Business As Usual: The Empresa del Tabaco in Mexico, 1837-44



Author's manuscript for: "Business As Usual: The Empresa del Tabaco in Mexico, 1837-44," Hispanic American Historical Review (64:4: 675-705) (1984)



The royal tobacco monopoly in New Spain was created by decrees in 1764 and 1765 as an emergency measure to finance Spain's bankrupt treasury in the aftermath of the Seven Years' War. The monopoly proved to be a fiscal bonanza, generating $120 million in net revenues between 1766 and 1810. With annual gross sales sometimes exceeding $8 million, the monopoly was the largest commercial and manufacturing enterprise in New Spain. As an agency of the government, the monopoly minutely regulated every aspect of tobacco production and distribution. It restricted production to a select body of planters; employed thousands of workers in large state-owned factories to manufacture cigars, cigarettes, and snuff, outlawed all retail sales except those through licensed outlets; and recruited a sizable corps of bureaucrats to manage its extensive operations.

While a number of studies of the colonial monopoly have appeared in recent years, the several conservative attempts to maintain and revive the monopoly after independence have been neglected. This is unfortunate for two reasons. First, the tobacco monopoly was one element in the larger colonial legacy that hindered economic growth in nineteenth century Mexico. Second, the operations of the national monopoly nurtured divisive political conflicts that helped to keep the Mexican body politic in a near continuous state of agitation. This article analyzes the multiple controversies inspired by the Empresa del Tabaco, the largest and best organized of various joint-stock companies formed by private entrepreneurs to exploit exclusive rights to control the cultivation, manufacture, and sale of tobacco and tobacco products in Mexico between 1830 and 1856.

The Contenders

Three groups with distinct and largely incompatible interests battled to control the tobacco monopoly after Mexican independence in 1821. Two of these, the planters and the bureaucrats, were progenies of the colonial monopoly. The royal monopoly, the real renta, had restricted tobacco cultivation in New Spain to a few square miles of land adjacent to the towns of Orizaba and Córdoba in a steep mountain valley located along a major trade route in the intendency of Veracruz. During the last decade of the colonial era, official delegations from those towns, the villas cosecheras, negotiated annual contracts with the real renta and, on that basis, assigned production quotas to individual planters and generally directed life in the tobacco-growing districts. Faced with repeated confrontations over price and enforcement policies, the crown attempted to curtail the influence of the planters' corporate body, the común de cosecheros; but its efforts to replace collective bargaining with a system of individual contracts always met with frustration. Like the planters, the monopoly's administrators and other employees had the self-awareness and organizational resources (with or without formal political recognition) to act as autonomous agents in defining, promoting, and defending their particular interests.

The physical devastation and economic stagnation that accompanied the struggles for independence crippled the operations of the tobacco monopoly, drained its treasury, and adversely affected the fortunes of the thousands of persons now dependent upon the institution. Even with those setbacks, the planters and the bureaucrats mustered sufficient resources in 1821 to thwart attempts to abolish the monopoly or to rent it to private contractors. They failed, however, to prevent substantial reforms in 1824. The restructured monopoly, a federalist experiment in which responsibility for marketing tobacco products was shared between the states and the national government, ended in bankruptcy in 1829. Lacking the financial and administrative resources to manage the monopoly directly, the Mexican state now solicited the participation of a new group formerly proscribed from that jealously guarded domain. Armed with powerful advantages-access to venture capital, business acumen, and appreciable political influence-private investors, the empresarios, successfully challenged the hegemony of traditional interest groups and assumed administration of the monopoly in 1830.

Disenchanted with the new managers, the planters joined a liberal crusade to extinguish the tobacco monopoly in 1833. Free trade, however, did not produce for the villas cosecheras the prosperity promised by liberal ideologues. Far from developing an export market, Veracruz tobacco had difficulty competing at home. To their dismay, growers discovered that Mexican consumers, if given a choice, overwhelmingly preferred imported Cuban and Virginia tobaccos to local products because of their lower prices and superior qualities. Accustomed to an assured market, the Veracruz planters had done nothing to improve their product, nor could they quickly alter the character of Veracruz tobacco or lower the costs of cultivation. The traditional cultivation areas near Orizaba and Córdoba had few special advantages other than those bestowed by the monopoly, and other locations on the Mexican Pacific and Atlantic slopes could produce cheaper tobacco with the milder, more aromatic flavor preferred by many smokers. In addition to the glut of foreign imports and new domestic production, a huge inventory of tobacco accumulated by the monopoly before 1833 remained on the market to depress prices further. As an added aggravation, certain states opted to continue local monopolies after 1833, and, ironically, the Veracruz planters sometimes found their efforts to adjust to free trade stymied by regional barriers.



The planters complained that free trade had reduced the villas cosecheras to the "ultimate of poverty and misery," converting their "opulent cities" into stark ruins. Because they believed change would cost too much, the tobacco growers yearned for a return to the old system. Their movement to revive the monopoly accompanied a larger conservative reaction by other groups (including the church and the army) to the structural reforms proposed or implemented by the liberal regime of Valentin Gomez Faeroes in 1833 and 1834. In 1835, a military strongman from Veracruz, General Antonio López de Santa Anna, pronounced against the liberal government he had helped to install in 1833, and, in its place, inaugurated a conservative shift toward economic policies based on the colonial model.

Under those auspices, the Mexican National Assembly immediately began debating the restoration of the tobacco monopoly. Denouncing the " wretched" private company of 1830, General Vicente Prieto, a former administrator of the monopoly in Orizaba who had been hired as an agent of the común de cosecheros, worked feverishly to pressure the politicians in Mexico City. Stressing the political costs of ignoring the planters' counsel, Prieto, now a powerful military chieftain, warned the government that it must disregard the "alluring propositions" made by the empresarios. In a comprehensive campaign to educate the lawmakers, the lobbyist pro"sed that if the government followed the advice of the planters whose only interests were those of "philanthropy and patriotism"-a monopoly true to the colonial pattern would "guarantee public tranquility, cover the nakedness of many, improve morale, and eliminate the greater part of the robberies and crimes committed in Mexico City and its surroundings." Like the planters, the multitude of managers and clerks formerly employed by the colonial and federal monopolies looked eagerly toward restoration of the institution as a means to rehabilitate their personal fortunes. As self-appointed spokesmen for these bureaucrats, José Mariano Campos and Manuel Prieto offered to Santa Anna in 1835 their own proposals for regulations governing a state-run monopoly. With very different attitudes toward the problem of management, empresarios resident in Mexico City also supported a new tobacco monopoly if it were administered from the capital and if they were not excluded from participation. With general commerce stagnant and the economy depressed, investors were anxious to shift their capital into ventures like the tobacco monopoly. There, in the politicized sector, free-market principles were suspended, supply and demand schedules fixed, and potential profits unlimited.

