1880s, the ambition of the Interior’s development was more easily promised than fulfilled. The first annual report of the Ministry, in 1900, was primarily concerned with the main crops of the Pampas (wheat, corn and linseed) and

566

Ministerio de Agricultura (1899), Recopilación de Mensajes al Honorable Congreso, decretos, notas y otros documentos, 6.

567

ibídem, 10.

250

mentioned just in passing the promise of rice 568 . The action of the ministry had revolved, argued the annual, around the fight against the locust, a systematic organization of agricultural schools and a law of agricultural insurance. Each of them responded to the needs of sanitation, instruction and finance of Pampean producers. The three new agricultural schools were in the core agricultural and ranching region (Córdoba, Entre Ríos and Santa Fe), adding to the one existing in Mendoza. The fight against locust and the law of agricultural insurance attacked two sources of instability for farmers in the Pampas. In contrast, the Department of Mines of the Ministry had spent a bare 5,000 pesos for explorations in “our land, one of the most abundant in mineral deposits, not only in precious metals but also in many other substances useful to mankind” 569 . The orientation did not change but rather intensified when in 1901 Wenceslao Escalante substituted Emilio Frers. Escalante was a staunch free trader and defender of Pampean agriculture and ranching. Immigration policy –an area also in charge of the Ministry of Agriculture– should begin in the Litoral 570 ; and the duties on the poor man’s expenditures reduced 571 ; “It is evident”, wrote Escalante, that we need to implement a plan of gradual reduction of duties to some industries that are incapable of setting root in our country or that influence the price of basic articles for life or for the production of ranching and agriculture 572

In the 1903 report to the President, Escalante dwelled on the “painful experience produced by the exaggerated protection” to sugar and other articles, and proposed a tariff reform. He

568

Ministerio de Agricultura (1900), Memoria presentada al honorable congreso, 76.

569

ibidem, 125.

570

Ministerio de Agricultura (1902), Memoria presentada al honorable congreso, 17.

571

ibidem, 19.

572

ibidem, 21.

251

also insisted that “the lands of the Litoral are the ones that are destined to receive the great immigrating masses, because in the more remote areas the costs of production are too high” 573 . His plan was to foster immigration through the purchase and subdivision of Pampean lands for newcomers and a general reduction in costs through tariff reforms. The plan was based on the statistics on the cost of living and the agricultural yields and outlays of “the diverse agricultural zones”, namely “the west and south of Buenos Aires and the province of Santa Fe” 574 . As the Centennial approached, the principal activities of the Ministry, scarcely funded, revolved around animal sanitation and the control of agricultural plagues – the question of the development of the Interior was almost absent except for the publication of occasional reports on the perspectives of agriculture and mining in some provinces, and for a frustrated attempt of Interior congressmen to establish agricultural schools in every province 575 . There was only one area in which a national drive in favor of the development of the Interior, in a broad sense, did intensify in the early 20th century: basic education. Until 1905, provinces were in charge of building and operating primary schools. There was some national help: a law dating back to Sarmiento’s government provided for national assistance to education in the provinces through a matching funds system with some redistributive element in favor of poorer provinces. The national contribution ranged from a third of provincial educational investment for Buenos Aires, Córdoba, Santa Fe and Entre Ríos to three fourths in the poorest districts. Scarcity of funding was, however, the rule. Even during the booming 1880s, provinces such as Santiago, Catamarca, Mendoza and San Juan

573

Ministerio de Agricultura (1904), Memoria presentada al honorable congreso, 28.

574

ibidem, 32.

575

DSCD, Sept. 30th, 1905, 375.

252

successfully pressed to be included in the two-thirds category 576 . With the economic crisis, payments of the education subsidy to the provinces suffered delays 577 . The national influence on the amount of provincial educational spending increased somewhat after a 1890 law made the national funds conditional on an overall educational outlays amounting to at least 15% of the receiving provinces’ budgets 578 . Education was thus placed at the center of the financial relationship between provincial and national finances. When in 1901 deputy Carreño of La Rioja convinced his colleagues for an increase in the amount of the national subsidy that La Rioja, along with Catamarca, Jujuy and San Luis, received for general expenditures, he noted that “out of the 110,000 pesos of provincial income the province has to give 15% to education, so that it can barely support an administrative structure” 579 . In 1902 Tucumán negotiated an ad hoc subsidy for the construction of schools which helped reduce a debt previously contracted with the national Treasury for sanitation works 580 . The question of primary education surfaced also in relation to national tax policy. In 1903 Billordo of Corrientes proposed an increase in the national subsidy to education as “the enormous figure reached by the heavy burden of impuestos internos has considerably impaired the capacity of the provinces to increase their

576

DSCD, Sept. 25th, 1886; DSCD, Sept. 20th, 1887, 977.

