Republic of Capital: Buenos Aires and the Legal Transformation of the Atlantic World

Abstract

Argentina remains an attractive subject to historians and analysts who puzzle over how things went wrong economically, for the nation seems to have gone from rags to riches and back again to rags. Not long ago, the neoclassicists and structuralists commanded the debate, arguing over the long-term impact of exporting primary products. Now scholars are questioning the institutional legacies by which Argentina has grown into stagnation. Nobel Laureate Douglass C. North provides the point of departure with the New Institutional Economics (NIE). In 1997, some of the most prominent Latin Americanists attending the International Economic History Association meeting in Madrid devoted a plenary session to evaluating Latin American development according to the NIE. Others have put out a volume of essays on Mexico and Brazil with the purpose of ascertaining How Latin America Fell Behind, a reference to North’s comparison between England’s institutional arrangements that promoted economic growth in its American colonies and the bureaucratic legacy that stifled Spain’s colonial economies. Now the NIE has come to Argentina. In Republic of Capital, Jeremy Adelman utilizes the framework of the “new institutionalism” more rigorously than any other historian of Latin America. The book displays both the virtues and the problems of this paradigm.Adelman sets out to analyze how Argentina made the institutional transformation from “a colonial mercantile economy” in the late eighteenth century to one of commercial capitalism in the late nineteenth century. He deals with matters of political economy, such as competing ideas and interests, the economic impact of civil strife, and the process of nation-building. Adelman is particularly interested in the evolving institutional arrangements for debts, property rights, and monetary emissions. The author uses the new institutionalism for its heuristic value in identifying problems, posing questions, and suggesting the importance of investigating the institutional framework of economic exchange. In effect, Adelman accompanies others in “bringing the state back in” to economic history, and not totally as a negative factor in development. The investigation of the state as an agent of “third party enforcement” in commercial contracts fits nicely into North’s prescriptions.At the outset, Adelman describes Argentina’s eighteenth-century economy in rather bleak institutional terms befitting its mercantilist character. Late-colonial Buenos Aires produced little. Instead, it relied on Bolivian silver for most of its exports. Spanish policy prevented trade with foreign interlopers, rent-seeking merchants formed a tight-knit guild to restrict the entitlements to trade, and land titles came in “a myriad of forms.” “In general, [colonial] merchants sold their goods at collusively inflated prices and bought rural produce at seasonally depressed prices —a neat system of unequal exchange between the country and city” (p. 38).To Adelman, Argentina’s revolution for independence began the destruction of mercantilist institutions and generated new notions of property rights and monetary policy. He begins his analysis with those who advocated prerevolutionary reforms, creole intellectuals like Manuel Belgrano, Manuel José Lavardén, and Mariano Moreno. They questioned Spanish trade policies. They argued for “free trade,” an end to monopolies, the creation of wealth through agricultural production, and equality between Spanish and creole (native-born white) merchants. According to Adelman, these Argentinean pensadores envisioned a world in which “rights should eclipse privileges and profit-seeking should displace rent-seeking; interests should obey market, not political rules” (p. 74). In tracing the emergence of modern institutions favoring low-cost transactions beneficial to economic expansion, Adelman intertwines his narrative of the revolution with the fitful appearance of alternative rules of the game. He notes correctly that many early reform proposals floundered on the rocky shoals of internal political strife. Nevertheless, Adelman says, the revolution did rent asunder once and for all “the power of political property and estates of rent-seeking merchants” (p. 106).Adelman next takes his readers through the Themidorian reaction of the Rosas years. If there exists in this analysis other villains besides those “rent-seeking” colonial merchants, Juan Manuel de Rosas emerges as one. With literary flourishes unusual to the new institutionalism (indeed, Adelman’s rhetoric at times becomes impenetrable), he refers to the governor of Buenos Aires from 1832 to 1852 as “the poltergist of power” (p. 115). Adelman describes the rosista political system as a return to authoritarianism. The governor conferred land titles on political cronies and sacrificed the commercial interests of the interior provinces (which Rosas could not control) for those of Buenos Aires province (which he did). Rosas engaged in wars against rival provincial caudillos, further undermining the stability of the new paper peso. Yet, under Rosas, the merchants and landowners of Buenos Aires received additional security in property rights with which they were able to exploit favorable market prices for hides and wool. The author concludes that the rosista restoration of order in Buenos Aires give new life to older forms of commercial contracts. “Rosas was the handmaiden of new property but refused to be its guardian,” Adelman writes (p. 140).For this reviewer, Adelman performs most brilliantly in his analysis of how the constitution of 1853 came into being. He weaves into his narrative the competing provincial interests and the political maneuvering among the titans of the age, namely, Alberdi, Sarmiento, Mitre, Rosas, and General Justo José de Urquiza. Adelman explains how the goals of these Liberals such as political order and national unity emerged supreme over the original revolutionary objectives of social justice, federalism, and provincial autonomy. Moreover, the constitution encouraged the establishment of a second tier of institutions, particularly the commercial tribunals that adjudicated merchant