Had Santa Anna remained in power, the Veracruz growers would have been the principal beneficiaries of the monopoly's reestablishment. But, owing to a disastrous military campaign in Texas, he was publicly discredited and politically emasculated in 1836. The highly politicized Veracruz group was left to fend for itself, a power to be reckoned with, but now isolated. The new regime, headed by Anastasio Bustamante, was plainly more susceptible to the influence of Mexico City empresarios.

THE EMPRESA DEL TABACO IN MEXICO

A measure that appealed to those interests in the center, the law of January 12, 1837, returned the tobacco monopoly to the jurisdiction of the national government and assigned responsibility for administering the monopoly to the newly created Banco Nacional de Amortización. With revenue from the monopoly and from other allotted sources, the bank was to amortize and withdraw from circulation the badly devalued copper currency minted by past governments. Enabling legislation, the decree of April 15, 1837 prohibited the cultivation of tobacco in Mexico except for the villas cosecheras in Veracruz and extended the ban on the manufacture and sale of tobacco to include departments where local monopolies had not been in effect after 1833. In these departments the bank began offering to interested empresarios contracts to administer the monopoly locally. Elsewhere it assumed administration of existing departmental contracts.

The planters quickly appreciated that Mexico City business interests were the principal beneficiaries of the new legislation. Using the city councils in the villas cosecheras, the planters worked energetically to annul it or to turn it to their own advantage. To negotiate with the national government and the bank, the común de cosecheros of Orizaba employed Rafael Argüelles, an attorney whose kin were prominent growers in the villa. Cordoban planters counted on the services of notable Conservative politician and influence-peddler Lucas Alamán. To indemnify planters for damages from past departmental contracts let by the bank without the approval of the común de cosecheros, Argüelles and Alamán proposed that the Banco de Amortización should rent monopoly rights for the departments of Mexico, Puebla, Oaxaca, and Veracruz to a company organized by the two agents on behalf of their clients. After hearing proposals from other interested parties, the bank, in late September 1837, accepted in principle a proposition submitted by Argüelles. As subsequently modified by the bank, the plan called for simultaneous rental of the four departments with a minimal rent of $6o,ooo paid annually for a fixed five-year term. After advertising those conditions, the bank scheduled a public auction of the four departments for October 5, 1837.

Argüelles expected to clinch the deal for the planters at the auction, but in a spirited session, a Mexico City lawyer, Manuel Castañeda Nájera outbid him with an offer to pay $8o,ooo in rent annually. Castañeda Nájera secretly represented a company whose actual partners were Felipe Neri del Barrio, Benito Maqua, Manuel Escandón, Cayetano Rubio, and Cosme Garay, all prominent businessmen with properties in Mexico City, Guanajuato, and San Luis Potosi. Their good fortune was no coincidence. Using the press to attack the Banco de Amortización for presumed complicity with Alamán and for undue favoritism toward greedy special interests in Veracruz, these empresarios had shrewdly cultivated favorable public opinion. In fact, it was the empresarios, and not the planters, whose interests were best represented in the appropriate public agencies. The bank's vice-president and acting director, Francisco Fagoaga, detested the planters, their agents, and their pretensions because of the personal losses he had suffered as an investor in the 1830company. Moreover, Barrio, a principal shareholder in the new company, was married to Fagoaga's niece, and Barrio and Fagoaga were partners in a prominent Mexico City commercial house.

Arguing that their historic participation in the monopoly entitled them to special considerations, the villas cosecheras commenced a fierce campaign to reverse the outcome of the auction. Even as the controversy intensified, Fagoaga apparently used his influence in the Ministry of the Treasury to discourage intervention from higher levels of government. Brushing aside the planters' protests, the Banco de Amortización signed a formal contract on November 7,1837,to rent the four departments to Castañeda Nájera's clients. Since Escandón and Maqua soon added to the company their departmental contracts for Michoacán and Guanajuato, its jurisdiction extended over six departments. Christened the Compañía Empresaria de los Seis Departamentos, the enterprise began paying rent and administering the monopoly on June 1, 1838.

In light of the bank's unwillingness to bow to informal pressures brought to bear by the growers, Argüelles presented their grievances to the Supreme Court, but no meaningful decision was forthcoming there. Alleging that continued governmental indifference would reduce them to serfs of the empresarios, the cosecheros' last resort was a threat to revolt if their interests were not protected. Veracruz authorities gave the protestors complete support and flatly refused to publish and enforce national government decrees relative to the tobacco monopoly. In Orizaba and Córdoba, the growers continued openly and illegally to sell tobacco destined for contraband trade. Neither threats of sedition and deliberate disregard of the law nor copious promises of allegiance to Bustamante won for the planters outright nullification of the auction. Their tactics did, however, oblige the national government to intervene. Officials persuaded the planters and the company to accept binding arbitration in January 1838 and staved off, at least temporarily, a dangerous political confrontation with the department of Veracruz. " The settlement required the empresarios to purchase tobacco exclusively from the común de cosecheros, forbade the use of individual contracts, and, while allowing for delivery of lower grades of tobacco, provided higher prices for tobacco, 6 to 12 percent more than those listed in the contract of November 1837. The empresarios demanded and received from the government compensation for the added costs of the new concessions. The costs of subsidizing public peace were high-rent for the four departments was reduced from $8o,ooo to $35,ooo annually, a sacrifice of $225,000 in potential income over five years.

The Empresa

Although the Compañía Empresaria lost money throughout 1838, its partners sought to enlarge the company to include more departments. They expected that a single large enterprise could negotiate more advantageously with the powerful planters' organizations, might neutralize other potential political opponents, and would encourage the government to respect its interests. Purely economic considerations were also at work. The partners hoped to promote economies of scale impossible with the many separate, smaller companies doing business in monopoly tobacco across the republic. Administrative and enforcement costs tended to be fixed, and with increased volume should come increased efficiency and, thence, added profits for investors. Facing imminent bankruptcy, the Bustamante administration welcomed the empresarios' proposals in January 1839 that they assume administration of a centralized tobacco monopoly whose jurisdiction would encompass all of the national territory (except Yucatán and Chiapas).

To administer this new contract, which took effect on April 1, 1839, the shareholders dissolved the Compañía Empresaria and with its assets created a new and better organized company, the Empresa del Tabaco. Its founding partners were Felipe Neri del Barrio, Francisco Rubio, Cayetano Rubio, Benito Maqua, Manuel Escandón, Juan Flores, and Agilero Gonzáles y Cía. Barrio owned a quarter interest in the enterprise; the others held one-eighth interest shares. While the partners of the Compañía Empresaria had themselves managed (or mismanaged) that company, the Empresa was blessed with a more modern administrative structure. As members of a board of directors, the shareholders set general policy for the company but they were expressly forbidden to meddle in its day-to-day management. A director and a vice-director, elected annually from the board, assumed that responsibility exclusively. To oversee their activities and to make major policy and personnel decisions, the board met regularly each Thursday noon at the Empresa's headquarters at No. 8 Tacubaya in Mexico City. As representative for the company's monopoly rights, the Empresa's director was endowed with extensive state powers. The minister of the Treasury decreed that the director enjoyed all the "preeminence and prerogatives" of an officer of that ministry and commanded the agency's employees to obey all the director's orders pertinent to the tobacco monopoly. Likewise, the Banco de Amortización was obligated "to dictate whatever orders are asked for by the director of the Empresa for the stability, development, and protection of the monopoly.