577

By 1891, arrears in the educational subsidies amounted to 2.6 million pesos, 1.9 of them to the province of Buenos Aires and 0.7 million to the rest, and half a million to Capital. A mark of the endurance of the Interior predominance even in the aftermath of Juárez’s fall was the distribution of 1.5 million pesos voted in Congress to cancel those debts. 500,000 were voted for the province of Buenos Aires (around a fourth of the debt), 100,000 to Capital (a fifth) while the Interior received more than full compensation, against the complaints of Buenos Aires deputies (“The basis of legislation of the Argentine congress should be the most complete equality between provinces… I would understand a small difference, because of the needs of the provinces of the Interior, but not full payment to some and not to others”, said Molina). DSCD, Sept. 21st, 1891.

578

DSCD, Aug. 29th, 1890, 351.

579

DSCD, Dec. 23rd, 1901, 678.

580

DSCD, Aug. 27th, 1902, 668.

253

own income” 581 . In 1905 deputy Lucero of Tucumán proposed that instead of abolishing export taxes, their proceeds be dedicated to the building and operation of primary schools across the Republic, but was dismissed as unfair with the argument that “export duties are paid only by three provinces: Córdoba, Buenos Aires and Entre Ríos” 582 . By that time it was increasingly clear that a bolder presence of the national government in primary education was unavoidable if abysmal disparities in educational access were to be avoided. In 1904, provincial resources per capita in Buenos Aires were six times those of La Rioja, 40% of which came from the national subsidy. In 1903 Billordo was arguing that, rather than being limited to provincial resources, “the ideal would be that the concurrent action of the nation and the provinces would have no other limitation that the complete and absolute satisfaction of the needs of education, nor an earlier conclusion than the day when no single Argentinean remains excluded from its benefits” 583 . The following year, Correa of Catamarca proposed a moderate reform of the 1890 law, with a more interventionist national surveillance of provincial education expenditures in exchange for higher ceilings on the subsidies 584 . But the real change came with the so called Láinez Law of 1905, which stipulated the establishment of primary schools in the provinces built, run and financed by the National Education Council. Schools would be set up at the request of the provinces, with investment favoring the districts with lower literacy rates. The initiative, proposed by Buenos Aires Senator Manuel Láinez, was in line with the more national perspective observed also in railways and public works in general, and even with

581

DSCD, July 3rd, 1903, 221.

582

DSCD, Sept. 7th, 1905, 713.

583

DSCD, July 3rd, 1903, 222.

584

DSCD, June 27th, 1904, 317.

254

the more nationalistic ambiance of the early 1900s 585 . For the following years, national influence in the area of primary education would continue on the rise, reinforced through a multiplication of subsidies to provinces (including, now, Buenos Aires 586 ) for school construction. The results of the increased national intervention in primary education were drastic. In the provinces of San Luis, Santiago, La Rioja and Catamarca, between one fourth and one half of children were attending “Láinez schools” by 1909. The better funding of the Láinez schools would sometimes prompt locals to ask for a takeover of provincial schools by the National Education Council 587 . The national establishments certainly helped to raise considerably overall attendance: in the provinces with a higher share of Láinez schools, attendance rates in primary education multiplied by a factor of 3 or 4 between 1895 and 1914 (Figure 6.2), to such an extent that by 1914 the attendance rate in La Rioja (67,1%), Catamarca (75%) and San Luis (79.1%) surpassed that of Buenos Aires (52.4%). The coefficient of variation across provinces of primary educational attendance, which had fallen moderately from 46% in 1869 to 39% in 1896, dropped to just 17% in 1914, in part as a consequence of the Láinez schools. It was an educational revolution in the course of a generation, that certainly helped bring down the national illiteracy rate from 54% in 1895 to 35% in 1914. There was some educational convergence across provinces: the coefficient of variation in illiteracy rates fell from 42% to 24% in the same period.