contracts. Speaking of the incremental process of institution change, Adelman gives the last word to the architect of the 1853 constitution. “‘We are the product’ of Spanish public law, argued Alberdi, ‘and while we should strive to change the ends, the means must be, for a long time, those in which we have been educated’” (pp. 212–13).Another overarching thesis of the book relates to North’s dictum that price movements bring about institutional change. Adelman cites evidence of the growth of markets, the increasing arrival of foreign shipping to the Río de la Plata throughout the nineteenth century, the expansion of estancias across the virgin prairies, and the response of Argentinean producers and merchants to buoyant prices. This market activity strained the older system of fiduciary and property rights, he argues. New requirements for capital motivated the formation of the stock exchange in 1854. The Bank of London and the River Plate opened its doors in 1862. Other banks followed. The Commercial Code of 1862 and the Rural Code of 1865, according to Adelman, at last provided a national framework for credit and property transactions.The final girder contributing to the construction of the Republic of Capital came with monetary reform. Adelman describes how the political disruptions of the nineteenth century had given rise to a welter of inconvertible scripts issued by provincial governments. Finally, political unity allowed for the establishment of a stable national currency housed in the autonomous national banks “controlled by Buenos Aires’ merchant-financial patriciate” (p. 274). In Adelman’s words, “This [monetary reform] deflated the risk of using legal tender, stimulated a nascent private credit system, and enabled the final eclipse of the colonial tradition of using merchant money” (p. 276).Ideas mattered greatly in this transformation. Adelman devotes several chapters to detailing how Argentinean intellectuals and statesmen formed new conceptions of individual rights and political order as well as of national power and monetary reform. Esteban Echeverría, Domingo F. Sarmiento, Bartolomé Mitre, and Juan Bautista Alberdi receive extensive analysis. Rosas’s fall from power in 1852 opened the way for their notions about political stability and private property to become enshrined in the constitution of 1853. The latter charter would last nearly a century. A settlement of political differences between the economically privileged citizens of Buenos Aires and those caudillos representing the interior provinces was finally achieved in 1880, when an army rebellion federalized Buenos Aires and made it the national rather than provincial capital. The former Spanish colony had finally become the Republic of Capital. Argentina was now prepared for the extraordinary export expansion from 1880 to 1930 stimulated by steam navigation, railway building, massive European immigration, and efficient economic institutions.From the standpoint of Latin American economic historiography, Adelman’s book is an enormous achievement. He has accepted the challenge of the NIE and systematically accomplished research and analysis on the institutional foundations of the modern Argentinean economy. That being said, those familiar with the country’s present economic difficulties might not recognize the Argentina described by Adelman as the Republic of Capital, ca. 1880. “Legal formalism—the commitment to deducing legal solutions from abstract and apparently neutral principles— freed the business of making choices over individual and collective rights from ideological concerns,” he writes. “In this fashion, markets for goods, labor, and especially capital could function according to their own laws of motion, beyond social classes” (p. 281). This reviewer would agree with Adelman that the nineteenth century was not when Argentina fell behind. But neither was it the period of institutional transformation that the author suggests.As an alternative to an interpretation stressing institutional change, this reviewer would like to advance three interrelated hypotheses. First, Argentina’s late colonial period was not as mercantilist as the institutionalists imply. Second, credit and property arrangements of colonial origin needed little change for Argentinean entrepreneurs to respond to nineteenth-century markets. Third, the real unresolved problem of the postcolonial era was neither economic nor political; it was social.Few Latin Americanists—and certainly not Adelman—subscribe to North’s disparaging characterization of the Spanish legacy. Yet, the NIE does trap its practitioners in a kind of “path dependency.” The biggest problem resides in the depiction of Argentina in the late colonial period as a classic example of mercantilism. This economic theory of empire would imply a system by which transaction costs rise due to restricted trade, rent-seeking behavior on the part of merchants, specie exports, trade deficits, excessive taxation, and bureaucratic prohibition of domestic industries. But this sort of mercantilism was long gone in Argentina by the seventeenth century—indeed, if it ever existed there. The steady rise of contraband commerce on the ships of Portugal, France, and England had already undermined mercantilism at Buenos Aires. By the eighteenth century, local officials routinely cooperated with merchants trading illegally in silver and other commodities. How else could the “closed” port of Buenos Aires have grown from a population of 4,600 residents in 1674 to more than 22,500 in 1770?Moreover, after 1778, when Spanish maritime laws opened up Buenos Aires as a legal port, the rising traffic in specie did not inhibit other types of production such as cattle and wheat. Settlement of the pampas began well before the revolution. The population of rural Buenos Aires in the late eighteenth century increased by more than 8 percent per annum, faster than the population of the commercial metropolis (2.2 percent per year). The economic decline of Spain itself, so often cited by North, did not drag down its American colonies. Late colonial Argentina already exhibited the same tendencies of export-led growth that historians sometimes attribute only to the postindependence era. It was not caught in the web