TABLE 1: Tobacco Sales Reported by the Real Renta del Tabaco and the Empresa del Tabaco for Selected Years.

Colonial Administration Private Company

Year Sales Year Sales

1766 $2,027,958 1838 $ 600,000'

1776 $3,845,742 1839 $2,724,520

1796 $7,336,539 1840 $3,447,724

1806 $9,116,392 1841 $3,600,000'

'Colonial sales in silver; 1838-41 sales in copper.

'Estimated sales.









The partners selected Manuel Montúfar, an experienced administrator, as secretary for the company's central office, the dirección general. A full-time salaried employee, Montúfar managed the Empresa's routine activities. Subordinate to the dirección general in the capital were the administraciones principales, situated in the departmental capitals and major ports. These agencies managed the principal divisions of the monopoly and, through a "mercantile style correspondence," kept the company headquarters advised of important developments. Their primary functions were to deliver products to and collect revenues from their subordinate offices, the administraciones, fielatos, and estanquillos that actually marketed the monopoly tobacco. The heads of these lesser agencies charged an 8 percent commission on their sales (as much as ii percent in some departments). Under the terms of the 1839 contract, the government fixed the retail price for tabaco en rama ("bulk tobacco") at 6.5 reales (r.) per pound (up to 1 r. in some departments) . Prices for cigars and cigarettes, usually 6 granos per package, were tied to the base price for tabaco en rama.

The Empresa marketed products of admittedly poor quality, A portion of its inventory dated from the early 182OS; some was probably harvested before Mexican independence. Spokesmen for the company conceded this tobacco was "blemished by its original poor quality, by the passage of years, and by the carelessness of its preservation. Critics used stronger language to describe the Empresa's products: "the manufactures that must be purchased are so very bad, totally bad, whether cigars or cigarettes ... that they cannot be smoked."

The Bureaucrats

For its middle-level management, the Compañía Empresaria (and later the Empresa) initially recruited personnel with experience in the earlier state-run monopolies. Like many of their colleagues, José Mariano Campos and Manuel Prieto obtained such employment--Campos as manager of the Mexico City tobacco factory and Prieto as inspector general for the district of Mexico. The shareholders' insistence on modernizing management practices quickly produced recurring confrontations with managers accustomed to more traditional methods. Resenting transfers or reductions in their subordinate staffs, the latter particularly disliked innovations such as production incentives or merit-based salary increases. job security became a pivotal issue as well, since the "mercantile style" promoted by the empresarios was characterized by a streamlined administration-implying an absolute reduction in managerial positions and salaries. For the shareholders, this was an economic imperative as they continued to lose money in the venture throughout 1893. Whether necessary or not, innovations at the workplace provoked unrelenting hostility from the traditional bureaucrats, who now fervently prayed for the dissolution of the Empresa and a return to a government-administered monopoly.

Evaluating the political effectiveness of this group is difficult. The bureaucrats' most valuable asset was probably an ability to communicate their unhappiness to comrades employed in government agencies and in the military. Likewise, pensioners and surplus military men and civil servants, released because of the government's worsening finances, were especially attentive to arguments that private administration of the monopoly restricted employment opportunities. The traditional managers could also draw upon their considerable influence among the workers of the tobacco factories and with other employees under their immediate supervision. Neither the supervisors nor the workers were prepared to accept renovation of traditional arrangements at their own expense. Campos's problems with the Empresa in the summer of 1839 demonstrate the fragile nature of those relations among capital, labor, and the managers. Passing over Campos, who was next in line for promotion, the company picked José Azcúnaga from its Guadalajara offices as the new principal administrator for the Mexico district. Outsiders like Azcúnaga, who had never worked in the state-run monopoly, were a source of constant irritation to the old-timers. When, as an economy measure, the new administrator ordered the Mexico City factory to reduce its output of sixteen classes of cigars and cigarettes to three, Campos quit his job in protest. The next day five thousand workers in the Mexico City factory rioted in response to rumors that Azcúnaga intended to fire half of the labor force. To pacify the "excited ones," Barrio was obliged to bring Campos back to the factory. There the rioters greeted his entrance with tumultuous applause, and order was quickly restored. Subsequently, the board of directors fired Azcúnaga and persuaded Campos to withdraw his resignation. Campos failed, however, to obstruct implementation of new work regulations and, when Azcúnaga regained his position soon afterward, Campos resigned permanently.

The Planters

The arbitration accord of January 1838 brought only a brief respite in the noisy political war waged by the planters against the empresarios. The growers' militant response to the businessmen's unexpected coup at the auction in October 1837 had won for the Veracruz group an important concession-the imposition of collective contracts. It was, however, a Pyrrhic victory since, in exchange, arbiters required that the planters consent to private administration of the monopoly. That reversal, combined with the failure of legislative initiatives to create a governmental purchasing agency, left all consequential decisions to the discretion of the empresarios. Unlike a state agency, a private company not only was unlikely to employ excess personnel, but also might not be persuaded by political pressures to buy tobacco that had no immediate market. Bulging with an overstock of tobacco accumulated after purchasing $1.6 million in existing department inventories in 1838 and 1839, the Empresa sharply reduced the legal allotments for tobacco crops in Veracruz. Growers in Orizaba complained bitterly in 1839 that their quota Of 12,000 tercios was not "half the tobacco that the Spanish government employed in the monopoly. Further cutbacks in production were imposed in 184o and 1841, worsening the already serious economic crisis in the tobacco towns. All the interested parties acknowledged that since independence the market for monopoly tobacco had continued to shrink, but there was no agreement about who or what was responsible. Pointing their fingers at the empresarios, the planters charged that unholy deviation from the Spanish model caused sales to plummet even though more people smoked tobacco than ever before. For corroboration, the growers needed only to turn to the bureaucrats, who earnestly endorsed suggestions that the monopoly suffered from gross mismanagement. Complaining that overproduction in the tobacco districts only encouraged the contraband trade, the empresarios blamed their marketing problems on the failure of successive weak national governments to enforce the law.