585

Bertoni, Lilia Ana (2001), Patriotas, cosmopolitas y nacionalistas: La construcción de la nacionalidad argentina a fines del siglo XIX. Buenos Aires: Fondo de Cultura Económica de la Argentina.

586

By a law of 1908, for example, the central government would loan half a million pesos annually to the province of Buenos Aires for the construction of provincial schools.

587

Chavarría, Juan Manuel (1921), La instrucción pública de Catamarca. Homenaje al centenario de la autonomía. Estudio Gráfico A. de Martino.

255

Figure 6.2. The Láinez effect Láinez schools and the increase in primary school attendance, 1895-1914

Sources: Segundo Censo de la República Argentina (1895), Censo Nacional de Educación (1909) and Tercer Censo Nacional (1914).

6.2. The Rise and Fall of the Interior Apart from the special case of education, then, a contrast can be traced between the regional content of economic policies before and after the 1890s: while in the 1880s the development of the Interior was a foremost priority of Argentina’s political economy, the stance had turned at least to neutral by the first decade of the 20th century. What about economic performance? Did the Interior actually do better in the 1880s than in the 1900s? Traditionally, this question has been answered in terms of population growth 588 . For an era and a country of mass migration, population growth is certainly a sensible proxy of overall economic success. Immigrants were as able in selecting countries with economic

588

For example, Sawers, Larry (1996), The Other Argentina: The Interior and National Development, 24.

256

opportunity as they were in choosing the most favorable regions where to settle. The demographic dynamics of Argentina’s export-led growth is well known: the share of the Litoral (Buenos Aires, Santa Fe, Entre Ríos, and the Capital Federal) in the national population increased from 46% in 1869 to 63% in 1914, in spite of an Entrerriano decline from 7.2% to 6.4% during the period. Every province outside the Litoral lost demographic weight, with the exception of Mendoza, which held its share slightly above 3%. National population growth was somewhat lower in 1895-1914 (annual rate of 2.5%) than in 18691895 (3.1%), but the decline was evenly distributed across regions, with the Litoral growing more than two percentage points faster than the non-Litoral (4.6% and 1.9% respectively in 1869-1895, and 3.6% and 1.5% in 1895-1914). Population, however, doesn’t show the whole picture. The argument in the previous pages underlines a changing effort of government policies in trying to redirect capital to the Interior. Populating the Interior was certainly one of the desired effects of those policies, but the direct action was on the inflow of capital, either by augmenting its stock (railroad building), by making its cost cheaper (railway guarantees, monetary expansion, guaranteed banks) or by increasing its perceived returns (protection). Theoretically, the immediate effect of those injections of capital should have been an increase in per capita income, and only as a side effect would population be pulled to the Interior. Did per capita production or income actually increase in the Interior through the push of capital of the 1880s? Quantitative estimates on production and incomes are rough for the country as a whole, let alone for provincial economies. In what follows I use one type of data which, while very crude as estimate of economic activity and welfare, conveys some information on the comparative performance of the Argentine provinces: tax collections by provincial states.

257

Comparable data for provincial revenues exist since 1875 589 . Provincial revenues were certainly affected by the level of economic activity, as they comprised basically licenses and taxes on land and on a wide array of transactions. Due to their partial dependence on land taxes, provincial tax collections were more volatile than production: for example, between 1886 and 1890 the real value of all provincial revenues combined increased by 66%, pushed by the surge in land values of the Juárez years, while the rough estimates for the GDP speak of a lower (yet impressive) 44% growth. The bust was, conversely, a blow for provincial finances (–58%), compared to an estimated 15% loss of GDP. Still, there was a 67% simple correlation between the variation in combined provincial revenues and GDP for the whole period 1880-1910. What was the comparative evolution of revenue across provinces? Fiscal data allows for a convergence exercise in terms of per capita revenues, i.e., the relationship between initial revenue per capita in each province and its rate of growth during the period. Figure 6.3 presents the picture for 1880-1894 and Figure 6.4 for 18941910. During the former period, revenues per capita grew faster in provinces with a lower initial level of per capita tax collections. As a result, the inter-provincial dispersion declined: in 1880, the coefficient of variation of per capita revenues across provinces was 101%, compared to 42% in 1894; the ratio between Buenos Aires and the province with the weakest income per capita (Santiago del Estero in 1880, La Rioja in 1894) also declined, from 16.5 to 5.8. In contrast, the period after 1894 shows little or no convergence. The coefficient of variation actually increases marginally between 1894 and 1910, and so does

589

Agote (1888), Informe sobre la deuda pública, bancos, acuñación de moneda y presupuestos y leyes de impuestos de la nación y de las provincias, Imprenta de La Tribuna Nacional.

