PUBLIC DEBT SPECULATION AND LA REFORMAI. INTRODUCTION:

A. THEME: ROLE OF PUBLIC DEBT SPECULATION IN POLITICAL ECONOMY OF EARLY NATIONAL MEXICO

B. THESIS:

1. AGIOTAJE WAS IMPORTANT ECONOMIC ACTIVITY/ MECHANISM TO REDISTRIBUTE INCOME

2. AGIOTAJE WAS AGENT FOR POLITICAL CHANGE/IMPORTANT CONSEQUENCES FOR DEVELOPMENT OF LIBERAL PARTY/SOCIAL BASE

II. AGIOTAJE:

A. ROLE IN ECONOMY:

1. DEFUNCT COMMERCE, MINING, MANUFACTURING, AGRICULTURE: I.E. WHERE CAN ONE INVEST PROFITABLY?

2. LIMITATIONS OF PRIVATE FINANCE

3. AGIOTAJE TAPS STATE RESOURCES DIRECTLY: 1839 COMMENT OF AGIOTISTA ON SIGNIFICANCE OF PUBLIC DEBT SPECULATION:

"It is important that you judge this country as one of the best for a merchant, who wishes to make a large or small fortune according to the risks . . . What would become of us if there was a well-established government swimming in money? For us there would remain no recourse except to give up our accounts and become farmers or mortgage our Capital like the nuns and friars to live vegetating upon our revenue . . . ." (Pedro Ansoategui, 1839)

B. ORIGIN:

1. POST-1827 EXHAUSTION OF FOREIGN LOANS

2. 1828-1836: LOANS IN EXCHANGE FOR CUSTOMS REVENUES

3. 1836-1846: CREATION OF PUBLIC DEBT FUNDS/ QUOTAS:

a. END TO DIRECT COLLECTION AT ADUANAS



b. EXAMPLES: 15%, 17%, 8%, 10%, ETC.

C. GOLDEN AGE OF AGIOTAJE: (1836-41)

1. LARGE INVESTMENTS/EXCELLENT PROFITS

a. Sale/transfer of national properties: Inquisition/jesuits/customs/etc.

b. Regular payment of dividends/govt. spending cuts to pay dividends

c. High profits attract new infusions of cash into govt. Treasury

d. Patriotic war funds

2. RETURNS: EXAMPLE OF MARTINEZ DEL RIO HERMANOS

a. 1840 investment in public debt = $68,268 (9.8% of $691,284 in assets)

b. 1840 investment in public debt provided 44.9% of company profits

c. Stimulated strong shift into public debt speculation

III. CHANGING POLITICAL ECONOMY OF PUBLIC DEBT SPECULATION:

A. SHRINKING DISPOSIBLE GOVT. INCOME:

1. 1841 CUSTOMS RECEIPTS ESTIMATED TB $6.7M

2. 62% OF CUSTOMS PLEDGED TO PAY INTERNAL DEBT/16-2/3% PLEDGED TO PAY FOREIGN DEBT

3. GOVT. HAD ONLY $1.6M IN DISPOSIBLE REVENUES AGAINST EXPENDITURES OF $21.8M

B. GOVT. ACTS TO REDUCE AGIOTISTA SHARE OF REVENUES:

1. FAILURE OF BUSTAMANTE GOVT. CAMPAIGN:

a. 1839 reforms reduced debt quotas from 88% to 56%, then to 50% in 1840

b. But quotas up again to 89% by 1841/Bustamante govt. Bankrupted;no revenues to sustain government

2. SANTA ANNA REVOLT IN 1841 IS PARTLY REACTION AGAINST AGIOTISTAS/REFORMS OF BUSTAMANTE

a. Army & bureaucrats (pay/employment)

b. Import merchants (customs duties)

c. Church (properties)

3. SANTA ANNA IN NOVEMBER 1841 SUSPENDS PAYMENTS/FORCES DRASTIC CUTS IN QUOTAS

C. AGIOTISTAS SPLIT RANKS:

1. BREAK ALONG LINES OF NATIONALITY

a. Mexican creditors use family connections, Personal influence, office-holding to get favoritism-G. Mier y Teran paid $80,000 to get private 8% quota for $800,000 debt

b. Foreign creditors use ministers/gunboat diplomacy-- British Conventions of 1842, 1843, 1849 created 2% & 1%, 5%, 6% funds

2. FOREIGNERS INITIALLY HAVE ADVANTAGES:

a. Law of may 1843 consolidated internal Debt into 25%/26% fund

(1) British conventions exempted

(2) Market value of 25%/26% fund bonds falls from 35% to 7% by 1856 because of enormous principal, tiny quota, frequent suspensions

b. British conventions:

(1) Higher interest (12%+ v. 6% ann.)