Feared and despised with a pathological intensity, foreign tobacco was the great bogey of the Veracruz planters (although illicit cultivation elsewhere in Mexico was a more immediate threat), and they blamed all their woes on unfair foreign competition. Perhaps they were aware that while the Empresa spent $4.65 million for tobacco between 1837 and 1841,only about half that sum reached the villas cosecheras. While a large portion of the balance went to pay owners for existing stocks of tobacco in the other departments, some also was destined to purchase foreign tobacco. To satisfy a pronounced demand for special tobacco products, the Empresa regularly imported appreciable quantities of Chiapan tobacco and Campechano cigars. For customers with more discriminating tastes, the company spent $50,000 annually on cigars from Havana and on snuff and related products from New York, New Orleans, and Paris. The colonial monopoly had marketed these items with few protests from the planters, but in an era manifestly prosperous for the Veracruz growers. In a time of hardship, when the company's declining volume of purchases threatened to destroy forever a comfortable way of life, the sale of foreign tobacco provoked frenzied reactions. Obsessed with fear that there would be no market for Veracruz tobacco if the public continued to be exposed to the seductive appeal of the foreign product, the planters sought to prohibit absolutely its introduction; but they were powerless to act while the Empresa remained in business."

The Empresa's method of purchasing tobacco in the villas cosecheras deliberately exploited the increasing poverty there and, consequently, generated much ill will. Unlike the royal monopoly, the private company provided no financial assistance to growers before the annual harvests. Upon delivery of their crops, the cultivators received from the company, not cash, but certificates (promissory notes) payable in ten installments spread over the next twelve months. For the Empresa the system offered two advantages. First, it eased the company's chronic problems with liquidity, shifting the burden of financing its purchases on to the planters. Second, it reduced the real cost of procuring tobacco. The company repurchased with cash its certificates from needy planters, but with an 18 to 20 percent discount over face value.

The Empresarios

Proposals to rescind the Empresa's contract and to force the monopoly's return to government administration were debated in Congress every year between 1838 and 1841. Inside and outside government circles, planters and bureaucrats schemed incessantly. They forged an unlikely alliance with jealous businessmen, spokesmen for regional interests, and liberal ideologues-allies who sought to liquidate the Empresa as a practical first step in their separate (and contradictory) campaigns to capture a share of the monopoly, to return it to local jurisdiction, or to extinguish it and establish a free trade in tobacco. How did the empresarios neutralize the not insubstantial influence of their enemies? A partial explanation of their political success lay in their eminence in high government councils. On more than one occasion, the company's shareholders succeeded in designating the minister of the Treasury and through him they effectively influenced government fiscal policy. In Congress, the company counted on the services of José Basilio Arrillaga and Luis Varela, respective heads of the finance committees in the Senate and in the Chamber of Deputies. These same individuals, as employees of the Banco de Amortización and the Ministry of the Treasury in 1837, had worked with Francisco Fagoaga to prevent Rafael Argüelles and the planters from overturning the auction of the four departments to the Compañía Empresaria.

Larger and more impersonal forces were also at work. After all, the Congress of early republican Mexico was politically insignificant; real power resided arbitrarily in the person of the president; all politicians and functionaries were notoriously unprincipled. In the last analysis, the Empresa weathered the political storms because the national government could not afford to permit its dissolution. The company constituted a unique reserve of money and influence upon which the Bustamante administration became dependent. Thus, more often than not, it was the Executive Branch that frustrated congressional attacks on the Empresa. In 1838 Bustamante's ministers pledged to oppose "by whatever means" a project being debated in the Chamber of Deputies that would return the monopoly to government administration. The ministers labeled this legislation "premature and noxious" to the government's interests because the terms of a $0.5 million loan obtained from Juan Rondero guaranteed the lender a mortgage against tobacco revenues and forbade return of the monopoly to government administration before this loan had been repaid .

Like other lenders, the Empresa's shareholders used their financial resources to dictate terms commensurate with the perils of lending to such a poor credit risk as the national government. A $0.5 million loan that accompanied the 1839 contract had assured acceptance of the empresarios' terms. A second loan of $o.8 million in December 1839 further reduced the likelihood of involuntary, premature cancellation of the contract. Aside from obvious political dividends, these loans reduced the real cost of renting the monopoly. Under the terms of the 1839 contract, rent was payable half in copper and half in silver. The first loan, made mostly in copper, required repayment as a credit of $30,000 monthly in rent due to the Banco de Amortización. The second loan, made as $5oo,ooo in cash (two-thirds in copper) and $300,000 in government debt issues, was repayable with an additional bank credit Of $40,000 monthly. These combined credits exceeded the less than $5o,ooo monthly rent ordinarily due the bank. in offering the loans, the shareholders achieved considerable savings, given the real differences in the value of silver, copper, and paper. Incidentally, the loans also gave the Empresa extraordinary leverage in its dealings with the bank, since the government used for its purposes all the income formally assigned to the bank. Without monthly rent receipts, the bank would be insolvent. But in a private agreement, concluded in December 1839, the Empresa promised to deposit $3,000 to $4,000 monthly to enable the bank to satisfy its obligations (mostly salaries to its administrators). Thereafter, any act that threatened the 1839 contract or the Empresa's role in the monopoly also jeopardized the bank, and the empresarios could trust that agency to be an ardent defender of the status quo.

Drawing upon its special relationship with the Bustamante government and exploiting its unique national network of subordinate agencies, the Empresa and its shareholders engaged in a bewildering variety of speculations only marginally related to the sale of monopoly tobacco. The company functioned as a general clearinghouse for credits against government agencies. These credits included various types of current obligations such as claims for import duties, orders on customs houses, licensing fees, and drafts drawn on departmental treasuries. To transfer funds to and from Mexico City, the departments, and military units across the republic, the national government relied heavily upon the company's facilities. The Empresa also purchased large quantities of internal public debt bonds and other debt issues that could be acquired for only a fraction of their face value. It bought these not only for speculative purposes, but also as a favored device to convert cash revenues into capital reserves.

Over the long term, mutual benefits and shared interests tended to ensure that the practices and policies of the politicians harmonized with those of the empresarios. From one day to the next, however, the attitudes of the functionaries and their treatment of the Empresa's shareholders were volatile and wildly unpredictable. For example, in January 1839, even as the empresarios were lending $500,000 to his government, Bustamante jailed Cayetano Rubio on suspicion of sedition. The partners in the company had to post a sizable bond to secure his release.- When faced with more pressing political or fiscal pressures, the national government often failed to adhere to either the spirit or the letter of its contracted obligations. In a notorious case, in July 1841, it required the company to provide a $30,000 loan as a condition for obtaining a license to import cigars from Campeche, not because the Empresa lacked the legal right to import foreign tobacco, but because the Bustamante government desperately needed cash and because it wanted compensation for the political trouble that licensing those imports would bring.