258

the ratio between the highest and the lowest ranked province in terms of per capita revenues 590 . The columns of Figure 6.5 complete the picture by showing for each province per capita revenues in 1910 and a measure of the capital stock per capita taken from the 1914 Census. Provinces are ordered according to a composite index that averages out these two measures.

Figure 6.3. Convergence across provinces? 1880-1894

590

Buenos Aires and La Rioja respectively, both in 1894 and 1910; the ratio goes from 5.83 to 7.16.

259

Figure 6.4. Convergence across provinces? 1894-1910

Figure 6.5. Tax revenues per capita (1910), capital per capita (1914) and their average

Sources: Anuarios of the Dirección General de Estadística (1910) and Tercer Censo Nacional (1914).

260

The ranking in Figure 6.5 hints at the core of the question of regional economic development. Ultimately, the question was whether a given province was able to integrate productively into markets outside the provincial boundaries, whether national or international. Provinces in the Pampas certainly did so. The gold value agricultural and ranching exports, almost all of them produced in the Pampas, grew at an annual rate of 8.3% between 1891/5 and 1906/10 591 . That easily explains the fact that Buenos Aires, Santa Fe, Entre Ríos and Córdoba were among the top five according to the composite index of Figure 6.5. The other is Mendoza, which is not surprising. The Cuyano economy continued to be dynamic as it cruised down the final stages in import substitution (page 235). These five provinces would also lead the ranks in human stature in the 1920s, the average height of their conscripts exceeding the average of the remaining provinces by 2.7cm 592 . The remaining nine of the fourteen Argentine provinces were below half of Buenos Aires’ level in the composite index. They comprised 21% of the national population, held 13% of the nation’s capital stock and collected only 11% of all provincial tax revenues – including those of the Capital–. This group consisted of the provinces in the arch stemming northwards from San Juan and San Luis along the western border of Córdoba, coursing over La Rioja and Catamarca, turning right in the Northwest towards Santiago and finally reaching Corrientes across the Paraná. Seven of those nine provinces showed negative internal migration balances: for example, the difference between the number of Catamarqueños living in other provinces and the number of non-Catamarqueños living in

591

Dataset provided by Pablo Gerchunoff. Prices explain a small part of the increase: the accumulated rise in gold exports was 230%, while a Laspayres price index for the six major products (wheat, corn, flax, wool, lamb and beef, which represented on average for the period 86% of agricultural exports), rose 25.2% between the 1891/1895 and 1906/1910.

592

Salvatore, Ricardo (2000), “The Regional Dimension of Biological Welfare: Argentina in the 1920s”, Documento de Trabajo, Universidad Torcuato Di Tella.

261

Catamarca represented 25% of Catamarca’s population in 1914. The balance was also negative for La Rioja (-20%), San Luis (-14%), San Juan (-13%), Corrientes (-10%), Santiago (-7%) and Salta (-4%), and positive in Tucumán (+12%) and Jujuy (+17%). In all cases migration tended to be regional: 15.2% of the people living in Jujuy were Salteños; 14.2% of the residents of Tucumán, were Catamarqueños, Riojanos and Santiagueños; and 11.6% of those living in Mendoza came from San Juan and San Luis. In comparison, movement to the Pampas was less important: in none of the provinces with a negative migration balance, except Corrientes, did migration to Buenos Aires and Santa Fe taken together exceed that to the favorite regional destiny. The pattern of migrations shows the extent to which the populations of the Argentine Interior depended on the wine and sugar economies. Not surprisingly, both San Luis and San Juan in the Mendocino sphere were on a better position than the satellites of Tucumán (Figure 6.5). The sugar economy had in fact moderated its growth in the new century: in the period between 1893/95 and 1908/10, sugar output grew at 3.2% annually, which meant – 1.8% in terms of other goods as prices declined, on average, at an annual rate of 5%. Part of the increase in Tucumano tax revenues was related, precisely, to heavier provincial burdens on sugar aimed at avoiding overproduction and a fall in prices 593 . Most of that growth, however, took place before the sugar crises of the late 1890s and early 1900s; actually, the peak in per capita revenues in constant pesos was reached in 1896 594 . Jujuy started its own sugar expansion later; by 1913, provincial land dedicated to sugar cane had reached 12% of that of Tucumán, compared to less than 2% in 1895. This expansion was, still, far from

593

Balán, Jorge and Nancy López (1997), “Burguesías y gobiernos provinciales en la Argentina: la política impositiva de Mendoza. Desarrollo Económico, octubre-diciembre. vol. 17.