(2) Market value (80% v. Lt 35%)

(3) Ratio of % of customs duties per $100,000 owed of 1:6 (principal of $3.5m v. $88m) (6% fund split from 26% fund in 1849)

(4) Regular dividends (1849-50) of $299,811 v. $147,721 (6% v. 26%)

3. PROLIFERATION OF CONVENTIONS: SPANISH, FRENCH, BRITISH LEAVE LITTLE FOR NATIVE CREDITORS

4. ANALYSIS OF DESPERATE SITUATION IN EARLY 1850S:

"In other times when there was a vast quantity of national property to be sold, some of the leading commercial houses came to the assistance of the Government in moments like the present by making with it more or less ruinous contracts, but now the government has not that resource left, and as the houses in question were more or less supported by such operations, the Government has become . . . momentarily bankrupt for want of support of those houses, while some of them from entering into wild speculations, forgetful that they had no longer the Government to fall back upon, have in like manner shared the same fate . . . ." (Percy Doyle, 1851)

D. NATIONALIST REACTION:



1. XENOPHOBIA: DISCRIMINATORY LEGISLATION TO PUNISH FOREIGNERS--RESTRICTIONS/TAXES AFTER 1842

2. OFFICE-HOLDERS ADVANCE OWN INTERESTS: I.E. CASE OF 1847 SCANDAL WITH CHURCH PAPER/SUSPENSIONS OF PAYMENTS TO CONVENTIONS

3. LAW OF 30 NOV. 1850:

a. To destroy conventions via creation of unitary consolidated public debt fund/suspension of pay to conventions

b. Arista govt./congress back down in face of british threats: create new convention of 1851 to combine prior funds into one/quota helps bankrupt arista govt./pol. Resurgence of Santa Anna

E. NEW LIBERAL COALITION FORMED BY 1856

1. IDEOLOGUES + IMPORT MERCHANTS + CIVIL SERVANTS + PUBLIC DEBT SPECULATORS

2. CONCERN: PUBLIC & PRIVATE SURVIVAL BY RESTRUCTURING MEXICAN INSTITUTIONS

a. Reclaim lost revenue sources (destroy Conventions)

b. Find new income sources (attack corporate privilege & properties)

3. LAW OF 1JAN1856:

a. New attempt to destroy conventions

b. Shift policies after jun. 1856 to avoid conflict with Great Britain, etc.

4. LEY LERDO: FORCED CORPORATIONS TO SELL LANDS/SALE TAX REVENUES TO AID STATE/CREDITORS

5. WAR OF THE REFORMA:

a. Church/corporations resist changes

b. Nationalization/expropriation-- speculators use public debt bonds for 2/3-s of cost of land

6. FRENCH INTERVENTION:

a. Failure to pay foreign creditors pretext for invasion

b. Intervention failed: nationalists triumph/foreign-based creditors ruined

VI. CONCLUSIONS:

A. PUBLIC DEBT SPECULATION AS CATALYST FOR REFORM

1. DIVIDED DOMINANT MONIED CLASS INTO FACTIONS

2. GAVE LIBERAL PARTY A SOCIAL BASE

3. SEARCH FOR REVENUE PROMPTED ANTI-CORPORATE REFORMS TO MODERNIZE MEXICAN ECONOMY/POLITY

B. LIBERAL POLITICIANS-NATIONALIST CREDITORS EMERGE AS NEW DOMINANT/ UNCHALLENGED DOMINANT CLASS

1. NEW CONSENSUS/ELIMINATED BASIS FOR MOST KINDS OF POLITICAL CONFLICT

2. CHILDREN OF THIS GROUP of LIBERAL AGIOTISTAS EMERGE AS PORFIRIAN ELITE/DOMINATE MEXICO UNTIL REVOLUTION OF 1910

C. XENOPHOBIA AS KEY ELEMENT IN MEXICAN NATIONALISM