If the Empresa's association with the national government was ambiguous, relations with local authorities were well defined. The shareholders aptly categorized that relationship as a state of undeclared war. The interests of a national monopoly administered by private investors and the needs of local governments and regional economies remained antagonistic and irreconcilable. Since Bustamante was reluctant to sacrifice fragile understandings with local officials in order to achieve vigorous enforcement of the monopoly, the company assumed the initiative and attempted to circumvent hostile local governments by contracting the personal services of department heads, governors, high military officers, and important public employees at all levels. Those services did not come cheaply. The Empresa paid out more than $1.5 million in "extraordinary expenses" between 1839 and 1841. Even with their pecuniary largesse, the shareholders faced nearly insurmountable obstacles in doing business outside the limits of Mexico City. As early as March 1838, the governing junta in the department of Mexico forwarded to Congress its resolution that all private contracts be voided and that "the tobacco monopoly and its administration be established in the same terms as in the time of the Spanish government. By April 1841, another fourteen departments had asked Congress to take similar action. This opposition to the Empresa reflected two distinct concerns. On the one hand, the abolition of locally administered monopolies after 1837 robbed the departments of what for some had been a principal source of income. Thus attacks from Guanajuato or Zacatecas were pragmatic attempts to recapture lost revenues. On the other hand, in departments such as Jalisco and Michoacán, popular movements emerged to resist any institution that denied an opportunity to develop the bountiful resources available for producing and marketing locally grown tobaccos. Just as the Veracruz planters were likely to condemn the abuses of a monopoly as a tactical part of their assault on the Empresa, so, too, authentic enemies of monopoly attacked the Empresa as the more tangible target.

Demands for special favors, recalcitrant officials, and nearly continuous political turmoil greatly increased the costs of doing business in the departments. Good business sense dictated that the company should concentrate its manufacturing operations in a few centrally located factories. Nevertheless, to keep the peace, the shareholders attempted to placate the many municipal and departmental officials who lobbied strenuously for the establishment of tobacco factories in their districts and, consequently, made uneven, expensive investments for manufacturing facilities in Querétaro, Guanajuato, Morelia, Mexico City, Puebla, Orizaba, Saltillo, and San Luis Potosí. Even when it accepted the inevitability of high overhead costs, the Empresa sometimes found its attempts to market monopoly tobacco obstructed by local authorities, who refused to obey the instructions of the central government. In Chihuahua, officials imposed an illegal tax on each package of cigarettes and cigars sold there. The political prefect in Matamoros would not publish decrees that reestablished the monopoly in 1837, and until 1840 the customs house in this port city continued to issue licenses for the import of tobacco from the United States despite the protests of the company's agents. For friends and foes of the Bustamante regime alike, the Empresa's local agencies were a source of quick cash to finance their military operations. Rebels in Jalisco and Michoacán routinely inflicted heavy losses. From Texas in 1840, the filibuster Juan Molano invaded Tamaulipas and seized and sold the Empresa's store of tobacco in northeastern Mexico. Declaring monopoly tobacco to be spoils of war, the commander of the Army of the North, General Mariano Arista, used the proceeds of its sale, first, to defeat Molano, and, soon afterward, to make war against Bustamante. To pay his followers and to "protect" the company's property from rebels, Santa Anna, who rallied to the government's support in July 1840, confiscated the Empresa's funds and inventories in Veracruz.

Contraband

If the rental of a monopoly by a government to private persons is considered equivalent to the leasing of a portion of a state's coercive powers, then the Bustamante regime did strike a reasonable bargain with the Empresa despite the considerable informal discounts exacted by its shareholders. In response to unfair comparisons of their company's sales with those of the colonial monopoly, the empresarios reminded the critics that the Spanish government had been "más que fuerte" and, consequently, could impose a "real monopoly." Without the backing of a strong state, the Empresa was, they confessed, only "a simple vendor in competition with an infinite number of traficantes clandestinos. Illicit cultivation in the departments of Michoacán, San Luis Potosí, Jalisco, Oaxaca, Mexico, and Veracruz kept the black market in tobacco well supplied. The Empresa attempted periodically to suppress the contraband trade by destroying its sources of supply, but with little lasting success. More often than not, such ventures only touched off local rebellions against the national government. For example, in December 1840 the company launched a carefully planned incursion into the Sierra de Huasteca to search out and destroy the tobacco planted by Indian peasants in the area. In a pincer-like movement, the Empresa linked its resguardo with regular army troops marching out of San Luis Potosi and Querétaro. The intrusion provoked a fierce reaction in the Huasteca and the operation soon took on the characteristics of a "mountain war." The imperative to restore order claimed precedence over any plan to destroy illegal plantings. Similar results came with sorties into Jalisco, Zacatecas, Michoacán, and Veracruz-the company's effort to destroy contraband cultivation was repeatedly subordinated to more immediate problems-and the Empresa, which paid for the use of government troops, was stuck with the bill. In the wake of some revolts, such as those in 1839 and 184o at San Andrés Tuxtla, Tlapacoydn, and Coyousquihui in the department of Veracruz, national and local authorities intervened to prohibit the Empresa from burning tobacco fields there because of the obvious menace to public tranquility. Consumers in Acapulco, accustomed to tobacco grown on the Pacific Coast, stubbornly refused to purchase the monopoly products; and because of "local and political peculiarities," the Empresa could not force compliance with the law. Contraband planters in Michoacán mixed business with politics and enlisted the support of rebels to protect their interests. With a pecuniary incentive from the Empresa, the revolutionaries were induced to abandon their protection of the contrabandistas. Though effective, such tactics imposed additional costs.

The company's principal weapon against the contraband trade was its large force of private guards, the resguardo. The purpose of the primary corps of the resguardo, dispersed strategically across the department of Veracruz, was to cut off contraband at its principal source--the villas cosecheras. Though costly, private police were needed because there the military commanders, mayors, and judges were tobacco planters or their kin and would not assist the Empresa in enforcing the monopoly. The company's subordinate agencies down to the lowest levels maintained separate resguardos and local guards to enforce the monopoly. Critics charged that the company police force constituted a private army that preyed on the powerless, and that its "inexcusable licentiousness" was abetted by the "indolence of certain authorities" corrupted by the empresarios.' While not denying that excesses sometimes occurred, the shareholders defended the resguardos as a necessary evil, noting that colonial administrators likewise had employed force to overcome resistance to the monopoly in the countryside.

On the rare occasions when the resguardos encountered well-armed and combative contrabandistas, their confrontations might well explode into bloody battles as at lxhuacán, Veracruz, in 1838 and at Apan, Querétaro, and Tlalnepantla, Mexico, in 1839. The great majority of smugglers, however, were less bellicose, more ordinary folk who were marginally employed in menial occupations and willing to take risks. The Empresa marketed tabaco en rama at 6.5 r. per pound (equivalent to 20.3 r. per arroba). Contraband tobacco of the same quality sold in the villas cosecheras for $3 to $4 per arroba, so the margin for profit was considerable. Punishment for those caught trafficking, though harsh, was not so draconian as that formerly imposed by the royal monopoly. In most cases, the contraband was confiscated by the Empresa and the offender was obliged to pay a fine equivalent to twice the legal price of the quantity of tobacco seized. Those unable to pay their fines might be sentenced to prison or to labor on public works.