594

Balán and López (1997), 6.

262

implying direct welfare gains for Jujeños. The industry was more vertically integrated and horizontally concentrated in Jujuy than in Tucumán, and semi-coercive employment, including debt peonage, was only ruled illegal in 1915, twenty years after it was banned in Tucumán 595 . Apart from sugar –mature in Tucumán and incipient in Jujuy, but overall a sluggish industry– and wine, there were no other regional products really taking off before World War I in the Interior. The negative migration balance of provinces producing neither of them is meaningful enough. Carlos Girola’s report on industrial crops (cultivos industriales) in the Censo Agropecuario Nacional of 1908 had little to show of quantitative importance apart from flax –an exclusively Pampean crop– sugar, wine and, to a lesser extent, peanuts (important in Entre Ríos and Santa Fe) and quebracho extract, in Santiago. As for the rest of the crops, development was still in the making, at best. Cotton hadn’t “yet established in any definitive manner in our country”, but “it will lead to prosperity in several localities in the North, which lack more profitable productions; it will settle the population… it will increase the value of land” 596 . At the Centennial cotton was still in its infancy, and concentrated almost exclusively in the territory of Chaco 597 . The hopes of tobacco were short lived: less hectares were being cultivated in 1913 than in 1895, at the height of tobacco protectionism 598 . The contraction in Corrientes, where most of the hopes of the 1890s had rested, reached 40%. By 1914 there was more Correntino land dedicated 595

Campi, Daniel (1995), “El noroeste argentino y el modelo agroexportador, 1870-1914. Reestructuración regional y producción azucarera”, in Lagos, Marcelo, coord., Jujuy en la Historia, Unidad de Investigación En Histoia Regional, Universidad Nacional de Jujuy, p.164.

596

Girola, Carlos (1908), “Cultivos de las plantas industriales en la República Argentina”, Censo Agropecuario Nacional: la ganadería y la agricultura en 1908, vol. 3, p. 407.

597

Tercer Censo Nacional, vol. 5, p. 923.

598

Segundo Censo de la República Argentina (1895), vol. 3, p.145, and Tercer Censo Nacional (1914), vol. 5, p. 923.

263

to mandioca, a purely local foodstuff with no projection, than to tobacco 599 . Rice, another hope of Interior protectionists, had barely taken off. It was present only marginally in Tucumán 600 and occupied just a third of the area it had used up in 1875 601 . About coffee “there has been more talked and written than actually done practically, that is, on the terrain. In Ledesma (Jujuy) exists the only industrial plantation of the coffee tree”602 . As for the wilder dreams of manufacturing development in the Interior economies, which could have had some rationale given the comparative cheapness of labor, little had been accomplished. The commentator for the volume on industries in the 1914 Census remembered with nostalgia the variety of provincial products in the Exposición Nacional of 1871 and the Exposición Continental ten years later 603 . In the following years, he noted, “the progress of manufactures could have been greater, particularly in the provinces of the Interior, some of which are still, in this respect, as in the colonial times” 604 . In fact, industrial capital followed consumer markets rather than cheap labor. By 1914, the ten provinces outside the Pampas held only 7.6% of the national manufacturing capital in industries other than wine and sugar. The time for an industrial Interior still lay ahead: “Promoting the diffusion of manufacturing work in inland provinces will be the most transcendent government action, because the establishment of industries implies work, and it is only through work that a permanent population is attracted and settled, which is what

599

Tercer Censo Nacional, vol. 5. p.923.

600

Tercer Censo Nacional, vol. 5, p. 909.

601

Bunge, Alejandro (1922), Las industrias del norte,

602

Girola (1908), 435.

603

García, Eusebio (1914), “Consideraciones sobre el censo de las industrias”, Tercer Censo Nacional, vol. 7, p. 14.

604

García (1914), p. 25.