of Spanish mercantilism.A second objection to the NIE approach, as it has thus far been utilized, concerns the presumption that the survival of colonial financial and property transactions in the nineteenth century represented economic inefficiencies. True, the formal economies of several former Spanish colonies did plunge into prolonged depression in the early nineteenth century, which may be attributed more to the collapse of the mining industry in Mexico, Peru, and Bolivia than to bureaucratic bottlenecks. One finds similar economic dislocation in the interior of Argentina as the nearby Potosí mines fell out of production during the independence wars. However, as Adelman indicates, Buenos Aires and its environs certainly did not experience lasting revolutionary disruption of the export economy. Total Argentinean exports grew by nearly 6 percent per annum and per capita exports, by more than 3 percent. All these exchanges occurred without a national constitution and notwithstanding the inflationary civil wars. Yet nineteenth-century financial and land tenure arrangements remained the same as those of the colonial period. Merchants and landowners extended to each other the old colonial libranza, the letter of credit that had always compensated for the shortage of silver specie. They bought and sold ranches with great facility. Those gaining usufruct of land under traditional registries had every expectation of enjoying the fruits thereof. Landowners divided up large estates, selling off small pieces to newcomers in order to gain capital for improvements to cattle and wool production. In his book, The Rise of Capitalism on the Pampas: The Estancias of Buenos Aires, 1785–1870 (1998), Samuel Amaral posits that the Rural Code of 1865, in fact, merely codified traditional “habits and customs” of land tenure rather than establishing new practices (p. 154).Furthermore, these older rules of the game did not prevent rural production from becoming more efficient in the first half of the nineteenth century. Instead of delivering hides and dried meat to Buenos Aires, as they had in 1810, ranchers began to deliver cattle on the hoof. They thus shifted the labor costs of cattle pro cessing to the urban sector. Perhaps we lack the tools to measure the actual costs of transactions within existing institutions of exchange in nineteenth-century Argentina. But we do know that they did not bring about stagnation and decline before the advent of Adelman’s Republic of Capital.There remains one final caveat with regard to the kinds of “path dependency” that the NIE might lead us economic historians. It might encourage us to ignore the transaction costs presented by the neocolonial social organization in Latin America. While Douglass North writes eloquently about the salutary impact of the Northwest Ordinances in North America and disparages the legacy of Spanish bureaucracy in South America, he ignores the most obvious social differences. The colonial population of North America, even counting the African slaves, consisted of a majority of white Europeans. In Argentina, whites composed a minority of the colonial population—no more than a quarter, if their eyes did not deceive several early British travelers. Whites owned the land, but blacks and mulattoes (negros y pardos), and mestizo migrants from the interior provinces accomplished the work. The economic institutions of colonial origin continued to facilitate transactions between white merchants and landowners in nineteenth century Buenos Aires, but they did not extend these same facilities to non-whites. As Adelman acknowledges, Argentina’s nation-building liberals betrayed a strong current of elitism and suspicion of the rabble. Issues of social control consistently trumped those arising from economic transactions. In his Order, Family, and Community in Buenos Aires, 1810–1860 (1988), Mark D. Szuchman observes that “concerns arising from racial and social tensions . . . formed the single greatest preoccupation of the urban white middle and upper sectors of Buenos Aires” (p. 38).How did producers manage to expand their herds, contract for improvements, diversify into more labor-intensive wool production, and support the expanding rural infrastructure of small towns, land rentals, and rural shopkeeping? They hired European immigrants. This was not the mass immigration of the late nineteenth century, yet Irish immigrants arrived to dig the trenches that served as fences on the pampas. British newcomers introduced the skills of shepherding in exchange for a share of the wool clippings. Spaniards came to rent land and set up the rural shops under contracts (duly registered at low cost in colonial-style notarial records) to local merchants and landowners. Beyond these concessions, the economic elite did not share the wealth and opportunities broadly with the working class of color. Lyman L. Johnson has published a suggestive study in The Political Economy of Spanish America in the Age of Revolution, 1750–1850 (1994). He compares the distribution of income in the frontier expansion of the pampas to that of the United States. Whereas the U.S. frontier movement promoted a more equitable distribution pattern, the settlement of the pampas actually increased the concentration of wealth. “Put simply,” Johnson concludes, “the frontier seems to have worked quite differently in Argentina than in the United States” (p. 205). The obvious explanation for the difference relates to the contrasting social orders in the two countries.In conclusion, Adelman has shown us how much we may profit from in-depth empirical research into the institutional structure by which Latin America continued its participation in world markets in the nineteenth century. Yet if we feel compelled to answer North’s interrogatory, how did Latin America fall behind, historians need to look beyond the NIE. How else can the reader make of Adelman’s on Argentina’s He there of many and migrants being the of formal and of ideas of social among the (p. Political economic analysis gives us as to the to the and of the century. do we any as to the to market we scholars might profit in research as much by social as by the New Institutional

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