Perils and Profits

Through most of 1840 the Empresa continued to thwart attempts by its foes to revoke the 1839 contract and to force liquidation of the company. Ironically, by December 1840, the empresarios had lost their enthusiasm for the costly venture and sought to renegotiate their contract with the Bustamante regime. After nearly three years, the company had failed to produce any sustained profits, its demands on the shareholders' personal resources were insatiable, and the investors faced possible financial ruin. Why were the empresarios unable to use their monopoly rights to squeeze out the lucrative profits that their enemies always assumed the Empresa must produce? Monopoly tobacco sold at prices of up to six times that of contraband tobacco and many more times what free market tobacco might have cost. Yet, as the shareholders painfully discovered, those prices were not sufficient to cover unexpectedly high overhead costs. The same politicized economy that initially seemed so attractive to investors now constrained the entrepreneurs' ability to shift productive and marketing factors for optimum profitability.

To their dismay, the Empresa's partners learned that their enterprise was much less profitable than the more cumbersome colonial monopoly. From data reported by the Empresa, a reasonable estimate can be constructed of the comparative costs associated with a hypothetical $1.00 of tobacco sales. For the Empresa, the cost of manufacturing, including wages, would be $0.25; tobacco, paper, and related supplies, $o.215; administrative salaries and commissions, $0.145; rent, $0.125; extraordinary expenditures, $0.075; resguardo, $0.05, and transportation, $0.03. With costs totaling $0. 89, every $1.00 of sales should have produced $0.11 in net revenues. In contrast, the costs for $1.00 of sales by the colonial monopoly were only about $0.32 for administrative items, including salaries, wages, and commissions; $0. 18 for tobacco and paper; and $0.02 for miscellaneous expenses. For the colonial monopoly, each $1.00 of sales yielded $0.48 in net revenues.

Because of unanticipated problems with currency and credit, even the small 11 percent margin for the Empresa's profits on sales proved to be largely illusory. The Banco de Amortización failed to amortize copper currency, and so copper coins suffered a constant decline in value even after an official 50 percent devaluation in 1837. The unofficial discount imposed by most merchants on copper reached 10 percent in early 1840. By November 1841, it was close to 35 percent. Tardily, the shareholders were shocked with the realization that "if copper is not amortized, the Empresa will lose more than other businesses. . . ." All the monopoly's receipts for tobacco sales were in copper, but the company was obliged to receive those monies at their statutory value. Retail prices for tobacco were fixed by law, and attempts to raise them entailed unacceptable political costs. Since the shareholders' capital investments and most company expenses were payable in silver, the imagined 11 percent net revenues were consumed by the glut of copper. A second crucial hindrance to profit-making was that, unlike the colonial monopoly, which was self-financing, the Empresa seemingly needed endless infusions of capital. To stay solvent, the Empresa borrowed heavily, in the Mexico City markets. By July 1839 the company's indebtedness exceeded $300,000. Interest rates for these loans, provided by commercial houses such as Martinez del Rio Hermanas and Manning and Marshall, averaged about 15 percent annually. In July 1841, two prominent Mexico City, financiers, Gregorio Mier y Terán and Joaquin Obregón, offered the company new loans totaling $550,000, but with higher interest rates (18 percent annually) and collateral that included not only all the Empresa's assets, but certain private properties belonging to its shareholders. If one assumes that the presumed $0. 89 in costs were financed at 15 percent annually, then the total costs per $1.00 of sales would have been $1.02, and profits would have been nonexistent even without the added aggravation of copper.

While the Empresa's annual report in December 1840 showed that its assets exceeded liabilities by a margin of $1.7 million, those assets consisted mostly of an excessively large tobacco inventory that was not easily convertible to cash. The company did have nearly $0.5 million in cash on hand, but that was insufficient to cover future obligations for salaries and debt service. Although the shareholders took care to isolate their investments in the Empresa from other interests, going so far as to specify in the company's charter that each was liable only for the amount of capital introduced into the company, the Empresa's inability to generate liquidity eventually jeopardized their personal finances. For most of 1838 and 1839 the partners paid irregular monthly assessments of $80,ooo on each of the company's eight shares. By August 1841, their investments in the enterprise totaled $1.47 million in silver." Compounding the hardship felt by some investors, the Empresa, unlike most of its contemporaries, did not provide an annual division of profits or living allowances. To keep themselves solvent, the partners borrowed heavily or began selling off other properties to raise cash. Flores was the first to be affected by the constant drain on resources and personal liquidity. After bankruptcy proceedings in 1839, his share in the Empresa, already mortgaged to Barrio, was sold to Cayetano Rubio's son-in-law, Joaquin Errazú. Unhappy with the prospects in 1840, Agüero, Gonzáez y Cía. gave up its share in the Empresa after granting it a new loan for $325,321. Muriel Hermanos, a Mexico City commercial house that assumed ownership of the vacant share the following year, was also asked to provide additional financial support for the company. Barrio was the next to drop out. With $324,000 tied up in two unproductive shares in the Empresa, he was obliged to convene a meeting of his creditors in July 1841. Although his assets of $1.9 million compared favorably with debts of less than $o.9 million, the entrepreneur had no cash to meet his current obligations. Only the timely intervention of family and friends saved Barrio from a disastrous bankruptcy and the loss of all his properties.

Committees in the Chamber of Deputies and in the Senate, headed by persons who previously had shown favor to the empresarios, reported the proposal to Congress, and it was subsequently enacted as the law of April 28, 1841. Owing, however, to a tremendous storm of protest, the measure never took effect, and the empresarios were forced to abandon their grand scheme." Their legislative initiative had touched off a boisterous public debate and had united all of their enemies at the same time over the single issue. While the opposition of their traditional foes was significant, the shareholders blamed their defeat on "support altogether more respectable and of more decisive influence"--the community of public debt speculators (agiotistas) in the capital. This group feared that with the new enterprise the empresarios might corner a disproportionate share of the government's dwindling resources, leaving other lenders out in the cold. As the dimensions of the broad-based coalition that opposed them became apparent, the shareholders had begun, even before passage of the law of April 28, to explore alternatives that might be politically more feasible. They let it be known that they would support any action to cancel the 1839 contract if the government committed itself to the purchase of the entire tobacco inventory at the price levels stipulated in that contract. To facilitate the transfer, they offered to accept--in lieu of cash--an appropriate quantity of public debt bonds for their tobacco. While they claimed that the gesture was motivated by a noble and disinterested desire to provide the government with "a lucrative means" to remedy its fiscal problems in fact the empresarios hoped to bring about a political solution to the stalemate by appeasing the planters and the bureaucrats. But now the shareholders found their way blocked by an old ally. Once aware of the ramifications of the Empresa's projects, the Banco de Amortización had become an implacable critic, fearing that implementation would usurp the agency's functions and resources. When all attempts at compromise failed to win approval, the empresarios withdrew support from the Bustamante government and, ominously, began to look for their economic salvation in a reordering of the Mexican polity.