264

our provinces are lacking, because, though plethoric in possibilities and natural wealth, they live in the extreme misery” 605 With poor lands, scarce capital and a lack of new opportunities, the option for the populations of the poorest Interior provinces was often migration or low quality ranching: while the livestock in many of these provinces did increase between the Census of 1895 and 1914, its value was hampered by poor pastures and rainfall shortages. The Sociedad Rural Argentina calculated that the price of cattle in the provinces of Tucumán, Salta, Jujuy, Catamarca, La Rioja and San Juan was worth 40% of the Buenos Aires value, and sheep one third 606 . For most of the Interior, then, the promises of 1880s were yet unfulfilled. At best, hope was deferred for a still unspecified future. When Jules Huret visited Salta in 1910, he was convinced that “all that wealth is still unexploited… How is it possible that such a rich region has been up to now neglected by speculators and businessmen?” 607 . Even the optimistic tone of an unmistakably propagandistic book coauthored by a government official had to save all praise for years to come: “The great agricultural belt of the Argentine is formed by the Province of Buenos Aires, Santa Fe, Córdoba, Entre Ríos and the territory of Pampa Central… The other productive belts have in proportion made less progress, excepting the Province of Mendoza, where the vine-growing has been developed, and that of Tucumán, where the culture of the sugar cane has made great strides… There, for the moment, has the progress of agriculture halted, as the other districts will only be

605

García (1914), p. 4.

606

Tercer Censo Nacional, vol. 6, p. XXIX.

607

Huret (1988), vol 2, 47.

265

developed later on, when the populations of the other regions overflow” 608 . When in 1904 the Catalan physician Juan Bialet Massé was commissioned to produce a report on the labor situation of the Republic and suggest policy reforms, he reflected on the two types of economies he had found in “those difficult and dangerous deserts I journeyed thirty years ago” – one of them “turned in so little time into an emporium that… exports millions of products that were then imported” and the other that “only waits for a direct impulse to give us worthy products, capable of producing in a few years an economic change in the Republic” 609 . La Rioja, for example, could be “raised from its current state of prostration” if the federal government gave or loaned to the province “what is necessary to make its dams, to take advantage of its wealthy soil, to integrate it into the economic movement of the Nation, with the greatness of its mountains, with the brightness of its high intellect” 610 ; “the dams of La Rioja are a necessary condition for life here, and life here is necessary for the harmonic development of national progress. The disasters of the past, the poverty of the present and the high culture of the men of La Rioja are a guarantee of its success” 611 . Still, optimism on the prospects of the Interior was not a universal sentiment, and was more often wishful than honest. Bialet Massé himself was appalled by the actual state of La Rioja:

608

Martínez, Alberto and Maurice Lewandowsky (1908), The Argentine in the Twentieth Century,Cahrles Scribner’s Sons.

609

Bialet Massé, Juan (1968), El estado de las clases obreras argentinas a comienzos del siglo, Universidad Nacional de Córdoba, Dirección General de Publicaciones. First published in 1904, p. 29.

610

Bialet Massé (1968), 179.

611

Bialet Massé (1968), 175.

266

An old lady reminds us of the old times: you earned less, but you could make more of it [...] I go to another house, and another, and it’s always the same: thinness, misery and hunger… I enter the shops; there are almost no employees; they earn a misery, 20 to 40 pesos at most, with no rest on Sundays; servants at least are better fed, but wages go for 5 to 7, 10 or 12 pesos [...] I go to Pango, and its not the Pango of old times, cheerful and playful; the poor all cry their miseries to me [...] In the city of La Rioja there are no rich people to blame for these evils; at most it can be said there are ten families that exceed a barely comfortable life [...] Trade is mostly in the hands of turks; only twelve or fourteen shops remain in the hands of sons of our country; and the competition is such that I don’t understand how they manage to survive. 612

The dismal panoramas of La Rioja were not much worse than in other provinces of Bialet Massé’s journey. Even comparatively dynamic Tucumán, with its “luxurious constructions, plazas of first rank… boulevards…” hid inside “pains that corrode it, cancers that devour it, misery and vice, unfairness and so much discomfort: in Tucumán the exploitation of the poor, the martyrdom of the women and the use of the children as laborers reach an extreme” 613 . In San Juan “there are no industries other than wine and mills” 614 ; in Santiago, the forestry was “leaving a mass of men extenuated and prematurely old, for a badly exploited work” 615 Bialet Massé’s policy proposals reflected more the somber notes he used to describe the Interior’s current state of affairs than his hopes of economic development. Among quite advanced recommendations related to labor laws, one of his proposals was to establish colonies in Santa Fe for the settlement of Argentine citizens from the Interior rather than overseas immigrants 616 – maybe internal migration was, after all, an easier way out of poverty. Bialet Massé’s concerns with the state of labor reflected the nascent awareness of the so-called “social question” among Argentina’s political leaders, who were reminded of

612

Bialet Massé (1968), 177ff.