Liquidation

With the treasury empty, with few assets left to provide security for lenders, and with a political crisis looming, Bustamante and his supporters failed in the spring and summer of 1841 to persuade the agiotistas to come forward with the large sums needed to keep his government afloat. The few loans negotiated under ruinous terms were of little use now as speculators scrambled wildly to loot the few valuables still owned by the failing regime. Using Manuel Canseco, installed as minister of the Treasury through the Empresa's influence, the shareholders managed to extract $514,000 from the national treasury in July 1841, Observers reported that "before casting aside the corpse," the empresarios tried vainly to retrieve another $300,000 owed by the treasury on several accounts. At the same time, Tomás Morphy, a prominent merchant and agiotista, began shuttling back and forth between the capital, cities in the interior, and Manga del Clavo, Santa Anna's estate in Veracruz. Rumors abounded that Morphy's mission was to plan and to coordinate a revolt against Bustamante. As the planters and most of the government employees and military personnel were already solidly behind Santa Anna, the defection of a substantial portion of the monied classes might tip the tenuous balance of power decisively away from Bustamante. Neither Santa Anna nor Morphy had access to the large sums of money useful for assuring a successful revolution. The shareholders did. The empresarios also had a plan for ridding themselves of the Empresa, but it could only be implemented if the strongman from Veracruz occupied the presidential chair.

The caudillo formally pronounced against Bustamante in September 1841, and, after token resistance was squashed, Santa Anna formally assumed the presidency on October 4. The turnover brought immediate economic readjustments within the financial community. On the verge of personal bankruptcy and unable to pay his creditors before the revolt, Morphy became wealthy overnight as an intermediary between His Excellency and businessmen promoting their sundry projects. In that capacity, employed as a corredor, Morphy negotiated a settlement between the Empresa and the new government. As was customary, be received a fixed percentage of the value of the deal as compensation for his services. Even without Morphy, the shareholders figured prominently among those making fiscal policy for the Santa Anna regime. As members of a commission created by Santa Anna to restructure the Ministry of the Treasury, Barrio and Escandón helped formulate a new plan to finance the bankrupt national treasury. Out of their labors and those of the influence-peddlers came the discovery that the needs of the nation were identical to the needs of those who had invested so heavily in the Empresa. The decree of November 12, 1841, canceled the 1839 contract, returned the monopoly to government administration, and authorized the purchase of the company's entire inventory under terms previously rejected by the Bustamante regime. Santa Anna defended the action as a response to public opinion, citing the Empresa's troubled relations in the countryside and the bureaucrats' argument that continued mismanagement would reduce the monopoly to a state of total disorganization "with significant damage to the permanent interests of the treasury." Of course, the real beneficiaries were neither the public at large nor the treasury, but the planters, the bureaucrats, and the empresarios who had realigned a portion of the politicized public sector to further their own special interests.

Now the planters could rely on the government to purchase more tobacco (even if it lacked a market) and to legislate on their behalf. Santa Anna pleased them enormously when he decreed on December 20, 1841, a prohibition on the import of all classes of foreign tobacco. Anxious to re-create the colonial order, the new regime extended official recognition and gave new rights and privileges to the planters' corporate bodies. On May 22, 1842, His Excellency formally approved "the project of regulations presented by the . . . común de cosecheros de Orizaba." This legislation defined and described the internal organization of the planters' body and established a formal relationship with the state."

Speaking for the bureaucrats, Campos and Prieto were again anxious to share with Santa Anna their ideas for managing the state-run monopoly. Their proposed regulations, mostly plagiarized from the ordenanzas of the real renta, incorporated several novel provisions to govern the conditions of employment and personnel procurement. Managerial positions and their salaries were to be increased. The Empresa's managers, especially high-level officials, would be summarily fired and their places taken by experienced civil servants (like Campos and Prieto). Positions in the resguardo and in the offices of the monopoly in the countryside were reserved for their colleagues in the military. Widows eligible for government pensions would get the small retail outlets in the cities, the estanquillos. While these proposals were officially ignored, Santa Anna did order the commission charged with drawing up new regulations for the monopoly to grant employment preference to veterans. Soon after the government's takeover of the monopoly in January 1849, the company's principal administrators were replaced by political appointees. In May 1842 the government agency created to administer the monopoly, the Dirección General de Tabaco, revoked all licenses for estanquillos granted between 1837 and 1841 and reassigned the privilege to sell tobacco to persons it deemed more worthy. Between 1842 and 1844 personnel files for all the monopoly's thousands of employees at all levels were reviewed, and those who originally had not been appointed to their position by the government were liable to arbitrary dismissal. By 1844 the monopoly had been entirely restructured along the colonial pattern. Although sales increased with the return to governmental administration, higher overhead costs weighed heavily on the monopoly and it produced little revenue for Santa Anna's government.

Political intrigues transformed a costly economic misadventure-the Empresa del Tabaco-into a profitable undertaking. Santa Anna's government purchased the company's complete inventory of fixtures and tobacco stocks valued at $3,982,128. Added to that sum was $644,881 in government credits, including some which had originated before independence. To pay for the inventory and the aggregated claims, Santa Anna's Ministry of the Treasury issued special bonds payable from a share of import duties collected in the ports. Since the shareholders accepted these bonds with a 41 percent discount over face value, the nominal quantity of bonds issued to cover a $4.5 million debt totaled $6.3 million. Separately, the Empresa received $35,000 monthly in tobacco revenues from Zacatecas and Jalisco and all of the government's share of profits in the Fresnillo silver mines. These monies were assigned to repay the company's accounts with the Banco de Amortización and the treasury. Also reserved for the Empresa's debt service were all duties assessed on unminted silver exported from the Pacific ports of San Blas and Mazatlán. Between January 1842 and May 1843, the tobacco bonds received $256,699 from a 10 percent quota on the Veracruz customs houses, $127,845 from the Pacific ports, and $42,544 from other customs sources. The share from the Fresnillo mines amounted to $193,850- Silver export duties added another $202,534. Payments from the tobacco monopoly and from treasury sources were also significant, totaling $472,542 in the same period.

Return of the monopoly in exchange for the government's commitment to purchase the inventory did not, of course, bring an immediate end to the empresarios' anxiety about the large sums they had tied up in the company. Rafaela Rengel, Barrio's wife, described the uncertainties that lay ahead: " Many are the dangers that it [the Empresa] faces in the long time that comes between ... the delivery of the inventory [and the time when] the government finishes paying for it; and besides the revolutions that may occur, none of our present rulers has a reputation for being a slave to his word."

In the beginning, at least, Santa Anna was scrupulous in honoring his government's contractual obligations with the Empresa. Although he ordered payments on the public debt suspended in March 1842, the tobacco bonds were exempted and continued to receive their fixed quota of customs duties. Eventually, however, he reneged on his promises, took back the quota, and used those revenues for his own purposes. The law of May 11,1843, consolidated the tobacco bonds along with many other public debt issues into a general fund known initially as the 25 percent Fund. The measure reduced the likelihood of a complete and speedy redemption of the tobacco bonds, and their value declined proportionately. Yet, relative to other creditors, the tobacco bondholders received preferential treatment. While the owners of other debt issues were obliged to pay the government a 6 percent surcharge on the value of bonds introduced into the 25 percent Fund or else risk an indefinite suspension of payments, the tobacco bondholders were permitted to add their $5 million to the fund without the surcharge. This courtesy, and other favors, helped the empresarios make up for the loss of their private quota. For the arrangement of the 25 percent Fund and for the sale of the government's 50 percent interest in the Fresnillo mines to the Empresa, Santa Anna reportedly charged a personal fee of $8o,ooo. Even so, it was a worthwhile investment for the shareholders because for $120,000 in cash and $480,000 in bonds, the company acquired a 50 percent share of the most profitable mining operation of the decade. The negotiation yielded an immediate profit since the shareholders immediately (and involuntarily) sold a 25 percent interest in the Fresnillo mines to other private investors for $224,000 in silver. The Empresa liquidated other accounts with the treasury and with the Banco de Amortización in a manner equally remunerative (and irregular). It purchased for $3,000 in cash and $425,000 in credits two extensive rural estates, San Agustin de los Amoles and Ciénaga del Pastor, owned by a pious fund administered by the government.

Acquisition of public properties, however lucrative in the long term, did little immediately to solve the Empresa's liquidity problem. it had rid itself of the monopoly, but it still needed large quantities of cash to cover enormous debts due for repayment in 1842 and 1843. The sale of its reserve of Mexican public debt issues produced temporary relief in the summer of 1842, but for the most part the shareholders waited anxiously for news that their attempts to find new credit sources had been successful. In a notable endeavor, they authorizedEscandón's voyage to Europe to acquaint overseas investors with the Empresa's potential. This mission failed to yield positive results, but in Mexico City the shareholder's frantic search paid off. A British firm there, Manning and Marshall (later Manning and MacKintosh), agreed to pay drafts and extend short-term credit to the Empresa while acting as its agent to collect payments from the government and to distribute dividends proportionately among the tobacco bondholders. Meanwhile, the private sale of tobacco bonds helped the empresarios stay solvent pending final liquidation of their company. When first issued early in 1842, these bonds sold in Mexico City for about 35 percent of face value.

How much shareholders won or lost by investing in the Empresa depended upon the timing of their entry and withdrawal. Flores and Agüero Gonzáez y Cía. probably absorbed slight losses. Barrio, forced by his narrow scrape with bankruptcy to leave the company prematurely in March 1843, lost a chance to maximize his profits. The other shareholders acquired his two shares by paying off his accounts and drafts totaling $164,952 and by assigning to him the titles to San Agustin and Ciénaga del Pastor. Assuming that Barrio netted no more than half the fair market value of those haciendas ($2oo,ooo) in a hardship sale to Escandón, then Barrio earned about $364,952 on $344,000 invested in the Empresa. For all his labors, for all the capital he risked, the entrepreneur earned a profit of 6 percent over six years, an effective annual return of less than 1 percent. If the cost of financing $344,000 is included, then he actually lost nearly $237,048, an annual negative return of 14 percent. For the shareholders who stayed with the Empresa until the end, the results were more positive. In November 1843 Barrio's friends reported that while he suffered great misery, his former associates in the monopoly "are today very buoyant."' His exit left them as principal owners of the $5.8 million in tobacco bonds that remained after the Fresnillo transaction. A portion of these bonds, perhaps as many as $8oo,ooo worth, and all the Empresa's cash reserves were applied to the company's debts with private lenders. By May 1844, when the shareholders announced formal dissolution of the Empresa, only $50,643 in such debts remained to be paid." Assuming that at this time the shareholders could have immediately realized 35 percent of the nominal value of the $5.o million in tobacco bonds ($1.75 million in cash) and assigning as the residual value of the Fresnillo shares and their dividends, $o.8 million, the return was about $2.55 million on $1.o million invested, a profit of about 25 percent per year over six years (or l0 percent annually, if finance charges are included). Since the empresarios continued to speculate with the bonds after 1844, the net returns for some were higher, for some, lower.

Conclusion

Whether administered by the Empresa for private profit or by the state for the benefit of planters and bureaucrats, the monopoly remained a costly and cumbersome means to cultivate, manufacture, and market tobacco. Economic productivity was misplaced as inefficient producers were protected with artificial comparative advantages and as more of Mexico's scarce and expensive resources were employed to produce less tobacco. While the oppression of this institution weighed heavily on working-class consumers and unorganized small-scale producers, its effects on Mexican society were generalized. For ordinary folk, it meant the imposition of inferior merchandise at inflated prices and unfair exclusion from potentially remunerative work in the tobacco trade. The monopoly purposely redistributed income and opportunities away from the periphery and toward the political center in Mexico City and Veracruz. Even with high retail prices, however, the Empresa's affluent capitalists were nearly ruined when overhead costs exceeded income from the sale of monopoly tobacco. Proponents defended the institution as a fiscal imperative, but in practice it produced few revenues for post-independence governments in Mexico. Instead, it sapped the state's fiscal resources. Governments were obliged to sacrifice potential revenue in order to accommodate the demands of planters, bureaucrats, and empresarios. As an analysis of the Empresa's liquidation reveals, the shareholders' "profits" in the venture were derived primarily from the misappropriation of government properties.

Starved for income, governments in early national Mexico succumbed easily to the endemic political chaos that characterized this era. The day-to-day workings of the tobacco monopoly also directly jeopardized the tenuous political peace. This was the case for the years 1837 to 1841 as rival interest groups resorted to political intrigue and agitation to improve their relative standings. Principled and unprincipled resistance to the monopoly aggravated already troubled relations between local and national governments, making political consolidation of the new nation even more difficult. The planters' campaign to disrupt the rental of the four departments to the empresarios almost resulted in a confrontation between the Veracruz and Mexico City governments. In parts of the countryside anarchy reigned as the Empresa's search-and-destroy operation incited peasants to revolt. In Mexico City a bureaucrat's dismissal was followed by a workers' riot in a tobacco factory. The empresarios' schemes to profit from their troubled enterprise encouraged Santa Anna's armed overthrow of Bustamante.

The great tragedy for Mexico was that the tobacco monopoly was not an isolated, irrelevant institution. On the contrary, it was but a fraction of a larger, expansive politicized public sector. Would-be monopolists routinely used the coercive powers of the state to structure commerce not only in tobacco, but also in textiles and armaments, in staples such as beef and salt, and in enterprises for roads, mints, public finance, and a host of other endeavors. The cost of the ensuing confusion was staggering. Politics became increasingly disarticulated as literally every movement of the economy set off divisive conflicts-governments in Mexico collapsed an average of once every thirteen months between 1821 and 1867. Economic growth was also absent. For entrepreneurs, short-term political conquests produced profits, not economic efficiency, not productivity, and not the introduction of real savings. Even as empresarios energetically launched grand ventures such as the Empresa del Tabaco, Mexico's national income continued to decline precipitously.