613

Bialet Massé (1968), 142.

614

Bialet Massé (1968), 588.

615

Bialet Massé (1968), 139.

616

Bialet Massé (1968), 51.

267

it quite often by the political action of socialists and anarchists. Gradually, the theme of regional equilibrium would cede the centrality it had had in economic policy making in favor of these and other concerns. The ability of such a specialized and open economy to withstand shocks coming from overseas would soon be put to test, and raise as many questions. Also, the rise of democratic politics would make purely regional alliances harder, as other dimensions (such as class and ideology) were increasingly important to define political alignments. As the Interior’s voice became less audible in the Argentine political scenario, its economic hopes and needs would no longer have the weight they had had in the days of the early Roquista experience.

268

Appendix 1. Distribution of electors, deputies and senators according to provincial incomes, 1880-1904

269

270

271

272

273

Appendix 2. The political economy of unequal federalism. A model. I consider the decision-making process at the Congressional or Presidential level in budgetary matters. I develop an extremely simple model, with the following assumptions: 1. The utility of a citizen depends on personal consumption and on the national expenditures, on per capita terms, in his province. 2. National public expenditures are entirely financed by income taxes, at a uniform rate t for every citizen, and are spatially located in some province (expenditures such as national defense are thus excluded). 3. There are two types of national public expenditures. National expenditures of type PC (per capita) are distributed so that each province receives an equal amount of national expenditures per capita. For example, a national program of school building in which the number of schools per province is linearly related to population. Expenditures type PP (per province), instead, are distributed so that national expenditures per province are equal. For example, a national program of railway building with similar mileage per province. 4. Individuals consume all their disposable income. 5. Parliament makes decisions on fiscal policy (both on taxes and the distribution of expenditures). 6. Provincial representatives at Congress are elected by each province, and vote according to the economic interests of the provincial population.

Assumption 1 means:

(1)

U = U ( c, g )

where c and g are, respectively, consumption and per capita public expenditures. According to assumption 2,

(2)

G = t.Y

where t is the income tax rate, Y is output and G public expenditures. Assumption 4 is:

274

(3)

c = (1 - t).y

where y is individual income. If public expenditures are distributed equally in per capita terms (the PC case), every citizen will receive the same amount of per capita government expenditures, namely

(4)

g = G / Pop

where Pop is national population. By (2),

(5)

g=

t.Y Pob

Representatives of province i will have to choose a rate of income tax such as to maximize utility for her province's citizens:

(6)

max U(y i .(1 - t),

t.Y ) Pop

where yi is income per capita in province i. Maximization implies:

(7)

y i.U' c = U' g .

(8)

yi .U' c = U' g y

Y Pop

or

The higher the ratio between the provincial per capita income and the country's GDP per capita, the higher the marginal utility that provincial representatives will demand of national public expenditures. With decreasing marginal utilities to public expenditures, that means that the poorer the province, the higher the budget its representatives will tend to favor, and viceversa. In the case of a PP-type expenditure, every province receives the same amount, namely

(9)

Gi =

G n

275

where Gi is national expenditure in province i and n is the number of provinces. Per capita expenditures are

(10)

gi =

Gi G = Pobi n.Pobi

and the representative has to maximize

(11)

max U(y i .(1 - t),

t.Y ) n. Pop i

Maximization requires that

Y n.Pop i

(12)

y i.U' c = U' g .

(13)

Yi U' c = U' g Y n

or

In this case, the marginal utility of optimal national expenditures will be higher (that is, the ideal budget will be smaller), the lower the ratio of the province’s income to average total income, defined as the ration between national income and the number of provinces (Y/n). In other words: provinces whose total income is lower than the average would vote for a larger budget than the one equalizing the marginal utilities of consumption and public expenditures.

276

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